pckh quarterly report

8/13/2019 PCKH Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-QQUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES

REGULATION CODE AND SRC RULE 17(2)(B) THEREUNDER

1. For the quarterly period ended March 31, 2011

2. SEC Identification No: A2000-03008 3. BIR Tax Identification No. 205-357-210-000

4. Exact name of issuer as specified in its charter PANCAKE HOUSE, INC.

5. Manila, Philippines 6. (SEC Use Only)Province, Country or other jurisdiction of Industry Classification Code:incorporation or organization

7. Pancake House Center, 2259 Pasong Tamo Ext, Makati City 1231Address of issuers principal office Postal Code

8. (632) 893-4822

Issuer's telephone number including area code

9. Not applicableFormer name, former address, and former fiscal year, if changed since last report

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA

Number of Shares of Common StockTitle of Each Class Outstanding and Amount of Debt Outstanding

Pancake House Inc. Common Stock 237,795,455 shares

11. Are any or all of these securities listed on the Philippine Stock Exchange.

Yes [ /] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed therein:

Philippine Stock Exchange Pancake House Common shares

12. Indicate by check mark whether the issuer:

(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17thereunder or Sections 11 of the RSA and RSA Rule 11 (a)-1 thereunder, and Sections 26and 141 of the Corporation Code of the Philippines during the preceding 12 months (orfor such shorter period that the issuer was required to file such reports);

Yes [ /] No [ ]

(b) has been subject to such filing requirements for the past 90 days.

Yes [ /] No [ ]


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PART I FINANCIAL INFORMATION

Item 1. Financial StatementsThe consolidated financial statements of Pancake House, Inc. (PHI) and its subsidiaries

as of March 31, 2011 and December 31, 2010 and for the three months ended March 31,2011, 2010, and 2009 include the consolidated accounts of the Company and thefollowing subsidiaries:

Table 1 Ownership Structure

% Ownership Remarks

PANCAKE HOUSE, INC. (PHI)

Pancake House:Happy Partners, Inc. 51% Established in 2004; started commercial operations in

September 2004

PCK-MTB, Inc. 60% Established in January 2005; started commercialoperations in May 2005

PCK Bel-Air, Inc. 51% Established in February 2005; started commercial

operations in May 2005Always Happy Greenhills, Inc. 60% Established in February 2006; started commercial

operations in March 2006

PCK MS, Inc. 50% Established in November 2007; startedcommercial operations in November 2007

PCK Boracay, Inc. 60% Established in June 2009; started commercialoperations in October 5, 2009

Always Happy BGC, Inc. 51% Established in January 2011; startedcommercial operations in March 2011

PCK-LFI, Inc. 70% Established in January 2011; startedcommercial operations in April 2011

PCK-N3, Inc. 51% Established in January 2011; not yet startedcommercial operations

Pancake House Intl, Inc. 100% Established in February 2007PH Ventures, Inc. 100%Pancake House Products, Inc. 100%

Dencios:DFSI-One Nakpil, Inc. 60% Established in January 2005; started commercial

operations immediately thereafter

DFSI Subic, Inc. 100% Established in March 2005 by DFSI; startedcommercial operations in November 2005

Teriyaki Boy:TERIYAKI BOY GROUP, INC.(TBGI) 70% Acquired by PHI on October 28, 2005

TBGI Tagaytay, Inc. 60% Established in May 2005; started commercialoperations on November 10, 2006

TBGI Marilao, Inc.51%

Established in November 2006; startedcommercial operations on January 1, 2007

TBGI Trinoma, Inc.60%

Established in March 2007; started commercial

operations in May 16, 2007Tboy MS, Inc.

50%Established in November 2007; startedcommercial operations in Dec. 2007

Singkit:88 JUST ASIAN, INC. 80% Established in March 2006; started commercial

operations on May 21, 2006

Le Coeur de France:BOULANGERIE FRANCAISE, INC. 70% Acquired by PHI on February 8, 2008


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Education, which is part of the Companys strategy of backward integration and toaddress incessant increases in Cost of Labor.

Table 2 shows the consolidated operating results for the three months ended March 31,2011, 2010 and 2009:

2011 % 2010 % 2009 % Php %

Restaurant Sales 333.85 75.3% 344.96 79.7% 350.90 80.4% (11.10) -3.22%

Commissary Sales 87.72 19.8% 67.41 15.6% 66.15 15.2% 20.32 30.14%

Franchise Income 21.60 4.9% 20.34 4.7% 19.57 4.5% 1.26 6.19%

Total Revenues 443.18 100.0% 432.71 100.0% 436.63 100.0% 10.47 2.42%

Cost of Sales* 163.34 38.7% 149.09 36.2% 148.70 35.7% 14.25 9.56%

Cost of Labor* 63.74 15.1% 64.51 15.6% 63.60 15.2% (0.76) -1.19%

Operating Exp.* 131.76 31.3% 144.22 35.0% 138.32 33.2% (12.46) -8.64%

Sales & Marketing Exp.** 12.51 2.8% 9.35 2.2% 9.89 2.3% 3.16 33.76%

Administrative Exp.** 50.01 11.3% 48.71 11.3% 49.84 11.4% 1.30 2.67%Total Costs and Expenses 421.36 95.1% 415.87 96.1% 410.35 94.0% 5.48 1.32%

21.82 4.9% 16.83 3.9% 26.28 6.0% 4.99 29.63%

(6.19) -1.4% (5.22) -1.2% (10.35) -2.4% . ) .

15.63 3.5% 11.61 2.7% 15.93 3.6% . .

(2.70) -0.6% (1.47) -0.3% (2.33) -0.5% (1.23) 83.40%

12.93 2.9% 10.14 2.3% 13.59 3.1% . .

Equity Holders of Parent 10.84 2.4% 8.29 1.9% 10.46 2.4% 2.55 30.77%

Minority Interest 2.09 0.5% 1.85 0.4% 3.13 0.7% 0.24 13.11%

Total 12.93 2.9% 10.14 2.3% 13.59 3.1% 2.79 27.55%

Equity Holders of Parent 48.09 10.9% 53.27 12.3% 62.18 14.2% (5.18) -9.72%

Minority Interest 9.11 2.1% 9.92 2.3% 11.60 2.7% (0.81) -8.13%

57.20 12.9% 63.18 14.6% 73.78 16.9% . ) - .

* Cost of sales, Cost of labor and Operat ing expenses are computed as a percentage

of combined restaurant and commissary sales

** Sales & market ing expenses and Administr at ive expenses are comput ed as a

percentage of Tot al revenues

OTHER INCOME (CHARGES)

EBITDA:

ATTRIBUTABLE TO:

Inc (Dec)CONSOLIDATED (Php Million)

Table 2 Comparative Income Statement

For the Three Months Ended March 31, 2011, 2010 and 2009

TOTAL EBITDA

INCOME BEF. INCOME TAXBENEFIT FROM (PROV. FOR)

INCOME TAX

NET INCOME(LOSS)

ATTRIBUTABLE TO:

REVENUES

COSTS AND EXPENSES

INCOME (LOSS) FROM OPERATIONS

Results of Operations

The Group posted consolidated revenues of P443 million during the 1 stquarter endedMarch 31, 2011, slightly higher than last year's P433 million attributable to increasedCommissary Sales by P20 million or 30.14%. Meanwhile, Restaurant sales decreased by3.2%, from P345 million last year to P334 million in the current year due torationalization of some outlets awaiting relocation. Franchise revenues (continuingroyalty and franchise fees) slightly increased by 6%.

Combined restaurant and commissary costs of sales increased from last years of 36.2%to this years 38.7% due to increase in material costs.

The Groups Labor Cost for the three months ended March 31, 2011 was at 15.1% or P64million, slightly lower than last years 15.6% or P65 million.


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Consolidated operating expenses for the current period significantly improved to 31%from 35% of the same period last year, or P13.19 million decrease as a result of a morefocused and cost effective alternative programs in the production and operations.

Consolidated sales and marketing expenses amounted to P12.5 million, higher than lastyear's P9.4 million due to billboard rental escalation and production of new menu.

Consolidated administrative expenses remained the same at 11.3% with P50 million thisyear and P49 million for the same period last year.

Consolidated other charges exceeded other income for the current period, resulting in anet other charges of P6.2 million, as compared with other charges of 5.2 millionreported in the same period of previous year. The increase was due to amortization ofpre-operating expenses in the culinary school.

