the PDF file - Maxs Group Inc. Investor Relations

Transcription

PROXY
The undersigned stockholder of MAX’S GROUP, INC. [formerly, PANCAKE HOUSE, INC.]
(the “Company”) hereby appoints _____________________________________ or in his
absence, the Chairman of the meeting, as attorney-in-fact or proxy, with power of
substitution, to represent and vote all shares registered in his/her/its name as proxy of the
undersigned stockholder, at the Annual Stockholders’ Meeting of the Company to be held at
the White Space, 2314 Don Chino Roces Avenue, Makati City on June 29, 2015 at 9:00
a.m. and at any adjournment thereof, for the purpose of acting on the following matters:
1. Approval of the Minutes of the Annual Stockholders’ Meeting held on June 10, 2014
Yes
No
Abstain
2. Approval of the President’s Report and Audited Financial Statements for the year
2014
Yes
No
Abstain
3. Ratification of all acts and resolutions of the Board of Directors and Management
since the Annual Meeting of Shareholders held on June 10, 2014
Yes
No
Abstain
4. Election of the members of the Board of Directors, including the Independent
Directors, for the year 2015.
Sharon T. Fuentebella
Robert F. Trota
Cristina T. Garcia
Jim T. Fuentebella
Carolyn T. Salud
Dave T. Fuentebella
William E. Rodgers
Antonio Jose U. Periquet, Jr.
Christopher P. Tanco
No. of Votes
______________
______________
______________
______________
______________
______________
______________
______________
______________
5. Re-appointment of Reyes Tacandong & Co. as external auditors
Yes
No
Abstain
6. Approval of the amendment to the Second Article of the Amended Articles of
Incorporation of the Company
Yes
No
Abstain
7. Approval of the amendment to the title of the By-laws of the Company to reflect the
change of name to Max’s Group, Inc.
Yes
_________________
Date
No
Abstain
_______________________________
Printed Name of Stockholder
_______________________________
Signature of Stockholder/Authorized Signatory
This proxy should be received by the Corporate Secretary on or before June 24, 2015, the
deadline for submission of proxies.
This proxy when properly executed will be voted in the manner as directed herein by the
stockholder(s), If no direction is made, this proxy will be voted for the election of all
nominees and for the approval of the matters stated above and for such other matters as
may properly come before the meeting in the manner described in the Information
Statement
A stockholder giving a proxy has the power to revoke it at any time before the right granted
is exercised. A proxy is also considered revoked if the stockholder attends the meeting in
person and expressed his intention to vote in person.
Notarization of this proxy is not required.
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 20 - IS
INFORMATION STATEMENT PURSUANT SECTION 3.4 (c)
OF THE REVISED SECURITIES ACT
1. Check the appropriate box:
[ ] Preliminary Information Statement
[x] Definitive Information Statement
2. Name of the Company as specified in its charter MAX’S GROUP, INC.
3. Province, Country or other jurisdiction of incorporation or organization
Makati City, Philippines
4. SEC Identification Number A2000-03008
5. BIR Tax Identification No. 205-357-210-000
6. Address of principal office
11th Floor Ecoplaza Building, 2305 Chino Roces Avenue Ext., Makati City
7. Company’s telephone number, including area code (632) 7849000
8. Date, time and place of the meeting of the Security Holders
June 29, 2015, Monday, 9:00 am
Venue – White Space, 2314 Don Chino Roces Avenue Extension, Makati City
9. Approximate date on which the Information Statement is first to be sent or given to the
Security Holders June 5, 2015
10. Securities registered pursuant to Sections 8 & 12 of the Code or Sections 4 & 8 of the RSA
(information on number of shares and amount of debt is applicable only to corporate
registrants):
Number of Shares of Common Stock
Title of Each Class Outstanding
& Amount of Debt Outstanding
Common Shares
1,087,082,024
11. Are any or all of the Company’s securities listed on a Stock Exchange?
Yes !
No __
If yes, disclose the name of such Stock Exchange and the class of securities listed therein:
Philippine Stock Exchange Common Shares
1
PART I.
INFORMATION STATEMENT
We are not asking for a proxy and you are
not requested to send us a proxy.
A. GENERAL INFORMATION
Date, time and place of meeting of Security Holders
Date: June 29, 2015, Monday
Time: 9:00 am
Place: White Space, 2314 Don Chino Roces Avenue Extension, Makati City
Mailing Address:
MAX’S GROUP, INC.
11th Floor, Ecoplaza Building, 2305 Chino Roces Avenue Extension, Makati City
Approximate date on which the Information Statement is first sent out to Security Holders:
June 5, 2015
Dissenter’s Right of Appraisal
There are no corporate matters or actions that will entitle dissenting stockholders to exercise
their right of appraisal as provided in Title X of the Corporation Code.
Interest of Certain Persons in or Opposition to Matters to be Acted Upon
Other than the election to office to include the nomination and election of directors and
independent directors, there are no matters to be acted upon in which any director or executive
officer is involved or had a direct, indirect or substantial interest. Furthermore, no director has
informed the registrant, in writing or otherwise, that he/she intends to oppose any action to be
taken by the registrant at the Meeting.
B. CONTROL AND COMPENSATION INFORMATION
Voting Securities and Principal Holders thereof
As of May 29, 2015, the number of shares outstanding of Max’s Group, Inc. (“MGI” or the
“Company”) is 1,087,082,024 with par value of One Peso (P1.00) per share. The number of
votes to which the total outstanding common shares are entitled is 1,087,082,024 votes. Each
common share is entitled to one (1) vote.
2
All stockholders of record at the close of business hours on May 29, 2015 (“record date”) are
entitled to notice and to vote at the Annual Stockholders' Meeting.
Cumulative voting in the election of directors is allowed provided that the total votes cast by a
stockholder shall not exceed the number of shares registered in his name in the books of the
Company as of the record date multiplied by the whole number of directors to be elected.
There are no delinquent stocks and the direct and indirect record or beneficial owners of more
than 5% of common shares of the Company are:
Security Ownership of Certain Record and Beneficial Owners as of May 29, 2015
Title of
Class
Name
Common
Shares
PCD
Nominee
Corp.*
Common
Shares
PCD
Nominee
Corp.*
Address
37/F The
Enterprise
Center,
Ayala
Avenue,
Makati City
37/F The
Enterprise
Center,
Ayala
Avenue,
Makati City
No. of
Shares
Held
Name of
Beneficial
Owner
768,322,682
PSE Members
Brokers
Filipino
70.68
34,197,031
PSE Members
Brokers
Foreign
3.15
Citizenship
%
* The PCD Nominee Corporation represents participants (PSE member-brokers, custodian bank,
institutional investors, etc.) which have beneficial interest in the Company.
A total of 306,878,044 issued shares comprising 28.23% of the total issued and outstanding
shares of the Company are owned and held by wholly-owned subsidiaries of the Company, to
wit:
SUBSIDIARIES
Max’s Kitchen, Inc.
Chicken’s R Us, Inc.
Max’s Express Restaurants, Inc.
Max’s Bakeshop, Inc.
Square Top, Inc.
No Bia, Inc.
The Real American Doughnut Company, Inc.
RooM Ventures Corp.
Trota Gimenez Realty Corporation
MGOC Holdings, Inc.
TOTAL
SHAREHOLDINGS
48,136,688
34,086,229
321,343
63,640,108
17,723,774
37,890,733
81,543,951
905,640
12,647,867
9,981,712
306,878,044
3
Except as stated above and in the immediately succeeding section, the Board of Directors and
Management of the Company have no knowledge of any person who, as of record date, was
indirectly or directly the beneficial owner of more than 5% of the Company’s outstanding shares
of common stock or who has voting power or investment power with respect to shares
comprising more than 5% of the outstanding common stock. There are no persons holding
more than 5% of the Company’s common stock that are under the voting trust or similar
agreement.
Security Ownership of Directors and Management – as of May 29, 2015
Title of
Class
Name of
Beneficial
Owner
Amount and Nature of
Beneficial Ownership
Direct
Indirect
Citizens
hip
No. of Shares
%
Common
Shares
Robert F.
Trota
33,906,034
19,393,595
Filipino
53,299,629
4.9%
Common
Shares
Carolyn T.
Salud
33,292,660
19,855,926
Filipino
53,148,586
4.9%
Common
Shares
Cristina T.
Garcia
33,292,714
19,855,927
Filipino
53,148,641
4.9%
Common
Shares
Jim T.
Fuentebella
2
4,863,872
Filipino
4,863,874
0.4%
Common
Shares
Dave T.
Fuentebella
25,868,860
6,508,320
Filipino
32,377,181
3.0%
Common
Shares
Sharon T.
Fuentebella
52,875,778
6,508,384
Filipino
59,384,162
5.5%
Common
Shares
Common
Shares
Common
Shares
Common
Shares
Common
Shares
Common
Shares
Common
Shares
Common
Shares
Common
Shares
William E.
Rodgers
Antonio U.
Periquet Jr.
Christopher
P. Tanco
Rebecca R.
Arago
Gemma M.
Santos
Peter H.
King.
Corazon C.
Jacinto
Mark E.
Gamboa
Fritz J.
Baldoria
9,987,284
4,851,748
American
14,839,032
1.4%
6,760,002
-
Filipino
6,760,002
0.6%
23,902
-
American
23,902
-
18,300
-
Filipino
18,300
-
-
-
Filipino
-
-
-
-
British
-
-
-
-
Filipino
-
-
2,700
-
Filipino
2,700
-
2,500
-
Filipino
2,500
4
Title of
Class
Name of
Beneficial
Owner
Common
Shares
Paul C.
Cheah
Amount and Nature of
Beneficial Ownership
2,900
-
Citizens
hip
No. of Shares
%
Filipino
2,900
-
Except as stated above, the Company has not received from any of the directors or executive
officers of the Company any statement of ownership, whether of record or beneficially, of more
than 5% of the Company’s outstanding shares of common stock. As known by the Company,
the aggregate number of common shares owned directly or indirectly by all key officers and
directors as a group as of record date was 277,871,409.
Changes in Control
The Company is not aware of any change in control or arrangement that may result in a change
in control of the Company since the beginning of its last fiscal year.
Directors and Executive Officers
The following are the incumbent Directors and Officers of the Company:
SHARON T. FUENTEBELLA, Chairperson
Sharon T, Fuentebella, age 48, Filipino, currently sits as President of The Real American
Doughnut Company, Inc., Fresh Healthy Juice Boosters, Inc., MGOC Holdings Corp. and Trota,
Gimenez Realty Corp.
She holds the Directorship and acts as Chairperson to most of Max’s
corporations and its affiliates namely: Max’s Ermita, Inc., Chicken’s R Us, Inc., Max’s Food
Services, Inc., Max’s Baclaran, Inc., Max’s Makati, Inc., Max’s Kitchen, Inc., Max’s Circle, Inc.,
Max’s SM Marikina, Inc. and other affiliates such as, Ad Circles, Inc., No Bia, Inc., Square Top,
Inc., Room Ventures, Corp., Max’s Express Restaurants, Inc., and Max’s Bakeshop, Inc. Ms.
Fuentebella holds a Bachelor of Science degree in Business Management from the De La Salle
University and has completed training seminars/programs for managing family-owned
companies conducted by the Asian Institute of Management (AIM) and managing growing
companies from Stanford University.
ROBERT F. TROTA, President and Chief Executive Officer
Robert F. Trota, age 47, Filipino, currently serves as President of No Bia, Inc. and Trotam Realty
Corp. He also sits as the Board of Directors for most of the Max’s corporations and its affiliates.
He is currently the Vice Consul for the Consulate General of Ireland. Moreover, Mr. Trota served
as Chairman of the Philippine Franchise Association from June 2009 to 2013. Mr. Trota holds a
Bachelor of Science degree in Business Management from the De La Salle University and has
completed training seminars/programs for effective management and family-owned company
governance and management conducted by the Asian Institute of Management (AIM).
5
CRISTINA T. GARCIA, Director
Cristina T. Garcia, age 49, Filipino, is currently the Resident Agent and Director for Finance of
Global Max Services Ltd. – ROHQ. She likewise holds the Directorship and Treasurer positions
in various companies namely: Max’s Ermita, Inc., Max’s Food Services, Inc., Chicken’s R Us,
Inc., Max’s Baclaran, Inc., Max’s Circle, Inc., Max’s Express Restaurants, Inc., No Bia, Inc., Trofi
Ventures Corp., Trofi Holdings Corp., Trofi Boosters Corp., Max’s SM Marikina, Inc., Room
Ventures Corp., Max’s Bakeshop, Inc., Max’s Franchising, Inc., Max’s Makati, Inc., Max’s
Kitchen, Inc., The Real American Doughnut Company, Inc., Fresh Healthy Juice Boosters, Inc.,
MGOC Holdings, Inc., Ad Circles, Inc., Square Top, Inc. and Trota, Gimenez Realty Corp. Ms.
Garcia holds a Bachelor of Science degree in Business Management from the Ateneo de Manila
University (1986).
CAROLYN T. SALUD, Director
Carolyn T. Salud, age 51, Filipino, holds the Directorship and President position of Max’s
corporations namely: Max’s Ermita, Inc., Chicken’s R Us, Inc., Max’s Food Services, Inc., Max’s
Baclaran, Inc., Max’s Makati, Inc., Max’s Kitchen, Inc., Max’s Circle, Inc., Max’s SM Marikina,
Inc. and other affiliates such as, Ad Circles, Inc., No Bia, Inc., Square Top, Inc., Room
Ventures, Corp., Max’s Express Restaurants, Inc., and Max’s Bakeshop, Inc. She likewise serves
as Chairperson of Fresh Healthy Juice Boosters, Inc., The Real American Doughnut Company,
Inc., Trofi Boosters Corp., Trofi Holdings, Corp., Trofi Ventures, Corp., Trota, Gimenez Realty
Corp. and MGOC Holdings, Corp. Ms. Salud holds a Bachelor of Science degree in Business
Administration from Assumption College.
DAVE T. FUENTEBELLA, Director and Chief Finance Officer
Dave T. Fuentebella, age 47, Filipino, is currently the Chief Finance Officer of Max’s Group, Inc.
He was previously a full-tima banking professional, having held various positions in BPI Capital,
Citibank, Standard Chartered Bank, and Credit Agricole since 2001. He has been the Director
and Head of Global Transaction Banking in Deutsche Bank since 2012. He previously served as
Director in Max’s Makati, Inc., Max’s Kitchen, Inc., Max’s Sta. Mesa, Inc. and Square Top, Inc.
Mr. Fuentebella holds a Bachelor of Arts degree in Economics and Political Science from the
University of California, Berkeley and completed his Master’s Degree in Business in the Asian
Institute of Management (AIM).
JIM T. FUENTEBELLA, Director
Jim T. Fuentebella, age 46, Filipino, is currently a Director and Vice President for Marketing of
Max’s Group, Inc., The Real American Doughnut Company, Inc., Fresh Healthy Juice Boosters,
Inc., MGOC Holdings, Inc., Trota, Gimenez Realty Corp., Ad Circles, Inc., Square Top, Inc. No
Bia, Inc. and Room Ventures, Inc. Mr. Fuentebella holds a Bachelor of Arts degree in Graphic
Design with a minor in Business Administration from the Academy of Art, University of San
Francisco and has completed training seminars/programs for effective management and familyowned company governance and management conducted by the Asian Institute of Management
(AIM).
WILLIAM E. RODGERS, Director
William E. Rodgers, age 53, American, is the President of MG Rodgers Phil. Inc. He is a Director
for eMax’s LLC, Alpha Max Group LTD, Ad Circles, Inc., Max’s Franchising, Inc., Room Ventures
Corp., and Trota Gimenez Realty Corp. Mr. Rodgers holds a Master’s Degree in Economic
Development from Columbia University and has completed training seminars/programs for
family-owned company governance and management conducted by the Asian Institute of
Management (AIM).
6
ANTONIO JOSE U. PERIQUET, Independent Director
Antonio Jose U. Periquet, age 54, Filipino, is an Independent Director of Max’s Group, Inc.
He is chairman of Pacific Main Holdings, Inc., Regis Financial Advisers, Inc. and the
Campden Hill Group inc. He also sits as a director of The Straits Wine Company, Inc., and
is an independent director of ABS-CBN Holdings, Inc., ABS-CBN Corporation, Ayala
Corporation, Bank of the Philippine Islands, BPI Capital Corporation, BPI Family Bank, Inc.,
DMCI Holdings, Inc., and the Philippine Seven Corporation. He is a trustee of Lyceum of
the Philippines University and a member of the Global Advisory Board of the University of
Virginia's Darden School of Business. Mr. Periquet holds an AB Economics degree from the
Ateneo de Manila University, an MSc in Economics from Oxford University and an MBA from
the University of Virginia.
CHRISTOPHER P. TANCO, Independent Director
Christopher P. Tanco, age 52, American, is an Independent Director of Max’s Group, Inc.
He currently serves as Head of International and Executive Vice President at 7-Eleven, Inc.,
a position he has held since March 2012. He served as the Senior Vice President of
International at 7-Eleven, Inc. (November 2009-February 2012). Previously, he served as
the Chief Franchise Officer of Yum! Brands, Inc. (February 2007 to November 2009). With
nearly 20 years of experience, he served in various International, Operations and
Franchising leadership roles.
KEY OFFICERS
REBECCA R. ARAGO, Treasurer, Compliance Officer and Corporate Information Officer
Rebecca R. Arago, 43, Filipino, is currently the Treasurer, Compliance Officer and Corporate
Information Officer of Max’s Group, Inc. Prior to the acquisition of the of the Pancake House
Group by the Max’s Group of Companies (MGOC), Ms. Arago has also held the position of Chief
Finance Officer since 2008. Prior to joining MGOC, Ms. Arago was Assistant Vice-President for
Finance of Ubix Corporation, Comptroller of Philippine Seven Corporation, Accounting Manager
of Shoemart Inc., Chief Accountant of Puerto Azul Beach & Country Club, and Senior Auditor of
SyCip, Gorres, Velayo & Co. She obtained her Bachelor of Accountancy from the Polytechnic
University of the Philippines and is a Certified Public Accountant. She served as President of the
Association of CPAs in Commerce and Industry (ACPACI), the primary sectoral organization of
certified public accountants in the commerce and industry sector of the Philippine Institute of
Certified Public Accountants (PICPA), in 2012.
CORAZON C. JACINTO , Supply Chain Director
Corazon C. Jacinto, 53, Filipino, is currently the Supply Chain Director of Max’s Group, Inc. Prior
to joining MGI, Ms. Jacinto was Vice President of Corporate Procurement for Splash
Corporation, Strategic Procurement Head for NutriAsia Phils., Inc., Senior Vice President for
Commercial for Blue Circle Phil., Inc., Logistics Director for Astec Power Phils., Inc., Regional
Purchasing Manager for Kraft Foods Phils., Inc., and Logistics Manager for Telefunken
Microelectronics Phils., Inc. She obtained her Bachelor of Science in Business Administration
Major in Operations Management from Philippines School of Business Administration.
7
GEMMA M. SANTOS, Corporate Secretary
Gemma M. Santos, age 52, Filipino, is the Corporate Secretary of Max’s Group, Inc. She serves
as Corporate Secretary of various corporations, including publicly listed companies Vista Land &
Lifescapes, Inc. and Roxas Holdings, Inc., and is a director of the Philippine Associated Smelting
and Refining Corp. (PASAR). She is a practicing corporate lawyer and is a Senior Partner in
Picazo Buyco Tan Fider & Santos Law Offices. Atty. Santos obtained her Bachelor of Arts and
Bachelor of Laws degrees from the University of the Philippines.
MARK E. GAMBOA, Marketing Director
Mark E. Gamboa, 39, Filipino, is currently the Marketing Director of Max’s Group, Inc. Prior to
joining MGI, Mr. Gamboa was Promotions Manager for Shakey’s Pizza Restaurant and Marketing
Officer for Kenny Rogers Roasters. He obtained his Bachelor of Science in Hotel and Restaurant
Management from University of Sto. Tomas.
FRITZ J. BALDORIA, Assistant Corporate Secretary
Fritz J. Baldoria, 36, Filipino, is currently the Corporate Legal Counsel of the Corporation. Prior
to joining MGOC, Mr. Baldoria was the Head of the Customer Relations Department and Legal
Counsel for Global-Estate Resorts, Inc., the Asst. Vice President for Legal in Viva
Communications, Inc., Of-counsel in Santiago & Santiago Law Offices directly handling clients in
the food industry, Associate at Britanico Sarmiento & Franco Law Offices, and Senior Associate
at Sycip Gorres & Velayo & Co. Mr. Baldoria obtained his Juris Doctor degree from the Ateneo
de Manila School of Law and became a member of the Integrated Bar of the Philippines in
2007.
PAUL C. CHEAH, Assistant Compliance Officer
Paul C. Cheah, 31, Filipino, is currently the Investor Relations and Compliance Manager of Max’s
Group, Inc. Prior to joining MGI, Mr. Cheah was Investor Relations and Compliance Officer for
Ayala Land, Corporate Planning and Investor Relations Manager for Cebu Pacific, Senior Financial
Analyst for Globe Telecom, Financial Analyst for Banco de Oro Unibank and Associate for
Deutsche Knowledge Services. He obtained his Bachelor of Business and Finance Degree from
Heriot Watt University Scotland and Master’s in Business Administration from Ateneo Graduate
School of Business.
Independent Directors
As approved by the Board of Directors, the procedure for the nomination of independent
directors shall be as follows:
The nomination of independent directors shall be conducted by the Nominations Committee prior
to the Annual Stockholders Meeting. All recommendations shall be signed by the nominating
stockholders together with the acceptance and conformity by the nominees for election.
The Nominations Committee shall pre-screen the qualifications and prepare a final list of all
candidates and put in place screening policies and parameters to enable it to effectively review
the qualifications of the nominees for independent directors.
8
After the nomination, the Nominations Committee shall prepare a Final List of Candidates which
shall contain all the information about all the nominees for the independent directors, as
required by existing and applicable rules, which list, shall be made available to the Commission
and all stockholders through the filing and distribution of the information statement, or in such
other reports the Company is required to submit the Commission. The name of the person or
group of persons who recommend the nomination of the independent director shall be identified
in such report including any relation with the nominee.
Only nominees whose name appears on the final list of candidates shall be eligible for election as
independent directors. No other nominations shall be entertained after the final list of
candidates has been prepared. No further nominations shall be entertained or allowed on the
floor during the actual annual stockholders’ meeting.
Antonio Jose Periquet Jr. and Christopher P. Tanco are the incumbent independent directors of
the Company and are neither officers nor employees of the Company nor any of its affiliates, and
do not have any relationship with the Company which would interfere with the exercise of
independent judgment in carrying out responsibilities of a director. They have been duly
nominated for re-election as independent directors, and certified by the Nominations Committee
as possessing all the qualifications and none of the disqualifications for independent director. In
approving the nominations for Independent Directors, the Nominations Committee took into
consideration the guidelines on the nominations of Independent Directors prescribed in SEC
Memorandum Circular No. 16, Series of 2002. Certifications of Independent Directors are
attached hereto as Annex A.
Directorship in other Reporting Companies
The following are directorships held by the Directors in other reporting companies during the last
five years:
Name of Director
Antonio&Jose&U.&
Periquet,&Jr.&&
Name of Reporting Company
Position Held
ABS3CBN&Corporation&
Independent&Director&
Ayala&Corporation&
Bank&of&the&Philippine&Islands&(BPI)&
DMCI&Holdings,&Inc.&
Philippine&Seven&Corporation&
9
Term of Office
Pursuant to the Company By-Laws, the directors are elected at each annual stockholders’
meeting by stockholders entitled to vote. Each director holds office until the next annual
election and until his successor is duly elected unless he resigns, dies or is removed prior to such
election.
In the Annual Meeting of the Stockholders, the stockholders will be electing the members of the
Board of Directors for the year 2015 to 2016. The nominees are:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Martha Catherine Sharon T. Fuentebella
Robert Ramon F. Trota
Cristina Maria T. Garcia
Cyril Jim T. Fuentebella
Carolyn Patricia T. Salud
Dave Clark T. Fuentebella
William E. Rodgers
Antonio Jose U. Periquet Jr. – Independent
Christopher P. Tanco - Independent
Pursuant to the Company By-Laws, the nominations for directors should have been submitted
not later than 30 business days prior to the date of the regular or special meeting of
stockholders for the election of directors. Nominations which are not submitted within such
nomination period shall not be valid. Only a stockholder of record entitled to notice of and to
vote at the regular or special meeting of the stockholders for the election of directors shall be
qualified to be nominated and elected as director of the Company.
Family Relationships amongst Directors and Officers
From the Trota Family:
Mr. Robert F Trota, Ms. Cristina T. Garcia and Ms. Carolyn T. Salud are siblings.
From the Fuentebella Family:
Ms. Sharon T. Fuentebella, Mr. Dave T. Fuentebella and Mr. Jim T. Fuentebella are siblings.
The members of both the Trota and Fuentebella families are first degree cousins.
Mr. William E. Rodgers is an uncle of the Trota and Fuentebella families.
Significant Employee
Other than the mentioned directors and executive officers and the entire workforce of the
Company, the Company has no employees expected to make a significant contribution to the
business.
10
Involvement of Directors/Key Personnel in Certain Legal Proceedings
To the best of the knowledge of Management, the Company is not aware of:
(a) any bankruptcy petition filed by or against any business of which any of the incumbent
directors or senior officers of the Company are incumbent directors or senior officers, was a
general partner or executive officer either at the time of bankruptcy or within two (2) years prior
to that time;
(b) any conviction by final judgment in criminal proceeding, domestic or foreign, pending against
any of the incumbent directors or officers of the Company;
(c) any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining,
barring, suspending or otherwise limiting the involvement of any of the Company’s incumbent
directors or executive officers in any type of business, securities, commodities or banking
activities; and,
(d) any finding by or domestic a foreign court of competent jurisdiction (in civil action), the SEC
or comparable foreign body, or domestic or foreign exchange or electronic marketplace or said
regulatory organization, that any of the incumbent directors or executive officers has violated a
securities or commodities law, and the judgment has not been reversed, suspended or vacated
which may have a material effect in the operation and deter, bar or impede the fulfillment of
his/her duties as a director or executive of the Company.
To the best of the knowledge of Management, there are no pending cases that are material to
an evaluation of the ability or integrity of any director or any nominee for election as director of
the Company.
Transactions with Related Parties
The Company and its subsidiaries, in their ordinary course of business, engage in transactions
within the MGI Group and related companies. The Company’s policy with respect to relatedparty transactions is to ensure that these transactions are entered into on terms at least
comparable to those available from unrelated third parties. There are no special risks or
contingencies arising from these transactions and these transactions, being in the ordinary and
regular course of business, do not materially affect the financial statements of the Company.
Except as disclosed in the Annual Report of the Registrant (SEC Form 17-A) for the year ended
December 31, 2014, the Registrant has not had any transaction during the last two (2) years in
which any Director or Executive Officer or any of their immediate family members had a direct
or indirect interest.
Disagreements with a Director
No Director has resigned or declined to stand for re-election to the Board of Directors since of
the date of the last annual shareholders’ meeting because of a disagreement with the bank on
any matter relating to the Company’s operations, policies, or practices.
11
Compensation of Directors and Executive Officers
The following table summarizes the compensation of key executive officers of the Company for
the years 2015, 2014 and 2013.
Name and Principal Position
Executive Officers
Sharon T. Fuentebella, Chairperson
Robert F. Trota, President and Chief Executive Officer
Dave T. Fuentebella, Chief Finance Officer
Carolyn T. Salud, Director
Cristina T. Garcia, Director
Total*
Executive Officers
Sharon T. Fuentebella, Chairperson
Robert F. Trota, President and Chief Executive Officer
Dave T. Fuentebella, Chief Finance Officer
Carolyn T. Salud, Director
Cristina T. Garcia, Director
Total
Executive Officers
V
Martin P. Lorenzo, Chairman & CEO
Cecile D. Macaalay, Chief Finance Officer
Bernadette M. Lee, Chief Operating Officer, Pancake House
Roy Marvin E. Quejada, Chief Operating Officer, Yellow Cab
Victoria C. Alejandrino, Commissary Head
Total**
*Estimate for 2015
**2013 compensation details pertain to previous management
Period
Aggregate
Compensation
(PhP)
12 mos
ended
Dec 31,
2015
Bonus
Other
Annual
Compensation
NA
NA
NA
NA
NA
NA
P32,930,000
12 mos
ended
Dec 31,
2014
P27,815,880
12 mos
ended
Dec 31,
2013
P10,346,691
The members of the Board of Directors of Max’s Group, Inc. each receive compensation
amounting to P75,000.00 for every board meeting attended starting 2014.
Independent Public Accountant
Reyes Tacandong & Co. (“RT”), which is the present external auditors of the company, has been
appointed by stockholders as Independent Public Accountant since year 2014. Representatives
of RT are expected to be present at the Annual Stockholder’s Meeting, and they will have the
opportunity to make a statement if they desire to do so and are expected to be available to
respond to appropriate questions from the stockholders.
During the Annual Stockholders’ Meeting on June 29, 2015, it shall be proposed that Reyes,
Tacandong & Co. be reappointed as the Company’s Independent Public Accountant.
12
External Audit Fees
The aggregate fees for the professional services provided by the external auditor for the
Company and its subsidiaries amounted to P8.0M in 2014 and P2.60 million in 2013. Services
include the audit of the financial statements and supplementary schedules for submission to SEC
as well as audit activities related to the Company’s follow-on offering last December 2014. There
were no other professional services aside from the aforementioned rendered by Reyes
Tacandong & Co. during the period.
The proposal of external auditors for professional services was submitted to, and reviewed by,
the Audit Committee which, in turn, is endorsed to the Board of Directors for approval.
Compensation Plans
Management Incentive Plans
The Company has established a performance-based Management Incentive Plan (“MIP”) to
provide key executives and management employees with a long-term incentive program
designed to promote a sense of ownership, loyalty, and focus on both short-term and long-term
income. The MIP utilizes a cash bonus system. The MIP shall grant incentive bonuses to
executives and managers of specified salary grade levels provided that the relevant financial
targets are met.
Employee Stock Option Plan
The Company’s stockholders, in their meeting on June 26, 2001, approved the establishment of
an Executive Stock Option Plan ("ESOP") to provide key executives and management employees
with a long-term incentive program designed to promote a sense of ownership, loyalty, and
balance on both short-term and long-term objectives. However, such plan has not been
implemented and will be subject to further review by the new majority stockholders.
D.
OTHER MATTERS
Action with Respect to Reports
The following reports will be submitted for approval by the stockholders:
1) The President's Report; and
2) Audited Financial Statements for the year 2014.
13
Amendment of Charter, Bylaws or Other Documents
The Company is seeking approval from stockholders for the following amendments:
1) Amendment of the Articles of Incorporation to expand the purpose clause of the Company
such that the Second Article shall be amended to read as follows:
SECOND:
A. That the primary purpose of this corporation is:
To establish, operate and maintain restaurants, coffee shops,
refreshment parlors, cocktail lounges, to provide food catering and
related services, and to establish and operate commissaries to
manufacture, process and distribute foods and food items, in each case
either directly or indirectly through subsidiaries and/or investeecorporations, and while the holder of shares in the latter subsidiaries
and/or investee-corporations, to aid the same in any manner, including
but not limited to acting as guarantor or surety for any indebtedness or
other obligations thereof.
B. That the corporation shall have all the express powers of a
corporation as provided for under Section 36 of the Corporation Code of
the Philippines.
The foregoing amendment is intended to allow and make it easier for the Company to
guarantee the bank loans of its subsidiaries and joint ventures.
2) Amendment of By-Laws to change the name of the Corporation to:
MAX’S GROUP, INC.
(formerly, PANCAKE HOUSE, INC.)
(Doing business under any or all of the following business or trade
names: Pancake House, Maple, Dencio’s, Kabisera ng Dencio’s,
Singkit, and such other business or trade names as may hereafter be
approved by the Board of Directors of the Company)
The foregoing amendment is intended to have the corporate name in the by-laws conform to
the change in corporate name approved by the Board of Directors on 22 January 2015 and by
written assent of the stockholders holding at least 2/3 of the outstanding capital stock of the
Company, secured as of 9 February 2015.
Other Proposed Actions
The following shall also be submitted for the approval of the stockholders:
1) Approval of the Minutes of the Annual Stockholders’ Meeting held on June 10, 2014;
14
2) Ratification of all acts and resolutions of the Board of Directors and Management since the
annual meeting of shareholders for the year 2014, as set forth in the minutes of the
meetings of the Board of Directors held during the same period and in the disclosures that
have been duly filed with the SEC and the PSE. These minutes cover various resolutions of
the Board, including resolutions (i) authorizing the acquisition of all the issued and
outstanding shares of the corporations comprising the Max’s Group of Companies; (ii)
authorizing the offer and sale of up to 300,136,430 common shares of the Registrant and
the listing on the Philippine Stock Exchange of 34,106,416 shares of the Registrant; (iii)
authorizing the amendment of the Articles of Incorporation to change the corporate name of
the Registrant; (iv) approving the Charters of the Committees of the Board; (v) on the
appointment of new corporate officers; (vi) authorizing the availment of credit facilities from
various banks and trade suppliers; (vii) authorizing the sale of certain corporate assets; and
(viii) authorizing the opening of bank accounts and designating the Registrant’s authorized
signatories for various transactions in the normal course of business of the Registrant.
3) Appointment of External Independent Auditors
•
Minutes of the 2014 Annual Stockholders’ Meeting and resolutions of the Board of Directors
since the date of the 2014 Annual Stockholders’ Meeting will be available for examination
during office hours at the office of the Corporate Secretary.
Voting Procedures
(a) Vote Required: Motions in general require the affirmative vote of a majority of the shares of
the Company’s common stock present and/or represented and entitled to vote.
(b) Method: In the election of directors, the top nine nominees with the most number of votes
will be elected as directors. If the number of nominees does not exceed the number of directors
to be elected, all the shares present or represented at the meeting will be cast in favor of the
nominees. If the number of nominees exceeds the number of directors to be elected, voting will
be done by ballots.
On the election of directors, each stockholder may vote such number of shares for as many
persons as there are directors to be elected or he may accumulate such shares and give one
candidate as many votes as the number of directors to be elected multiplied by the number of
his shares shall equal, or he may distribute them on the same principle among as many
candidates as he shall see fit; provided, that the total number of votes cast by him shall not
exceed the number of shares owned by him multiplied by the whole number of directors to be
elected.
(c) The Corporate Secretary will be responsible for counting votes based on the number of
shares entitled to vote owned by the stockholders who are present or represented by proxies at
any meeting of the stockholders, in the presence of the Company’s external auditor.
15
Management’s Report
The Management's Report on the Financial Conditions and Other Information of the Company
as of December 31, 2014 and March 31, 2015 are in Part II hereof
Financial Statements
The Statement of Management’s Responsibility and the Consolidated Audited Financial
Statements of the Company as of December 31, 2014 and Consolidated Financial Statements as
of March 31, 2015, are incorporated as part of Annex B below.
UPON THE WRITTEN REQUEST OF A STOCKHOLDER, THE REGISTRANT UNDERTAKES TO
FURNISH SAID STOCKHOLDER A COPY OF SEC FORM 17-A FREE OF CHARGE, EXCEPT FOR
EXHIBITS ATTACHED THERETO WHICH SHALL BE CHARGED AT COST. ANY WRITTEN
REQUEST FOR A COPY OF SEC FORM 17-A SHALL BE ADDRESSED AS FOLLOWS:
MAX’S GROUP, INC.
11th Floor Ecoplaza Building
2305 Chino Roces Avenue Extension, Makati City
Attention: PAUL C. CHEAH
16
PART II.
MANAGEMENT’S REPORT
I.
FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Registrant as of and for the year ended December
31, 2014 and March 31, 2015 are incorporated herein in the accompanying Index to Financial
Statements and Supplementary Schedules.
II.
INFORMATION ON INDEPENDENT ACCOUNTANT
Reyes Tacandong & Co. (“RT”), independent certified public accountants, audited the
Company's consolidated financial statements without qualification as of and for the year ended
December 31, 2014, included in this report. RT. has acted as the Company's external auditors
since 2014 and for previous years for some subsidiaries of the Company. The Company has not
had any disagreements on accounting and financial disclosures with its current external auditors
for the same period or any subsequent interim period. RT has neither shareholdings in the
Company nor any right, whether legally enforceable or not, to nominate persons or to subscribe
for the securities in the Company. RT will not receive any direct or indirect interest in the
Company or in any securities thereof (including options, warrants or rights thereto) pursuant to
or in connection with the Offer. The foregoing is in accordance with the Code of Ethics for
Professional Accountants in the Philippines set by the Board of Accountancy and approved by
the Professional Regulation Commission. In relation to the audit of the Company's annual
financial statements, the Company's Corporate Governance Manual provides that the audit
committee shall, among other activities (i) evaluate significant issues reported by the external
auditors in relation to the adequacy, efficiency and effectiveness of policies, controls, processes
and activities of the Company; (ii) ensure that other nonaudit work provided by the external
auditors are not in conflict with their functions as external auditors; and (iii) ensure the
compliance of the Company with acceptable auditing and accounting standards and regulations.
The aggregate fees for the professional services provided by the external auditor for the
Company and its subsidiaries amounted to P8.0M in 2014 and P2.60 million in 2013.
III.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS AND FINANCIAL CONDITION AS OF MARCH 31, 2015
Please note that stated figures for first quarter 2014 pertains to results of operations for Max’s
Group, Inc. The discussion further shows comparative pro-forma analysis for the reporting
period.
Max’s Group, Inc. consolidated revenues increased 159% to P2.40 billion from P926.73 million
in the first three months of 2014. Store sales, which comprised bulk of revenues, rose 164% to
P2.05 billion in the first quarter of 2014 versus P778.20 million for the same period last year.
Commissary sales grew 111% to P255.38 million from P120.93 million year-on-year. Franchise
income increased 233% to P91.93 million from P27.59 million in the first quarter of 2014.
Topline growth was primarily driven by a larger store count catering to a broader customer
base.
17
As of 31 March 2015, the company has a store network of 537 outlets including 30 branches
overseas. Local store openings for the first quarter include Max’s Restaurant in SM Angono,
Pancake House in Robinson’s Otis and Capitol Commons as well as Krispy Kreme in Sta. Rosa,
Laguna. On the international front, the group opened a fourth Max’s Restaurant in the Middle
East located in Al Ain, United Arab Emirates (UAE) and eight Pancake House located in IOI Mall
in Kuala Lumpur, Malaysia . Max’s Restaurant likewise opened its 17th store overseas located in
Scarborough, Ontario Canada. Other recent openings include Max’s Restaurant in Bonifacio
Global City Stopover Pavillion, Jamba Juice in Greenbelt 3 and Krispy Kreme in SM North Edsa.
Cost of sales was at P872.79 million in the first three months of 2015, translating to a cost to
sales ratio of 38%, as against P340.10 million and a cost to sales ratio of 38% in the first three
months of 2014. The improvement is mainly attributed to cost savings derived from supply
chain efficiencies and a rationalized operational back-end.
Cost of Labor stood at P373.83 million compared to P130.49 million in first quarter 2014.
Operating expenses went up 146% to P719.74 million in the first quarter of 2015 against
P292.68 million in the same period last year. Sales and marketing expenses reached P37.86
million in the first three months of 2015, up 30% year-on-year. General and administrative
expenses amounted to P215.16 million, higher by 109% versus the same period last year. The
increase in cost of sales and general expenses was a result of higher number of stores
operational for the reporting period as opposed to the previous year.
Consolidated EBITDA stood at P339.71 million, up 230% versus P102.98 million in the first
quarter of 2014. The company posted a net income of P140.20 million, 372% higher from
P29.68 million as of 31 March 2014.
For the whole year 2015, MGI plans to open around 80-90 stores mainly from its winning
brands, with at least half already being primed in secured locations. The company foresees to
accelerate its roll out pace starting next quarter.
COMPARATIVE PRO-FORMA ANALYSIS
Consolidated revenues increased 6% to P2.40 billion in the first three months of 2015 from
P2.27 billion in the same period last year. Store sales, which comprised of bulk of revenues,
rose 6% to P2.05 billion from P1.93 billion in the first quarter of 2014. The company opened six
new outlets in the first three months of 2015 but deliberately ceased operations of seven
underperforming branches in line with the company’s thrust of rationalizing its store network.
As a result, commissary sales decreased 6% to P255.38 million from P271.46 million in the first
quarter of 2014. On the other hand, franchise income grew 40% to P91.93 million versus
P65.54 million year-on-year driven by additional franchised outlets.
Cost of Sales slightly improved coming in at P872.79 million, translating to a cost to sales ratio
of 37.8%, as opposed to P842.17 million with a cost to sales ratio of 38.2% in the first three
months of 2014. The company has adopted category management in the procurement of raw
materials to capitalize on negotiated prices with suppliers. Cost of Labor increased 5% to
P373.83 million owing to higher manpower expenses. Operating expenses rose 1% to P719.74
million compared to P714.35 million in the first three months of 2014.
18
Notably, the increase in operating expenses is fairly marginal considering a larger scale of
operations in the first quarter of 2015. The impact of cost containment efforts being
implemented across the business have already been felt as early as the first quarter. Sales and
marketing expenses decreased 26% to P37.86 million from P51.45 million year-on-year. The
company continues to launch aggressive marketing campaigns utilizing more efficient and
effective advertising platforms. General and administrative expenses went up 1% to P215.16
million on lower occupancy costs and reorganized head office activities.
Consolidated EBITDA came in at P339.71 million, up 209% from P109.89 million year-on-year.
Other income, composed of interest expense and non-operational gains, grew 111% to P14.40
million from a loss of P128.93 million in the first quarter of 2014 due to the retirement of loans
related to the acquisition of Pancake House Group. Consequently, the company swung from a
loss of P23.80 million in the first three months of 2014 to a net income of P140.20 million for
the first quarter of 2015.
While the company has started to realize the effect of its revamping program, it still expects to
recognize a sizeable portion of cost savings derived from operational efficiencies and synergies
for the rest of the year. This initiative also provides flexibility to divert resources to other valueaccretive activities leading to margin improvement.
Key Ratios, Financial Condition, Liquidity and Capital Resources
For the Three Months Ended March 31
2015
Net Income Ratio
Return on Assets
Return on Equity
5.8%
1.4%
3.4%
2014
3.2%
0.9%
2.8%
2013
4.6%
1.5%
4.3%
The Company operates at healthy financial ratios with Net Income Ratio of 5.8%, Return on
Assets at 1.4% and Return on Equity at 3.4%, accordingly.
Financial Condition
The following table shows the consolidated assets, liabilities and stockholder's equity as of
March 31, 2015 and December 31, 2014.
As of March 31, 2015
Current Assets
Total Assets
Current Liabilities
Total Liabilities
Total Equity
2,280.4
9,933.0
4,268.7
5,766.2
4,166.8
As of December 31,
2014
2,361.8
9,901.2
4,396.7
5,868.3
4,032.9
19
As of March 31, 2015, Consolidated Assets amounted to P9.93 billion and P9.90 billion as of
December 31, 2014. Consolidated Liabilities stood at P5.76 billion in first quarter 2015 and
P5.87 billion for full year 2014. Total Stockholder's Equity was at P4.17 billion as of March 31,
2015.
Liquidity Position
As of March 31, 2015
As of December 31,
2014
Current Ratio
0.53
0.54
Debt to Equity
Ratio
1.38
1.46
Debt to Asset
Ratio
0.58
0.59
The Company remains at stable liquidity and gearing levels for first quarter 2015 with Current
Ratio at 0.53x, Debt to Equity Ratio at 1.38x and Debt to Asset Ratio at 0.58x, correspondingly.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR 2014
The discussion pertains to the results of operations of the Pancake House Group for the twelve
months ended 2014 and Max’s Entities for the two months ended 2014 based on Securities
Exchange Commission approval on the consolidation in November 2014.
This discussion further shows full year comparative Pro-forma and Core Net Income with the
difference being one-off costs related to the acquisition of Pancake House Group in February
2014.
Max’s Group, Inc. reported consolidated revenues of P4.87 billion for the twelve months ended
2014. Store sales, accounted for 86% of total revenues was at P4.19 billion, with a network of
540 branches including 28 overseas as of December 31, 2014. The Company deliberately
ceased operations of 33 outlets across different brands in 2014. This initiative saved the
Company approximately P31.5 million annually, allowing the Company to divert resources to
other growing and value-accretive ventures.
Commissary sales, constituted 11% of total revenues stood at P518.0 million in 2014. There are
on-going activities to rationalize back-end operations by maximizing productivity of the
Company’s existing commissaries. Franchise income (franchise and royal fees) comprised 3% of
total revenues came in at P156.4 million in 2014. The Company opened 12 franchised stores
and signed four new franchise agreements during the year. These are expected to be part of
the Company’s store expansion pipeline in 2015.
Winning brands Max’s, Pancake House, Yellow Cab and Krispy Kreme were the largest revenue
contributors of the group. Full year Pancake House and Yellow Cab revenues were at P993.5
million and P1.95 billion, respectively. Max’s and Krispy Kreme revenues for the last two months
of 2014 were at P802.8 million and P278.6 million, correspondingly. These brands collectively
accounted for P4.02 billion or 83% of total revenues for the reported period.
20
The Company continues to refresh its others brands namely Teriyaki Boy, Dencio’s and Sizzlin’
Steak by repositioning and right-sizing stores in prime locations, uplifting food quality,
enhancing store appearance and improving service levels.
Following its merger with the Pancake House Group, the company underwent a comprehensive
revamping program to align its portfolio of brands and consolidate operations. This initiative
includes enhancing top brands, reinvigorating, selling, converting or discontinuing
underperformers and upgrading service platforms.
Consolidated cost of sales was at P3.95 billion in 2014 or 81% of total revenues, primarily
driven by price fluctuations in raw materials and packaging components.
General and administrative expenses came in at P712.7 million or 15% of total revenues in
2014, mainly attributed to personnel expenses and occupancy costs.
Provision for impairment loss was recorded at P150.6 million in 2014, due to the effect of
allowances booked for past due accounts and leasehold improvements related to closed stores.
This is part of management’s on-going housekeeping initiative to enter 2015 with a stronger
balance sheet.
Selling and marketing expenses stood at P203.2 million in 2014, mainly steered by intensified
advertising and promotional campaigns aimed at strengthening brand equity and broadening
market scope.
Consolidated EBITDA registered at 5.9% of sales to P286.6 million for the twelve months ended
2014 of Pancake House Group and two months ended 2014 of Max’s Entities. As a result of
interest and other costs related to the acquisition and integration, the Company posted a net
loss of P66.2 million as of December 31, 2014. Excluding one-time costs, core net income would
have been P73.2 million in 2014.
As of today, the company is implementing its blueprint for generating synergies within its base
of operations across all brands primarily from supply chain, marketing and support services. The
company will adopt category management in its procurement of raw materials to capitalize on
negotiated prices with suppliers. A shared services model will likewise be rolled out in the first
half of 2015 to centralize back-end support for both local and international operations. The
company expects to benefit from considerable cost savings as it expects to realize a significant
portion of these efficiencies this year, creating more flexibility to reallocate resources and
expand margins.
Management actions on the integration are on track with the company’s overall development
strategy. The company continues to evaluate opportunities for expansion and identify other
savings. For this year, the company plans to open 80-90 stores across its brands, with at least
more than half already backed by signed agreements and firm locations to date.
21
Comparative Pro-forma and Core Income Statement
The following provides a comparative pro-forma and core income statement discussion
reflecting combined results of operations for both Max’s Entities and Pancake House Group for
full year 2014.
Max’s Group, Inc. generated revenues of P9.55 billion for the twelve months ended December
31, 2014, up 5% from P9.22 billion for the twelve months ended December 31, 2013. Store
sales grew 7% to P8.02 billion in 2014 versus P7.25 billion in the previous year despite planned
closure of 33 outlets and downtime owing to renovation works carried out to upgrade store
facilities. Commissary sales declined 4% to P1.26 billion in 2014 from P1.30 billion in 2013 while
franchise income (franchise and royalty fees) contracted 6% to P267.5 million as a result of
management’s deliberate move to shut down underperformers, which included some franchised
stores.
Consolidated cost of sales was at P7.72 billion, equivalent to 80% of total revenues in 2014,
down 5% from P7.25 billion and a cost to sales ratio of 80% in 2013, due to the impact of
streamlining supply chain activities and optimization of commissary operations.
Consolidated EBITDA stood at 7% to P700.2 million for the twelve months ended 2014.
Nonetheless, the Company posted a net loss of P56.0 million for the year. On a stand-alone
basis, Max’s Entities posted a net income of P1.39 billion in 2014 primarily driven by mark-tomarket gains related to the sale of Max’s Group shares. Excluding one-time gains, regularized
net income would result to P155.6 million in 2014, while Pancake House Group recorded a net
loss of P1.5 million for the same period.
As a result of undertaking a series of market-moving transactions in 2014, the Company
incurred certain costs, which are one-off in nature and are not expected to be part of the
ordinary course of business moving forward. A total of P314.7 million were booked as nonrecurring expenses in 2014 bulk of which comprised of interest costs related to the acquisition,
provisions for impairment losses on uncollected receivables and leasehold improvements due to
closed stores as well as professional fees associated with capital raising. After-tax effect of
these one-offs amounted to P210.1 million as of year-end.
Under normalized earnings notwithstanding the impact of one-time costs, core net income
would have been P154.1 million for 2014. The Company is looking forward to unlocking the
potential of a larger group and propelling its brands to the next phase of growth.
Table 1 - Consolidated Profitability Ratios (x: 1.00)
For the Twelve Months Ended December 31
Net Income Ratio
Return on Assets
Return on Equity
2014
2013
2012
-1.36%
-6.76%
-1.64%
2.11%
2.67%
7.73%
4.36%
5.16%
14.53%
22
Financial Statements
The consolidated financial statements of Max’s Group, Inc. (“MGI”) and its subsidiaries as of
December 31, 2014 and for the years ended December 31, 2013 and 2012 include the
consolidated accounts of the Company and the following subsidiaries:
%
Ownership
Remarks
Pancake House:
Happy Partners, Inc.
51%
Established in 2004; started commercial
operations in September 2004
PCK-MTB, Inc.
60%
Established in January 2005; started
commercial operations in May 2005
PCK Bel-Air, Inc.
51%
Established in February 2005; started
Always Happy Greenhills, Inc.
60%
Established in February 2006; started
commercial operations in March 2006
PCK MS, Inc.
50%
Established in November 2007; started
commercial operations in November 2007
PCK Boracay, Inc.
60%
Established in September 2009;
started commercial operations in
October 2009
51%
commercial operations in March 2011
PCK-LFI, Inc.
7x0%
commercial operations in April 2011
PCK-N3, Inc.
51%
PCKPolo, Inc.
70%
Established in June 2012; started
operations in July 2012
Always Happy BGC, Inc.
PCK-Palawan, Inc.
60%
Pancake House Int’l, Inc.
100%
PH Ventures, Inc.
100%
Pancake House Products, Inc.
100%
Established in February 2007
Dencio’s:
DFSI-One Nakpil, Inc.
60%
DFSI Subic, Inc.
100%
Golden BERRD Grill, Inc.
100%
commercial operations immediately
thereafter
Established in March 2005 by DFSI;
November 2005
23
%
Ownership
Remarks
70%
Acquired by PHI on October 28, 2005
40%
Established in May 2005; started
commercial operations in November 2006
TBGI Marilao, Inc.
51%
commercial operations in January 2007
TBGI Trinoma, Inc.
60%
Established in March 2007; started
Tboy MS, Inc.
50%
commercial operations in December 2007
Teriyaki Boy:
TERIYAKI BOY GROUP, INC. (TBGI)
TBGI Tagaytay, Inc.
PCK-Palawan, Inc.
60%
Singkit:
88 JUST ASIAN, INC.
80%
Established in March 2006; started
Le Coeur de France:
BOULANGERIE FRANCAISE, INC.
100%
Acquired on February 8, 2008
The Chicken Rice Shop:
CRPPHILIPPINES, INC.
50%
100%
Acquired on September 9, 2011
55%
Established on November 2012; started
commercial operations in December 2012
Yellow Cab:
YELLOW CAB FOOD CORP.
YCPI Pizza Ventures, Inc.
Max’s Entities:
100%
Established in August 20, 1981
100%
Established in September 11, 2002
Max’s SM Marikina, Inc.
100%
Established in July 10, 2008
100%
Established in July 2, 2002
Square Top, Inc.
100%
Established in March 20, 2001
Max’s (Ermita), Inc.
100%
Established in February 3, 1969
Max’s Baclaran, Inc.
100%
Established in September 8, 1981
Max’s Makati, Inc.
