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Max’s Group, Inc. (formerly Pancake House, Inc.) and
Subsidiaries
Consolidated Financial Statements
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SEC Registration Number
A 2 0 0 0 - 0 3 0 0 8
Company Name
M A X ‘ S G R O U P , I N C . ( f o r m e r l y P a n c a
k e H o u s e , I n c . ) A N D 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 H o u s e C e n t e r , 2 2 5 9 P a s o n g
T a m o E x t e n s i o n , M a k a t i C i t y
Form Type Department requiring the report Secondary License Type, If Applicable
A A C F S C R M D Not Applicable
COVER SHEETfor
AUDITED FINANCIAL STATEMENTS
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INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors
Max’s Group, Inc. and SubsidiariesPancake 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. (formerlyPancake 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
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. 4782November 12, 2012, valid until December 31, 2015
SEC Accreditation No. 0207-FR-1 (Group A)September 6, 2013, valid until September 5, 2016
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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.
REYES TACANDONG & CO.
BELINDA B. FERNANDO
PartnerCPA Certificate No. 81207
T Id tifi ti N 102 086 538 000
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REPORT OF INDEPENDENT AUDITOR
TO ACCOMPANY FINANCIAL STATEMENTS FOR FILING WITH THE
SECURITIES AND EXCHANGE COMMISSION
The Stockholders and the Board of Directors
Max’s Group, Inc. and Subsidiaries
Pancake House Center
2259 Pasong Tamo Ext.
Makati City
We have audited the accompanying consolidated financial statements of Max’s Group, Inc. (formerlyPancake 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.
REYES TACANDONG & CO
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. 4782November 12, 2012, valid until December 31, 2015
SEC Accreditation No. 0207-FR-1 (Group A)September 6, 2013, valid until September 5, 2016
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MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONDECEMBER 31, 2014
(With Comparative Figures for 2013)
(Amounts in Thousands)
Note 2014 2013
ASSETS
Current Assets
Cash P=956,522 P=341,682
Trade and other receivables 8 677,559 441,848
Inventories 9 364,286 96,883
Prepaid expenses and other current assets 10 363,473 70,708
Total Current Assets 2,361,840 951,121
Noncurrent Assets
Property and equipment 11 1,712,220 470,410
Intangible assets 12 4,125,644 1,207,987
Investment properties 11 433,046 –
Net retirement plan assets 24 462,153 5,060
Net deferred income tax assets 26 196,605 110,391
Security deposits on lease contracts 28 320,567 139,944
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Note 2014 2013
Noncurrent Liabilities
Long-term debt 16 P=1,212,790 P= –
Mortgage payable 17 – 1,500
Net retirement liabilities 24 101,887 62,971
Accrued rent payable 28 37,328 31,633
Net deferred income tax liabilities 26 103,291Provision for share in equity in net losses of a joint
venture 13 6,741 26,591
Other noncurrent liabilities 9,557 –
Total Noncurrent Liabilities 1,471,594 122,695
Equity
Capital stock 19 1,087,082 237,795
Additional paid-in capital 19 5,353,289 176,806 Retained earnings 19 114,102 401,680
Notes for conversion to equity 18 – 120,386
Other comprehensive income (loss) 32,350 (12,114)
6,586,823 924,553
Shares held by subsidiaries 19 (2,610,013) –
Noncontrolling interests 56,061 100,876
Total Equity 4,032,871 1,025,429
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MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOMEFOR THE YEAR ENDED DECEMBER 31, 2014
(With Comparative Figures for 2013 and 2012)
[Amounts in Thousands, except for earnings (loss) per share]
2014* 2013 2012
Note
Max’s Group, Inc.
(formerly Pancake
House, Inc.)
(1 year)
Max's Entities
(2 months)
Eliminating
Entries
Combined
Amounts
REVENUES
Restaurant sales P=3,243,904 P=947,406 P= – P=4,191,310 P=3,103,219 P=2,831,596
Commissary sales 322,145 211,656 (15,758) 518,043 503,473 467,107
Franchise and royalty fees 28 127,871 28,574 – 156,445 144,859 131,997
3,693,920 1,187,636 (15,758) 4,865,798 3,751,551 3,430,700
COSTS OF SALES 21 3,099,347 862,903 (15,758) 3,946,492 3,067,219 2,799,748
GROSS PROFIT 594,573 324,733 – 919,306 684,332 630,952
GENERAL AND ADMINISTRATIVE EXPENSES 22 (498,800) (213,883) – (712,683) (436,762) (399,329)
SALES AND MARKETING EXPENSES (172,575) (30,646) – (203,221) (131,386) (62,885)
FINANCE COSTS 15 (39,499) (25,254) – (64,753) (62,580) (61,331)
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
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MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2014
(With Comparative Figures for 2013 and 2012)
(Amounts in Thousands)
Note 2014 2013 2012
NET INCOME (LOSS) (P=66,202) P=79,274 P=149,618
OTHER COMPREHENSIVE INCOME
Item to be reclassified to profit or loss
Income (loss) from exchange differences on
translation of foreign operations 5,057 (3,553) 1,466
Item not to be reclassified to profit or loss Actuarial gains (losses) on retirement benefit
plan 24 54,020 15,694 (1,134)
Income tax effect (16,206) (4,708) 340
42,871 7,433 672
TOTAL COMPREHENSIVE INCOME (LOSS) (P=23,331) P=86,707 P=150,290
TOTAL COMPREHENSIVE INCOME (LOSS)
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MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2014
(With Comparative Figures for 2013 and 2012)
(Amounts in Thousands)
Note 2014 2013 2012
CAPITAL STOCK 19
Balance at beginning of year P=237,795 P=237,795 P=237,795
Conversion of notes to equity 21,416 – –
Issuance of shares 568,660 – –
Stock dividends 259,211 – –
1,087,082 237,795 237,795
ADDITIONAL PAID-IN CAPITAL 19
