SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A, AS AMENDED
ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2012 2. SEC Identification Number 77487 3. BIR Tax Identification Number 000-388-771 4. Name of Registrant Jollibee Foods Corporation 5. Province, Country or other Jurisdiction of Incorporation or Organization Pasig City, Philippines 6. Industry Classification Code 7. Address of Principal Office 10th Floor Jollibee Plaza, 10 Emerald
Avenue, Ortigas Center, Pasig City Postal Code 1600 8. Registrant’s Telephone Number 634-1111 9. Former name, former address, and former fiscal year, if changed since last report N/A 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the
RSA:
Title of Each Class Number of Shares of Common Stock Outstanding
Common Shares 1,046,041,635 Treasury Shares 16,447,340
Note: Total outstanding common shares inclusive of 75,487 MSOP shares exercised by employee participants, to be deducted from the 1,000,000 MSOP shares (per PSE disclosure No. WLIST_2012000017673 dated November 9, 2012) lodged with Deutsche Regis Partners, Inc. on November 9, 2012. It also includes 785,765 ELTIP shares exercised by employee participants, to be deducted from the 1,400,000 shares (per PSE Disclosure No. WLIST_2012000011273 dated July 9, 2012) lodged also with Deutsche Regis Partners, Inc. on July 9, 2012. 11. ALL of these securities are listed on the Philippine Stock Exchange.
Jollibee Foods Corporation 2012 Annual Report
2
12. Reports filed by the Registrant
(a) Registrant has filed all reports to be filed under Section 17 of the SRC and SRC Rule 17.1 thereunder or Section 11 of the RSA and RSA rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding twelve (12)-months.
(b) Registrant has been subject to such filing requirements for the past ninety (90)
days. 13. Aggregate market value of the voting stock held by non-affiliates of the Registrant as of
December 31, 2012:
Total number of outstanding shares 1,045,402,922 Less: Outstanding Shares held by Affiliates 599,305,034 Shares held by Non-Affiliates 446,097,888 Average price as of December 31, 2012 PhP103.41 Aggregate market value of voting stock held by Non-Affiliates
20,593,123,036
Level of Public Float based on information available as of December 31, 2012
40%1
DOCUMENTS INCORPORATED BY REFERENCE NONE of the following documents are incorporated by reference:
(a) Any annual reports to the security holder; (b) Any proxy information statement filed pursuant to SRC Rule 20; or (c) Any prospectus filed pursuant to SRC Rule 8.1.
1 Per submission to the Philippine Stock Exchange dated December 31, 2012.
Jollibee Foods Corporation 2012 Annual Report
3
PART I. BUSINESS AND GENERAL INFORMATION 1. BUSINESS JOLLIBEE FOODS CORPORATION (“JFC” or the “Company”) was incorporated on January 28, 1978. Its principal business is the development, operation and franchising of quick-service restaurants under the trade name “Jollibee.” In the Philippines, the Company has, as subsidiaries, FRESH N’ FAMOUS FOODS, INC., which develops, operates and franchises quick-service restaurants under the trade names “Chowking” and “Greenwich,” RED RIBBON BAKESHOP, INC. (through RRB HOLDINGS, INC.), which develops, operates and franchises restaurants under the “Red Ribbon” trade name, MANG INASAL PHILS., INC. (of which the Company owns 70%), which develops, operates and franchises restaurants under the “Mang Inasal” trade name, and PERF RESTAURANTS INC., (through holding companies, of which the Company owns 54%) which franchises restaurants under the “Burger King” trademark in the Philippines. The Company also has subsidiaries and affiliates which develop and operate its international brands, “Yonghe King,” “Hongzhuangyuan,” “San Pin Wang,” brands under the SuperFoods Group2 and, most recently, “12 Sabu.”3 Milestones and updates for subsidiaries and affiliates are discussed further in other parts of this Report. By the end of 2012, there are 780 Jollibee stores nationwide, of which 393 are franchised and 387 are Company-owned. There were also 92 Jollibee stores overseas, including stores in the United States, Vietnam, Hongkong, Brunei, Jeddah, Kuwait and Qatar. The stores offer food products that are prepared on-site based on original Company recipes, using Company-specified ingredients and supplies, and in accordance with Company standards and procedures. These products are sold under various trademarks including but not limited to Champ, Chickenjoy and Yum. Aside from continuing to bring the langhap-sarap experience to more Filipinos across the archipelago, Jollibee reclaimed value leadership and product superiority through the launch of the “Always Affordelicious” campaign on core products – Chickenjoy, Yumburger and Jollibee Spaghetti, and the introduction of new products like the Chicken and Mushroom Pasta, Sundae Mix-ins Milo Blast, Chocolate and Coffee Floats, Crisscut Fries and the Crispy Wings. On the marketing front, “Jollibee” signed American Idol season 11 first runner up Fil-Am Jessica Sanchez as our very first international brand ambassador for “Chicknjoy.” It also sealed tie-ups with various institutions, including the “Jollibee Padala” tie-up where Filipinos working abroad can order “Jollibee” products for delivery to family and friends in the Philippines. In the local setting, “Jollibee” mounted the Jollibee Drive-thru Cross Country Challenge to showcase the widest network of drive-thru stores in the Philippines. It also supports the
2 On January 20, 2012, the Company disclosed that through its wholly-owned subsidiary, Jollibee Worldwide Pte. Ltd. (“JWPL”), it completed its acquisition of 50% share of the business of the Superfoods Group. The Superfoods Group owns or franchises, and operates various brands, including Highlands Coffee, Pho 24 and Hard Rock Cafe.
3 On August 22, 2012, the Company disclosed that through its wholly-owned subsidiary Jollibee Worldwide Pte. Ltd., it entered into an agreement to own and operate the 12 Sabu brand in the People’s Republic of China, Hong Kong and Macau.
Jollibee Foods Corporation 2012 Annual Report
4
Department of Tourism’s “Its More Fun in the Philippines” campaign where the Happy Filipino website was launched. In international operations, Jollibee maintained its 92 store count at the end of 2012 with 27 stores in the United States, 39 in Vietnam, 13 in Brunei, 1 in Hong Kong and 12 in the Middle East. The Company continues to operate its central commissary in Carmelray, Calamba, Laguna through ZENITH FOODS CORPORATION (“ZFC”), a wholly-owned subsidiary which has facilities in Carmelray, Canlubang, Laguna and Mandaue City, Cebu. The commissaries have the collective capacity to serve 800 stores in Luzon, Visayas and Mindanao. With the commissaries as the focal point, the Company’s Corporate Supply Chain unit has direct responsibility over the product supply needs of the Jollibee Group of Companies, manages sales and operations planning and manufacturing and logistics requirements while closely collaborating with other key divisions. In addition, Mang Inasal Phils., Inc. operates commissaries in Taguig and Iloilo City. The Company also opened a new warehousing and distribution center in Brgy. Marcelo Green Village, Paranaque City. The 5 hectare property aims to serve an estimated 1,300 stores nationwide. Its dry storage is one of the biggest in the Philippines and is targeted to serve 800 stores. On the other hand, the cold storage boasts of modern automated refrigeration system technology and is likewise one of the biggest of its kind in the Philippines. This distribution center is managed by JOLLIBEE WORLDWIDE SERVICES, the regional operating headquarters of the Jollibee Group of Companies. Economies of scale allow the Company to avail of low purchase costs from local and foreign suppliers, leveraged on sustained volume growth and reliable credit handling. The Company’s major suppliers are the following: Food Supplier Chicken SAN MIGUEL FOODS, INC. 19th Floor San Miguel Properties Center St. Francis St., Ortigas Center, Mandaluyong City Carbonated COCA-COLA BOTTLERS PHILIPPINES, INC. Beverages 1890 Paz Guazon Street, Otis, Paco, Manila Sauces and DEL MONTE PHILIPPINES, INC. Beverages Bugo, Cagayan De Oro City Beverages NESTLE PROFESSIONALS Nestle Center, Rockwell Center, Makati City Dressings UNILEVER PHILIPPINES UN Avenue, Paco, Manila The Company’s subsidiaries have their own commissaries for their respective specialty products, i.e., pizza and pasta for Greenwich, Chinese dishes for Chowking, cakes and pastries for Red Ribbon, grilled chicken and Filipino food items for Mang Inasal, products for Burger King and Chinese food items for Yonghe King, Hongzhuangyuan and San Pin Wang in China. In July
Jollibee Foods Corporation 2012 Annual Report
5
2010, the Company disclosed that it had entered into a joint venture agreement with Hua Xia Harvest Holdings Pte. Ltd. to build and operate a food processing plant in Shucheng County in Anhui Province of China.4 Food quality, service, price-value relationship, store location and ambience, and efficient operations continue to be critical elements of the Company’s success in the quick-service restaurant industry. ACQUISITIONS AND INVESTMENTS Joint Venture (Coffee, Asian Food Business) On May 20, 2011, the Company’s wholly-owned subsidiary, Jollibee Worldwide Pte. Ltd. (“JWPL”), signed a Framework Agreement with Viet Thai International Joint Stock Company and its related parties to establish a platform for owning and operating a portfolio of restaurants in various territories including Vietnam, Hong Kong, Macau, and Southern China. The Company completed the acquisition of 50% share of the business of the Superfoods Group in January 2012, consisting of a 49% share in a Vietnam company and 60% share in a Hong Kong Company. As of December 31, 2012, Highlands Coffee has 75 stores in Vietnam while Pho 24 has 62 restaurants. Joint Venture (Jollibee Singapore) On May 16, 2012, the Company disclosed that its wholly-owned subsidiary, Golden Plate Pte. Ltd., has entered into an agreement to form a company together with Beeworks, inc. to own and operate Jollibee stores in Singapore. GPPL will own 60% of the joint venture company. The first Jollibee restaurant in Singapore opened in March 2013. Joint Venture (12 Sabu) On August 22, 2012, the Company disclosed that JWPL and GPPL have entered into an agreement to establish a company to own and operate the 12 Sabu brand in the People’s Republic of China, Hong Kong and Macau. JWPL and GPPL combined will own 48% of the joint venture company. The 12 Sabu brand features low-priced hot pot dishes served in a clean and bright dining environment. It highlights safe and fresh food which each customer cooks in individual fast-heating stone hot pots. As of 2011, there were eighteen 12 Sabu stores operating in Taiwan.