The group posted a net income of P13 million (P11 million attributable to equity holdersof the Parent), up by 27.5% from last year's P10 million (P8 million attributable to equityholders of the Parent).

Consolidated EBITDA amounted to P57.2 million (P48 attributable to equity holders ofthe Parent) for the three months ended March 31, 2011 with a sustainable margin of13%. This is due to the Companys efforts in mitigating the continuous increase in costsand intensifying its targeted marketing and promotional campaigns.

The comparative analysis of profitability ratios for the three months ended March 31,2011, 2010 and 2009 are stated below:

2011 2010 2009

Net Income Ratio 2.92% 2.34% 3.11%

Return on Assets 0.89% 0.71% 1.01%

Return on Equity 1.48% 1.23% 1.97%

Table 3 - Consolidated Profitability Ratios (x : 1.00)

Financial Condition, Liquidity and Capital Resources

Financia l Condi t ion

The following table shows the consolidated assets, liabilities and stockholders equity asof March 31, 2011 and December 31, 2010.


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Current Assets 578.31 597.22

Total Assets 1,455.83 1,496.88

Current Liabilities 544.35 600.92

Total Liabilities 584.38 639.01

Total Equity 871.45 857.87

Table 4 - Consolidated Balance Sheet

As of March 31,

2011

As of December

31, 2010

As of March 31, 2011, consolidated assets amounted to P1.46 billion. Consolidatedliabilities decreased from P639 million in 2010 to P584 million in 2011. TotalStockholder's Equity went up by P21.7 million, from P857.87 million in 2010 to P871.45million during the period.

Liquid i t y Posi t ion

Liquidity

Current Ratio 1.06:1.00 0.99:1.00

Solvency

Debt-to-asset ratio 0.40:1.00 0.43:1.00

Debt-to-equity ratio 0.67:1.00 0.74:1.00

Table 5 - Liquidity and Solvency Ratios (x : 1.00)

As of March 31,

2011

As of December

31, 2010

The Groups current ratio significantly improved from 0.99:1 as of December 31, 2010 to1.06:1 as of March 31, 2011. Total debt to asset ratio and total debt to equity ratiowent down from 0.43:1 and 0.74:1, respectively as of December 31, 2010 to 0.40:1 and0.67:1, respectively, as of March 31, 2011.

RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR 2010

Results of Operations

Consolidated revenues for the 1st

quarter ended March 31, 2010 amounted to P432.7million, slightly down by 1% down from same period of last year, mainly due to lowerrestaurant sales amounting to P345 million posted during the current period comparedto last years P351 million. The decrease in restaurant sales can be attributed to someoutlets which have temporarily closed for renovation as well as closure of non-performing outlets. Commissary sales slightly increased by 2% while franchise revenuesalso increased by 0.4%.


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The Company continues to implement its programs such as expanded synergies amongthe seven brands, resource optimization and strategic purchasing. However, combinedrestaurant and commissary cost of sales increased from last years 35.65% to this years36.15% due to lower restaurant sales in the current period.

Labor cost for the three months ended March 31, 2010 was at 15.6% of sales, slightlyhigher than last years 15.25%.

Consolidated operating expenses for the current period went up to P144 millioncompared to P138 million in 2009 mainly due to opening of additional outlets.

Consolidated sales and marketing expenses slightly decreased from last years P9.9million to this years P9.4 million.

Consolidated general and administrative expenses also decreased by P1 million.

Consolidated other charges net of other income significantly decreased during thecurrent period by 50% mainly due to lower interest expense incurred in the current

period.

The Group posted a net income of P10.14 million for the three months ended March 31,2010 compared to P13.59 million in 2009. The decrease can be attributed to lowerrestaurant sales and higher operating expenses incurred during the three months endedMarch 31, 2010.

Financial Condition, Liquidity and Capital Resources

Financia l Condi t ion

As of March 31, 2010, consolidated balance sheet amounted to P1.42 billion compared toP1.44 billion as of December 31, 2010. Consolidated liabilities were at P595 million and

P623 million, as of March 31, 2010 and December 31, 2009, respectively. TotalStockholders Equity stood at P824 million, up from P817 million as of December 31,2009, mainly due to issuance of convertible notes in the 4thquarter of 2009.

Liquid i t y Posi t ion

The Groups current ratio significantly improved from 0.72:1 as of December 31, 2009 to0.71:1 as of March 31, 2010. Total debt to asset ratio and total debt to equity ratiowent down from 0.43:1 and 0.76:1, respectively as of December 31, 2009 to 0.42:1 and0.72:1, respectively, as of March 31, 2010. The groups liquidity position significantlyimproved due the issuance of new 5-year convertible note in the 4thquarter of 2009, theproceeds of which were used to retire long term debt.

ACCOUNTS WITH MORE THAN 5% CHANGE IN BALANCES(Against December 31, 2010 Bala nces)

Cash and cash equivalents

Cash and Cash Equivalents decreased from P206 million as of December 31, 2010 to P155million as of March 31, 2011 due to settlement of trade payables.


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Trade and Other Receivables net

Trade and other receivables amounted to P275 million, P25 million higher than P250million as of December 31, 2010, as a result of the receivables recognized from newfranchisees.

Inventories

Inventories decreased by P25 million from P73 million as of December 31, 2010 to P47million as of March 31, 2011 due to sale of some company-owned outlets to franchisees.

Prepaid expenses and Other Current Assets

The increase in prepaid expenses and other current assets was attributed to the increasein advances made to suppliers.

Property and Equipment

The decrease in property and equipment was due to the periodic depreciation.

Deferred Income Tax Assets

Deferred income tax assets increased was mainly due to additional operating loss carryover, excess minimum corporate income tax over regular income tax, and deferredincome tax on additional provisions for retirement benefits.

Other Non-Current Assets

Other non-current assets decreased by P9.5 million due to amortization of franchise feesand deferred input tax.

Trade and other Payables

Trade and other payables decreased to P239 million as of March 31, 2011 from P298million as of December 31, 2010 due to settlement of trade and statutory obligations.

Income Tax Payable

The increase in Income Tax Payable was attributed to the recognition of additionalliabilities for the income earned for the first quarter.

Accrued Retirement Liability

The increase was due to provisions for the three-month period.

Cash Dividends

The following dividends were declared out of PHIs retained earnings in 2010, 2009 and2008:


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System Sales

System Wide Sales pertains to the total sales to customers both from company-ownedand franchised stores.

Total system-wide sales of the Group for the three months ended March 31, 2011 and2010 amounted to P565.34 million and P549.51 million, respectively.

Revenues

The company and its operating subsidiaries generate revenues from three sources: (i)Restaurant sales from company-owned stores; (ii) Commissary sales to franchised stores;and (iii) Fees from franchisees consisting of one-time franchise fees and continuinglicense fees.

The Group posted consolidated revenues of P443.2 million for the three months endedMarch 31, 2011, 2.42% higher than last year's P432.7 million.

Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA)

EBITDA measures the companys ability to generate cash from operations. It is computedby adding back depreciation and amortization (non-cash expenses) to earnings beforeinterest and income taxes are deducted.

Consolidated EBITDA for the first quarter amounted to P57.2 million, or 13% ofconsolidated revenues.

Net Income Ratio

Net Income Ratio provides a measure of return for every peso of revenue earned, afterall other operating expenses and non-operating expenses, including provision for income

taxes, are deducted. It is the percentage of the companys income after tax to net salesin a given period.

Net Income Ratio for the three months ended March 31, 2011 is at 2.92%, slightly higherthan 2.34% of the same period last year.

Off Balance Sheet Transactions, Arrangement, Obligation and Other Relationships

There are no off-balance sheet transactions, arrangements, obligation (includingcontingent obligations), and other relationships of the Company with unconsolidatedentities or other persons created during the reporting period.