Balance at beginning of year 176,806 176,806 176,806
Conversion of notes to equity 110,856 – –
Share swap transaction 3,434,844 – –
Issuance of new shares 426,784 – –
Sale on follow-on offering 1,204,029
Balance at end of year 5,353,289 176,806 176,806
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Note 2014 2013 2012
Not to be reclassified to profit or loss -
Remeasurement adjustments on net
retirement liabilities, net of deferred tax
Balance at beginning of year (P=5,464) (P=16,068) (P=15,284)
Remeasurement of net retirement liabilities
and net retirement plan assets, net of
deferred tax 39,407 10,604 (784)Balance at end of year 33,943 (5,464) (16,068)
32,350 (12,114) (19,165)
6,586,823 924,553 880,961
SHARES HELD BY SUBSIDIARIES - at cost 19
Acquisition of Parent Company shares by the
10 Max’s Entities (4,093,766) – – Sale on follow-on offering 1,483,753 – –
(2,610,013) – –
NONCONTROLLING INTERESTS
Balance at beginning of year 100,876 144,363 147,792
Effect of disposal on investment of subsidiaries (315) – –
Total comprehensive income (37,835) (25,941) (1,810)
( )
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Note 2014 2013 2012
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property and equipment 11 (P=356,163) (P=259,338) (P=239,779)
Intangible assets 12 (12,617) (7,340) (12,794)
Investment properties 104 – –
Subsidiaries, net of cash acquired 208,458 – (88,238)Decrease (increase) in:
Security deposits on lease contracts (123,392) (43,577) (29,850)
Other noncurrent assets 118,214 10,487 2,890
Net cash flows used in investing activities (165,396) (299,768) (367,771)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid 19 – (69,056) (34,932)
Net proceeds from (payments of):Loans payable (3,356,304) (1,500) (20,010)
Long-term debt 334,383 (4,000) (4,000)
Mortgage payable (1,195) 5,557 2,082
Convertible notes – (1,049) (1,571)
Net proceeds from issuance of shares 3,153,726 – –
Decrease in noncurrent liabilities (5,481)
Returns to noncontrolling interests (6,639) (17,163) (2,385)
Net cash flows provided by (used in) financing
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MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(With Comparative Information for 2013 and 2012)
(Amounts in Thousands)
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”, “KrispyKreme”, “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
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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’SGROUP, 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.
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Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-
Financial 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 toconsolidated 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:
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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 arrangementin 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
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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 aninvestee, 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
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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:
Percentage of
Nature of Effective Ownership
Company Name Business 2014 2013 2012
Boulangerie Francaise, Inc. (BFI) Restaurant 100 100 100
YCPC Subic, Inc. (formerly DFSI Subic, Inc.) Restaurant 100 100 100Golden B.E.R.R.D. Grill, Inc.
a Restaurant 100 100 100
Pancake House International, Inc. (PHII)
Holding
Company 100 100 100
Teriyaki Boy International - Inc. Franchising 100 100 100
Yellow Cab Food Co. International - Inc. Franchising 100 100 100
Pancake House, International
Malaysia Sdn Bhd (PHIM) Restaurant 100 100 100
Holding
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Percentage of
Nature of Effective Ownership
Company Name Business 2014 2013 2012
Subsidiaries effective November 7, 2014 (see Note 6):
RooM Ventures Corp. Real Estate 100 – –
No Bia, Inc. Commissary 100 – –
MGOC Holdings, Inc.
Investment
Holding 100 – – Max’s SM Marikina, Inc. Restaurant 100 – –
Chicken’s R Us, Inc. Restaurant 100 – –
The Real American Doughnut Company, Inc. Bakery 100 – –
Max’s Franchising, Inc. Franchising 100 – –
Trota Gimenez Realty Corporation Real Estate 100 – –
Alpha (Global) Max Group Limited (Alpha Max) Franchising 100 – –
Max’s Baclaran, Inc. Restaurant 100 – –
Max’s Kitchen, Inc. Restaurant 100 – –
Ad Circles, Inc.
Advertising
Support 100 – –
Square Top, Inc. Commissary 100 – –
Fresh Healthy Juice Boosters, Inc. Restaurant 100 – –
Max’s Bakeshop, Inc. Bakery 100 – –
Max’s Circle, Inc. Restaurant 100 – –
Max’s Ermita, Inc. Restaurant 100 – –
Max’s Express Restaurants, Inc. Restaurant 100 – –
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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 thecontingent 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, theGroup 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.
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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 ofthe 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 toequity, 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, HTMinvestments and AFS financial assets. The Group’s financial assets are of the nature of loans andreceivables.
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.
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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 anorderly 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.
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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 thedifference 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.