4 The joint venture shall undertake food manufacturing operations to supply food products to food service businesses primarily of the Jollibee Group of Companies. As its initial project, the joint venture plans to supply products for the Jollibee Group of Companies’ restaurants in China, initially, Yonghe King, for its stores in Shanghai and Beijing.
Jollibee Foods Corporation 2012 Annual Report
6
EMPLOYEES JFC and its commissaries have approximately 13,133 employees in 2012, 2,678 of which are employed on a full-time basis, and 10,455 on a contractual basis. The regular daily-paid employees of JFC are subject to a collective bargaining agreement which expires on February 28, 2017. COMPETITION The Company competes in the quick-service restaurant industry. It has presence all over the country and is the biggest fast food company in the Philippines. The Company’s competitive edge includes strict adherence to its policy of maintaining high standards in food quality, reasonable prices, excellent service and cleanliness in its stores. Taking the Jollibee group in its entirety, competition includes, but is not limited to, McDonald’s, Wendy’s, KFC, and other burger, pizza and pasta chains, Chinese fast-food restaurants, grilled chicken and Filipino restaurants, and bakeshops. CUSTOMERS The Company serves a wide spectrum of customers from all economic classes. It is not dependent on a single customer or few customers. Neither is there a single customer that accounts for, or will account for, 20% or more of the Company’s sales. RELATED PARTIES The Company runs its business independently of its subsidiaries and other related parties. There is no dependence on the Company’s related parties. PERMITS AND APPROVALS Other than the reportorial requirements of the SEC, the Bureau of Internal Revenue (“BIR”), and the local permits for the opening and continued operations of stores, there are no other permits, licenses or approvals required from the Company for its operations. The Company is in compliance with the requirements of the SEC, BIR and local governments. RESEARCH AND DEVELOPMENT Research and development is an integral part of the Company’s operations. New products, concepts and ideas are critical to the continued success of the Company and its subsidiaries. For this reason, the Company allocates a Research and Development budget as indicated below for the Jollibee Philippines brand:
Year Amount Percentage to Systemwide Sales of Jollibee Brand
2011 PhP70,923,150.00 .17% 2012 PhP56,762,832.00 .13%
ENVIRONMENTAL LAWS Strict compliance with environmental laws would entail substantial capital investment for the Company. The Company will spend, on the average, PhP1,000,000.00 per store to retrofit each
Jollibee Foods Corporation 2012 Annual Report
7
store with a Wastewater Treatment Facility (“WWTF”). Additionally, operation expenses is pegged at PhP10,000.00 per month to maintain the WWTF. RISKS The Company and its subsidiaries are all in the quick-service restaurant sector. Quick-service restaurants like those maintained by the Company are expected to maintain high quality in terms of food, service and cleanliness (“FSC”). The Company responds by observing stringent guidelines, processes and procedures in its FSC, and conducting regular and spot audits to ensure that FSC standards are maintained not only in stores but also in commissaries. The Company has likewise instituted a system of incentives to reward excellent performance in terms of FSC by stores. ADDITIONAL REQUIREMENTS AS TO CERTAIN ISSUES OR ISSUERS The Company has no additional requirements as to certain issues or issuers. SUBSIDIARIES AND AFFILIATES The company owns, develops, operates and franchises the following brands through various subsidiaries:
Chowking Chowking’s challenge in 2012 was to maintain its presence in the fastfood market. In 2012, Chowking further improved taste and value to drive customers to its stores by focusing on the Chinese Style Fried Chicken, Chao Fan and Chao Pao. Chowking also improved further its front-and back-end operations for better and faster service. As of December 2012, Chowking is operating 386 stores in the Philippines, 147 of which are company-owned and 239 of which are franchised. 2012 also saw marked improvements in Chowking’s international operations. These include the opening of 3 more stores in the United Arab Emirates, and the opening of the first store in the sultanate of Oman. Chowking USA also introduced new products in its menu which produced positive results among customers, particularly the introduction of the Salt & Pepper Pork with Jalapeno slices and the Orange Chicken. Chowking USA capped off a strong year with the opening of the first Chowking store in Anaheim, California. As of year-end, there are 44 stores outside the Philippines -- 19 stores in the United States, 19 in Dubai, 2 in Indonesia, 3 in Qatar and 1 in Oman. Greenwich Various initiatives placed Greenwich’s flagship products in the forefront. In 2012, Greenwich’s “Better Than Any Other” communications campaign highlighted the superior taste of its Ultimate Special Overload and Ultimate Hawaiian Overload pizzas. 2012 also saw Greenwich stepping into the world of social media through Facebook and Twitter which featured online campaigns and famous personalities and the online launch of the Crispy Glazed Chicken.
Jollibee Foods Corporation 2012 Annual Report
8
Greenwich also made its presence felt in customers’ homes through its improved delivery service and the launch of the Ultimate Green Card, a rewards card for frequent home delivery customers. Greenwich complimented all these efforts with store renovations to carry the new look, cementing its role as the ultimate Favorite ng Barkada in the Philippines. As of December 2012, Greenwich had 202 stores nationwide, with 2 of those participating in the Company’s “multibrand” stores. Greenwich ended the year 2012 with 123 company-owned and 77 franchised stores. “Chowking” and “Greenwich” are business units of Fresh N’ Famous Foods, Inc., a wholly-owned subsidiary of the Company. Red Ribbon Red Ribbon completes a record-breaking performance in 2012 by registering the highest company profit in its history. In 2012, Red Ribbon launched campaigns to further intensity the market position of its signature products – Black Forest, Butter Mamon, Triple Chocolate Roll and Ultimate Chocolate Cake. Other highlights are initiatives on commissary efficiency, productivity efficiency and cost consciousness. In the Philippines, “Red Ribbon” had 212 stores as of December 2012, 125 of which are company-owned and 87 franchised stores. On the international front, Red Ribbon USA repositioned its brand image from a “cakeshop for special occasions” to a “bakeshop for everyday.” Strong value-for-money flagship products were offered to drive long-term brand equity. Noteworthy are the Butter Mamon and Ultimate Chocolate Cake campaigns and the re-launch of the Mango Cake. In the United States, “Red Ribbon” had 32 company-owned stores at the end of 2012. Mang Inasal Mang Inasal focused on brand building and reinforcing brand strategy in 2012. It improved site selection process, product development and commissary development to provide better products to its customers. 2012 witnessed the introduction of the Dinuguan and Puto and the celebration of Mang Inasal’s flagship product, the Barbecue Chicken, on television, radio and billboards across the country. Mang Inasal also launched a new tagline for its Chicken Inasal -- “Wow sa Laki, Nuot Sa Sarap.” As of December 2012, Mang Inasal had 465 stores, 52 of which are company-owned and 413 are franchised stores. It also operates 2 commissaries, one in Iloilo City and another in Taguig, Metro Manila.
Jollibee Foods Corporation 2012 Annual Report
9
Burger King Burger King made its presence felt in 2012 with the launch of the thematic campaign featuring the world-famous flagship product – the Whopper, which generated significant positive awareness for Burger King’s burgers. Supported by cable television advertisement placements, billboards and in-store merchandising materials, the campaign improved the Whopper’s good value for money rating. 2012 also witnessed the rebirth of the flame-grilled Angus Steakhouse Burger and the launch of the flame-grilled barbeque cheeseburger. The year was topped off with the “Free Fries Weekend” promo to reward loyal customers. Burger King opened five (5) new restaurants in prime locations using the “Garden Grill” concept which accentuates the brand’s core brand equity of “flame-grilling” as well as providing customers with a taste of American life. As of December 31, 2012, there were 29 Burger King stores.
Yonghe King 2012 was a challenging year for the restaurant industry in China with the slow down in China’s economic growth rate. Rising to the challenge, Yonghe King focused on building its brand image with the introduction of its “Every Day Value Meals.” Yonghe King repositioned itself as the Chinese Quick Service Restaurant (“CQSR”) which featured delicious, value-for-money, Taiwan-inspired dishes. Yonghe King also re-launched its flagship products, Soy Milk and Youtiao, Minced Pork Rice, Three Cups Chicken and Beef Noodles. These received positive feedback from customers making Yonghe King the No. 1 CQSR in China, as awarded by the China Brand Power Index for the second year in a row. Yonghe King was also awarded China’s “7 Stars Award” which outstanding recognized efforts in food safety. To celebrate Yonghe King’s 17th anniversary (since the opening of its first store in Shanghai, People’s Republic of China in 1995), Yonghe King created the biggest Youtiao in the planet, as witnessed by the Guinness World Record organization. As of December 2012, “Yonghe King” had 292 company-owned stores and 5 franchised stores spread over 21 cities in the PRC. In 2012 alone, Yonghe King opened 59 stores in different parts of the PRC.