24
%
Ownership
Remarks
Max’s Food Services, Inc.
100%
No Bia, Inc.
100%
Established in January 17, 2001
100%
Established in May 8, 1989
Max’s Circle, Inc.
100%
Max’s Franchising, Inc.
100%
Established in March 19, 1998
Ad Circles, Inc.
100%
The Real American Doughnut
Company, Inc.
100%
Established in May 16, 2006
Fresh Healthy Juice Boosters, Inc.
100%
Established in April 8, 2011
Global Max Services Pte. Ltd. ROHQ
100%
Max’s Express Restaurant, Inc.
100%
Established in December 4, 2012
Room Ventures Corporation
100%
Established in January 2, 2012
MGOC Holdings, Inc.
100%
Established in April 12, 2005
100%
Established in November 2, 1982
Financial Condition, Liquidity and Capital Resources
Financial Condition
The following table shows the consolidated assets, liabilities and stockholder's
equity as of December 31, 2014 and 2013.
Table 2 - Consolidated Balance Sheet
Current Assets
Total Assets
Current Liabilities
Total Liabilities
Total Equity
As of December 31, 2014
As of December 31, 2013
2,361.84
9,901.19
4,396.73
5,868.32
4,032.87
951.12
2,969.92
1,821.80
1,944.49
1,025.43
25
As of December 31, 2014, consolidated assets amounted to P9.90 billion from P2.97 billion as of
December 31, 2013. Total liabilities came in at P5.87 billion in 2014 compared to P1.94 billion in
2013. Total Stockholder's Equity stood at 4.03 billion in 2014.
Liquidity Position
The table below shows the current ratio, asset-to-equity ratio and debt-to-equity ratio for the
years ended December 31, 2014, 2013 and 2012:
Table 3 – Liquidity and Solvency Ratios (x: 1.00)
For the Twelve Months Ended December 31
Current Ratio
Asset-to-Equity Ratio
Debt-to-Equity Ratio
2014
2013
2012
0.51
2.43
1.43
0.52
2.90
1.90
1.01
2.82
1.82
The Company's current ratio was at 0.51x as of twelve months ended December 31, 2014.
asset-to-equity ratio came in at 2.43x, while debt-to-equity ratio stood at 1.43x in 2014.
IV.
NATURE AND SCOPE OF BUSINESS
The Company
In 2014, the Company underwent a change in control and significant expansion of its business
and operations. After the completion of a tender offer to acquire the shares of the public
shareholders and the disposition by Pancake House Holdings, Inc. and the Aureos Group of
their respective interests in the Company on February 24, 2014, the MGOC Shareholders
beneficially took control of approximately 89.95% of the Company and subsequently integrated
all of their interest in the Max’s Entities into the Company. With the combination of all 14
brands under its portfolio, the Company secured its position as the leader in the casual dining
full-service restaurant industry in the Philippines. Since its incorporation in March 2000, the
Company’s operating history can be characterized by a successful track record of developing,
acquiring, managing and franchising restaurants under numerous well-known brands.
The Company’s leading brands, Max’s Restaurant, Pancake House, Yellow Cab and Krispy
Kreme remain at the forefront of the business. The Company’s operation of global brands Krispy
Kreme and Jamba Juice in the Philippines also allowed these brands to gain a strong foothold in
the Philippines and even benchmark themselves internationally in terms of product quality and
development. Teriyaki Boy and Dencio’s continue to enjoy a high level awareness and specialty
brands Maple, Kabisera ng Dencio’s, Sizzlin’ Steak, Le Coeur De France and Singkit have gained
ground over their years of operation and still exhibit a considerable potential for growth. All
together, the brands complement one another and command growing loyalty among their
respective niches in the casual dining market.
26
The Star Brands
Max’s Restaurant
Max’s Restaurant is the Company’s flagship brand. The rich heritage and trusted brand of Max’s
Restaurant comes from a proven track record in delivering world-class food with the best
quality of customer service. With almost 70 years of experience, the brand’s popularity is
evidenced by Max’s Restaurants’ clear dominance of its market segment. Based on
Euromonitor’s report, it ranks no. 1 with a market share of 14.4% in the chained full service
restaurant category. Max’s is a brand driven by passion and excellence. It is a Filipino tradition
passed down from generation to generation, serving excellent food and creating the best
customer experience which has enabled it to continue to grow. It is a restaurant that bears
witness to the Filipinos’ love of food, family and celebrations. It started as a family-oriented
destination but has evolved and adapted to the changing Filipino lifestyle and dining behavior.
Max’s Restaurant has different store formats and flexibility of menu, which enables it to cater to
different customer appetites, preferences and paying capacity. It has consistently sustained its
market relevance by keeping its commitment to food quality and service and value-for-money
proposition in an ever-changing consumer landscape and remains to be a trusted brand. Max’s
core product, the fried chicken, comes from a secret recipe that has been passed on through
generations. Its crispy skin and delicious, tender meat allow the diners to consume it all the
way to the bone, prompting the adoption of the brand’s official tagline, “Sarap to the bones.”
The name Max’s is almost synonymous to fried chicken in the Philippines. In addition, Max’s
Restaurant counts among its bestsellers classic Filipino favorites like kare- kare, crispy pata,
pancit canton and lumpia.
The following table sets forth the total number of stores as of the end of the years 2013 up to
1Q2015:
Stores
2012
2013
1Q2015
Company
Owned
Franchised
International
Total
74
63
14
151
78
66
15
159
79
66
16
161
Pancake House
The first Pancake House restaurant opened in Magallanes in 1970 and since then, Pancake
House established itself as a reputable Philippine food brand by introducing freshly made
pancakes and waffles in varied flavors to a predominantly rice-based consuming market. Eight
years later, it successful launched its first franchised outlet in Greenhills, San Juan, and
thereafter, more Pancake House outlets – both company-owned and franchised – opened in
strategic sites. Over the years, Pancake House continued to grow and set up company- owned
and franchised restaurants throughout the country. The brand became strongly associated with
delicious comfort food, warm personalized service, and a homey atmosphere for diners. The
company expanded its operations steadily, requiring the setting up of a central commissary to
support the logistical and operational needs of the growing number of restaurants.
27
The brand has been consistently equated with “comfort food” through the enduring appeal of
its bestsellers, pancakes, waffles, pan chicken, tacos and spaghetti, which are constantly
complemented by newer favorites that are aligned with its promise of always “Bringing Home
Goodness”. The Company continuously makes the brand relevant by introducing new items in
the menu, which adds to the variety that its customers look forward to, and eventually become
their new favorites.
Based on Company-commissioned research conducted by TNS in 2013 entitled “Understanding
the Casual Dining Industry,” Pancake House is considered as “Best in Pancakes.”
Commencing in 2014, the Company has initiated programs that will give the brand a new look,
update the store design and improve the customer experience. It continues to reinforce its
image as a brand that remains fresh and evolving with the continuously changing tastes and
preferences of the consumers while capitalizing on the all-day dining appeal of Pancake House.
Besides Company-owned stores, Pancake House also owns and operates several Joint Venture
companies to hold its investments in Pancake House Franchises:
%
Ownership
Remarks
PCK-MTB, Inc.
60%
PCK Bel-Air, Inc.
51%
Established in February 2005;
May 2005
PCK MS, Inc.
50%
commercial operations in November
2007
PCK-LFI, Inc.
70%
PCK-N3, Inc.
51%
Company
PANCAKE HOUSE
PCK-AMC, Inc.
PCK Estancia Capitol, Inc.
100%
51%
commercial operations in February 2006
as a joint venture with 60% ownership;
August 2006 became a company-owned
outlet through Asset Purchase
Agreement.
Established in October 2014; started
28
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Franchised
Joint Venture
International
Total
36
59
11
6
112
43
59
7
7
116
43
59
8
8
118
Yellow Cab
Yellow Cab is a key brand in the pizza category, which the Company believes has the biggest
growth opportunity, both domestically and internationally. On account of the brand’s very
strong association with its brand cues--the checkers, the color yellow, Vespa bikes used for
delivery and its industrial-look pizza box--it is in a unique position to grow its market share.
Yellow Cab primarily serves New York-style premium pizza in a fast casual dining setting. Its
popular products include New York’s Finest pizza, Dear Darla pizza, Charlie Chan Chicken Pasta,
“hot wings,” “baked potato wedges” and ice cream. With its large portion sizes and premium
pricing, Yellow Cab mainly targets groups in the mid-market and upper- markets customer
segments. To address the growing need of quick, personal sized meals, Yellow Cab introduced
the My Size Folded Pizzas with unique variants.
Targeting the millennials, the segment of the population with an increasing purchasing power,
the brand continuously innovates premium products to entice and excite customers to frequent
Yellow Cab stores. Yellow Cab was first established in 2001 with its first store located in Makati
Ave. In 2002, the first local franchise store opened in Tomas Morato and had its first
international franchisee in 2007.
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Franchised
Joint Venture
International
Total
85
15
2
6
108
95
13
2
6
116
95
13
2
6
116
As part of Yellow Cab’s expansion strategy to reach provincial markets, it partnered with
investors to own and operate a Yellow Cab store in a key location:
29
Company
%
Ownership
Remarks
YELLOW CAB
YELLOW CAB FOOD CORP.
YCPI Pizza Ventures, Inc.
YCPC Subic, Inc.
100%
55%
100%
Acquired by MGI (Formerly PHI) on
September 9, 2011
Established on November 2012; started
commercial operations in December
2012
Established on March 2005; started
commercial operations in April 2005;
Formerly DFSI Subic Inc, approved on
June 2012 the Company's application on
change name
Krispy Kreme
Krispy Kreme Philippines holds the exclusive license to operate Krispy Kreme in the Philippines.
Krispy Kreme is an international retailer of premium-quality sweet treats, including its hot melt
in-your-mouth Original Glazed doughnut. Headquartered in Winston- Salem, North Carolina,
USA, the brand has offered the highest-quality doughnuts and great- tasting coffee since it was
founded in 1937.
The Krispy Kreme brand has several unique elements that have helped create a special bond
with its customers. The doughnuts, the signature product of the brand, which are made from a
secret recipe, have a one of a kind taste that generations of loyal customers have grown to
love.
In order to enhance the appeal of the brand across all customer segments and generate
continued excitement for the brand’s products, initiatives have been taken by Krispy Kreme
Philippines to spearhead growth, including prompting the strategic alliance with Hershey’s for
the development of new flavors and products for the Krispy Kreme brand in the Philippines. It is
this local initiative that was taken up by Krispy Kreme International and was promoted globally.
Krispy Kreme Philippines also claimed a “firsts” for itself when its branch in Greenhills being
hailed as the First Drive thru in Asia when it opened in 2007.
Krispy Kreme International has consistently recognized the Philippine operations for its
excellence in hospitality/service, product quality, marketing, and operations and as such has
requested assistance in providing training and support for 7 international markets.
Krispy Kreme has achieved a nationwide appeal and has been able to penetrate the market
outside Metro Manila to become a nationwide brand. The Company makes a conscious effort to
cause Krispy Kreme Philippines to operate the brand and offer products in a manner that will
make them become part of a lifestyle.
30
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Total
47
47
61
61
60
60
The Reinvigorate Brands
Teriyaki Boy
The Company owns 70% of Teriyaki Boy Group, Inc. (“TBGI”), whose brand Teriyaki Boy
remains number one in Japanese casual food service in terms of number of stores. A Usage
Attitude Image (UAI) study conducted by an independent research agency reported that
Teriyaki Boy’s recall as a Japanese restaurant among the 18-36 ABC Manila segment is at a high
of 93%. Teriyaki Boy remains popular for its family-oriented restaurants offering a wide variety
of affordable, Japanese food.
TBGI is in the process of implementing an aggressive rebranding campaign, which aims to bring
back the authenticity of an affordable Japanese dining experience. This involves an
enhancement of its menu and updating of its logo and interiors, thus communicating the
brand’s thrust of keeping pace with its young and discriminating market.
Consistent with these efforts, TBGI has also tapped a Japanese chef to create exciting new
dishes and maintain high levels of quality in ingredients and cooking procedures. Improved
products are also being introduced to increase the brand’s value proposition, which is expected
to translate to a higher transaction count. In July, 2014, Teriyaki Boy launched its Teriyaki
Bowls promo systemwide, and, is being rolled out to all Teriyaki Boy stores in the 2nd half of
2014. Additional promos “Make-Your-Own-Bento” and the “P99 Ramen” are also being
introduced.
The original founder, Mr. Bryan Tiu, has been active in working with the Group in helping
revitalize the brand and increase its value proposition of affordable Japanese dining. Mr. Tiu
also holds 30% of TBGI.
Teriyaki Boy stores are targeted toward locations that assure market sustainability, and a
periodic assessment of existing store locations is done by the Company.
31
TBGI owns several Joint Venture/Subsidiary Companies to operate Teriyaki Boy Franchisees:
%
Ownership
Company
Remarks
TERIYAKI BOY
Teriyaki Boy Group, Inc.
70%
TBGI Marilao, Inc.
51%
Acquired by MGI (Formerly PHI) on
October 28, 2005
Tboy MS, Inc.
50%
commercial operations in December
2007
PCK-Palawan, Inc.
60%
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Franchised
Joint Venture
Total
20
11
6
37
19
8
5
32
18
8
3
29
Dencio’s
The Company acquired Dencio’s in 2004. Having popularized the restobar concept, it has
evolved into a Filipino favorite popular among families, balikbayans and professionals alike. Its
appeal is based on its signature Filipino dishes like sisig, complemented by a variety of drinks in
a relaxed ambiance that distinguish its restaurants as a choice destination. The Company aims
to have a Dencio’s restaurant in key cities nationwide, and plans to open 2 to 3 new restaurants
every year for the next 5 years.
The Company has initiated the revitalization of Dencio’s with the participation of its original
founder, Mr. Dennis Nakpil.
The Company owns and operates one joint venture company, DFSI-One Nakpil, Inc. to hold its
investment in an outlet located at Harbour Square at the Cultural Center of the Philippines
Complex, which started operations in April 2005.
32
The Company owns and operates one Joint Venture company to hold its investment in a
franchised outlet:
Company
%
Ownership
Remarks
60%
100%
Established in March 2005 by DFSI;
November 2005
DENCIO’S
DFSI-One Nakpil, Inc.
1Q2015:
Stores
2013
2014
1Q2015
Franchised
Joint Venture
Total
14
1
15
10
1
11
8
1
9
Sizzlin’ Steak
Sizzlin’ Steak is a homegrown brand operated by TBGI. It offers high quality beef, special
sauces, and a hot-plate system, served within an environment that puts a premium on product
quality and service speed. After piloting a new format for an existing store proved successful,
some stores are being reformatted to undertake more of the same type of operations with a
new menu design.
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Franchised
Total
14
2
16
11
2
13
10
2
12
33
The Niche Brands
Jamba Juice
Fresh Healthy Juice Boosters, Inc. holds the license to operate Jamba Juice in the Philippines.
Founded in California, USA, back in the 1990s, Jamba Juice is the leading healthy active lifestyle
brand with over 800 stores worldwide.
The brand continues to target a growing market that values an active and healthy lifestyle. The
Company believes that Jamba Juice is well positioned to capitalize on the growing trend toward
health and wellness.
Jamba Juice Philippines most popular product is its wide selection of all-natural, whole-fruit
“better-for-you” beverages. It offers whole-fruit smoothies, freshly squeezed fruit juices, “fruitand-veggie” smoothies, steel cut organic oatmeal, fruit parfait and baked goods.
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Total
9
9
15
15
15
15
Le Coeur de France
In February 2008, the Company acquired Boulangerie Francaise, Inc., which owns and operates
Le Coeur de France. With a name that means “The Heart of France,” Le Coeur de France is a
French-inspired coffee shop, restaurant, and boulangerie that offers assorted artisan breads
baked fresh daily. Its menu also consists of soups, pasta, gourmet sandwiches, and pastries. It
also supplies baked products to other institutions on a wholesale basis. The Company’s plans for
Le Coeur de France include repositioning the brand and rationalizing its store network to target
key strategic communities.
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Total
13
13
13
13
13
13
34
Kabisera ng Dencio’s
In May 2008, the Company established an upscale arm “Kabisera ng Dencio’s” to build on the
Dencio’s brand, offering premium-quality Filipino cuisine to the high-end market. Kabisera has
since grown into its own identity as a go-to dining establishment, providing a premium Filipino
dining experience, a place where foreigners and young professionals enjoy unwinding over
drinks and exceptional Filipino food. Kabisera ng Dencio’s is located in Bonifacio High Street,
Bonifacio Global City in the City of Taguig, Metro Manila. Consistent with the aspiration of the
shareholders and management, the Company plans to expand the operations of Kabisera ng
Dencio’s to showcase the best of authentic Filipino cuisine in an upscale, contemporary format.
Maple
Maple was conceptualized and introduced by the Company to seize new opportunities in a
growing affluent dining market. With a wide array of choices that build on flavors found in the
coastal towns of America, Maple brings the best of elevated American comfort food to the
tables of its four branches. These are located in Makati, Alabang, Ortigas and Cebu. Maple is
characterized by its warm interiors, big servings and premium food offerings.
1Q2015:
Stores
2013
2014
1Q2015
Company
Owned
Total
3
3
4
4
4
4
Other Brands
Max’s Corner Bakery
Max’s Corner Bakery was started by Ruby Trota in the early 1960s in Sucat, Paranaque.
Famous for its caramel bars, the bakery started with dinner rolls which were known to perfectly
complement Max's Fried Chicken, and provided the occasion cakes for all the special events
hosted in Max’s Restaurants, from baptisms to birthdays to graduations and weddings.
The brand expanded by offering new products such as ensaymada, food-for-the-gods, and jelly
rolls from its own designed bakery counter. From just being a supplier of Max’s Restaurants, it
has become its own standalone brand with its own line of retail products with a growing
contribution to Group revenues. Today, Max’s Corner Bakery offers “grab-and-go” bread,
pastries, and cakes.
It is currently located within the Max’s Restaurant outlets. Max’s Corner Bakery also caters to
both retail and institutional clients like Philippine Airlines and major food establishments in the
country. Plans are underway for Max’s Corner Bakery to locate in supermarkets and other retail
establishments.
35
The Chicken Rice Shop
The Chicken Rice Shop is a chain of HALAL quick service restaurants that originated from
Malaysia, with over 50 stores across Malaysia and Singapore. Through CRP Philippines, a joint
venture entity, the Company brought the brand to the Philippines in 2011. It introduced
specialty Asian chicken cooking styles, including Hainanese, roast, soy, and braised chicken.
Starting off with a single outlet in 2011, it introduced its products to the market with the
opening of 4 more outlets in 2012. It scaled-down operations in 2013 leaving only 2 outlets
open. Due to operating losses, the Company closed both branches in September 2014.
Securities of the Company
Pancake House, Inc. common shares were listed in the Philippine Stock Exchange on December
15, 2000. After renaming to Max’s Group, Inc., the Company recently conducted a follow-on
offering of 197,183,100 million common shares at an offer price of P17.75 per share last
December 12, 2014. At present, the Company’s shares are being traded under the ticker
“MAXS”. Below is the trading record of the Company for the past three years:
Market Information (per quarter)
Year
2012
2012
2012
2012
2013
2013
Quarter
1Q
2Q
3Q
4Q
1Q
2Q
High
12.00
12.20
11.36
8.50
8.45
13.50
Low
10.00
9.00
6.88
7.46
7.50
7.88
Volume
22,200
32,900
4,194,600
482,300
318,600
939,600
2013
3Q
13.00
11.50
295,600
2013
4Q
21.00
12.80
566,300
2014
1Q
19.00
7.25
6,148,800
2014
2Q
22.50
8.10
1,953,600
2014
3Q
68.00
25.15
8,472,180
2014
4Q
26.40
17.30
39,484,100
2015
1Q
35.50
23.30
106,786,900
Market Information
(As of Last Trading Date)
Date
Open
High
Low
Close
Volume
% Change
May 29, 2015
24.60
25.60
24.40
25.00
417,700.00
2.04%
36
Top 20 Shareholders on Record as of May 29, 2015
Name
Citizenship
No. of Shares
%
PCD Nominee Corp. (Filipino)
Filipino
1,047,213,491
96.33
PCD Nominee Corp. (Non-Filipino)
Joanne Que Lim
Foreign
Filipino
33,176,631
1,000,000
3.05
0.09
Walter Que Lim
Filipino
1,000,000
0.09
Wilson Lim &/or Jusy Que Lim
Winston Que Lim
Filipino
Filipino
1,000,000
1,000,000
0.09
0.09
Wilson Jesse Q. Lim, Jr.
Filipino
1,000,000
0.09
Jacqueline Q. Lim Ong
Filipino
1,000,000
0.09
Consuelo Tan
Mel Macaraig
Filipino
Filipino
60,000
60,000
0.01
0.01
Zorayda Rosemarie Dela Rosa Zarsadias
Filipino
52,000
0.00
Matilde M. Cupido
Maria Luisa Lorenzo
Filipino
Filipino
45,600
40,000
0.00
0.00
Eric Manalang
Filipino
40,000
0.00
Aries Gamboa
Filipino
26,000
0.00
Pacifico B. Tacub
Angelina C. Garcia
Filipino
Filipino
22,000
20,000
0.00
0.00
Ma. Grace Leah Banaag
Filipino
20,000
0.00
Dawn Aimee Castro
Levina Fader
Filipino
Filipino
20,000
20,000
0.00
0.00
Total top 20 Shareholders
1,086,815,722
99.97*
Total Outstanding Shares
1,087,082,024
* Slight discrepancy due to rounding off.
There were 82 shareholders as of May 29, 2015.
Dividends
The following shows the Company’s dividend payout history since 2011:
Declaration
Date
Record Date
Payment
Date
Retained
Earnings as
of
Amount
per Share
(PHP)
May&27,&2011&
June&15,&2011&
June&30,&2011&
December&31,&
2010&
0.0907&
21,568,048.00&
December&8,&
2011&
December&23,&
2011&
December&29,&
2011&
June&30,&2011&
0.0512&
12,175,127.30&
May&31,&2012&
June&15,&2012&
June&29,&2012&
0.1469&
34,932,152.34&
Feb&22,&2013&
March&11,&
March&29,&
0.1007&
23,946,002.32&
December&31,&
2011&
June&30,&2012&
Total Dividends
(PHP)
37
Declaration
Date
Record Date
Payment
Date
2013&
2013&
June&28,&2013&
July&12,&2013&
July&31,&2013&
May&12,&2014&
August&22,&
2014&
September&
18,&2014&
VI.
Retained
Earnings as
of
Amount
per Share
(PHP)
December&31,&
2012&
0.1897&
3&
100%&
Stock&
Dividends&
Total Dividends
(PHP)
45,109,797.81&
259,210,840&
COMPLIANCE WITH LEADING PRACTICE ON CORPORATE GOVERNANCE
The Company recognizes the importance of corporate governance in enhancing the
stakeholders’ interests and maintaining relationships for the Group. Accordingly, the Board of
Directors and management have committed themselves to the principles of good corporate
governance.
The principles for corporate governance of the Company are contained in the Company’s
articles of incorporation and by-laws, as amended to date, and its Manual of Corporate
Governance in compliance with SEC Memorandum Circular No. 6, Series of 2009, a copy of
which was submitted to the SEC in the same year. In compliance with SEC Memorandum
Circular No. 09, Series of 2014, the Company submitted its amended Manual of Corporate
Governance to the SEC on June 10, 2014.
Evaluation System
The Company has adopted the SEC Corporate Governance Self-Rating Form to evaluate the level
of compliance of the Company with its Manual on Corporate Governance. In addition, the
Compliance Officer reviews on a periodic basis the level of compliance of its directors, officers,
and employees with the leading practices and principles on good corporate governance as
embodied in the Company’s Manual.
Measures on Leading Practices of Good Corporate Governance
In adherence with the highest standards of transparency, a Manual of Corporate Governance
was adopted in 2002 setting forth the principles to be observed in its operations, which
principles mirror that of best practices. The Company likewise submitted a Revised Corporate
Governance Manual in compliance with the Securities Exchange Commission in 2014. In keeping
the same, the following policies related to disclosure are observed:
Reports or disclosures required under the Company’s Revised Corporate Governance Manual
shall be prepared and submitted to the Securities and Exchange Commission by the responsible
Committee or officer through the Corporation's Compliance Officer.
All material information, i.e., anything that could potentially affect share price and which could
adversely affect its viability or interest of its stockholders and other stakeholders, shall be
publicly and timely disclosed. Such information shall include earnings results, acquisition or
disposal of assets, Board changes, related party transactions, shareholdings of directors and
changes in ownership.
38
Other information that shall always be disclosed includes remuneration (including stock options)
of all directors and senior management, corporate strategy, and off balance sheet transactions.
All disclosed information shall be released via the approved stock exchange procedure for
company announcements as well as through the annual report.
The Board shall commit at all times to fully disclose material information dealings. It shall cause
the filing of all required information for the interest of the stakeholders.
Deviation from the Manual
The company does not have any deviation from the Manual.
Improvement of Corporate Governance Standards
The company has adopted the following policies to strengthen its corporate governance
standards:
-
Whistleblowing Policy
Conflict of Interest Policy
Insider Trading Policy
Related Party Transactions Policy
Employee Health, Safety and Welfare Policy
39
Max’s Group, Inc. (formerly Pancake House, Inc.) and
Subsidiaries
Consolidated Financial Statements
December 31, 2014
(With Comparative Figures for 2013 and 2012)
With independent auditor’s report provided by
REYES TACANDONG & CO.
FIRM PRINCIPLES. WISE SOLUTIONS.
COVER SHEET
for
AUDITED FINANCIAL STATEMENTS
SEC Registration Number
A 2 0 0 0 - 0 3 0 0 8
Company Name
M A X ‘ S
k e
G R O U P ,
H o u s e ,
I N C .
I n c . )
( f o r m e r l y
A N D
P a n c a
S U B S I D I A R I E S
Principal Office (No./Street/Barangay/City/Town) Province)
P a n c a k e
T a m o
H o u s e
C e n t e r ,
E x t e n s i o n ,
Form Type
2 2 5 9
M a k a t i
Department requiring the report
A A C F S
P a s o n g
C i t y
Secondary License Type, If Applicable
C R MD
Not Applicable
COMPANY INFORMATION
Company’s Email Address
Company’s Telephone Number/s
Mobile Number
compliance@maxschicken.com.
ph
784-9000
–
No. of Stockholders
Annual Meeting
Month/Day
Fiscal Year
Month/Day
82
Any day in June
December 31
CONTACT PERSON INFORMATION
The designated contact person MUST be an Officer of the Corporation
Name of Contact Person
Email Address
Telephone Number/s
Mobile Number
Ms. Rebecca R. Arago
rrarago@maxsgroupinc.com
784-9000
–
Contact Person’s Address
11F Ecoplaza Building, 2305 Chino Roces Avenue Ext., Makati City
Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the
Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact
person designated.
26th Floor Citibank Tower
8741 Paseo de Roxas
Makati City 1226 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA/PRC Accreditation No. 4782
November 12, 2012, valid until December 31, 2015
SEC Accreditation No. 0207-FR-1 (Group A)
September 6, 2013, valid until September 5, 2016
INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors
Max’s Group, Inc. and Subsidiaries
Pancake House Center
2259 Pasong Tamo Ext.
Makati City
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Max’s Group, Inc. (formerly Pancake House, Inc.) and Subsidiaries, which comprise the consolidated statement of financial position
as at December 31, 2014, and the consolidated statement of income, consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of
cash flows for year then ended, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with Philippine Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
-2-
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Max’s Group, Inc. (formerly Pancake House, Inc.) and subsidiaries as at
December 31, 2014, and their financial performance and their cash flows for the year then ended in
accordance with Philippine Financial Reporting Standards.
Other Matter
The consolidated financial statements of Max’s Group, Inc. (formerly Pancake House, Inc.) and
Subsidiaries as at and for the years ended December 31, 2013 and 2012 were audited by another
auditor whose report dated April 14, 2014, expressed an unmodified opinion on those statements.
BELINDA B. FERNANDO
Partner
CPA Certificate No. 81207
Tax Identification No. 102-086-538-000
BOA Accreditation No. 4782; Valid until December 31, 2015
SEC Accreditation No. 1022-AR-1 Group A
Valid until October 2, 2016
BIR Accreditation No. 08-005144-4-2013
Valid until November 26, 2016
PTR No. 4748325
Issued January 5, 2015, Makati City
March 27, 2015
Makati City, Metro Manila
8741 Paseo de Roxas
Phone: +632 982 9100
Fax : +632 982 9111
REPORT OF INDEPENDENT AUDITOR
TO ACCOMPANY FINANCIAL STATEMENTS FOR FILING WITH THE
SECURITIES AND EXCHANGE COMMISSION
Makati City
We have audited the accompanying consolidated financial statements of Max’s Group, Inc. (formerly Pancake House, Inc.) and Subsidiaries (the Group) as at and for the year ended December 31, 2014,
on which we have rendered our report dated March 27, 2015.
In compliance with Securities Regulations Code Rule 68, as amended, we are stating that the
Company has 81 stockholders owning one hundred (100) or more shares each.
BELINDA B. FERNANDO
Partner
PTR No. 4748325
March 27, 2015
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2014
(With Comparative Figures for 2013)
(Amounts in Thousands)
Note
2014
2013
P
=956,522
677,559
364,286
363,473
2,361,840
=P341,682
441,848
96,883
70,708
951,121
1,712,220
4,125,644
433,046
462,153
196,605
320,567
289,119
7,539,354
470,410
1,207,987
–
5,060
110,391
139,944
85,011
2,018,803
P
=9,901,194
=2,969,924
P
P
=2,191,442
2,085,486
73,697
8,165
37,939
4,396,729
=P695,403
304,500
785,876
7,859
28,162
1,821,800
ASSETS
Current Assets
Cash
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Property and equipment
Intangible assets
Investment properties
Net retirement plan assets
Net deferred income tax assets
Security deposits on lease contracts
Other noncurrent assets
Total Noncurrent Assets
8
9
10
11
12
11
24
26
28
13
LIABILITIES AND EQUITY
Current Liabilities
Trade and other payables
Loans payable
Current portion of long-term debt
Current portion of mortgage payable
Income tax payable
Total Current Liabilities
14
15
16
17
-2-
Note
Noncurrent Liabilities
Long-term debt
Mortgage payable
Net retirement liabilities
Accrued rent payable
Net deferred income tax liabilities
Provision for share in equity in net losses of a joint
venture
Other noncurrent liabilities
Total Noncurrent Liabilities
Equity
Capital stock
Additional paid-in capital
Retained earnings
Notes for conversion to equity
Other comprehensive income (loss)
Shares held by subsidiaries
Noncontrolling interests
Total Equity
See accompanying Notes to Consolidated Financial Statements.
2014
2013
16
17
24
28
26
P
=1,212,790
–
101,887
37,328
103,291
=–
P
1,500
62,971
31,633
13
6,741
9,557
1,471,594
26,591
–
122,695
19
19
19
18
1,087,082
5,353,289
114,102
–
32,350
6,586,823
(2,610,013)
56,061
4,032,871
237,795
176,806
401,680
120,386
(12,114)
924,553
–
100,876
1,025,429
P
=9,901,194
=2,969,924
P
19
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2014
[Amounts in Thousands, except for earnings (loss) per share]
2014*
Note
REVENUES
Restaurant sales
Commissary sales
Franchise and royalty fees
28
COSTS OF SALES
21
GROSS PROFIT
GENERAL AND ADMINISTRATIVE EXPENSES
22
SALES AND MARKETING EXPENSES
Max’s Group, Inc. (formerly Pancake
House, Inc.)
(1 year)
Max's Entities
(2 months)
Eliminating
Entries
2013
2012
Combined
Amounts
P
=3,243,904
322,145
127,871
3,693,920
P
=947,406
211,656
28,574
1,187,636
P
=–
(15,758)
–
(15,758)
P
=4,191,310
518,043
156,445
4,865,798
=3,103,219
P
503,473
144,859
3,751,551
=2,831,596
P
467,107
131,997
3,430,700
3,099,347
862,903
(15,758)
3,946,492
3,067,219
2,799,748
594,573
324,733
–
919,306
684,332
630,952
(498,800)
(213,883)
–
(712,683)
(436,762)
(399,329)
(172,575)
(30,646)
–
(203,221)
(131,386)
(62,885)
(39,499)
(25,254)
–
(64,753)
(62,580)
(61,331)
FINANCE COSTS
15
SHARE IN EQUITY IN NET LOSSES OF JOINT
VENTURES
13
–
–
(12,043)
(10,124)
OTHER INCOME
25
133,418
1,342,364
(1,307,527)
168,255
100,972
113,157
17,117
1,397,314
(1,307,527)
106,904
142,533
210,470
(177,412)
–
–
(70,508)
142,533
210,470
54,356
(58,660)
(4,304)
97,763
(34,504)
63,259
86,897
(26,045)
60,852
INCOME (LOSS) BEFORE CORPORATE
REORGANIZATION COSTS
CORPORATE REORGANIZATION COSTS
6
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) INCOME TAX
Current
Deferred
–
(160,295)
1,397,314
–
(1,307,527)
–
26
40,560
(57,983)
(17,423)
NET INCOME (LOSS)
NET INCOME (LOSS) ATTRIBUTABLE TO:
Equity holders of the Parent Company
Earnings (loss) Per Share Attributable to the
Equity Holders of the Parent Company
Basic
Diluted
(177,412)
–
13,796
(677)
13,119
–
–
–
(P
=142,872)
P
=1,384,195
(P
=1,307,527)
(P
=66,204)
=79,274
P
=149,618
P
(P
=117,667)
(25,205)
(P
=142,872)
P
=1,384,195
–
P
=1,384,195
(P
=1,307,527)
–
(1,307,527)
(P
=40,999)
(25,205)
(P
=66,204)
=105,597
P
(26,324)
=79,274
P
=151,418
P
(1,800)
=149,618
P
27
(P
=0.05)
(P
=0.05)
=P0.21
=0.21
P
=P0.30
=0.29
P
* As discussed in Note 6, the Max’s Entities (Max’s) became subsidiaries of Max’s Group, Inc. (MGI) effective November 2014. The 2014
consolidated statement of income includes the whole year results of operations of MGI and the two months results of operations of
Max’s in 2014 in accordance with PFRS 3, Business Combinations. Had the business combination occurred at the beginning of year, the
proforma combined whole year results of operations of MGI and Max’s is presented in Note 6.
SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Note
NET INCOME (LOSS)
2014
(P
=66,202)
2013
2012
=79,274
P
=149,618
P
OTHER COMPREHENSIVE INCOME
Item to be reclassified to profit or loss
Income (loss) from exchange differences on
translation of foreign operations
Item not to be reclassified to profit or loss
Actuarial gains (losses) on retirement benefit
plan
Income tax effect
24
5,057
(3,553)
1,466
54,020
(16,206)
42,871
15,694
(4,708)
7,433
(1,134)
340
672
TOTAL COMPREHENSIVE INCOME (LOSS)
(P
=23,331)
=86,707
P
=150,290
P
TOTAL COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO:
Equity holders of the Parent Company
P
=14,504
(37,835)
=112,648
P
(25,941)
=152,100
P
(1,810)
(P
=23,331)
=86,707
P
=150,290
P
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Note
CAPITAL STOCK
Balance at beginning of year
Conversion of notes to equity
Issuance of shares
Stock dividends
19
ADDITIONAL PAID-IN CAPITAL
Share swap transaction
Issuance of new shares
Sale on follow-on offering
Balance at end of year
19
NOTES FOR CONVERSION TO EQUITY
18
RETAINED EARNINGS
Balance at beginning year
Net income (loss)
Stock dividends
Cash dividends
Balance at end year
OTHER COMPREHENSIVE INCOME (LOSS)
To be reclassified to profit or loss when realized
- Cumulative translation adjustments
Income (loss) from exchange differences on
translation of foreign operations
(Forward)
2014
2013
2012
P
=237,795
21,416
568,660
259,211
1,087,082
=237,795
P
–
–
–
237,795
=237,795
P
–
–
–
237,795
176,806
110,856
3,434,844
426,784
1,204,029
5,353,289
176,806
–
–
–
176,806
–
–
–
176,806
176,806
120,386
(120,386)
–
120,386
–
120,386
120,386
–
120,386
401,680
(28,367)
(259,211)
–
114,102
365,139
105,597
–
(69,056)
401,680
248,653
151,418
–
(34,932)
365,139
(6,650)
(3,097)
(4,563)
5,057
(1,593)
(3,553)
(6,650)
1,466
(3,097)
-2-
Note
Not to be reclassified to profit or loss Remeasurement adjustments on net
retirement liabilities, net of deferred tax
Remeasurement of net retirement liabilities
and net retirement plan assets, net of
deferred tax
SHARES HELD BY SUBSIDIARIES - at cost
Acquisition of Parent Company shares by the
10 Max’s Entities
NONCONTROLLING INTERESTS
Effect of disposal on investment of subsidiaries
Total comprehensive income
Movements in noncontrolling interests
2014
2013
2012
(P
=5,464)
(P
=16,068)
(P
=15,284)
39,407
33,943
32,350
10,604
(5,464)
(12,114)
(784)
(16,068)
(19,165)
6,586,823
924,553
880,961
–
–
–
–
–
–
19
(4,093,766)
1,483,753
(2,610,013)
100,876
(315)
(37,835)
(6,665)
56,061
P
=4,032,871
144,363
–
(25,941)
(17,546)
100,876
=1,025,429
P
147,792
–
(1,810)
(1,619)
144,363
=1,025,324
P
CONSOLIDATED STATEMENT OF CASH FLOWS
Note
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax
Adjustments for:
Depreciation and amortization
Provision for impairment losses
Finance costs
Amortization of intangible assets
Gain from disposal of subsidiaries
Interest income
Share in equity in net losses of joint
ventures
Gain on remeasurement of convertible
notes
Gain on disposal of property and equipment
Operating income before working capital
changes
Decrease (increase) in:
Trade and other receivables
Inventories
Due from related parties
Net retirement plan assets
Prepaid expenses and other current assets
Increase (decrease) in:
Trade and other payables
Other current liabilities
Net cash generated from operations
Interest received
Interest paid
Income taxes paid
Net cash flows provided by operating activities
(Forward)
11
8
15
12
7
25
2014
2013
2012
(P
=70,506)
=142,533
P
=210,470
P
270,845
150,610
64,753
39,786
(13,001)
(1,297)
203,113
4
62,580
36,270
–
(1,069)
166,180
47
61,331
31,717
–
(3,636)
10
–
12,043
10,124
18
11
–
–
(1,069)
(1,268)
(3,817)
(493)
441,190
453,137
471,923
(193,332)
(23,395)
570,798
(454,202)
(17,073)
(69,310)
(3,882)
–
–
46,578
(4,412)
4,567
–
–
(38,975)
462,935
(10,284)
5,595
(12,538)
769,694
1,297
(53,210)
(56,036)
661,745
77,313
17,808
(7,261)
–
514,383
1,069
(96,043)
(63,298)
356,111
67,494
14,655
8,397
–
523,649
3,636
(76,063)
(57,878)
393,344
-2-
Note
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Intangible assets
Subsidiaries, net of cash acquired
Decrease (increase) in:
Security deposits on lease contracts
Net cash flows used in investing activities
2013
2012
(P
=356,163)
(12,617)
104
208,458
(P
=259,338)
(7,340)
–
–
(P
=239,779)
(12,794)
–
(88,238)
(123,392)
118,214
(165,396)
(43,577)
10,487
(299,768)
(29,850)
2,890
(367,771)
(69,056)
(34,932)
(1,500)
(4,000)
5,557
(1,049)
–
(20,010)
(4,000)
2,082
(1,571)
–
(17,163)
(2,385)
118,490
(87,211)
(60,816)
NET INCREASE (DECREASE) IN CASH
614,840
(30,868)
(35,242)
CASH AT BEGINNING OF YEAR
341,682
372,550
407,792
P
=956,522
=341,682
P
=372,550
P
=P–
–
–
=–
P
=P–
–
–
=–
P
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid
Net proceeds from (payments of):
Loans payable
Long-term debt
Mortgage payable
Convertible notes
Net proceeds from issuance of shares
Decrease in noncurrent liabilities
Returns to noncontrolling interests
Net cash flows provided by (used in) financing
activities
11
12
2014
19
(3,356,304)
334,383
(1,195)
–
3,153,726
(5,481)
(6,639)
CASH AT END OF YEAR
NONCASH FINANCIAL INFORMATION
Share swap
Stock dividends
–
19
19
18
P
=3,975,336
259,211
(120,386)
P
=4,114,161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(With Comparative Information for 2013 and 2012)
1. Corporate Information
MAX’S GROUP, INC. (formerly Pancake House, Inc.; the Parent Company) was incorporated in the
Philippines and registered with the Securities and Exchange Commission (SEC) on March 1, 2000.
Its shares are publicly traded in the Philippine Stock Exchange. The Parent Company and its
subsidiaries (collectively referred to as “the Group”) are primarily engaged in the business of catering foods and establishing, operating and maintaining restaurants, coffee shops,
refreshments parlors and cocktail lounges.
The Group operates under the trade names “Max’s”, “Pancake House,” “Yellow Cab”, “Krispy Kreme”, “Jamba Juice”, “Max’s Corner Bakeshop”, “Dencio’s”, ”Teriyaki Boy”, “Singkit”, “Sizzlin’ Steak”, “Le Coeur de France”, “The Chicken Rice Shop”, “Kabisera ni Dencio’s”, “Maple” and
“Meranti”.
On December 20, 2013, Pancake House Holdings, Inc. (PHHI), the previous ultimate parent
company, agreed to sell to the 10 companies which belong to the Max’s Group (Max’s Entities) all of its shares in the Parent Company at a price of P
=15 per share. The 10 Max’s Entities also
made a tender offer to the minority shareholders of the Parent Company at a price of P
=15 a
share and completed their acquisition of 233,160,200 shares or 89.95% of the Parent Company’s outstanding shares on February 24, 2014.
On June 30, 2014, the Board of Directors (BOD) of the Parent Company authorized its acquisition
of all the issued and outstanding shares of stock of 20 Max’s Entities. Included in the Max’s Entities are the 10 companies which previously acquired 89.95% combined stake in the Parent
Company and its subsidiaries. On November 7, 2014, the SEC issued the certificate of approval of
the valuation of approximately P
=4.0 billion in exchange for the subscription of 540,491,344
shares of the Parent Company. The exchange is accounted for as a business combination in
accordance with Philippine Financial Reporting Standards (PFRS) 3, with the Parent Company as
the acquirer, the 20 Max’s Entities as acquirees, and November 7, 2014 as the acquisition date
(see Note 8).
On July 31, 2014, the SEC approved the application for the increase in authorized capital stock of
the Parent Company from 400,000 shares with a par value of P
=1.0 a share to 1,400,000,000
shares with the same par value. On August 8, 2014, the SEC approved the declaration of stock
dividends of 259,210,840 shares out of the increase.
In December 2014, the Parent Company made a follow-on offering of 28,168,998 new shares and
169,014,100 shares held by subsidiaries to the public. Shares held by subsidiaries pertain to the
shares of 10 Max’s entities. The Parent Company recognized additional paid-in capital related to
new shares amounting to P
=471.8 million arising from the excess of the proceeds over par value of
the shares sold. Total cost incurred in the follow-on offering transaction amounted to
=364.3 million. Of the total amount P
P
=7.0 million was charged to profit or loss and P
=357.3 million
was recorded as reduction to additional paid-in capital.
-2-
The 20 Max’s Entities consist of Max’s Makati, Inc., Max’s Kitchen, Inc., Max’s SM Marikina, Inc.,
Max’s Ermita, Inc., Chicken’s R Us, Inc., Max’s Circle, Inc., Max’s Baclaran, Inc., Max’s Bakeshop,
Inc., Max’s Food Services, Inc., Max’s Express Restaurants, Inc., Square Top, Inc., No Bia, Inc.,
Max’s Franchising, Inc., Ad Circles, Inc., Alpha (Global) Max Group Limited, The Real American
Doughnut Company, Inc., Fresh Healthy Juice Boosters, Inc., MGOC Holdings, Inc., RooM
Ventures Corp. and Trota Gimenez Realty Corporation.
On August 22, 2014, the SEC approved the change in the Parent Company name to “MAX’S GROUP, INC.”.
The registered office address of the Parent Company is Pancake House Center, 2259 Pasong
Tamo Extension, Makati City. On January 22, 2015, the BOD approved the change in the Parent
Company’s principal place of business to 11F Ecoplaza Building, Pasong Tamo Ext., Makati City. Amendment of the Articles of Incorporation for the change in registered office address is
currently ongoing.
The Board of Directors (BOD) has delegated the authority to the President and the Chief Financial
Officer to approve and authorize for issue the accompanying consolidated financial statements of
the Group as at and for the year ended December 31, 2014 (with comparative figures for 2013
and 2012). The accompanying consolidated financial statements of the Group as at and for the
year ended December 31, 2014 (with comparative figures for 2013 and 2012) were approved and
authorized for issue by the President and Chief Financial Officer on March 27, 2015.
2. Basis of Preparation and Statement of Compliance
The consolidated financial statements of the Group have been prepared under the historical cost
basis. The consolidated financial statements are presented in Philippine Peso, which is the
Group’s functional and presentation currency. All values are rounded to the nearest thousands
except when otherwise indicated.
The consolidated financial statements have been prepared in accordance with Philippine
Financial Reporting Standards (PFRS) issued and approved by the Philippine Financial Reporting
Standards Council (FRSC) and adopted by the SEC, including SEC pronouncements. PFRS includes
PFRS, Philippine Accounting Standards (PAS), and Philippine Interpretation from International
Financial Reporting Interpretations Committee (IFRIC).
3. Summary of Changes in Accounting Policies
Adoption of New and Amended PFRS
The accounting policies adopted are consistent with those of the previous financial years, except
for the adoption of the following new and amended PFRS and Philippine Interpretation from
IFRIC which the Group adopted effective January 1, 2014:
Amendments to PAS 32, Financial Instruments: Recognition - Offsetting Financial Assets and
Financial Liabilities ─ The amendments address inconsistencies in current practice when
applying the offsetting criteria in PAS 32. The amendments clarify (1) the meaning of
‘currently has a legally enforceable right of set-off’; and (2) that some gross settlement
systems may be considered equivalent to net settlement.
-3-
Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for NonFinancial Assets – These amendments remove the unintended consequences of PFRS 13, Fair
Value Measurement, on the disclosures required under PAS 36. In addition, these
amendments require disclosure of the recoverable amounts for the assets or (cash
generating units (CGU) for which impairment loss has been recognized or reversed during the
period. The amendments affect disclosures only and have no impact on the Group’s financial
position or performance.
Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12, Disclosure of Interests
in Other Entities and PAS 27, Separate Financial Statements - Investment Entities ─ These
provide an exception to the consolidation requirement for entities that meet the definition
of an investment entity under PFRS 10. The exception to consolidation requires investment
entities to account for subsidiaries at fair value through profit or loss.
The adoption of the foregoing new and amended PFRS did not have any material effect on the
consolidated financial statements. Additional disclosures have been included in the notes to
consolidated financial statements, as applicable.
New and Amended PFRS Not Yet Adopted
Relevant new and amended PFRS which are not yet effective for the year ended December 31,
2014 and have not been applied in preparing the financial statements are summarized below.
Effective for annual periods beginning on or after July 1, 2014:
Amendments to PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions ─ The amendments apply to contributions from employees or third parties to defined benefit
plans. Contributions that are set out in the formal terms of the plan shall be accounted for as
reductions to current service costs if they are linked to service or as part of the
remeasurements of the net defined benefit asset or liability if they are not linked to service.
Contributions that are discretionary shall be accounted for as reductions of current service
cost upon payment of these contributions to the plans.
Amendments to PAS 24, Related Party Disclosures - Key Management Personnel ─ The
amendments clarify that an entity is a related party of the reporting entity if the said entity,
or any member of a group for which it is a part of, provides key management personnel
services to the reporting entity or to the parent company of the reporting entity. The
amendments also clarify that a reporting entity that obtains management personnel services
from another entity (also referred to as management entity) is not required to disclose the
compensation paid or payable by the management entity to its employees or directors. The
reporting entity is required to disclose the amounts incurred for the key management
personnel services provided by a separate management entity.
Amendments to PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement
of Accumulated Amortization ─ The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount,
and the asset shall be treated in one of the following ways: (a) the gross carrying amount is
adjusted in a manner that is consistent with the revaluation of the carrying amount of the
asset. The accumulated amortization at the date of revaluation is adjusted to equal the
difference between the gross carrying amount and the carrying amount of the asset after
taking into account any accumulated impairment losses; or (b) the accumulated amortization
is eliminated against the gross carrying amount of the asset.
-4-
The amendments also clarify that the amount of the adjustment of the accumulated
amortization should form part of the increase or decrease in the carrying amount accounted
for in accordance with PAS 38.
Amendment to PAS 40, Investment Property - Classifying Property as Investment Property or
Owner-Occupied Property – The amendment clarifies that determining whether a specific
transaction meets the definition of both a business combination and investment property
requires the separate application of PAS 40 and PFRS 3, Business Combination.
Amendments to PFRS 3, Business Combinations - Contingent Consideration and Scope
Exception for Joint Ventures – The amendments require that the contingent consideration
that is classified as an asset or liability is measured at fair value at each reporting date and
changes in fair value are recognized in profit or loss, including contingent considerations that
are classified as financial instrument.
The amendments also clarifies that the accounting for the formation of a joint arrangement
in the financial statements of the joint arrangement itself is excluded in the scope of PFRS 3.
Amendments to PFRS 8, Operating Segments - Aggregation of Operating Segments and
Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets – The
amendments require entities to disclose the judgment made by management in aggregating
two or more operating segments. This disclosure should include a brief description of the
operating segments that have been aggregated in this way and the economic indicators that
have been assessed in determining that the aggregated operating segments share similar
economic characteristics. The amendments also clarify that an entity shall provide
reconciliations of the total of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating decision maker.
Amendments to PFRS 13, Fair Value Measurement - Short-term Receivables and Payables ─ The amendments clarify that short-term receivables and payables with no stated interest
rates can be measured at invoice amounts when the effect of discounting is immaterial.
This also clarifies that the scope of the portfolio exception includes all contracts accounted
for within the scope of PAS 39, Financial Instruments: Recognition and Measurement or
PFRS 9, Financial Instruments, regardless of whether they meet the definition of financial
assets or financial liabilities.
Effective for annual periods beginning on or after January 1, 2015:
PFRS 9, Financial Instruments: Classification and Measurement ─ This standard is the first
phase in replacing PAS 39 and applies to classification and measurement of financial assets as
defined in PAS 39.
Effective for annual periods beginning on or after January 1, 2016:
PFRS 14, Regulatory Deferral Accounts ─ This standard specifies the financial reporting
requirements for regulatory deferral account balances that arise when an entity provides
goods or services to customers at a price or rate that is subject to rate regulation.
Under prevailing circumstances, the adoption of the foregoing new and amended PFRS is not
expected to have any material effect on the consolidated financial statements. Additional
disclosures will be included in the consolidated financial statements, as applicable.
-5-
4. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements of the Group comprise the financial statements of the
Parent Company and its subsidiaries. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. Specifically, the Group controls an investee if
and only if the Group has:
Power over the investee (i.e. existing rights that give it the current ability to direct the
relevant activities of the investee);
Exposure, or rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns.
When the Group has less than majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an
investee, including:
The contractual arrangement with the other vote holders of the investee;
Rights arising from other contractual arrangement; and
The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the subsidiary and ceases when the
Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated statement of income
from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the
equity holders of the Parent Company and to the noncontrolling interests, even if this results in
the noncontrolling interests having a deficit balance.
Noncontrolling interests represent the portion of net results and net assets not held by the
Group. These are presented in the consolidated statement of financial position within equity,
apart from equity attributable to equity holders of the Parent Company and are separately
disclosed in the consolidated statement of income and consolidated statement of comprehensive
income. Noncontrolling interests consist of the amount of those interests at the date of original
business combination and the noncontrolling interests’ share on changes in equity since the date of the business combination.
The financial statements of the subsidiaries are prepared for the same reporting year as the
Parent Company. Consolidated financial statements are prepared using uniform accounting
policies for like transactions and other events in similar circumstances. Intercompany balances
and transactions, including intercompany profits and losses, are eliminated.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an
equity transaction. If the Group loses control over a subsidiary, it:
Derecognizes the assets (including goodwill) and liabilities of the subsidiary
Derecognizes the carrying amount of any noncontrolling interests
-6-
Derecognizes the cumulative translation differences recorded in equity
Recognizes the fair value of the consideration received
Recognizes the fair value of any investment retained
Recognizes surplus or deficit in profit or loss
Reclassifies the parent’s share of component previously recognized in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of
the related assets or liabilities.