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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, whethersignificant 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 theamount 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
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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 forspoilage, 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
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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 Number of Years
Building 10-25
Leasehold improvements 5 or term of the lease,
whichever is shorter
Store and kitchen equipment 3-8
Furniture, fixtures and equipment 3-5
Transportation equipment 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.
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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. Theamortization 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 straight-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
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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 currentVAT 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.
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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 longerhas 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
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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 inproportion 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
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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.
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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 fairvalue 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.
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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 tothe 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
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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 consolidatedstatement 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.
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• 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
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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 determinedby 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
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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
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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
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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
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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=1,712.2 million as at
December 31, 2014 (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=1,208.0 million as at
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.
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Estimating Realizability of Deferred Income Tax Assets. The Group reviews the carrying amountsof 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=182.0 million as at December 31, 2014 (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
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Goodwill recognized is a result of the expected synergies from combined operations of theacquirees 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 P=8,020,938
Commissary sales 1,257,731
Franchise and royalty fees 267,492
9,546,161
Costs of sales 7,720,749
Gross profit 1,825,412
General and administrative expenses (1,371,002)
Sales and marketing expenses (405 470)
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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
December 31, 2014 (P=116.0 million and P=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:
2014 2013 2012
Revenue P=454,089 P=517,144 P=566,359
Cost of sales (442,316) (453,602) (472,072)
General and administrative expenses (100,972) (81,170) (69,845)
Sales and marketing expense (9,812) (16,842) (4,414)
Other income 3,918 3,561 4,606
Income (loss) before tax (95 093) (30 909) 24 634
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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 HPI
Carrying value of net assets (liabilities) (P=1,565) P=1,442
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8. Trade and Other Receivables
This account consists of:
2014 2013
Trade P=372,991 P=167,128
Nontrade 209,854 23,345
Officers and employees 45,167 15,605
Royalties 33,619 25,344Credit card receivable 11,885 6,776
Receivable from:
Franchisees 73,946 73,805
Sale of asset group 52,922 52,922
Sale of property and equipment – 2,544
Due from ICF-CCE, Inc. – 45,371
Others 57,919 51,157
858,303 463,997Less allowance for impairment losses 180,744 22,149
P=677,559 P=441,848
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
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Movements of allowance for impairment loss are as follows:
Note 2014 2013
Balance at beginning of year P=22,149 P=22,218
Effect of:
Business combination 6 12,692 –
Disposal of investments in subsidiaries 7 (73) –
Provisions 21 150,610 4
Write-off (4,634) – Recoveries – (73)
Balance at end of year P=180,744 P=22,149
9. Inventories
This account consists of the following inventories which are carried at cost:
2014 2013
Food and beverage P=312,415 P=74,637
Store and kitchen supplies 51,871 20,347
Operating equipment for sale – 1,899
P=364,286 P=96,883
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11. Property and Equipment and Investment Properties
Movements in the property and equipment follows:
2014
Store and Furniture,
Leasehold Kitchen Fixtures and Transportation Construction
Land Building Improvements Equipment Equipment Equipment In-Progress Total
Cost
Balances at beginning of year P= – P= – P=774,501 P=640,047 P=131,363 P=66,789 P=8,510 P=1,621,210
Effects of:
Business combination 137,303 80,618 1,379,889 800,167 478,727 184,064 132,928 3,193,696
Disposal of investment in
subsidiaries – – (11,044) (12,454) – – – (23,498)
Additions – – 167,203 78,275 25,413 18,113 67,159 356,163
Transfer – – 3,169 (2,120) – – (1,049) – Disposals – – (61,257) (88,877) (19,863) (2,097) – (172,094)
Balances at end of year 137,303 80,618 2,252,461 1,415,038 615,640 266,869 207,548 4,975,477
Accumulated Depreciation and
Amortization
Balances at beginning of year – – 517,261 486,961 98,059 48,519 – 1,150,800
Effects of:
Business combination – 43,059 896,254 598,455 371,345 121,967 – 2,031,080
Disposal of investment in
subsidiaries – – (4,920) (12,454) – – – (17,374)
Depreciation and amortization – 887 123,112 87,030 46,710 13,106 – 270,845
Disposals – – (61,257) (88,877) (19,863) (2,097) – (172,094)
Balances at end of year – 43,946 1,470,450 1,071,115 496,251 181,495 – 3,263,257Net Book Values P=137,303 P=36,672 P=782,011 P=343,923 P=119,389 P=85,374 P=207,548 P=1,712,220
Cost of fully depreciated property and equipment that are still used in operations amounted to P=658.9 million as at December 31, 2014 (P=443.8 million as at
December 31, 2013).