PART II OTHER INFORMATION

-Not applicable-


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PANCAKE HOUSE, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2011


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CONSOLIDATED BALANCE SHEETS

As of

Mar. 31, 2011

As of

Dec. 31, 2010

(Interim) (Audited)

ASSETS

Current Assets

Cash 155,102,604 205,879,308

Trade and other receivables (Note 4) 274,998,176 250,069,846

Inventories - at cost (Note 5) 47,210,529 72,708,700

Prepayments and other current assets (Note 6) 100,994,235 68,557,187

Total Current Assets 578,305,543 597,215,041

Noncurrent Assets

Property & equipment-net (Note 7) 225,565,998 240,707,129

Trademarks and goodwill - net (Notes 8 and 9) 472,508,686 479,684,187

Deferred income tax assets (Note 19) 48,903,994 39,199,740Other noncurrent assets (Note 10) 130,549,878 140,071,287

Total Noncurrent Assets 877,528,557 899,662,343

TOTAL ASSETS 1,455,834,100 1,496,877,384

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Trade and other payables (Note 11) 238,742,834 298,202,846

Loans payable (Note 12) 301,900,000 299,910,252

Mortgage payable - 820,489

Income tax payable 3,711,223 1,987,556

Total Current Liabilities 544,354,057 600,921,143

Noncurrent Liabilities

Debt component of convertible notes (Note 13) 14,161,859 14,161,859

Accrued retirement liability (Note 18) 8,593,263 7,186,600

Accrued rent payable 17,270,617 16,738,425

Total Noncurrent Liabilities 40,025,739 38,086,884

Equity Attributable to Equity Holders of the Parent

Capital stock - P1 par value per share (Note 13)

Authorized - 400,000,000 shares

Issued - 237,795,455 shares 237,795,455 237,795,455

Additional paid-in capital (Note 13) 176,806,287 176,806,287

Notes for conversion to equity (Note 13) 120,386,027 120,386,027

Accumulated translation adjustment (641,973) (6,209,775)

Retained earnings (Note 14) 197,539,204 186,695,129

731,884,999 715,473,123

Minority interests 139,569,305 142,396,234

Total Equity 871,454,304 857,869,357

TOTAL LIABILITIES AND EQUITY 1,455,834,100 1,496,877,384

See accompanying Notes to Consolidated Financial Statements.


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CONSOLIDATED STATEMENTS OF INCOME

REVENUES

Restaurant sales 333,854,903 344,956,774 350,904,981

Commissary sales 87,724,986 67,408,946 66,151,555

Franchise and royalty fees (Note 21) 21,598,568 20,340,504 19,568,669

443,178,457 432,706,223 436,625,205

COSTS OF SALES (Note 16) 358,837,513 357,812,279 350,621,531

GROSS PROFIT 84,340,944 74,893,945 86,003,674

OPERATING EXPENSES

General & administrative expenses (Note 17) 50,008,510 48,707,274 49,839,770

Sales & marketing expenses 12,509,994 9,352,451 9,887,069

Total 62,518,504 58,059,725 59,726,839

INCOME (LOSS) FROM OPERATIONS 21,822,440 16,834,219 26,276,835

OTHER INCOME (CHARGES)

Interest income 349,526 78,402 78,908

Interest expense on loans (Notes 12 and 13) (5,252,504) (5,644,102) (9,964,400)

Interest expense on the debt component

of convertible notes (Notes 13) (557,293) (934,442) (1,426,097)

Other Income(Expense) (1,639,594) - -Miscellaneous income 912,204 1,278,455 961,989

Total (6,187,661) (5,221,687) (10,349,600)

INCOME BEFORE INCOME TAX 15,634,779 11,612,533 15,927,235

ote (2,701,236) (1,472,869) (2,334,436)

NET INCOME 12,933,543 10,139,664 13,592,799

ATTRIBUTABLE TO:

Equity holders of the parent 10,844,075 8,292,371 10,461,422

Minority interest 2,089,468 1,847,293 3,131,37812,933,543 10,139,664 13,592,799

ended attributale to the ordinary equity

holders of the parent (Note 20)

Basic 0.0456 0.0430 0.0543

Dilluted 0.0440 0.0356 0.0500

Three Months Ended March 31

Earnings Per Share - For income for the period

2011 2010 2009



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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31

2011 2010 2009

NET INCOME P=12,933,543 P=10,139,664 P=13,592,799

OTHER COMPREHENSIVE INCOME FROMEXCHANGE DIFFERENCES ONTRANSLATION OF FOREIGNOPERATIONS (641,973) (1,349,730) (2,940,045)

TOTAL COMPREHENSIVE INCOME P=12,291,570 P=8,789,934 P=10,652,754

Total Comprehensive Income Attributable to:Equity holders of the parent P=10,202,102 P=10,637,227 P=12,652,222Noncontrolling interests 2,089,468 1,847,293 2,089,468

P=12,291,570 P=8,789,934 P=10,562,754



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CONSOLIDATED STATEMENTS OF CASH FLOWS

2011 2010 2009

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax 15,634,779 11,612,533 15,927,235

Adjustments for:

Depreciation and amortization (Note 7) 28,959,323 37,899,266 38,974,404

Amortization of trademarks (Note 8) 7,175,501 7,171,754 7,117,659

Provision for retirement cost 1,406,663 638,779 480,045

Operating income before working capital changes 53,176,266 57,322,332 62,499,344

Decrease (Increase) in:

Trade and other receivables (24,928,330) 5,037,873 8,516,479

Inventories 25,498,171 10,859,060 7,660,572

Prepaid expenses and other current asets (32,437,048) (38,684,222) (20,267,644)

Deferred tax asset (9,704,254) (10,150,813) (2,571,227)

Increase (decrease) in Trade and Other Payables (59,460,012) (30,414,523) (43,594,004)

Net cash generated from operations (47,855,206) (6,030,293) 12,243,521

Income taxes paid (977,569) 808,496 506,590

Net cash from operating activities (48,832,775) (5,221,797) 12,750,110

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment (Note 7) (13,513,759) (24,457,529) (6,333,984)

Increase in:

Trademarks and goodwill (0) (164,367) (13,839,131)

Other non-current assets 9,216,975 (664,904) (7,634,817)

Non-current liabilities 532,192 (3,923,858) (2,584,996)

Net cash used in investing activities (3,764,592) (29,210,658) (30,392,928)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Proceeds (Payments) :

Loans payable 1,989,748 4,500,000 (35,014,751)

Increase (decrease) in:

Mortgage payable (820,489) (695,348) (519,981)Accumulated translation adjustment 5,567,802 244,670 1,777,256

Cash dividends paid (Note 14) - - (13,927,609)

Additional investments from minority shareholders (4,916,398) (3,456,889) (1,071,902)

Net cash from financing activities 1,820,663 592,433 (48,756,988)

NET INCREASE (DECREASE) IN CASH (50,776,704) (33,840,023) (66,399,806)

CASH AT BEGINNING OF PERIOD 205,879,308 147,329,179 147,223,452

CASH AND CASH EQUIVALENTS AT END OF PERIOD 155,102,604 113,489,157 80,823,646

For the Three Months Ended March 31



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate InformationPancake House, Inc. (the Company) was incorporated on March 1, 2000 and is domiciled in theRepublic of the Philippines and its shares are publicly traded in the Philippine Stock Exchange.The Company and its subsidiaries (collectively referred to as the Group) are primarily engagedin the business of catering foods and establishing, operating and maintaining restaurants, coffeeshops, refreshments parlors and cocktail lounges.

The Group operates under the trade names Pancake House, Dencios, Teriyaki Boy,Singkit, Sizzlin Pepper Steak and Le Coeur de France.

The ultimate parent company of the Group is Pancake House Holdings, Inc. (PHHI).

The registered office address of the Company is Pancake House Center, 2259 Pasong TamoExtension, Makati City.

2. Summary of Significant Accounting PoliciesBasis of PreparationThe consolidated financial statements of the Group have been prepared under the historicalcost basis. The consolidated financial statements are presented in Philippine peso (P=), which isthe Companys functional currency.

Statement of ComplianceThe consolidated financial statements have been prepared in compliance with PhilippineFinancial Reporting Standards (PFRS).

Basis of ConsolidationThe consolidated financial statements of the Group include the Company and the subsidiariesthat it controls. This control is normally evidenced when the Company owns, either directly orindirectly, more than 50% of the voting rights of a companys share capital and is able to governthe financial and operating policies of a company so as to benefit from its activities. Theequity, net income and comprehensive income attributable to noncontrolling interests areshown separately in the consolidated balance sheet, consolidated statement of income andconsolidated statement of comprehensive income, respectively.

The subsidiaries are consolidated from the date on which control is transferred to the Group andcease to be consolidated from the date on which control is transferred out of the Group. Wherethere is a loss of control of a subsidiary, the consolidated financial statements include the

results for the part of the reporting year during which the Company has control.

The financial statements of the subsidiaries are prepared for the same reporting year as theparent company. Consolidated financial statements are prepared using uniform accountingpolicies for like transactions and other events in similar circumstances. Intercompany balancesand transactions, including intercompany profits and losses, are eliminated.