The consolidated financial statements include the accounts of the Parent Company and the
following subsidiaries:
Company Name
Boulangerie Francaise, Inc. (BFI)
YCPC Subic, Inc. (formerly DFSI Subic, Inc.)
[a]
Golden B.E.R.R.D. Grill, Inc.
Pancake House International, Inc. (PHII)
Teriyaki Boy International - Inc.
Yellow Cab Food Co. International - Inc.
Pancake House, International
Malaysia Sdn Bhd (PHIM)
[a]
Pancake House Ventures, Inc. (PHVI)
Yellow Cab Food Corporation (YCFC)
YCPI Pizza Venture, Inc.
PHI Culinary Arts and Food Services
[c]
Institute, Inc. (PHICAFSI)
Hospitality School Management
[c]
Group, Inc. (HSMGI)
International School for Culinary
Arts and Hotel Management
[c]
Quezon City, Inc.
88 Just Asian, Inc. (88JAI)
Teriyaki Boy Group, Inc. (TBGI)
[b]
TBGI-Trinoma, Inc.
[b]
TBGI-Marilao, Inc.
[b]
TBOY-MS, Inc.
[b]
TBGI-Tagaytay, Inc. (TBGI Tagaytay)
[b]
CRP Philippines, Inc.
[c]
[c]
PCK-LFI, Inc.
[a]
PCK-AMC, Inc.
PCK-Boracay, Inc.
PCK-MTB, Inc.
PCK-N3, Inc.
PCK Bel-Air, Inc.
[b]
PCK-MSC, Inc.
PCKPolo, Inc.
PCK-Palawan, Inc.
DFSI One-Nakpil, Inc.
Nature of
Business
Restaurant
Restaurant
Restaurant
Holding
Company
Franchising
Franchising
Percentage of
Effective Ownership
2014
2013
100
100
100
100
100
100
2012
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
55
100
100
55
100
100
55
Culinary School
–
100
100
Management
–
60
60
–
80
70
42
36
35
28
50
–
51
–
70
60
60
60
51
51
50
70
60
60
60
80
70
42
36
35
28
50
60
51
51
70
60
60
60
51
51
50
70
60
60
60
80
70
42
36
35
28
50
60
51
51
70
60
60
60
51
51
50
70
60
60
Restaurant
Holding
Company
Restaurant
Restaurant
Culinary School
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
Restaurant
-7-
Company Name
Nature of
Business
Subsidiaries effective November 7, 2014 (see Note 6):
RooM Ventures Corp.
Real Estate
No Bia, Inc.
Commissary
Investment
MGOC Holdings, Inc.
Holding
Max’s SM Marikina, Inc.
Restaurant
Restaurant
The Real American Doughnut Company,
Inc.
Bakery
Max’s Franchising, Inc. Franchising
Real Estate
Alpha (Global) Max Group Limited (Alpha Max)
Franchising
Max’s Baclaran, Inc.
Restaurant
Restaurant
Advertising
Ad Circles, Inc.
Support
Square Top, Inc.
Commissary
Fresh Healthy Juice Boosters, Inc.
Restaurant
Bakery
Max’s Circle, Inc.
Restaurant
Max’s Ermita, Inc.
Restaurant
Max’s Express Restaurants, Inc.
Restaurant
Max’s Food Services, Inc.
Restaurant
Max’s Makati, Inc.
Restaurant
Percentage of
Effective Ownership
2014
2013
2012
100
100
–
–
–
–
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
[a]
Dormant companies as at December 31, 2014 and 2013.
Although the Group owns not more than 50% of the voting power of these companies, it is able to govern the financial and
operating policies of the companies by virtue of an agreement with the other investors of such entities. Consequently, the Group
consolidates its investment in these companies.
[c]
Not included in the consolidation in 2014.
[b]
All of the subsidiaries are incorporated and operating in the Philippines, except for PHII, Teriyaki
Boy International - Inc., Yellow Cab Food Co. International - Inc. which are incorporated in British
Virgin Islands, Pancake House, International Malaysia Sdn Bhd (PHIM), a company incorporated
and operating in Malaysia and Alpha Max which is incorporated in Hongkong.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an
acquisition is measured as the aggregate of the consideration transferred, measured at
acquisition date fair value, and the amount of any noncontrolling interest in the acquiree. For
each business combination, the acquirer measures the noncontrolling interest in the acquiree
pertaining to instruments that represent present ownership interests and entitle the holders to a
proportionate share of the net assets in the event of liquidation either at fair value or at the
proportionate share of the acquiree’s identifiable net assets. All other components of
noncontrolling interest are measured at fair value unless another measurement basis is required
by PFRS. Acquisition-related costs incurred are expensed and included in general and
administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation
of embedded derivatives in host contracts by the acquiree, if any.
-8-
If the business combination is achieved in stages, any previously held interest is remeasured at its
acquisition date fair value and any resulting gain and loss is recognized in the consolidated
statement of income. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration which
is deemed to be an asset or liability will be recognized in accordance with PAS 39 either in
consolidated statement of income or as a change to other comprehensive income. If the
contingent consideration is not within the scope of PAS 39, it is measured in accordance with
appropriate PFRS. Contingent consideration that is classified as equity, is not remeasured until it
is finally settled and accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred and the amount recognized for noncontrolling interest, and any previous interest
held, over the net fair value of the identifiable assets acquired and liabilities assumed. If the fair
value of the net assets acquired is in excess of the aggregate consideration transferred, the
Group reassesses whether it has correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedure used to measure the amounts to be recognized at
the acquisition date. If the reassessment still results in an excess of the fair value of net assets
acquired over the aggregate consideration transferred, then gain is recognized in consolidated
statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s CGU that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to
those units.
Where goodwill forms part of a CGU and part of the operation within CGU unit is disposed of, the
goodwill associated with the operation disposed of is included in the carrying amount of the
operation when determining the gain or loss on disposal of the operation. Goodwill disposed of
in this circumstance is measured based on the relative values of the operation disposed of and
the portion of the CGU retained.
If necessary information, such as fair value of assets and liabilities acquired, is not available by
the end of the reporting period in which the business combination occurs, provisional amounts
are used for a period not exceeding one year from the date of acquisition or the measurement
period. During this period, provisional amounts recognized for a business combination may be
retrospectively adjusted if relevant information has been obtained or becomes available.
Financial Instruments
Financial instruments are recognized in the consolidated statement of financial position when
the Group becomes a party to the contractual provisions of the instruments. The Group
determines the classification of its financial instruments on initial recognition and, where allowed
and appropriate, re-evaluates this designation at each reporting date.
All regular way purchases and sales of financial assets are recognized on the settlement date.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of
assets within the period generally established by regulation or convention in the marketplace.
-9-
Financial instruments are recognized initially at fair value of the consideration given (in the case
of an asset) or received (in the case of a liability). Except for financial instruments at fair value
through profit or loss (FVPL), the initial measurement of all financial instruments includes
transaction costs. Financial assets under PAS 39, Financial Instruments Recognition and
Measurement, are categorized as either financial assets at FVPL, loans and receivables, held to
maturity (HTM) investments or available-for-sale (AFS) financial assets. Also under PAS 39,
financial liabilities are categorized as FVPL or other financial liabilities.
Financial instruments are classified as liabilities or equity in accordance with the substance of
the contractual arrangement. Interests, dividends, gains and losses relating to a financial
instrument or a component that is a financial liability, are reported as expense or income.
Distributions to holders of financial instruments classified as equity are charged directly to
equity, net of any related income tax benefits.
Financial Assets
As at December 31, 2014 and 2013, the Group does not have any financial assets at FVPL, HTM
investments and AFS financial assets. The Group’s financial assets are of the nature of loans and receivables.
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They are not entered into with the intention of
immediate or short-term resale and are not classified as financial assets held for trading,
designated as AFS financial assets or designated at FVPL.
Classified under this category are the Group’s cash, trade and other receivables, due from related
parties and noncurrent receivables included under “Other noncurrent assets” which arise primarily from restaurant and commissary sales, franchise fees and royalty fees.
Loans and receivables are classified as current assets when these are expected to be realized
within twelve months after the reporting date or within the normal operating cycle, whichever is
longer.
Loans and receivables are recognized initially at fair value, which normally pertains to the billable
amount. After initial measurement, loans and receivables are subsequently measured at
amortized cost using the effective interest rate method, less allowance for impairment losses.
Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees that are an integral part of the effective interest rate. The amortization, if any, is included in
“Interest income” account in the consolidated statement of income. The losses arising from
impairment of loans and receivables are recognized in the consolidated statement of income.
The level of allowance for probable losses is evaluated by management on the basis of factors
that affect the collectibility of accounts.
Financial Liabilities
As at December 31, 2014 and 2013, the Group does not have any financial liabilities at FVPL. The
Group’s financial liabilities consist of other financial liabilities.
Issued financial liabilities or their components, which are not designated at FVPL are categorized
as other financial liabilities, where the substance of the contractual arrangement results in the
Group having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares. The components of issued financial liabilities that
contain both liability and equity elements are accounted for separately, with the equity
- 10 -
component being assigned the residual amount after deducting from the instrument as a whole
the amount separately determined as the fair value of the liability component on the date of
issue. After initial measurement, other financial liabilities are subsequently measured at
amortized cost using the effective interest rate method. Amortized cost is calculated by taking
into account any discount or premium on the issue and fees that are an integral part of the
effective interest rate which is recognized in the consolidated statement of income.
This accounting policy applies primarily to the Group’s trade and other payables, loans payable,
long-term debt, mortgage payable and debt component of convertible notes.
Other financial liabilities are classified as current liabilities when these are expected to be settled
within twelve months from the reporting date or the Group does not have an unconditional right
to defer settlement for at least twelve months from the reporting date.
Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or
liability.
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants act
in their best economic interest.
A fair value measurement of nonfinancial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of not observable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable; and
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is not observable.
- 11 -
For assets and liabilities that are recognized in the consolidated financial statements on a
recurring basis, the Group determines whether transfers have occurred between Levels in the
hierarchy by re-assessing categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting date.
For the purpose of fair value disclosures, the Group has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level
of the fair value hierarchy as explained above.
As at December 31, 2014 and 2013, the Group does not have financial instruments measured at
fair value.
“Day 1” Difference
Where the transaction price in a nonactive market is different from the fair value of other
observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable market, the Group recognizes the
difference between the transaction price and fair value (a “Day 1” difference) in the consolidated statement of income unless it qualifies for recognition as some other types of assets. In cases
where use is made of data which is not observable, the difference between the transaction price
and model value is only recognized in the consolidated statement of income when the inputs
become observable or when the instrument is derecognized. For each transaction, the Group
determines the appropriate method of recognizing the “Day 1” difference amount.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated statement of financial position if, and only if:
1. there is a currently enforceable legal right to offset the recognized amounts; and
2. there is an intention to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
Impairment of Financial Assets Carried at Amortized Cost
The Group assesses at each reporting date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is
deemed to be impaired if, and only if, there is objective evidence of impairment as a result of
one or more events that has or have occurred after the initial recognition of the asset (an
incurred “loss event”) and that loss event has an impact on the estimated future cash flows of
the financial asset or the group of financial assets that can be reliably estimated.
Objective evidence of impairment may include indications that the borrower or a group of
borrowers is experiencing significant financial difficulty, default or delinquency in interest or
principal payments, the probability that they will enter bankruptcy or other financial
reorganization and where observable data indicate that there is measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions that correlate
with defaults.
- 12 -
For loans and receivables carried at amortized cost, the Group first assesses whether an
objective evidence of impairment (such as the probability of insolvency or significant financial
difficulties of the debtor) exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant. If there is objective evidence
that an impairment loss has been incurred, the amount of loss is measured as the difference
between the asset’s carrying value and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). If the Group determines that no
objective evidence of impairment exists for individually assessed financial asset, whether
significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses for impairment. Those characteristics are relevant to the
estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Assets that are individually assessed for impairment and for which an impairment loss is, or
continues to be recognized, are not included in a collective assessment for impairment.
The carrying value of the asset is reduced through the use of an allowance account and the
amount of loss is charged to the consolidated statement of income. If in case the receivable has
proven to have no realistic prospect of future recovery, any allowance provided for such
receivable is written off against the carrying value of the impaired receivable. Interest income
continues to be recognized based on the original effective interest rate of the asset. If, in a
subsequent year, the amount of the estimated impairment loss decreases because of an event
occurring after the impairment was recognized, the previously recognized impairment loss is
reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is
recognized in the consolidated statement of income to the extent that the carrying value of the
asset does not exceed its amortized cost at reversal date.
Derecognition of Financial Instruments
Financial Asset. A financial asset (or, where applicable a part of a financial asset or part of a
group of similar financial assets) is derecognized when:
1. the rights to receive cash flows from the asset have expired;
2. the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
3. the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred
nor retained all the risks and rewards of the asset but has transferred the control of the
asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered
into a pass-through arrangement, and has neither transferred nor retained substantially all the
risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the
extent of the Group’s continuing involvement in the asset. Continuing involvement that takes
the form of a guarantee over the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of consideration that the Group could be
required to repay.
- 13 -
Financial Liability. A financial liability is derecognized when the obligation under the liability is
discharged or cancelled or has expired. Where an existing financial liability is replaced by
another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability, and the difference in
the respective carrying amounts of a financial liability extinguished or transferred to another
party and the consideration paid, including any noncash assets transferred or liabilities assumed
is recognized in the consolidated statement of income.
Inventories
Inventories consist of food and beverage, store and kitchen supplies and operating equipment
for sale. Inventories are valued at the lower of cost and net realizable value (NRV). Cost is
determined using the weighted average method. NRV of food and beverage is the estimated
selling price in the ordinary course of business less the estimated costs necessary to make the
sale. NRV of store and kitchen supplies and operating equipment for sale is the current
replacement cost. In determining NRV, the Group considers any adjustment necessary for
spoilage, breakage and obsolescence.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include prepaid expenses, advances to suppliers and
creditable withholding taxes.
Prepaid Expenses. Prepaid expenses are carried at cost and are amortized on a straight-line basis
over the period of expected usage, which is equal to or less than twelve months or within the
normal operating cycle.
Advances to Suppliers. Advances to suppliers represent advance payments on goods or services
to be purchased in connection with the Group’s operations. These are charged as an expense in
the consolidated statement of income upon actual receipt of goods or services, which is normally
within twelve months or within the normal operating cycle.
Creditable Withholding Taxes (CWTs). CWTs represent the amount withheld by the Group’s customers in relation to its restaurant and commissary sales. These are recognized upon
collection of the related sales and are utilized as tax credits against income tax due as allowed by
the Philippine taxation laws and regulations. CWTs are stated at their estimated NRV.
Property and Equipment
Property and equipment, except for land, is stated at cost less accumulated depreciation and
amortization and any allowance for impairment in value. Land is stated at cost less any
impairment loss.
The initial cost of property and equipment comprises its purchase price, including import duties
and nonrefundable purchase taxes and any directly attributable costs of bringing the property
and equipment to its working condition and location for its intended use. Expenditures incurred
after the property and equipment have been put into operations, such as repairs and
maintenance, are normally charged to expense in the period the costs are incurred. In situations
where it can be clearly demonstrated that the expenditures have resulted in an increase in the
future economic benefits expected to be obtained from the use of an item of property and
equipment beyond its originally assessed standard of performance, the expenditures are
capitalized as an additional cost of property and equipment.
- 14 -
Each part of an item of property and equipment with a cost that is significant in relation to the
total cost of the item is depreciated and amortized separately.
Depreciation and amortization is computed using the straight-line method over the estimated
useful lives of the assets.
The estimated useful lives of the assets are as follows:
Category
Building
Leasehold improvements
Store and kitchen equipment
Furniture, fixtures and equipment
Transportation equipment
Number of Years
10-25
5 or term of the lease,
whichever is shorter
3-8
3-5
3-5
The estimated useful lives, depreciation and amortization methods are reviewed periodically to
ensure that the periods and methods of depreciation and amortization are consistent with the
expected pattern of economic benefits from items of property and equipment.
When assets are retired or otherwise disposed of, both the cost and related accumulated
depreciation and amortization are removed from the accounts and any resulting gain or loss is
recognized in the consolidated statement of income.
Fully depreciated and amortized assets are retained as property and equipment until these are
no longer in use.
Construction in-progress, included in property and equipment, is stated at cost. This includes
cost of construction and other direct costs. Construction in-progress is not depreciated until
such time as the relevant assets are completed and available for use.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is the fair value as at the date of acquisition.
Following initial recognition, intangibles are carried at cost less any accumulated amortization
and any accumulated impairment losses. Internally generated intangibles, excluding brand
development costs, are not capitalized and expenditures is reflected in the consolidated
statement of income in the year the expenditure is incurred.
Trademarks. Trademarks are measured initially at cost. The cost of trademarks acquired in
business combinations is its fair value at the date of acquisition. Following initial recognition,
trademarks are carried at cost less accumulated amortization and any accumulated impairment
losses. The Group’s trademarks have a finite useful life of 20 years and are amortized over such
period using the straight-line method. The useful life and amortization method for trademarks
are reviewed at least at each reporting date. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the trademarks are accounted
for by changing the useful life and amortization method, as appropriate, and treated as a change
in accounting estimates. The amortization expense on trademarks is recognized in the
consolidated statement of income under the general and administrative expense category
consistent with its function.
- 15 -
Software License. Software license is measured initially at cost which is the amount of the
purchase consideration. Following initial recognition, software license is carried at cost less
accumulated amortization and any accumulated impairment losses. The Group’s software license has a term of five years and is amortized over such period using the straight-line method.
The useful life and amortization method for software license are reviewed at least at each
reporting date. Changes in the expected useful life or the expected pattern of consumption of
future economic benefits embodied in the software is accounted for by changing the useful life
and amortization method, as appropriate, and treated as a change in accounting estimates. The
amortization expense on software is recognized in the consolidated statement of income under
general and administrative expense category consistent with its function.
Brand Development Costs. Brand development costs pertain to capitalized expenditures incurred
for the development of methods, materials and course curriculum and programs for use in the
operation of the Group. Brand development costs are measured on initial recognition at cost.
Following initial recognition, brand development costs are carried at cost less accumulated
amortization and any accumulated impairment losses. Amortization is recognized using straightline method and begins when the development is complete and available for use over the period
of expected future benefits, which is 20 years. During the period of development, the asset is
tested for impairment annually. The amortization expense on brand development costs is
recognized in the consolidated statement of income under the general and administrative
expense category consistent with its function.
Lease Rights. Lease rights are measured initially at cost which is the amount of the purchase
consideration. Following initial recognition, lease rights are carried at cost less accumulated
amortization and any accumulated impairment losses. The Group’s lease rights have a term of 5 years and are amortized over such period using the straight-line method. The useful life and
amortization method for lease rights are reviewed at least at each reporting date. Changes in
the expected useful life or the expected pattern of consumption of future economic benefits
embodied in the lease rights are accounted for by changing the useful life and amortization
method, as appropriate, and treated as a change in accounting estimates. The amortization
expense on lease right is recognized in the consolidated statement of income under the cost of
sales consistent with its function.
Investment Properties
Investment properties are measured initially at cost, including transaction costs. Subsequent to
initial recognition, investment properties are stated at fair value. Gains or losses arising from
changes in fair value of investment properties are included in profit or loss in the period in which
these arise.
The fair value of an investment property is the price at which the property could be exchanged
between knowledgeable, willing parties in an arm’s length transaction. Fair value specifically
excludes an estimated price inflated or deflated by special terms or circumstances such as typical
financing, sale and leaseback arrangements, special considerations or concessions granted by
anyone associated with the sale. The fair value of investment property should reflect market
conditions at the end of the reporting period.
Derecognition of an investment property will be triggered by a change in use or by sale or
disposal. Gain or loss arising on disposal is calculated as the difference between any disposal
proceeds and the carrying amount of the related asset, and is recognized in profit or loss.
- 16 -
Transfers are made to investment property when, and only when, there is change in use,
evidenced by cessation of owner-occupation or commencement of an operating lease to another
party. Transfers are made from investment property when, and only when, there is a change in
use, evidenced by commencement of owner-occupation or commencement of development with
a view to sell.
Other Nonfinancial Assets
Security Deposits on Lease Contracts and Utilities and Other Deposits. Security, utilities and other
deposits represent payment for security, utilities and other deposits made in relation to the lease
agreements entered into by the Group. These are carried at cost and will generally be applied as
lease payments toward the end of the lease terms.
Input Value-added Tax (VAT). Input VAT represents tax imposed on the Group by its suppliers
and contractors for the purchase of goods and services, as required under Philippine taxation
laws and regulations. The portion of input VAT that will be used to offset the Group’s current VAT liabilities is presented as current asset in the consolidated statement of financial position.
Input VAT classified as noncurrent assets represent the unamortized portion of VAT imposed on
the Group for the acquisition of depreciable assets with an estimated useful life of at least one
year, which is required to be amortized over the life of the related asset or a maximum period of
60 months, whichever is shorter. Input VAT is stated at estimated NRV.
Investment in Joint Ventures
The Group has interests on the following jointly controlled entities:
•
ICF-CCE, Inc., a jointly controlled entity with Far Eastern University (FEU), prior to 2014
•
CRP Singapore Holdings Pte. Ltd., a jointly controlled entity with a foreign entity
The Group and the other party (the Venturers) have a contractual arrangement that establish
joint control over the economic activities of the joint venture. The agreement requires
unanimous agreement for financial and operating decisions between the venturers.
The Group’s investments in joint ventures are accounted for using the equity method based on the percentage share of capitalization of the Group in accordance with the joint venture
agreement. Under the equity method, the investment is initially carried in the consolidated
statement of financial position at cost plus the Group’s share in post-acquisition changes in the
net assets of the joint venture, less any impairment in value. The consolidated statement of
income includes the Group’s share in the results of operations of the joint ventures. Where
there has been a change recognized directly in the equity of the joint ventures, the Group
recognizes its share of any changes and discloses this, when applicable, in the consolidated
statement of changes in equity.
Dividends received from the joint venture reduce the carrying amount of the investment. When
the Group’s share of losses in joint venture equals or exceeds its interest in the joint venture, the
recognition of further losses is discontinued except to the extent that the Group has incurred
obligations or made payments on behalf of the joint venture. Any excess of accumulated equity
in net losses over the cost of investment is recognized as a liability under “Provision for share in equity in net losses of a joint venture” account in the consolidated statement of financial
position.
- 17 -
The reporting dates of the joint ventures and the Group are identical and the joint ventures’ accounting policies conform to those used by the Group for like transactions and events in
similar circumstances. Unrealized gains arising from transactions with the joint venture are
eliminated to the extent of the Group’s interest in the joint ventures against the related investments. Unrealized losses are eliminated similarly but only to the extent that there is no
evidence of impairment in the asset transferred.
The Group ceases to use the equity method of accounting on the date from which it no longer
has joint control over, or significant influence in, the joint venture or when the interest becomes
held for sale.
Impairment of Nonfinancial Assets
Prepaid Expenses and Other Current Assets, Property and Equipment, Intangible Assets, Security
Deposits on Lease Contracts, Rental and Other Deposits and Input VAT
The Group assesses at each reporting date whether there is an indication that these nonfinancial
assets may be impaired. If any such indication exists, or when annual impairment testing for an
asset is required, the Group estimates these nonfinancial assets’ recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in
use and is determined for an individual asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or groups of assets. Where the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and
is written down to its recoverable amount. In assessing value in use, the estimated future cash
flows are discounted to their present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. In determining fair
value less costs to sell, an appropriate valuation model is used. These calculations are
corroborated by valuation multiples or other available fair value indicators. Impairment losses
from continuing operations are recognized in the consolidated statement of income.
An assessment is made for these nonfinancial assets at each reporting date to determine
whether there is any indication that previously recognized impairment losses may no longer exist
or may have decreased. If such indication exists, the Group makes an estimate of recoverable
amount. Any previously recognized impairment loss is reversed only if there has been a change
in the estimates used to determine the asset’s recoverable amount since the last impairment loss
was recognized. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the carrying amount that would
have been determined, net of depreciation and amortization, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in the consolidated statement
of income.
Goodwill. Goodwill is tested for impairment annually and when circumstances indicate that the
carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU, to
which the goodwill relates. When the recoverable amount of the CGU is less than its carrying
amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be
reversed in future periods.
- 18 -
Investments in Joint Venture. After application of the equity method, the Group determines
whether it is necessary to recognize an additional impairment loss on the Group’s investment in its joint ventures. The Group determines at each reporting date whether there is any objective
evidence that the interest in a joint venture is impaired. If this is the case, the Group calculates
the amount of impairment as the difference between the recoverable amount of the joint
venture and its carrying value and recognizes the amount in the “Share in equity in net losses of
joint ventures” in the consolidated statement of income.
Convertible Notes
Compound financial instruments issued by the Group comprise of convertible notes that can be
converted to capital stock at the option of the holder, and the number of shares to be issued
does not vary with changes in their fair value. The liability component of a compound financial
instrument is recognized initially at the fair value of a similar liability that does not have an equity
conversion option. The equity component is recognized initially at the difference between the
fair value of the compound financial instrument and the fair value of the liability component.
Any directly attributable transaction costs are allocated to the liability and equity components in
proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is
measured at amortized cost using the effective interest method. When there are changes in the
estimates of future cash flows on the liability component, the carrying amount is adjusted to
reflect the revised estimated cash flows. The revised carrying amount is calculated by computing
the present value of estimated future cash flows using the original effective interest rate. Such
adjustment to the carrying amount is recognized in the consolidated statement of income. The
equity component of a compound financial instrument is not remeasured subsequent to initial
recognition. Upon conversion, capital stock and any additional paid-in capital are recognized
while the equity component relating to the converted notes are derecognized.
Capital Stock and Additional Paid-in Capital
The Parent Company has issued capital stock that is classified as equity. Incremental costs
directly attributable to the issue of new capital stock are shown in equity as a deduction, net of
tax, from the proceeds. Additional paid-in capital represents the excess of the investors’ total contribution over the stated par value of shares.
Retained Earnings
Retained earnings include accumulated profits attributable to the Parent Company’s stockholders and reduced by dividends. Dividends are recognized as liabilities and deducted
from equity when they are declared. Dividends for the year that are approved after the
reporting date are dealt with as an event after the reporting date. Retained earnings may also
include effect of changes in accounting policy as may be required by the transitional provisions of
new and amended standards.
Shares Held by Subsidiaries
Shares of the Parent Company held by subsidiaries are carried at cost and are deducted from
equity. No gain or loss is recognized on the purchase, sale, issue or cancellation of the Parent
Company’s own equity instruments. When the shares are retired, the capital stock account is
reduced by its par value and the excess of cost over par value upon retirement is debited to
additional paid-in capital to the extent of the specific or average additional paid-in capital when
the shares were issued and to retained earnings for the remaining balance.
- 19 -
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognized.
Restaurant Sales. Revenue is recognized when the related orders are served.
Commissary Sales. Revenue is recognized upon delivery of goods.
Franchise and Royalty Fees. Revenue is recognized under the accrual basis in accordance with
the terms of the franchise agreements.
Fees charged for the use of continuing rights granted in accordance with the franchise
agreement, or other services provided during the period of the franchise agreement, are
recognized as revenue as the services are provided or as the rights are used.
Service Income. Service and management fee is recognized when related services are rendered.
Delivery Income. Revenue is recognized when the related orders are delivered.
Rental Income. Rental income is recognized on a straight-line basis over the lease term.
Interest Income. Revenue is recognized as the interest accrues using the effective interest rate
method.
Other Income. Other income is recognized when earned.
Customer Loyalty Programme. The Group maintains a loyalty points program named “Orange Card” which allows the customers to accumulate points when they purchase products in the Group’s chain of restaurants. The points can then be redeemed for any food vouchers or
freebies accepted in the Group’s chain of restaurants, subject to a minimum number of points being obtained. The consideration received is allocated between the products sold and points
issued, with the consideration allocated to the points being equal to their fair value. The fair
value of the points issued is deferred in “Deferred revenue” under “Trade and other payables” account in the consolidated statement of financial position and recognized as revenue when the
points are redeemed.
Costs and Expenses Recognition
Costs and expenses are decreases in economic benefits during the accounting period in the form
of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity,
other than those relating to distributions to equity participants.
Costs of Sales. Costs of sales, which mainly pertain to purchases of food and beverages, direct
labor and overhead directly attributable in the generation of sales, are generally recognized
when incurred.
General and Administrative. General and administrative expenses are generally recognized when
the services are used or the expenses arise.
- 20 -
Sales and Marketing. Sales and marketing expenses, which represent advertising and other
selling costs, are generally expensed as incurred.
Employee Benefits
Short-term Benefits. The Group recognizes a liability net of amounts already paid and an expense
for services rendered by employees during the accounting period. A liability is also recognized
for the amount expected to be paid under short-term cash bonus or profit sharing plans if the
Group has a present legal or constructive obligation to pay this amount as a result of past service
provided by the employee, and the obligation can be estimated reliably.
Short-term employee benefit liabilities are measured on an undiscounted basis and are expensed
as the related service is provided.
Retirement Benefits. The net defined benefit liability or asset is the aggregate of the present
value of the defined benefit obligation at the end of the reporting period reduced by the fair
value of plan assets, adjusted for any effect of limiting a net defined benefit asset to the asset
ceiling. The asset ceiling is the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method.
Defined benefit costs comprise the following:
Service cost
Net interest on the net defined benefit liability or asset
Remeasurements of net defined benefit liability or asset.
Service costs which include current service costs, past service costs and gains or losses on
nonroutine settlements are recognized as expense in the consolidated statement of income.
Past service costs are recognized when plan amendment or curtailment occurs. These amounts
are calculated periodically by independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net
defined benefit liability or asset that arises from the passage of time which is determined by
applying the discount rate based on government bonds to the net defined benefit liability or
asset.
Net interest on the net defined benefit liability or asset is recognized as expense or income in the
consolidated statement of income.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in
the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized
immediately in other comprehensive income (OCI) in the period in which they arise.
Remeasurements are not reclassified to the consolidated statement of income in subsequent
periods.
- 21 -
Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not
available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of
plan assets is based on market price information. When no market price is available, the fair
value of plan assets is estimated by discounting expected future cash flows using a discount rate
that reflects both the risk associated with the plan assets and the maturity or expected disposal
date of those assets (or, if they have no maturity, the expected period until the settlement of the
related obligations). If the fair value of the plan assets is higher than the present value of the
defined benefit obligation, the measurement of the resulting defined benefit asset is limited to
the present value of economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when
reimbursement is virtually certain.
Operating Leases
Group as a Lessee. Operating leases represent those leases under which substantially all risks
and rewards of ownership of the leased assets remain with the lessors. Noncancellable
operating lease payments are recognized as expense in the consolidated statement of income on
a straight-line basis. The difference between the straight-line recognition basis and the actual
payments made in relation to the operating lease agreements are recognized under “Trade and other payables” (if current) and “Accrued rent payable” (if noncurrent) accounts in the consolidated statement of financial position.
Group as a Lessor. Leases where the Group does not transfer substantially all the risks and
benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred
in negotiating operating leases are added to the carrying amount of the leased asset and
amortized over the lease term on the same basis as the rental income. Contingent rents are
recognized as revenue in the period in which they are earned. Operating lease receipts are
recognized as an income in the consolidated statement of income on a straight-line basis over
the lease term. The difference between the straight-line recognition basis and the actual
payments received in relation to the operating lease agreement is recognized under “Trade and other receivables” (if current) and “Other noncurrent assets” (if noncurrent) accounts in the
consolidated statement of financial position.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset
that necessarily takes a substantial period of time to get ready for its intended use or sale are
capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in
the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
- 22 -
Foreign Currency Translation
The functional currency of the entities of the Group is the Philippine peso except for PHII and its
subsidiaries and Alpha Max, with functional currency in the United States dollar ($). Each entity
in the Group determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency. Transactions in foreign
currencies are initially recorded using the prevailing exchange rate at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies are restated at the functional
currency rate of exchange at the reporting date. All differences are taken to the consolidated
statement of income.
The assets and liabilities of PHII and Alpha Max are translated into Philippine Peso at the rate of
exchange ruling at the reporting date and income and expenses are translated to Philippine peso
at monthly average exchange rates. The exchange differences arising on the translation are
taken directly to other comprehensive income and presented as a separate component of equity
under the “Accumulated translation adjustment” account.
Income Taxes
Current Income Tax. Current income tax liabilities for the current and prior periods are measured
at the amount expected to be paid to the taxation authorities. The income tax rate and tax laws
used to compute the amount are those that are enacted or substantively enacted at the
reporting date.
Deferred Income Tax. Deferred income tax is provided, using the balance sheet liability method,
on all temporary differences at the reporting date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
•
where the deferred income tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
•
in respect of taxable temporary differences associated with investments in subsidiaries,
where the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carryforward
of unused tax credits from excess minimum corporate income tax (MCIT) and unused net
operating loss carryover (NOLCO) to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences and carryforward of unused tax
credits from excess MCIT and unused NOLCO can be utilized, except:
•
where the deferred income tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
- 23 -
•
in respect of deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, deferred income tax assets are recognized only to
the extent that it is probable that the temporary differences will reverse in the foreseeable
future and taxable profit will be available against which the temporary differences can be
utilized.
The carrying amount of deferred income tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred
income tax assets are reassessed at each reporting date and are recognized to the extent that it
has become probable that future taxable profit will allow the deferred income tax assets to be
recovered.
Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply
to the period when the asset is realized or the liability is settled, based on tax rate (and tax laws)
that have been enacted or substantively enacted at the reporting date.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable
right exists to set off current income tax assets against current income tax liabilities and the
deferred income taxes relate to the same taxable entity and the same taxation authority.
Earnings Per Share (EPS) Attributable to the Equity Holders of the Parent
Basic EPS is computed by dividing net income for the year attributable to common shareholders
by the weighted average number of common shares outstanding during the year, with
retroactive adjustments for any stock dividends declared and stock split.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. The Group’s convertible notes are dilutive potential ordinary shares. In computing for the diluted EPS, the
convertible note is assumed to have been converted into ordinary shares, and the net income is
adjusted to eliminate the interest expense less the tax effect, if any.
Where the EPS effect of potential dilutive ordinary shares would be anti-dilutive, basic and
diluted EPS are stated at the same amount.
Operating Segments
The Group operates using its different trade names on which operating results are regularly
monitored by the chief operating decision maker (CODM) for the purpose of making decisions
about resource allocation and performance assessment. The CODM has been identified as the
Chief Executive Officer of the Group. However, as permitted by PFRS 8, Operating Segments, the
Group has aggregated these segments into a single operating segment to which it derives its
revenues and incurs expenses as these segments have the same economic characteristics and are
similar in the following respects:
a.
b.
c.
d.
the nature of products and services;
the nature of production processes;
the type or class of customer for the products and services; and
the methods used to distribute their products and services.
- 24 -
Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and
operating decisions. Parties are also considered to be related if they are subject to common
control or common significant influence.
An entity is also considered as a related party if the entity is a post-employment benefit plan for
the benefit of employees of either the reporting entity or an entity related to the reporting
entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to
the reporting entity.
Provisions
Provisions, if any, are recognized when the Group has a present obligation (legal or constructive)
as a result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. If the effect of the time value of money is material, provisions are determined
by discounting the expected future cash flows at a pretax rate that reflects current market
assessment of the time value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is
recognized as a finance cost.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but
disclosed in the notes to consolidated financial statements when an inflow of economic benefits
is probable.
Events After the Reporting Date
Post year-end events that provide additional information about the Group’s position at the reporting date (adjusting events) are reflected in the consolidated financial statements when
material. Post year-end events that are non-djusting events are disclosed in the notes to
consolidated financial statements when material.
5. Significant Judgments, Accounting Estimates and Assumptions
The preparation of consolidated financial statements require management to exercise
judgments, accounting estimates and assumptions that affect amounts reported in the
consolidated financial statements and related notes. The judgments and estimates used in the
consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ
from such estimates.
Judgments and estimates are continually evaluated and are based on historical experiences and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances.
- 25 -
Judgments
In the process of applying the Group’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the consolidated financial statements.
Determining Functional Currency. The functional currency of the companies in the Group has
been determined to be the Philippine Peso except for certain subsidiaries and joint venture
whose functional currency are the US Dollar, Malaysian Ringgit and Singapore Dollar. The
Philippine Peso is the currency that mainly influences the sale of goods and services and the costs
of sales.
Determining Fair Values of Financial Instruments. Where the fair values of financial assets and
financial liabilities recognized in the consolidated statement of financial position cannot be
derived from active markets, they are determined using a variety of valuation techniques that
include the use of mathematical models. The Group uses judgments to select from variety of
valuation models and make assumptions regarding considerations of liquidity and model inputs
such as correlation and volatility for longer dated financial instruments. The input to these
models is taken from observable markets where possible, but where this is not feasible, a degree
of judgment is required in establishing fair value.
Establishing Control Over Investment in Subsidiaries. The Group determined that it has control
over its subsidiaries (see Note 4) by considering, among others, its power over the investee,
exposure or rights to variable returns from its involvement with the investee, and the ability to
use its power over the investee to affect its returns. The following were also considered:
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual agreements
The Group’s voting rights and potential voting rights
Acquisition Accounting. The Group accounts for acquired businesses using the acquisition
method of accounting which requires that the assets acquired and the liabilities assumed be
recognized at the date of acquisition at their respective fair values.
The application of the acquisition method requires certain estimates and assumptions especially
concerning the determination of the fair values of acquired intangible assets and property and
equipment as well as liabilities assumed at the date of the acquisition. Moreover, the useful lives
of the acquired intangible assets and property and equipment have to be determined.
Accordingly, for significant acquisitions, the Group obtains assistance from valuation specialists.
The valuations are based on information available at the acquisition date.
Operating Lease Commitments - The Group as Lessee. The Group has entered into commercial
property leases on its restaurant premises and administrative office location. The Group has
determined that all the significant risks and benefits of ownership of these properties remain
with the lessors. Accordingly, these leases are accounted for as operating leases (see Note 28).
Operating Lease Commitments - The Group as a Lessor. The Group has entered into commercial
property sublease agreements. The Group has determined that all the significant risks and
benefits of ownership of the properties remain with the Group. Accordingly, the lease is
accounted for as an operating lease (see Note 28).
- 26 -
Operating Segments. Although each trade name represents a separate operating segment,
management has concluded that there is basis for aggregation into a single operating segment as
allowed under PFRS 8 due to their similar characteristics. This is evidenced by a consistent range
of gross margin across all brand outlets as well as uniformity in sales increase and trending for all
outlets, regardless of the brand name. Moreover, all trade names have the following business
characteristics:
(a) Similar nature of products/services offered and methods to distribute products and provide
services, that is, food service through casual dining experience;
(b) Similar nature of production processes through establishment of central commissary for the
Group that caters all brands for all store outlets;
(c) Similar class of target customers which are middle-class consumers; and
(d) Primary place of operations is in the Philippines.
Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at
the financial reporting date, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimating Impairment of Receivables. Management reviews the age and status of these
receivables and identifies accounts that are to be provided with allowances on a continuous
basis. The Group maintains allowances for impairment losses at a level considered adequate to
provide for potential uncollectible receivables.
Allowance for impairment losses amounted to P
=180.7 million as at December 31, 2014
(P
=22.1 million as at December 31, 2013) (see Note 8). Management believes that the allowance
is sufficient to cover receivable balances which are specifically identified to be doubtful of
collection. The aggregate carrying amounts of trade and other receivables and noncurrent
receivables (included under “Other noncurrent assets” account), net of allowance for impairment losses, amounted to P
=677.6 million and P
=0.2 million as at December 31, 2014, respectively
(P
=4.9 million as at December 31, 2013, respectively) (see Notes 8 and 13).
Estimation of Allowance for Inventory Obsolescence. The Group estimates the allowance for
inventory losses related to store and kitchen supplies and operating equipment for sale
whenever the utility of these inventories becomes lower than cost due to damage, physical
deterioration or obsolescence. Due to the nature of the food and beverage inventories, the
Group conducts monthly inventory count and any resulting difference from quantities that are
currently recognized is charged to expense or related provision, as applicable. Inventories at cost
amounted to P
=364.3 million as at December 31, 2014 (P
=96.9 million as at December 31, 2013)
(see Note 9).
- 27 -
Estimating Impairment of Non-financial assets. The Group also assesses impairment on these
assets whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. The factors that the Group considers important which could trigger an
impairment review include the following:
•
Significant underperformance relative to expected historical or projected future operating
results;
•
Significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
•
Significant negative industry or economic trends.
In determining the present value of estimated future cash flows expected to be generated from
the continued use of the assets, the Group is required to make judgments and estimates that can
materially affect the consolidated financial statements.
There were no impairment indicators noted on these assets as at December 31, 2014 and 2013.
The aggregate net book values of these assets amounted to P
=3,340.1 million as at
December 31, 2014 (P
=742.9 million December 31, 2013) (see Notes 10, 11, 12, 13 and 28).
Estimating Impairment of Goodwill. The Group tests annually whether any impairment in
goodwill is to be recognized, in accordance with the related accounting policy in Note 4. The
recoverable amounts of CGUs have been determined based on value in use calculations which
require the use of estimates. Based on the impairment testing conducted, the recoverable
amounts of the CGUs as at December 31, 2014 and 2013 calculated based on value in use are
greater than the corresponding carrying values (including goodwill) of the CGUs as at the same
dates. The carrying amount of goodwill amounted to P
=3,803.4 million as at December 31, 2014
(P
=889.5 million as at December 31, 2013) (see Note 12).
- 28 -
Estimating the Useful Lives of Property and Equipment and Intangible Assets. The Group reviews
annually the estimated useful lives of property and equipment and intangible assets based on
expected asset utilization as anchored on business plans and strategies that also consider
expected future technological developments and market behavior. The estimated useful lives
are reviewed periodically and are updated if expectations differ from previous estimates due to
physical wear and tear, technical or commercial obsolescence and legal or other limits on the use
of these assets. In addition, estimation of the useful lives is based on collective assessment of
industry practice, internal technical evaluation and experience with similar assets. It is possible
that future results of operations could be materially affected by changes in these estimates
brought about by changes in the factors mentioned. The amount and timing of recorded
expenses for any period would be affected by changes in these factors and circumstances.
The net book values of property and equipment amounted to P
=470.4 million as at December 31, 2013) (see Note 11). The net book values
of intangible assets amounted to P
=4,125.6 million as at December 31, 2014 (P
December 31, 2013) (see Note 12).
Estimating Debt Component of Convertible Notes. The determination of the debt component of
the convertible notes is based on the discounted amount of future cash flows of the interest
payments since the notes are mandatorily convertible into a fixed number of common shares
after the lapse of the term. Interest payments represent the higher of consolidated net income
or the dividends that the noteholders would have been entitled to as discussed in Note 18.
Effectively, the dividends on common shares would serve as the minimum interest on the note.
However, it is difficult to estimate these future dividends since there are no committed dividends
on the Parent Company’s common shares and a pattern or trend could not also be determined
based on prior years’ dividend payments. Consequently, the liability component was calculated based on the consolidated forecasted net income. The liability component is adjusted at each
reporting date when there are significant changes in the consolidated forecasted net income
using the original effective interest rate at the date of inception of the convertible notes. Such
adjustment is recognized in the consolidated statement of income.
Accrued interest and current portion of debt component of convertible notes, presented as part
of “Trade and other payables” account, amounted to nil as at December 31, 2014 (P
=11.9 million
as at December 31, 2013) (see Note 14).
Estimating Retirement Benefit Costs. The determination of the Group’s obligation and pension cost is dependent on the selection of certain assumptions used by the actuaries in calculating
such amounts, which are described in Note 24 to the consolidated financial statements.
Retirement benefit costs amounted to P
=21.3 million in 2014 (P
=22.3 million in 2013 and
=18.7 million in 2012). Retirement plan asset amounted to P
P
=462.2 million as at December 31,
2014 (P
=5.1 million as at December 31, 2013) (see Note 24). Accrued retirement liability
amounted to P
=63.0 million as at December 31, 2013)
(see Note 24).
- 29 -
Estimating Realizability of Deferred Income Tax Assets. The Group reviews the carrying amounts
of deferred income tax assets at each reporting date and reduces the amounts to the extent that
it is no longer probable that sufficient taxable profit will be available to allow all or part of the
deferred income tax assets to be utilized in the future. The amount of deferred income tax
assets that are recognized is based upon the likely timing and level of future taxable profits
together with future tax planning strategies to which the deferred income tax assets can be
utilized.
The Group has temporary differences, excess MCIT and unused NOLCO totaling to P
=72.5 million
as at December 31, 2014 (P
=90.5 million as at December 31, 2013), for which no deferred income
tax assets were recognized. The carrying values of deferred income tax assets amounted to
P
=113.8 million as at December 31, 2013) (see Note 26).
Estimating Contingencies. The estimate of probable costs for the resolution of possible claims
has been developed in consultation with the internal and external counsel handling the Group’s defense in these matters and is based upon analysis of potential results. No provision for
probable losses arising from legal contingencies was recognized in the Group’s consolidated
financial statements as at December 31, 2014 and 2013 (see Note 32).
6. Business Combination
As discussed in Note 1, on November 7, 2014, the Group acquired 100% of the outstanding and
issued capital stock of the 20 Max’s Entities. The following is a summary of provisional fair values of identifiable assets acquired and liabilities
assumed as at acquisition date:
Fair Value Recognized
on Acquisition
Assets:
Current assets
Liabilities:
Trade and other current payables
Borrowings
Other noncurrent liabilities
Total identifiable net assets acquired at fair value
Fair value of share consideration in exchange of the
shares of stock of the 20 Max’s Entities
Goodwill arising from acquisition
=P1,253,575
1,162,616
439,243
4,479,827
7,335,261
738,289
5,359,092
265,264
6,362,645
972,616
3,975,336
=3,002,720
P
- 30 -
Goodwill recognized is a result of the expected synergies from combined operations of the
acquirees and the acquirer, intangible assets that do not qualify for separate recognition and
other factors.
The purchase price allocation has been prepared on a preliminary basis. The Parent Company is
still in the process of completing its accounting of the transaction and reasonable changes are
expected as additional information becomes available. This will be finalized in 2015 as allowed
by PFRS.
From the date of acquisition, the 20 Max’s Entities have contributed net revenues and net income of P
=1,187.6 million and P
=76.7 million, respectively to the Group. Had the acquisition
occurred as at the January 1, 2014, the combined revenues and net loss in for the year ended
December 31, 20 14 would have amounted to P
=9,546.2 million and P
=56.0 million, respectively.
The 2014 pro-forma consolidated statement of income is as follows:
REVENUES
Restaurant sales
Commissary sales
Franchise and royalty fees
Costs of sales
Gross profit
General and administrative expenses
Sales and marketing expenses
Finance costs
Other income
Income before corporate reorganization costs
Corporate reorganization costs
Loss before income tax
Provision for income tax
Net loss
=P8,020,938
1,257,731
267,492
9,546,161
7,720,749
1,825,412
(1,371,002)
(405,470)
(253,897)
355,809
150,852
(177,412)
26,560
29,395
=55,955
P
Corporate Reorganization
This account consists of:
Impairment loss on receivables
Depreciation expense
Impairment of security deposits
=145,507
P
24,789
7,116
=177,412
P
In 2014, the new management changes in business strategies resulted in, among others, the
identification of inefficiencies and identification of non-performing store operations.
Restructuring activities were initiated that lead to the closing or change in operating structure of
certain Company-owned and/or franchised stores. Accordingly, certain receivables and security
deposits on leases were determined to be impaired and the estimated useful lives of certain
fixed assets were changed.
- 31 -
7. Material Partly-Owned Subsidiary and Disposal of Subsidiaries
Material Partly-Owned Subsidiary
Below is the financial information of TBGI which have material noncontrolling interest as at
December 31, 2014 and 2013. The noncontrolling shareholder holds 30% equity interest.
Accumulated balance of material noncontrolling interest amounted to P
=92.4 million as at
=123.7 million as at December 31, 2013 and 2012,
respectively).
Income (loss) allocated to material noncontrolling interest in TBGI amounted to P
=20.0 million in
2014, (P
=8.1 million in 2013 and P
=5.7 million in 2012).
The summarized results of operation of TBGI is provided below. The information is based on the
amounts before intercompany elimination:
Revenue
Cost of sales
General and administrative expenses
Sales and marketing expense
Other income
Income (loss) before tax
Provision (benefit) for income tax
Net income (loss)
2014
P
=454,089
(442,316)
(100,972)
(9,812)
3,918
(95,093)
(28,464)
(P
=66,629)
2013
=P517,144
(453,602)
(81,170)
(16,842)
3,561
(30,909)
(3,944)
(P
=26,965)
2012
=P566,359
(472,072)
(69,845)
(4,414)
4,606
24,634
5,709
=18,925
P
Attributable to noncontrolling interests
(P
=19,989)
(P
=8,089)
=5,678
P
The summarized statement of financial position of TBGI follow:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total equity
2014
P
=115,830
276,294
(79,717)
(4,223)
P
=308,184
2013
=P194,526
258,707
(64,582)
(2,085)
=386,566
P
2012
=P209,367
258,636
(53,669)
(2,078)
=412,256
P
Attributable to:
Equity holders of the parent
P
=215,729
92,455
=P270,596
115,970
=P288,579
123,677
2013
(P
=2,979)
(26,113)
3,254
(P
=25,838)
2012
=14,276
P
(2,930)
(87,917)
(P
=76,571)
Summarized cash flow information of TBGI follows:
Operating
Investing
Financing
Net increase (decrease) in cash
2014
(P
=46,120)
(7,453)
58,526
P
=4,953
- 32 -
Disposal of Subsidiaries
a. PHICAFSI. On February 5, 2014, the BOD of the Parent Company approved the resolution to
subscribe to additional 750,000 shares, out of PHICAFSI’s authorized but unissued shares and to apply the advances to PHICAFSI as full payment for the subscription. The BOD also
authorized the Parent Company to waive its pre-emptive rights over the issuance of PHICAFSI
of an additional P
=99.0 million worth of shares, each with a par value of P
=1 in favor of PHHI
(which is currently in the process of changing its corporate name to exclude “Pancake House”). It was resolved further that the Parent Company grants PHHI an irrevocable voting
proxy over the Parent Company’s shares and an option to purchase the Parent Company’s shares in PHICAFSI at book value.
As at December 31, 2014, the Parent Company recognized receivable from disposal of
interest amounting to P
=143.6 million, equivalent to the carrying value of net assets of
PHICAFSI (see Note 13).
b. AHGI and HPI. In October 2014, the Parent Company entered into a Share Purchase
Agreement to sell its 60% and 51% ownership interest with AHGI and HPI, respectively.
Consideration from the sale of AHGI and HPI shares and the corresponding gain on disposal
are as follows:
AHGI
(P
=1,565)
5,148
=6,713
P
Carrying value of net assets (liabilities)
Total consideration
Gain on disposal
HPI
=1,442
P
7,730
=6,288
P
The related accounts of PHICAFSI as at February 5, 2014, AHGI and HPI as at October 31, 2014
have been excluded in the December 31, 2014 consolidated financial statements. The assets and
liabilities are summarized below:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
PHICAFSI
=88,206
P
104,009
(200,667)
–
AHGI
=P2,158
8,108
(12,874)
–
HPI
=10,365
P
2,750
(9,720)
(568)
- 33 -
8. Trade and Other Receivables
Trade
Nontrade
Officers and employees
Royalties
Credit card receivable
Receivable from:
Franchisees
Sale of asset group
Sale of property and equipment
Due from ICF-CCE, Inc.
Others
Less allowance for impairment losses
2014
P
=372,991
209,854
45,167
33,619
11,885
2013
=167,128
P
23,345
15,605
25,344
6,776
73,946
52,922
–
–
57,919
858,303
180,744
P
=677,559
73,805
52,922
2,544
45,371
51,157
463,997
22,149
=441,848
P
Trade receivables pertain to commissary sales billed to franchisees which are secured,
noninterest-bearing and are normally settled on 15-30 days’ terms. The franchisees provide
certain amount of deposits as guarantee on the receivable. These deposits are presented under
“Trade and other payables” account in the consolidated statement of financial position
(see Note 14). The deposits are applied against the overdue purchases of the franchisees.
Receivable from franchisees pertains to continuing franchise fees not yet remitted by its
franchisees.
Royalties pertain to the unremitted portion of the Group’s share in the net sales of its franchisees.
Receivable from sale of asset group represents outstanding receivable from the sale, assignment
and transfer of the net assets attributable to certain entities and a portion of its property and
equipment relating to the company-owned outlets in 2010.