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2013
Furniture,
Leasehold Store and Kitchen Fixtures and Transportation Construction
Improvements Equipment Equipment Equipment In-Progress Total
Cost
Balances at beginning of year P=683,779 P=571,431 P=107,209 P=56,265 P=5,063 P=1,423,747
Additions 119,319 89,941 26,013 15,326 8,739 259,338
Disposals (33,889) (21,325) (1,859) (4,802) – (61,875)
Reclassifications 5,292 – – – (5,292) –
Balances at end of year 774,501 640,047 131,363 66,789 8,510 1,621,210
Accumulated Depreciation and
Amortization
Balances at beginning of year 447,037 433,186 84,449 34,285 – 998,957
Depreciation and amortization 104,112 66,385 15,231 17,385 – 203,113
Disposals (33,888) (12,610) (1,621) (3,151) – (51,270)
Balances at end of year 517,261 486,961 98,059 48,519 – 1,150,800
Net Book Values P=257,240 P=153,086 P=33,304 P=18,270 P=8,510 P=470,410
Movements in the investment properties for 2014 follow:
Building and Condominium
Land Improvements Units Total
Cost
Effect of consolidation P=432,194 P=7,226 P=32,368 P=471,788
Disposals – – (26,430) (26,430)
Balances at end of year 432,194 7,226 5,938 445,358
Accumulated Depreciation and Amortization
Effect of consolidation – 5,748 26,797 32,545Depreciation and amortization – 626 474 1,100
Disposals – – (21,333) (21,333)
Balances at end of year – 6,374 5,938 12,312
Net Book Values P=432,194 P=852 P= – P=433,046
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12. Intangible Assets
This account consists of:
2014 2013
Goodwill P=3,803,391 P=889,522
Trademarks 270,656 298,394
Software license 27,415 12,040Franchise fees 19,166 –
Lease rights 3,946 3,244
Brand development costs 1,070 4,787
P=4,125,644 P=1,207,987
Goodwill. Goodwill acquired through business combination has been attributed to the following
brands which are considered to be separate CGUs of the Group:
Note 2014 2013
Max’s 6 P=3,002,720 P= –
Yellow Cab 708,785 708,785
Pancake House 60,655 60,655
Le Coeur de France 31,231 31,231
Hospitality School Management Group, Inc. 7 – 88,851
P=3,803,391 P=889,522
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The rollforward of trademark, brand developments costs and lease rights are as follows:
2014
Trademarks Software
Brand
Development
Costs Lease Rights
Franchise
Fees Total
Cost
Balances at beginning of year P=556,503 P=20,134 P=5,973 P=7,128 P= – P=589,738
Effect of:
Business combination 1,027 32,754 3,701 – 26,846 64,328
Disposal of investment insubsidiaries – – – – (5,973) (5,973)
Additions – 7,500 2,875 2,242 – 12,617
Disposal – (692) (3,114) – – (3,806)
Balances at end of year 557,530 59,696 9,435 9,370 20,873 656,904
Accumulated Amortization
Balances at beginning of year 258,109 8,094 1,186 3,884 – 271,273
Effect of:
Business combination 322 16,661 1,480 – 8,885 27,348
Disposal of investment in
subsidiaries – – (1,186) – – (1,186)
Amortization 28,443 8,041 1,151 1,114 1,037 39,786
Disposal – (515) – (2,054) – (2,569)
Balances at end of year 286,874 32,281 2,631 2,944 9,922 334,652
Net Book Value P=270,656 P=27,415 P=6,804 P=6,426 P=10,951 P=322,252
2013
Trademarks Software
Brand
Development
Costs Lease Rights Total
Cost
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The Group had an investment in a joint venture through PHICAFSI representing 50% interest inICF-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 2014 2013
Acquisition cost
Balance at beginning of year P=6,469 P=6,469
Effect of deconsolidation of ICF-CCE 6,200 –
Balance at beginning and end of year P=269 P=6,469
Accumulated equity in net losses
Balances at beginning of year (33,060) (23,685)Share in equity in net losses – (12,043)
Translation adjustments 86 2,668
Effect of deconsolidation of ICF-CCE 7 25,964 –
Balances at end of year (7,010) (33,060)
Excess of share in equity net losses
over cost (P=6,741) (P=26,591)
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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 forpayment 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
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Interest expense charged to profit or loss follows:
Note 2014 2013 2012
Loans payable P=39.0 million P=12.6 million P=15.3 million
Long-term debt 16 25.3 million 43.2 million 44.2 million
Mortgage payable and convertible
notes 17 0.5 million 6.8 million 1.8 million
P=64.8 million P=62.6 million P=61.3 million
16. Long-term Debt
This account consists of:
2014 2013
Long-term loan P=1,274,110 P=785,876Finance lease liability 12,377 –
1,286,487 785,876
Current portion 73,697 785,876
Noncurrent portion P=1,212,790 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
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The loan is presented net of deferred transaction costs. A rollforward analysis of debt issue costsis shown below:
; 2014
Balance at transaction date P=19,500,002
Amortization (14,415,236)
Balance at end of year 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.
d l h b l f l d b ( f d d f d f )
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Interest expense on mortgage payables amounted to P=0.5 million in 2014 (P=6.8 million in 2013and P=1.8 million in 2012).
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:
Equity
Interest
Conversion
Price
Original Investment Agreement - ASEAF and PVCC 20.6728% P=4.56
Supplemental Investment Agreement - ASEAF and
AMF 8.2618% 6.50
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19. Equity
The movements of the Group’s capital stock as at December 31, 2014 and December 31, 2013
follow:
2014 2013
Authorized capital stock - P=1 1,400,000,000 400,000,000
Issued and outstandingBalance at beginning of year 237,795,455 237,795,455
Issuance 568,660,342 –
Stock dividends 259,210,840 –
Conversion of notes to equity 21,415,385 –
Balance at end of year 1,087,082,022 237,795,455
Less shares held by subsidiaries 306,878,044 –
780,203,978 237,795,455
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
i h f ibl Th f h i f h ibl
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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 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 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.