The consolidated financial statements include the accounts of the Company and the followingsubsidiaries:

Percentage ofEffective Ownership

Company Name Nature of Business 2011 2010Boulangerie Francaise, Inc. (BFI) Restaurant 100 100DFSI-Subic, Inc. Restaurant 100 100


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- 2 -

Golden B.E.R.R.D. Grill, Inc.* Restaurant 100 100Pancake House International, Inc. (PHII) Holding Company 100 100

Pancake House, International

Malaysia Sdn Bhd (PHIM) Restaurant 100 100Pancake House Products, Inc. (PHPI)* Manufacturing 100 100Pancake House Ventures, Inc. (PHVI)* Holding Company 100 100PHI Culinary Arts and Food Services

Institute, Inc. (PHI CAFSI)Culinary School 100 100

88 Just Asian, Inc. (88JAI) Restaurant 80 80Teriyaki Boy Group, Inc. (TBGI) Restaurant 70 70

TBGI-Trinoma, Inc. Restaurant 60 60TBGI-Marilao, Inc. Restaurant 51 51TBOY-MS, Inc.** Restaurant 50 50TBGI-Tagaytay, Inc.

(TBGI Tagaytay)** Restaurant 40 40Always Happy Greenhills, Inc. Restaurant 60 60PCK-AMC, Inc.* Restaurant 60 60PCK-Boracay, Inc. Restaurant 60 60PCK-MTB, Inc. Restaurant 60 60DFSI One-Nakpil, Inc. Restaurant 60 60Happy Partners, Inc. Restaurant 51 51PCK Bel-Air, Inc. Restaurant 51 51PCK-MSC, Inc.** Restaurant 50 50

*Dormant companies as of March 31, 2011**Although the Group owns not more than 50% of the voting power of these companies, it isable to govern the financial and operating policies of the companies by virtue of anagreement with the other investors of such entities. Consequently, the Group consolidatesits investment in these companies.

On December 28, 2010, the Group entered into a deed of sale of investment in shares of stockwherein the Group shall sell, transfer and convey all rights, title and interest of 60% and 51% ofthe entire outstanding shares of DFSI-MTB and DFSI-BBI, respectively, to a third party.Effectively on the same date, the said entities were ceased to be consolidated as subsidiaries[see Note 25(b)].

Noncontrolling interests represent the portion of net results and net assets not held by theGroup. They are presented in the consolidated balance sheet within equity, apart from equityattributable to equity holders of the parent and are separately disclosed in the consolidatedstatement of income and consolidated statement of comprehensive income. Noncontrollinginterests consist of the amount of those interests at the date of original business combinationand the minority interests share on changes in equity since the date of the business

combination.

Starting January 1, 2010, losses within a subsidiary are attributed to the noncontrolling interesteven if it results in a deficit balance.

Prior to January 1, 2010, losses applicable to the minority in excess of the minoritys equityinterest are allocated against the interests of the Group, except to the extent that thenoncontrolling interests have a binding obligation and able to make an additional investment tocover its share of those losses. Acquisitions of noncontrolling interests are accounted for usingthe parent-entity extension method, whereby, the difference between the consideration andthe book value of the share of the net assets acquired is recognized as goodwill.

Changes in Accounting Policies and Disclosures

The accounting policies adopted are consistent with those of the previous financial period,except for the adoption of the following revised and amended PFRS and Philippine


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Interpretations from International Financial Reporting Interpretations Committee (IFRIC) andimprovements to PFRS, which the Group has adopted starting January 1, 2010:

Amendments to PFRS 2, Share-based Payment - Group Cash-settled Share-based PaymentTransactions

Revised PFRS 3, Business Combinations, and Amendments to Philippine Accounting Standard(PAS) 27, Consolidated and Separate Financial Statements

Amendment to PAS 39, Financial Instruments: Recognition and Measurement - EligibleHedged Items

Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to OwnersImprovements to PFRS

PFRS 2, Share-based Payment PFRS 5, Non-current Assets Held for Sale and Discontinued Operations PFRS 8, Operating Segments PAS 1, Presentation of Financial Statements PAS 7, Statement of Cash Flows PAS 17, Leases PAS 36, Impairment of Assets PAS 38, Intangible Assets PAS 39, Financial Instruments: Recognition and Measurement Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign OperationAdoption of the foregoing revised and amended PFRS, Philippine Interpretations from IFRIC andimprovements to PFRS did not have any significant impact on the consolidated financialstatements.

Financial InstrumentsFinancial instruments are recognized in the consolidated balance sheet when the Groupbecomes a party to the contractual provisions of the instrument. The Group determines thecategory of its financial instruments on initial recognition and, where allowed and appropriate,re-evaluates this designation at each balance sheet date.

All regular way purchases and sales of financial assets are recognized on the settlement date.Regular way purchases or sales are purchases or sales of financial assets that require delivery ofassets within the period generally established by regulation or convention in the marketplace.

Financial instruments are recognized initially at fair value of the consideration given (in the caseof 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 includestransaction costs. Financial assets under PAS 39 are categorized as either financial assets atFVPL, 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 otherfinancial 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 financialinstrument 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.

Fair Value

The fair value of financial instruments that are actively traded in organized financial marketsare determined by reference to quoted market bid prices at the close of the business at the


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balance sheet date. For financial instruments where there is no active market, fair value isdetermined using valuation techniques. Such techniques include using recent arms lengthmarket transactions, reference to the current market value of another instrument which is

substantially the same, discounted cash flows analysis and option pricing models.

Fair Value HierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financialinstruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the

recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded

fair value that are not based on observable market data

As of December 31, 2010 and 2009, the Company does not have financial instruments measuredat fair value.

Day 1 Profit or LossWhere the transaction price in a nonactive market is different from the fair value of otherobservable current market transactions in the same instrument or based on a valuationtechnique whose variables include only data from observable market, the Group recognizes thedifference between the transaction price and fair value (a Day 1 difference) in theconsolidated statement of income unless it qualifies for recognition as some other types ofassets. In cases where use is made of data which is not observable, the difference between thetransaction price and model value is only recognized in the consolidated statement of incomewhen the inputs become observable or when the instrument is derecognized. For eachtransaction, the Group determines the appropriate method of recognizing the Day 1

difference amount.

Financial AssetsThe Groups financial assets consist of loans and receivables.

Loans and ReceivablesLoans and receivables are nonderivative financial assets with fixed or determinable paymentsthat are not quoted in an active market. They are not entered into with the intention ofimmediate or short-term resale and are not classified as financial assets held for trading,designated as AFS financial assets or designated at FVPL.

This accounting policy mainly relates to the consolidated balance sheet captions Cash, Tradeand other receivables and noncurrent receivables included under Other noncurrent assets

which arise primarily from restaurant and commissary sales, franchise fees, royalty fees andother types of receivables. Loans and receivables are classified as current assets when they areexpected to be realized within twelve months after the balance sheet date or within the normaloperating cycle whichever is longer. Otherwise, these are classified as noncurrent assets.

Loans and receivables are recognized initially at fair value, which normally pertains to thebillable amount. After initial measurement, loans and receivables are subsequently measuredat amortized cost using the effective interest rate method, less allowance for impairmentlosses. Amortized cost is calculated by taking into account any discount or premium onacquisition and fees that are an integral part of the effective interest rate. The amortization, ifany, is included in Interest income account in the consolidated statement of income. Thelosses arising from impairment of loans and receivables are recognized in the consolidated

statement of income. The level of allowance for probable losses is evaluated by management


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on the basis of factors that affect the collectibility of accounts (see accounting policy onImpairment of Financial Assets Carried at Amortized Cost).

Financial LiabilitiesThe Groups financial liabilities consist of other financial liabilities.

Other Financial LiabilitiesIssued financial liabilities or their components, which are not designated at FVPL arecategorized as other financial liabilities, where the substance of the contractual arrangementresults in the Group having an obligation either to deliver cash or another financial asset to theholder, or to satisfy the obligation other than by the exchange of a fixed amount of cash oranother financial asset for a fixed number of own equity shares. The components of issuedfinancial instruments that contain both liability and equity elements are accounted forseparately, with the equity component being assigned the residual amount after deducting fromthe instrument as a whole the amount separately determined as the fair value of the liabilitycomponent on the date of issue. After initial measurement, other financial liabilities aresubsequently 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 andfees that are an integral part of the effective interest rate. Any effects of restatement offoreign currency-denominated liabilities are recognized in the consolidated statement ofincome.