Other receivables primarily pertain to noninterest-bearing reimbursable costs incidental to the
operations of the franchised stores and are normally settled on a 30-60 days’ terms.
Allowance for impairment losses is attributable to the individual impairment of certain trade and
other receivables.
- 34 -
Movements of allowance for impairment loss are as follows:
Effect of:
Business combination
Disposal of investments in subsidiaries
Provisions
Write-off
Recoveries
Note
2014
P
=22,149
2013
=22,218
P
6
7
21
12,692
(73)
150,610
(4,634)
–
P
=180,744
–
–
4
–
(73)
=22,149
P
9. Inventories
This account consists of the following inventories which are carried at cost:
2014
P
=312,415
51,871
–
P
=364,286
2013
=74,637
P
20,347
1,899
=96,883
P
Note
21
21
2014
P
=1,672,205
42,946
P
=1,715,151
2013
=1,247,687
P
65,265
=1,312,952
P
Note
2014
P
=112,478
2013
=20,063
P
20
99,869
46,980
37,436
66,710
P
=363,473
–
22,471
18,208
9,966
=70,708
P
Food and beverage
Store and kitchen supplies
Operating equipment for sale
Cost of inventories recognized under costs of sales is as follows:
Food and beverage
Store and kitchen supplies
10. Prepaid Expenses and Other Current Assets
Prepaid expenses
Receivable from disposal of investment
properties
Advances to suppliers
CWTs
Others
Prepaid expenses consist mainly of prepaid marketing expenses such as billboard rentals,
sponsorship and events that are amortized for one year or less.
Advances to suppliers pertain to advance payments for goods pending delivery.
Other current assets mainly include input VAT, unused supplies and advanced freight costs.
- 35 -
11. Property and Equipment and Investment Properties
Movements in the property and equipment follows:
Cost
Balances at beginning of year
Effects of:
Disposal of investment in
subsidiaries
Additions
Transfer
Disposals
Balances at end of year
Accumulated Depreciation and
Amortization
Effects of:
subsidiaries
Disposals
Net Book Values
2014
Store and
Furniture,
Kitchen
Fixtures and Transportation
Equipment
Equipment
Equipment
Land
Building
Leasehold
Improvements
Construction
In-Progress
Total
P
=–
P
=–
P
=774,501
P
=640,047
P
=131,363
P
=66,789
P
=8,510
P
=1,621,210
137,303
80,618
1,379,889
800,167
478,727
184,064
132,928
3,193,696
–
–
–
–
137,303
–
–
–
–
80,618
(11,044)
167,203
3,169
(61,257)
2,252,461
(12,454)
78,275
(2,120)
(88,877)
1,415,038
–
25,413
–
(19,863)
615,640
–
18,113
–
(2,097)
266,869
–
67,159
(1,049)
–
207,548
(23,498)
356,163
–
(172,094)
4,975,477
–
–
517,261
486,961
98,059
48,519
–
1,150,800
–
43,059
896,254
598,455
371,345
121,967
–
2,031,080
–
–
–
–
P
=137,303
–
887
–
43,946
P
=36,672
(4,920)
123,112
(61,257)
1,470,450
P
=782,011
(12,454)
87,030
(88,877)
1,071,115
P
=343,923
–
46,710
(19,863)
496,251
P
=119,389
–
13,106
(2,097)
181,495
P
=85,374
–
–
–
–
P
=207,548
(17,374)
270,845
(172,094)
3,263,257
P
=1,712,220
Cost of fully depreciated property and equipment that are still used in operations amounted to P
=443.8 million as at
December 31, 2013).
- 36 -
Leasehold
Improvements
Cost
Additions
Disposals
Reclassifications
Accumulated Depreciation and
Amortization
Disposals
Net Book Values
Store and Kitchen
Equipment
2013
Furniture,
Fixtures and
Transportation
Equipment
Equipment
Construction
In-Progress
Total
=683,779
P
119,319
(33,889)
5,292
774,501
=571,431
P
89,941
(21,325)
–
640,047
=107,209
P
26,013
(1,859)
–
131,363
=56,265
P
15,326
(4,802)
–
66,789
=5,063
P
8,739
–
(5,292)
8,510
=1,423,747
P
259,338
(61,875)
–
1,621,210
447,037
104,112
(33,888)
517,261
=257,240
P
433,186
66,385
(12,610)
486,961
=153,086
P
84,449
15,231
(1,621)
98,059
=33,304
P
34,285
17,385
(3,151)
48,519
=18,270
P
–
–
–
–
=8,510
P
998,957
203,113
(51,270)
1,150,800
=470,410
P
Movements in the investment properties for 2014 follow:
Cost
Effect of consolidation
Disposals
Accumulated Depreciation and Amortization
Effect of consolidation
Disposals
Net Book Values
Land
Building and
Improvements
Condominium
Units
=432,194
P
–
432,194
=7,226
P
–
7,226
=P32,368
(26,430)
5,938
=471,788
P
(26,430)
445,358
–
–
–
–
=432,194
P
5,748
626
–
6,374
=852
P
26,797
474
(21,333)
5,938
=–
P
32,545
1,100
(21,333)
12,312
=433,046
P
Total
- 37 -
12. Intangible Assets
2014
P
=3,803,391
270,656
27,415
19,166
3,946
1,070
P
=4,125,644
Goodwill
Trademarks
Software license
Franchise fees
Lease rights
Brand development costs
2013
=P889,522
298,394
12,040
–
3,244
4,787
=1,207,987
P
Goodwill. Goodwill acquired through business combination has been attributed to the following
brands which are considered to be separate CGUs of the Group:
Max’s
Yellow Cab
Pancake House
Le Coeur de France
Hospitality School Management Group, Inc.
Note
6
7
2014
P
=3,002,720
708,785
60,655
31,231
–
P
=3,803,391
2013
=–
P
708,785
60,655
31,231
88,851
=889,522
P
As at December 31, 2014, the recoverable amount of each CGU calculated through value in use
exceeded the carrying amount of the CGU including goodwill. Value in use was derived using
cash flow projections based on financial budgets approved by senior management covering a
five-year period. Cash flows beyond the five-year period are extrapolated using a zero percent
growth rate. Discount rate applied to the cash flow projections in determining recoverable
amount is 10% and 12% in 2014 and 2013, respectively.
The calculations of value in use of goodwill are most sensitive to the following assumptions:
a. Discount rates - Discount rates were derived from the Group’s weighted average cost of capital and reflect management’s estimate of risks within the CGUs. This is the benchmark
used by the management to assess operating performance and to evaluate future
investment proposals. In determining appropriate discount rates, regard has been given to
various market information, including, but not limited to, ten-year government bond yield,
bank lending rates and market risk premium and country risk premium.
b. Growth rate estimates - The long-term rate used to extrapolate the budget for the investee
companies excludes expansions and possible acquisitions in the future. Management also
recognizes the possibility of new entrants, which may have significant impact on existing
growth rate assumptions. Management however, believes that new entrants will not have a
significant adverse impact on the forecast included in the budget.
- 38 -
The rollforward of trademark, brand developments costs and lease rights are as follows:
Cost
Effect of:
subsidiaries
Additions
Disposal
Accumulated Amortization
Effect of:
subsidiaries
Amortization
Disposal
Net Book Value
2014
Brand
Development
Costs
Lease Rights
Franchise
Fees
Total
P
=7,128
P
=–
P
=589,738
3,701
–
26,846
64,328
–
7,500
(692)
59,696
–
2,875
(3,114)
9,435
–
2,242
–
9,370
(5,973)
–
–
20,873
(5,973)
12,617
(3,806)
656,904
258,109
8,094
1,186
3,884
–
271,273
322
16,661
1,480
–
8,885
27,348
–
28,443
–
286,874
P
=270,656
–
8,041
(515)
32,281
P
=27,415
(1,186)
1,151
–
2,631
P
=6,804
–
1,037
–
9,922
P
=10,951
(1,186)
39,786
(2,569)
334,652
P
=322,252
Trademarks
Software
P
=556,503
P
=20,134
P
=5,973
1,027
32,754
–
–
–
557,530
–
1,114
(2,054)
2,944
P
=6,426
2013
Cost
Additions
Accumulated Amortization
Amortization
Translation adjustment
Net Book Value
Trademarks
Software
Brand
Development
Costs
=556,503
P
–
556,503
=12,794
P
7,340
20,134
=5,973
P
–
5,973
=7,128
P
–
7,128
=582,398
P
7,340
589,738
233,034
28,286
(3,211)
258,109
=298,394
P
1,835
6,259
–
8,094
=12,040
P
887
299
–
1186
=4,787
P
2,458
1,426
–
3,884
=3,244
P
238,214
36,270
(3,211)
271,273
=318,465
P
Lease Rights
Total
13. Other Noncurrent Assets
Receivable from disposal of interest
Utilities and other deposits
Deferred input VAT
HTM investment
Noncurrent receivables
Note
7
Others mainly represent long-term portion of prepaid rent.
2014
P
=143,571
90,451
50,730
4,204
163
P
=289,119
2013
=–
P
41,399
20,438
4,000
4,909
=85,011
P
- 39 -
The Group had an investment in a joint venture through PHICAFSI representing 50% interest in
ICF-CCE, Inc. which was incorporated in May 2010. ICF-CCE, Inc. is engaged in the business of
operating a culinary skills training center and a restaurant for the practicum of its students. In
2014, the Group ceased to consolidate PHICAFSI and its subsidiaries’ financial position and results of operations.
Investments in joint venture also includes investment in CRPS.
The aggregate movements in these investments are as follow:
Note
Acquisition cost
Effect of deconsolidation of ICF-CCE
Balance at beginning and end of year
Accumulated equity in net losses
Share in equity in net losses
Translation adjustments
Effect of deconsolidation of ICF-CCE
Excess of share in equity net losses
over cost
7
2014
2013
P
=6,469
6,200
P
=269
=6,469
P
–
=6,469
P
(33,060)
–
86
25,964
(7,010)
(23,685)
(12,043)
2,668
–
(33,060)
(P
=6,741)
(P
=26,591)
The Group recognized the excess of share in equity net losses over cost as “Provision for share in equity in net losses of a joint venture” in the consolidated statement of financial position as at
December 31, 2014 and 2013 in relation to its investment in ICF-CCE, Inc. The carrying amount of
the investment in CRPS presented as “Investment in a joint venture” under “Other noncurrent assets” account amounted to nil as at December 31, 2014 and 2013.
14. Trade and Other Payables
Trade
Nontrade
Accrued expenses
Service charges
Deposits
Contract retention
Output VAT
Rent payable
Deferred revenue
Accrued interest and current portion of debt
component of convertible notes
Others
2014
P
=1,196,009
449,783
396,302
18,801
16,813
16,553
11,966
11,514
7,107
2013
=238,798
P
228,143
115,988
19,217
20,945
3,143
14,812
5,480
5,577
–
66,594
P
=2,191,442
11,886
31,414
=695,403
P
- 40 -
Trade payables are noninterest-bearing and generally on 30 to 60 day term.
Nontrade payable pertains mainly to the unpaid billings from contractors for construction of new
stores and for various renovation activities on existing stores, withholding taxes and SSS for
employees’ monthly contribution and unpaid billing from agencies for personnel requirement
that are contractual, among others.
Accrued expenses include Group purchases that are already received as at reporting date but
with pending documents, payroll and other benefits as at cut-off date that are not yet due for
payment and electricity and water expenses, among others.
Deposits include deposits on ingredients representing the amount received by the Group from its
franchisees as stipulated in the franchise agreement equivalent to 40% of the projected 15-day
food and beverage sales to cover for all the ingredients initially advanced by the Group for the
commencement of the franchise outlets’ commercial operations. These are carried at cost and
subject to a semi-annual review and is correspondingly adjusted based on the revised projected
monthly sales of the franchise outlet.
Other payables include withholding taxes payable, current portion of accrued rent payable and
PAG-IBIG premiums payable.
15. Loans Payable
Short-term loan
Revolving promissory note
Others
2014
P
=1,634,085
440,430
10,971
P
=2,085,486
2013
=304,500
P
–
–
=304,500
P
Short-term Loans
The Group obtained Peso denominated short-term loans from several banks and from
stockholders to finance working capital requirements. The short-term loans from the banks bear
interest rates ranging from 3.0% to 4.5% in 2014 and 2013 and will mature during the succeeding
year.
On March 5, 2014, the Group availed of a P
=923.0 million short-term loan from Banco De Oro.
The proceeds of the loan were used by the Group to prepay the outstanding balance of the
=800.0 million loan from Metropolitan Bank & Trust Company (MBTC and FMIC). The short-term
P
loan bears interest rate of 3.0% and will mature on March 5, 2015.
Revolving Promissory Note
The Group has revolving promissory notes from a local bank amounting to P
=440.4 million as at
December 31, 2014. These notes are payable in six to 12 months and bear annual interest rates
ranging from 3.0% to 4.0%. The notes are guaranteed by affiliated companies.
- 41 -
Interest expense charged to profit or loss follows:
Note
Loans payable
Long-term debt
Mortgage payable and convertible
notes
16
17
2014
P
=39.0 million
25.3 million
2013
=12.6 million
P
43.2 million
2012
=15.3 million
P
44.2 million
0.5 million
P
=64.8 million
6.8 million
=62.6 million
P
1.8 million
=61.3 million
P
16. Long-term Debt
Long-term loan
Finance lease liability
Current portion
Noncurrent portion
2014
P
=1,274,110
12,377
1,286,487
73,697
P
=1,212,790
2013
=785,876
P
–
785,876
785,876
=–
P
On February 21, 2014, the Max’s Entities entered into a loan agreement for P
=4,274.1 million with
a creditor bank. The proceeds of the loan were used to acquire shares of stocks of the Parent
Company. The loan bears an interest rate based on the Philippine Daily System Treasury (PDST)
fixing benchmark rate plus a spread of 3.5% or annual fixed 5.5% interest, whichever is higher,
and will mature on January 21, 2021. The loan is secured by pledged shares, real estate mortgage
over certain parcels of land, chattel mortgage over certain vehicles, and a continuing surety of
the stockholders. On December 12, 2014, the Max’s Entities paid P
=3,000.0 million of the loan
from the proceeds of the sale of AFS investment included on the follow-on offering of MGI
shares (see Note 1).
This loan contains restrictive covenants which include, among others, maintenance of certain
level of long-term debt-to-equity ratio and debt service coverage ratio based on the consolidated
financial statements of the Max’s Entities. The borrowing entities are also not allowed to
make/permit material change in their business, reacquire any of its outstanding shares by
purchase of redemption or donation, suspend or discontinue operations up to the branch level
for a period exceeding 30 consecutive days, whether voluntarily or involuntarily, create/incur any
new indebtedness, other than permitted indebtedness, create/incur to any lien with respect to
the property or assets of the borrowing entities and the individual obligors, except for the
properties stated in the agreement, sell, lease, transfer or dispose any or all properties and
assets other than in the ordinary course of business, assign, transfer or convey any right to
receive any of its income or revenues, and incur any capital expenditure or purchase additional
capital equipment or other fixed assets outside the ordinary course of business.
As at December 31, 2014, the Max’s Entities are in compliance with the debt covenants.
- 42 -
The loan is presented net of deferred transaction costs. A rollforward analysis of debt issue costs
is shown below:
;
Balance at transaction date
Amortization
2014
=19,500,002
P
(14,415,236)
=5,084,766
P
On September 6, 2011, MGI availed of an P
=800.0 million loan from a Notes Facility Agreement
(NFA) with Metropolitan Bank & Trust Company (Treasury Department) as facility agent, paying
agent. The proceeds of which were used by the Parent Company to acquire 100% interest in
YCFC.
The loan has a five year maturity and bear fixed annual interest rates at 4.7368% and 6.2550%.
Under the NFA, MGI shall not permit its (i) Debt-to-Equity ratio at any time to exceed 2:1; (ii)
Debt Service Coverage Ratio as at December 31 not be less than 1.5; and (iii) Current Ratio at any
time not to be less than 1:1. Moreover, the Parent Company is prohibited from entering into
merger, spin-off, consolidation or reorganization (unless the Company is the surviving entity),
selling, transferring, conveying or otherwise disposing all or substantially all of its assets (unless
in the ordinary course of the business).
MGI was not able to comply with the foregoing debt covenants as at December 31, 2013.
Accordingly, the entire balance of long-term debt (net of unamortized deferred financing cost)
was presented as part of current liabilities in the consolidated statement of financial position as
at December 31, 2014 and 2013.
On March 10, 2014, MGI refinanced, and accordingly prepaid in full, the outstanding loan and
interest aggregating P
=801.1 million. The Group was able to obtain a waiver on the penalties
because of the prepayment.
Unamortized deferred financing cost reduced the carrying amount of long-term debt by
=6.1 million as at December 31, 2013. Total interest expense on long-term debt amounted to
P
P
=44.2 million in 2012).
17. Mortgage Payable
This account represents financing loans from local commercial banks for the acquisition of
service vehicle for managerial and supervisory employees. The loans bear annual interest rates
ranging from and 15% to 17% in 2014, 2013 and 2012 and are payable in 24 to 36 equal monthly
installments from the date of the loan. The above loans are collateralized by a chattel mortgage
on the Group’s transportation equipment with a carrying amount of P=10.5 million and
=11.1 million as at December 31, 2014 and, 2013, respectively (see Note 11).
P
Current portion
Noncurrent portion
2014
P
=8,165
–
P
=8,165
2013
=P7,859
1,500
=9,359
P
- 43 -
Interest expense on mortgage payables amounted to P
=6.8 million in 2013
and P
18. Convertible Notes
This account pertains to convertible notes issued by the Parent Company in 2005 to Aureos
South East Asia Fund, LLC (ASEAF) and Planters Bank Venture Capital Corporation for SMEs
(PVCC) for the expansion of the Teriyaki Boy Brand. Under the original investment agreement
and amendments, the convertible notes were subject to the following, but not limited to,
significant terms:
a. Interest shall be the higher between the investors’ equity equivalent share in 50% of the
audited net income of the Parent Company and its subsidiaries or dividends earned by the
convertible notes had it been considered part of equity at the beginning of the year.
b. Conversion shall be as follows:
Original Investment Agreement - ASEAF and PVCC
Supplemental Investment Agreement - ASEAF and
AMF
Equity
Interest
20.6728%
Conversion
Price
=4.56
P
8.2618%
6.50
The Parent Company bifurcated the debt component of the investments and the excess was
treated as notes for conversion to equity, a separate component within the equity section of the
consolidated statement of financial position. The debt component was initially recognized at the
present value of the future cash flows of the interest payments as determined in reference to
the Group’s forecasted consolidated net income. Subsequent to initial recognition, the debt
component is accreted to its maturity value using the effective interest rate method. The
effective interest rates used for the notes were 6.15% and 13.13% for the original and additional
investments, respectively.
In January 2014, the Group issued 21,415,385 common shares of the Group in exchange for the
convertible notes. As a result, the “Debt component of convertible notes” presented under “Trade and other payable” account and the “Notes for conversion to equity” were derecognized and the difference over the par value of the shares issued are included as “Additional paid-in
capital” in the consolidated statement of financial position.
Gain on remeasurement of the convertible notes, resulting from changes in the estimated cash
flows, amounted to nil in 2014 (P
Accretion charge amounted to nil in 2014 (P
=1.5 million in 2012). This
was presented as “Interest expense on the debt component of convertible notes” in the consolidated statement of income.
- 44 -
19. Equity
The movements of the Group’s capital stock as at December 31, 2014 and December 31, 2013
follow:
Authorized capital stock - P
=1
Issued and outstanding
Issuance
Stock dividends
Less shares held by subsidiaries
2014
1,400,000,000
2013
400,000,000
237,795,455
568,660,342
259,210,840
21,415,385
1,087,082,022
306,878,044
780,203,978
237,795,455
–
–
–
237,795,455
–
237,795,455
Capital Stock
On December 15, 2000, the Parent Company listed with the PSE its common shares, where it
offered 188,636,364 shares to the public at the issue price of P
=1.48 per share. Proceeds from
these issuances of new shares amounted to P
=279.2 million.
In January 2014, the Parent Company issued 21,415,385 common shares of the Parent Company
in exchange for convertible notes. The excess of the carrying amount of the convertible notes
amounting to P
=132.3 million over the par value of the issued shares was recognized as additional
paid-in capital.
On June 30, 2014, the Board of Directors (BOD) of the Parent Company authorized its acquisition
of all the issued and outstanding shares of stock of 20 Max’s Entities. Included in the Max’s Entities are the 10 companies which previously acquired 89.95% combined stake in the Parent
Company and its subsidiaries. On November 7, 2014, the SEC issued the certificate of approval of
the valuation of approximately P
=4.0 billion in exchange for the subscription of 540,491,344
shares of the Parent Company. The exchange is accounted for as a business combination in
accordance with Philippine Financial Reporting Standards (PFRS) 3, with the Parent Company as
the acquirer, the 20 Max’s Entities as acquirees, and November 7, 2014 as the acquisition date
(see Note 8).
On July 31, 2014, the SEC approved the application for the increase in authorized capital stock of
the Parent Company from 400,000 shares with a par value of P
=1.0 a share to 1,400,000,000
shares with the same par value. On August 8, 2014, the SEC approved the declaration of stock
dividends of 259,210,840 shares out of the increase.
In December 2014, the Parent Company made a follow-on offering of 28,168,998 new shares and
169,014,100 shares held by subsidiaries to the public. Shares held by subsidiaries pertain to the
shares of 10 Max’s entities. The Parent Company recognized additional paid-in capital related to
new shares amounting to P
=471.8 million arising from the excess of the proceeds over par value
of the shares sold. Total cost incurred in the follow-on offering transaction amounted to
=364.3 million. Of the total amount P
P
=7.0 million was charged to profit or loss and P
=357.3 million
was recorded as reduction to additional paid-in capital.
- 45 -
The Group has 82 stockholders as of December 31, 2014 (123 stockholders as of December 31,
2013).
Shares Held By Subsidiaries
Shares held by subsidiaries pertain to Parent Company shares of stock held by 10 Max’s entities which were acquired on February 24, 2014. As at December 31, 2014 shares held by subsidiaries
amounted to P
=2,610.0.
The movements of the shares held by subsidiaries as at December 31, 2014 are as follows:
Note
Acquisition of Parent Company shares by the 10 Max’s Entities
Stock dividend
Effect of share swap
1
No. of shares
233,160,189
233,160,189
9,571,766
(169,014,100)
306,878,044
As discussed in Note 1, 169,014,100 shares held by subsidiaries were sold during the follow-on
offering. Gain arising from such sale amounting to P=1,204.0 million pertains to the excess of
proceeds over the cost of the investments and direct transaction costs. Certain subsidiaries which
owned shares of other Max’s Entities exchanged such shares with MGI shares resulting to gain of =103.5 million.
P
The net gains on sale and exchange were eliminated in the preparation of
consolidated financial statements and recognized as additional paid-in capital under equity.
Retained Earnings
Following are the dividends declared and paid by the Parent Company:
Dividend Type
Cash
Cash
Cash
Cash
Cash
Date of Declaration
June 28, 2013
February 22, 2013
May 31, 2012
December 8, 2011
May 27, 2011
Date of Record
July 12, 2013
March 11, 2013
June 15, 2012
December 23, 2011
June 15, 2011
Date Paid
July 31, 2013
March 29, 2013
June 29, 2012
December 29, 2011
June 30, 2011
Amount
P
=45,110
23,946
34,932
12,175
21,568
Dividend
per Share
P
=0.19
0.10
0.15
0.05
0.09
On June 12, 2014, the Parent Company declared 100% stock dividend aggregating 259,210,840
common shares at par value.
- 46 -
20. Related Party Disclosures
The Group has transactions within and among the consolidated entities and related parties.
Parties are considered to be related if one party has the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and
operating decisions. Parties are also considered to be related if they are subject to common
control. Transactions between members of the Group and the related balances are eliminated at
consolidation and are no longer included in the disclosure.
(i) The Group has the following transactions with related parties:
Classification
Entities under common control*
First Lucky Property
Lease
Corporation (FLPC)
Lapanday Properties
Lease
Philippines, Inc. (LPPI)
Macondray Plastics
Purchases
Products, Inc.
Macondray Philippine Co.
Purchases
Year
Transactions
Outstanding
Balance
Terms
Condition
2014
2013
2014
2013
2014
2013
2014
2013
P
=–
25,388
–
3,876
–
3,444
–
3,103
P
=–
–
–
–
–
358
–
218
30 days upon
30 days upon
30 days upon
30 days upon
30 days upon
30 days upon
30 days upon
30 days upon
Secured
Secured
Secured
Secured
Unsecured
Unsecured
Unsecured
Unsecured
2014
2014
304,928
99,869
304,928
99,869
On demand
Unsecured
Shares held by the Retirement
Plan
Retirement Plan
Stockholders
Retirement
fund
Receivable
*As discussed in Note 1, the 10 Max’s Entities acquired 89.95% of the Parent Company’s shares, as a result of change in ownership, the entities under common control in 2013 is no longer a related party in 2014.
Summary of operating lease agreement with related parties are as follows:
Related party
FLCPC
LPPI
Date
September 1,
2007
Term
5 years, renewable at the
option of the lessee
September 1,
3 years up to
2012
August 31, 2015
10 years, renewable upon the
written agreement of
contracting parties
Monthly rent
P
=1.2 million subject
to 7% annual
escalation rate
P
=1.6 million
P
=238,567 subject to
7.5 % annual
escalation rate
Security deposit
P
=7.2 million
–
P
=1.1 million
Shares held by the Retirement Plan pertain to own equity instruments held by the retirement
fund of the 10 Max’s entities amounting to P
=304.9 million.
(ii) Compensation of key management personnel are as follows:
Salaries and other employee benefits
Post-employment benefits
2014
P
=7,711
540
P
=8,251
2013
=33,687
P
1,544
=35,231
P
2012
=36,863
P
2,580
=39,443
P
- 47 -
21. Costs of Sales
Note
Food and beverage
Salaries and wages
Rentals
Light and water
Supplies used
Fuel and oil
Employee’s benefits
Transportation and travel
Taxes and licenses
Security services
Supplies and equipment sold
Repairs and maintenance
Dues and subscription
Communications
Insurance
Amortization of intangible assets
Others
23
23
2014
P
=1,672,205
645,122
509,796
224,127
215,256
149,243
99,404
92,277
80,940
52,887
46,198
42,946
17,378
12,637
9,746
2,553
1,959
71,818
P
=3,946,492
2013
=1,247,687
P
477,037
360,338
178,563
193,392
127,374
83,558
79,081
52,531
47,962
31,289
65,265
50,772
16,328
12,498
2,780
3,330
37,434
=3,067,219
P
2012
=1,174,725
P
421,240
328,754
137,811
187,506
124,057
80,583
90,781
39,482
46,053
19,545
48,416
43,169
16,575
8,806
3,128
1,426
27,691
=2,799,748
P
2014
P
=116,034
84,806
49,693
47,855
43,848
41,811
37,827
35,563
30,767
23,028
19,529
17,411
16,036
16,296
14,468
13,041
9,830
6,958
5,104
4,622
78,156
P
=712,683
2013
=152,833
P
64,682
19,623
18,357
9,087
16,453
32,939
56,811
4,392
24,550
14,680
–
4,463
–
–
6,757
6,726
–
4
1,213
3,192
=436,762
P
2012
=127,248
P
54,857
8,289
15,200
3,689
13,451
30,291
51,892
6,805
28,369
11,559
–
10,145
–
–
2,176
8,457
–
47
1,045
25,809
=399,329
P
22. General and Administrative Expenses
Note
Salaries and wages
Employee's benefits
Professional fees
Transportation and travel
Repairs and maintenance
Light and water
Amortization of intangibles
Rentals
Taxes and licenses
Supplies
Royalties
Communications
Input VAT on exempt sales
Spoilage and wastages
Representation and entertainment
Credit card charges
Share listing related expenses
Provision for impairment losses
Insurance
Others
23
23
8
- 48 -
Others consist of subscription, research and development and other fees.
23. Nature of Expenses
Depreciation and amortization included in the consolidated statement of income are as follows:
Included in Costs of Sales:
Amortization of intangible
assets
Included in General and
Administrative Expenses:
Amortization of intangible
assets
Included in corporate
reorganization costs:
Note
21
2014
2013
2012
P
=224,127
=178,563
P
=137,811
P
1,959
3,330
1,426
23,028
24,550
28,369
37,827
32,939
30,291
24,789
P
=311,730
–
=239,382
P
–
=197,897
P
22
7
Personnel costs included in the consolidated statement of income are as follows:
Included in Costs of Sales:
Salaries and wages
Employees’ benefits
Included in General and
Administrative Expenses:
Salaries and wages
Employees’ benefits
Note
21
2014
2013
2012
P
=645,122
92,277
=477,037
P
79,081
=421,240
P
90,781
116,034
84,806
P
=938,239
152,833
64,682
=773,633
P
127,248
54,857
=694,126
P
22
24. Retirement Benefits
The Group has a funded defined benefit pension plan covering substantially all of its employees,
which require contributions to be made to separately administered fund.
The following tables summarize the net retirement benefit cost recognized in the consolidated
statement of income and the funded status and the amounts recognized in the consolidated
statement of financial position and other information about the plan, based on the latest
actuarial valuation as at December 31, 2014.
- 49 -
Components of retirement benefit costs recognized in the consolidated statement of income are
as follows:
Current service costs
Net interest costs
Past service cost - curtailment
Settlement
2014
P
=24,213
3,558
(5,487)
(929)
P
=21,355
2013
=18,958
P
3,382
–
–
=22,340
P
2012
=16,008
P
2,647
–
–
=18,655
P
Retirement benefit costs are included under employees’ benefits in the “General and administrative expense” account in the consolidated statement of income.
Remeasurement effects recognized in the consolidated statement of comprehensive income are
as follows:
Actuarial gains (losses) due to:
Experience adjustments
Changes in financial assumptions
Demographic assumptions
Changes in the effect of asset ceiling
Return on assets excluding amount included
in net interest cost
2014
2013
2012
P
=10,113
112,988
(336)
(68,745)
=19,599
P
(3,310)
–
–
=P12,659
(15,016)
1,410
–
–
P
=54,020
(595)
=15,694
P
(187)
(P
=1,134)
Components of net retirement assets recognized in the consolidated statement of financial
position are as follows:
Fair value of plan assets
Effect of asset ceiling
Present value of defined benefit obligation
2014
P
=1,094,743
411,514
221,076
P
=462,153
2013
=19,196
P
–
14,136
=5,060
P
2012
=18,997
P
–
13,293
=5,704
P
Components of net retirement liabilities recognized in the consolidated statement of financial
position are as follows:
Present value of defined benefit obligation
Fair value of plan assets
2014
P
=145,574
43,687
P
=101,887
2013
=101,961
P
38,990
=62,971
P
- 50 -
Changes in the present value of the defined benefit obligation are as follows:
Effect of business combination
Retirement benefit costs in consolidated
statement of income:
Current service costs
Interest costs
Past service cost - curtailment
Remeasurement in other comprehensive
income:
Actuarial gain due to experience
adjustments
Actuarial loss due to changes in financial
assumptions
Actuarial gain due to changes in
demographic assumptions
Benefits paid
2014
P
=116,097
236,276
2013
=113,101
P
–
2012
=93,678
P
–
24,213
9,202
(5,487)
27,928
18,958
6,930
–
25,888
16,008
6,281
–
22,289
(8,643)
(19,599)
(12,659)
(1,806)
3,310
15,016
336
(10,113)
(3,538)
P
=366,650
–
(16,289)
(6,604)
=116,096
P
(1,410)
947
(3,812)
=113,102
P
2013
=57,836
P
–
3,549
4,000
(6,604)
2012
=54,201
P
–
3,634
4,000
(3,812)
(595)
=58,186
P
(187)
=57,836
P
Changes in the fair value of plan assets are as follows:
Effect of business combination
Interest income
Actual contributions
Benefits paid
Actual return excluding amount included
in net interest cost
2014
P
=58,186
965,702
5,448
2,000
(3,538)
110,632
P
=1,138,430
Effect of business combination pertains to asset and liabilities acquired as a result of business
combination (see Note 6).
The major categories of plan assets as a percentage of the fair value of total plan assets are as
follows:
Investment securities
Cash in bank
Receivables
2014
92.8%
5.9%
1.3%
100%
The fair value of plan assets is equal to its carrying amount.
2013
92.8%
5.9%
1.3%
100%
2012
91.8%
6.6%
1.6%
100.0%
- 51 -
The Plan is being administered and managed by a Trustee bank. The Trustee is responsible for
the management, investment and reinvestment of the plan asset in accordance with the powers
granted.
The plan assets consist of the following:
•
Cash in bank which includes regular savings and time deposits;
•
Investments in securities include shares of the Parent Company, various security bonds from
Bangko Sentral ng Pilipinas and equity securities and debt instruments; and
•
Receivables comprise of interest receivables from investment securities.
The overall expected rate of return on plan assets is determined based on the market prices
prevailing on that date, applicable to the period over which the obligation is to be settled.
The principal assumptions used in determining the defined benefit obligation are as follows:
Discount rate
Salary increase rate
2014
4.5%-5.0%
7.0% and 8.0%
2013
2012
5.9%-6.2%
6.1%-6.2%
5.0% and 8.0% 5.0% and 8.0%
The sensitivity analysis below has been determined based on reasonably possible changes of
each significant assumption on the defined benefit obligation as at December 31, 2014, assuming
if all other assumptions were held constant:
Discount rate
Future salary increases
Increase (decrease)
in basic points
100
(100)
100
(100)
Effect on defined
benefit obligation
(P
=14,997)
28,737
27,569
(14,541)
The Group’s retirement plans are funded by the Parent Company and its subsidiaries. There is no
current plan to contribute to the retirement fund in 2015.
Maturity profile of the undiscounted benefit payments follows:
Plan Year
Less than one year
More than one year to five years
More than five years to 10 years
More than 10 years to 15 years
More than 15 years to 20 years
More than 20 years
Expected benefit payment
2,369
13,976
38,362
115,985
115,985
1,582,542
The average duration of the defined benefit obligation is 11.1, 25.31 and 25.94 years as at
December 31, 2014, 2013 and 2012, respectively.
- 52 -
25. Other Income
This account consists of the following:
Note
Delivery income
Service income and management
fee
National advertising fee
Rental income
Gain on disposal of subsidiaries
Call center charges
Interest income
Gain on remeasurement
of convertible notes
Others
28
7
16
2014
P
=46,967
2013
=32,391
P
2012
=27,338
P
30,640
28,055
20,735
13,001
3,397
1,297
30,491
7,205
21,527
–
3,319
1,069
45,885
6,499
19,656
–
–
3,636
–
24,163
P
=168,255
1,069
3,901
=100,972
P
3,817
6,326
=113,157
P
Others consist mainly of sale of scrap materials and gain from sale of property and equipment.
As discussed in Note 19 to the consolidated financial statements, the net gains were eliminated
in the preparation of consolidated financial statements and recognized as additional paid-in
capital under equity.
26. Income Taxes
The current provision for income tax represents the Parent Company’s and certain subsidiaries’ regular income tax and MCIT. Final tax represents the Parent Company’s and certain subsidiaries’ final tax on interest income and franchise and royalty fees. The reconciliation of the provision for income tax computed at the statutory income tax rate to
the provision for income taxes shown in the consolidated statement of comprehensive income
follows:
2014
Provision for (benefit from) income tax
computed at the statutory income
tax rate
Tax effects of:
Expired NOLCO and MCIT
Amortization of trademark
Nondeductible expenses
Interest income subjected to final
tax
Difference between OSD and
itemized deductions
Change in unrecognized deferred
tax assets and others
(P
=21,152)
5,631
1,907
521
(389)
2013
2012
=42,760
P
=63,141
P
11,858
1,907
373
11,701
1,907
33
(16,760)
(13,563)
(1,482)
–
10,660
(P
=4,304)
23,121
=63,259
P
–
(2,367)
=60,852
P
- 53 -
The components of the Group’s recognized deferred tax assets and liabilities represent the tax effects of the following temporary differences:
2014
Net Deferred
Net Deferred
Tax Assets
Tax Liabilities
Deferred tax assets on:
NOLCO
Excess MCIT
Allowance for impairment losses
Others
P
=95,476
17,890
16,760
8,880
52,726
4,873
196,605
Deferred tax liabilities on:
Retirement benefit assets
Unamortized debt issue costs
Others
P
=–
–
–
–
P
=196,605
Net deferred tax assets (liabilities)
P
=1,331
2,633
–
2,303
995
888
8,150
(P
=110,293)
(502)
(646)
(111,441)
(P
=103,291)
Net Deferred
Tax Assets
2013
Net Deferred
Tax Liabilities
P
=57,587
14,425
17,372
9,490
6,684
4,833
110,391
P
=–
–
–
–
–
–
–
P
=–
–
–
–
P
=110,391
P
=–
–
–
–
P
=–
No deferred income tax assets were recognized for the following temporary differences, unused
tax credits from excess MCIT and unused NOLCO of certain subsidiaries as it is not probable that
sufficient taxable profit will be available to allow the benefit of the deferred income tax assets to
be utilized in the future.
2014
P
=119,844
540
3,928
50
1,673
P
=126,035
NOLCO
Accrued retirement liability
Excess MCIT
Allowance for impairment losses
2013
=86,274
P
162
3,928
50
87
=90,501
P
As at December 31, 2014, the details of the Group’s NOLCO that can be claimed as deduction from future taxable profit during the stated validity are as follows:
Year Incurred
2014
2013
2012
2011
Amount
= 182,212
P
173,835
87,995
16,401
=460,443
P
Applied
=–
P
349
1,159
1,578
=3,086
P
Expired
=–
P
–
–
14,823
=14,823
P
Balance
=182,212
P
173,486
86,836
–
=442,534
P
Expiry Date
2017
2016
2015
2014
Applied
=–
P
–
–
3,581
=3,581
P
Expired
=–
P
–
–
1,184
=1,184
P
Balance
=P10,863
6,962
6,626
–
=24,451
P
Expiry Date
2017
2016
2015
2014
Details of MCIT are as follows:
Year Incurred
2014
2013
2012
2011
Amount
=P10,863
6,962
6,626
4,765
=29,216
P
- 54 -
27. Earnings Per Share
Basic/diluted earnings (loss) per share are computed as follows:
Note
Net income (loss) attributable to the
equity holders of the Parent
Company:
Divide by weighted average number
of common shares
Basic earnings (loss) per share
Net income attributable to common equity
holders of the Parent Company
adjusted for the effect of convertible
notes:
Net income attributable to common
equity holders of the Parent
Company:
Interest on convertible notes - net
of tax
Divide by weighted average number
of common shares adjusted for the
effect of dilution:
Weighted average number of common
shares
Effect of conversion of convertible
notes
Diluted earnings (loss)per share
2014
2013
2012
(P
=28,366)
P
=105,598
P
=151,418
557,920,032
(0.05)
497,006,295
0.21
497,006,295
0.30
(28,366)
105,598
151,418
–
(28,366)
1,137
106,735
1,061
152,479
557,920,032
497,006,295
497,006,295
–
557,920,032
(P
=0.05)
21,415
518,421
P
=0.21
21,415
518,421
P
=0.29
There have been no transactions involving common shares or potential common shares that
occurred subsequent to the reporting date.
28. Significant Contracts and Agreements
Franchise Agreements
The Group has granted its franchisees the right to adopt and use the restaurant system of several
brands in restaurant operations for a period and under the terms and conditions specified in the
franchise agreements. The agreements provide for an initial franchise fee payable upon
execution of the agreement and monthly royalty fees.
The following table presents the royalty fee rates and the aggregate amounts of royalty fees
recognized in each brand:
Pancake House
Max’s
Dencio’s
Teriyaki Boy
Yellow Cab
Royalty Fee Rates*
9%
5%
8%-9%
10%
3%-6%
*as a percentage of Net Sales of franchised store outlets
2014
P
=75.8 million
28.5 million
22.8 million
14.3 million
15.0 million
2013
=86.3 million
P
–
21.4 million
17.8 million
19.4 million
2012
=69.6 million
P
–
22.9 million
25.4 million
14.1 million
- 55 -
Operating Lease Agreements
Group as Lessee. The Group leases its restaurant and commissary premises and offices it
occupies with various lessors for periods ranging from 1 to 15 years, renewable upon mutual
agreement between the Group and its lessors. The lease agreements provide for a fixed rental
and/or a monthly rental based on a certain percentage of actual sales or minimum monthly gross
sales.
Security deposits on lease contracts amounted to P
(P
=139.9 million as at December 31, 2013), which is equivalent to one to three months rental.
Rental expense charged to costs of sales and general and administrative expenses amounted to
P
=417.1 million in 2013 and 2012, respectively)
(see Notes 20 and 21). Accrued rent payable amounted to P
(P
=31.6 million as at December 31, 2013), which represents the straight-line adjustment on rent.
The future minimum rentals payable under these operating leases are as follows:
Within one year
More than one year bus less than five
years
More than five years
2014
P
=144,999
2013
=155,716
P
2012
=134,473
P
269,462
65,837
P
=480,298
273,699
28,390
=457,805
P
266,830
65,837
=467,140
P
Group as Lessor. The Parent Company and YCFC entered into sublease agreements with third
parties for periods ranging from one to 10 years, renewable upon mutual agreement between
the Parent Company/YCFC and its lessees. The lease agreements provide for a fixed monthly
rental or monthly rentals subject to an annual escalation rate of 5% beginning on the second year
from the start of the lease period. Rental income attributable to the Group amounted to P
=8.7 in
2014, (P
=21.5 million and P
=19.6 million in 2013 and 2012, respectively). Rent receivable arising
from straight-line adjustment amounted to P
=1.1 million as
at December 31, 2013).
29. Financial Instruments
Financial Risk Management Objectives and Policies
The Group’s financial instruments consist of cash, trade and other receivables, noncurrent receivables (included under “Other noncurrent assets”), trade and other payables, loans payable, mortgage payable, debt component of convertible notes and long-term debt.
The BOD is mainly responsible for the overall risk management approach and for the approval of
risk strategies and principles of the Group. It also has the overall responsibility for the
development of risk strategies, principles, frameworks, policies and limits. It establishes a forum
for discussion of the Group’s approach to risk issues in order to make relevant decisions.
- 56 -
The main risks arising from the use of financial instruments are liquidity risk, credit risk, foreign
currency risk and interest rate risk. The BOD reviews and approves the policies for managing
each of these risks which are summarized below.
Liquidity Risk. Liquidity risk is the risk that the Group will not be able to meet its financial
obligations as they fall due. The Group’s objectives to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses or risking adverse effect
to the Group’s credit standing.
The Group seeks to manage its liquid funds through cash planning on a weekly basis. The Group
uses historical figures and experiences and forecasts from its collections and disbursements. As
part of its liquidity risk management, the Group regularly evaluates its projected and actual cash
flows. It also continuously assesses conditions in the financial markets for opportunities to
pursue fund raising activities.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, loans from related parties, convertible notes and other long-term
debts. The Group considers its available funds and its liquidity in managing its long-term
financial requirements. It matches its projected cash flows to the projected amortization of
convertible notes. For its short-term funding, the Group’s policy is to ensure that there are
sufficient operating inflows to match repayments of loans payable.
As at December 31, 2014 and 2013, the financial assets held by the Group for liquidity purposes
consist of cash and trade and other receivables.
The table below summarizes the maturity profile of the Group’s financial liabilities as at December 31, 2014 and 2013 based on contractual undiscounted payments.
Trade and other payables*
Loans payable
Mortgage payable
Long-term debt
Others
Trade and other payables*
Loans payable
Mortgage payable
Long-term debt
Debt component of convertible
notes
On demand
P
=813,544
–
–
–
–
813,544
Less than
3 months
P
=942,702
–
–
–
–
942,702
2014
3 to 12
months
P
=306,352
2,085,486
–
73,679
–
2,465,517
1 to 5
years
P
=–
–
8,165
1,212,790
14,879
1,235,834
Total
P
=2,062,598
2,085,486
8,165
1,286,469
14,879
5,457,615
On demand
=255,738
P
–
–
–
Less than
3 months
=296,339
P
–
–
–
2013
3 to 12
months
=96,302
P
304,500
7,859
801,122
1 to 5
years
=–
P
–
1,500
–
Total
=P648,379
304,500
9,359
801,122
–
1,500
11,531
1,774,891
–
–
11,531
255,738
296,339
1,221,314
* Excluding statutory payables and taxes and current portion of debt component of convertible notes.
- 57 -
Credit Risk. Credit risk is the risk of financial loss to the Group if a customer or counterparty to a
financial instrument fails to meet its contractual obligations.
Concentrations arise when a number of counterparties are engaged in similar business activities,
or activities in the same geographic region, or have similar economic features that would cause
their ability to meet contractual obligations to be similarly affected by changes in economic,
political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry.
The Group has no significant concentrations of credit risk with any single counterparty or group
of counterparties having similar characteristics. Since the Group trades only on a cash or credit
card basis and with recognized third parties, there is no requirement for collateral. It is the
Group’s policy that all customers who wish to trade on credit terms are subject to credit
verification procedures. In addition, receivable balances are monitored on an ongoing basis with
the result that Group’s exposure to bad debts is not significant.
The Group’s exposure to credit risk on trade and other receivables arise from default of the
counterparty, with a maximum exposure equal to the carrying amounts of these receivables.
Credit risk from cash is mitigated by transacting only with reputable banks duly approved by
management.
The tables below summarize the aging analysis of the Group’s financial assets:
2014
Cash with banks
Trade and other receivables:
Trade
Nontrade
Royalties
Receivable from sale of
asset group
Receivable from franchisees
Other receivables
Receivable from disposal of
interest
Total
P
=848,497
Neither Past
Due nor
Impaired
P
=848,497
Over 90 days
P
=–
Impaired
Financial
Assets
P
=–
30 days
P
=–
372,991
209,854
33,619
45,167
11,885
152,186
85,624
16,313
29,792
11,885
30,484
17,151
3,714
932
–
8,156
4,589
3,869
1,589
–
9,358
5,265
3,177
4,234
–
46,599
52,102
6,359
7,688
–
126,208
45,123
187
932
–
52,922
73,946
57,919
–
35,882
25,280
–
8,170
4,078
–
8,511
3,752
–
6,988
5,570
52,922
13,987
11,353
–
408
7,886
143,571
163
P
=1,850,534
–
163
P
=1,205,623
–
–
P
=64,529
–
–
P
=30,466
–
–
P
=34,592
143,571
–
P
=334,581
–
–
P
=180,744
Total
=341,682
P
Neither Past
Due nor
Impaired
=341,682
P
Over 90 days
=–
P
Impaired
Financial
Assets
=–
P
30 days
=–
P
52,922
167,128
45,371
25,344
15,605
6,776
150,851
4,927
=810,606
P
–
68,191
–
12,298
10,293
6,776
65,841
4,927
=510,008
P
–
27,318
–
2,800
322
–
10,621
–
=41,061
P
52,922
54,774
45,371
4,794
2,656
–
29,569
–
=190,086
P
–
1,149
–
140
321
–
20,538
–
=22,148
P
Past due but not Impaired
30-60 days
60-90 days
P
=–
P
=–
2013
Cash with banks
Trade and other receivables:
Receivable from sale
of asset group
Trade receivable
Due from ICF-CCE, Inc.
Royalties
Other receivables
Past due but not Impaired
30-60 days
60-90 days
=–
P
=–
P
–
7,309
–
2,917
549
–
9,773
–
=20,548
P
–
8,386
–
2,395
1,463
–
14,508
–
=26,752
P
- 58 -
The Group has assessed the credit quality of its financial assets as follows:
•
Cash is deposited in reputable banks, which have a low probability of insolvency;
•
Trade and royalty receivables are generally settled on due dates based on historical
experience;
•
Advances to officers and employees are either collected through salary deduction or secured
by cash bonds;
•
Other receivables are generally settled several days after due date; and
•
Noncurrent receivables are settled based on the contractual payments received on a
monthly basis.
Foreign Currency Risk. The Group’s policy is to maintain foreign currency exposure within acceptable limits and within existing regulatory guidelines. The Group believes that its profile of
foreign currency exposure on its assets and liabilities is within conservative limits based on the
type of business and industry in which the Group is engaged. The Group’s exposure to foreign
currency exchange risk as at December 31, 2014 and 2013 pertains to the financial position and
performance of PHII and PHIM which were presented in $ and Malaysian Ringgit (MYR),
respectively.
The Group’s $-denominated and MYR-denominated financial assets and liabilities as at
December 31, 2014 and 2013 are considered immaterial in relation to the consolidated financial
statements. Thus, management believes that the Group’s exposure to foreign currency risk is insignificant.
Interest Rate Risk. The Group’s exposure to market risk for changes in interest rates relates
primarily to its loans payable, long-term debt and mortgage payable. To manage this risk, the
Group determine the mix of its debt portfolio as a function of the level of current interest rates,
the required tenor of the loan and the general use of the proceeds of its fund raising activities.
The following table demonstrates the sensitivity to a reasonable possible change in interest
rates, with all other variables held constant, of the Group’s income before tax:
December 31, 2014
December 31, 2013
Increase
(decrease) in
basis points
+50
-50
Effect on income
before tax
16,901
(16,901)
50
-50
5,491
(5,491)
- 59 -
Fair Value Information and Categories of Financial Instruments
The carrying values and fair values of the Group’s financial assets and liabilities as at
December 31, 2014 and 2013 approximate their fair values.
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Cash in Bank and Equivalents, Trade and Other Receivables, Trade and Other Payables, Loans
Payable and Mortgage Payable. The carrying amounts of cash in bank and equivalents, trade
and other receivables and trade and other payables, loans payable and mortgage payable
approximate their fair values due to their short-term maturities.
Noncurrent Receivables. The fair value of noncurrent receivables was based on the discounted
value of future cash flows using the applicable risk-free rates for similar types of accounts
adjusted for credit risk.
Debt Component of Convertible Notes. The fair value of the debt component of convertible notes
was based on the discounted value of future cash flows using the applicable rates ranging from
10.52% in 2014 and 6.15% in 2013.
Long-term Debt. The fair value of the long-term debt was based on the discounted value of
future cash flows using the applicable rate of 3.78% and 4.74% in 2014 and 2013, respectively.
30. Capital Management
The Group considers the equity attributable to the Parent Company presented in the
consolidated statement of financial position as its capital. The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios
in order to support its business and maximize shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust the
dividend payment to shareholders, return capital to stockholders or issue new shares. No
changes were made in the objectives, policies or processes in 2014 and 2013.
The Group monitors capital using the debt-to-equity ratio, which is total liabilities (excluding
equity in net loss over cost of investment in joint venture) divided by the total equity. The
Group’s policy is to maintain debt-to-equity ratio at a level not greater than 2:1. The Group
determines total debt as the sum of its liabilities.
- 60 -
Debt-to-equity ratios of the Group are as follows:
Total liabilities
Divide by total equity
Debt-to-equity ratio
2014
P
=5,868,323
4,032,871
1.46
2013
=P1,944,495
1,025,429
1.90
31. Operating Segment Information
For management purposes, the Group is organized into operating segments based on trade
names. However, due to the similarity in the economic characteristics, such segments have been
aggregated into a single operating segment for external reporting purposes (see Note 7).
Restaurant sales, commissary sales and franchise and royalty fees reflected in the consolidated
statement of income are mainly from external customers and franchisees within the Philippines,
which is the Group’s domicile and primary place of operations. Additionally, the Group’s noncurrent assets are also primarily acquired, located and used within the Philippines.
Restaurant sales are attributable to revenues from the general public, which are generated
through the Group’s store outlets. Commissary sales and franchise and royalty fees are derived from various franchisees of the Group’s trade names. Consequently, the Group has no
concentrations of revenues from a single customer or franchisee for the in 2014, 2013 and 2012.
The Group’s international operations of the Pancake House brand (through PHII) are considered to be immaterial in relation to the consolidated financial statements. Total assets and revenues
are 6.65% and 1.14% in 2014 and 4.12% and 0.02% in 2013, respectively, of the consolidated
assets and revenues of the Group.
- 61 -
32. Other Matters
a. Contingencies
The Parent Company and PHVI were named defendants in a civil case filed in October 2002
by Kenmor for the collection of a sum of money and damages.