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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:
Outstanding
Classification Year Transactions Balance Terms Condition
Entities under common control*
First Lucky Property Lease 2014 P= – P= – 30 days upon Secured
Corporation (FLPC) 2013 25,388 – 30 days upon Secured
Lapanday Properties Lease 2014 – – 30 days upon Secured
Philippines, Inc. (LPPI) 2013
3,876 – 30 days upon Secured
Macondray Plastics Purchases 2014 – – 30 days upon Unsecured
Products, Inc. 2013 3,444 358 30 days upon Unsecured
Macondray Philippine Co. Purchases 2014 – – 30 days upon Unsecured
2013 3,103 218 30 days upon Unsecured
Shares held by the Retirement
Plan
Retirement Plan
Retirement
fund 2014 304,928 304,928
Stockholders Receivable 2014 99,869 99,869 On demand Unsecured
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21. Costs of Sales
This account consists of:
Note 2014 2013 2012
Food and beverage P=1,672,205 P=1,247,687 P=1,174,725
Salaries and wages 645,122 477,037 421,240
Rentals 509,796 360,338 328,754
Depreciation and amortization 23 224,127 178,563 137,811Light and water 215,256 193,392 187,506
Supplies used 149,243 127,374 124,057
Fuel and oil 99,404 83,558 80,583
Employee’s benefits 92,277 79,081 90,781
Transportation and travel 80,940 52,531 39,482
Taxes and licenses 52,887 47,962 46,053
Security services 46,198 31,289 19,545
Supplies and equipment sold 42,946 65,265 48,416
Repairs and maintenance 17,378 50,772 43,169Dues and subscription 12,637 16,328 16,575
Communications 9,746 12,498 8,806
Insurance 2,553 2,780 3,128
Amortization of intangible assets 23 1,959 3,330 1,426
Others 71,818 37,434 27,691
P=3,946,492 P=3,067,219 P=2,799,748
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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:
Note 2014 2013 2012
Included in Costs of Sales: 21
Depreciation and amortization P=224,127 P=178,563 P=137,811Amortization of intangible
assets 1,959 3,330 1,426
Included in General and
Administrative Expenses: 22
Depreciation and amortization 23,028 24,550 28,369
Amortization of intangible
assets 37,827 32,939 30,291
Included in corporatereorganization costs: 7
Depreciation and amortization 24,789 – –
P=311,730 P=239,382 P=197,897
Personnel costs included in the consolidated statement of income are as follows:
Note 2014 2013 2012
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Components of retirement benefit costs recognized in the consolidated statement of income areas follows:
2014 2013 2012
Current service costs P=24,213 P=18,958 P=16,008
Net interest costs 3,558 3,382 2,647
Past service cost - curtailment (5,487) – –
Settlement (929) – –
P=21,355 P=22,340 P=18,655
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:
2014 2013 2012Actuarial gains (losses) due to:
Experience adjustments P=10,113 P=19,599 P=12,659
Changes in financial assumptions 112,988 (3,310) (15,016)
Demographic assumptions (336) – 1,410
Changes in the effect of asset ceiling (68,745) – –
Return on assets excluding amount included
in net interest cost (595) (187)
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Changes in the present value of the defined benefit obligation are as follows:
2014 2013 2012
Balances at beginning of year P=116,097 P=113,101 P=93,678
Effect of business combination 236,276 – –
Retirement benefit costs in consolidated
statement of income:
Current service costs 24,213 18,958 16,008
Interest costs 9,202 6,930 6,281Past service cost - curtailment (5,487) – –
27,928 25,888 22,289
Remeasurement in other comprehensive
income:
Actuarial gain due to experience
adjustments (8,643) (19,599) (12,659)
Actuarial loss due to changes in financial
assumptions (1,806) 3,310 15,016Actuarial gain due to changes in
demographic assumptions 336 – (1,410)
(10,113) (16,289) 947
Benefits paid (3,538) (6,604) (3,812)
Balances at end of year P=366,650 P=116,096 P=113,102
Changes in the fair value of plan assets are as follows:
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The Plan is being administered and managed by a Trustee bank. The Trustee is responsible forthe 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 fromBangko 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:
2014 2013 2012
Discount rate 4.5%-5.0% 5.9%-6.2% 6.1%-6.2%Salary increase rate 7.0% and 8.0% 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
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25. Other Income
This account consists of the following:
Note 2014 2013 2012
Delivery income P=46,967 P=32,391 P=27,338
Service income and management
fee 30,640 30,491 45,885
National advertising fee 28,055 7,205 6,499Rental income 28 20,735 21,527 19,656
Gain on disposal of subsidiaries 7 13,001 – –
Call center charges 3,397 3,319 –
Interest income 1,297 1,069 3,636
Gain on remeasurement
of convertible notes 16 – 1,069 3,817
Others 24,163 3,901 6,326
P=168,255 P=100,972 P=113,157
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.