This accounting policy applies primarily to the Groups Trade and other payables, Loanspayable, Mortgage payable, Debt component of convertible notes and other obligationsthat meet the above definition (other than liabilities covered by other accounting standards,such as income tax payable).

Other financial liabilities are classified as current liabilities when these are expected to besettled within twelve months from the balance sheet date or the Group has an unconditionalright to defer settlement for at least twelve months from the balance sheet date. Otherwise,these are classified as noncurrent liabilities.

Impairment of Financial Assets Carried at Amortized CostThe Group assesses at each balance sheet date whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or a group of financialassets is deemed to be impaired if, and only if, there is objective evidence of impairment as aresult of one or more events that has or have occurred after the initial recognition of the asset(an incurred loss event) and that loss event has an impact on the estimated future cash flowsof the financial asset or the group of financial assets that can be reliably estimated. Objectiveevidence of impairment may include indications that the borrower or a group of borrowers is

experiencing significant financial difficulty, default or delinquency in interest or principalpayments, the probability that they will enter bankruptcy or other financial reorganization andwhere observable data indicate that there is measurable decrease in the estimated future cashflows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables carried at amortized cost, the Group first assesses whether anobjective evidence of impairment (such as the probability of insolvency or significant financialdifficulties 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 objectiveevidence that an impairment loss has been incurred, the amount of loss is measured as thedifference between the assets carrying value and the present value of the estimated futurecash flows (excluding future credit losses that have not been incurred). If the Group determinesthat no objective evidence of impairment exists for individually assessed financial asset,

whether significant or not, it includes the asset in a group of financial assets with similar creditrisk characteristics and collectively assesses for impairment. Those characteristics are relevant


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to the estimation of future cash flows for groups of such assets by being indicative of thedebtors ability to pay all amounts due according to the contractual terms of the assets beingevaluated. 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 forimpairment.

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 hasproven to have no realistic prospect of future recovery, any allowance provided for suchreceivable is written off against the carrying value of the impaired receivable. Interest incomecontinues to be recognized based on the original effective interest rate of the asset. If, in asubsequent year, the amount of the estimated impairment loss decreases because of an eventoccurring after the impairment was recognized, the previously recognized impairment loss isreduced by adjusting the allowance account. Any subsequent reversal of an impairment loss isrecognized in the consolidated statement of income to the extent that the carrying value of theasset does not exceed its amortized cost at reversal date.

Derecognition of Financial InstrumentsFinancial AssetA financial asset (or, where applicable a part of a financial asset or part of a group of similarfinancial assets) is derecognized when:

1. the rights to receive cash flows from the asset have expired;2. the Group retains the right to receive cash flows from the asset, but has assumed an

obligation to pay them in full without material delay to a third party under apass-through arrangement; or

3. the Group has transferred its rights to receive cash flows from the asset and either(a) has transferred substantially all the risks and rewards of the asset, or (b) has

neither transferred nor retained all the risks and rewards of the asset but hastransferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has enteredinto a pass-through arrangement, and has neither transferred nor retained substantially all therisks and rewards of the asset nor transferred control of the asset, the asset is recognized to theextent of the Groups continuing involvement in the asset. Continuing involvement that takesthe form of a guarantee over the transferred asset is measured at the lower of the originalcarrying amount of the asset and the maximum amount of consideration that the Group couldbe required to repay.

Financial Liability

A financial liability is derecognized when the obligation under the liability is discharged or

cancelled or has expired. Where an existing financial liability is replaced by another from thesame lender on substantially different terms, or the terms of an existing liability aresubstantially modified, such an exchange or modification is treated as a derecognition of theoriginal liability and the recognition of a new liability, and the difference in the respectivecarrying amounts of a financial liability extinguished or transferred to another party and theconsideration paid, including any non-cash assets transferred or liabilities assumed is recognizedin the consolidated statement of income.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in theconsolidated balance sheet if, and only if, there is a currently enforceable legal right to offsetthe recognized amounts and there is an intention to settle on a net basis, or to realize the assetand settle the liability simultaneously.


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InventoriesInventories are stated at the lower of cost and net realizable value (NRV). Cost is determinedusing 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 ofstore and kitchen supplies and operating equipment for sale is the current replacement cost. Indetermining NRV, the Group considers any adjustment necessary for spoilage, breakage andobsolescence.

Prepaid ExpensesPrepaid expenses are carried at cost and are amortized on a straight-line basis over the periodof expected usage, which is equal to or less than twelve months or within the normal operatingcycle.

Advances to SuppliersAdvances to suppliers represent advance payments on goods to be purchased or services to beincurred in connection with the Groups operations. These are charged as an expense in theconsolidated statement of income upon actual receipt of goods or services, which is normallywithin twelve months or within the normal operating cycle.

Creditable Withholding Taxes (CWTs)CWTs represent the amount withheld by the Groups customers in relation to its restaurant andcommissary sales. These are recognized upon collection of the related sales and are utilized astax credits against income tax due as allowed by the Philippine taxation laws and regulations.CWTs are stated at their estimated NRV.

Interest in a Joint VentureThe Group has an interest in ICF-CCE, Inc. - A Joint Venture with Far Eastern University, which isa jointly-controlled entity. The Groups interest in a joint venture is accounted for using the

equity method based on the percentage share of capitalization of the Group in accordance withthe joint venture agreement. Under the equity method, the interest in joint ventures arecarried in the consolidated balance sheet at cost plus the Groups share in post-acquisitionchanges in the net assets of the joint venture, less any impairment in value. The consolidatedstatement of income include the Groups share in the results of operations of the joint venture.When the Groups share of losses in joint venture equals or exceeds its interest in the jointventure, the Group does not recognize further losses, unless it has incurred obligations or madepayments on behalf of the joint venture. Where there has been a change recognized directly inthe equity of the joint venture, the Group recognizes its share in any changes and discloses this,when applicable, in the consolidated statement of changes in equity.

The reporting dates of the joint venture and the Group are identical and the joint venturesaccounting 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 areeliminated to the extent of the Groups interest in the joint venture against the relatedinvestments. Unrealized losses are eliminated similarly but only to the extent that there is noevidence 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 interestbecomes held for sale.

Property and EquipmentProperty and equipment is stated at cost less accumulated depreciation and amortization andallowance for impairment in value.

The initial cost of property and equipment comprises of its purchase price, including importduties and nonrefundable purchase taxes and any directly attributable costs of bringing the


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Goodwill is initially measured at cost being the excess of the cost of the business combinationover the Groups share in the net fair value of the acquirees identifiable assets, liabilities andcontingent liabilities. After initial recognition, goodwill is measured at cost less any

accumulated impairment losses. Impairment losses on goodwill are not reversed. For thepurpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Groups cash-generating units (CGUs) that areexpected to benefit from the synergies of the combination, irrespective of whether other assetsor liabilities of the acquiree are assigned to those units.

Rental DepositsRental deposits represent payments for security, utilities and other deposits made in relation tothe lease agreements entered into by the Group. These are carried at cost and will generally beapplied as lease payments toward the end of the lease terms.

Input Value-added Tax (VAT)Input VAT represents VAT imposed on the Group by its suppliers and contractors for theacquisition of goods and services required under Philippine taxation laws and regulations. Theportion of input VAT that will be used to offset the Groups current VAT liabilities is presentedas current asset in the consolidated balance sheet.

The portion of input VAT which represents VAT imposed on the Group for the acquisition ofdepreciable assets with an estimated useful life of at least one year, is required to be amortizedover the life of the related asset or a maximum period of 60 months. This is presented as anoncurrent asset in the consolidated balance sheet.

Input VAT is stated at estimated NRV.

Impairment of Nonfinancial Assets

Property and Equipment, Trademarks and Other Noncurrent Assets (Excluding NoncurrentReceivables and Interest in a Joint Venture)The Group assesses at each balance sheet date whether there is an indication that property andequipment, trademarks and other noncurrent assets (excluding noncurrent receivables andinterest in a joint venture) may be impaired. If any such indication exists, or when annualimpairment testing for an asset is required, the Group estimates the assets recoverableamount. An assets recoverable amount is the higher of an assets or CGUs fair value less coststo sell and its value in use and is determined for an individual asset, unless the asset does notgenerate cash inflows that are largely independent of those from other assets or groups ofassets. Where the carrying amount of an asset exceeds its recoverable amount, the asset isconsidered impaired and is written down to its recoverable amount. In assessing value in use,the estimated future cash flows are discounted to their present value using a discount rate thatreflects current market assessments of the time value of money and the risks specific to the

asset. In determining fair value less costs to sell, an appropriate valuation model is used.These calculations are corroborated by valuation multiples or other available fair valueindicators. Impairment losses from continuing operations are recognized in the consolidatedstatement of income.