On September 20, 2013, the Parent Company, PHVI and Kenmor Corporation have agreed to
amicably settle the case. On the same date, the Parent Company paid the agreed amount to
Kenmor Corporation to settle all of its claims.
b. Acquisition on Global Max Services Pte. Ltd (Global Max) and eMax’s, LLC, Colorado Ltd
(eMax)
On January 22, 2015, the BOD approved the Parent Company’s acquisition of eMax. eMax is
a duly registered entity in Colorado, USA, primarily engaged in the granting of franchises for
the development and operation of restaurants under the Max’s brand name within the North American territory. eMax holds the franchise and intellectual property rights for Max’s restaurants for North America. Such an acquisition will allow all shareholders of MGI to
benefit from the expected growth of the Max’s restaurant business in North America.
Moreover, on January 22, 2015, the BOD approved the Parent Company’s acquisition of Global Max. Global Max is a duly registered entity in Singapore engaged in the business of
management consultancy services. This transaction will allow the Parent Company to
consolidate support services for both local and international operations translating to cost
efficiencies and operational synergies.
8741 Paseo de Roxas
Phone: +632 982 9100
Fax : +632 982 9111
ON SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION
Max’s Group, Inc. Pancake House Center
Makati City
We have audited in accordance with Philippines Standards on Auditing, the basic consolidated financial
statements of Max’s Group, Inc. (formerly Pancake House, Inc.) and Subsidiaries (the Group) as at and for
the year ended December 31, 2014 and have issued our report thereon dated March 27, 2015. Our
audit was made for the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The accompanying Schedule of Retained Earnings Available for Dividend Declaration
is the responsibility of the Group’s management. This schedule is presented for purposes of complying with Securities Regulation Code Rule 68, as amended, and is not part of the basic consolidated financial
statements. This information has been subjected to the procedures applied in the audit of the basic
consolidated financial statements, including comparing such information directly to the underlying
accounting and other records used to prepare the basic consolidated financial statements or to the
basic consolidated financial statements themselves. In our opinion, the information is fairly stated in all
material respects in relation to the basic consolidated financial statements taken as a whole.
BELINDA B. FERNANDO
Partner
PTR No. 4748325
March 27, 2015
RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION
DECEMBER 31, 2014
Retained earnings at the beginning of year
Adjustment for:
Deferred tax assets as at December 31, 2013
Retained earnings, as adjusted to amount available for
dividend declaration, at beginning of year
Add: Net loss for the year
Less: Stock dividends
Movement in deferred tax assets
Retained earnings available for dividend declaration, at end of year
RECONCILIATION:
Retained earnings at end of year as shown in the financial statements
Less: Deferred tax assets as at end of year
Retained earnings available for dividend declaration, at end of year
=421,463,062
P
(65,994,844)
355,468,218
(28,119,392)
(259,210,840)
(29,455,171)
(288,666,011)
P
=38,682,815
=134,132,830
P
(95,450,015)
P
=38,682,815
8741 Paseo de Roxas
Phone: +632 982 9100
Fax : +632 982 9111
ON SCHEDULE OF ADOPTION OF EFFECTIVE ACCOUNTING STANDARDS
Makati City
We have audited in accordance with Philippines Standards on Auditing, the basic consolidated financial
the year ended December 31, 2014 and have issued our report thereon dated March 27, 2015. Our
audit was made for the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The accompanying Schedule of Adoption of Effective Accounting Standards and
Interpretations is the responsibility of the Group’s management. This schedule is presented for purposes of complying with Securities Regulation Code Rule 68, as amended, and is not part of the basic
consolidated financial statements. This information has been subjected to the procedures applied in
the audit of the basic consolidated financial statements, including comparing such information directly
to the underlying accounting and other records used to prepare the basic consolidated financial
statements or to the basic consolidated financial statements themselves. In our opinion, the
information is fairly stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
BELINDA B. FERNANDO
Partner
PTR No. 4748325
March 27, 2015
SUBSIDIARIES
SUPPLEMENTARY SCHEDULE OF ADOPTION OF
EFFECTIVE ACCOUNTING STANDARDS AND INTERPRETATIONS
DECEMBER 31, 2014
Title
Adopted
Not
Adopted
Not
Applicable
Adopted
Not
Adopted
Not
Applicable
Framework for the Preparation and Presentation of Financial
Statements
Conceptual Framework Phase A: Objectives and qualitative
characteristics
PFRSs Practice Statement Management Commentary
Philippine Financial Reporting Standards (PFRSs)
PFRS
Title
PFRS 1
(Revised)
First-time Adoption of Philippine Financial
Reporting Standards
Amendments to PFRS 1 and PAS 27: Cost of an
Investment in a Subsidiary, Jointly Controlled
Entity or Associate
Amendments to PFRS 1: Additional Exemptions
for First-time Adopters
Amendment to PFRS 1: Limited Exemption from
Comparative PFRS 7 Disclosures for First-time
Adopters
Amendments to PFRS 1: Severe Hyperinflation
and Removal of Fixed Date for First-time
Adopters
Amendments to PFRS 1: Government Loans
Amendment to PFRS 1: Meaning of effective
PFRSs
PFRS 2
Share-based Payment
Amendments to PFRS 2: Vesting Conditions and
Cancellations
Amendments to PFRS 2: Group Cash-settled
Share-based Payment Transactions
PFRS 3
(Revised)
Business Combinations
PFRS
PFRS 4
Title
Adopted
Insurance Contracts
Amendments to PAS 39 and PFRS 4: Financial
Guarantee Contracts
PFRS 5
Non-current Assets Held
Discontinued Operations
for
Sale
PFRS 6
Exploration for and Evaluation of Mineral
Resources
PFRS 7
Financial Instruments: Disclosures
Amendments to PAS 39 and
Reclassification of Financial Assets
and
PFRS
7:
Amendments to PAS 39 and PFRS 7:
Reclassification of Financial Assets – Effective
Date and Transition
Amendments to PFRS 7: Improving Disclosures
about Financial Instruments
Amendments to PFRS 7: Disclosures – Transfers
of Financial Assets
Amendments to PFRS 7: Disclosures – Offsetting
Financial Assets and Financial Liabilities
Amendments to PFRS 7: Mandatory Effective
Date of PFRS 9 and Transition Disclosures
PFRS 8
Operating Segments
PFRS 9
Financial Instruments
Amendments to PFRS 9: Mandatory Effective
Date of PFRS 9 and Transition Disclosures
PFRS 10
Consolidated Financial Statements
Amendments to PFRS 10: Investment Entities
PFRS 11
Joint Arrangements
PFRS 12
Disclosure of Interests in Other Entities
Amendments to PFRS 12: Investment Entities
PFRS 13
Fair Value Measurement
Amendment to PFRS 13: Short-term receivables
and payables
Not
Adopted
Not
Applicable
Philippine Accounting Standards (PASs)
PAS
PAS 1
(Revised)
Title
Adopted
Presentation of Financial Statements
Amendment to PAS 1: Capital Disclosures
Amendments to PAS 32 and PAS 1: Puttable
Financial Instruments and Obligations Arising on
Liquidation
Amendments to PAS 1: Presentation of Items of
Other Comprehensive Income
PAS 2
Inventories
PAS 7
Statement of Cash Flows
PAS 8
Accounting Policies, Changes in Accounting
Estimates and Errors
PAS 10
Events after the Reporting Period
PAS 11
Construction Contracts
PAS 12
Income Taxes
Amendment to PAS 12 – Deferred Tax: Recovery
of Underlying Assets
PAS 16
Property, Plant and Equipment
PAS 17
Leases
PAS 18
Revenue
PAS 19
(Amended)
Employee Benefits
PAS 20
Accounting for Government Grants
Disclosure of Government Assistance
and
PAS 21
The Effects of Changes in Foreign Exchange
Rates
Amendment: Net Investment in a Foreign
Operation
PAS 23
(Revised)
Borrowing Costs
PAS 24
(Revised)
Related Party Disclosures
PAS 26
Accounting and Reporting by Retirement Benefit
Plans
Not
Adopted
Not
Applicable
PAS 27
(Amended)
Separate Financial Statements
Amendments to PAS 27: Investment Entities
PAS 28
(Amended)
Investments in Associates and Joint Ventures
PAS 29
Financial Reporting
Economies
in
PAS 32
Financial
Instruments:
Presentation
Hyperinflationary
Disclosure
and
Amendments to PAS 32 and PAS 1: Puttable
Financial Instruments and Obligations Arising on
Liquidation
Amendment to PAS 32: Classification of Rights
Issues
Amendments to PAS 32: Offsetting Financial
Assets and Financial Liabilities
PAS 33
Earnings per Share
PAS 34
Interim Financial Reporting
PAS 36
Impairment of Assets
Amendments to PAS 36: Recoverable Amount
Disclosures for Non-Financial Assets
PAS 37
Provisions, Contingent Liabilities and Contingent
Assets
PAS 38
Intangible Assets
PAS 39
Financial
Instruments:
Measurement
Recognition
and
Amendments to PAS 39: Transition and Initial
Recognition of Financial Assets and Financial
Liabilities
Amendments to PAS 39: Cash Flow Hedge
Accounting of Forecast Intragroup Transactions
Amendments to PAS 39: The Fair Value Option
Amendments to PAS 39 and PFRS 4: Financial
Guarantee Contracts
Amendments to PAS 39 and
Reclassification of Financial Assets
PFRS
7:
Amendments to PAS 39 and PFRS 7:
Reclassification of Financial Assets – Effective
Date and Transition
Amendments to Philippine Interpretation IFRIC–
9 and PAS 39: Embedded Derivatives
Amendment to PAS 39: Eligible Hedged Items
Amendments to PAS 39: Novation of Derivatives
and Continuation of Hedge Accounting
PAS 40
Investment Property
PAS 41
Agriculture
Philippine Interpretations
Interpretations
Title
Adopted
IFRIC 1
Changes
in
Existing
Decommissioning,
Restoration and Similar Liabilities
IFRIC 2
Members’ Share in Co-operative Entities and
Similar Instruments
IFRIC 4
Determining Whether an Arrangement Contains
a Lease
IFRIC 5
Rights
to
Interests
arising
Decommissioning,
Restoration
Environmental Rehabilitation Funds
IFRIC 6
Liabilities arising from Participating in a Specific
Market – Waste Electrical and Electronic
Equipment
IFRIC 7
Applying the Restatement Approach under PAS
29 Financial Reporting in Hyperinflationary
Economies
IFRIC 8
Scope of PFRS 2
IFRIC 9
Reassessment of Embedded Derivatives
from
and
Amendments to Philippine Interpretation IFRIC–
9 and PAS 39: Embedded Derivatives
IFRIC 10
Interim Financial Reporting and Impairment
IFRIC 12
Service Concession Arrangements
IFRIC 13
Customer Loyalty Programmes
IFRIC 14
The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
Amendments to Philippine Interpretations IFRIC14, Prepayments of a Minimum Funding
Requirement
IFRIC 16
Hedges of a Net Investment in a Foreign
Operation
IFRIC 17
Distributions of Non-cash Assets to Owners
IFRIC 18
Transfers of Assets from Customers
Not
Adopted
Not
Applicable
Interpretations
Title
Adopted
IFRIC 19
Extinguishing Financial Liabilities with Equity
Instruments
IFRIC 20
Stripping Costs in the Production Phase of a
Surface Mine
IFRIC 21
Levies
SIC-7
Introduction of the Euro
SIC-10
Government Assistance – No Specific Relation to
Operating Activities
SIC-13
Jointly Controlled Entities – Non-Monetary
Contributions by Venturers
SIC-15
Operating Leases – Incentives
SIC-21
Income Taxes – Recovery of Revalued NonDepreciable Assets
SIC-25
Income Taxes – Changes in the Tax Status of an
Entity or its Shareholders
SIC-27
Evaluating the Substance of Transactions
Involving the Legal Form of a Lease
SIC-29
Service Concession Arrangements: Disclosures
SIC-31
Revenue – Barter
Advertising Services
SIC-32
Intangible Assets – Web Site Costs
Transactions
Involving
Not
Adopted
Not
Applicable
8741 Paseo de Roxas
Phone: +632 982 9100
Fax : +632 982 9111
ON SUPPLEMENTARY SCHEDULES
Makati City
We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
the year ended December 31, 2014 included in this Form 17-A and have issued our report thereon
dated March 27, 2015. Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedules listed in the Index to Financial Statements and
Supplementary Schedules are the responsibility of the Group’s management. These schedules are
presented for purposes of complying with Securities Regulation Code Rule 68, as amended, and are not
part of the basic financial statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the basic financial statements
taken as a whole.
BELINDA B. FERNANDO
Partner
PTR No. 4748325
March 27, 2015
SUBSIDIARIES
SEC SUPPLEMENTARY SCHEDULES AS REQUIRED BY PAR. 6 PART II OF
SRC RULE 68 AS AMENDED
DECEMBER 31, 2014
Table of Contents
Description
Schedule
A
Financial Assets
B
Amounts Receivable from Directors, Officers, Employees, Related Parties,
and Principal Stockholders (Other than Related Parties)
C
Page
1
2
Amounts Receivable from Related Parties which are Eliminated during the
Consolidation of Financial Statements
3
D
Intangible Assets - Other Assets
4
E
Long-Term Debt
5
F
Indebtedness to Related Parties
6
G
Guarantees of Securities of Other Issuers
H
Capital Stock
N/A
7
SCHEDULE A - FINANCIAL ASSETS
DECEMBER 31, 2014
Description
Cash on hand
Loans and receivables:
Cash in banks and cash equivalents
Trade and other receivables*
Receivable from disposal of interest
*Net of allowance for impairment losses totaling to P
=180.7 million.
Carrying
Value
=108,025
P
Fair Value
=108,025
P
848,497
677,559
143,571
163
=1,669,790
P
848,497
677,559
143,571
163
=1,669,790
P
SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES and PRINCIPAL
STOCKHOLDERS (OTHER THAN RELATED PARTIES)
December 31, 2014
Deductions
Name and Designation of Debtor
Balance at
beginning of year
Additions
Collected
Ending Balance
Written
off
Current
Noncurrent
Balance at end
of year
P
=36,935
P
=116,517
(P
=94,464)
P
=–
P
=58,988
P
=–
P
=58,988
P
=36,935
P
=116,517
(P
=94,464)
P
=–
P
=58,988
P
=–
P
=58,988
SCHEDULE C - AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED DURING THE CONSOLIDATION
OF FINANCIAL STATEMENTS
December 31, 2014
Deductions
Related Party
Chickens R Us, Inc
Max's Ermita Inc
Max's Express Restaurants, Inc
Max's Food Services, Inc
Global Max's Servives Pte. LTD
Max's Franchising, Inc
Room Ventures Corp
Trota, Gimenez Realty Corp.
Max's Kitchen, Inc
Max's Makati, Inc
Maxs' SM Marikina, Inc
Square Top, Inc
Max's Bakeshop, Inc
Max's Circle, Inc
The Real American Doughnut Company
Fresh Healthy Juice Boosters, Inc
88 Just Asian, Inc.
Boulangerie Francaise, Inc.
Chicken's R Us, Inc.
CRPPhilippines, Inc.
DFSI–One Nakpil, Inc.
Balance at
beginning of
year
P
=34,991
Additions
P
=21,803
Collections
P
=–
Write off
P
=–
66,047
2,500
239
2,399
4,860
–
7,556
19,030
75,915
2,775
31,183
–
9,886
2,089
–
25,139
5,717
1
40,684
–
51,245
3,442
11,558
827
(186)
9,740
5,376
200
7,750
152,752
314,171
9,121
827,643
33,267
–
143,779
–
46,434
–
–
7,808
27,285
100
–
–
–
–
–
–
–
–
(91,496)
(253,276)
(9,932)
(803,021)
–
(2,017)
–
–
(69,420)
(1,323)
(2)
(789)
(57)
(51,345)
(700)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Ending Balance
Amounts
written off
P
=–
Current
P
=56,794
Noncurrent
P
=–
Balance at
end of year
P
=56,794
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
77,605
3,327
54
12,139
10,237
200
15,305
80,286
136,810
1,965
55,805
33,267
7,870
145,869
–
2,152
4,394
(1)
47,703
27,228
–
2,742
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
77,605
3,327
54
12,139
10,237
200
15,305
80,286
136,810
1,965
55,805
33,267
7,870
145,869
–
2,152
4,394
(1)
47,703
27,228
–
2,742
DFSI–Subic, Inc.
Max's Kitchen, Inc.
Max's Bakeshop, Inc
Max's Express Restaurants, Inc
MGOC Holdings, Inc
No Bia, Inc.
Pancake House Ventures, Inc.
PCK Bel–Air, Inc.
PCK Boracay, Inc.
PCK MSC, Inc.
PCK MTB, Inc.
PCK–AMC, Inc.
PCK–LFI, Inc.
PCK–N3, Inc.
PCK–Palawan, Inc.
PCKPolo, Inc.
PHI International – BVI
PHI International – Malaysia
Room Ventures, Corp
Square Top Inc.
TBGI–Tagaytay, Inc.
Trota, Gimenez Realty Corp
The Real American Doughnut Co. Inc
Yellow Cab Food Corporation
15,335
(454)
(2,379)
–
–
–
–
–
180
362
7,799
1,920
340
531
94
377
305
23
401
69,213
68,338
–
–
–
(84,431)
–
–
1,527
–
–
10
45,419
72,482
293
8,677
33,242
–
81
404
625
150
6,417
–
490
459
5,169
500
30,313
–
821
15,537
–
101,822
8,208
93,807
186,102
–
(700)
(579)
–
–
–
–
–
(81)
–
(801)
(1,825)
(38)
(6,437)
(31)
(442)
(86)
(5,192)
(901)
(86)
(30,208)
–
–
–
(40,451)
–
–
(116,131)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,335
(1,154)
(2,948)
45,419
72,482
293
8,677
33,242
98
443
7,401
720
452
511
64
425
678
–
–
99,440
38,130
821
15,537
–
(23,060)
8,208
93,807
71,498
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,335
(1,154)
(2,948)
45,419
72,482
293
8,677
33,242
98
443
7,401
720
452
511
64
425
678
–
–
99,440
38,130
821
15,537
–
(23,060)
8,208
93,807
71,498
P
=465,179
P
=2,230,459
(P
=1,487,368)
P
=–
P
=–
P
=1,208,270
P
=–
P
=1,208,270
SCHEDULE D: INTANGIBLE ASSETS – OTHER ASSETS
DECEMBER 31, 2014
Description
Trademarks
Software
Brand development cost
Lease rights
Franchise fees
Goodwill
Beginning
balance
=298,394
P
12,040
4,787
3,244
–
889,522
=1,207,987
P
Additions at
cost
=–
P
7,499
2,875
2,242
–
3,002,720
=3,015,336
P
Amortization
=28,443
P
8,041
1,151
1,114
1,037
–
=39,786
P
Charged
to
other accounts
=–
P
–
–
–
–
–
=–
P
Other changes
additions
(deductions) Ending balance
=705
P
=270,656
P
15,918
27,416
293
6,804
2,054
6,426
11,988
10,951
(88,851)
3,803,391
(P
=57,894)
=4,125,644
P
SCHEDULE E - LONG-TERM BORROWINGS
DECEMBER 31, 2014
Title of issue and type of obligation
Loans payable
Long-term debt
Mortgage payable
Amount shown under “Current Amount shown under “Longportion of long-term borrowings” term borrowings” account in the
account in the consolidated statement consolidated statement of financial
of financial position
position
=2,307,288
P
=–
P
73,697
990,988
8,165
–
=2,389,150
P
=990,988
P
Details are discussed in Notes 15, 16 and 17 to consolidated financial statements.
SCHEDULE F – RECEIVABLE FROM (PAYABLE TO) RELATED PARTIES
December 31, 2014
Deductions
Related Party
WERCO Holdings
Various Stockholders
88 Just Asian, Inc.
Boulangerie Francaise, Inc.
CRPPhilippines, Inc.
DFSI–One Nakpil, Inc.
DFSI–Subic, Inc.
Pancake House Ventures, Inc.
PCK Bel–Air, Inc.
PCK Boracay, Inc.
PCK MSC, Inc.
PCK MTB, Inc.
PCK–AMC, Inc.
PCK–LFI, Inc.
PCK–N3, Inc.
PCK–Palawan, Inc.
PCKPolo, Inc.
Balance at
beginning of year
P
=–
Additions
P
=50,043
41,174
4,984
3,496
12,311
5,684
37,932
8,406
–
6,717
–
–
10,364
1,208
3,459
5,852
31
3,532
5,593
8,601
11,989
29,683
556
13,816
18,188
38,380
17,854
63,737
57
38,871
25
40
41,041
10,171
11,929
16,839
25
19,787
22,378
21,648
38,595
Collections
Ending Balance
Write Off
P
=–
P
=–
Current
P
=50,043
–
(1,161)
(16,301)
(16,827)
(20,673)
(15,022)
(51,449)
(37)
(34,816)
(11)
(11)
(44,645)
(10,089)
(11,334)
(21,483)
(11)
(22,946)
(24,241)
(12,655)
(23,948)
–
–
–
–
–
(19,930)
–
–
–
–
–
–
–
–
–
–
–
–
(8,765)
(13,318)
70,856
4,379
1,011
13,672
23,392
20,834
20,694
20
10,772
13
29
6,760
1,290
4,054
1,208
44
373
3,730
8,829
13,318
Noncurrent
P
=–
Balance at end
of year
P
=50,043
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
70,856
4,379
1,011
13,672
23,392
20,834
20,694
20
10,772
13
29
6,760
1,290
4,054
1,208
44
373
3,730
8,829
13,318
PHI International – BVI
PHI International – Malaysia
TBGI–Marilao, Inc.
TBGI–Tagaytay, Inc.
TBGI–Trinoma, Inc.
TBOY–MS, Inc.
FreshHealthy Juice Boosters, Inc.
Global Maxs Services PTE ROHQ
Max's Franchising, Inc.
Max's Ermita, Inc.
Max's Baclaran, Inc.
Max's Bakeshop, Inc.
No Bia, Inc.
Ad Circles
TRADCI
Yellow Cab Food Corporation
8,794
21
–
–
–
–
28,784
–
–
–
–
–
–
–
–
–
6,037
2,987
23
92
109
140
92
73,654
1,121
42,376
2,684
274
8
4
12,283
100
140
158,885
(155)
–
(75)
(46)
(48)
(75)
(78,772)
(584)
(42,484)
(3,285)
(403)
(8)
(4)
–
(191)
(157)
(165,435)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,625
44
17
63
92
17
23,665
538
(108)
(600)
(130)
–
(0)
12,283
(91)
(17)
(512)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,625
44
17
63
92
17
23,665
538
(108)
(600)
(130)
–
(0)
12,283
(91)
(17)
(512)
P
=256,143
P
=748,635
(P
=619,381)
(P
=42,013)
P
=343,383
P
=–
P
=343,383
SCHEDULE H – CAPITAL STOCKHOLDER
December 31, 2014
Number of shares held by
Title of Issue
Common shares
Number of shares
authorized
1,400,000,000
Number of shares issued
and outstanding as shown
under the statement of
financial position caption
780,203,980
Number of shares
reserved for options,
warrants, conversion
& other rights
–
Related parties
341,677,966
Directors,
officers and
employees
196,025,536
Public
242,500,478
MAX’S GROUP, INC.(FORMERLY PANCAKE HOUSE, INC.) AND SUBSIDIARIES
(FORMERLY PANCAKE HOUSE, INC. AND SUBSIDIARIES)
FINANCIAL RATIOS
DECEMBER 31, 2014
Below is a schedule showing financial soundness indicators in the years 2014, 2013 and 2012.
2014
2013
2012
0.54:1
P
=2,361,840
4,396,729
0.52:1
=P951,121
1,821,800
1.01:1
=P955,381
946,005
Solvency Ratio
Net income (loss) before depreciation
Total liabilities
0.03:1
204,642
5,868,323
0.15:1
282,386
1,944,495
0.17:1
315,797
1,864,157
Debt-to-equity Ratio
Total liabilities
Total equity
1.46:1
5,868,323
1.90:1
1,944,495
1,025,430
1.82:1
1,864,157
1,025,325
Asset-to-equity Ratio
Total assets
Total equity
2.46:1
9,901,194
4,032,871
2.90:1
2,969,924
1,025,429
2.82:1
2,889,482
1,025,325
(0.09):1
(5,753)
64,753
3.28:1
205,113
62,580
4.43:1
271,800
61,331
(0.02):1
(66,202)
0.08:1
79,274
1,025,430
0.15:1
149,617
1,025,325
Current/Liquidity Ratio
Current assets
Current liabilities
Interest rate coverage Ratio
Pretax income (loss) before interest
Interest expense
Profitability Ratio
Net income (loss)
Total equity
4,032,871
4,032,871
MAP SHOWING THE RELATIONSHIP BETWEEN AND AMONG THE GROUP
DECEMBER 31, 2014
!
!
Max’s!Group,!Inc.!(formerly)Pancake)House,)Inc.)!
and!Subsidiaries!
!
Consolidated!Financial!Statements!
March!31,!2015!and!December!31,!2014!
And!for!the!Three!Months!Ended!March!31,!!
2015!and!2014!!
!
MAX’S!GROUP,!INC.!(FORMERLY!PANCAKE!HOUSE,!INC.)!AND!!
SUBSIDIARIES!
CONSOLIDATED!STATEMENTS!OF!FINANCIAL!POSITION!
MARCH!31,!2015!
!(Amounts!in!Thousands)!
!
!
!
ASSETS!
Note!
!
As!at!
March!31,!2015!
As!at!!
(Interim)! December!31,!2014!
!
!
Current!Assets!
Cash!
Trade!and!other!receivables!
Inventories!
Prepaid!expenses!and!other!current!assets!
!
!
Total!Current!Assets!
!
!
8!
9!
10!
!
!
P
=838,398!
674,127!
357,027!
410,897!
2,280,449!
!
P
=956,522!
677,559!
364,286!
363,473!
2,361,840!
Noncurrent!Assets!
Property!and!equipment!
Intangible!assets!
Investment!properties!
Net!retirement!plan!assets!
Net!deferred!income!tax!assets!
Security!deposits!on!lease!contracts!
Other!noncurrent!assets!
!
!
Total!Noncurrent!Assets!
!
11!
12!
11!
23!
25!
27!
13!
!
!
1,763,897!
4,178,529!
432,899!
467,779!
188,432!
340,107!
280,898!
7,652,541!
!
1,712,220!
4,125,644!
433,046!
462,153!
196,605!
320,567!
289,119!
7,539,354!
!
!
!
!
P
=9,932,990!
!
P
=9,901,194!
!
LIABILITIES!AND!EQUITY!
!
!
!
!
P
=2,039,615!
2,099,149!
73,697!
5,241!
50,965!
4,268,667!
!
P
=2,191,442!
2,085,486!
73,697!
8,165!
37,939!
4,396,729!
Current!Liabilities!
Trade!and!other!payables!
Loans!payable!
Current!portion!of!longQterm!debt!
Mortgage!payable!
Income!tax!payable!
!
!
Total!Current!Liabilities!
!
!
!
!
14!
15!
16!
17!
!
!
Q!2!Q!
!
!
As!at!
March!31,!2015!
As!at!!
(Interim)! December!31,!2014!
Note!
!
Noncurrent!Liabilities!
LongQterm!debt!
Net!retirement!liabilities!
Accrued!rent!payable!
Net!deferred!income!tax!liabilities!
Provision!for!share!in!equity!in!net!losses!of!a!joint!
venture!
Other!noncurrent!liabilities!
!
!
Total!Noncurrent!Liabilities!
Equity!
Capital!stock!
Additional!paidQin!capital!
Retained!earnings!
Other!comprehensive!income!
!
Shares!held!by!subsidiaries!
Noncontrolling!interests!
!
!
Total!Equity!
!
!
See!accompanying!Notes!to!Consolidated!Financial!Statements.!
!
16!
23!
27!
25!
!
P
=1,212,790!
114,527!
36,901!
117,225!
!
P
=1,212,790!
101,887!
37,328!
103,291!
13!
!
!
6,741!
9,349!
1,497,533!
6,741!
9,557!
1,471,594!
18!
18!
18!
!
!
18!
!
!
!!
1,087,082!
5,353,289!
255,934!
32,350!
6,728,655!
(2,610,013)!
48,148!
4,166,790!
1,087,082!
5,353,289!
114,102!
32,350!
6,586,823!
(2,610,013)!
56,061!
4,032,871!
P
=9,932,990!
!
P
=9,901,194!
!
!
!
!
!
SUBSIDIARIES!
CONSOLIDATED!STATEMENTS!OF!INCOME!
FOR!THE!THREE!MONTHS!ENDED!MARCH!31,!2015!AND!2014!
![Amounts!in!Thousands,!except!for!earnings!(loss)!per!share]!
!
!
!
!
!
!
Note!
Three!Months!Ended!March!31!
2015*!
2014!
REVENUES!
Restaurant!sales!
Commissary!sales!
Franchise!and!royalty!fees!
!
!
!
!
27!
!
!
P
=2,054,777!
255,385!
91,934!
2,402,096!
!
P
=778,201!
120,934!
27,592!
926,727!
COSTS!OF!SALES!
20!
1,966,362!
763,269!
!
435,734!
163,458!
21!
(215,158)!
(103,091)!
!
(37,864)!
(29,085)!
FINANCE!COSTS!
15!
(15,481)!
(13,456)!
SHARE!IN!EQUITY!IN!NET!LOSSES!OF!JOINT!
VENTURES!
13!
–!
OTHER!INCOME!!
24!
29,880!
16,341!
!
197,111!
33,756!
25!
!
!
!
!
69,791!
(12,879)!
56,912!
!
22,688!
(18,613)!
4,075!
GROSS!PROFIT!
GENERAL!AND!ADMINISTRATIVE!EXPENSES!
SALES!AND!MARKETING!EXPENSES!
INCOME!BEFORE!INCOME!TAX!
PROVISION!FOR!(BENEFIT!FROM)!INCOME!TAX!
Current!
Deferred!
!
(411)!
NET!INCOME!
!
P
=140,199!
P
=29,681!
NET!INCOME!(LOSS)!ATTRIBUTABLE!TO:!
Equity!holders!of!the!Parent!Company!
Noncontrolling!interests!
!
Earnings!per!Share!Attributable!to!the!Equity!
!
Holders!of!the!Parent!Company!
Basic!
Diluted!
!
!
!
!
!
!
P
=141,832!
(1,633)!
P
=140,199!
!
P
=31,754!
(2,073)!
P
=29,681!
!
!
26!
26!
!
!
!
P
=0.13!
P
=0.13!
!
P
=0.12!
P
=0.12!
!
*As!discussed!in!Note!6,!the!Max’s!Entities!(Max’s)!became!subsidiaries!of!Max’s!Group,!Inc.!(MGI)!effective!November!2014!in!accordance!
with!PFRS!3,!Business!Combinations.!!The!2015!consolidated!statement!of!income!includes!the!three!months!results!of!operations!of!both!
MGI!and!Max’s!in!the!first!quarter!of!2015.!
!
!
SUBSIDIARIES!
CONSOLIDATED!STATEMENTS!OF!COMPREHENSIVE!INCOME!
!
!
!
!
!
!
Note!
!
!
NET!INCOME!
!
!
P
= 140,199!
P
=29,681!
OTHER!COMPREHENSIVE!INCOME!
!
!
!
!
Item!to!be!reclassified!to!profit!or!loss!
! Income!(loss)!from!exchange!differences!on!
! translation!of!foreign!operations!
!
!
!
!
!
!
–!
5,683!
TOTAL!COMPREHENSIVE!INCOME!
!
!
P
= 140,199!
P
=35,364!
TOTAL!COMPREHENSIVE!INCOME!(LOSS)!
! ATTRIBUTABLE!TO:!
! Equity!holders!of!the!Parent!Company!
! Noncontrolling!interests!
!
!
!
!
!
!
!
P
= 141,832!
(1,633)!
!
P
=37,437!
(2,073)!
!
!
!
!
!
P
=140,199!
P
=35,364!
!
!
!
Three!Months!Ended!March!31!
2015*!
2014!
!
!
!
!
!
!
SUBSIDIARIES!
CONSOLIDATED!STATEMENTS!OF!CHANGES!IN!EQUITY!
FOR!THE!THREE!MONTHS!ENDED!MARCH!31,!2015!and!2014!
!
!
!
!
!
!
Note!
! Three!Months!Ended!March!31!
!
2015*!
2014!
CAPITAL!STOCK!
Balance!at!beginning!of!period!
Conversion!of!notes!to!equity!
Balance!at!end!of!period!
18!
!
!
!
!
!
!
!
!
P
=1,087,082!
–!
1,087,082!
!
P
=237,795!
21,416!
259,211!
ADDITIONAL!PAIDdIN!CAPITAL!
Conversion!of!notes!to!equity!
18!
!
!
!
!
!
!
!
!
5,353,289!
–!
5,353,289!
!
176,806!
110,856!
287,662!
RETAINED!EARNINGS!!
Balance!at!beginning!period!
Net!income!
Balance!at!end!period!
!
!
!
!
!
!
!
!
!
114,102!
141,832!
255,934!
!
401,680!
31,754!
433,434!
OTHER!COMPREHENSIVE!INCOME!(LOSS)!
To!be!reclassified!to!profit!or!loss!when!realized!
T!Cumulative!translation!adjustments!
Income!(loss)!from!exchange!differences!on!
! translation!of!foreign!operations!
!
!
!
!
!
!
!
!
!
(1,593)!
!
(12,114)!
!
!
!
!
–!
(1,593)!
5,683!
(6,431)!
(Forward)!
!
!
!
!
!
!
!
Q!2!Q!
!
!
Note!
!
!
!
!
!
!
P
=33,943!
!
!
!
!
!
!
–!
33,943!
32,350!
!
!
6,728,655!
SHARES!HELD!BY!SUBSIDIARIES!Q!at!cost!!
18!
!
(2,610,013)!
NONCONTROLLING!INTERESTS!
Total!comprehensive!income!
Movements!in!noncontrolling!interests!
!
!
!
7!
!
!
!
!
!
!
!
56,061!
(1,633)!
(6,280)!
48,148!
!
!
!
!
!
Not!to!be!reclassified!to!profit!or!loss!T!!
Remeasurement!adjustments!on!net!
retirement!liabilities,!net!of!deferred!tax!
Remeasurement!of!net!retirement!liabilities!
and!net!retirement!plan!assets,!net!of!
deferred!tax!
!
!
!
!See!accompanying!Notes!to!Consolidated!Financial!Statements.!
!
2015*!
P
=4,166,790!
!
2014!
!
P
=–!
–!
–!
(6,431)!
973,876!
–!
!
100,876!
(2,073)!
(17,723)!
81,080!
P
=1,054,956!
!
!
!
SUBSIDIARIES!
CONSOLIDATED!STATEMENTS!OF!CASH!FLOWS!
!
!
!
!
!
!
Note!
CASH!FLOWS!FROM!OPERATING!ACTIVITIES!
Income!before!income!tax!
Adjustments!for:!
! Depreciation!and!amortization!
! Finance!costs!
! Amortization!of!intangible!assets!
! Interest!income!
! Gain!on!disposal!of!property!and!equipment!
! Share!in!equity!in!net!losses!of!joint!
ventures!!
Operating!income!before!working!capital!
changes!
Decrease!(increase)!in:!
! Trade!and!other!receivables!
! Inventories!
! Net!retirement!plan!assets!
! Prepaid!expenses!and!other!current!assets!
Increase!(decrease)!in:!
! Trade!and!other!payables!
! Net!retirement!liabilities!
! Accrued!rent!payable!
Net!cash!generated!from!operations!
Interest!received!
Interest!paid!
Income!taxes!paid!
Net!cash!provided!by!(used!in)!operating!
! activities!
(Forward)!
!
!
! Three!Months!Ended!March!31!
!
2015*!
2014!
!
!
!
11!
15!
12!
24!
11!
!
!
!
!
!
!
!
!
!
P
= 197,111!
!
119,515!
15,481!
8,023!
(908)!
(204)!
10!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
339,018!
!
3,432!
7,259!
(5,626)!
(47,424)!
!
(174,640)!
12,640!
(427)!
134,232!
908!
(15,481)!
(21,779)!
103,397!
!
(215,695)!
15,361!
14,872!
(46,752)!
–!
99,296!
–!
(331)!
(29,852)!
128!
(13,456)!
(5,256)!
!
!
97,880!
(48,436)!
–!
!
P
=33,756!
!
47,351!
13,456!
8,551!
(128)!
–!
411!
!
Q!2!Q!
!
!
Note!
!
2015!
2014!
CASH!FLOWS!FROM!INVESTING!ACTIVITIES!
Acquisitions!of:!
! Property!and!equipment!
! Intangible!assets!
Proceeds!from!disposal!of!property!and!
! equipment!
! Subsidiaries,!net!of!cash!acquired!
Decrease!(increase)!in:!
! Security!deposits!on!lease!contracts!
! Other!noncurrent!assets!
Net!cash!used!in!investing!activities!
!
!
11!
12!
!
!
!
!
!
!
(P
= 184,486)!
(1,339)!
!
!
(P
=33,567)!
(1,732)!
!
!
!
!
!
!
!
!
!
!
!
!
27,809!
(57,199)!
!
(19,540)!
8,220!
(226,535)!
568!
–!
!
5,022!
9,606!
(20,103)!
CASH!FLOWS!FROM!FINANCING!ACTIVITIES!
Net!proceeds!from!(payments!of):!
! Loans!payable!
! Mortgage!payable!
Decrease!in!noncurrent!liabilities!
Net!cash!provided!by!financing!activities!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
13,663!
(2,924)!
(208)!
10,531!
!
!
121,208!
(2,637)!
–!
118,571!
NET!INCREASE!(DECREASE)!IN!CASH!
!
!
(118,124)!
50,032!
CASH!AT!BEGINNING!OF!YEAR!
!
!
956,522!
341,682!
CASH!AT!END!OF!YEAR!
!
!
!
!
!
P
= 838,398!
!
P
=391,714!
!
!
!
!
SUBSIDIARIES!
NOTES!TO!CONSOLIDATED!FINANCIAL!STATEMENTS!
!
!
!
1. Corporate!Information!
MAX’S!GROUP,!INC.!(formerly!Pancake!House,!Inc.;!the!Parent!Company)!was!incorporated!in!the!
Philippines!and!registered!with!the!Securities!and!Exchange!Commission!(SEC)!on!March!1,!2000.!
Its! shares! are! publicly! traded! in! the! Philippine! Stock! Exchange.! ! The! Parent! Company! and! its!
subsidiaries! (collectively! referred! to! as! “the! Group”)! are! primarily! engaged! in! the! business! of!
catering! foods! and! establishing,! operating! and! maintaining! restaurants,! coffee! shops,!
refreshments!parlors!and!cocktail!lounges.!
The! Group! operates! under! the! trade! names! “Max’s”,! “Pancake! House,”! “Yellow! Cab”,! “Krispy!
Kreme”,!“Jamba!Juice”,!“Max’s!Corner!Bakeshop”,!“Dencio’s”,!”Teriyaki!Boy”,!“Singkit”,!“Sizzlin’!
Steak”,! “Le! Coeur! de! France”,! “The! Chicken! Rice! Shop”,! “Kabisera! ni! Dencio’s”,! “Maple”! and!
“Meranti”.!
On! December! 20,! 2013,! Pancake! House! Holdings,! Inc.! (PHHI),! the! previous! ultimate! parent!
company,!agreed!to!sell!to!the!10!companies!which!belong!to!the!Max’s!Group!(Max’s!Entities)!
all! of! its! shares! in! the!Parent! Company! at! a! price! of! P
=15! per! share.! ! The! 10! Max’s! Entities! also!
made! a! tender! offer! to! the! minority! shareholders! of! the! Parent! Company! at! a! price! of! P
=15! a!
share!and!completed!their!acquisition!of!233,160,200!shares!or!89.95%!of!the!Parent!Company’s!
outstanding!shares!on!February!24,!2014.!!!
On!June!30,!2014,!the!Board!of!Directors!(BOD)!of!the!Parent!Company!authorized!its!acquisition!
of! all! the! issued! and! outstanding! shares! of! stock! of! 20! Max’s! Entities.! ! Included! in! the! Max’s!
Entities! are! the! 10! companies! which! previously! acquired! 89.95%! combined! stake! in! the! Parent!
Company!and!its!subsidiaries.!On!November!7,!2014,!the!SEC!issued!the!certificate!of!approval!of!
the! valuation! of! approximately! P
=4.0! billion! in! exchange! for! the! subscription! of! 540,491,344!
shares! of! the! Parent! Company.! ! The! exchange! is! accounted! for! as! a! business! combination! in!
accordance!with!Philippine!Financial!Reporting!Standards!(PFRS)!3,!with!the!Parent!Company!as!
the!acquirer,!the!20!Max’s!Entities!as!acquirees,!and!November!7,!2014!as!the!acquisition!date!!
(see!Note!8).!!!
On!July!31,!2014,!the!SEC!approved!the!application!for!the!increase!in!authorized!capital!stock!of!
the! Parent! Company! from! 400,000! shares! with! a! par! value! of! P
=1.0! a! share! to! 1,400,000,000!
shares! with! the! same! par! value.! On! August! 8,! 2014,! the! SEC! approved! the! declaration! of!stock!
dividends!of!259,210,840!shares!out!of!the!increase.!
!
In!December!2014,!the!Parent!Company!made!a!followQon!offering!of!28,168,998!new!shares!and!
169,014,100!shares!held!by!subsidiaries!to!the!public.!!Shares!held!by!subsidiaries!pertain!to!the!
shares!of!10!Max’s!entities.!!The!Parent!Company!recognized!additional!paidQin!capital!related!to!
new!shares!amounting!to!P
=471.8!million!arising!from!the!excess!of!the!proceeds!over!par!value!of!
the! shares! sold.! ! Total! cost! incurred! in! the! followQon! offering! transaction! amounted! to!!
P
=364.3!million.!!Of!the!total!amount!P
=7.0!million!was!charged!to!profit!or!loss!and!P
=357.3!million!
was!recorded!as!reduction!to!additional!paidQin!capital.!
!
Q!2!Q!
!
!
The!20!Max’s!Entities!consist!of!Max’s!Makati,!Inc.,!Max’s!Kitchen,!Inc.,!Max’s!SM!Marikina,!Inc.,!
Max’s!Ermita,!Inc.,!Chicken’s!R!Us,!Inc.,!Max’s!Circle,!Inc.,!Max’s!Baclaran,!Inc.,!Max’s!Bakeshop,!
Inc.,! Max’s! Food! Services,! Inc.,! Max’s! Express! Restaurants,! Inc.,! Square! Top,! Inc.,! No! Bia,! Inc.,!
Max’s! Franchising,! Inc.,! Ad! Circles,! Inc.,! Alpha! (Global)! Max! Group! Limited,! The! Real! American!
Doughnut! Company,! Inc.,! Fresh! Healthy! Juice! Boosters,! Inc.,! MGOC! Holdings,! Inc.,! RooM!
Ventures!Corp.!and!Trota!Gimenez!Realty!Corporation.!
On! August! 22,! 2014,! the! SEC! approved! the! change! in! the! Parent! Company! name! to! “MAX’S!
GROUP,!INC.”.!
The! registered! office! address! of! the! Parent! Company! is! Pancake! House! Center,! 2259! Pasong!
Tamo!Extension,!Makati!City.!!On!January!22,!2015,!the!BOD!approved!the!change!in!the!Parent!
Company’s!principal!place!of!business!to!11F!Ecoplaza!Building,!Pasong!Tamo!Ext.,!Makati!City.!!
Amendment! of! the! Articles! of! Incorporation! for! the! change! in! registered! office! address! is!
currently!ongoing.!
!
!
2. Basis!of!Preparation!and!Statement!of!Compliance!
The!consolidated!financial!statements!of!the!Group!have!been!prepared!under!the!historical!cost!
basis.! ! The! consolidated! financial! statements! are! presented! in! Philippine! Peso,! which! is! the!
Group’s!functional!and!presentation!currency.!!All!values!are!rounded!to!the!nearest!thousands!
except!when!otherwise!indicated.!
The! consolidated! financial! statements! have! been! prepared! in! accordance! with! Philippine!
Financial!Reporting!Standards!(PFRS)!issued!and!approved!by!the!Philippine!Financial!Reporting!
Standards!Council!(FRSC)!and!adopted!by!the!SEC,!including!SEC!pronouncements.!!PFRS!includes!
PFRS,! Philippine! Accounting! Standards! (PAS),! and! Philippine! Interpretation! from! International!
Financial!Reporting!Interpretations!Committee!(IFRIC).!
!
!
3. Summary!of!Changes!in!Accounting!Policies!
Adoption!of!New!and!Amended!PFRS!
The!accounting!policies!adopted!are!consistent!with!those!of!the!previous!financial!years,!except!
for! the! adoption! of! the! following! new! and! amended! PFRS! and! Philippine! Interpretation! from!
IFRIC!which!the!Group!adopted!effective!January!1,!2015:!
•
!
PFRS! 9,! Financial! Instruments:! Classification! and! Measurement! ─! This! standard! is! the! first!
phase!in!replacing!PAS!39!and!applies!to!classification!and!measurement!of!financial!assets!as!
defined!in!PAS!39.!
The!adoption!of!the!foregoing!new!and!amended!PFRS!did!not!have!any!material!effect!on!the!
consolidated! financial! statements.! ! Additional! disclosures! have! been! included! in! the! notes! to!
consolidated!financial!statements,!as!applicable.!
!
Q!3!Q!
!
!
New!and!Amended!PFRS!Not!Yet!Adopted!
Relevant! new! and! amended! PFRS! which! are! not! yet! effective! for! the! quarter! ended! March! 31,!
2015!and!have!not!been!applied!in!preparing!the!financial!statements!are!summarized!below.!
Effective!for!annual!periods!beginning!on!or!after!January!1,!2016:!
•
PFRS! 14,! Regulatory! Deferral! Accounts! ─! This! standard! specifies! the! financial! reporting!
requirements! for! regulatory! deferral! account! balances! that! arise! when! an! entity! provides!
goods!or!services!to!customers!at!a!price!or!rate!that!is!subject!to!rate!regulation.!
Under! prevailing! circumstances,! the! adoption! of! the! foregoing! new! and! amended! PFRS! is! not!
expected! to! have! any! material! effect! on! the! consolidated! financial! statements.! ! Additional!
disclosures!will!be!included!in!the!consolidated!financial!statements,!as!applicable.!
!
4. Summary!of!Significant!Accounting!Policies!
Basis!of!Consolidation!
The! consolidated! financial! statements! of! the! Group! comprise! the! financial! statements! of! the!
Parent! Company! and! its! subsidiaries.! ! Control! is! achieved! when! the! Group! is! exposed,! or! has!
rights,! to! variable! returns! from! its! involvement! with! the! investee! and! has! the! ability! to! affect!
those!returns!through!its!power!over!the!investee.!!Specifically,!the!Group!controls!an!investee!if!
and!only!if!the!Group!has:!
•
•
•
Power! over! the! investee! (i.e.! existing! rights! that! give! it! the! current! ability! to! direct! the!
relevant!activities!of!the!investee);!
Exposure,!or!rights,!to!variable!returns!from!its!involvement!with!the!investee;!and!
The!ability!to!use!its!power!over!the!investee!to!affect!its!returns.!
When!the!Group!has!less!than!majority!of!the!voting!or!similar!rights!of!an!investee,!the!Group!
considers! all! relevant! facts! and! circumstances! in! assessing! whether! it! has! power! over! an!
investee,!including:!
•
•
•
The!contractual!arrangement!with!the!other!vote!holders!of!the!investee;!
Rights!arising!from!other!contractual!arrangement;!and!
The!Group’s!voting!rights!and!potential!voting!rights.!
The!Group!reQassesses!whether!or!not!it!controls!an!investee!if!facts!and!circumstances!indicate!
that! there! are! changes! to! one! or! more! of! the! three! elements! of! control.! Consolidation! of! a!
subsidiary! begins! when! the! Group! obtains! control! over! the! subsidiary! and! ceases! when! the!
Group! loses! control! of! the! subsidiary.! ! Assets,! liabilities,! income! and! expenses! of! a! subsidiary!
acquired! or! disposed! of! during! the! year! are! included! in! the! consolidated! statement! of! income!
from!the!date!the!Group!gains!control!until!the!date!the!Group!ceases!to!control!the!subsidiary.!
Profit! or! loss! and! each! component! of! other! comprehensive! income! (OCI)! are! attributed! to! the!
equity!holders!of!the!Parent!Company!and!to!the!noncontrolling!interests,!even!if!this!results!in!
the!noncontrolling!interests!having!a!deficit!balance.!
Noncontrolling! interests! represent! the! portion! of! net! results! and! net! assets! not! held! by! the!
Group.! ! These! are! presented! in! the! consolidated! statement! of! financial! position! within! equity,!
apart! from! equity! attributable! to! equity! holders! of! the! Parent! Company! and! are! separately!
Q!4!Q!
!
!
disclosed!in!the!consolidated!statement!of!income!and!consolidated!statement!of!comprehensive!
income.!!Noncontrolling!interests!consist!of!the!amount!of!those!interests!at!the!date!of!original!
business!combination!and!the!noncontrolling!interests’!share!on!changes!in!equity!since!the!date!
of!the!business!combination.!
The! financial! statements! of! the! subsidiaries! are! prepared! for! the! same! reporting! year! as! the!
Parent! Company.! ! Consolidated! financial! statements! are! prepared! using! uniform! accounting!
policies!for!like!transactions!and!other!events!in!similar!circumstances.!!Intercompany!balances!
and!transactions,!including!intercompany!profits!and!losses,!are!eliminated.!
A!change!in!the!ownership!interest!of!a!subsidiary,!without!loss!of!control,!is!accounted!for!as!an!
equity!transaction.!If!the!Group!loses!control!over!a!subsidiary,!it:!
•
•
•
•
•
•
•
Derecognizes!the!assets!(including!goodwill)!and!liabilities!of!the!subsidiary!
Derecognizes!the!carrying!amount!of!any!noncontrolling!interests!
Derecognizes!the!cumulative!translation!differences!recorded!in!equity!
Recognizes!the!fair!value!of!the!consideration!received!
Recognizes!the!fair!value!of!any!investment!retained!
Recognizes!surplus!or!deficit!in!profit!or!loss!
Reclassifies!the!parent’s!share!of!component!previously!recognized!in!OCI!to!profit!or!loss!or!
retained!earnings,!as!appropriate,!as!would!be!required!if!the!Group!had!directly!disposed!of!
the!related!assets!or!liabilities.!
The! consolidated! financial! statements! include! the! accounts! of! the! Parent! Company! and! the!
following!subsidiaries:!
!
!
!
Company!Name!
Boulangerie!Francaise,!Inc.!(BFI)!
YCPC!Subic,!Inc.!(formerly!DFSI!Subic,!Inc.)!
[a]
Golden!B.E.R.R.D.!Grill,!Inc.! !
Pancake!House!International,!Inc.!(PHII)!
Teriyaki!Boy!International!Q!Inc.!
Yellow!Cab!Food!Co.!International!Q!Inc.!!
Pancake!House,!International!
Malaysia!Sdn!Bhd!(PHIM)!
![a]
Pancake!House!Ventures,!Inc.!(PHVI) !
Yellow!Cab!Food!Corporation!(YCFC)!
YCPI!Pizza!Venture,!Inc.!
88!Just!Asian,!Inc.!(88JAI)!
Teriyaki!Boy!Group,!Inc.!(TBGI)!
![b]
TBGIQTrinoma,!Inc. !
![b]
TBGIQMarilao,!Inc. !
[b]
TBOYQMS,!Inc. !
![b]
!
TBGIQTagaytay,!Inc.!(TBGI!Tagaytay) !
![b]
CRP!Philippines,!Inc. !
Always!Happy!BGC,!Inc.!
PCKQLFI,!Inc.!
[a]
PCKQAMC,!Inc. !
PCKQBoracay,!Inc.!
!
!
Nature!of!
Business!
Restaurant!
Restaurant!
Restaurant!
Holding!
Company!
Franchising!
Franchising!
Restaurant!
Holding!
Company!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Percentage!of!
Effective!Ownership!
2015!
2014!
100!
100!
100!
100!
100!
100!
100!
100!
100!
!
100!
100!
100!
100!
!
100!
100!
100!
55!
80!
70!
42!
36!
35!
28!
50!
51!
70!
60!
100!
100!
100!
55!
80!
70!
42!
36!
35!
28!
50!
51!
70!
60!
60!
Q!5!Q!
!
!
!
!
Company!Name!
PCKQMTB,!Inc.!
PCKQN3,!Inc.!
PCK!BelQAir,!Inc.!
![b]
PCKQMSC,!Inc. !
PCKPolo,!Inc.!
PCKQPalawan,!Inc.!
DFSI!OneQNakpil,!Inc.!
RooM!Ventures!Corp.!!
No!Bia,!Inc.!!
MGOC!Holdings,!Inc.!!
Max’s!SM!Marikina,!Inc.!