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The components of the Group’s recognized deferred tax assets and liabilities represent the taxeffects of the following temporary differences:
2014 2013
Net Deferred
Tax Assets
Net Deferred
Tax Liabilities
Net Deferred
Tax Assets
Net Deferred
Tax Liabilities
Deferred tax assets on:
NOLCO P=95,476 P=1,331 P=57,587 P= –
Excess MCIT 17,890 2,633 14,425 –
Net retirement liabilities 16,760 – 17,372 – Accrued rent payable 8,880 2,303 9,490 –
Allowance for impairment losses 52,726 995 6,684 –
Others 4,873 888 4,833 –
196,605 8,150 110,391 –
Deferred tax liabilities on:
Retirement benefit assets P= – (P=110,293) P= – P= –
Unamortized debt issue costs – (502) – –
Others – (646) – –
– (111,441) – –
Net deferred tax assets (liabilities) P=196,605 (P=103,291) P=110,391 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 2013
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27. Earnings Per Share
Basic/diluted earnings (loss) per share are computed as follows:
Note 2014 2013 2012
Net income (loss) attributable to the
equity holders of the Parent
Company: (P=28,366) P=105,598 P=151,418
Divide by weighted average number
of common shares 557,920,032 497,006,295 497,006,295Basic earnings (loss) per share (0.05) 0.21 0.30
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: (28,366) 105,598 151,418
Interest on convertible notes - netof tax – 1,137 1,061
(28,366) 106,735 152,479
Divide by weighted average number
of common shares adjusted for the
effect of dilution:
Weighted average number of common
shares 557,920,032 497,006,295 497,006,295
Effect of conversion of convertible
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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 December 31, 2014(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=211.7 million in 2014 (P=204.6 million and P=417.1 million in 2013 and 2012, respectively)
(see Notes 20 and 21). Accrued rent payable amounted to P=37.3 million as at December 31, 2014
(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:
2014 2013 2012
Within one year P=144,999 P=155,716 P=134,473
More than one year bus less than five
years 269,462 273,699 266,830
More than five years 65,837 28,390 65,837
P=480,298 P=457,805 P=467,140
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The main risks arising from the use of financial instruments are liquidity risk, credit risk, foreigncurrency 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 flexibilitythrough 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.
A t D b 31 2014 d 2013 th fi i l t h ld b th G f li idit
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Credit Risk. Credit risk is the risk of financial loss to the Group if a customer or counterparty to afinancial 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 thecounterparty, 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
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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 offoreign 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
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Fair Value Information and Categories of Financial InstrumentsThe 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, tradeand 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 noteswas 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.
60
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Debt-to-equity ratios of the Group are as follows:
2014 2013
Total liabilities P=5,868,323 P=1,944,495
Divide by total equity 4,032,871 1,025,429
Debt-to-equity ratio 1.46 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
61
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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 toKenmor 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 NorthAmerican 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
26th Floor Citibank Tower8741 Paseo de Roxas
Makati City 1226 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA/PRC Accreditation No. 4782
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REPORT OF INDEPENDENT AUDITOR
ON SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION
The Stockholders and the Board of Directors
Max’s Group, Inc.
Pancake House Center2259 Pasong Tamo Ext.
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
/November 12, 2012, valid until December 31, 2015
SEC Accreditation No. 0207-FR-1 (Group A)September 6, 2013, valid until September 5, 2016
MAX’S GROUP INC (FORMERLY PANCAKE HOUSE INC ) AND
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MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATIONDECEMBER 31, 2014
Retained earnings at the beginning of year P=421,463,062
Adjustment for:
Deferred tax assets as at December 31, 2013 (65,994,844)
Retained earnings, as adjusted to amount available for
dividend declaration, at beginning of year 355,468,218
Add: Net loss for the year (28,119,392)
Less: Stock dividends (259,210,840)
Movement in deferred tax assets (29,455,171) (288,666,011)
Retained earnings available for dividend declaration, at end of year P=38,682,815
RECONCILIATION:
Retained earnings at end of year as shown in the financial statements P=134,132,830
Less: Deferred tax assets as at end of year (95,450,015)
Retained earnings available for dividend declaration, at end of year P=38,682,815
26th Floor Citibank Tower8741 Paseo de Roxas
Makati City 1226 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA/PRC Accreditation No. 4782
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REPORT OF INDEPENDENT AUDITOR
ON SCHEDULE OF ADOPTION OF EFFECTIVE ACCOUNTING STANDARDS
The Stockholders and the Board of Directors
Max’s Group, Inc. and Subsidiaries
Pancake House Center2259 Pasong Tamo Ext.