For assets excluding goodwill and interest in joint venture, an assessment is made at eachreporting date as to whether there is any indication that previously recognized impairmentlosses may no longer exist or may have decreased. If such indication exists, the Group makes anestimate of recoverable amount. A previously recognized impairment loss is reversed only ifthere has been a change in the estimates used to determine the assets recoverable amountsince the last impairment loss was recognized. If that is the case, the carrying amount of theasset is increased to its recoverable amount. That increased amount cannot exceed the carryingamount that would have been determined, net of depreciation and amortization, had no

impairment loss been recognized for the asset in prior years. Such reversal is recognized in theconsolidated statement of income.


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Goodwill

The Group assesses whether there are any indicators that goodwill is impaired at each reportingdate. Goodwill is tested for impairment annually and when circumstances indicate that the

carrying value may be impaired. Impairment is determined for goodwill by assessing therecoverable amount of the CGUs, to which the goodwill relates. Where the recoverable amountof the CGUs is less than their carrying amount, an impairment loss is recognized. Impairmentlosses relating to goodwill cannot be reversed in future periods. The Group performsimpairment test of goodwill annually or when an impairment indicator exists.

Interest in a Joint Venture

After application of the equity method, the Group determines whether it is necessary torecognize an additional impairment loss on the Groups investment in its joint venture. TheGroup determines at each reporting date whether there is any objective evidence that theinterest in a joint venture is impaired. If this is the case, the Group calculates the amount ofimpairment as the difference between the recoverable amount of the joint venture and its

carrying value and recognizes the amount in the Share in losses of a joint venture in theconsolidated statement of income.

ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation and a reliable estimate can be made of the amount ofthe obligation. If the effect of the time value of money is material, provisions are made bydiscounting the expected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and, where appropriate, the risks specific to theliability. Where discounting is used, the increase in the provision due to the passage of time isrecognized as an interest expense.

Where the Group expects some or all of a provision to be reimbursed, the reimbursement isrecognized as a separate asset but only when the reimbursement is virtually certain. Theexpense relating to any provision is presented in the consolidated statement of income, net ofany reimbursement.

Convertible NotesCompound financial instruments issued by the Group comprise of convertible notes that can beconverted to capital stock at the option of the holder, and the number of shares to be issueddoes not vary with changes in their fair value. The liability component of a compound financialinstrument is recognized initially at the fair value of a similar liability that does not have anequity conversion option. The equity component is recognized initially at the differencebetween the fair value of the compound financial instrument as a whole and the fair value of

the liability component. Any directly attributable transaction costs are allocated to the liabilityand equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument ismeasured at amortized cost using the effective interest method. When there are changes in theestimates of future cash flows on the liability component, the carrying amount is adjusted toreflect the revised estimated cash flows. The revised carrying amount is calculated bycomputing the present value of estimated future cash flows using the original effective interestrate. Such adjustment to the carrying amount is recognized in the consolidated statement ofincome.

The equity component of a compound financial instrument is not remeasured subsequent toinitial recognition. Upon conversion, capital stock and any additional paid-in capital are

recognized while the equity component relating to the converted notes are derecognized.


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Capital Stock and Additional Paid-in CapitalThe Company has issued capital stock that is classified as equity. Incremental costs directlyattributable to the issue of new capital stock are shown in equity as a deduction, net of tax,

from the proceeds. Additional paid-in capital represents the excess of the investors totalcontribution over the stated par value of shares.

Retained EarningsRetained earnings include profits attributable to the Companys stockholders and reduced bydividends. Dividends are recognized as a liability and deducted from equity when they aredeclared. Dividends for the year that are approved after the balance sheet date are dealt withas an event after the balance sheet date. Retained earnings may also include effect of changesin accounting policy as may be required by the transitional provisions of new and amendedstandards.

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow tothe Group and the revenue can be reliably measured. The following specific recognition criteriamust also be met before revenue is recognized:

Restaurant SalesRevenue is recognized when the related orders are served.Commissary SalesRevenue is recognized upon delivery of goods.

Franchise and Royalty FeesRevenue is recognized under the accrual basis in accordance with the terms of the franchiseagreements.

Fees charged for the use of continuing rights granted in accordance with the agreement, orother services provided during the period of the agreement, are recognized as revenue as theservices are provided or as the rights are used.

Interest IncomeRevenue is recognized as the interest accrues using the effective interest rate method.

Other IncomeOther income is recognized when earned.

Costs and ExpensesCosts and expenses are decreases in economic benefits during the accounting period in the formof outflows or decrease of assets or incurrence of liabilities that result in decreases in equity,

other than those relating to distributions to equity participants.

Costs of SalesCosts of sales, which mainly pertain to purchases of food and beverages, direct labor andoverhead directly attributable in the generation of sales, are generally recognized whenincurred.

General and Administrative ExpensesGeneral and administrative expenses are generally recognized when the services are used or theexpenses arise.

Sales and Marketing ExpensesSales and marketing expenses, which represent advertising and other selling costs, are generally

expensed as incurred.


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Retirement Benefit CostsRetirement benefit costs are actuarially determined using the projected unit credit method.This method reflects services rendered by employees to the date of valuation and incorporates

assumptions concerning employees projected salaries. Retirement costs include current servicecost plus amortization of past service cost, experience adjustments and changes in actuarialassumptions. Past service cost is recognized as an expense on a straight-line basis over theaverage period until the benefits become vested. Actuarial gains and losses are recognized asincome or expense when the net cumulative unrecognized actuarial gains and losses at the endof the previous reporting period exceeded 10% of the higher of the defined benefit obligationand the fair value of plan assets at that date. These gains and losses are recognized over theexpected average remaining working lives of the employees participating in the plan.

The defined benefit liability is the aggregate of the present value of the defined benefitobligation and actuarial gains and losses not recognized reduced by past service cost not yetrecognized and the fair value of plan assets out of which the obligations are to be settleddirectly. If such aggregate is negative, the asset is measured at the lower of such aggregate orthe aggregate of cumulative unrecognized net actuarial losses and past service cost and thepresent value of any economic benefits available in the form of refunds from the plan orreductions in the future contributions to the plan.

Operating LeasesOperating leases represent those leases under which substantially all risks and rewards ofownership of the leased assets remain with the lessors. Noncancellable operating leasepayments are recognized as expense in the consolidated statement of income on a straight-linebasis. The difference between the straight-line recognition basis and the actual payments madein relation to the operating lease agreements are recognized under Trade and other payables(if current) and Accrued rent payable (if noncurrent) accounts in the consolidated balancesheet.

Borrowing CostsBorrowing costs directly attributable to the acquisition, construction or production of an assetthat necessarily takes a substantial period of time to get ready for its intended use or sale arecapitalized as part of the cost of the respective assets. All other borrowing costs are expensedin the period they occur. Borrowing costs consist of interest and other costs that an entityincurs in connection with the borrowing of funds.

Foreign Currency TranslationThe functional currency of the entities of the Group is the Philippine Peso except for PHII, onwhich the functional currency is the United States dollar ($). Each entity in the Groupdetermines its own functional currency and items included in the financial statements of eachentity are measured using that functional currency. Transactions in foreign currencies are

initially recorded at the functional currency rate ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are retranslated at the functionalcurrency rate of exchange ruling at the balance sheet date. All differences are taken to theconsolidated statement of comprehensive income.

The assets and liabilities of PHII are translated into Philippine Peso at the rate of exchangeruling at the balance sheet date and income and expenses are translated to Philippine Peso atmonthly average exchange rates. The exchange differences arising on the translation are takendirectly to other comprehensive income and presented as a separate component of equity underthe Accumulated translation adjustment account.

Income TaxesCurrent Income Tax

Current income tax liabilities for the current and prior periods are measured at the amountexpected to be paid to the taxation authorities. The income tax rates and income tax laws used


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to compute the amount are those that are enacted or substantively enacted as of the balancesheet date.