Hongzhuangyuan
In 2012, Hong Zhuang Yuan strived to be known as the only Chinese neighboring restaurant that “feels like home,” offering delicious, everyday, value-for-money comfort food. The brand rallied from its new tagline “Congee, and Much More,” the first step in brand evolution from a quick-service Congee restaurant to a casual dining restaurant. As of December 2012, Hong Zhuang Yuan was operating 46 restaurants, 45 of which are company-owned.
Jollibee Foods Corporation 2012 Annual Report
10
San Pin Wang In 2012, San Pin Wang developed the beef brisket rice noodle, a new, low-price beef noodles that was well-received by consumers. The beef brisket rice noodle joined other beef noodle favorites – beef tendon rice noodle and beef rice noodle. San Pin Wang also opened seven (7) restaurants in 2012, notable of which are the new restaurants in Wuyixi and Wangxiang. Improving further its corporate social responsibility efforts, San Pin Wang saw the launch of the “SPW Scholarship” in Guangxi Traditional Chinese Medicinal University to support the development and promotion of traditional Chinese medicine. San Pin Wang was awarded the “advanced domestic trade enterprise” given by the commerce department of Guangxi. As of December 2012, San Pin Wang had 40 stores. Superfoods The SuperFoods group owns and operates various brands, including Highlands Coffee Shops in Vietnam, Highlands Coffee Packaged Products and Hard Rock Café franchised stores in Macau, Hong Kong and Vietnam. The SuperFoods Group also acquired the Pho 24 brand and restaurants which have presence in Vietnam, Indonesia, Philippines, Hong Kong, Cambodia and Japan. Highlands Coffee serves Vietnamese coffee and light meals in trendy coffee shops, and also sells packaged coffee through retail outlets. Meanwhile, Pho 24 serves traditional Vietnamese dishes with rice noodles as its core products. In the Philippines, the franchising rights for operating Highlands Coffee Shops was granted to IP Ventures, Inc. IP Ventures, a company formed and controlled by IPVG Corp., operates the largest chain of internet cafes in the Philippines under the brand name Netopia. As of December 31, 2012, Highlands Coffee had 75 stores in Vietnam while Pho 24 has 62 restaurants. Jinja As of December 31, 2012, Jinja operates 3 restaurants in the US. JOLLIBEE GROUP FOUNDATION, INC.5
THE JOLLIBEE GROUP FOUNDATION, INC. (the “Foundation”) was established in December 2004 to serve as the Company’s corporate social responsibility arm. The Foundation’s initiatives focused on the following areas: Education, Leadership and Community Development, Environment and, in light of the recent calamities, Disaster Response. In 2012, the Foundation put its thrust in promoting food security in communities at the forefront of its efforts. The Busog Lusog Talino (“BLT”) program was implemented in 1,053 public schools in 199 cities 5 In January 2013, the Securities and Exchange Commission approved the change of name from Jollibee Foundation, Inc. to the Jollibee Group Foundation, Inc.
Jollibee Foods Corporation 2012 Annual Report
11
and municipalities worldwide. A total of 37,821 pupils in the first and second grades were fed lunch daily for 136 days, bringing the total number of BLT pupils to 60,000 since BLT was first implemented in 2007. Through its Farmer Entrepreneurship Program (“FEP”), the JFC supply chain was harnessed by giving opportunities to small farmers to be direct suppliers of the Jollibee Group. In 2012, more than 500 small farmers from Nueva Ecija, Pangasinan, Quezon, Ilocos Sur, Tarlac, Agusan del Sur, Davao Oriental and Bukidnon received training and technical assistance on production, marketing and finance. Farmers’ cooperatives organized in these areas successfully various raw materials to the Jollibee Group and other institutions. The FEP is a partnership with the Catholic Relief Services and the National Livelihood Development Corporation. Finally, more than 370 employees of the Jollibee Group participated in the Tree Nurturing Project held in Mt. Banahaw in Liliw, Laguna and the Ipo Watershed in Bulacan where a total of 6 hectares of land was reforested. OTHERS Other subsidiaries of the Company include FREEMONT FOODS CORPORATION, a wholly-owned subsidiary which owns and operates the Company’s Jollibee stores primarily in the Visayas and Mindanao areas, and GRANDWORTH RESOURCES CORPORATION, a real estate company which owns or leases some of the properties used as store sites. PERCENTAGE OF FOREIGN SALES The percentage of foreign sales to total net sales for the last four (4) years is as follows: 2012 2011 2010 2009 Total Sales 67,493,953,521 59,266,444,340 50,506,967,113 45,344,123,164Foreign Sales 15,534,109,102 12,353,833,195 9,852,053,490 8,307,292,922Percentage 23.01% 20.8% 19.5% 18.3% The percentage of foreign sales to net income is as follows: 2012 2011 2010 2009 Net Income 3,713,062,706 3,253,802,924 3,212,535,996 2,666,899,745Foreign Sales 15,534,109,102 12,353,833,195 9,852,053,490 8,307,292,922Percentage 418.4% 379.7% 306.7% 311.5%
Jollibee Foods Corporation 2012 Annual Report
12
TRADEMARK REGISTRATION
TRADEMARK RECORDS BY COUNTRY Following is a list of the local and international trademark registrations and pending applications for registration for the “Jollibee” brand as of December 31, 2012.
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Argentina JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
1997309 29 Aug 1995
1,652,377 03 Dec 1997
Registered
42
Australia JOLLIBEE MASCOT DEVICE
654121 24 Feb 1995
654121 24 Feb 1995
Registered
42
42
Bahrain BEE DEVICE 80978 15 Apr 2010
80978 15 Apr 2010
Registered
29
Bahrain BEE DEVICE 80979 15 Apr 2010
80979 15 Apr 2010
Registered
30
Bahrain BEE HEAD DEVICE (Black & White) - MAIN
91757 24 Apr 2012
Pending 29
Jollibee Foods Corporation 2012 Annual Report
13
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Bahrain BEE HEAD DEVICE (Black & White) - MAIN
91758 24 Apr 2012
Pending 43
Bahrain CHICKENJOY WORD MARK - MAIN
91759 24 Apr 2012
Pending 29
Bahrain CHICKENJOY WORD MARK - MAIN
91760 24 Apr 2012
Pending 43
Bahrain JOLLIBEE & MASCOT DEVICE
1070/95 02 Aug 1995
S1718 02 Aug 1995
Registered
42
Bahrain JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
1068/95 02 Aug 1995
TM 19220 02 Aug 1995
Registered
29
Bahrain JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
1069/95 02 Aug 1995
S1717 02 Aug 1995
Registered
42
Jollibee Foods Corporation 2012 Annual Report
14
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Bahrain JOLLIBEE LOGO & DEVICE
80975 15 Apr 2010
80975 15 Apr 2010
Registered
29
Bahrain JOLLIBEE LOGO & DEVICE
80976 15 Apr 2010
80976 15 Apr 2010
Registered
30
Bahrain JOLLIBEE LOGO & DEVICE
80977 15 Apr 2010
80977 15 Apr 2010
Registered
43
Bahrain JOLLIBEE WORD MARK - MAIN
91755 24 Apr 2012
Pending 29
Bahrain JOLLIBEE WORD MARK - MAIN
91756 24 Apr 2012
Pending 43
Brazil JOLLIBEE GREAT BURGERS GREAT CHICKEN
819052612
16 Feb 1996
819052612 30 Nov 1999
Registered
29
Jollibee Foods Corporation 2012 Annual Report
15
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Brazil JOLLIBEE GREAT BURGERS GREAT CHICKEN
818935359
15 Dec 1995
818935359 30 Nov 1999
Registered
38
Brunei Darussalam
BEE HEAD DEVICE (Black & White) - MAIN
42,856 26 Apr 2012
Pending 29
43
Brunei Darussalam
CHICKENJOY WORD MARK - MAIN
42,855 26 Apr 2012
Pending 29
43
Brunei Darussalam
JOLLIBEE 36,341 24 Jun 2004
36,341 24 Jun 2004
Registered
43
Brunei Darussalam
JOLLIBEE WORD MARK - MAIN
42,857 26 Apr 2012
Pending 29
Jollibee Foods Corporation 2012 Annual Report
16
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
43
Cambodia