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 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
November 12, 2012, valid until December 31, 2015
SEC Accreditation No. 0207-FR-1 (Group A)September 6, 2013, valid until September 5, 2016
MAX’S GROUP INC (FORMERLY PANCAKE HOUSE INC ) AND
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MAX S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
SUPPLEMENTARY SCHEDULE OF ADOPTION OF
EFFECTIVE ACCOUNTING STANDARDS AND INTERPRETATIONSDECEMBER 31, 2014
Title 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 Adopted Not
Adopted
Not
Applicable
PFRS 1
(Revised)
First-time Adoption of Philippine Financial
Reporting Standards
N t N t
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PFRS Title Adopted Not
Adopted
Not
Applicable
PFRS 4 Insurance Contracts
Amendments to PAS 39 and PFRS 4: Financial
Guarantee Contracts
PFRS 5Non-current Assets Held for Sale and
Discontinued Operations
PFRS 6Exploration for and Evaluation of Mineral
Resources
PFRS 7 Financial Instruments: Disclosures
Amendments to PAS 39 and PFRS 7:
Reclassification of Financial Assets
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
Fi i l A t d Fi i l Li biliti
Philippine Accounting Standards (PASs)
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Philippine Accounting Standards (PASs)
PAS Title Adopted Not
Adopted
Not
Applicable
PAS 1
(Revised)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
PAS 27
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PAS 27
(Amended)Separate Financial Statements
Amendments to PAS 27: Investment Entities
PAS 28
(Amended)Investments in Associates and Joint Ventures
PAS 29Financial Reporting in Hyperinflationary
Economies
PAS 32Financial Instruments: Disclosure and
Presentation
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
Amendment to PAS 39: Eligible Hedged Items
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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
Not
Adopted
Not
Applicable
IFRIC 1Changes in Existing Decommissioning,
Restoration and Similar Liabilities
IFRIC 2Members’ Share in Co-operative Entities and
Similar Instruments
IFRIC 4
Determining Whether an Arrangement Contains
a Lease
IFRIC 5
Rights to Interests arising from
Decommissioning, Restoration and
Environmental Rehabilitation Funds
IFRIC 6
Liabilities arising from Participating in a Specific
Market – Waste Electrical and Electronic
Not Not
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Interpretations Title Adopted Not
Adopted
Not
Applicable
IFRIC 19
Extinguishing Financial Liabilities with Equity
Instruments
IFRIC 20Stripping 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 toOperating Activities
SIC-13Jointly Controlled Entities – Non-Monetary
Contributions by Venturers
SIC-15 Operating Leases – Incentives
SIC-21Income Taxes – Recovery of Revalued Non-
Depreciable Assets
SIC-25Income Taxes – Changes in the Tax Status of an
Entity or its Shareholders
SIC-27Evaluating the Substance of Transactions
Involving the Legal Form of a Lease
SIC-29 Service Concession Arrangements: Disclosures
26th Floor Citibank Tower8741 Paseo de Roxas
Makati City 1226 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA/PRC Accreditation No. 4782November 12, 2012, valid until December 31, 2015
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REPORT OF INDEPENDENT AUDITOR
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
Max’s Group, Inc. and Subsidiaries
Pancake House Center2259 Pasong Tamo Ext.
Makati City
We have audited in accordance with Philippine Standards on Auditing, the 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 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
SEC Accreditation No. 0207-FR-1 (Group A)September 6, 2013, valid until September 5, 2016
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MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
SEC SUPPLEMENTARY SCHEDULES AS REQUIRED BY PAR. 6 PART II OFSRC RULE 68 AS AMENDED
DECEMBER 31, 2014
Table of Contents
Schedule Description Page
A Financial Assets 1
B Amounts Receivable from Directors, Officers, Employees, Related Parties,
and Principal Stockholders (Other than Related Parties) 2
C Amounts Receivable from Related Parties which are Eliminated during the
Consolidation of Financial Statements 3
D Intangible Assets - Other Assets 4
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
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SUBSIDIARIES
SCHEDULE A - FINANCIAL ASSETS
DECEMBER 31, 2014
Description
Carrying
Value Fair Value
Cash on hand P=108,025 P=108,025
Loans and receivables:
Cash in banks and cash equivalents 848,497 848,497
Trade and other receivables* 677,559 677,559Receivable from disposal of interest 143,571 143,571
Noncurrent receivables 163 163
P=1,669,790 P=1,669,790
*Net of allowance for impairment losses totaling to P=180.7 million.
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
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SUBSIDIARIES
SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES and PRINCIPAL
STOCKHOLDERS (OTHER THAN RELATED PARTIES)
December 31, 2014
Deductions Ending Balance
Name and Designation of Debtor
Balance at
beginning of year Additions Collected
Written
off Current Noncurrent
Balance at end
of year
Officers and employees 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
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
SCHEDULE C - AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED DURING THE CONSOLIDATION
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SC U C OU S C O S C U G CO SO O
OF FINANCIAL STATEMENTSDecember 31, 2014
Deductions Ending Balance
Related Party
Balance at
beginning of
year Additions Collections Write off
Amounts
written off Current Noncurrent
Balance at
end of year
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.
Always Happy BGC, Inc.
Always Happy Greenhills, Inc.
Boulangerie Francaise, Inc.
Chicken's R Us, Inc.
CRPPhilippines, Inc.
DFSI –One Nakpil, Inc.
P=34,991
66,047
2,500
239
2,399
4,860
–
7,55619,030
75,915
2,775
31,183
–
9,886
2,089
–
25,139
5,717
1
40,684
–
51,245
3,442
P=21,803
11,558
827
(186)
9,740
5,376
200
7,750152,752
314,171
9,121
827,643
33,267
–
143,779
–
46,434
–
–
7,808
27,285
100
–
P= –
–
–
–
–
–
–
– (91,496)
(253,276)
(9,932)
(803,021)
–
(2,017)
–
–
(69,420)
(1,323)
(2)
(789)
(57)
(51,345)
(700)
P= –
–
–
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
P= –
–
–
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
P=56,794
77,605
3,327
54
12,139
10,237
200
15,30580,286
136,810
1,965
55,805
33,267
7,870
145,869
–
2,152
4,394
(1)
47,703
27,228
–
2,742
P= –
–
–
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
P=56,794
77,605
3,327
54
12,139
10,237
200
15,30580,286
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.