Chicken’s!R!Us,!Inc.!
The!Real!American!Doughnut!Company,!Inc.!
Max’s!Franchising,!Inc.!!
Trota!Gimenez!Realty!Corporation!!
Alpha!(Global)!Max!Group!Limited!(Alpha!Max)!
Max’s!Baclaran,!Inc.!
Max’s!Kitchen,!Inc.!
Ad!Circles,!Inc.!!
Square!Top,!Inc.!!
Fresh!Healthy!Juice!Boosters,!Inc.!
Max’s!Bakeshop,!Inc.!!
Max’s!Circle,!Inc.!
Max’s!Ermita,!Inc.!
Max’s!Express!Restaurants,!Inc.!
Max’s!Food!Services,!Inc.!
Max’s!Makati,!Inc.!
Global!Max!Services!Pte.!Ltd!
eMax’s,!LLC,!Colorado!Ltd!
[a]
[b]
!
Nature!of!
Business!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Real!Estate!
Commissary!
Investment!
Holding!
Restaurant!
Restaurant!
Bakery!
Franchising!
Real!Estate!
Franchising!
Restaurant!
Restaurant!
Advertising!
Support!
Commissary!
Restaurant!
Bakery!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Restaurant!
Support!Services!
Franchising!
Percentage!of!
Effective!Ownership!
2015!
2014!
60!
60!
51!
51!
51!
51!
50!
50!
70!
70!
60!
60!
60!
60!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
100!
–!
–!
Dormant!companies!as!at!December!31,!2014!and!2013.!
Although!the!Group!owns!not!more!than!50%!of!the!voting!power!of!these!companies,!it!is!able!to!govern!the!financial!and!
operating!policies!of!the!companies!by!virtue!of!an!agreement!with!the!other!investors!of!such!entities.!Consequently,!the!Group!
consolidates!its!investment!in!these!companies.!!
All!of!the!subsidiaries!are!incorporated!and!operating!in!the!Philippines,!except!for!PHII,!Teriyaki!
Boy!International!Q!Inc.,!Yellow!Cab!Food!Co.!International!Q!Inc.,!which!are!incorporated!in!British!
Virgin!Islands,!Pancake!House,!International!Malaysia!Sdn!Bhd!(PHIM),!a!company!incorporated!
and! operating! in! Malaysia,! Alpha! Max! which! is! incorporated! in! Hongkong,! Global! Max! Services!
Pte.!Ltd,!a!company!duly!registered!in!Singapore!and!eMax’s,!LLC,!Colorado!Ltd,!a!duly!registered!
entity!in!Colorado,!USA.!
Business!Combinations!and!Goodwill!
Business! combinations! are! accounted! for! using! the! acquisition! method.! ! The! cost! of! an!
acquisition! is! measured! as! the! aggregate! of! the! consideration! transferred,! measured! at!
acquisition! date! fair! value,! and! the! amount! of! any! noncontrolling! interest! in! the! acquiree.! ! For!
each! business! combination,! the! acquirer! measures! the! noncontrolling! interest! in! the! acquiree!
pertaining!to!instruments!that!represent!present!ownership!interests!and!entitle!the!holders!to!a!
proportionate! share! of! the! net! assets! in! the! event! of! liquidation! either! at! fair! value! or! at! the!
proportionate! share! of! the! acquiree’s! identifiable! net! assets.! ! All! other! components! of!
Q!6!Q!
!
!
noncontrolling!interest!are!measured!at!fair!value!unless!another!measurement!basis!is!required!
by! PFRS.! ! AcquisitionQrelated! costs! incurred! are! expensed! and! included! in! general! and!
administrative!expenses.!
When!the!Group!acquires!a!business,!it!assesses!the!financial!assets!and!liabilities!assumed!for!
appropriate! classification! and! designation! in! accordance! with! the! contractual! terms,! economic!
circumstances!and!pertinent!conditions!as!at!the!acquisition!date.!!This!includes!the!separation!
of!embedded!derivatives!in!host!contracts!by!the!acquiree,!if!any.!
If!the!business!combination!is!achieved!in!stages,!any!previously!held!interest!is!remeasured!at!its!
acquisition! date! fair! value! and! any! resulting! gain! and! loss! is! recognized! in! the! consolidated!
statement!of!income.!!It!is!then!considered!in!the!determination!of!goodwill.!!
Any!contingent!consideration!to!be!transferred!by!the!acquirer!will!be!recognized!at!fair!value!at!
the!acquisition!date.!!Subsequent!changes!to!the!fair!value!of!the!contingent!consideration!which!
is! deemed! to! be! an! asset! or! liability! will! be! recognized! in! accordance! with! PAS! 39! either! in!
consolidated! statement! of! income! or! as! a! change! to! other! comprehensive! income.! ! If! the!
contingent! consideration! is! not! within! the! scope! of! PAS! 39,! it! is! measured! in! accordance! with!
appropriate!PFRS.!!Contingent!consideration!that!is!classified!as!equity,!is!not!remeasured!until!it!
is!finally!settled!and!accounted!for!within!equity.!
Goodwill! is! initially! measured! at! cost,! being! the! excess! of! the! aggregate! of! the! consideration!
transferred! and! the! amount! recognized! for! noncontrolling! interest,! and! any! previous! interest!
held,!over!the!net!fair!value!of!the!identifiable!assets!acquired!and!liabilities!assumed.!!If!the!fair!
value! of! the! net! assets! acquired! is! in! excess! of! the! aggregate! consideration! transferred,! the!
Group! reassesses! whether! it! has! correctly! identified! all! of! the! assets! acquired! and! all! of! the!
liabilities!assumed!and!reviews!the!procedure!used!to!measure!the!amounts!to!be!recognized!at!
the!acquisition!date.!If!the!reassessment!still!results!in!an!excess!of!the!fair!value!of!net!assets!
acquired! over! the! aggregate! consideration! transferred,! then! gain! is! recognized! in! consolidated!
statement!of!income.!
After! initial! recognition,! goodwill! is! measured! at! cost! less! any! accumulated! impairment! losses.!
For!the!purpose!of!impairment!testing,!goodwill!acquired!in!a!business!combination!is,!from!the!
acquisition! date,! allocated! to! each! of! the! Group’s! CGU! that! are! expected! to! benefit! from! the!
combination,! irrespective! of! whether! other! assets! or! liabilities! of! the! acquiree! are! assigned! to!
those!units.!
Where!goodwill!forms!part!of!a!CGU!and!part!of!the!operation!within!CGU!unit!is!disposed!of,!the!
goodwill! associated! with! the! operation! disposed! of! is! included! in! the! carrying! amount! of! the!
operation!when!determining!the!gain!or!loss!on!disposal!of!the!operation.!!Goodwill!disposed!of!
in!this!circumstance!is!measured!based!on!the!relative!values!of!the!operation!disposed!of!and!
the!portion!of!the!CGU!retained.!
!
If! necessary! information,! such! as! fair! value! of! assets! and! liabilities! acquired,! is! not! available! by!
the!end!of!the!reporting!period!in!which!the!business!combination!occurs,!provisional!amounts!
are!used!for!a!period!not!exceeding!one!year!from!the!date!of!acquisition!or!the!measurement!
period.!!During!this!period,!provisional!amounts!recognized!for!a!business!combination!may!be!
retrospectively!adjusted!if!relevant!information!has!been!obtained!or!becomes!available.!
!
Q!7!Q!
!
!
Financial!Instruments!
Financial! instruments! are! recognized! in! the! consolidated! statement! of! financial! position! when!
the! Group! becomes! a! party! to! the! contractual! provisions! of! the! instruments.! ! The! Group!
determines!the!classification!of!its!financial!instruments!on!initial!recognition!and,!where!allowed!
and!appropriate,!reQevaluates!this!designation!at!each!reporting!date.!
All! regular! way! purchases! and! sales! of! financial! assets! are! recognized! on! the! settlement! date.!
Regular!way!purchases!or!sales!are!purchases!or!sales!of!financial!assets!that!require!delivery!of!
assets!within!the!period!generally!established!by!regulation!or!convention!in!the!marketplace.!
Financial!instruments!are!recognized!initially!at!fair!value!of!the!consideration!given!(in!the!case!
of! an! asset)! or! received! (in! the! case! of! a! liability).! Except! for! financial! instruments! at! fair!value!
through! profit! or! loss! (FVPL),! the! initial! measurement! of! all! financial! instruments! includes!
transaction! costs.! ! Financial! assets! under! PAS! 39,! Financial! Instruments! Recognition! and!
Measurement,! are! categorized! as! either! financial! assets! at! FVPL,! loans! and! receivables,! held! to!
maturity! (HTM)! investments! or! availableQforQsale! (AFS)! financial! assets.! ! Also! under! PAS! 39,!
financial!liabilities!are!categorized!as!FVPL!or!other!financial!liabilities.!
Financial!instruments!are!classified!as!liabilities!or!equity!in!accordance!with!the!substance!of!
the! contractual! arrangement.! ! Interests,! dividends,! gains! and! losses! relating! to! a! financial!
instrument! or! a! component! that! is! a! financial! liability,! are! reported! as! expense! or! income.!
Distributions! to! holders! of! financial! instruments! classified! as! equity! are! charged! directly! to!
equity,!net!of!any!related!income!tax!benefits.!
Financial!Assets!
As!at!March!31,!2015!and!December!31,!2014,!the!Group!does!not!have!any!financial!assets!at!
FVPL,!HTM!investments!and!AFS!financial!assets.!!The!Group’s!financial!assets!are!of!the!nature!
of!loans!and!receivables.!
Loans! and! receivables! are! nonQderivative! financial! assets! with! fixed! or! determinable! payments!
that! are! not! quoted! in! an! active! market.! ! They! are! not! entered! into! with! the! intention! of!
immediate! or! shortQterm! resale! and! are! not! classified! as! financial! assets! held! for! trading,!
designated!as!AFS!financial!assets!or!designated!at!FVPL.!
Classified!under!this!category!are!the!Group’s!cash,!trade!and!other!receivables,!due!from!related!
parties! and! noncurrent! receivables! included! under! “Other! noncurrent! assets”! which! arise!
primarily!from!restaurant!and!commissary!sales,!franchise!fees!and!royalty!fees.!
Loans! and! receivables! are! classified! as! current! assets! when! these! are! expected! to! be! realized!
within!twelve!months!after!the!reporting!date!or!within!the!normal!operating!cycle,!whichever!is!
longer.!
!
Loans!and!receivables!are!recognized!initially!at!fair!value,!which!normally!pertains!to!the!billable!
amount.! ! After! initial! measurement,! loans! and! receivables! are! subsequently! measured! at!
amortized! cost! using! the! effective! interest! rate! method,! less! allowance! for! impairment! losses.!
Amortized!cost!is!calculated!by!taking!into!account!any!discount!or!premium!on!acquisition!and!
fees!that!are!an!integral!part!of!the!effective!interest!rate.!!The!amortization,!if!any,!is!included!in!
“Interest! income”! account! in! the! consolidated! statement! of! income.! ! The! losses! arising! from!
impairment! of! loans! and! receivables! are! recognized! in! the! consolidated! statement! of! income.!!
The! level! of! allowance! for! probable! losses! is! evaluated! by! management! on! the! basis! of! factors!
that!affect!the!collectibility!of!accounts.!
!
Q!8!Q!
!
!
Financial!Liabilities!
As!at!March!31,!2015!and!December!31,!2014,!the!Group!does!not!have!any!financial!liabilities!at!
FVPL.!!The!Group’s!financial!liabilities!consist!of!other!financial!liabilities.!
Issued!financial!liabilities!or!their!components,!which!are!not!designated!at!FVPL!are!categorized!
as! other! financial! liabilities,! where! the! substance! of! the! contractual! arrangement! results! in! the!
Group!having!an!obligation!either!to!deliver!cash!or!another!financial!asset!to!the!holder,!or!to!
satisfy!the!obligation!other!than!by!the!exchange!of!a!fixed!amount!of!cash!or!another!financial!
asset!for!a!fixed!number!of!own!equity!shares.!!The!components!of!issued!financial!liabilities!that!
contain! both! liability! and! equity! elements! are! accounted! for! separately,! with! the! equity!
component!being!assigned!the!residual!amount!after!deducting!from!the!instrument!as!a!whole!
the! amount! separately! determined! as! the! fair! value! of! the! liability! component! on! the! date! of!
issue.! ! After! initial! measurement,! other! financial! liabilities! are! subsequently! measured! at!
amortized!cost!using!the!effective!interest!rate!method.!!Amortized!cost!is!calculated!by!taking!
into! account! any! discount! or! premium! on! the! issue! and! fees! that! are! an! integral! part! of! the!
effective!interest!rate!which!is!recognized!in!the!consolidated!statement!of!income.!
This!accounting!policy!applies!primarily!to!the!Group’s!trade!and!other!payables,!loans!payable,!
longQterm!debt!and!mortgage!payable.!
Other!financial!liabilities!are!classified!as!current!liabilities!when!these!are!expected!to!be!settled!
within!twelve!months!from!the!reporting!date!or!the!Group!does!not!have!an!unconditional!right!
to!defer!settlement!for!at!least!twelve!months!from!the!reporting!date.!
Fair!Value!Measurement!
Fair!value!is!the!price!that!would!be!received!to!sell!an!asset!or!paid!to!transfer!a!liability!in!an!
orderly! transaction! between! market! participants! at! the! measurement! date.! ! The! fair! value!
measurement!is!based!on!the!presumption!that!the!transaction!to!sell!the!asset!or!transfer!the!
liability!takes!place!either:!
•
•
In!the!principal!market!for!the!asset!or!liability,!or!
In! the! absence! of! a! principal! market,! in! the! most! advantageous! market! for! the! asset! or!
liability.!
The!principal!or!the!most!advantageous!market!must!be!accessible!to!the!Group.!!
The! fair! value! of! an! asset! or! a! liability! is! measured! using! the! assumptions! that! market!
participants!would!use!when!pricing!the!asset!or!liability,!assuming!that!market!participants!act!
in!their!best!economic!interest.!!
A!fair!value!measurement!of!nonfinancial!asset!takes!into!account!a!market!participant’s!ability!
to! generate! economic! benefits! by! using! the! asset! in! its! highest! and! best! use! or! by! selling! it! to!
another!market!participant!that!would!use!the!asset!in!its!highest!and!best!use.!!
!
The! Group! uses! valuation! techniques! that! are! appropriate! in! the! circumstances! and! for! which!
sufficient! data! are! available! to! measure! fair! value,! maximizing! the! use! of! relevant! observable!
inputs!and!minimizing!the!use!of!not!observable!inputs.!!
!
Q!9!Q!
!
!
All!assets!and!liabilities!for!which!fair!value!is!measured!or!disclosed!in!the!consolidated!financial!
statements! are! categorized! within! the! fair! value! hierarchy,! described! as! follows,! based! on! the!
lowest!level!input!that!is!significant!to!the!fair!value!measurement!as!a!whole:!
•
Level!1!Q!Quoted!(unadjusted)!market!prices!in!active!markets!for!identical!assets!or!liabilities!
•
Level!2!Q!Valuation!techniques!for!which!the!lowest!level!input!that!is!significant!to!the!fair!
value!measurement!is!directly!or!indirectly!observable;!and!
•
Level!3!Q!Valuation!techniques!for!which!the!lowest!level!input!that!is!significant!to!the!fair!
value!measurement!is!not!observable.!
For! assets! and! liabilities! that! are! recognized! in! the! consolidated! financial! statements! on! a!
recurring! basis,! the! Group! determines! whether! transfers! have! occurred! between! Levels! in! the!
hierarchy!by!reQassessing!categorization!(based!on!the!lowest!level!input!that!is!significant!to!the!
fair!value!measurement!as!a!whole)!at!the!end!of!each!reporting!date.!!
For! the! purpose! of! fair! value! disclosures,! the! Group! has! determined! classes! of! assets! and!
liabilities!on!the!basis!of!the!nature,!characteristics!and!risks!of!the!asset!or!liability!and!the!level!
of!the!fair!value!hierarchy!as!explained!above.!!
As! at! March! 31,! 2015! and! December! 31,! 2014,! the! Group! does! not! have! financial! instruments!
measured!at!fair!value.!
“Day!1”!Difference!
Where! the! transaction! price! in! a! nonactive! market! is! different! from! the! fair! value! of! other!
observable! current! market! transactions! in! the! same! instrument! or! based! on! a! valuation!
technique!whose!variables!include!only!data!from!observable!market,!the!Group!recognizes!the!
difference!between!the!transaction!price!and!fair!value!(a!“Day!1”!difference)!in!the!consolidated!
statement! of! income! unless! it! qualifies! for! recognition! as! some! other! types! of! assets.! In! cases!
where!use!is!made!of!data!which!is!not!observable,!the!difference!between!the!transaction!price!
and! model! value! is! only! recognized! in! the! consolidated! statement! of! income! when! the! inputs!
become! observable! or! when! the! instrument! is! derecognized.! ! For! each! transaction,! the! Group!
determines!the!appropriate!method!of!recognizing!the!“Day!1”!difference!amount.!
Offsetting!Financial!Instruments!
Financial! assets! and! financial! liabilities! are! offset! and! the! net! amount! is! reported! in! the!
consolidated!statement!of!financial!position!if,!and!only!if:!
1. there!is!a!currently!enforceable!legal!right!to!offset!the!recognized!amounts;!and!!
2. there! is! an! intention! to! settle! on! a! net! basis,! or! to! realize! the! asset! and! settle! the! liability!
simultaneously.!!
Impairment!of!Financial!Assets!Carried!at!Amortized!Cost!
The! Group! assesses! at! each! reporting! date! whether! there! is! objective! evidence! that! a! financial!
asset! or! group! of! financial! assets! is! impaired.! ! A! financial! asset! or! a! group! of! financial! assets! is!
deemed! to! be! impaired! if,! and! only! if,! there! is! objective! evidence! of! impairment! as! a! result! of!
one! or! more! events! that! has! or! have! occurred! after! the! initial! recognition! of! the! asset! (an!
incurred!“loss!event”)!and!that!loss!event!has!an!impact!on!the!estimated!future!cash!flows!of!
the!financial!asset!or!the!group!of!financial!assets!that!can!be!reliably!estimated.!
Q!10!Q!
!
!
Objective! evidence! of! impairment! may! include! indications! that! the! borrower! or! a! group! of!
borrowers! is! experiencing! significant! financial! difficulty,! default! or! delinquency! in! interest! or!
principal! payments,! the! probability! that! they! will! enter! bankruptcy! or! other! financial!
reorganization! and! where! observable! data! indicate! that! there! is! measurable! decrease! in! the!
estimated! future! cash! flows,! such! as! changes! in! arrears! or! economic! conditions! that! correlate!
with!defaults.!
For! loans! and! receivables! carried! at! amortized! cost,! the! Group! first! assesses! whether! an!
objective! evidence! of! impairment! (such! as! the! probability! of! insolvency! or! significant! financial!
difficulties!of!the!debtor)!exists!individually!for!financial!assets!that!are!individually!significant,!or!
collectively!for!financial!assets!that!are!not!individually!significant.!If!there!is!objective!evidence!
that! an! impairment! loss! has! been! incurred,! the! amount! of! loss! is! measured! as! the! difference!
between! the! asset’s! carrying! value! and! the! present! value! of! the! estimated! future! cash! flows!
(excluding! future! credit! losses! that! have! not! been! incurred).! ! If! the! Group! determines! that! no!
objective! evidence! of! impairment! exists! for! individually! assessed! financial! asset,! whether!
significant! or! not,! it! includes! the! asset! in! a! group! of! financial! assets! with! similar! credit! risk!
characteristics!and!collectively!assesses!for!impairment.!!Those!characteristics!are!relevant!to!the!
estimation! of! future! cash! flows! for! groups! of! such! assets! by! being! indicative! of! the! debtors’!
ability!to!pay!all!amounts!due!according!to!the!contractual!terms!of!the!assets!being!evaluated.!!
Assets! that! are! individually! assessed! for! impairment! and! for! which! an! impairment! loss! is,! or!
continues!to!be!recognized,!are!not!included!in!a!collective!assessment!for!impairment.!
The! carrying! value! of! the! asset! is! reduced! through! the! use! of! an! allowance! account! and! the!
amount!of!loss!is!charged!to!the!consolidated!statement!of!income.!If!in!case!the!receivable!has!
proven! to! have! no! realistic! prospect! of! future! recovery,! any! allowance! provided! for! such!
receivable! is! written! off! against! the! carrying! value! of! the! impaired! receivable.! Interest! income!
continues! to! be! recognized! based! on! the! original! effective! interest! rate! of! the! asset.! ! If,! in! a!
subsequent! year,! the! amount! of! the! estimated! impairment! loss! decreases! because! of! an! event!
occurring! after! the! impairment! was! recognized,! the! previously! recognized! impairment! loss! is!
reduced!by!adjusting!the!allowance!account.!!Any!subsequent!reversal!of!an!impairment!loss!is!
recognized!in!the!consolidated!statement!of!income!to!the!extent!that!the!carrying!value!of!the!
asset!does!not!exceed!its!amortized!cost!at!reversal!date.!
Derecognition!of!Financial!Instruments!
Financial! Asset.! ! A! financial! asset! (or,! where! applicable! a! part! of! a! financial! asset! or! part! of! a!
group!of!similar!financial!assets)!is!derecognized!when:!
1. the!rights!to!receive!cash!flows!from!the!asset!have!expired;!!
2. the! Group! retains! the! right! to! receive! cash! flows! from! the! asset,! but! has! assumed! an!
obligation!to!pay!them!in!full!without!material!delay!to!a!third!party!under!a!“passQthrough”!
arrangement;!or!!
!
3. the! Group! has! transferred! its! rights! to! receive! cash! flows! from! the! asset! and! either! (a)! has!
transferred!substantially!all!the!risks!and!rewards!of!the!asset,!or!(b)!has!neither!transferred!
nor! retained! all! the! risks! and! rewards! of! the! asset! but! has! transferred! the! control! of! the!
asset.!!
!
Q!11!Q!
!
!
Where! the! Group! has! transferred! its! rights! to! receive! cash! flows! from! an! asset! or! has! entered!
into! a! passQthrough! arrangement,! and! has! neither! transferred! nor! retained! substantially! all! the!
risks!and!rewards!of!the!asset!nor!transferred!control!of!the!asset,!the!asset!is!recognized!to!the!
extent! of! the! Group’s! continuing! involvement! in! the! asset.! ! Continuing! involvement! that! takes!
the! form! of! a! guarantee! over! the! transferred! asset! is! measured! at! the! lower! of! the! original!
carrying!amount!of!the!asset!and!the!maximum!amount!of!consideration!that!the!Group!could!be!
required!to!repay.!
Financial! Liability.! ! A! financial! liability! is! derecognized! when! the! obligation! under! the! liability! is!
discharged! or! cancelled! or! has! expired.! ! Where! an! existing! financial! liability! is! replaced! by!
another! from! the! same! lender! on! substantially! different! terms,! or! the! terms! of! an! existing!
liability! are! substantially! modified,! such! an! exchange! or! modification! is! treated! as! a!
derecognition!of!the!original!liability!and!the!recognition!of!a!new!liability,!and!the!difference!in!
the! respective! carrying! amounts! of! a! financial! liability! extinguished! or! transferred! to! another!
party!and!the!consideration!paid,!including!any!noncash!assets!transferred!or!liabilities!assumed!
is!recognized!in!the!consolidated!statement!of!income.!
Inventories!
Inventories! consist! of! food! and! beverage,! store! and! kitchen! supplies! and! operating! equipment!
for! sale.! Inventories! are! valued! at! the! lower! of! cost! and! net! realizable! value! (NRV).! ! Cost! is!
determined! using! the! weighted! average! method.! ! NRV! of! food! and! beverage! is! the! estimated!
selling! price! in! the! ordinary! course! of! business! less! the! estimated! costs! necessary! to! make! the!
sale.! ! NRV! of! store! and! kitchen! supplies! and! operating! equipment! for! sale! is! the! current!
replacement! cost.! ! In! determining! NRV,! the! Group! considers! any! adjustment! necessary! for!
spoilage,!breakage!and!obsolescence.!
Prepaid!Expenses!and!Other!Current!Assets!
Prepaid!expenses!and!other!current!assets!include!prepaid!expenses,!advances!to!suppliers!and!
creditable!withholding!taxes.!
Prepaid!Expenses.!!Prepaid!expenses!are!carried!at!cost!and!are!amortized!on!a!straightQline!basis!
over! the! period! of! expected! usage,! which! is! equal! to! or! less! than! twelve! months! or! within! the!
normal!operating!cycle.!
Advances!to!Suppliers.!!Advances!to!suppliers!represent!advance!payments!on!goods!or!services!
to!be!purchased!in!connection!with!the!Group’s!operations.!!These!are!charged!as!an!expense!in!
the!consolidated!statement!of!income!upon!actual!receipt!of!goods!or!services,!which!is!normally!
within!twelve!months!or!within!the!normal!operating!cycle.!
Creditable! Withholding! Taxes! (CWTs).! ! CWTs! represent! the! amount! withheld! by! the! Group’s!
customers! in! relation! to! its! restaurant! and! commissary! sales.! ! These! are! recognized! upon!
collection!of!the!related!sales!and!are!utilized!as!tax!credits!against!income!tax!due!as!allowed!by!
the!Philippine!taxation!laws!and!regulations.!!CWTs!are!stated!at!their!estimated!NRV.!
!
Property!and!Equipment!
Property! and! equipment,! except! for! land,! is! stated! at! cost! less! accumulated! depreciation! and!
amortization! and! any! allowance! for! impairment! in! value.! ! Land! is! stated! at! cost! less! any!
impairment!loss.!
!
Q!12!Q!
!
!
The!initial!cost!of!property!and!equipment!comprises!its!purchase!price,!including!import!duties!
and! nonrefundable! purchase! taxes! and! any! directly! attributable! costs! of! bringing! the! property!
and!equipment!to!its!working!condition!and!location!for!its!intended!use.!!Expenditures!incurred!
after! the! property! and! equipment! have! been! put! into! operations,! such! as! repairs! and!
maintenance,!are!normally!charged!to!expense!in!the!period!the!costs!are!incurred.!!In!situations!
where!it!can!be!clearly!demonstrated!that!the!expenditures!have!resulted!in!an!increase!in!the!
future! economic! benefits! expected! to! be! obtained! from! the! use! of! an! item! of! property! and!
equipment! beyond! its! originally! assessed! standard! of! performance,! the! expenditures! are!
capitalized!as!an!additional!cost!of!property!and!equipment.!
Each!part!of!an!item!of!property!and!equipment!with!a!cost!that!is!significant!in!relation!to!the!
total!cost!of!the!item!is!depreciated!and!amortized!separately.!
Depreciation! and! amortization! is! computed! using! the! straightQline! method! over! the! estimated!
useful!lives!of!the!assets.!!!
The!estimated!useful!lives!of!the!assets!are!as!follows:!
!
Category!
Building!
Leasehold!improvements!
Store!and!kitchen!equipment!
Furniture,!fixtures!and!equipment!
Transportation!equipment!
Number!of!Years!
10Q25!
5!or!term!of!the!lease,!
whichever!is!shorter!
3Q8!
3Q5!
3Q5!
The!estimated!useful!lives,!depreciation!and!amortization!methods!are!reviewed!periodically!to!
ensure! that! the! periods! and! methods! of! depreciation! and! amortization! are! consistent! with! the!
expected!pattern!of!economic!benefits!from!items!of!property!and!equipment.!
When! assets! are! retired! or! otherwise! disposed! of,! both! the! cost! and! related! accumulated!
depreciation! and! amortization! are! removed! from! the! accounts! and! any! resulting! gain! or! loss! is!
recognized!in!the!consolidated!statement!of!income.!
Fully!depreciated!and!amortized!assets!are!retained!as!property!and!equipment!until!these!are!
no!longer!in!use.!
Construction! inQprogress,! included! in! property! and! equipment,! is! stated! at! cost.! ! This! includes!
cost! of! construction! and! other! direct! costs.! ! Construction! inQprogress! is! not! depreciated! until!
such!time!as!the!relevant!assets!are!completed!and!available!for!use.!
Intangible!Assets!
Intangible! assets! acquired! separately! are! measured! on! initial! recognition! at! cost.! ! The! cost! of!
intangible!assets!acquired!in!a!business!combination!is!the!fair!value!as!at!the!date!of!acquisition.!
Following! initial! recognition,! intangibles! are! carried! at! cost! less! any! accumulated! amortization!
and! any! accumulated! impairment! losses.! ! Internally! generated! intangibles,! excluding! brand!
development! costs,! are! not! capitalized! and! expenditures! is! reflected! in! the! consolidated!
statement!of!income!in!the!year!the!expenditure!is!incurred.!
Trademarks.! ! Trademarks! are! measured! initially! at! cost.! ! The! cost! of! trademarks! acquired! in!
business! combinations! is! its! fair! value! at! the! date! of! acquisition.! ! Following! initial! recognition,!
trademarks!are!carried!at!cost!less!accumulated!amortization!and!any!accumulated!impairment!
Q!13!Q!
!
!
losses.!!The!Group’s!trademarks!have!a!finite!useful!life!of!20!years!and!are!amortized!over!such!
period!using!the!straightQline!method.!!The!useful!life!and!amortization!method!for!trademarks!
are!reviewed!at!least!at!each!reporting!date.!!Changes!in!the!expected!useful!life!or!the!expected!
pattern!of!consumption!of!future!economic!benefits!embodied!in!the!trademarks!are!accounted!
for!by!changing!the!useful!life!and!amortization!method,!as!appropriate,!and!treated!as!a!change!
in! accounting! estimates.! ! The! amortization! expense! on! trademarks! is! recognized! in! the!
consolidated! statement! of! income! under! the! general! and! administrative! expense! category!
consistent!with!its!function.!
Software! License.! ! Software! license! is! measured! initially! at! cost! which! is! the! amount! of! the!
purchase! consideration.! Following! initial! recognition,! software! license! is! carried! at! cost! less!
accumulated! amortization! and! any! accumulated! impairment! losses.! ! The! Group’s! software!
license!has!a!term!of!five!years!and!is!amortized!over!such!period!using!the!straightQline!method.!
The! useful! life! and! amortization! method! for! software! license! are! reviewed! at! least! at! each!
reporting!date.!!Changes!in!the!expected!useful!life!or!the!expected!pattern!of!consumption!of!
future!economic!benefits!embodied!in!the!software!is!accounted!for!by!changing!the!useful!life!
and!amortization!method,!as!appropriate,!and!treated!as!a!change!in!accounting!estimates.!The!
amortization!expense!on!software!is!recognized!in!the!consolidated!statement!of!income!under!
general!and!administrative!expense!category!consistent!with!its!function.!
Brand!Development!Costs.!!Brand!development!costs!pertain!to!capitalized!expenditures!incurred!
for!the!development!of!methods,!materials!and!course!curriculum!and!programs!for!use!in!the!
operation! of! the! Group.! ! Brand! development! costs! are! measured! on! initial! recognition! at! cost.!
Following! initial! recognition,! brand! development! costs! are! carried! at! cost! less! accumulated!
amortization!and!any!accumulated!impairment!losses.!!Amortization!is!recognized!using!straightQ
line!method!and!begins!when!the!development!is!complete!and!available!for!use!over!the!period!
of! expected! future! benefits,! which! is! 20! years.! ! During! the! period! of! development,! the! asset! is!
tested! for! impairment! annually.! ! The! amortization! expense! on! brand! development! costs! is!
recognized! in! the! consolidated! statement! of! income! under! the! general! and! administrative!
expense!category!consistent!with!its!function.!
Lease! Rights.! ! Lease! rights! are! measured! initially! at! cost! which! is! the! amount! of! the! purchase!
consideration.! ! Following! initial! recognition,! lease! rights! are! carried! at! cost! less! accumulated!
amortization!and!any!accumulated!impairment!losses.!!The!Group’s!lease!rights!have!a!term!of!5!
years! and! are! amortized! over! such! period! using! the! straightQline! method.! ! The! useful! life! and!
amortization! method! for! lease! rights! are! reviewed! at! least! at! each! reporting! date.! ! Changes! in!
the! expected! useful! life! or! the! expected! pattern! of! consumption! of! future! economic! benefits!
embodied! in! the! lease! rights! are! accounted! for! by! changing! the! useful! life! and! amortization!
method,! as! appropriate,! and! treated! as! a! change! in! accounting! estimates.! ! The! amortization!
expense!on!lease!right!is!recognized!in!the!consolidated!statement!of!income!under!the!cost!of!
sales!consistent!with!its!function.!
Investment!Properties!
Investment!properties!are!measured!initially!at!cost,!including!transaction!costs.!!Subsequent!to!
initial! recognition,! investment! properties! are! stated! at! fair! value.! ! Gains! or! losses! arising! from!
changes!in!fair!value!of!investment!properties!are!included!in!profit!or!loss!in!the!period!in!which!
these!arise.!
The!fair!value!of!an!investment!property!is!the!price!at!which!the!property!could!be!exchanged!
between! knowledgeable,! willing! parties! in! an! arm’s! length! transaction.! ! Fair! value! specifically!
excludes!an!estimated!price!inflated!or!deflated!by!special!terms!or!circumstances!such!as!typical!
Q!14!Q!
!
!
financing,! sale! and! leaseback! arrangements,! special! considerations! or! concessions! granted! by!
anyone! associated! with! the! sale.! ! The! fair! value! of! investment! property! should! reflect! market!
conditions!at!the!end!of!the!reporting!period.!
Derecognition! of! an! investment! property! will! be! triggered! by! a! change! in! use! or! by! sale! or!
disposal.! ! Gain! or! loss! arising! on! disposal! is! calculated! as! the! difference! between! any! disposal!
proceeds!and!the!carrying!amount!of!the!related!asset,!and!is!recognized!in!profit!or!loss.!!!
Transfers! are! made! to! investment! property! when,! and! only! when,! there! is! change! in! use,!
evidenced!by!cessation!of!ownerQoccupation!or!commencement!of!an!operating!lease!to!another!
party.!!Transfers!are!made!from!investment!property!when,!and!only!when,!there!is!a!change!in!
use,!evidenced!by!commencement!of!ownerQoccupation!or!commencement!of!development!with!
a!view!to!sell.!
Other!Nonfinancial!Assets!
Security!Deposits!on!Lease!Contracts!and!Utilities!and!Other!Deposits.!!Security,!utilities!and!other!
deposits!represent!payment!for!security,!utilities!and!other!deposits!made!in!relation!to!the!lease!
agreements!entered!into!by!the!Group.!!These!are!carried!at!cost!and!will!generally!be!applied!as!
lease!payments!toward!the!end!of!the!lease!terms.!
Input! ValueTadded! Tax! (VAT).! ! Input! VAT! represents! tax! imposed! on! the! Group! by! its! suppliers!
and! contractors! for! the! purchase! of! goods! and! services,! as! required! under! Philippine! taxation!
laws! and! regulations.! ! The! portion! of! input! VAT! that! will! be! used! to! offset! the! Group’s! current!
VAT!liabilities!is!presented!as!current!asset!in!the!consolidated!statement!of!financial!position.!
Input!VAT!classified!as!noncurrent!assets!represent!the!unamortized!portion!of!VAT!imposed!on!
the!Group!for!the!acquisition!of!depreciable!assets!with!an!estimated!useful!life!of!at!least!one!
year,!which!is!required!to!be!amortized!over!the!life!of!the!related!asset!or!a!maximum!period!of!
60!months,!whichever!is!shorter.!!Input!VAT!is!stated!at!estimated!NRV.!
Investment!in!Joint!Ventures!
The!Group!has!interests!on!the!following!jointly!controlled!entities:!
•
ICFQCCE,!Inc.,!a!jointly!controlled!entity!with!Far!Eastern!University!(FEU),!prior!to!2014!
•
CRP!Singapore!Holdings!Pte.!Ltd.,!a!jointly!controlled!entity!with!a!foreign!entity!!
The! Group! and! the! other! party! (the! Venturers)! have! a! contractual! arrangement! that! establish!
joint! control! over! the! economic! activities! of! the! joint! venture.! ! The! agreement! requires!
unanimous!agreement!for!financial!and!operating!decisions!between!the!venturers.!
!
The!Group’s!investments!in!joint!ventures!are!accounted!for!using!the!equity!method!based!on!
the! percentage! share! of! capitalization! of! the! Group! in! accordance! with! the! joint! venture!
agreement.! ! Under! the! equity! method,! the! investment! is! initially! carried! in! the! consolidated!
statement!of!financial!position!at!cost!plus!the!Group’s!share!in!postQacquisition!changes!in!the!
net! assets! of! the! joint! venture,! less! any! impairment! in! value.! ! The! consolidated! statement! of!
income! includes! the! Group’s! share! in! the! results! of! operations! of! the! joint! ventures.! ! Where!
there! has! been! a! change! recognized! directly! in! the! equity! of! the! joint! ventures,! the! Group!
recognizes! its! share! of! any! changes! and! discloses! this,! when! applicable,! in! the! consolidated!
statement!of!changes!in!equity.!
!
Q!15!Q!
!
!
Dividends!received!from!the!joint!venture!reduce!the!carrying!amount!of!the!investment.!!When!
the!Group’s!share!of!losses!in!joint!venture!equals!or!exceeds!its!interest!in!the!joint!venture,!the!
recognition! of! further! losses! is! discontinued! except! to! the! extent! that! the! Group! has! incurred!
obligations!or!made!payments!on!behalf!of!the!joint!venture.!!Any!excess!of!accumulated!equity!
in!net!losses!over!the!cost!of!investment!is!recognized!as!a!liability!under!“Provision!for!share!in!
equity! in! net! losses! of! a! joint! venture”! account! in! the! consolidated! statement! of! financial!
position.!
The! reporting! dates! of! the! joint! ventures! and! the! Group! are! identical! and! the! joint! ventures’!
accounting! policies! conform! to! those! used! by! the! Group! for! like! transactions! and! events! in!
similar! circumstances.! ! Unrealized! gains! arising! from! transactions! with! the! joint! venture! are!
eliminated! to! the! extent! of! the! Group’s! interest! in! the! joint! ventures! against! the! related!
investments.! ! Unrealized! losses! are! eliminated! similarly! but! only! to! the! extent! that! there! is! no!
evidence!of!impairment!in!the!asset!transferred.!
The!Group!ceases!to!use!the!equity!method!of!accounting!on!the!date!from!which!it!no!longer!
has!joint!control!over,!or!significant!influence!in,!the!joint!venture!or!when!the!interest!becomes!
held!for!sale.!
Impairment!of!Nonfinancial!Assets!
Prepaid!Expenses!and!Other!Current!Assets,!Property!and!Equipment,!Intangible!Assets,!Security!
Deposits!on!Lease!Contracts,!Rental!and!Other!Deposits!and!Input!VAT!
The!Group!assesses!at!each!reporting!date!whether!there!is!an!indication!that!these!nonfinancial!
assets!may!be!impaired.!!If!any!such!indication!exists,!or!when!annual!impairment!testing!for!an!
asset!is!required,!the!Group!estimates!these!nonfinancial!assets’!recoverable!amount.!!An!asset’s!
recoverable!amount!is!the!higher!of!an!asset’s!or!CGU’s!fair!value!less!costs!to!sell!and!its!value!in!
use! and! is! determined! for! an! individual! asset,! unless! the! asset! does! not! generate! cash! inflows!
that!are!largely!independent!of!those!from!other!assets!or!groups!of!assets.!Where!the!carrying!
amount!of!an!asset!or!CGU!exceeds!its!recoverable!amount,!the!asset!is!considered!impaired!and!
is!written!down!to!its!recoverable!amount.!!In!assessing!value!in!use,!the!estimated!future!cash!
flows! are! discounted! to! their! present! value! using! a! discount! rate! that! reflects! current! market!
assessments! of! the! time! value! of! money! and! the! risks! specific! to! the! asset.! In! determining! fair!
value! less! costs! to! sell,! an! appropriate! valuation! model! is! used.! ! These! calculations! are!
corroborated! by! valuation! multiples! or! other! available! fair! value! indicators.! Impairment! losses!
from!continuing!operations!are!recognized!in!the!consolidated!statement!of!income.!
!
An! assessment! is! made! for! these! nonfinancial! assets! at! each! reporting! date! to! determine!
whether!there!is!any!indication!that!previously!recognized!impairment!losses!may!no!longer!exist!
or! may! have! decreased.! If! such! indication! exists,! the! Group! makes! an! estimate! of! recoverable!
amount.!!Any!previously!recognized!impairment!loss!is!reversed!only!if!there!has!been!a!change!
in!the!estimates!used!to!determine!the!asset’s!recoverable!amount!since!the!last!impairment!loss!
was! recognized.! ! If! that! is! the! case,! the! carrying! amount! of! the! asset! is! increased! to! its!
recoverable! amount.! ! That! increased! amount! cannot! exceed! the! carrying! amount! that! would!
have! been! determined,! net! of! depreciation! and! amortization,! had! no! impairment! loss! been!
recognized!for!the!asset!in!prior!years.!Such!reversal!is!recognized!in!the!consolidated!statement!
of!income.!
!
Q!16!Q!
!
!
Goodwill.!!Goodwill!is!tested!for!impairment!annually!and!when!circumstances!indicate!that!the!
carrying!value!may!be!impaired.!
Impairment! is! determined! for! goodwill! by! assessing! the! recoverable! amount! of! each! CGU,! to!
which! the! goodwill! relates.! ! When! the! recoverable! amount! of! the! CGU! is! less! than! its! carrying!
amount,! an! impairment! loss! is! recognized.! ! Impairment! losses! relating! to! goodwill! cannot! be!
reversed!in!future!periods.!
Investments! in! Joint! Venture.! ! After! application! of! the! equity! method,! the! Group! determines!
whether!it!is!necessary!to!recognize!an!additional!impairment!loss!on!the!Group’s!investment!in!
its!joint!ventures.!!The!Group!determines!at!each!reporting!date!whether!there!is!any!objective!
evidence!that!the!interest!in!a!joint!venture!is!impaired.!!If!this!is!the!case,!the!Group!calculates!
the! amount! of! impairment! as! the! difference! between! the! recoverable! amount! of! the! joint!
venture!and!its!carrying!value!and!recognizes!the!amount!in!the!“Share!in!equity!in!net!losses!of!
joint!ventures”!in!the!consolidated!statement!of!income.!
Capital!Stock!and!Additional!PaidQin!Capital!
The! Parent! Company! has! issued! capital! stock! that! is! classified! as! equity.! Incremental! costs!
directly!attributable!to!the!issue!of!new!capital!stock!are!shown!in!equity!as!a!deduction,!net!of!
tax,! from! the! proceeds.! ! Additional! paidQin! capital! represents! the! excess! of! the! investors’! total!
contribution!over!the!stated!par!value!of!shares.!
Retained!Earnings!
Retained! earnings! include! accumulated! profits! attributable! to! the! Parent! Company’s!
stockholders! and! reduced! by! dividends.! ! Dividends! are! recognized! as! liabilities! and! deducted!
from! equity! when! they! are! declared.! ! Dividends! for! the! year! that! are! approved! after! the!
reporting! date! are! dealt! with! as! an! event! after! the! reporting! date.! Retained! earnings! may! also!
include!effect!of!changes!in!accounting!policy!as!may!be!required!by!the!transitional!provisions!of!
new!and!amended!standards.!
Shares!Held!by!Subsidiaries!
Shares! of! the! Parent! Company! held! by! subsidiaries! are! carried! at! cost! and! are! deducted! from!
equity.! ! No! gain! or! loss! is! recognized! on! the! purchase,! sale,! issue! or! cancellation! of! the!Parent!
Company’s! own! equity! instruments.! ! When! the! shares! are! retired,! the! capital! stock! account! is!
reduced! by! its! par! value! and! the! excess! of! cost! over! par! value! upon! retirement! is! debited! to!
additional!paidQin!capital!to!the!extent!of!the!specific!or!average!additional!paidQin!capital!when!
the!shares!were!issued!and!to!retained!earnings!for!the!remaining!balance.!
Revenue!Recognition!
Revenue!is!recognized!to!the!extent!that!it!is!probable!that!the!economic!benefits!will!flow!to!the!
Group!and!the!revenue!can!be!reliably!measured.!!The!following!specific!recognition!criteria!must!
also!be!met!before!revenue!is!recognized.!
Restaurant!Sales.!!Revenue!is!recognized!when!the!related!orders!are!served.!
Commissary!Sales.!!Revenue!is!recognized!upon!delivery!of!goods.!
!
Franchise! and! Royalty! Fees.! ! Revenue! is! recognized! under! the! accrual! basis! in! accordance! with!
the!terms!of!the!franchise!agreements.!
!
Q!17!Q!
!
!
Fees! charged! for! the! use! of! continuing! rights! granted! in! accordance! with! the! franchise!
agreement,! or! other! services! provided! during! the! period! of! the! franchise! agreement,! are!
recognized!as!revenue!as!the!services!are!provided!or!as!the!rights!are!used.!
Service!Income.!!Service!and!management!fee!is!recognized!when!related!services!are!rendered.!
Delivery!Income.!!Revenue!is!recognized!when!the!related!orders!are!delivered.!
Rental!Income.!!Rental!income!is!recognized!on!a!straightQline!basis!over!the!lease!term.!
Interest!Income.!!Revenue!is!recognized!as!the!interest!accrues!using!the!effective!interest!rate!
method.!
Other!Income.!!Other!income!is!recognized!when!earned.!
Customer! Loyalty! Programme.! ! The! Group! maintains! a! loyalty! points! program! named! “Orange!
Card”! which! allows! the! customers! to! accumulate! points! when! they! purchase! products! in! the!
Group’s! chain! of! restaurants.! ! The! points! can! then! be! redeemed! for! any! food! vouchers! or!
freebies! accepted! in! the! Group’s! chain! of! restaurants,! subject! to! a! minimum! number! of! points!
being! obtained.! ! The! consideration! received! is! allocated! between! the! products! sold! and! points!
issued,! with! the! consideration! allocated! to! the! points! being! equal! to! their! fair! value.! ! The! fair!
value!of!the!points!issued!is!deferred!in!“Deferred!revenue”!under!“Trade!and!other!payables”!
account!in!the!consolidated!statement!of!financial!position!and!recognized!as!revenue!when!the!
points!are!redeemed.!
Costs!and!Expenses!Recognition!
Costs!and!expenses!are!decreases!in!economic!benefits!during!the!accounting!period!in!the!form!
of! outflows! or! decrease! of! assets! or! incurrence! of! liabilities! that! result! in! decreases! in! equity,!
other!than!those!relating!to!distributions!to!equity!participants.!
Costs!of!Sales.!!Costs!of!sales,!which!mainly!pertain!to!purchases!of!food!and!beverages,!direct!
labor! and! overhead! directly! attributable! in! the! generation! of! sales,! are! generally! recognized!
when!incurred.!
General!and!Administrative.!!General!and!administrative!expenses!are!generally!recognized!when!
the!services!are!used!or!the!expenses!arise.!
Sales! and! Marketing.! ! Sales! and! marketing! expenses,! which! represent! advertising! and! other!
selling!costs,!are!generally!expensed!as!incurred.!
!
Employee!Benefits!
!
ShortTterm!Benefits.!!The!Group!recognizes!a!liability!net!of!amounts!already!paid!and!an!expense!
for!services!rendered!by!employees!during!the!accounting!period.!!A!liability!is!also!recognized!
for! the! amount! expected! to! be! paid! under! shortQterm! cash! bonus! or! profit! sharing! plans! if! the!
Group!has!a!present!legal!or!constructive!obligation!to!pay!this!amount!as!a!result!of!past!service!
provided!by!the!employee,!and!the!obligation!can!be!estimated!reliably.!
!
ShortQterm!employee!benefit!liabilities!are!measured!on!an!undiscounted!basis!and!are!expensed!
as!the!related!service!is!provided.!
!
Q!18!Q!
!
!
Retirement! Benefits.! ! The! net! defined! benefit! liability! or! asset! is! the! aggregate! of! the! present!
value! of! the! defined! benefit! obligation! at! the! end! of! the! reporting! period! reduced! by! the! fair!
value!of!plan!assets,!adjusted!for!any!effect!of!limiting!a!net!defined!benefit!asset!to!the!asset!
ceiling.!!The!asset!ceiling!is!the!present!value!of!any!economic!benefits!available!in!the!form!of!
refunds!from!the!plan!or!reductions!in!future!contributions!to!the!plan.!
The!cost!of!providing!benefits!under!the!defined!benefit!plans!is!actuarially!determined!using!the!
projected!unit!credit!method.!
Defined!benefit!costs!comprise!the!following:!
!
•
•
•
Service!cost!
Net!interest!on!the!net!defined!benefit!liability!or!asset!
Remeasurements!of!net!defined!benefit!liability!or!asset.!
Service! costs! which! include! current! service! costs,! past! service! costs! and! gains! or! losses! on!
nonroutine! settlements! are! recognized! as! expense! in! the! consolidated! statement! of! income.!!
Past!service!costs!are!recognized!when!plan!amendment!or!curtailment!occurs.!!These!amounts!
are!calculated!periodically!by!independent!qualified!actuaries.!
Net!interest!on!the!net!defined!benefit!liability!or!asset!is!the!change!during!the!period!in!the!net!
defined! benefit! liability! or! asset! that! arises! from! the! passage! of! time! which! is! determined! by!
applying! the! discount! rate! based! on! government! bonds! to! the! net! defined! benefit! liability! or!
asset.!
Net!interest!on!the!net!defined!benefit!liability!or!asset!is!recognized!as!expense!or!income!in!the!
consolidated!statement!of!income.!
Remeasurements!comprising!actuarial!gains!and!losses,!return!on!plan!assets!and!any!change!in!
the!effect!of!the!asset!ceiling!(excluding!net!interest!on!defined!benefit!liability)!are!recognized!
immediately! in! other! comprehensive! income! (OCI)! in! the! period! in! which! they! arise.!
Remeasurements! are! not! reclassified! to! the! consolidated! statement! of! income! in! subsequent!
periods.!
Plan!assets!are!assets!that!are!held!by!a!longQterm!employee!benefit!fund.!!Plan!assets!are!not!
available!to!the!creditors!of!the!Group,!nor!can!they!be!paid!directly!to!the!Group.!Fair!value!of!
plan! assets! is! based! on! market! price! information.! ! When! no! market! price! is! available,! the! fair!
value!of!plan!assets!is!estimated!by!discounting!expected!future!cash!flows!using!a!discount!rate!
that!reflects!both!the!risk!associated!with!the!plan!assets!and!the!maturity!or!expected!disposal!
date!of!those!assets!(or,!if!they!have!no!maturity,!the!expected!period!until!the!settlement!of!the!
related! obligations).! ! If! the! fair! value! of! the! plan! assets! is! higher! than! the! present! value! of! the!
defined!benefit!obligation,!the!measurement!of!the!resulting!defined!benefit!asset!is!limited!to!
the! present! value! of! economic! benefits! available! in! the! form! of! refunds! from! the! plan! or!
reductions!in!future!contributions!to!the!plan.!
!
The!Group’s!right!to!be!reimbursed!of!some!or!all!of!the!expenditure!required!to!settle!a!defined!
benefit! obligation! is! recognized! as! a! separate! asset! at! fair! value! when! and! only! when!
reimbursement!is!virtually!certain.!
!
Q!19!Q!
!
!
Operating!Leases!
Group! as! a! Lessee.! ! Operating! leases! represent! those! leases! under! which! substantially! all! risks!
and! rewards! of! ownership! of! the! leased! assets! remain! with! the! lessors.! ! Noncancellable!
operating!lease!payments!are!recognized!as!expense!in!the!consolidated!statement!of!income!on!
a! straightQline! basis.! ! The! difference! between! the! straightQline! recognition! basis! and! the! actual!
payments!made!in!relation!to!the!operating!lease!agreements!are!recognized!under!“Trade!and!
other! payables”! (if! current)! and! “Accrued! rent! payable”! (if! noncurrent)! accounts! in! the!
consolidated!statement!of!financial!position.!
Group! as! a! Lessor.! ! Leases! where! the! Group! does! not! transfer! substantially! all! the! risks! and!
benefits!of!ownership!of!the!assets!are!classified!as!operating!leases.!!Initial!direct!costs!incurred!
in! negotiating! operating! leases! are! added! to! the! carrying! amount! of! the! leased! asset! and!
amortized! over! the! lease! term! on! the! same! basis! as! the! rental! income.! ! Contingent! rents! are!
recognized! as! revenue! in! the! period! in! which! they! are! earned.! ! Operating! lease! receipts! are!
recognized! as! an! income! in! the! consolidated! statement! of! income! on! a! straightQline! basis! over!
the! lease! term.! ! The! difference! between! the! straightQline! recognition! basis! and! the! actual!
payments!received!in!relation!to!the!operating!lease!agreement!is!recognized!under!“Trade!and!
other! receivables”! (if! current)! and! “Other! noncurrent! assets”! (if! noncurrent)! accounts! in! the!
consolidated!statement!of!financial!position.!