BEE HEAD DEVICE (Black & White) - MAIN
46001 11-May-12
Pending 29
Cambodia BEE HEAD DEVICE (Black & White) - MAIN
46002 11-May-12
Pending 43
Cambodia CHICKENJOY WORD MARK - MAIN
46003 11-May-12
Pending 29
Cambodia CHICKENJOY WORD MARK - MAIN
46004 11-May-12
Pending 43
Cambodia JOLLIBEE WORD MARK - MAIN
45999 11-May-12
Pending 29
Cambodia JOLLIBEE WORD MARK - MAIN
46000 11-May-12
Pending 43
Canada BEE HEAD DEVICE
1324318 16 Nov 2006
761468 11 Mar 2010
Registered
43
Canada BEE HEAD DEVICE
1563176 08 Feb 2012
Pending 29
Jollibee Foods Corporation 2012 Annual Report
17
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Canada CHICKENJOY 1563177 08 Feb 2012
Pending 29
43
Canada JOLLIBEE 1324317 16 Nov 2006
761476 11 Mar 2010
Registered
43
32
42
30
29
Canada JOLLIBEE GREAT BURGERS GREAT CHICKEN & DESIGN
783671 26 May 1995
727149 28 Oct 2008
Registered
29
42
China JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
95054017
03 May 1995
971757 28 Mar 1997
Registered
42
China JOLLIBEE MASCOT DEVICE
95066755
01 Jun 1995
951389 21 Feb 1997
Registered
29
China JOLLIBEE MASCOT DEVICE
95054016
03 May 1995
955790 28 Feb 1997
Registered
42
Jollibee Foods Corporation 2012 Annual Report
18
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
4740571
7-May-08 Registered
21
China
4740572
May 7 2009 Registered
20
China
4740573
28-May-10 Registered
18
China
4740574
7-Mar-08 Registered
33
China
4740575
7-Mar-08 Registered
31
China
4740576
7-Feb-09 Registered
36
Jollibee Foods Corporation 2012 Annual Report
19
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
4740577
7-Feb-09 Registered
36
China
4740578
21-Feb-09 Registered
40
China
4740579
May 7 2009 Registered
16
China
4740580
21-Feb-09 Registered
41
China
4740590
7-Feb-09 Registered
28
China
5149228
Processing
11
Jollibee Foods Corporation 2012 Annual Report
20
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149229
21-Mar-09 Registered
10
China
5149230
21-Mar-09 Registered
9
China
5149231
21-Nov-09 Registered
8
China
5149232
14-Jan-09 Registered
7
China
5149233
21-Mar-09 Registered
6
China
5149234
28-Nov-09 Registered
5
Jollibee Foods Corporation 2012 Annual Report
21
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149235
7-Jun-09 Registered
4
China
5149236
Processing
3
China
5149237
7-Jun-09 Registered
2
China
5149238
21-Dec-09 Registered
21
China
5149239
7-Aug-10 Registered
20
China
5149240
21-Jun-09 Registered
19
Jollibee Foods Corporation 2012 Annual Report
22
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149241
Processing
18
China
5149242
21-Jun-09 Registered
17
China
5149243
21-Jun-09 Registered
18
China
5149244
7-Jun-09 Registered
15
China
5149245
7-Aug-10 Registered
14
China
5149246
21-Mar-09 Registered
13
Jollibee Foods Corporation 2012 Annual Report
23
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149247
14-Jan-09 Registered
12
China
5149248
28-Jun-09 Registered
30
China
5149249
21-Mar-09 Registered
29
China
5149250
9-Aug-10 Registered
28
China
5149251
7-Jan-10 Registered
27
China
5149252
7-Jul-09 Registered
26
Jollibee Foods Corporation 2012 Annual Report
24
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149253
Processing
25
China
5149254
28-Jan-10 Registered
25
China
5149255
14-Jan-10 Registered
24
China
5149256
7-Jun-09 Registered
23
China
5149257
28-Jun-09 Registered
22
China
5149258
21-Aug-09 Registered
38
Jollibee Foods Corporation 2012 Annual Report
25
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149259
28-Aug-09 Registered
37
China
5149260
28-Aug-09 Registered
36
China
5149261
28-Aug-09 Registered
35
China
5149262
28-May-09 Registered
35
China
5149263
Processing
35
China
5149264
21-Mar-09 Registered
34
Jollibee Foods Corporation 2012 Annual Report
26
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149265
21-Mar-09 Registered
33
China
5149266
21-Mar-09 Registered
32
China
5149267
21-Mar-09 Registered
31
China
5149268
21-Mar-09 Registered
1
China
5149269
7-Jun-09 Registered
45
China
5149270
28-Aug-09 Registered
44
Jollibee Foods Corporation 2012 Annual Report
27
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149271
28-Aug-09 Registered
43
China
5149272
Processing
42
China
5149273
28-Aug-09 Registered
43
China
5149274
21-Jun-09 Registered
42
China
5149275
21-Jun-09 Registered
41
China
5149276
28-Aug-09 Registered
40
Jollibee Foods Corporation 2012 Annual Report
28
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
5149277
28-May-09 Registered
39
China
6173242
28-Dec-09 Registered
10
China
6173243
28-Feb-10 Registered
9
China
6173244
21-Feb-10 Registered
8
China
6173245
14-May-10 Registered
7
China
6173246
6-Jan-10 Registered
6
Jollibee Foods Corporation 2012 Annual Report
29
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
6173247
28-Feb-10 Registered
5
China
6173248
21-Feb-10 Registered
4
China
6173249
14-Feb-10 Registered
3
China
6173250
28-Feb-10 Registered
2
China
6173251
28-Feb-10 Registered
1
China
6173252
28-Jan-10 Registered
20
Jollibee Foods Corporation 2012 Annual Report
30
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
6173253
21-Feb-10 Registered
19
China
6173254
28-Mar-10 Registered
18
China
6173255
28-Mar-10 Registered
17
China
6173255
14-Feb-10 Registered
16
China
6173257
14-Jan-10 Registered
15
China
6173258
14-Jan-10 Registered
14
Jollibee Foods Corporation 2012 Annual Report
31
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
6173259
21-Jan-10 Registered
13
China
6173260
7-Jan-10 Registered
12
China
6173261
28-Feb-10 Registered
11
China
6173262
14-Jan-10 Registered
30
China
6173263
7-Sep-09 Registered
29
China
6173264
28-Mar-10 Registered
28
Jollibee Foods Corporation 2012 Annual Report
32
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
6173265
28-Mar-10 Registered
27
China
6173266
28-Mar-10 Registered
26
China
6173267
28-Mar-10 Registered
25
China
6173268
28-Mar-10 Registered
24
China
6173269
28-Mar-10 Registered
23
China
6173270
14-May-10 Registered
22
Jollibee Foods Corporation 2012 Annual Report
33
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
6173271
7-Feb-10 Registered
21
China
6173322
7-Feb-10 Registered
40
China
6173323
7-Jun-10 Registered
39
China
6173324
21-Mar-10 Registered
38
China
6173325
21-Mar-10 Registered
37
China
6173326
21-Mar-10 Registered
36
Jollibee Foods Corporation 2012 Annual Report
34
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
6173327
7-Jun-10 Registered
35
China
6173328
7-Sep-09 Registered
34
China
6173330
14-Jan-10 Registered
32
China
6173331
7-Sep-09 Registered
31
China
6173332
7-Jun-10 Registered
41
China
6173343
28-Mar-10 Registered
45
Jollibee Foods Corporation 2012 Annual Report
35
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
6173344
28-Mar-10 Registered
44
China
6173345
28-Mar-10 Registered
43
China
6173346
7-Jun-10 Registered
42
China
1019097
28-May-07 Registered
29
China
1356544
21-Jan-10 Registered
30
China
1359132
28-Jan-10 Registered
29
Jollibee Foods Corporation 2012 Annual Report
36
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
China
1369995
28-Feb-10 Registered
42
China
980654
14-Apr-07 Registered
32
China
1019874
28-Mar-07 Registered
42
Czech Republic
JOLLIBEE & DEVICE
104009 19 Sep 1995
196474 03 Jan 1997
Registered
30
32
29
42
Egypt JOLLIBEE & DEVICE
90430 28 Mar 1994
90430 04 Dec 1997
Registered
42
Egypt JOLLIBEE & DEVICE
90427 28 Mar 1994
90427 04 Dec 1997
Registered
29
Jollibee Foods Corporation 2012 Annual Report
37
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Egypt JOLLIBEE & DEVICE
95740 18 May 1995
95740 14 Feb 2001
Registered
42
Egypt JOLLIBEE & DEVICE
95741 18 May 1995
95741 17 Jan 2001
Registered
29
Egypt JOLLIBEE MASCOT DEVICE
95742 18 May 1995
95742 17 Jan 2001
Registered
42