Golden BERRD Grill, Inc.
Happy Partners, Inc.
Max's Kitchen Inc
15,335
(454)
(2,379)
–
–
–
10
45 419
–
(700)
(579)
–
–
–
–
–
–
–
–
–
15,335
(1,154)
(2,948)
45 419
–
–
–
–
15,335
(1,154)
(2,948)
45 419
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Max s Kitchen, Inc.
Max's Bakeshop, Inc
Max's Express Restaurants, Inc
MGOC Holdings, Inc
No Bia, Inc.Pancake House Products, 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.
Teriyaki Boy Group, Inc.
Trota, Gimenez Realty Corp
The Real American Doughnut Co. Inc
Yellow Cab Food Corporation
–
–
–
–
– 180
362
7,799
1,920
340
531
94
377
305
23
401
69,213
68,338
–
–
–
(84,431)
–
–
1,527
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
–
–
–
–
– (81)
–
(801)
(1,825)
(38)
(6,437)
(31)
(442)
(86)
(5,192)
(901)
(86)
(30,208)
–
–
–
(40,451)
–
–
(116,131)
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,419
72,482
293
8,677
33,24298
443
7,401
720
452
511
64
425
678
–
–
99,440
38,130
821
15,537
–
(23,060)
8,208
93,807
71,498
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,419
72,482
293
8,677
33,24298
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
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
SCHEDULE D: INTANGIBLE ASSETS – OTHER ASSETS
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DECEMBER 31, 2014
Description
Beginning
balance
Additions at
cost Amortization
Charged to
other accounts
Other changesadditions
(deductions) Ending balance
Trademarks P=298,394 P= – P=28,443 P= – P=705 P=270,656
Software 12,040 7,499 8,041 – 15,918 27,416
Brand development cost 4,787 2,875 1,151 – 293 6,804
Lease rights 3,244 2,242 1,114 – 2,054 6,426
Franchise fees – – 1,037 – 11,988 10,951
Goodwill 889,522 3,002,720 – – (88,851) 3,803,391
P=1,207,987 P=3,015,336 P=39,786 P= – (P=57,894) P=4,125,644
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
SCHEDULE E - LONG-TERM BORROWINGS
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DECEMBER 31, 2014
Title of issue and type of obligation
Amount shown under “Currentportion of long-term borrowings”
account in the consolidated statement
of financial position
Amount shown under “Long-term borrowings” account in the
consolidated statement of financial
position
Loans payable P=2,307,288 P= –
Long-term debt 73,697 990,988
Mortgage payable 8,165 –
P=2,389,150 P=990,988
Details are discussed in Notes 15, 16 and 17 to consolidated financial statements.
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PHI International – BVI
PHI International – Malaysia
TBGI –Marilao, Inc.
TBGI –Tagaytay, Inc.
8,794
21
–
–
2,987
23
92
109
(155)
–
(75)
(46)
–
–
–
–
11,625
44
17
63
–
–
–
–
11,625
44
17
63
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TBGI –Trinoma, Inc.
TBOY –MS, Inc.
Teriyaki Boy Group, 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
–
–
28,784
– –
–
–
–
–
–
–
–
6,037
140
92
73,654
1,12142,376
2,684
274
8
4
12,283
100
140
158,885
(48)
(75)
(78,772)
(584)(42,484)
(3,285)
(403)
(8)
(4)
–
(191)
(157)
(165,435)
–
–
–
– –
–
–
–
–
–
–
–
–
92
17
23,665
538(108)
(600)
(130)
–
(0)
12,283
(91)
(17)
(512)
–
–
–
– –
–
–
–
–
–
–
–
–
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
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
SCHEDULE H – CAPITAL STOCKHOLDERD b 31 2014
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December 31, 2014
Number of shares held by
Title of IssueNumber of shares
authorized
Number of shares issuedand outstanding as shown
under the statement offinancial position caption
Number of sharesreserved for options,warrants, conversion
& other rights Related parties
Directors,officers andemployees Public
Common shares 1,400,000,000 780,203,980 – 341,677,966 196,025,536 242,500,478
MAX’S GROUP, INC.(FORMERLY PANCAKE HOUSE, INC.) AND
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, ( , )
SUBSIDIARIES
(FORMERLY PANCAKE HOUSE, INC. AND SUBSIDIARIES) FINANCIAL RATIOSDECEMBER 31, 2014
Below is a schedule showing financial soundness indicators in the years 2014, 2013 and 2012.
2014 2013 2012
Current/Liquidity Ratio 0.54:1 0.52:1 1.01:1
Current assets P=2,361,840 P=951,121 P=955,381
Current liabilities 4,396,729 1,821,800 946,005
Solvency Ratio 0.03:1 0.15:1 0.17:1
Net income (loss) before depreciation 204,642 282,386 315,797
Total liabilities 5,868,323 1,944,495 1,864,157
Debt-to-equity Ratio 1.46:1 1.90:1 1.82:1
Total liabilities 5,868,323 1,944,495 1,864,157
Total equity 4,032,871 1,025,430 1,025,325
Asset-to-equity Ratio 2.46:1 2.90:1 2.82:1
MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND
SUBSIDIARIES
MAP SHOWING THE RELATIONSHIP BETWEEN AND AMONG THE GROUPDECEMBER 31, 2014
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