Borrowing!Costs!
Borrowing! costs! directly! attributable! to! the! acquisition,! construction! or! production! of! an! asset!
that! necessarily! takes! a! substantial! period! of! time! to! get! ready! for! its! intended! use! or! sale! are!
capitalized!as!part!of!the!cost!of!the!respective!assets.!!All!other!borrowing!costs!are!expensed!in!
the!period!they!occur.!!Borrowing!costs!consist!of!interest!and!other!costs!that!an!entity!incurs!in!
connection!with!the!borrowing!of!funds.!
Foreign!Currency!Translation!
The!functional!currency!of!the!entities!of!the!Group!is!the!Philippine!peso!except!for!PHII!and!its!
subsidiaries,! Alpha! Max! and! eMax’s,! with! functional! currency! in! the! United! States! dollar! ($).!!
Each! entity! in! the! Group! determines! its! own! functional! currency! and! items! included! in! the!
financial!statements!of!each!entity!are!measured!using!that!functional!currency.!!Transactions!in!
foreign! currencies! are! initially! recorded! using! the! prevailing! exchange! rate! at! the! date! of!
transaction.!Monetary!assets!and!liabilities!denominated!in!foreign!currencies!are!restated!at!the!
functional! currency! rate! of! exchange! at! the! reporting! date.! ! All! differences! are! taken! to! the!
consolidated!statement!of!income.!
The!assets!and!liabilities!of!PHII!and!Alpha!Max!are!translated!into!Philippine!Peso!at!the!rate!of!
exchange!ruling!at!the!reporting!date!and!income!and!expenses!are!translated!to!Philippine!peso!
at! monthly! average! exchange! rates.! ! The! exchange! differences! arising! on! the! translation! are!
taken!directly!to!other!comprehensive!income!and!presented!as!a!separate!component!of!equity!
under!the!“Accumulated!translation!adjustment”!account.!
Income!Taxes!
!
Current!Income!Tax.!!Current!income!tax!liabilities!for!the!current!and!prior!periods!are!measured!
at!the!amount!expected!to!be!paid!to!the!taxation!authorities.!!The!income!tax!rate!and!tax!laws!
used! to! compute! the! amount! are! those! that! are! enacted! or! substantively! enacted! at! the!
reporting!date.!
!
Q!20!Q!
!
!
Deferred!Income!Tax.!!Deferred!income!tax!is!provided,!using!the!balance!sheet!liability!method,!
on!all!temporary!differences!at!the!reporting!date!between!the!tax!bases!of!assets!and!liabilities!
and!their!carrying!amounts!for!financial!reporting!purposes.!
Deferred!income!tax!liabilities!are!recognized!for!all!taxable!temporary!differences,!except:!
•
where!the!deferred!income!tax!liability!arises!from!the!initial!recognition!of!goodwill!or!of!an!
asset! or! liability! in! a! transaction! that! is! not! a! business! combination! and,! at! the! time! of! the!
transaction,!affects!neither!the!accounting!profit!nor!taxable!profit!or!loss;!and!!
•
in! respect! of! taxable! temporary! differences! associated! with! investments! in! subsidiaries,!
where! the! timing! of! the! reversal! of! the! temporary! differences! can! be! controlled! and! it! is!
probable!that!the!temporary!differences!will!not!reverse!in!the!foreseeable!future.!
!
Deferred!income!tax!assets!are!recognized!for!all!deductible!temporary!differences,!carryforward!
of! unused! tax! credits! from! excess! minimum! corporate! income! tax! (MCIT)! and! unused! net!
operating! loss! carryover! (NOLCO)! to! the! extent! that! it! is! probable! that! taxable! profit! will! be!
available! against! which! the! deductible! temporary! differences! and! carryforward! of! unused! tax!
credits!from!excess!MCIT!and!unused!NOLCO!can!be!utilized,!except:!
•
where!the!deferred!income!tax!asset!relating!to!the!deductible!temporary!difference!arises!
from! the! initial! recognition! of! an! asset! or! liability! in! a! transaction! that! is! not! a! business!
combination! and,! at! the! time! of! the! transaction,! affects! neither! the! accounting! profit! nor!
taxable!profit!or!loss;!and!!
•
in! respect! of! deductible! temporary! differences! associated! with! investments! in! subsidiaries,!
associates!and!interests!in!joint!ventures,!deferred!income!tax!assets!are!recognized!only!to!
the!extent!that!it!is!probable!that!the!temporary!differences!will!reverse!in!the!foreseeable!
future! and! taxable! profit! will! be! available! against! which! the! temporary! differences! can! be!
utilized.!!
The! carrying! amount! of! deferred! income! tax! assets! is! reviewed! at! each! reporting! date! and!
reduced!to!the!extent!that!it!is!no!longer!probable!that!sufficient!taxable!profit!will!be!available!
to! allow! all! or! part! of! the! deferred! income! tax! assets! to! be! utilized.! ! Unrecognized! deferred!
income!tax!assets!are!reassessed!at!each!reporting!date!and!are!recognized!to!the!extent!that!it!
has!become!probable!that!future!taxable!profit!will!allow!the!deferred!income!tax!assets!to!be!
recovered.!!
Deferred!income!tax!assets!and!liabilities!are!measured!at!the!tax!rate!that!is!expected!to!apply!
to!the!period!when!the!asset!is!realized!or!the!liability!is!settled,!based!on!tax!rate!(and!tax!laws)!
that!have!been!enacted!or!substantively!enacted!at!the!reporting!date.!
Deferred!income!tax!assets!and!deferred!income!tax!liabilities!are!offset,!if!a!legally!enforceable!
right! exists! to! set! off! current! income! tax! assets! against! current! income! tax! liabilities! and! the!
deferred!income!taxes!relate!to!the!same!taxable!entity!and!the!same!taxation!authority.!
!
Earnings!Per!Share!(EPS)!Attributable!to!the!Equity!Holders!of!the!Parent!
Basic!EPS!is!computed!by!dividing!net!income!for!the!year!attributable!to!common!shareholders!
by! the! weighted! average! number! of! common! shares! outstanding! during! the! year,! with!
retroactive!adjustments!for!any!stock!dividends!declared!and!stock!split.!
!
Q!21!Q!
!
!
Diluted! EPS! is! calculated! by! adjusting! the! weighted! average! number! of! ordinary! shares!
outstanding!to!assume!conversion!of!all!dilutive!potential!ordinary!shares.!!!
Where! the! EPS! effect! of! potential! dilutive! ordinary! shares! would! be! antiQdilutive,! basic! and!
diluted!EPS!are!stated!at!the!same!amount.!
Operating!Segments!
The! Group! operates! using! its! different! trade! names! on! which! operating! results! are! regularly!
monitored! by! the! chief! operating! decision! maker! (CODM)! for! the! purpose! of! making! decisions!
about!resource!allocation!and!performance!assessment.! ! The! CODM! has! been!identified! as! the!
Chief!Executive!Officer!of!the!Group.!!However,!as!permitted!by!PFRS!8,!Operating!Segments,!the!
Group! has! aggregated! these! segments! into! a! single! operating! segment! to! which! it! derives! its!
revenues!and!incurs!expenses!as!these!segments!have!the!same!economic!characteristics!and!are!
similar!in!the!following!respects:!
a.
b.
c.
d.
the!nature!of!products!and!services;!!
the!nature!of!production!processes;!!
the!type!or!class!of!customer!for!the!products!and!services;!and!!
the!methods!used!to!distribute!their!products!and!services.!!
Related!Parties!
Parties!are!considered!to!be!related!if!one!party!has!the!ability,!directly!or!indirectly,!to!control!
the! other! party! or! exercise! significant! influence! over! the! other! party! in! making! financial! and!
operating! decisions.! ! Parties! are! also! considered! to! be! related! if! they! are! subject! to! common!
control!or!common!significant!influence.!!
An!entity!is!also!considered!as!a!related!party!if!the!entity!is!a!postQemployment!benefit!plan!for!
the! benefit! of! employees! of! either! the! reporting! entity! or! an! entity! related! to! the! reporting!
entity.!If!the!reporting!entity!is!itself!such!a!plan,!the!sponsoring!employers!are!also!related!to!
the!reporting!entity.!
Provisions!
Provisions,!if!any,!are!recognized!when!the!Group!has!a!present!obligation!(legal!or!constructive)!
as!a!result!of!a!past!event,!it!is!probable!that!an!outflow!of!resources!embodying!economic!benefits!
will!be!required!to!settle!the!obligation!and!a!reliable!estimate!can!be!made!of!the!amount!
of!the!obligation.!!If!the!effect!of!the!time!value!of!money!is!material,!provisions!are!determined!
by! discounting! the! expected! future! cash! flows! at! a! pretax! rate! that! reflects! current! market!
assessment! of! the! time! value! of! money! and,! where! appropriate,! the! risks! specific! to! the!
liability.!!Where!discounting!is!used,!the!increase!in!the!provision!due!to!the!passage!of!time!is!
recognized!as!a!finance!cost.!
!
Contingencies!
Contingent! liabilities! are! not! recognized! in! the! consolidated! financial! statements.! ! These! are!
disclosed! unless! the! possibility! of! an! outflow! of! resources! embodying! economic! benefits! is!
remote.! ! Contingent! assets! are! not! recognized! in! the! consolidated! financial! statements! but!
disclosed!in!the!notes!to!consolidated!financial!statements!when!an!inflow!of!economic!benefits!
is!probable.!
!
Q!22!Q!
!
!
Events!After!the!Reporting!Date!
Post! yearQend! events! that! provide! additional! information! about! the! Group’s! position! at! the!
reporting! date! (adjusting! events)! are! reflected! in! the! consolidated! financial! statements! when!
material.! Post! yearQend! events! that! are! nonQdjusting! events! are! disclosed! in! the! notes! to!
consolidated!financial!statements!when!material.!
!
!
5. Significant!Judgments,!Accounting!Estimates!and!Assumptions!
The! preparation! of! consolidated! financial! statements! require! management! to! exercise!
judgments,! accounting! estimates! and! assumptions! that! affect! amounts! reported! in! the!
consolidated!financial!statements!and!related!notes.! !The!judgments!and!estimates!used!in!the!
consolidated!financial!statements!are!based!upon!management’s!evaluation!of!relevant!facts!and!
circumstances!as!of!the!date!of!the!consolidated!financial!statements.!!Actual!results!could!differ!
from!such!estimates.!
Judgments!and!estimates!are!continually!evaluated!and!are!based!on!historical!experiences!and!
other!factors,!including!expectations!of!future!events!that!are!believed!to!be!reasonable!under!
the!circumstances.!
Judgments!
In!the!process!of!applying!the!Group’s!accounting!policies,!management!has!made!the!following!
judgments,!apart!from!those!involving!estimations,!which!have!the!most!significant!effect!on!the!
amounts!recognized!in!the!consolidated!financial!statements.!
Determining! Functional! Currency.! ! The! functional! currency! of! the! companies! in! the! Group! has!
been! determined! to! be! the! Philippine! Peso! except! for! certain! subsidiaries! and! joint! venture!
whose! functional! currency! are! the! US! Dollar,! Malaysian! Ringgit! and! Singapore! Dollar.! ! The!
Philippine!Peso!is!the!currency!that!mainly!influences!the!sale!of!goods!and!services!and!the!costs!
of!sales.!
Determining! Fair! Values! of! Financial! Instruments.! Where! the! fair! values! of! financial! assets! and!
financial! liabilities! recognized! in! the! consolidated! statement! of! financial! position! cannot! be!
derived! from! active! markets,! they! are! determined! using! a! variety! of! valuation! techniques! that!
include! the! use! of! mathematical! models.! ! The! Group! uses! judgments! to! select! from! variety! of!
valuation!models!and!make!assumptions!regarding!considerations!of!liquidity!and!model!inputs!
such! as! correlation! and! volatility! for! longer! dated! financial! instruments.! ! The! input! to! these!
models!is!taken!from!observable!markets!where!possible,!but!where!this!is!not!feasible,!a!degree!
of!judgment!is!required!in!establishing!fair!value.!!
Establishing!Control!Over! Investment!in!Subsidiaries.!!The!Group!determined!that!it!has!control!
over! its! subsidiaries! (see! Note! 4)! by! considering,! among! others,! its! power! over! the! investee,!
exposure!or!rights!to!variable!returns!from!its!involvement!with!the!investee,!and!the!ability!to!
use!its!power!over!the!investee!to!affect!its!returns.!!The!following!were!also!considered:!
!
•
•
•
The!contractual!arrangement!with!the!other!vote!holders!of!the!investee!
Rights!arising!from!other!contractual!agreements!
The!Group’s!voting!rights!and!potential!voting!rights!
!
Q!23!Q!
!
!
Acquisition! Accounting.! The! Group! accounts! for! acquired! businesses! using! the! acquisition!
method! of! accounting! which! requires! that! the! assets! acquired! and! the! liabilities! assumed! be!
recognized!at!the!date!of!acquisition!at!their!respective!fair!values.!!
The!application!of!the!acquisition!method!requires!certain!estimates!and!assumptions!especially!
concerning! the! determination! of! the! fair! values! of! acquired! intangible! assets! and! property! and!
equipment!as!well!as!liabilities!assumed!at!the!date!of!the!acquisition.!!Moreover,!the!useful!lives!
of! the! acquired! intangible! assets! and! property! and! equipment! have! to! be! determined.!
Accordingly,!for!significant!acquisitions,!the!Group!obtains!assistance!from!valuation!specialists.!
The!valuations!are!based!on!information!available!at!the!acquisition!date.!!
Operating!Lease!Commitments!T!The!Group!as!Lessee.!!The!Group!has!entered!into!commercial!
property! leases! on! its! restaurant! premises! and! administrative! office! location.! ! The! Group! has!
determined! that! all! the! significant! risks! and! benefits! of! ownership! of! these! properties! remain!
with!the!lessors.!!Accordingly,!these!leases!are!accounted!for!as!operating!leases!(see!Note!27).!
Operating!Lease!Commitments!T!The!Group!as!a!Lessor.!!The!Group!has!entered!into!commercial!
property! sublease! agreements.! ! The! Group! has! determined! that! all! the! significant! risks! and!
benefits! of! ownership! of! the! properties! remain! with! the! Group.! ! Accordingly,! the! lease! is!
accounted!for!as!an!operating!lease!(see!Note!27).!
Operating! Segments.! ! Although! each! trade! name! represents! a! separate! operating! segment,!
management!has!concluded!that!there!is!basis!for!aggregation!into!a!single!operating!segment!as!
allowed!under!PFRS!8!due!to!their!similar!characteristics.!!This!is!evidenced!by!a!consistent!range!
of!gross!margin!across!all!brand!outlets!as!well!as!uniformity!in!sales!increase!and!trending!for!all!
outlets,! regardless! of! the! brand! name.! ! Moreover,! all! trade! names! have! the! following! business!
characteristics:!
(a) Similar!nature!of!products/services!offered!and!methods!to!distribute!products!and!!provide!
services,!that!is,!food!service!through!casual!dining!experience;!!
(b) Similar!nature!of!production!processes!through!establishment!of!central!commissary!for!the!
Group!that!caters!all!brands!for!all!store!outlets;!
(c) Similar!class!of!target!customers!which!are!middleQclass!consumers;!and!!
(d) Primary!place!of!operations!is!in!the!Philippines.!!
Estimates!and!Assumptions!
The! key! assumptions! concerning! the! future! and! other! key! sources! of! estimation! uncertainty! at!
the!financial!reporting!date,!that!have!a!significant!risk!of!causing!a!material!adjustment!to!the!
carrying!amounts!of!assets!and!liabilities!within!the!next!financial!year!are!discussed!below.!
Estimating! Impairment! of! Receivables.! ! Management! reviews! the! age! and! status! of! these!
receivables! and! identifies! accounts! that! are! to! be! provided! with! allowances! on! a! continuous!
basis.!!The!Group!maintains!allowances!for!impairment!losses!at!a!level!considered!adequate!to!
provide!for!potential!uncollectible!receivables.!
Allowance! for! impairment! losses! amounted! to! P
=180.7! million! as! at! March!31,! 2015! and!
December!31,!2014!(see!Note!8).!!Management!believes!that!the!allowance!is!sufficient!to!cover!
receivable!balances!which!are!specifically!identified!to!be!doubtful!of!collection.!!The!aggregate!
carrying! amounts! of! trade! and! other! receivables! and! noncurrent! receivables! (included! under!
Q!24!Q!
!
!
“Other! noncurrent! assets”! account),! net! of! allowance! for! impairment! losses,! amounted! to!!
P
=674.1! million! and! P
=7.0! million! as! at! March! 31,! 2015! and!P
=677.6! million! and! P
=0.2! million! as! at!
December!31,!2014,!respectively!(see!Notes!8!and!13).!
Estimation! of! Allowance! for! Inventory! Obsolescence.! ! The! Group! estimates! the! allowance! for!
inventory! losses! related! to! store! and! kitchen! supplies! and! operating! equipment! for! sale!
whenever! the! utility! of! these! inventories! becomes! lower! than! cost! due! to! damage,! physical!
deterioration! or! obsolescence.! ! Due! to! the! nature! of! the! food! and! beverage! inventories,! the!
Group! conducts! monthly! inventory! count! and! any! resulting! difference! from! quantities! that! are!
currently!recognized!is!charged!to!expense!or!related!provision,!as!applicable.!!Inventories!at!cost!
amounted!to! P
=357.0!million!as!at!March!31,!2015!and!P
=364.3!million!as!at!December!31,!2014!
(see!Note!9).!
Estimating! Impairment! of! NonTfinancial! assets.! ! The! Group! also! assesses! impairment! on! these!
assets!whenever!events!or!changes!in!circumstances!indicate!that!the!carrying!amount!may!not!
be! recoverable.! ! The! factors! that! the! Group! considers! important! which! could! trigger! an!
impairment!review!include!the!following:!
•
Significant! underperformance! relative! to! expected! historical! or! projected! future! operating!
results;!!
•
Significant! changes! in! the! manner! of! use! of! the! acquired! assets! or! the! strategy! for! overall!
business;!and!!
•
Significant!negative!industry!or!economic!trends.!!
In!determining!the!present!value!of!estimated!future!cash!flows!expected!to!be!generated!from!
the!continued!use!of!the!assets,!the!Group!is!required!to!make!judgments!and!estimates!that!can!
materially!affect!the!consolidated!financial!statements.!
There! were! no! impairment! indicators! noted! on! these! assets! as! at! March! 31,! 2015! and!!
December!31,!2014.!The!aggregate!net!book!values!of!these!assets!amounted!to!P
=3,089.4!million!
as!at!March!31,!2015!and!P
=3,340.1!million!as!at!December!31,!2014!(see!Notes!10,!11,!12,!13!and!
27).!
Estimating! Impairment! of! Goodwill.! ! The! Group! tests! annually! whether! any! impairment! in!
goodwill! is! to! be! recognized,! in! accordance! with! the! related! accounting! policy! in! Note! 4.! ! The!
recoverable! amounts! of! CGUs! have! been! determined! based! on! value! in! use! calculations! which!
require! the! use! of! estimates.! ! Based! on! the! impairment! testing! conducted,! the! recoverable!
amounts!of!the!CGUs!as!at!March!31,!2015!and!December!31,!2014!calculated!based!on!value!in!
use!are!greater!than!the!corresponding!carrying!values!(including!goodwill)!of!the!CGUs!as!at!the!
same!dates.!The!carrying!amount!of!goodwill!amounted!to!P
=3,896.5!million!as!at!March!31,!2015!
and!P
=3,803.4!million!as!at!December!31,!2014!(see!Note!12).!
!
Estimating!the!Useful!Lives!of!Property!and!Equipment!and!Intangible!Assets.!!The!Group!reviews!
annually! the! estimated! useful! lives! of! property! and! equipment! and! intangible! assets! based! on!
expected! asset! utilization! as! anchored! on! business! plans! and! strategies! that! also! consider!
expected! future! technological! developments! and! market! behavior.! ! The! estimated! useful! lives!
are!reviewed!periodically!and!are!updated!if!expectations!differ!from!previous!estimates!due!to!
physical!wear!and!tear,!technical!or!commercial!obsolescence!and!legal!or!other!limits!on!the!use!
of! these! assets.! In! addition,! estimation! of! the! useful! lives! is! based! on! collective! assessment! of!
Q!25!Q!
!
!
industry! practice,! internal! technical! evaluation! and! experience! with! similar! assets.! It! is! possible!
that! future! results! of! operations! could! be! materially! affected! by! changes! in! these! estimates!
brought! about! by! changes! in! the! factors! mentioned.! The! amount! and! timing! of! recorded!
expenses!for!any!period!would!be!affected!by!changes!in!these!factors!and!circumstances.!!!
The!net!book!values!of!property!and!equipment!amounted!to! P
=1,763.9!million!as!at!March!31,!
2015! and! P
=1,712.2! million! as! at! December!31,! 2014! (see! Note! 11).! ! The! net! book! values! of!
intangible!assets!amounted!to!P
=4,178.5!million!as!at!March!31,!2015!and!P
=4,125.6!million!as!at!
December!31,!2014!(see!Note!12).!
Estimating! Retirement! Benefit! Costs.! ! The! determination! of! the! Group’s! obligation! and! pension!
cost! is! dependent! on! the! selection! of! certain! assumptions! used! by! the! actuaries! in! calculating!
such!amounts,!which!are!described!in!Note!23!to!the!consolidated!financial!statements.!
Retirement! benefit! costs! amounted! to! (P
=1.1! million)! and! P
=15.4! million! in! 2015! and! 2014,!
respectively.! Retirement! plan! asset! amounted! to! P
=467.8! million! as! at! March! 31,! 2015! and!!
P
=462.2!million!as!at!December!31,!2014!(see!Note!23).!!Accrued!retirement!liability!amounted!to!
P
=101.9!million!as!at!December!31,!2014!(see!Note!23).!
Estimating!Realizability!of!Deferred!Income!Tax!Assets.!!The!Group!reviews!the!carrying!amounts!
of!deferred!income!tax!assets!at!each!reporting!date!and!reduces!the!amounts!to!the!extent!that!
it!is!no!longer!probable!that!sufficient!taxable!profit!will!be!available!to!allow!all!or!part!of!the!
deferred! income! tax! assets! to! be! utilized! in! the! future.! ! The! amount! of! deferred! income! tax!
assets! that! are! recognized! is! based! upon! the! likely! timing! and! level! of! future! taxable! profits!
together! with! future! tax! planning! strategies! to! which! the! deferred! income! tax! assets! can! be!
utilized.!
The!Group!has!temporary!differences,!excess!MCIT!and!unused!NOLCO!totaling!to!P
=131.5!million!
as! at! March! 31,! 2015! and! December! 31,! 2014,! respectively,! for! which! no! deferred! income! tax!
assets! were! recognized.! The! carrying! values! of! deferred! income! tax! assets! amounted! to!!
P
=196.6!million!as!at!December!31,!2014!(see!Note!25).!
Estimating! Contingencies.! ! The! estimate! of! probable! costs! for! the! resolution! of! possible! claims!
has!been!developed!in!consultation!with!the!internal!and!external!counsel!handling!the!Group’s!
defense! in! these! matters! and! is! based! upon! analysis! of! potential! results.! ! No! provision! for!
probable! losses! arising! from! legal! contingencies! was! recognized! in! the! Group’s! consolidated!
financial!statements!as!at!March!31,!2015!and!2014!(see!Note!31).!
!
!
!
!
Q!26!Q!
!
!
6. Business!Combination!
As!discussed!in!Note!1,!on!November!7,!2014,!the!Group!acquired!100%!of!the!outstanding!and!
issued!capital!stock!of!the!20!Max’s!Entities.!!
The!following!is!a!summary!of!provisional!fair!values!of!identifiable!assets!acquired!and!liabilities!
assumed!as!at!acquisition!date:!
!
Assets:!
! Current!assets!
! Investment!properties!
!
Liabilities:!
! Trade!and!other!current!payables!
! Borrowings!
! Other!noncurrent!liabilities!
!
Total!identifiable!net!assets!acquired!at!fair!value!
Fair!value!of!share!consideration!in!exchange!of!the!
shares!of!stock!of!the!20!Max’s!Entities!
Goodwill!arising!from!acquisition!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Fair!Value!Recognized!
on!Acquisition!
!
P
=1,253,575!
1,162,616!
439,243!
4,479,827!
7,335,261!
!
738,289!
5,359,092!
265,264!
6,362,645!
972,616!
!
!
!
!
3,975,336!
P
=3,002,720!
!
Goodwill! recognized! is! a! result! of! the! expected! synergies! from! combined! operations! of! the!
acquirees! and! the! acquirer,! intangible! assets! that! do! not! qualify! for! separate! recognition! and!
other!factors.!
The!purchase!price!allocation!has!been!prepared!on!a!preliminary!basis.!The!Parent!Company!is!
still! in! the! process! of! completing! its! accounting! of! the! transaction! and! reasonable! changes! are!
expected!as!additional!information!becomes!available.!!This!will!be!finalized!in!2015!as!allowed!
by!PFRS.!
!
Acquisition!on!Global!Max!Services!Pte.!Ltd!(Global!Max)!and!eMax’s,!LLC,!Colorado!Ltd!! (eMax)!
!
On! January! 22,! 2015,! the! BOD! approved! the! Parent! Company’s! acquisition! of! 100%! ownership!
interest! of! eMax! for! US$513,000.! ! eMax! is! a! duly! registered! entity! in! Colorado,! USA,! primarily!
engaged! in! the! granting! of! franchises! for! the! development! and! operation! of! restaurants! under!
the! Max’s! brand! name! within! the! North! American! territory.! ! eMax! holds! the! franchise! and!
intellectual! property! rights! for! Max’s! restaurants! for! North! America.! ! Such! an! acquisition! will!
allow! all! shareholders! of! MGI! to! benefit! from! the! expected! growth! of! the! Max’s! restaurant!
business!in!North!America.!
!
Moreover,! on! January! 22,! 2015,! the! BOD! approved! the! Parent! Company’s! acquisition! of! 100%!
ownership! interest! of! Global! Max! for! US$1,006,000.! ! Global! Max! is! a! duly! registered! entity! in!
Singapore! engaged! in! the! business! of! management! consultancy! services.! ! This! transaction! will!
allow! the! Parent! Company! to! consolidate! support! services! for! both! local! and! international!
operations!translating!to!cost!efficiencies!and!operational!synergies.!
Q!27!Q!
!
!
!
The!following!is!a!summary!of!provisional!fair!values!of!identifiable!assets!acquired!and!liabilities!
assumed!as!at!acquisition!date:!
!
Fair!Value!Recognized!
!
!
!
on!Acquisition!
Assets:!
!
!
!
! Current!assets!
!
!
P
=79,052!
!
!
11,897!
!
!
433!
!
!
91,382!
!
Liabilities:!
!
!
!
! Trade!and!other!current!payables!
!
!
98,330!
! Other!noncurrent!liabilities!
!
!
18,530!
!
!
116,860!
!Total!identifiable!net!assets!acquired!at!fair!value!
!
!
(25,478)!
Fair!value!of!consideration!given!
!
!
67,589!
Goodwill!arising!from!acquisition!
!
!
P
=93,067!
!
!
7. Material!PartlydOwned!Subsidiary!and!Disposal!of!Subsidiaries!
Material!PartlyTOwned!Subsidiary!
Below! is! the! financial! information! of! TBGI! which! have! material! noncontrolling! interest! as! at!
December!31,!2014!and!2013.!!The!noncontrolling!shareholder!holds!30%!equity!interest.!!!
Accumulated! balance! of! material! noncontrolling! interest! amounted! to! P
=79.4! million! and!!
P
=92.4!million!as!at!March!31,!2015!and!December!31,!2014,!respectively.!
Loss! allocated! to! material! noncontrolling! interest! in! TBGI! amounted! to! P
=3.0! million! and!
P
=20.0!million!as!at!March!31,!2015!and!December!31,!2014,!respectively.!
The!summarized!results!of!operation!of!TBGI!is!provided!below.!!The!information!is!based!on!the!
amounts!before!intercompany!elimination:!
!
For! the! three!For!the!year!ended!
months!
ended!December!
31,!
!
!
March!31,!2015!
2014!
Revenue!
!
P
=97,425!
P
=454,089!
Cost!of!sales!
!
(51,918)!
(442,316)!
General!and!administrative!expenses!
!
(53,652)!
(100,972)!
Sales!and!marketing!expense!
!
(779)!
(9,812)!
Other!income!
!
1,204!
3,918!
Loss!before!tax!
!
(7,720)!
(95,093)!
Provision!(benefit)!for!income!tax!
!
1,171!
(28,464)!
Net!loss!
!
(P
=8,891)!
(P
=66,629)!
Attributable!to!noncontrolling!interests!
!
!
!
!
(P
=2,979)!
(P
=19,989)!
Q!28!Q!
!
!
The!summarized!statement!of!financial!position!of!TBGI!as!of!March!31,!2015!and!December!31,!
2014!follows:!
!
!
!
2015!
2014!
Current!assets!
!
P
= 116,783!
P
=115,830!
Noncurrent!assets!
!
274,959!
276,294!
Current!liabilities!
!
(121,079)!
(79,717)!
Noncurrent!liabilities!
!
(6,029)!
(4,223)!
Total!equity!
!
P
= 264,634!
P
=308,184!
Attributable!to:!
! Equity!holders!of!the!parent!
! Noncontrolling!interests!
!
!
!
!
P
= 185,244!
79,390!
!
P
=215,729!
92,455!
Summarized!cash!flow!information!of!TBGI!for!the!three!months!ended!March!31,!2015!and!for!
the!year!ended!December!31,!2014!follows:!
!
!
!
2015!
2014!
Operating!
!
(P
=7,901)!
(P
=46,120)!
Investing!
!
(6,561)!
(7,453)!
Financing!
!
14,143!
58,526!
Net!increase!(decrease)!in!cash!
!
(P
= 319)!
P
=4,953!
Disposal!of!Subsidiaries!
a. PHICAFSI.!!On!February!5,!2014,!the!BOD!of!the!Parent!Company!approved!the!resolution!to!
subscribe!to!additional!750,000!shares,!out!of!PHICAFSI’s!authorized!but!unissued!shares!and!
to! apply! the! advances! to! PHICAFSI! as! full! payment! for! the! subscription.! ! The! BOD! also!
authorized!the!Parent!Company!to!waive!its!preQemptive!rights!over!the!issuance!of!PHICAFSI!
of!an!additional!P
=99.0!million!worth!of!shares,!each!with!a!par!value!of!P
=1!in!favor!of!PHHI!
(which! is! currently! in! the! process! of! changing! its! corporate! name! to! exclude! “Pancake!
House”).!!It!was!resolved!further!that!the!Parent!Company!grants!PHHI!an!irrevocable!voting!
proxy! over! the! Parent! Company’s! shares! and! an! option! to! purchase! the! Parent! Company’s!
shares!in!PHICAFSI!at!book!value.!!!
!
As! at! March! 31,! 2015! and! December! 31,! 2014,! the! Parent! Company! has! receivable! from!
disposal! of! interest! amounting! to! P
=143.6! million,! equivalent! to! the! carrying! value! of! net!
assets!of!PHICAFSI!(see!Note!13).!
!
b. AHGI! and! HPI.! ! In! October! 2014,! the! Parent! Company! entered! into! a! Share! Purchase!
Agreement!to!sell!its!60%!and!51%!ownership!interest!with!AHGI!and!HPI,!respectively.!!Total!
consideration!from!the!sale!of!AHGI!and!HPI!shares!and!the!corresponding!gain!on!disposal!
amounted!to!P
=13.0!million.!
!
!
Q!29!Q!
!
!
The! related! accounts! of! PHICAFSI! as! at! February! 5,! 2014,! AHGI! and! HPI! as! at! October! 31,!
2014!have!been!excluded!in!the!December!31,!2014!consolidated!financial!statements.!!The!
assets!and!liabilities!are!summarized!below:!
!
!
Current!assets!
Noncurrent!assets!
Current!liabilities!
Noncurrent!liabilities!
PHICAFSI!
P
=88,206!
104,009!
(200,667)!
–!
AHGI!
P
=2,158!
8,108!
(12,874)!
–!
HPI!
P
=10,365!
2,750!
(9,720)!
(568)!
!
!
8. Trade!and!Other!Receivables!
!
This!account!consists!of:!
!
Trade!
Nontrade!
Officers!and!employees!
Royalties!
Credit!card!receivable!
Receivable!from:!
Franchisees!
Sale!of!asset!group!
!
Less!allowance!for!impairment!losses!
!
!
!
!
!
!
!
!
!
!
!
!
!
As!at!March!31,!
2015!
P
=374,064!
254,814!
34,896!
41,138!
11,181!
!
86,857!
51,921!
854,871!
180,744!
P
=674,127!
As!at!December!
31,!2014!
P
=372,991!
267,773!
45,167!
33,619!
11,885!
!
73,946!
52,922!
858,303!
180,744!
P
=677,559!
Trade! receivables! pertain! to! commissary! sales! billed! to! franchisees! which! are! secured,!
noninterestQbearing! and! are! normally! settled! on! 15Q30! days’! terms.! ! The! franchisees! provide!
certain!amount!of!deposits!as!guarantee!on!the!receivable.!!These!deposits!are!presented!under!
“Trade! and! other! payables”! account! in! the! consolidated! statement! of! financial! position!!
(see!Note!14).!!The!deposits!are!applied!against!the!overdue!purchases!of!the!franchisees.!
Receivable! from! franchisees! pertains! to! continuing! franchise! fees! not! yet! remitted! by! its!
franchisees.!!!
Royalties! pertain! to! the! unremitted! portion! of! the! Group’s! share! in! the! net! sales! of! its!
franchisees.!
Receivable!from!sale!of!asset!group!represents!outstanding!receivable!from!the!sale,!assignment!
and! transfer! of! the! net! assets! attributable! to! certain! entities! and! a! portion! of! its! property! and!
equipment!relating!to!the!companyQowned!outlets!in!2010.!
Nontrade! receivables! primarily! pertain! to! noninterestQbearing! reimbursable! costs! incidental! to!
the!operations!of!the!franchised!stores!and!are!normally!settled!on!a!30Q60!days’!terms.!
In! 2014,! the! new! management! changes! in! business! strategies! resulted! in,! among! others,! the!
identification! of! inefficiencies! and! identification! of! nonQperforming! store! operations.!!
Restructuring!activities!were!initiated!that!lead!to!the!closing!or!change!in!operating!structure!of!
certain!CompanyQowned!and/or!franchised!stores.!!Accordingly,!certain!receivables!and!security!
Q!30!Q!
!
!
deposits! on! leases! were! determined! to! be! impaired! and! the! estimated! useful! lives! of! certain!
fixed!assets!were!changed.!!
Allowance!for!impairment!losses!is!attributable!to!the!individual!impairment!of!certain!trade!and!
other!receivables.!
!
Movements!of!allowance!for!impairment!loss!are!as!follows:!
!
As!at!March!31,! As!at!December!
!
Note!
2015!
31,!2014!
!
P
= 180,744!
P
=22,149!
Effect!of:!!
!
!
!
! Business!combination!
6!
–!
12,692!
! Disposal!of!investments!in!subsidiaries!
7!
–!
(73)!
Provisions!
20!
–!
150,610!
WriteQoff!
!
–!
(4,634)!
Recoveries!
!
–!
–!
!
P
= 180,744!
P
=180,744!
!
!
9. Inventories!
!
This!account!consists!of!the!following!inventories!which!are!carried!at!cost:!
!
As!at!March!31,!
!
2015!
Food!and!beverage!
P
= 310,280!
Store!and!kitchen!supplies!
46,738!
Operating!equipment!for!sale!
9!
!
P
= 357,027!
!
Cost!of!inventories!recognized!under!costs!of!sales!is!as!follows:!
As!at!December!
31,!2014!
P
=312,415!
51,871!
–!
P
=364,286!
!
!
!
For!the!three!months!ended!March!31!
Note!
2015!
2014!
20!
P
= 942,355!
P
=330,278!
20!
49,400!
16,904!
!
P
= 991,755!
P
=347,182!
!
Food!and!beverage!
Store!and!kitchen!supplies!
!
!
!
!
!
Q!31!Q!
!
!
10. Prepaid!Expenses!and!Other!Current!Assets!
This!account!consists!of:!
!
!
Prepaid!expenses!
Receivable!from!disposal!of!investment!
properties!
Advances!to!suppliers!
CWTs!
Others!
!
Note!!
!
19!
!
!
!
!
As!at!March!31,!
2015!
P
= 135,584!
As!at!December!
31,!2014!
P
=112,478!
99,707!
50,767!
46,774!
78,065!
P
= 410,897!
99,869!
46,980!
37,436!
66,710!
P
=363,473!
Prepaid! expenses! consist! mainly! of! prepaid! marketing! expenses! such! as! billboard! rentals,!
sponsorship!and!events!that!are!amortized!for!one!year!or!less.!
Advances!to!suppliers!pertain!to!advance!payments!for!goods!pending!delivery.!
Other!current!assets!mainly!include!input!VAT,!unused!supplies!and!advanced!freight!costs.!
!"32"!"
"
"
"
11. Property(and(Equipment(and(Investment(Properties"
"
Movements"in"the"property"and"equipment"follows:"
"
"
"
"
"
Cost(
Balances"at"beginning"of"period"
Additions"
Transfer"of"assets"
Effects"of"business"combination"
Disposals"
Balances"at"end"of"period"
Accumulated(Depreciation(and(
( Amortization(
Effect"of"business"combination"
Depreciation"and"amortization"
Disposals"
" Balances"at"end"of"period"
Net(Book(Values(
"
(
Land(
"
P
=137,303(
–(
(15,018)(
–(
–(
122,285(
(
(
P
= –(
–(
–(
–(
–(
P
=122,285(
"
"
(
Leasehold"
Building( Improvements"
"
"
P
=80,618(
P
=2,252,461(
–(
63,497(
805(
301(
–(
23,274(
–(
(13,970)(
81,423(
2,325,563(
(
(
(
(
P
=43,946(
P
=1,470,450(
(
11,377(
2,134(
108,392(
(
(13,970)(
46,080(
1,576,249(
P
=35,343(
P
=749,314(
March(31,(2015(
Store(and"
Furniture,"
"
Kitchen"
Fixtures(and" Transportation"
Equipment"
Equipment"
Equipment"
"
"
"
P
=1,415,038(
P
=615,640(
P
=266,869(
39,541(
15,068(
3,547(
36,520(
32,236(
5,659(
–(
–(
–(
(12,843)(
(84)(
(708)(
1,478,256(
662,860(
275,367(
(
(
(
(
(
(
P
=1,071,115(
P
=496,251(
P
=181,495(
(
(
(
71,441(
17,383(
12,342(
(12,843)(
(84)(
(708)(
1,129,713(
513,550(
193,129(
P
=348,543(
P
=149,310(
P
=82,238(
"
Construction"
InGProgress"
"
P
=207,548(
62,833(
9,641(
–(
–(
280,022(
(
(
P
= –(
(
2,556(
(
2,556(
P
=277,466(
"
"
Total"
"
P
=4,975,477(
184,486(
70,144(
23,274(
(27,605)(
5,225,776(
(
(
P
=3,263,257(
11,377(
214,248(
(27,605)(
3,461,277(
P
=1,763,897(
"
Cost"of"fully"depreciated"property"and"equipment"that"are"still"used"in"operations"amounted"to"P
=658.9"million"as"at"March"31,"2015"and"December"31,"2014."
!"33"!"
"
"
"
"
"
"
"
Cost"
Effects"of:"
" Business"combination"
" Disposal"of"investment"in"
subsidiaries"
Additions"
Transfer"
Disposals"
Accumulated"Depreciation"and"
" Amortization"
Effects"of:"
subsidiaries"
Disposals"
Net"Book"Values"
"
"
"
"
December"31,"2014"
Store"and"
Furniture,"
"
Kitchen"
Fixtures"and" Transportation"
Equipment"
Equipment"
Equipment"
"
"
"
P
=640,047"
P
=131,363"
P
=66,789"
"
"
"
800,167"
478,727"
184,064"
"
"
Land"
"
P
=–"
"
137,303"
"
"
Building"
"
P
=–"
"
80,618"
"
Leasehold"
Improvements"
"
P
=774,501"
"
1,379,889"
–"
–"
–"
–"
137,303"
"
"
–"
"
–"
–"
–"
–"
–"
80,618"
"
"
–"
"
43,059"
(11,044)"
167,203"
3,169"
(61,257)"
2,252,461"
"
"
517,261"
"
896,254"
(12,454)"
78,275"
(2,120)"
(88,877)"
1,415,038"
"
"
486,961"
"
598,455"
–"
25,413"
–"
(19,863)"
615,640"
"
"
98,059"
"
371,345"
–"
–"
–"
–"
P
=137,303"
–"
887"
–"
43,946"
P
=36,672"
(4,920)"
123,112"
(61,257)"
1,470,450"
P
=782,011"
(12,454)"
87,030"
(88,877)"
1,071,115"
P
=343,923"
–"
46,710"
(19,863)"
496,251"
P
=119,389"
"
Construction"
In!Progress"
"
P
=8,510"
"
132,928"
"
"
Total"
"
P
=1,621,210"
"
3,193,696"
–"
18,113"
–"
(2,097)"
266,869"
"
"
48,519"
"
121,967"
–"
67,159"
(1,049)"
–"
207,548"
"
"
–"
"
–"
(23,498)"
356,163"
–"
(172,094)"
4,975,477"
"
"
1,150,800"
"
2,031,080"
–"
13,106"
(2,097)"
181,495"
P
=85,374"
–"
–"
–"
–"
P
=207,548"
(17,374)"
270,845"
(172,094)"
3,263,257"
P
=1,712,220"
!"34"!"
"
"
"
Movements"in"the"investment"properties"follow:"
"
"
"
"
Cost(
"
Balances"at"beginning"and"end"of"period"
Accumulated(Depreciation(and(Amortization(
"
"
"
Net(Book(Values(
March(31,(2015(
Condominium(
Units(
(
P
= 5,938(
(
5,938(
–(
5,938(
P
=–(
(
Land(
(
P
=432,194(
(
–(
–(
–(
P
=432,194(
Building(and(
Improvements(
(
P
=7,226(
(
6,374(
147(
6,521(
P
=705(
"
Land"
"
P
=432,194"
–"
432,194"
"
–"
–"
–"
–"
P
=432,194"
December"31,"2014"
Building"and"
Condominium"
Improvements"
Units"
"
"
P
=7,226"
P
=32,368"
–"
(26,430)"
7,226"
5,938"
"
"
5,748"
26,797"
626"
474"
–"
(21,333)"
6,374"
5,938"
P
=852"
P
=–"
(
Total(
(
P
=445,358(
(
12,312(
147(
12,459(
P
=432,899(
"
"
"
"
Cost(
"
Effect"of"consolidation"
"
Disposals"
Balances"at"end"of"year"
Accumulated(Depreciation(and(Amortization(
"
Effect"of"consolidation"
"
"
Disposals"
"
Balances"at"end"of"year"
Net(Book(Values(
"
"
"
Total"
"
P
=471,788"
(26,430)"
445,358"
"
32,545"
1,100"
(21,333)"
12,312"
P
=433,046"
!"35"!"
"
"
"
12. Intangible*Assets"
This"account"consists"of:"
"
As*at*March*31,* As"at"December"
2015*
31,"2014"
P
= 3,896,458*
P
=3,803,391"
238,264*
270,656"
17,314*
27,415"
21,677*
19,166"
870*
3,946"
3,946*
1,070"
P
= 4,178,529*
P
=4,125,644""""""""""""""""""""""""""""""""""""
"
Goodwill"
Trademarks"
Software"license"
Franchise"fees"
Lease"rights"
Brand"development"costs"
"
Goodwill.( ( Goodwill" acquired" through" business" combination" has" been" attributed" to" the" following"
brands"which"are"considered"to"be"separate"CGUs"of"the"Group:"
"
"
Max’s"
Yellow"Cab"
Global"Max"
Pancake"House"
Le"Coeur"de"France"
eMax"
"
Note"
6"
"
6"
"
"
6"
"
As*at*March*31,*
2015*
P
=3,002,720*
708,785*
72,576*
60,655*
31,231*
20,491*
P
=3,896,458*
As"at"December"
31,"2014"
P
=3,002,720"
708,785"
"
60,655"
31,231"
–"
P
=3,803,391"
As" at" March" 31," 2015" and" December" 31," 2014," the" recoverable" amount" of" each" CGU" calculated"
through"value"in"use"exceeded"the"carrying"amount"of"the"CGU"including"goodwill.""Value"in"use"was"
derived" using" cash" flow" projections" based" on" financial" budgets" approved" by" senior" management"
covering"a"five!year"period.""Cash"flows"beyond"the"five!year"period"are"extrapolated"using"a"zero"
percent"growth"rate.""Discount"rate"applied"to"the"cash"flow"projections"in"determining"recoverable"
amount"is"10%"and"12%"in"2015"and"2014,"respectively."
The"calculations"of"value"in"use"of"goodwill"are"most"sensitive"to"the"following"assumptions:"
a. Discount"rates"!"Discount"rates"were"derived"from"the"Group’s"weighted"average"cost"of"capital"
and"reflect"management’s"estimate"of"risks"within"the"CGUs.""This"is"the"benchmark"used"by"the"
management"to"assess"operating"performance"and"to"evaluate"future"investment"proposals."In"
determining"appropriate"discount"rates,"regard"has"been"given"to"various"market"information,"
including," but" not" limited" to," ten!year" government" bond" yield," bank" lending" rates" and" market"
risk"premium"and"country"risk"premium.""
"
b. Growth" rate" estimates" !" The" long!term" rate" used" to" extrapolate" the" budget" for" the" investee"
companies" excludes" expansions" and" possible" acquisitions" in" the" future." " Management" also"
recognizes"the"possibility"of"new"entrants,"which"may"have"significant"impact"on"existing"growth"
rate"assumptions.""Management"however,"believes"that"new"entrants"will"not"have"a"significant"
adverse"impact"on"the"forecast"included"in"the"budget.""
"
"
"
!"36"!"
"
"
The"rollforward"of"trademark,"brand"developments"costs"and"lease"rights"are"as"follows:"
"
"
"
Cost*
Additions"
Transfer"of"assets"
Disposal"
Accumulated*Amortization*
Amortization"
Transfer"of"assets"
Disposal"
Net*Book*Value*
Trademarks"
"
P
= 557,530*
–*
(28,525)*
–*
529,005*
*
286,874*
3,867*
–*
–*
290,741*
P
= 238,264*
Software*
"
P
=59,696*
1,793*
(8,785)*
(104)*
52,600*
*
32,281*
3,109*
–*
(104)*
35,286*
P
=17,314*
March*31,*2015*
Brand*
Development*
Costs*
Lease*Rights*
"
"
P
=9,435*
P
=9,370*
–*
–*
(2,858)*
(5,355)*
–*
–*
6,577*
4,015*
*
*
2,631*
2,944*
–*
201*
–*
–*
–*
–*
2,631*
3,145*
P
=3,946*
P
=870*
Franchise*
Fees*
"
P
=20,873*
–*
21,677*
–*
42,550*
*
9,922*
–*
10,951*
–*
20,873*
P
=21,677*
Total*
"
P
= 656,904*
1,793*
(23,846)*
(104)*
634,747*
*
334,652*
7,177*
10,951*
(104)*
352,676*
P
= 282,071*
Software"
"
P
=20,134"
"
32,754"
December"31,"2014"
Brand"
Development"
Costs"
Lease"Rights"
"
"
P
=5,973"
P
=7,128"
"
"
3,701"
–"
Franchise"
Fees"
"
P
=–"
"
26,846"
Total"
"
P
=589,738"
"
64,328"
"
"
"
Cost"
Effect"of:""
subsidiaries"
Additions"
Disposal"
Accumulated"Amortization"
Effect"of:""
subsidiaries"
Amortization"
Disposal"
Net"Book"Value"
Trademarks"
"
P
=556,503"
"
1,027"
–"
–"
–"
557,530"
"
258,109"
"
322"
–"
7,500"
(692)"
59,696"
"
8,094"
"
16,661"
–"
2,875"
(3,114)"
9,435"
"
1,186"
"
1,480"
–"
2,242"
–"
9,370"
"
3,884"
"
–"
–"
28,443"
–"
286,874"
P
=270,656"
–"
8,041"
(515)"
32,281"
P
=27,415"
(1,186)"
1,151"
–"
2,631"
P
=6,804"
–"
1,114"
(2,054)"
2,944"
P
=6,426"
(5,973)"
–"
–"
20,873"
"
–"
"
8,885"
–"
1,037"
–"
9,922"
P
=10,951"
(5,973)"
12,617"
(3,806)"
656,904"
"
271,273"
"
27,348"
(1,186)"
39,786"
(2,569)"
334,652"
P
=322,252"
"
*
13. Other*Noncurrent*Assets"
"
"
Receivable"from"disposal"of"interest"
Utilities"and"other"deposits"
Deferred"input"VAT"
HTM"investment"
Noncurrent"receivables"
"
"
Note"
7"
"
"
"
"
"
Others"mainly"represent"long!term"portion"of"prepaid"rent."
"
As*at*March*31,* As"at"December""
2015*
31,"2014"
P
= 146,571*
P
=143,571"
70,708*
90,451"
52,426*
50,730"
4,204*
4,204"
6,989*
163"
P
= 280,898*
P
=289,119"
"
!"37"!"
"
"
The"Group"had"an"investment"in"a"joint"venture"through"PHICAFSI"representing"50%"interest"in"ICF!
CCE,"Inc."which"was"incorporated"in"May"2010.""ICF!CCE,"Inc."is"engaged"in"the"business"of"operating"
a" culinary" skills" training" center" and" a" restaurant" for" the" practicum" of" its" students." " In" 2014," the"
Group" ceased" to" consolidate" PHICAFSI" and" its" subsidiaries’" financial" position" and" results" of"
operations.""
Investments"in"joint"venture"also"includes"investment"in"CRPS."
The"aggregate"movements"in"these"investments"are"as"follow:""
"
"
Note"
2015*
31,"2014"
Acquisition*cost*
"
*
"
Balance"at"beginning"of"period"
"
P
= 269*
P
=6,469"
Effect"of"deconsolidation"of"ICF!CCE"
*
–*
6,200"
Balance"at"beginning"and"end"of"period"
"
269*
269"
Accumulated*equity*in*net*losses*
"
*
"
"
(7,010)*
(33,060)"
Translation"adjustments"
"
–*
86"
Effect"of"deconsolidation"of"ICF!CCE"
7"
–*
25,964"
"
(P
=7,010)*
(7,010)"
Excess*of*share*in*equity*net*losses**
over*cost*
"
(P
=6,741)*
(P
=6,741)"
The"Group"recognized"the"excess"of"share"in"equity"net"losses"over"cost"as"“Provision"for"share"in"
equity" in" net" losses" of" a" joint" venture”" in" the" consolidated" statement" of" financial" position" as" at"
March"31,"2015"and"December"31,"2014"in"relation"to"its"investment"in"ICF!CCE,"Inc.""The"carrying"
amount" of" the" investment" in" CRPS" presented" as" “Investment" in" a" joint" venture”" under" “Other"
noncurrent"assets”"account"amounted"to"nil"as"at"March"31,"2015"and"December"31,"2014."
*
*
14. Trade*and*Other*Payables*
"
"
Trade"
Nontrade"
Accrued"expenses"
Service"charges"
Deposits"
Contract"retention"
Output"VAT"
Rent"payable"
Deferred"revenue"
Others"
"
As*at*March*31,*
2015*
P
=1,142,565*
401,496*
342,006*
24,956*
19,567*
8,096*
18,009*
21,099*
6,325*
45,302*
P
=2,029,421*
Trade"payables"are"noninterest!bearing"and"generally"on"30"to"60"day"term."
As"at"December""
31,"2014"
P
=1,196,009"
449,783"
396,302"
18,801"
16,813"
16,553"
11,966"
11,514"
7,107"
66,594"
P
=2,191,442"
"
!"38"!"
"
"
Nontrade" payable" pertains" mainly" to" the" unpaid" billings" from" contractors" for" construction" of" new"
stores" and" for" various" renovation" activities" on" existing" stores," withholding" taxes" and" SSS" for"
employees’"monthly"contribution"and"unpaid"billing"from"agencies"for"personnel"requirement"that"
are"contractual,"among"others."