France JOLLIBEE (& device)
94537781
28 Sep 1994
94537781 28 Sep 1994
Registered
29
29
30
42
30
32
Germany JOLLIBEE & DEVICE
J31300 17 Aug 1994
2 907 060 29 May 1995
Registered
42
30
32
29
Hong Kong BEE HAPPY 301/2002 09 Jan 2002
10613/2003 09 Jan 2002
Registered
42
Hong Kong JOLLIBEE 300352025
11 Jan 2005
300352025 11 Jan 2005
Registered
43
Jollibee Foods Corporation 2012 Annual Report
38
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Hong Kong JOLLIBEE & (ZU LE BI IN CHINESE CHARACTERS) & DEVICE
980/2000 17 Jan 2000
5406/2001 17 Jan 2000
Registered
42
Hong Kong JOLLIBEE & (Zu Le Bi in Chinese characters) & Device
979/2000 17 Jan 2000
5405/2001 17 Jan 2000
Registered
29
Hong Kong Jollibee Great Burgers Great Chicken & Device (series)
3906/95 04 Apr 1995
1984A-B/99 04 Apr 1995
Registered
42
Hong Kong JOLLIBEE MASCOT DEVICE
5314/95 04 May 1995
668/97 04 May 1995
Registered
29
Hong Kong JOLLIBEE MASCOT DEVICE
5678/95 12 May 1995
4465/99 12 May 1995
Registered
42
Hong Kong JOLLIBEE NAME (IN CHINESE CHARACTERS ''SIU LOK FUNG'')
09486 of 1996 01 Mar 1995
Registered
29
Jollibee Foods Corporation 2012 Annual Report
39
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Hong Kong JOLLIBEE NAME (IN CHINESE CHARACTERS ''SIU LOK FUNG'')
09487 of 1996 01 Mar 1995
Registered
30
Hong Kong JOLLIBEE NAME (IN CHINESE CHARACTERS ''SIU LOK FUNG'')
09488 of 1996 01 Mar 1995
Registered
32
Hong Kong JOLLIBEE NAME (IN CHINESE CHARACTERS ''SIU LOK FUNG'')
09489 of 1996 Registered
42
India JOLLIBEE & DESIGN
1367743 29 Jun 2005
1367743 29 Jun 2005
Registered
30
29
India JOLLIBEE & DESIGN
1356313 10 May 2005
1356313 10 May 2005
Registered
42
India JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
737457 13 Mar 1997
Pending 16
India JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
737458 13 Mar 1997
Pending 29
Jollibee Foods Corporation 2012 Annual Report
40
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Indonesia BEE HEAD DEVICE (BLACK & WHITE) - MAIN
D00-2012-
022535
11 May 2012
Pending 43
29
Indonesia BEE HEAD DEVICE (BLACK & WHITE) - MAIN
J00-2012-
022539
11 May 2012
Pending 43
Indonesia CHICKENJOY WORD MARK - MAIN
J00-2012-
022547
11 May 2012
Pending 43
Indonesia CHICKENJOY WORD MARK - MAIN
D00-2012-
022543
11 May 2012
Pending 29
Indonesia JOLLIBEE R00-2002-
08317-08322
22 Oct 1992
IDM000074916
06 Jan 1995
Lapsed 29
Indonesia JOLLIBEE & DEVICE
V00-2002-
10210-10216
22 Oct 2002
IDM000004618
30 Sep 2003
Registered
43
Jollibee Foods Corporation 2012 Annual Report
41
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Indonesia JOLLIBEE BEEFBURGER GREAT BURGERS GREAT CHICKEN & DEVICE
R00-2005-00443
20 Apr 2005
367408 20 Apr 1995
Registered
42
Indonesia JOLLIBEE BEEFBURGER GREAT BURGERS GREAT CHICKEN & DEVICE
24 Apr 1995
368310 24 Sep 1996
Registered
29
Indonesia JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
O-954544
20 Mar 1995
Pending 29
Indonesia JOLLIBEE WORD MARK - MAIN
D00-2012-
0022546
11 May 2012
Pending 43
29
Indonesia JOLLIBEE WORD MARK - MAIN
D00-2012-
0022546
11 May 2012
Pending 43
Israel JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
100922 20 Sep 1995
100922 20 Sep 2002
Registered
29
Jollibee Foods Corporation 2012 Annual Report
42
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Israel JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
100923 20 Sep 1995
100923 20 Sep 2002
Registered
42
Italy BEE HEAD DEVICE (Black & White) - MAIN
MI2012C004989
15-May-12
Pending 29
43
Italy CHICKENJOY WORD MARK - MAIN
MI2012C004988
15-May-12
Pending 29
43
Italy JOLLIBEE WORD MARK - MAIN
MI2012C004987
15-May-12
Pending 29
43
Jordan BEE HEAD DEVICE (Black & White)
121001 22 Nov 2011
Pending 43
Jordan JOLLIBEE WORDMARK
121002 22 Nov 2011
Pending 43
Korea - Republic of (South)
BEE HEAD DEVICE (Black & White) - MAIN
45-2012-0002341
07 May 2012
Pending 29
43
Korea - Republic of (South)
CHICKENJOY WORD MARK - MAIN
45-2012-0002342
07 May 2012
Pending 43
29
Jollibee Foods Corporation 2012 Annual Report
43
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Korea - Republic of (South)
JOLLIBEE & DESIGN
40-0358457 21 Mar 1997
Registered
7
Korea - Republic of (South)
JOLLIBEE & DESIGN
40-0372192 09 Aug 1997
Registered
5
Korea - Republic of (South)
JOLLIBEE & DESIGN
40-0372105 08 Aug 1997
Registered
2
Korea - Republic of (South)
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
95-048721
369351 18 Jul 1997 Registered
7
Korea - Republic of (South)
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
96-11545 23 Mar 1996
377580 08 Oct 1997
Registered
2
Korea - Republic of (South)
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
95-48721 21 Dec 1995
369351 18 Jul 1997 Registered
7
Korea - Republic of (South)
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
95-12356 21 Dec 1995
Pending 42
Korea - Republic of (South)
JOLLIBEE WORD MARK - MAIN
45-2012-0002340
07 May 2012
Pending 29
43
Jollibee Foods Corporation 2012 Annual Report
44
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Kuwait JOLLIBEE LOGO AND DEVICE
112416 13 Jun 2010
95849 Registered
43
Kuwait BEE DEVICE 112417 13 Jun 2010
95850 16 Oct 2011
Registered
29
Kuwait BEE DEVICE 112418 13 Jun 2010
95851 16 Oct 2011
Registered
30
Kuwait BEE DEVICE 112419 13 Jun 2010
95852 16 Oct 2011
Registered
43
Kuwait BEE HEAD DEVICE (Black & White) - MAIN
129537 23 Apr 2012
Pending 29
Kuwait BEE HEAD DEVICE (Black & White) - MAIN
129538 23 Apr 2012
Pending 43
Kuwait CHICKENJOY WORD MARK - MAIN
129539 23 Apr 2012
Pending 29
Jollibee Foods Corporation 2012 Annual Report
45
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Kuwait CHICKENJOY WORD MARK - MAIN
129540 23 Apr 2012
Pending 43
Kuwait JOLLIBEE & DEVICE
36669 28 May 1997
Pending 29
Kuwait JOLLIBEE & DEVICE
36670 28 May 1997
Pending 42
Kuwait JOLLIBEE & THREE BEE DEVICE (JOLLIBEE MASCOT)
36671 28 May 1997
Pending 42
Kuwait JOLLIBEE LOGO AND DEVICE
112414 13 Jun 2010
95847 Registered
29
Kuwait JOLLIBEE LOGO AND DEVICE
112415 13 Jun 2010
95848 Registered
30
Jollibee Foods Corporation 2012 Annual Report
46
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Kuwait JOLLIBEE (WORD) AND DEVICE
32461 26-Nov-95
29947 25-Nov-05 Registered
30
Kuwait JOLLIBEE (WORD) AND DEVICE
32462 26-Nov-95
29403 25-Nov-05 Registered
32
Kuwait JOLLIBEE DEVICE & JOLLIBEE FOODS CORPORATION
32463 26-Nov-95
29946 25-Nov-05 Registered
42
Kuwait JOLLIBEE WORD MARK - MAIN
129535 23 Apr 2012
Pending 29
Kuwait JOLLIBEE WORD MARK - MAIN
129536 23 Apr 2012
Pending 43
Lebanon JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
66960 20 Sep 1995
66960 20 Sep 1995
Registered
42
29
Jollibee Foods Corporation 2012 Annual Report
47
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Malaysia BEE HEAD DEVICE (BLACK & WHITE) - MAIN
2012052508
23 Apr 2012
Pending 29
Malaysia BEE HEAD DEVICE (BLACK & WHITE) - MAIN
2012052510
23 Apr 2012
Pending 43
Malaysia CHICKENJOY WORD MARK - MAIN
2012052511
23 Apr 2012
Pending 29
Malaysia CHICKENJOY WORD MARK - MAIN
2012052512
23 Apr 2012
Pending 43
Malaysia JOLLIBEE 2000-2359
03 Mar 2000
2000-2359 03 Mar 2000
Registered
43
Malaysia JOLLIBEE (word) and Device
95003171
08 Apr 1995
95003171 08 Apr 1995
Registered
29
29
Jollibee Foods Corporation 2012 Annual Report
48
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Malaysia JOLLIBEE MASCOT (SERIES OF 3)
2000-02358
03 Mar 2000
2000-02358 03 Mar 2000
Registered
43
Malaysia JOLLIBEE WORD MARK - MAIN
2012052507
23 Apr 2012
Pending 29
Mexico JOLLIBEE GREAT BURGERS GREAT CHICKEN & DESIGN
288147 26 Feb 1997
665344 27 Jul 2000 Registered
29
Mexico JOLLIBEE GREAT BURGERS GREAT CHICKEN & DESIGN
405557 06 Jan 2000
764426 21 Oct 2002
Registered
42
New Zealand