Deferred Income TaxDeferred income tax is provided, using the balance sheet liability method, on all temporarydifferences at the balance sheet date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except: where the deferred income tax liability arises from the initial recognition of goodwill or

of an asset or liability in a transaction that is not a business combination and, at thetime of the transaction, affects neither the accounting profit nor taxable profit or loss;and

in respect of taxable temporary differences associated with investments in subsidiaries,where the timing of the reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences,carryforward of unused tax credits from excess minimum corporate income tax (MCIT) andunused net operating loss carryover (NOLCO) to the extent that it is probable that taxable profitwill be available against which the deductible temporary differences and carryforward of unusedtax credits from excess MCIT and unused NOLCO can be utilized.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date andreduced to the extent that it is no longer probable that sufficient taxable profit will beavailable to allow all or part of the deferred income tax assets to be utilized. Unrecognizeddeferred income tax assets are reassessed at each balance sheet date and are recognized to theextent 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 applyto the period when the asset is realized or the liability is settled, based on tax rates (and taxlaws) that have been enacted or substantively enacted at the balance sheet date.

Deferred income tax assets and deferred income tax liabilities are offset, if a legallyenforceable right exists to set off current income tax assets against current income taxliabilities and the deferred income taxes relate to the same taxable entity and the sametaxation authority.

Operating SegmentsThe Group operates using its different trade names on which operating results are regularly

monitored by the chief operating decision maker (CODM) for the purpose of making decisionsabout resource allocation and performance assessment. The CODM has been identified as theChief Executive Officer of the Group. However, as permitted by PFRS 8, the Group hasaggregated these segments into a single operating segment to which it derives its revenues andincurs expenses as these segments have the same economic characteristics and are similar inthe following respects:

a) the nature of products and services;b) the nature of production processes;c) the type or class of customer for the products and services; andd) the methods used to distribute their products and services.

Earnings Per Share (EPS) Attributable to the Equity Holders of the ParentBasic EPS is computed by dividing net income for the year attributable to common shareholders

by the weighted average number of common shares outstanding during the year, withretroactive adjustments for any stock dividends declared and stock split.


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Philippine Interpretation IFRIC 19 is effective for annual periods beginning on or afterJuly 1, 2010. The interpretation clarifies that equity instruments issued to a creditor toextinguish a financial liability qualify as consideration paid. The equity instruments issued are

measured at their fair value. In case that this cannot be reliably measured, the instruments aremeasured at the fair value of the liability extinguished. Any gain or loss is recognizedimmediately in the statement of income. The Group expects that the amendment will have nomaterial impact on the consolidated financial statements.

Improvements to PFRS Effective 2011The omnibus amendments to PFRSs issued in 2010 were issued primarily with a view to removinginconsistencies and clarifying wording. The amendments are effective for annual periodsbeginning on or after January 1, 2011 except otherwise stated. The Group has not yet adoptedthe following amendments and anticipates that these changes will have no material effect on itsconsolidated financial statements.

PFRS 3, Business Combinations

PFRS 7,Financial Instruments: Disclosures PAS 1,Presentation of Financial Statements PAS 27, Consolidated and Separate Financial Statements Philippine Interpretation IFRIC 13, Customer Loyalty ProgrammesEffective in 2012

Amendment to PFRS 7, Financial Instruments: Disclosures - Transfers of Financial AssetsThe amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011.The amendments will allow users of financial statements to improve their understanding oftransfer transactions of financial assets (for example, securitizations), including understandingthe possible effects of any risks that may remain with the entity that transferred the assets.

The amendments also require additional disclosures if a disproportionate amount of transfertransactions are undertaken around the end of a reporting period.

Amendment to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying AssetsThe amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012.It provides a practical solution to the problem of assessing whether recovery of an asset will bethrough use or sale. It introduces a presumption that recovery of the carrying amount of anasset will normally be through sale. The Group will assess the impact of the amendment on itscurrent manner of recognizing deferred income taxes.

Philippine Interpretation IFRIC 15,Agreements for the Construction of Real EstateThis Interpretation, effective for annual periods beginning on or after January 1, 2012, coversaccounting for revenue and associated expenses by entities that undertake the construction of

real estate directly or through subcontractors. The Interpretation requires that revenue onconstruction of real estate be recognized only upon completion, except when such contractqualifies as construction contract to be accounted for under PAS 11, Construction Contracts, orinvolves rendering of services in which case revenue is recognized based on stage of completion.Contracts involving provision of services with the construction materials and where the risks andreward of ownership are transferred to the buyer on a continuous basis will also be accountedfor based on stage of completion.

Effective in 2013

PFRS 9,Financial InstrumentsPFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 andapplies to classification and measurement of financial assets and financial liabilities as definedin PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013.In subsequent phases, hedge accounting and derecognition will be addressed. The completion


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of this project is expected in early 2011. The adoption of the first phase of PFRS 9 will have aneffect on the classification and measurement of the Groups financial assets. The Group willquantify the effect in conjunction with the other phases, when issued, to present a

comprehensive picture.

3. Significant Accounting Judgments and EstimatesThe consolidated financial statements prepared in accordance with PFRS require management tomake judgments and estimates that affect amounts reported in the consolidated financialstatements and related notes. The judgments and estimates used in the consolidated financialstatements are based upon managements evaluation of relevant facts and circumstances as ofthe date of the consolidated financial statements. Actual results could differ from suchestimates.

Judgments and estimates are continually evaluated and are based on historical experiences andother factors, including expectations of future events that are believed to be reasonable underthe circumstances.

JudgmentsOperating Lease Commitments - The Group as LesseeThe Group has entered into commercial property leases on its outlets and administrative officelocation. The Group has determined that all the significant risks and rewards of ownership ofthese properties remain with the lessors. Accordingly, these leases are accounted for asoperating leases (see Notes 15 and 21).

Operating SegmentsAlthough each trade name represents a separate operating segment, management has

concluded that there is basis for aggregation into a single operating segment as allowed underPFRS 8 due to their similar characteristics. This is evidenced by a consistent range of grossmargin across all brand outlets as well as uniformity in sales increase and trending for alloutlets, regardless of the brand name. Moreover, all trade names have the following businesscharacteristics:

(a) Similar nature of products/services offered and methods to distribute products and provideservices, that is, food service through casual dining experience;

(b) Similar nature of production processes through establishment of central commissary for theGroup 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.Useful Life of TrademarksTrademarks represent the value of the Groups externally acquired trade names, which wererecorded at estimated fair market value at the time of acquisition. Trademarks are assessed tohave a finite useful life of 20 years from the date of acquisition.

EstimatesEstimating Impairment of Trade and Other Receivables and Noncurrent ReceivablesManagement reviews the age and status of these receivables and identifies accounts that are tobe provided with allowances on a continuous basis. The Group maintains allowances forimpairment losses at a level considered adequate to provide for potential uncollectiblereceivables.

Allowance for impairment losses amounted to P=22.2 million as of March 31, 2011 and December

31, 2010. The aggregate carrying amounts of trade and other receivables and noncurrentreceivables (included under Other noncurrent assets account), net of allowance for


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impairment losses, amounted to P=277.3 million and P=255.9 million as of March 31, 2011 andDecember 31, 2010, respectively (see Notes 4 and 10).

Estimating NRV of InventoriesThe Group estimates the allowance for inventory losses related to store and kitchen suppliesand operating equipment for sale whenever the utility of these inventories becomes lower thancost due to damage, physical deterioration or obsolescence. Due to the nature of the food andbeverage inventories, the Group conducts monthly inventory count and any resulting differencefrom quantities that are currently recognized is charged to expense. Inventories at costamounted to P=47.2 million and P=72.7 million as of March 31, 2011 and December 31, 2010,respectively (see Note 5).

Estimating Useful Lives and Impairment of Property and EquipmentThe Group reviews annually the estimated useful lives of property and equipment based onexpected asset utilization as anchored on business plans and strategies that also considerexpected future technological developments and market behavior. The estimated useful livesare reviewed periodically and are updated if expectations differ from previous estimates due tophysical wear and tear, technical or commercial obsolescence and legal or other limits on theuse of these assets. In addition, estimation of the useful lives is based on collective assessmentof industry practice, internal technical evaluation and experience with similar assets. It ispossible that future results of operations could be materially affected by changes in theseestimates brought about by changes in the factors mentioned.

The Group also assesses impairment on these assets whenever events or changes incircumstances indicate that the carrying amount of property and equipment may not berecoverable. The factors that the Group considers important which could trigger an impairmentreview include the following:

Significant underperformance relative to expected historical or projected futureoperating 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 fromthe continued use of the assets, the Group is required to make judgments and estimates thatcan materially affect the consolidated financial statements.