Accrued"expenses"include"Group"purchases"that"are"already"received"as"at"reporting"date"but"with"
pending"documents,"payroll"and"other"benefits"as"at"cut!off"date"that"are"not"yet"due"for"payment"
and"electricity"and"water"expenses,"among"others."
Deposits"include"deposits"on"ingredients"representing"the"amount"received"by"the"Group"from"its"
franchisees"as"stipulated"in"the"franchise"agreement"equivalent"to"40%"of"the"projected"15!day"food"
and" beverage" sales" to" cover" for" all" the" ingredients" initially" advanced" by" the" Group" for" the"
commencement" of" the" franchise" outlets’" commercial" operations." " These" are" carried" at" cost" and"
subject" to" a" semi!annual" review" and" is" correspondingly" adjusted" based" on" the" revised" projected"
monthly"sales"of"the"franchise"outlet."
Other" payables" include" withholding" taxes" payable," current" portion" of" accrued" rent" payable" and"
PAG!IBIG"premiums"payable.""
"
"
15. Loans*Payable*"
"
Short!term"loan"
Revolving"promissory"note"
Others"
2015*
31,"2014"
P
= 1,647,748*
P
=1,634,085"
440,430*
440,430"
10,971*
10,971"
P
= 2,099,149*
P
=2,085,486"
"
Short!term"Loans"
The"Group"obtained"Peso"denominated"short!term"loans"from"several"banks"and"from"stockholders"
to"finance"working"capital"requirements.""The"short!term"loans"from"the"banks"bear"interest"rates"
ranging"from"3.0%"to"4.5%"in"2014"and"2013"and"will"mature"during"the"succeeding"year."
On"March"5,"2014,"the"Group"availed"of"a"P
=923.0"million"short!term"loan"from"Banco"De"Oro.""The"
proceeds" of" the" loan" were" used" by" the" Group" to" prepay" the" outstanding" balance" of" the""
P
=800.0" million" loan" from" Metropolitan" Bank" &" Trust" Company" (MBTC" and" FMIC)." " The" short!term"
loan"bears"interest"rate"of"3.0%"and"will"mature"on"March"5,"2015."
"
Revolving"Promissory"Note"
The" Group" has" revolving" promissory" notes" from" a" local" bank" amounting" to" P
=440.4" million" as" at"
December" 31," 2014." " These" notes" are" payable" in" six" to" 12" months" and" bear" annual" interest" rates"
ranging"from"3.0%"to"4.0%."The"notes"are"guaranteed"by"affiliated"companies."
"
"
!"39"!"
"
"
Interest"expense"charged"to"profit"or"loss"for"the"three"months"ended"March"31,"2015"and"2014"are"
as"follows:"
"
"
"
*
For*the*three*months*ended*March*31*
2014"
"
Note"
*
2015*
Loans"payable"
*
*
P
= 2.5*million*
P
=2.1"million"
Long!term"debt"
16"
*
13.0*million*
11.4"million"
"
"
*
P
=15.5*million*
P
=13.5"million"
"
"
16. Long[term*Debt"
"
Long!term"loan"
Finance"lease"liability"
"
Current"portion"
Noncurrent"portion"
2015*
31,"2014"
P
= 1,274,110*
P
=1,274,110"
12,377*
12,377"
1,286,487*
1,286,487"
73,697*
73,697"
P
= 1,212,790*
P
=1,212,790"
On"February"21,"2014,"the"Max’s"Entities"entered"into"a"loan"agreement"for"P
=4,274.1"million"with"a"
creditor" bank." " The" proceeds" of" the" loan" were" used" to" acquire" shares" of" stocks" of" the" Parent"
Company." " The" loan" bears" an" interest" rate" based" on" the" Philippine" Daily" System" Treasury" (PDST)"
fixing"benchmark"rate"plus"a"spread"of"3.5%"or"annual"fixed"5.5%"interest,"whichever"is"higher,"and"
will"mature"on"January"21,"2021."The"loan"is"secured"by"pledged"shares,"real"estate"mortgage"over"
certain" parcels" of" land," chattel" mortgage" over" certain" vehicles," and" a" continuing" surety" of" the"
stockholders.""On"December"12,"2014,"the"Max’s"Entities"paid"P
=3,000.0"million"of"the"loan"from"the"
proceeds"of"the"sale"of"AFS"investment"included"on"the"follow!on"offering"of"MGI"shares"(see"Note"
1)."""
"
"
This"loan"contains"restrictive"covenants"which"include,"among"others,"maintenance"of"certain"level"
of" long!term" debt!to!equity" ratio" and" debt" service" coverage" ratio" based" on" the" consolidated"
financial" statements" of" the" Max’s" Entities." " The" borrowing" entities" are" also" not" allowed" to"
make/permit"material"change"in"their"business,"reacquire"any"of"its"outstanding"shares"by"purchase"
of"redemption"or"donation,"suspend"or"discontinue"operations"up"to"the"branch"level"for"a"period"
exceeding" 30" consecutive" days," whether" voluntarily" or" involuntarily," create/incur" any" new"
indebtedness," other" than" permitted" indebtedness," create/incur" to" any" lien" with" respect" to" the"
property" or" assets" of" the" borrowing" entities" and" the" individual" obligors,"except" for" the" properties"
stated"in"the"agreement,"sell,"lease,"transfer"or"dispose"any"or"all"properties"and"assets"other"than"
in"the"ordinary"course"of"business,"assign,"transfer"or"convey"any"right"to"receive"any"of"its"income"
or" revenues," and" incur" any" capital" expenditure" or" purchase" additional" capital" equipment" or" other"
fixed"assets"outside"the"ordinary"course"of"business."
"
As"at"March"31,"2015"and"December"31,"2014,"the"Max’s"Entities"are"in"compliance"with"the"debt"
covenants."
"
"
!"40"!"
"
"
The"loan"is"presented"net"of"deferred"transaction"costs.""A"rollforward"analysis"of"debt"issue"costs"is"
shown"below:"
"
Balance"at"transaction"date"
Amortization"
Balance"at"end"of"year"
2015*
P
= 19,500,002*
(14,596,835)*
P
= 4,903,167*
2014"
P
=19,500,002"
(14,415,236)"
P
=5,084,766"
On"September"6,"2011,"MGI"availed"of"an"P
=800.0"million"loan"from"a"Notes"Facility"Agreement"(NFA)"
with" Metropolitan" Bank" &" Trust" Company" (Treasury" Department)" as" facility" agent," paying" agent.""
The"proceeds"of"which"were"used"by"the"Parent"Company"to"acquire"100%"interest"in"YCFC."
The"loan"has"a"five"year"maturity"and"bear"fixed"annual"interest"rates"at"4.7368%"and"6.2550%."
Under"the"NFA,"MGI"shall"not"permit"its"(i)"Debt!to!Equity"ratio"at"any"time"to"exceed"2:1;"(ii)"Debt"
Service"Coverage"Ratio"as"at"December"31"not"be"less"than"1.5;"and"(iii)"Current"Ratio"at"any"time"
not" to" be" less" than" 1:1." " Moreover," the" Parent" Company" is" prohibited" from" entering" into" merger,"
spin!off," consolidation" or" reorganization" (unless" the" Company" is" the" surviving" entity)," selling,"
transferring," conveying" or" otherwise" disposing" all" or" substantially" all" of" its" assets" (unless" in" the"
ordinary"course"of"the"business)."
MGI" was" not" able" to" comply" with" the" foregoing" debt" covenants" as" at" December" 31," 2013.""
Accordingly,"the"entire"balance"of"long!term"debt"(net"of"unamortized"deferred"financing"cost)"was"
presented" as" part" of" current" liabilities" in" the" consolidated" statement" of" financial" position" as" at"
March"31,"2015"and"December"31,"2014."""
On" March" 10," 2014," MGI" refinanced," and" accordingly" prepaid" in" full," the" outstanding" loan" and"
interest" aggregating" P
=801.1" million." " The" Group" was" able" to" obtain" a" waiver" on" the" penalties"
because"of"the"prepayment."
Unamortized" deferred" financing" cost" reduced" the" carrying" amount" of" long!term" debt" by""
P
=4.9" million" and" P
=5.1" million" as" at" March" 31," 2015" and" December" 31," 2014," respectively." " Total"
interest" expense" on" long!term" debt" amounted" to" P
=11.4" million" for" the" three"
months"ended"March"31,"2015"and"2014."
"
17. Mortgage*Payable"
This"account"represents"financing"loans"from"local"commercial"banks"for"the"acquisition"of"service"
vehicle" for" managerial" and" supervisory" employees." " The" loans" bear" annual" interest" rates" ranging"
from" and" 15%" to" 17%" in" 2015" and" 2014" and" are" payable" in" 24" to" 36" equal" monthly" installments"
from"the"date"of"the"loan.""The"above"loans"are"collateralized"by"a"chattel"mortgage"on"the"Group’s"
transportation" equipment" with" a" carrying" amount" of" P
=10.5" million" as" at" March" 31," 2015" and"
December"31,"2014"(see"Note"11)."
"
As" at" March" 31," 2015" and" December" 31," 2014," mortgage" payable" amounted" to" P
=5.2" million" and""
P
=8.2"million,"respectively."
Interest" expense" on" mortgage" payables" amounted" to" nil" and" P
=0.5" million" for" the" three" months"
ended"March"31,"2015"and"2014,"respectively."
!"41"!"
"
"
"
18. Equity"
The"movements"of"the"Group’s"capital"stock"as"at"March"31,"2014"and"March"31,"2013"follow:"
"
Authorized"capital"stock"!"P
=1"
Issued"and"outstanding"
Beginning"balance"
Conversion"of"notes"to"equity"
*
As*at*March*31,* As"at"March"31,"
2015*
2014"
1,400,000,000*
400,000,000"
*
P
= 1,087,082*
–*
P
= 1,087,082*
"
P
=237,795"
21,416"
P
=259,211"
Capital"Stock"
On" December" 15," 2000," the" Parent" Company" listed" with" the" PSE" its" common" shares," where" it"
offered"188,636,364"shares"to"the"public"at"the"issue"price"of"P
=1.48"per"share.""Proceeds"from"these"
issuances"of"new"shares"amounted"to"P
=279.2"million."
In"January"2014,"the"Parent"Company"issued"21,415,385"common"shares"of"the"Parent"Company"in"
exchange" for" convertible" notes." " The" excess" of" the" carrying" amount" of" the" convertible" notes"
amounting"to"P
=132.3"million"over"the"par"value"of"the"issued"shares"was"recognized"as"additional"
paid!in"capital."
On"June"30,"2014,"the"Board"of"Directors"(BOD)"of"the"Parent"Company"authorized"its"acquisition"of"
all"the"issued"and"outstanding"shares"of"stock"of"20"Max’s"Entities.""Included"in"the"Max’s"Entities"
are" the" 10" companies" which" previously" acquired" 89.95%" combined" stake" in" the" Parent" Company"
and" its" subsidiaries." On" November" 7," 2014," the" SEC" issued" the" certificate" of" approval" of" the"
valuation" of" approximately" P
=4.0" billion" in" exchange" for" the" subscription" of" 540,491,344" shares" of"
the"Parent"Company.""The"exchange"is"accounted"for"as"a"business"combination"in"accordance"with"
Philippine"Financial"Reporting"Standards"(PFRS)"3,"with"the"Parent"Company"as"the"acquirer,"the"20"
Max’s" Entities" as" acquirees," and" November" 7," 2014" as" the" acquisition" date""
(see"Note"8)."""
On" July" 31," 2014," the" SEC" approved" the" application" for" the" increase" in" authorized" capital" stock" of"
the"Parent"Company"from"400,000"shares"with"a"par"value"of"P
=1.0"a"share"to"1,400,000,000"shares"
with"the"same"par"value."On"August"8,"2014,"the"SEC"approved"the"declaration"of"stock"dividends"of"
259,210,840"shares"out"of"the"increase."
"
In"December"2014,"the"Parent"Company"made"a"follow!on"offering"of"28,168,998"new"shares"and"
169,014,100" shares" held" by" subsidiaries" to" the" public." " Shares" held" by" subsidiaries" pertain" to" the"
shares" of" 10" Max’s" entities." " The" Parent" Company" recognized" additional" paid!in" capital" related" to"
new"shares"amounting"to"P
=471.8"million"arising"from"the"excess"of"the"proceeds"over"par"value"of"
the" shares" sold." " Total" cost" incurred" in" the" follow!on" offering" transaction" amounted" to""
P
=364.3"million.""Of"the"total"amount" P
=7.0"million"was" charged"to"profit"or"loss" and" P
=357.3"million"
was"recorded"as"reduction"to"additional"paid!in"capital."
"
"
!"42"!"
"
"
The"Group"has"82"stockholders"as"at"March"31,"2015"and"December"31,"2014."
Shares"Held"By"Subsidiaries"
Shares" held" by" subsidiaries" pertain" to" Parent" Company" shares" of" stock" held" by" 10" Max’s" entities"
which"were"acquired"on"February"24,"2014.""As"at"December"31,"2014"shares"held"by"subsidiaries"
amounted"to"P
=2,610.0."
"
The"movements"of"the"shares"held"by"subsidiaries"in"2014"are"as"follows:"
"
"
Note"
No."of"shares"
Acquisition" of" Parent" Company" shares" by" the" 10" Max’s"
" Entities"
"
233,160,189"
Stock"dividend"
"
233,160,189"
Effect"of"share"swap"
"
9,571,766"
Sale"on"follow!on"offering""
1"
(169,014,100)"
Balance"at"end"of"year"
"
306,878,044"
As" discussed" in" Note" 1," 169,014,100" shares" held" by" subsidiaries" were" sold" during" the" follow!on"
offering." " Gain" arising" from" such" sale" amounting" to" P
=1,204.0" million" pertains" to" the" excess" of"
proceeds"over"the"cost"of"the"investments"and"direct"transaction"costs.""Certain"subsidiaries"which"
owned"shares"of"other"Max’s"Entities"exchanged"such"shares"with"MGI"shares"resulting"to"a"gain"of"
P
=103.5" million." " " The" net" gains" on" sale" and" exchange" were" eliminated" in" the" preparation" of"
consolidated"financial"statements"and"recognized"as"additional"paid!in"capital"under"equity."
"
Retained"Earnings""
Following"are"the"dividends"declared"and"paid"by"the"Parent"Company:""
"
Dividend"Type"
Cash"
Cash"
Cash"
Cash"
Cash"
Date"of"Declaration"
June"28,"2013"
February"22,"2013"
May"31,"2012"
December"8,"2011"
May"27,"2011"
Date"of"Record"
July"12,"2013"
March"11,"2013"
June"15,"2012"
December"23,"2011"
June"15,"2011"
Date"Paid"
July"31,"2013"
March"29,"2013"
June"29,"2012"
December"29,"2011"
June"30,"2011"
Amount"
P
=45,110"
23,946"
34,932"
12,175"
21,568"
Dividend"
per"Share"
P
=0.19"
0.10"
0.15"
0.05"
0.09"
On" June" 12," 2014," the" Parent" Company" declared" 100%" stock" dividend" aggregating" 259,210,840"
common"shares"at"par"value."
"
"
19. Related*Party*Disclosures"
"
The"Group"has"transactions"within"and"among"the"consolidated"entities"and"related"parties.""Parties"
are"considered"to"be"related"if"one"party"has"the"ability,"directly"or"indirectly,"to"control"the"other"
party" or" exercise" significant" influence" over" the" other" party" in" making" financial" and" operating"
decisions." " Parties" are" also" considered" to" be" related" if" they" are" subject" to" common" control."
Transactions" between" members" of" the" Group" and" the" related" balances" are" eliminated" at"
consolidation"and"are"no"longer"included"in"the"disclosure.""
"
"
"
i.
ii.
!"43"!"
"
"
Shares" held" by" the" Retirement" Plan" pertain" to" own" equity" instruments" held" by" the"
retirement"fund"of"the"10"Max’s"entities"amounting"to"P
=304.9"million."
Compensation"of"key"management"personnel"are"as"follows:"
"
"
Salaries"and"other"employee"benefits"
Post!employment"benefits""
2015*
P
=1,928*
135*
2014"
P
=7,711"
540"
"
P
=2,063*
P
=8,251"
"
"
20. Costs*of*Sales"
"
"
"
"
"
Food"and"beverage"
Salaries"and"wages"
Rentals"
Light"and"water"
Employee's"benefits"
Supplies"used"
Fuel"and"oil"
Taxes"and"licenses"
Repairs"and"maintenance"
Transportation"and"travel"
Security"services"
Supplies"and"equipment"sold"
Communications"
Amortization"of"intangible"assets"
Insurance"
Others"
"
"
"
"
"
"
*
*
Three*Months*Ended*March*31"
2015*
2014"
"
"
P
=942,355*
305,946*
231,355*
102,923*
95,719*
53,120*
49,400*
28,802*
28,188*
23,908*
18,111*
10,280*
8,706*
6,928*
1,559*
637*
58,425*
P
=330,278"
112,296"
96,629"
41,508"
46,727"
18,193"
16,904"
25,004"
14,345"
14,274"
15,804"
5,088"
9,825"
2,785"
440"
1,674"
11,495"
"
P
=1,966,362*
P
=763,269"
"
"
"
"
"
"
"
"
"
"
!"44"!"
"
"
"
21. General*and*Administrative*Expenses"
"
"
"
"
Salaries"and"wages"
Transportation"and"travel"
Rentals"
Employee's"benefits"
Professional"fees"
Communications"
Light"and"water"
Amortization"of"intangibles"
Taxes"and"licenses"
Credit"card"charges"
Supplies"
Entertainment"
Insurance"
Others"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
2015*
P
=61,053*
19,623*
19,037*
19,008*
16,592*
13,302*
9,633*
8,219*
6,464*
5,649*
3,842*
2,997*
2,031*
509*
27,199*
P
=215,158*
2014"
P
=30,616"
5,046"
10,331"
12,972"
5,843"
4,178"
1,938"
2,955"
8,110"
4,979"
1,915"
2,639"
1,546"
299"
9,724"
P
=103,091"
Others"consist"of"subscription,"research"and"development"and"other"fees."
"
"
22. Nature*of*Expenses*"
"
Depreciation"and"amortization"included"in"the"consolidated"statement"of"income"are"as"follows:"
"
"
"
Note"
2015*
2014"
Included"in"Costs"of"Sales:"
" Depreciation"and"amortization"
" Amortization"of"intangible"assets""
Included"in"General"and"Administrative"
Expenses:"
" Depreciation"and"amortization"
" Amortization"of"intangible"assets"
"
"
"
"
20"
"
"
*
P
= 102,923*
1,559*
"
P
=41,508"
440"
21"
"
"
"
*
16,592*
6,464*
P
= 127,538*
"
5,843"
8,110"
P
=55,901"
"
!"45"!"
"
"
Personnel"costs"included"in"the"consolidated"statement"of"income"are"as"follows:"
"
"
"
"
Included"in"Costs"of"Sales:"
Salaries"and"wages"
Employees’"benefits"
Included"in"General"and"
Administrative"Expenses:"
Salaries"and"wages"
Employees’"benefits"
"
Note"
20"
"
"
21"
"
"
"
2015*
*
P
= 305,946*
53,120*
*
*
61,053*
19,008*
2014"
"
P
=112,296"
18,193"
"
"
30,615"
12,972"
"
P
= 439,127*
P
=174,076"
"
"
23. Retirement*Benefits"
The" Group" has" a" funded" defined" benefit" pension" plan" covering" substantially" all" of" its" employees,"
which"require"contributions"to"be"made"to"separately"administered"fund."
The" following" tables" summarize" the" net" retirement" benefit" cost" recognized" in" the" consolidated"
statement" of" income" and" the" funded" status" and" the" amounts" recognized" in" the" consolidated"
statement"of"financial"position"and"other"information"about"the"plan,"based"on"the"latest"actuarial"
valuation"as"at"December"31,"2014."
"
Components"of"retirement"benefit"costs"recognized"in"the"consolidated"statement"of"income"are"as"
follows:"
"
*Three*Months*Ended*March*31"
*
2015*
2014"
*
P
= 7,618*
P
=12,008"
*
(8,683)*
3,382"
*
(P
= 1,065)*
P
=15,390"
"
"
Current"service"costs"
Net"interest"costs"
"
Retirement"benefit"costs"are"included"under"employees’"benefits"in"the"“General"and"administrative"
expense”"account"in"the"consolidated"statement"of"income."
"
Components"of"net"retirement"assets"recognized"in"the"consolidated"statement"of"financial"position"
are"as"follows:"
*
"
Fair"value"of"plan"assets"
Effect"of"asset"ceiling"
Present"value"of"defined"benefit"obligation"
"
"
"
"
*
*
*
*
March*31,* December"31,"
2015*
2014"
P
=1,114,190*
P
=1,094,743"
419,592*
411,514"
226,819*
221,076"
P
= 467,779"
P
=462,153"
"
"
!"46"!"
"
"
Components" of" net" retirement" liabilities" recognized" in" the" consolidated" statement" of" financial"
position"are"as"follows:"
*
"
Present"value"of"defined"benefit"obligation"
Fair"value"of"plan"assets"
"
"
March*31,* December"31,"
2015*
2014"
P
= 151,574*
P
=145,574"
37,047*
43,687"
P
= 114,527"
P
=101,887"
*
*
*
Changes"in"the"present"value"of"the"defined"benefit"obligation"are"as"follows:"
"
*
"
Retirement"benefit"costs"in"consolidated"
" statement"of"income:"
" Current"service"costs"
" Interest"costs"
" Past"service"cost"–"curtailment"
"
Remeasurement"in"other"comprehensive"income:"
" Actuarial"gain"due"to"experience"adjustments"
" Actuarial"loss"due"to"changes"in"financial"
assumptions"
" Actuarial"gain"due"to"changes"in"demographic"
assumptions"
"
" Benefits"paid"
*
*
*
*
*
*
*
*
*
*
March*31,*
2015*
P
= 366,650*
–*
December"31,"
2014"
P
=116,097"
236,276"
*
7,618*
4,125*
–*
11,743*
*
–*
"
24,213"
9,202"
(5,487)"
27,928"
"
(8,643)"
–*
(1,806)"
–*
–*
–*
P
= 378,393*
336"
(10,113)"
(3,538)"
P
=366,650"
*
*
*
*
Changes"in"the"fair"value"of"plan"assets"are"as"follows:"
"
*
"
Interest"income"
Actual"contributions"
Benefits"paid"
Actual"return"excluding"amount"included""
in"net"interest"cost"
"
*
*
*
*
*
*
*
March*31,*
2015*
P
=1,138,430*
12,807*
–*
–*
–*
December"31,"
2014"
P
=58,186"
5,448"
965,702"
2,000"
(3,538)"
–*
P
=1,151,237*
110,632"
P
=1,138,430"
Effect" of" business" combination" pertains" to" asset" and" liabilities" acquired" as" a" result" of" business"
combination"(see"Note"6)."
"
"
!"47"!"
"
"
The" major" categories" of" plan" assets" as" a" percentage" of" the" fair" value" of" total" plan" assets" are" as"
follows:"
"
"
Investment"securities"
Cash"in"bank"
Receivables"
"
"
"
"
"
"
2015*
92.8%*
5.9%*
1.3%*
100%*
2014"
92.8%"
5.9%"
1.3%"
100.0%"
"
The"fair"value"of"plan"assets"is"equal"to"its"carrying"amount."
The"Plan"is"being"administered"and"managed"by"a"Trustee"bank.""The"Trustee"is"responsible"for"the"
management," investment" and" reinvestment" of" the" plan" asset" in" accordance" with" the" powers"
granted."
The"plan"assets"consist"of"the"following:"
•
Cash"in"bank"which"includes"regular"savings"and"time"deposits;""
•
Investments" in" securities" include" shares" of" the" Parent" Company," various" security" bonds" from"
Bangko"Sentral"ng"Pilipinas"and"equity"securities"and"debt"instruments;"and""
•
Receivables"comprise"of"interest"receivables"from"investment"securities.""
The" overall" expected" rate" of" return" on" plan" assets" is" determined" based" on" the" market" prices"
prevailing"on"that"date,"applicable"to"the"period"over"which"the"obligation"is"to"be"settled."
The"principal"assumptions"used"in"determining"the"defined"benefit"obligation"are"as"follows:"
"
"
"
"
Discount"rate"
Salary"increase"rate"
"
"
"
2015*
2014"
5.9%[6.2%*
5.9%!6.2%"
5.0%*and*8.0%* 5.0%"and"8.0%"
The"sensitivity"analysis"below"has"been"determined"based"on"reasonably"possible"changes"of"each"
significant"assumption"on"the"defined"benefit"obligation"as"at"March"31,"2015,"assuming"if"all"other"
assumptions"were"held"constant:"
"
Increase"(decrease)"
Effect"on"defined"
"
in"basic"points"
benefit"obligation"
Discount"rate"
100"
(P
=14,997)"
"
(100)"
28,737"
Future"salary"increases""
100"
27,569"
"
(100)"
(14,541)"
"
The"Group’s"retirement"plans"are"funded"by"the"Parent"Company"and"its"subsidiaries.""There"is"no"
current"plan"to"contribute"to"the"retirement"fund"in"2015."
"
"
!"48"!"
"
"
Maturity"profile"of"the"undiscounted"benefit"payments"follows:"
"
Plan"Year"
Expected"benefit"payment*
Less"than"one"year"
2,369"
More"than"one"year"to"five"years"
13,976"
More"than"five"years"to"10"years"
38,362"
More"than"10"years"to"15"years"
115,985"
More"than"15"years"to"20"years"
115,985"
More"than"20"years"
1,582,542"
"
The"average"duration"of"the"defined"benefit"obligation"is"11.1"and"25.31"years"as"at"March"31,"2015"
and"December"31,"2014"respectively."
"
"
24. Other*Income"
"
This"account"consists"of"the"following:"
"
"
"
"
"
Delivery"income"
Service"income"and"management"fee"
Interest"income"
Others"
"
"
"
"
"
2015*
P
=13,373*
9,343*
907*
6,255*
2014"
P
=5,692"
6,598"
128"
3,923"
"
"
P
=29,878*
P
=16,341"
Others"consist"mainly"of"sale"of"scrap"materials"and"gain"from"sale"of"property"and"equipment."
"
*
*
*
!"49"!"
"
"
"
25. Income*Taxes*"
"
The" current" provision" for" income" tax" represents" the" Company’s" and" certain" subsidiaries’" regular"
income"tax"and"MCIT."
The" components" of" the" Group’s" recognized" deferred" tax" assets" and" liabilities" represent" the" tax"
effects"of"the"following"temporary"differences:""
"
"
"
"
"
Deferred"tax"assets"on:""
" NOLCO""
" Excess"MCIT"
" Net"retirement"liabilities"
" Accrued"rent"payable"
" Allowance"for"impairment"losses"
" Others""
"
"
"
"
"
"
"
"
"
*
P
= 95,476*
17,890*
8,790*
8,767*
52,726*
4,783*
188,432*
Deferred"tax"liabilities"on:""
" Retirement"benefit"assets"
" Unamortized"debt"issue"costs"
" Others"
"
"
"
"
*
P
=–*
–*
–*
""
Net"deferred"tax"assets"(liabilities)""
"
2015*
Net*Deferred*
Tax*Assets*
2014"
Net*Deferred*
Tax*Liabilities*
Net"Deferred"
Tax"Assets"
Net"Deferred"
Tax"Liabilities"
"
P
= 1,331*
2,633*
–*
2,303*
995*
888*
8,150*
"
P
=95,476"
17,890"
16,760"
8,880"
52,726"
4,873"
196,605"
"
P
=1,331"
2,633"
–"
2,303"
995"
888"
8,150"
*
(P
= 110,293)*
(502)*
(14,580)*
"
P
=–"
–"
–"
"
(P
=110,293)"
(502)"
(646)"
"
–*
(125,375)*
–"
(111,441)"
"
P
= 188,432*
(P
= 117,225)*
P
=196,605"
(P
=103,291)"
No"deferred"income"tax"assets"were"recognized"for"the"following"temporary"differences,"unused"tax"
credits" from" excess" MCIT" and" unused" NOLCO" of" certain" subsidiaries" as" it" is" not" probable" that"
sufficient"taxable"profit"will"be"available"to"allow"the"benefit"of"the"deferred"income"tax"assets"to"be"
utilized"in"the"future."
"
December"31,"
"
March*31,*2015*
2014"
NOLCO"
P
=73,314*
P
=119,844"
Accrued"retirement"liability"
21,553*
540"
Excess"MCIT"
15,241*
3,928"
Accrued"rent"payable"
9,490*
50"
Allowance"for"impairment"losses"
6,685*
1,673"
"
P
= 126,283*
P
=126,035"
As"at"December"31,"2014,"the"details"of"the"Group’s"NOLCO"that"can"be"claimed"as"deduction"from"
future"taxable"profit"during"the"stated"validity"are"as"follows:"
"
Year"Incurred"
2014"
2013"
2012"
2011"
"
"
Amount"
P
="182,212"
173,835"
87,995"
16,401"
P
=460,443"
Applied"
P
=–"
349"
1,159"
1,578"
P
=3,086"
Expired"
P
=–"
–"
–"
14,823"
P
=14,823"
Balance"
P
=182,212"
173,486"
86,836"
–"
P
=442,534"
Expiry"Date"
2017"
2016"
2015"
2014"
"
!"50"!"
"
"
"
Details"of"MCIT"are"as"follows:"
"
Year"Incurred"
2014"
2013"
2012"
2011"
"
Amount"
P
=10,863"
6,962"
6,626"
4,765"
P
=29,216"
Applied"
P
=–"
–"
–"
3,581"
P
=3,581"
Expired"
P
=–"
–"
–"
1,184"
P
=1,184"
Balance"
P
=10,863"
6,962"
6,626"
–"
P
=24,451"
Expiry"Date"
2017"
2016"
2015"
2014"
"
"
"
26. Earnings*Per*Share"
Basic/diluted"earnings"per"share"are"computed"as"follows:"
"
"
"
"
Note"
Net"income"attributable"to"the"equity"
" holders"of"the"Parent"Company:"
Divide"by"weighted"average"number""
of"common"shares"
Basic"earnings"per"share"
Net"income"attributable"to"common"equity"
holders"of"the"Parent"Company"
adjusted"for"the"effect"of"convertible"
notes:(
" Net"income"attributable"to"common"
equity"holders"of"the"Parent"
Company:(
" Interest"on"convertible"notes"!"net""
of"tax(
"
Divide"by"weighted"average"number""
of"common"shares"adjusted"for"the"
effect"of"dilution:(
" Weighted"average"number"of"common"
shares(
" Effect"of"conversion"of"convertible"
notes(
(
Diluted"earnings"per"share(
Three*Months*Ended*March*31*
2015*
2014*
2013"
P
=141,832*
P
=31,754"
P
=41,564"
"
1,087,082*
0.13*
259,211"
0.12"
237,795"
0.17"
"
*
"
"
"
P
=141,832*
31,754"
41,564"
"
"
–*
141,832*
–"
31,754"
1,747"
43,311"
"
*
"
"
"
1,087,082*
259,211"
237,795"
"
"
"
–*
1,087,082*
P
= 0.13*
–"
259,211"
P
=0.12"
21,415"
259,210"
P
=0.17"
"
"
There" have" been" no" transactions" involving" common" shares" or" potential" common" shares" that"
occurred"subsequent"to"the"reporting"date."
"
*
27. Significant*Contracts*and*Agreements"
"
Franchise"Agreements"
The"Group"has"granted"its"franchisees"the"right"to"adopt"and"use"the"restaurant"system"of"several"
brands" in" restaurant" operations" for" a" period" and" under" the" terms" and" conditions" specified" in" the"
franchise"agreements.""The"agreements"provide"for"an"initial"franchise"fee"payable"upon"execution"
of"the"agreement"and"monthly"royalty"fees."
"
"
!"51"!"
"
"
The" following" table" presents" the" royalty" fee" rates" and" the" aggregate" amounts" of" royalty" fees"
recognized"in"each"brand:"
"
"
"
Royalty"Fee"Rates*"
2015*
2014"
2013"
9%"
5%"
8%!9%"
10%"
3%!6%"
P
= 3.6*million*
–*
1.2*million*
0.9*million*
0.9*million*
P
=14.5"million"
–"
4.8"million"
3.6"million"
3.7"million"
P
=13.6"million"
–"
5.1"million"
4.4"million"
3.3"million"
Pancake"House"
Max’s"
Dencio’s"
Teriyaki"Boy"
Yellow"Cab"
*as(a(percentage(of(Net(Sales(of(franchised(store(outlets"
Operating"Lease"Agreements"
Group(as(Lessee.((The"Group"leases"its"restaurant"and"commissary"premises"and"offices"it"occupies"
with" various" lessors" for" periods" ranging" from" 1" to" 15" years," renewable" upon" mutual" agreement"
between" the" Group" and" its" lessors." " The" lease" agreements" provide" for" a" fixed" rental" and/or" a"
monthly"rental"based"on"a"certain"percentage"of"actual"sales"or"minimum"monthly"gross"sales."
Security" deposits" on" lease" contracts" amounted" to" P
=320.6" million" as" at""
March"31,"2015"and"December"31,"2014,"respectively,"which"is"equivalent"to"one"to"three"months"
rental." " Rental" expense" charged" to" costs" of" sales" and" general" and" administrative" expenses"
amounted" to" P
=211.7" million" in" 2015" and" 2014," respectively" (P
=204.6" million" in"
2013)" (see" Notes" 19" and" 20)." " Accrued" rent" payable" amounted" to" P
=36.9" million" and""
P
=37.3" million" as" at" March" 31," 2015" and" December" 31," 2014," respectively," which" represents" the"
straight!line"adjustment"on"rent."
The"future"minimum"rentals"payable"under"these"operating"leases"are"as"follows:"
"
"
2015*
2014"
2013"
Within"one"year"
More"than"one"year"bus"less"than"five"
"
years"
More"than"five"years"
P
= 144,999*
P
=144,999"
P
=134,472"
269,461*
65,837*
269,461"
65,837"
266,830"
65,837"
"
P
= 480,297*
P
=480,297"
P
=467,139"
"
"
Group( as( Lessor.( ( The" Parent" Company" and" YCFC" entered" into" sublease" agreements" with" third"
parties"for"periods"ranging"from"one"to"10"years,"renewable"upon"mutual"agreement"between"the"
Parent"Company/YCFC"and"its"lessees.""The"lease"agreements"provide"for"a"fixed"monthly"rental"or"
monthly"rentals"subject"to"an"annual"escalation"rate"of"5%"beginning"on"the"second"year"from"the"
start" of" the" lease" period." " Rental" income" attributable" to" the" Group" amounted" to""
P
=9.3"million"and"P
=8.7"million"in"2015"and"2014,"respectively."Rent"receivable"arising"from"straight!
line"adjustment"amounted"to"P
=1.1"million"as"at"March"31,"2015"and"December"31,"2014."
"
"
!"52"!"
"
"
The"future"minimum"rentals"receivable"under"these"operating"leases"are"as"follows:"
"
"
Within"one"year"
More"than"one"year"bus"less"than"five"
"
years"
"
2015*
P
=*
2014"
P
=19,378"
2013"
P
=19,378"
*
P
=0*
18,723"
P
=38,101"
18,723"
P
=38,101"
"
"
28. Financial*Instruments"
Financial"Risk"Management"Objectives"and"Policies"
The" Group’s" financial" instruments" consist" of" cash," trade" and" other" receivables," noncurrent"
receivables" (included" under" “Other" noncurrent" assets”)," trade" and" other" payables," loans" payable,"
mortgage"payable"and"long!term"debt."
The" BOD" is" mainly" responsible" for" the" overall" risk" management" approach" and" for" the" approval" of"
risk"strategies"and"principles"of"the"Group.""It"also"has"the"overall"responsibility"for"the"development"
of"risk"strategies,"principles,"frameworks,"policies"and"limits.""It"establishes"a"forum"for"discussion"of"
the"Group’s"approach"to"risk"issues"in"order"to"make"relevant"decisions."
The" main" risks" arising" from" the" use" of" financial" instruments" are" liquidity" risk," credit" risk," foreign"
currency"risk"and"interest"rate"risk.""The"BOD"reviews"and"approves"the"policies"for"managing"each"
of"these"risks"which"are"summarized"below."
Liquidity( Risk.( ( Liquidity" risk" is" the" risk" that" the" Group" will" not" be" able" to" meet" its" financial"
obligations"as"they"fall"due.""The"Group’s"objectives"to"managing"liquidity"risk"is"to"ensure,"as"far"as"
possible," that" it" will" always" have" sufficient" liquidity" to" meet" its" liabilities" when" due," under" both"
normal"and"stressed"conditions,"without"incurring"unacceptable"losses"or"risking"adverse"effect"to"
the"Group’s"credit"standing."
The" Group" seeks" to" manage" its" liquid" funds" through" cash" planning" on" a" weekly" basis." " The" Group"
uses" historical" figures" and" experiences" and" forecasts" from" its" collections" and" disbursements." " As"
part" of" its" liquidity" risk" management," the" Group" regularly" evaluates" its" projected" and" actual" cash"
flows.""It"also"continuously"assesses"conditions"in"the"financial"markets"for"opportunities"to"pursue"
fund"raising"activities."
The"Group’s"objective"is"to"maintain"a"balance"between"continuity"of"funding"and"flexibility"through"
the"use"of"bank"loans,"loans"from"related"parties"and"other"long!term"debts.""The"Group"considers"
its"available"funds"and"its"liquidity"in"managing"its"long!term"financial"requirements.""For"its"short!
term" funding," the" Group’s" policy" is" to" ensure" that" there" are" sufficient" operating" inflows" to" match"
repayments"of"loans"payable."
"
As" at" December" 31," 2014" and" 2013," the" financial" assets" held" by" the" Group" for" liquidity" purposes"
consist"of"cash"and"trade"and"other"receivables."
"
"
!"53"!"
"
"
The" table" below" summarizes" the" maturity" profile" of" the" Group’s" financial" liabilities" as" at""
March"31,"2015"and"2014"based"on"contractual"undiscounted"payments."
"
"
"
Trade"and"other"payables*"
Loans"payable"
Mortgage"payable"
Long!term"debt"
Others"
"
"
On*demand"
P
= 1,007,641*
–*
–*
–*
–*
1,007,641*
Less*than"
3*months"
P
= 644,890*
–*
–*
–*
–*
644,890*
2015*
3*to*12"
months"
P
= 362,751*
2,099,149*
5,241*
73,697*
–*
2,540,838*
1*to*5"
years"
P
=–*
–*
–*
1,212,790*
9,349*
1,222,139*
"
Total"
P
= 2,015,282*
2,099,149*
5,241*
1,286,487*
9,349*
5,415,508*
"
"
"
"
On"demand"
Trade"and"other"payables*"
P
=401,798"
Loans"payable"
1,239,460"
Mortgage"payable"
4,195"
"
P
=1,645,453"
*(Excluding(statutory(payables(and(taxes."
Less"than"
3"months"
P
=207,547"
–"
297"
P
=207,844"
2014"
3"to"12"
months"
P
=91,508"
–"
495"
P
=92,003"
1"to"5"
years"
P
=–"
–"
1,736"
P
=1,736"
"
Total"
P
=700,853"
1,239,460"
6,723"
P
=1,947,036"
"
Credit(Risk.((Credit"risk"is"the"risk"of"financial"loss"to"the"Group"if"a"customer"or"counterparty"to"a"
financial"instrument"fails"to"meet"its"contractual"obligations."
Concentrations"arise"when"a"number"of"counterparties"are"engaged"in"similar"business"activities,"or"
activities"in"the"same"geographic"region,"or"have"similar"economic"features"that"would"cause"their"
ability"to"meet"contractual"obligations"to"be"similarly"affected"by"changes"in"economic,"political"or"
other" conditions." " Concentrations" indicate" the" relative" sensitivity" of" the" Group’s" performance" to"
developments"affecting"a"particular"industry."
"
The"Group"has"no"significant"concentrations"of"credit"risk"with"any"single"counterparty"or"group"of"
counterparties" having" similar" characteristics." Since" the" Group" trades" only" on" a" cash" or" credit" card"
basis" and" with" recognized" third" parties," there" is" no" requirement" for" collateral." " It" is" the" Group’s"
policy" that" all" customers" who" wish" to" trade" on" credit" terms" are" subject" to" credit" verification"
procedures.""In"addition,"receivable"balances"are"monitored"on"an"ongoing"basis"with"the"result"that"
Group’s"exposure"to"bad"debts"is"not"significant."
"
"
!"54"!"
"
"
The" Group’s" exposure" to" credit" risk" on" trade" and" other" receivables" arise" from" default" of" the"
counterparty,"with"a"maximum"exposure"equal"to"the"carrying"amounts"of"these"receivables.""Credit"
risk"from"cash"is"mitigated"by"transacting"only"with"reputable"banks"duly"approved"by"management."
The"tables"below"summarize"the"aging"analysis"of"the"Group’s"financial"assets:"
"
"
"
"
Cash"with"banks"
Trade"and"other"
receivables:"
" Trade"
" Nontrade"
" Royalties"
" Officers"and"employees"
" Credit"card"receivable"
" Receivable"from"sale"of""
asset"group"
" Receivable"from"
franchisees"
" Receivable"from"
disposal"of""
interest"
"
March*31,*2015*
*
*
Past*due*but*not*Impaired*
30*days*
30[60*days*
60[90*days*
P
=–*
P
=–*
P
=–*
*
*
Total*
P
= 848,497*
Neither*Past*
Due*nor*
Impaired*
P
= 848,497*
*
*
374,064*
254,814*
41,138*
34,896*
11,181*
*
152,848*
104,894*
19,982*
22,875*
11,181*
*
30,617*
21,011*
4,549*
716*
*
*
8,191*
5,622*
4,739*
1,220*
*
51,922**
*
*
86,857*
42,182*
146,571**
6,989*
P
= 1,856,929*
*
6,989*
P
= 1,209,448*
*
*
Total*
P
= 848,497*
*
372,991*
209,854*
33,619*
45,167*
11,885*
Neither*Past*
Due*nor*
Impaired*
P
= 848,497*
*
152,186*
85,624*
16,313*
29,792*
11,885*
52,922*
73,946*
57,919*
–*
35,882*
25,280*
–*
8,170*
4,078*
–*
8,511*
3,752*
143,571*
163*
P
=1,850,534*
–*
163*
P
=1,205,623*
–*
–*
P
=64,529*
–*
–*
P
=30,466*
*
Over*90*days*
P
=–*
Impaired*
Financial*
Assets*
P
=–*
*
9,399*
6,450*
3,892*
3,251*
*
*
46,802*
63,828*
7,789*
5,903*
*
*
126,208*
53,009*
187*
932*
*
*
*
51,922*
*
9,604*
10,005*
8,215*
16,443*
408*
*
*
P
=66,497*
*
*
P
=29,777*
*
*
P
=31,207*
146,571*
*
P
= 339,258*
*
*
P
= 180,744*
*
Over*90*days*
P
=–*
*
46,599*
52,102*
6,359*
7,688*
–*
Impaired*
Financial*
Assets*
P
=–*
*
126,208*
45,123*
187*
932*
–*
–*
6,988*
5,570*
52,922*
13,987*
11,353*
–*
408*
7,886*
–*
–*
P
=34,592*
143,571*
–*
P
= 334,581*
–*
–*
P
= 180,744*
"
"
"
"
"
Cash"with"banks"
Trade"and"other"receivables:"
" Trade"
" Nontrade"
" Royalties"
" Officers"and"employees"
" Credit"card"receivable"
" Receivable"from"sale"of""
asset"group"
" Receivable"from"franchisees"
" Other"receivables"
" Receivable"from"disposal"of""
interest"
"
December*31,*2014*
*
*
Past*due*but*not*Impaired*
30*days*
30[60*days*
60[90*days*
P
=–*
P
=–*
P
=–*
*
*
*
30,484*
8,156*
9,358*
17,151*
4,589*
5,265*
3,714*
3,869*
3,177*
932*
1,589*
4,234*
–*
–*
–*
*
The"Group"has"assessed"the"credit"quality"of"its"financial"assets"as"follows:"
•
Cash"is"deposited"in"reputable"banks,"which"have"a"low"probability"of"insolvency;"
•
Trade"and"royalty"receivables"are"generally"settled"on"due"dates"based"on"historical"experience;"
•
Advances"to"officers"and"employees"are"either"collected"through"salary"deduction"or"secured"by"
cash"bonds;""
•
Other"receivables"are"generally"settled"several"days"after"due"date;"and""
•
Noncurrent"receivables"are"settled"based"on"the"contractual"payments"received"on"a"monthly"
basis."(
"
"
!"55"!"
"
"
Foreign( Currency( Risk.( ( The" Group’s" policy" is" to" maintain" foreign" currency" exposure" within"
acceptable" limits" and" within" existing" regulatory" guidelines." " The" Group" believes" that" its" profile" of"
foreign"currency"exposure"on"its"assets"and"liabilities"is"within"conservative"limits"based"on"the"type"
of"business"and"industry"in"which"the"Group"is"engaged.""The"Group’s"exposure"to"foreign"currency"
exchange"risk"as"at"December"31,"2014"and"2013"pertains"to"the"financial"position"and"performance"
of"PHII"and"PHIM"which"were"presented"in"$"and"Malaysian"Ringgit"(MYR),"respectively."
The" Group’s" $!denominated" and" MYR!denominated" financial" assets" and" liabilities" as" at" December"
31,"2014"and"2013"are"considered"immaterial"in"relation"to"the"consolidated"financial"statements.""
Thus,"management"believes"that"the"Group’s"exposure"to"foreign"currency"risk"is"insignificant."
Interest( Rate( Risk.( ( The" Group’s" exposure" to" market" risk" for" changes" in" interest" rates" relates"
primarily" to" its" loans" payable," long!term" debt" and" mortgage" payable." " To" manage" this" risk," the"
Group"determine"the"mix"of"its"debt"portfolio"as"a"function"of"the"level"of"current"interest"rates,"the"
required"tenor"of"the"loan"and"the"general"use"of"the"proceeds"of"its"fund"raising"activities."
The"following"table"demonstrates"the"sensitivity"to"a"reasonable"possible"change"in"interest"rates,"
with"all"other"variables"held"constant,"of"the"Group’s"income"before"tax:"
"
"
"
"
"
December"31,"2014"
"
"
December"31,"2013"
"
"
Increase"
(decrease)"in"
basis"points"
+50*
[50*
*
50"
!50"
"
"
Effect"on"income"
before"tax"
16,901*
(16,901)*
*
5,491"
(5,491)"
"
Fair"Value"Information"and"Categories"of"Financial"Instruments"
The"carrying"values"and"fair"values"of"the"Group’s"financial"assets"and"liabilities"as"at"December"31,"
2014"and"2013"approximate"their"fair"values."""
The" following" methods" and" assumptions" were" used" to" estimate" the" fair" value" of" each" class" of"
financial"instrument"for"which"it"is"practicable"to"estimate"such"value:"
Cash( in( Bank( and( Equivalents,( Trade( and( Other( Receivables,( Trade( and( Other( Payables,( Loans(
Payable(and(Mortgage(Payable.""The"carrying"amounts"of"cash"in"bank"and"equivalents,"trade"and"
other"receivables"and"trade"and"other"payables,"loans"payable"and"mortgage"payable"approximate"
their"fair"values"due"to"their"short!term"maturities."
Noncurrent( Receivables.( ( The" fair" value" of" noncurrent" receivables" was" based" on" the" discounted"
value"of"future"cash"flows"using"the"applicable"risk!free"rates"for"similar"types"of"accounts"adjusted"
for"credit"risk."
"
LongJterm(Debt.((The"fair"value"of"the"long!term"debt"was"based"on"the"discounted"value"of"future"
cash"flows"using"the"applicable"rate"of"3.78%"and"4.74%"in"2014"and"2013,"respectively."
"
!"56"!"
"
"
"
29. Capital*Management"
The"Group"considers"the"equity"attributable"to"the"Parent"Company"presented"in"the"consolidated"
statement" of" financial" position" as" its" capital." " The" primary" objective" of" the" Group’s" capital"
management"is"to"ensure"that"it"maintains"a"strong"credit"rating"and"healthy"capital"ratios"in"order"
to"support"its"business"and"maximize"shareholder"value."
The" Group" manages" its" capital" structure" and" makes" adjustments" to" it," in" light" of" changes" in"
economic" conditions." " To" maintain" or" adjust" the" capital" structure," the" Group" may" adjust" the"
dividend"payment"to"shareholders,"return"capital"to"stockholders"or"issue"new"shares.""No"changes"
were"made"in"the"objectives,"policies"or"processes"in"2014"and"2013."
The"Group"monitors"capital"using"the"debt!to!equity"ratio,"which"is"total"liabilities"(excluding"equity"
in"net"loss"over"cost"of"investment"in"joint"venture)"divided"by"the"total"equity.""The"Group’s"policy"
is"to"maintain"debt!to!equity"ratio"at"a"level"not"greater"than"2:1.""The"Group"determines"total"debt"
as"the"sum"of"its"liabilities."
"
Debt!to!equity"ratios"of"the"Group"are"as"follows:"
"
As*at*March*31,* As"at"December"
"
2015*
31,"2014"
Total"liabilities"
P
=5,766,200*
P
=5,868,323"
Divide"by"total"equity"
4,166,790*
4,032,871"
Debt!to!equity"ratio"
1.38*
1.46"
"
*
30. Operating*Segment*Information"
"
For"management"purposes,"the"Group"is"organized"into"operating"segments"based"on"trade"names.""
However," due" to" the" similarity" in" the" economic" characteristics," such" segments" have" been"
aggregated"into"a"single"operating"segment"for"external"reporting"purposes"(see"Note"7)."
"
Restaurant" sales," commissary" sales" and" franchise" and" royalty" fees" reflected" in" the" consolidated"
statement" of" income" are" mainly" from" external" customers" and" franchisees" within" the" Philippines,"
which" is" the" Group’s" domicile" and" primary" place" of" operations." " Additionally," the" Group’s"
noncurrent"assets"are"also"primarily"acquired,"located"and"used"within"the"Philippines."
"
Restaurant"sales"are"attributable"to"revenues"from"the"general"public,"which"are"generated"through"
the"Group’s"store"outlets."Commissary"sales"and"franchise"and"royalty"fees"are"derived"from"various"
franchisees" of" the" Group’s" trade" names." " Consequently," the" Group" has" no" concentrations" of"
revenues"from"a"single"customer"or"franchisee"for"the"in"2014,"2013"and"2012."
"
The"Group’s"international"operations"of"the"Pancake"House"brand"(through"PHII)"are"considered"to"
be" immaterial" in"relation" to" the" consolidated" financial" statements." " Total" assets" and" revenues" are"
6.65%"and"1.14%"in"2014"and"4.12%"and"0.02%"in"2013,"respectively,"of"the"consolidated"assets"and"
revenues"of"the"Group."
"
"
*
*
!"57"!"
"
"
"
31. *Other*Matters*"
"
a. Contingencies""
"
The"Parent"Company"and"PHVI"were"named"defendants"in"a"civil"case"filed"in"October"2002"by"
Kenmor"for"the"collection"of"a"sum"of"money"and"damages."""
On" September" 20," 2013," the" Parent" Company," PHVI" and" Kenmor" Corporation" have" agreed" to"
amicably"settle"the"case.""On"the"same"date,"the"Parent"Company"paid"the"agreed"amount"to"
Kenmor"Corporation"to"settle"all"of"its"claims."
"
b. On" April" 27," 2015," the" BOD" of" the" Parent" Company" approved" the" merger" of" the" following"
wholly!owned"subsidiaries:"
"
1. Max’s"Kitchen,"Inc."
2. Max’s"Baclaran,"Inc."
3. Chicken’s"R"Us,"Inc."
4. Max’s"(Ermita),"Inc."
5. Max’s"Makati,"Inc."
6. Max’s"Food"Services,"Inc."
7. Max’s"Franchising,"Inc."
8. Max’s"Circle,"Inc"
9. Max’s"SM"Marikina,"Inc."
10. Square"Top,"Inc."
11. Max’s"Express"Restaurant,"Inc."
"
Max’s" Kitchen," Inc." will" be" the" surviving" company" in" the" same" merger" and" will" be" renamed"
Max’s" Restaurant," Inc." " As" at" May" 15," 2015," the" application" for" the" merger" is" still" pending"
approval"by"the"SEC."
"

the PDF file - Maxs Group Inc. Investor Relations

Transcription

Similar documents

Teleplan_GB_2006_Final

Teleplan Annual Report 2007 from website

Punch-a

2013 annual report

mondragon - MyMat Solutions

Your Tomorrow Starts Here

EQUITY - RBFCU

Medsin at PHAST