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
254483 06 Oct 1995
254483 06 Oct 1995
Registered
29
29
New Zealand
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
254484 06 Oct 1995
254484 06 Oct 1995
Registered
42
Jollibee Foods Corporation 2012 Annual Report
49
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
42
Oman BEE HEAD DEVICE (BLACK & WHITE) - MAIN
73974 23 Apr 2012
Pending 29
Oman BEE HEAD DEVICE (BLACK & WHITE) - MAIN
73975 23 Apr 2012
Pending 43
Oman CHICKENJOY WORD MARK - MAIN
73976 23 Apr 2012
Pending 29
Oman CHICKENJOY WORD MARK - MAIN
73977 23 Apr 2012
Pending 43
Oman JOLLIBEE (WORD MARK)
69397 20 Jul 2011
Pending 29
Oman JOLLIBEE (WORD MARK)
69398 20 Jul 2011
Pending 30
Jollibee Foods Corporation 2012 Annual Report
50
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Oman JOLLIBEE (WORD MARK)
69399 20 Jul 2011
Pending 43
Oman JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
11660 29 May 1995
11660 29 May 2005
Registered
29
Oman JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
11659 29 May 1995
Registered
42
Oman JOLLIBEE MASCOT
11658 29 May 1995
Pending 42
Papua New Guinea
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
59020 11 Sep 1995
59020 11 Sep 1995
Registered
29
29
Papua New Guinea
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
59021 11 Sep 1995
59021 11 Sep 1995
Registered
42
42
Jollibee Foods Corporation 2012 Annual Report
51
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines 1/3 POUND PATTY CHAMP EXTRA BIG LOGO & DEVICE
4-2010-004210
20 Apr 2010
4-2010-004210
03 Dec 2010
Registered
35
29
Philippines 1/3 POUND PATTY CHAMP EXTRA BIG LOGO & DEVICE (IN COLOUR)
4-2010-004235
21 Apr 2010
4-2010-004235
28 Jan 2011
Registered
29
35
Philippines AFFORDELICIOUS 4-2010-010083
15 Sep 2010
4-2010-010083
07 Apr 2011
Registered
35
Philippines AMAZING ALOHA & PINEAPPLE SLICE DEVICE
4-1996-106351
04 Mar 1996
4-1996-108683
04 Nov 2002
Registered
8
Philippines BEE HAPPY 4-2012-003129
12 Mar 2012
Pending 35
Jollibee Foods Corporation 2012 Annual Report
52
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines BEE HEAD DEVICE
4-2005-007557
05 Aug 2005
4-2005-007557
19 Feb 2007
Registered
18
28
24
9
21
20
25
16
Philippines BEE HEAD DEVICE
4-2004-006570
23 Jul 2004
4-2004-006570
06 Jan 2006
Registered
43
Philippines BEE HEAD DEVICE (BLACK & WHITE) - MAIN
4-2012-004771
19 Apr 2012
Pending 29
Philippines CHAMP 4-2010-004236
21 Apr 2010
4-2010-004236
28 Jan 2011
Registered
29
35
Philippines CHICKEN TORPEDO
4-2004-011637
08 Dec 2004
4-2004-011637
15 Jan 2007
Registered
29
Jollibee Foods Corporation 2012 Annual Report
53
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines CHICKENJOY WORD MARK - MAIN
4-2004-006569
23 Jul 2004
4-2004-006569
26 May 2006
Registered
29
Philippines CHICKENJOY WORD MARK - MAIN
4-2012-004770
19 Apr 2012
Pending 43
Philippines COMBEE 4-2006-005919
05 Jun 2006
4-2006-005919
19 Feb 2007
Registered
43
Philippines CONE TWIRL 4-2010-010089
15 Sep 2010
4-2010-010089
07 Apr 2011
Registered
29
Philippines CRISPYLICIOUS (WORD MARK)
4-2012-000563
16 Jan 2012
Pending 29
Philippines EVERYDAY DESERVES A SUNDAE
4-2011-010765
08 Sep 2011
Pending 30
Jollibee Foods Corporation 2012 Annual Report
54
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines HAPPYPLUS CASHLESS PAYMENTS WITH REWARDS LOGO AND DEVICE (IN BLACK & WHITE)
4-2011-002977
15 Mar 2011
Pending 35
16
36
9
Philippines HAPPYPLUS CASHLESS PAYMENTS WITH REWARDS LOGO AND DEVICE (IN COLOR)
4-2011-009245
05 Aug 2011
4-2011-009245
05 Jan 2012
Registered
36
9
35
16
Philippines HETTY MASCOT DESIGN
4-2008-007563
25 Jun 2008
4-2008-007563
23 Jul 2009 Registered
16
24
27
41
28
21
18
20
25
Philippines HETTY MASCOT HOUSE DEVICE (IN BLACK & WHITE)
4-2010-005365
20 May 2010
4-2010-005365
21 Oct 2010
Registered
18
28
16
41
25
Jollibee Foods Corporation 2012 Annual Report
55
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines HETTY MASCOT HOUSE DEVICE (IN COLOR)
4-2010-005368
20 May 2010
4-2010-005368
14 Oct 2010
Registered
25
41
28
16
18
Philippines Ice Craze Coffee Jelly
4-2005-003299
12 Apr 2005
4-2005-003299
05 May 2007
Registered
30
Philippines jk 4-2005-008738
05 Sep 2005
4-2005-008738
23 Jul 2007 Registered
25
26
16
18
Philippines JOLLIBEE 4-2005-007558
05 Aug 2005
4-2005-007558
19 Feb 2007
Registered
20
18
25
24
21
9
Philippines JOLLIBEE 4-2000-004772
08 Jun 2000
4-2000-004772
10 Mar 2006
Registered
42
32
30
29
Jollibee Foods Corporation 2012 Annual Report
56
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines JOLLIBEE 4-2000-007421
31 Aug 2000
4-2000-007421
24 Sep 2005
Registered
16
28
Philippines JOLLIBEE BREAKFAST JOYS
4-2009-006901
13 Jul 2009
4-2009-006901
24 Dec 2009
Registered
29
35
Philippines JOLLIBEE CHAMP 4-2009-006900
13 Jul 2009
4-2009-006900
12 Nov 2009
Registered
35
29
Philippines JOLLIBEE CHAMP. BIG BURGER GOODNESS LIKE NO OTHER.
4-2009-006905
13 Jul 2009
4-2009-006905
12 Nov 2009
Registered
35
Philippines JOLLIBEE CHICKEN BARBECUE DELICIOUS INSIDE AND OUT INSIDE A RECTANGULAR DEVICE
4-2010-004237
21 Apr 2010
4-2010-004237
22 Mar 2012
Registered
35
29
Jollibee Foods Corporation 2012 Annual Report
57
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines JOLLIBEE CHICKEN BARBECUE DELICIOUS INSIDE AND OUT INSIDE A RECTANGULAR DEVICE (IN COLOUR)
4-2010-004233
21 Apr 2010
4-2010-004233
13 Jan 2011
Registered
29
35
Philippines JOLLIBEE CHICKEN BARBECUE INSIDE A RECTANGULAR DEVICE
4-2010-004204
20 Apr 2010
4-2010-004204
13 Jan 2011
Registered
29
35
Philippines JOLLIBEE CHICKEN BARBECUE INSIDE A RECTANGULAR DEVICE (IN COLOUR)
4-2010-004234
21 Apr 2010
4-2010-004234
28 Jan 2011
Registered
29
35
Philippines JOLLIBEE GRILLED PORK TENDERS (Word Mark)
4-2012-000614
17 Jan 2012
4-2012-000614
03 May 2012
Registered
29
Philippines JOLLIBEE IN TRAPEZOID AND BEE HEAD DEVICE
4-2011-003560
29 Mar 2011
4-2011-003560
15 Sep 2011
Registered
43
Jollibee Foods Corporation 2012 Annual Report
58
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines JOLLIBEE IN TRAPEZOID AND BEE HEAD DEVICE (IN COLOR)
4-2011-003613
30 Mar 2011
4-2011-003613
27 Oct 2011
Registered
43
Philippines JOLLIBEE IN TRAPEZOID DEVICE
4-2011-003561
29 Mar 2011
4-2011-003561
04 Aug 2011
Registered
43
Philippines JOLLIBEE IN TRAPEZOID DEVICE (IN COLOR)
4-2011-003543
28 Mar 2011
4-2011-003543
27 Oct 2011
Registered
43
Philippines JOLLIBEE KIDS CLUB INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF FACES OF KIDS
4-2010-005155
17 May 2010
4-2010-005155
31 Dec 2010
Registered
16
35
Philippines JOLLIBEE KIDS CLUB INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF FACES OF KIDS (IN COLOUR)
4-2010-005303
20 May 2010
4-2010-005303
23 Dec 2010
Registered
16
35
Jollibee Foods Corporation 2012 Annual Report
59
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines JOLLIBEE KIDS CLUB INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF FACES OF KIDS AND JOLLIBEE CHARACTER ON THE UPPER LEFT SIDE
4-2010-005156
17 May 2010
4-2010-005156
31 Dec 2010
Registered
35
16
Philippines JOLLIBEE KIDS CLUB INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF FACES OF KIDS AND JOLLIBEE CHARACTER ON THE UPPER LEFT SIDE (IN COLOUR)
4-2010-005302
20 May 2010
4-2010-005302
31 Dec 2010
Registered
16
35
Philippines JOLLIBEE KIDS MEAL INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF A FORK ON THE LEFT SIDE AND A SPOON ON THE RIGHT SIDE
4-2010-005153
17 May 2010
4-2010-005153
31 Dec 2010
Registered
35
16
Philippines JOLLIBEE KIDS MEAL INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF A FORK ON THE LEFT SIDE AND A SPOON ON THE RIGHT SIDE (IN COLOUR)
4-2010-005307
20 May 2010
4-2010-005307
31 Dec 2010
Registered