There were no impairment indicators noted for property and equipment in 2011 and 2010. Thenet book values of property and equipment amounted to P=225.6 million and P=240.7 million as ofMarch 31, 2011 and December 31, 2010, respectively (see Note 7).

Estimating Useful Life and Impairment of TrademarksThe Group estimates the useful lives of trademarks based on the period over which assets areexpected to benefit the financial performance of the Group. The estimated useful lives arereviewed periodically and are updated if expectations differ from previous estimates due totechnical or commercial obsolescence and legal or other limits on the use of the trademarks.

Changes in the expected useful life or the expected pattern of consumption of future economicbenefits embodied in the asset is accounted for by changing the amortization period or method,as appropriate, and treated as changes in accounting estimates.

Due to the stiff competition in the industry where the Group operates and the uncertainty in thebusiness environment, the Group subjects the trademarks to annual impairment testing,

together with goodwill, to assess reasonableness of its assigned useful life. Assessment forimpairment requires an estimation of the value in use of the CGUs to which the trademarks are


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allocated. Estimating the value in use requires the Group to make an estimate of the expectedfuture cash flows from the CGUs and also to choose a suitable discount rate in order to calculatethe present value of those cash flows.

Based on projections made by management on cash flows arising from the investees where thetrademarks relate, the recoverable amounts of the CGUs calculated based on value in use aregreater than the corresponding carrying values of the CGUs as of December 31, 2010 and 2009.The carrying values of trademarks amounted to P=380.6 million and P=387.8 million as ofMarch 31, 2011 and December 31, 2010, respectively (see Note 8).

Estimating Impairment of GoodwillThe Group tests annually whether any impairment in goodwill is to be recognized, in accordancewith the accounting policy stated in Note 2. The recoverable amounts of CGUs have beendetermined based on value in use calculations which require the use of estimates. Based on theimpairment testing conducted, the recoverable amounts of the CGUs as of March 31, 2011 andDecember 31, 2010 calculated based on value in use are greater than the corresponding carryingvalues (including goodwill) of the CGUs as of the same dates. The carrying amount of goodwillas of March 31, 2011 and December 31, 2010 amounted to P=91.9 million (see Note 9).

Estimating Debt Component of Convertible NotesThe determination of the debt component of the convertible notes is based on the discountedamount of future cash flows of the interest payments since the notes are mandatorilyconvertible into a fixed number of common shares after the lapse of the term. Interestpayments represent the higher of consolidated net income or the dividends that the noteholderswould have been entitled to as discussed in Note 13. Effectively, the dividends on commonshares would serve as the minimum interest on the note. However, it is difficult to estimatethese future dividends since there are no committed dividends on the Companys commonshares and a pattern or trend could not also be determined based on prior years dividend

payments. Consequently, the liability component was calculated based on the consolidatedforecasted net income. The liability component is adjusted at each balance sheet date whenthere are significant changes in the consolidated forecasted net income using the originaleffective interest rate at the date of inception of the convertible notes. Such adjustment isrecognized in the consolidated statement of income.

The accrued interest and current portion of debt component of convertible notes, presented aspart of Trade and other payables account, amounted to P=2.7 million and P=2.1 million as ofMarch 31, 2011 and December 31, 2010, respectively. The noncurrent portion of debtcomponent of convertible notes amounted to P=14.2 million as of March 31, 2011 and December31, 2010, respectively (see Note 13).

Estimating Retirement Benefit Costs

The determination of the Groups obligation and pension cost is dependent on the selection ofcertain assumptions used by the actuaries in calculating such amounts, which are described inNote 18.

Retirement benefit costs (income) amounted to P=1.4 million, P=0.6 million) and P=0.5 million forthe three months ended March 31, 2011, 2010, 2009, respectively. Accrued retirement liabilityamounted to P=8.6 million and P=7.2 million as of March 31, 2011 and December 31, 2010,respectively (see Note 18).

Estimating Realizability of Deferred Income Tax AssetsThe Group reviews the carrying amounts of deferred income tax assets at each balance sheetdate and reduces the amounts to the extent that it is no longer probable that sufficient taxableprofit 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


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timing and level of future taxable profits together with future planning strategies to which thedeferred income tax assets can be utilized.

The carrying values of deferred income tax assets amounted to P=48.9 million and P=39.2 millionas of March 31, 2011 and December 31, 2010, respectively (see Note 19).

Estimating Contingent LiabilitiesThe Company and PHVI are currently involved in a legal proceeding. The estimate of theprobable costs for the resolution of this claim has been developed in consultation with outsidecounsel handling the Companies defense in this matter and is based upon an analysis ofpotential results. The Company and PHVI currently do not believe that this proceeding will havea material adverse effect on the consolidated financial position, thus, no accrual were made inthe books. It is possible, however, that future results of operations could be materially affectedby changes in the estimates or in the effectiveness of the strategies relating to this proceeding[see Note 25(a)].

4. Trade and Other ReceivablesAs of March 31,

2011

As of December

31, 2010

Receivable from sale of asset group , , , ,

Trade 69,834,060 65,236,224

Due from ICF-CCE, Inc. 40,084,831 35,242,424

Royalties 24,825,330 17,790,258

Officers and employees 16,229,287 11,430,287

Credit Card Receivable 3,665,969 2,698,040Others 59,038,198 51,352,113

297,187,675 272,259,346

Less: Allowance for impairment losses 22,189,500 22,189,500

274,998,176 250,069,846

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 providedeposits, which is equivalent to an estimate of 15-day purchases, as guarantee on their payablesto the Group. As of March 31, 2011 and December 31, 2010, the value of deposits which isrecorded under Trade and other payables account amounts to P=14 million and P=19 million,

respectively (see Note 11). The deposits are applied against the overdue purchases of thefranchisees.

Other receivables primarily pertain to noninterest-bearing reimbursable costs incidental to theoperations of the franchise stores and are normally settled on 30-60 days terms.

5. InventoriesAs of March 31,

2011

As of December

31, 2010

Food and beverage 32,778,981 56,163,637

Store and Kitchen Supplies 9,686,542 15,619,017

Operating equipment for sale 4,745,005 926,046

47,210,529 72,708,700


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All categories of inventories are carried at cost. The aggregate amount of inventoriesrecognized under cost of sales (under Food and beverage and Supplies and equipment sold)

in the consolidated statements of income amounted to P=149.2 million, P=145.2 million and P=145.1million for the three months ended March 31, 2011, 2010, and 2009, respectively (see Note 16).

6. Prepaid Expenses and Other Current AssetsAs of March 31,

2011

As of December

31, 2010

Advances to suppliers 40,062,973 32,792,179

Prepaid expenses 29,850,092 17,887,558

CWT's 16,467,345 14,479,916

Others 14,613,824 3,397,534100,994,235 68,557,187

Other current assets mainly include prepaid input VAT, unused supplies and advanced freightcosts.


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7. Property and EquipmentAs of March 31, 2011

Leasehold

Improvement

Store

Equipment

Transpo

Equipment

Office Fur,

Fixt &

Equipment

Kitc

Equipm

Cost

Beginning balances 472,624,890 337,212,000 36,243,996 56,289,385 48,5

Acquisitions 5,125,317 4,567,322 1,089,235 7

Ending balances 477,750,207 341,779,322 36,243,996 57,378,620 49,2

471,534,365 341,779,323 33,617,580 57,378,620 49,2

Accumulated amortization

Beginning balances 317,067,893 273,398,724 25,280,692 48,068,983 45,5

Depreciation and amortization 14,812,226 10,247,790 1,759,025 1,169,670 6

Ending balances 331,880,119 283,646,514 27,039,717 49,238,653 46,1

#REF! 283,646,513 26,129,119 49,238,653 46,1

Allowance for impairment losses 1,385,344

Net book values 145,870,088 56,747,465 9,204,279 8,139,967 3,09


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8. TrademarksAs of March 31,

2011

As of December

31, 2010

Cost:

Balances at beginning of year 562,476,229 562,176,529

Additions - 299,700

Balances at end of year 562,476,229 562,476,229

Accumulated amortization:

Balances at beginning of year 174,677,446 146,171,530

Amortization 7,175,501 28,249,588

Translation adjustment 256,328

Balances at end of year 181,852,947 174,677,446

380,623,282 387,798,783

9. GoodwillGoodwill acquired through business combination has been attributed to the following brandswhich are conside

pckh quarterly report

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