35
16
Philippines JOLLIBEE KIDS MEAL INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF A FORK ON THE LEFT SIDE, A SPOON ON THE RIGHT SIDE AND
4-2010-005154
17 May 2010
4-2010-005154
31 Dec 2010
Registered
16
Jollibee Foods Corporation 2012 Annual Report
60
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
A JOLLIBEE CHARACTER ON THE UPPER LEFT SIDE
35
Philippines JOLLIBEE KIDS MEAL INSIDE A CIRCLE DEVICE WITH A GRAPHIC DESIGN OF A FORK ON THE LEFT SIDE, A SPOON ON THE RIGHT SIDE AND A JOLLIBEE CHARACTER ON THE UPPER LEFT SIDE (IN COLOUR)
4-2010-005304
20 May 2010
4-2010-005304
16 Dec 2010
Registered
16
35
Philippines JOLLIBEE KIDS TV AND DEVICE WITH JOLLIBEE CHARACTER ON THE LEFT SIDE
4-2010-005151
17 May 2010
4-2010-005151
31 Dec 2010
Registered
35
16
41
Philippines JOLLIBEE KIDS TV AND DEVICE WITH JOLLIBEE CHARACTER ON THE LEFT SIDE (IN COLOUR)
4-2010-005305
20 May 2010
4-2010-005305
16 Dec 2010
Registered
16
35
41
Philippines JOLLIBEE KIDS TV INSIDE A SQUARE DEVICE
4-2010-005152
17 May 2010
4-2010-005152
31 Dec 2010
Registered
41
Jollibee Foods Corporation 2012 Annual Report
61
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
35
16
Philippines JOLLIBEE KIDS TV INSIDE A SQUARE DEVICE (IN COLOUR)
4-2010-005306
20 May 2010
4-2010-005306
16 Dec 2010
Registered
35
16
41
Philippines JOLLIBEE LOGO AND DEVICE
4-2010-002055
24 Feb 2010
4-2010-002055
22 Jul 2010 Registered
43
30
29
Philippines JOLLIBEE MAAGA ANG PASKO LOGO (BLACK & WHITE)
4-2012-001250
01 Feb 2012
4-2012-001250
11 May 2012
Registered
36
Philippines JOLLIBEE MASCOT DESIGN
4-2008-007562
25 Jun 2008
4-2008-007562
23 Jul 2009 Registered
18
28
24
25
20
16
21
27
41
Jollibee Foods Corporation 2012 Annual Report
62
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines JOLLIBEE MASCOT HOUSE DEVICE (IN COLOR)
4-2010-005367
20 May 2010
4-2010-005367
21 Oct 2010
Registered
25
41
18
28
16
Philippines JOLLIBEE MASCOT HOUSE DEVICE( IN BLACK & WHITE)
4-2010-005366
20 May 2010
4-2010-005366
21 Oct 2010
Registered
16
25
41
28
18
Philippines JOLLIBEE SUPER MEALS
4-2005-002450
15 Mar 2005
4-2005-002450
18 Dec 2006
Registered
43
Philippines JOLLIKIDS 4-2005-000388
13 Jan 2005
4-2005-000388
08 Jun 2006
Registered
26
16
18
25
Philippines JOLLITOWN 4-2008-005395
08 May 2008
4-2008-005395
25 Mar 2010
Registered
16
Jollibee Foods Corporation 2012 Annual Report
63
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
25
24
18
20
27
28
41
Philippines Jolly Cheezy Fries 4-2005-006933
22 Jul 2005
4-2005-006933
05 Nov 2007
Registered
29
Philippines JOLLY CRISPY FRIES
4-2009-006965
14 Jul 2009
4-2009-006965
15 Apr 2010
Registered
35
Philippines JOLLY CRISPY FRIES (WORD MARK)
4-2004-006392
20 Jul 2004
4-2004-006392
09 Feb 2009
Registered
29
Philippines JOLLY CRISPY FRIES. BEST FRIENDS FRIES.
4-2009-006907
13 Jul 2009
4-2009-006907
19 Nov 2009
Registered
35
Philippines JOLLY HOTDOG 4-2009-006903
13 Jul 2009
4-2009-006903
24 Dec 2009
Registered
29
35
Jollibee Foods Corporation 2012 Annual Report
64
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines JOLLY HOTDOG. SARAP ON-THE-MOVE.
4-2009-006906
13 Jul 2009
4-2009-006906
19 Nov 2009
Registered
35
Philippines JOLLY KRUNCHY TWIRL
4-2005-001998
02 Mar 2005
4-2005-001998
18 Sep 2006
Registered
30
29
Philippines JOLLY SHAKES WRITTEN IN COLORS RED AND ORANGE ENCLOSED BY A RECTANGLE SHADED IN BLUE
4-2003-001019
05 Feb 2003
4-2003-001019
20 Nov 2006
Registered
30
29
Philippines JUICYLICIOUS (WORD MARK)
4-2012-000564
16 Jan 2012
Pending 29
Philippines LANGHAP SARAP 4-2009-003033
23 Mar 2009
4-2009-003033
12 Nov 2009
Registered
29
30
Philippines MAAGA ANG PASKO (WORD MARK)
4-2012-001251
01 Feb 2012
4-2012-001251
11 May 2012
Registered
36
Jollibee Foods Corporation 2012 Annual Report
65
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines POPO MASCOT DESIGN
4-2008-007564
25 Jun 2008
4-2008-007564
23 Jul 2009 Registered
18
21
24
41
20
27
16
25
28
Philippines POPO MASCOT HOUSE DEVICE (IN BLACK & WHITE)
4-2010-005364
20 May 2010
4-2010-005364
21 Oct 2010
Registered
18
16
28
25
41
Philippines POPO MASCOT HOUSE DEVICE (IN COLOR)
4-2010-005369
20 May 2010
4-2010-005369
14 Oct 2010
Registered
18
16
28
41
25
Philippines SPAGHETTIEST 4-2009-003358
31 Mar 2009
Pending 32
29
30
Jollibee Foods Corporation 2012 Annual Report
66
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines SWIRLY-BITZ (STYLIZED)
4-2000-000424
20 Jan 2000
4-2000-000424
13 Nov 2003
Registered
30
32
Philippines TWIRLIE MASCOT DESIGN
4-2008-007561
25 Jun 2008
4-2008-007561
23 Jul 2009 Registered
41
24
21
27
18
25
28
16
20
Philippines TWIRLIE MASCOT HOUSE DEVICE (IN BLACK & WHITE)
4-2010-005363
20 May 2010
4-2010-005363
21 Oct 2010
Registered
25
18
41
28
16
Philippines TWIRLIE MASCOT HOUSE DEVICE (IN COLOR)
4-2010-005370
20 May 2010
4-2010-005370
14 Oct 2010
Registered
18
16
28
41
25
Jollibee Foods Corporation 2012 Annual Report
67
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Philippines YUM (WORD MARK)
4-2003-008177
04 Sep 2003
4-2003-008177
11 Nov 2010
Registered
43
29
Philippines YUM MASCOT DESIGN
4-2008-007565
25 Jun 2008
4-2008-007565
23 Jul 2009 Registered
20
21
41
25
27
18
24
16
28
Philippines YUM MASCOT HOUSE DEVICE (IN BLACK & WHITE)
4-2010-005362
20 May 2010
4-2010-005362
06 Jan 2011
Registered
16
18
25
28
41
Philippines YUM MASCOT HOUSE DEVICE (IN COLOR)
4-2010-005371
20 May 2010
4-2010-005371
14 Oct 2010
Registered
18
25
28
41
16
Jollibee Foods Corporation 2012 Annual Report
68
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Qatar BEE DEVICE 80980 15 Apr 2010
80980 15 Apr 2010
Registered
43
Qatar BEE HEAD DEVICE (Black & White) - MAIN
74466 30 Apr 2012
Pending 29
Qatar BEE HEAD DEVICE (Black & White) - MAIN
74467 30 Apr 2012
Pending 43
Qatar CHICKENJOY WORD MARK - MAIN
74468 30 Apr 2012
Pending 29
Qatar CHICKENJOY WORD MARK - MAIN
74469 30 Apr 2012
Pending 43
Qatar JOLLIBEE CHARACTER AND DEVICE
57954 08 Jul 2009
Pending 29
Jollibee Foods Corporation 2012 Annual Report
69
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Qatar JOLLIBEE CHARACTER AND DEVICE
57955 08 Jul 2009
Pending 30
Qatar JOLLIBEE CHARACTER AND DEVICE
57956 08 Jul 2009
Pending 42
Qatar JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
14073 11 Oct 1995
14073 24 Mar 2003
Registered
29
Qatar JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
14074 11 Oct 1995
14074 24 Mar 2003
Registered
42
Qatar JOLLIBEE LOGO & DEVICE
57951 08 Jul 2009
Pending 29
Qatar JOLLIBEE LOGO & DEVICE
57952 08 Jul 2009
Pending 30
Jollibee Foods Corporation 2012 Annual Report
70
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Qatar JOLLIBEE LOGO & DEVICE
57953 08 Jul 2009
Pending 42
Qatar JOLLIBEE WORD MARK - MAIN
74464 30 Apr 2012
Pending 29
Qatar JOLLIBEE WORD MARK - MAIN
74465 30 Apr 2012
Pending 43
Romania JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
13511 08 Mar 1995
29524 08 Mar 2005
Registered
29
42
Romania JOLLIBEE MASCOT DEVICE
13512 08 Mar 1995
29525 01 Jul 1999 Registered
42
Saudi Arabia
BEE HEAD DEVICE (Black & White) - MAIN
182342 21 May 2012
Pending 29
Jollibee Foods Corporation 2012 Annual Report
71
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Saudi Arabia
BEE HEAD DEVICE (Black & White) - MAIN
182343 21 May 2012
Pending 43
Saudi Arabia
CHICKENJOY WORD MARK - MAIN
182346 21 May 2012
Pending 29
Saudi Arabia
CHICKENJOY WORD MARK - MAIN
182347 21 May 2012
Pending 43
Saudi Arabia
JOLLIBEE & Bee Device (word & device mark)
122600 01 Oct 2007
1038/92 21 Jan 2009
Registered
43
Saudi Arabia
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
501/26 17 Oct 1999
Registered
29
Saudi Arabia
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
501/25 17 Oct 1999
Registered
42
Saudi Arabia
JOLLIBEE MASCOT DEVICE
379/25 02 Jul 1996 Registered
42
Saudi Arabia
JOLLIBEE WORD MARK - MAIN
182344 21 May 2012
Pending 29
Jollibee Foods Corporation 2012 Annual Report
72
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Saudi Arabia
JOLLIBEE WORD MARK - MAIN
182345 21 May 2012
Pending 43
Singapore BEE HEAD DEVICE (BLACK & WHITE) - MAIN
T1205981F
26 Apr 2012
Pending 29
43
Singapore CHICKENJOY WORD MARK - MAIN
T1205748A
20 Apr 2012
Pending 43
29
Singapore JOLLIBEE & DEVICE
T93/03473H
11 May 1993
T93/03473H 11 May 1993
Registered
42
Singapore JOLLIBEE & DEVICE
T93/08912E
15 Nov 1993
T93/08912E 15 Nov 1993
Registered
32
Singapore JOLLIBEE & DEVICE
T93/03471A
11 May 1993
T93/03471A 11 May 1993
Registered
29
Jollibee Foods Corporation 2012 Annual Report
73
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Singapore JOLLIBEE CHARACTER AND DEVICE
T0908261F
24 Jul 2009
T0908261F 24 Jul 2009 Registered
29
30
43
Singapore JOLLIBEE LOGO AND DEVICE
T0908260H
24 Jul 2009
T0908260H 24 Jul 2009 Registered
30
43
29
Singapore JOLLIBEE WORD & DEVICE
3473/93 11 May 1993
Registered
42
Singapore JOLLIBEE WORD & DEVICE
3472/93 11 May 1993
Registered
30
Singapore JOLLIBEE WORD MARK - MAIN
T1205747C
20 Apr 2012
Pending 29
43
South Africa
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
9510214 08 Aug 1995
95/10214 12 Jun 1998
Registered
29
South Africa
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
9510215 08 Aug 1995
95/10215 12 Jun 1998
Registered
42
Jollibee Foods Corporation 2012 Annual Report
74
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Spain BEE HEAD DEVICE (Black & White)
3012444 05 Jan 2012
Pending 43
29
Spain CHICKENJOY WORD MARK
05 Jan 2012
3012445 21 May 2012
Registered
43
29
Spain JOLLIBEE WORD MARK
05 Jan 2012
3012443 21 May 2012
Registered
29
43
Sri Lanka JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
81591 01 Jun 1997
81591 15 Aug 2000
Registered
42
Syria JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
56344 05 Oct 1995
Registered
30
29
42
Syria JOLLIBEE MASCOT DEVICE
56345 23 Oct 1995
Registered
42
29
30
Thailand JOLLIBEE & THREE BEE DEVICE (JOLLIBEE MASCOT)
284093 19 Apr 1995
BOR4134 19 Apr 1995
Registered
43
43
Jollibee Foods Corporation 2012 Annual Report
75
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Thailand JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
284091 19 Apr 1995
KOR41802 19 Apr 1995
Registered
29
29
Thailand JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
284092 19 Apr 1995
BOR4135 19 Apr 1995
Registered
43
43
United Arab Emirates
BEE HEAD DEVICE (BLACK & WHITE) - MAIN
173869 20 May 2012
Pending 29
United Arab Emirates
BEE HEAD DEVICE (Black & White) - MAIN
173870 20 May 2012
Pending 43
United Arab Emirates
CHICKENJOY WORD MARK - MAIN
173871 20 May 2012
Pending 29
United Arab Emirates
CHICKENJOY WORD MARK - MAIN
173872 20 May 2012
Pending 43
United Arab Emirates
JOLLIBEE CHARACTER & DEVICE
126847 10 Mar 2009
126847 23 Aug 2012
Registered
43
Jollibee Foods Corporation 2012 Annual Report
76
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
United Arab Emirates
JOLLIBEE CHARACTER AND DEVICE
126844 10 Mar 2009
126844 23 Aug 2012
Registered
29
United Arab Emirates
JOLLIBEE CHARACTER AND DEVICE
126845 10 Mar 2009
126845 23 Aug 2012
Registered
30
United Arab Emirates
JOLLIBEE CHARACTER AND DEVICE
126846 10 Mar 2009
126846 23 Aug 2012
Registered
32
United Arab Emirates
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
16343 27 May 1996
15560 27 May 1998
Registered
42
United Arab Emirates
JOLLIBEE GREAT BURGERS GREAT CHICKEN & DEVICE
16344 27 May 1996
15559 27 May 1998
Registered
29
Jollibee Foods Corporation 2012 Annual Report
77
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
United Arab Emirates
JOLLIBEE LOGO & DEVICE
126840 10 Mar 2009
Registered
29
United Arab Emirates
JOLLIBEE LOGO & DEVICE
126842 10 Mar 2009
126842 23 Aug 2012
Registered
32
United Arab Emirates
JOLLIBEE LOGO & DEVICE
126841 10 Mar 2009
126841 23 Aug 2012
Registered
30
United Arab Emirates
JOLLIBEE LOGO & DEVICE
126843 10 Mar 2009
126843 23 Aug 2012
Registered
43
United Arab Emirates
JOLLIBEE MASCOT DEVICE
16345 27 May 1996
14694 25 Apr 1998
Registered
42
Jollibee Foods Corporation 2012 Annual Report
78
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
United Arab Emirates
JOLLIBEE WORD MARK - MAIN
173867 20 May 2012
Pending 29
United Arab Emirates
JOLLIBEE WORD MARK - MAIN
173868 20 May 2012
Pending 43
United Kingdom
Jollibee (Stylised) & Device
2572105 14 Feb 2011
2572105 14 Feb 2011
Registered
43
United States of America
AMAZING ALOHA 78/773483
14 Dec 2005
3399726 18 Mar 2008
Registered
29
United States of America
BEE HAPPY 76/355920
07 Jan 2002
2,830,503 06 Apr 2004
Registered
43
United States of America
BEE HEAD DEVICE (Black & White)
85/513900
11 Jan 2012
Pending 43
29
United States of America
CHICKENJOY 78/773490
14 Dec 2005
3949145 19 Apr 2011
Registered
29
United States of America
CHICKENJOY 85/524814
25 Jan 2012
Pending 43
Jollibee Foods Corporation 2012 Annual Report
79
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
United States of America
CHOWKING 74294980
17 Jul 1992
1758539 16 Mar 1993
Registered
42
United States of America
HEAVYWEIGHT YUMBURGER
78/773517
14 Dec 2005
3349865 04 Dec 2007
Registered
30
United States of America
JOLLIBEE 78/683906
02 Aug 2005
3196017 09 Jan 2007
Registered
43
United States of America
JOLLIBEE 78/546427
12 Jan 2005
3152057 03 Oct 2006
Registered
43
United States of America
JOLLIBEE & DESIGN
74/409992 24 Jun 1997
Registered
30
32
42
29
United States of America
JOLLIBEE & DESIGN
2074116 24 Jun 1997
Registered
29
Jollibee Foods Corporation 2012 Annual Report
80
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
United States of America
JOLLIBEE & DEVICE
74/409992
07 Jul 1993
2074116 24 Jun 1997
Registered
29
42
30
32
United States of America
JOLLIBEE BURGER STEAK
78/773477
14 Dec 2005
3562559 13 Jan 2009
Registered
29
United States of America
JOLLIBEE WORD MARK
85/524886
25 Jan 2012
Pending 29
United States of America
JOLLY SPAGHETTI
78/773476
14 Dec 2005
3374063 22 Jan 2008
Registered
29
United States of America
PALABOK FIESTA 78/773470
14 Dec 2005
3393101 04 Mar 2008
Registered
29
United States of America
YUM 78-773,415
14 Dec 2005
3,363,459 01 Jan 2008
Registered
30
Jollibee Foods Corporation 2012 Annual Report
81
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
United States of America
YUMBURGER 78/773383
14 Dec 2005
3349864 04 Dec 2007
Registered
30
Vietnam BEE HEAD DEVICE (BLACK & WHITE) - MAIN
4201208039
24 Apr 2012
Pending 29
43
43
29
Vietnam CHICKENJOY WORD MARK - MAIN
4201208038
24 Apr 2012
Pending 29
29
43
43
Vietnam JOLLIBEE 4200502046
25 Feb 2005
89304 20 Sep 2007
Registered
43
43
Vietnam JOLLIBEE and Device
4-1993-13733
04 Jun 1993
11429 02 Apr 1994
Registered
29
42
30
32
Jollibee Foods Corporation 2012 Annual Report
82
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
Vietnam JOLLIBEE MASCOT
4200825172
25 Nov 2008
153633 28 Oct 2010
Registered
29
43
43
29
Vietnam JOLLIBEE MASCOT DEVICE
4-1995-22456
08 Apr 1995
18932 08 Apr 1995
Registered
42
42
Vietnam JOLLIBEE MASCOT DEVICE
4-1995-22974
18 May 1995
19997 10 Feb 1996
Registered
29
29
Vietnam JOLLIBEE STACKED LOGO
4-2008-25170
25 Nov 2008
153631 28 Oct 2010
Registered
43
29
43
29
Vietnam JOLLIBEE WORD MARK - MAIN
4201208037
24 Apr 2012
Pending 29
29
43
Jollibee Foods Corporation 2012 Annual Report
83
Country Trademark TM Logo Appli- cation
No
Appli- cation Date
Registration No
Registra- tion Date
Status Class/es
43
Vietnam PEEKING BEE 4200825171
25 Nov 2008
153632 28 Oct 2010
Registered
29
29
43
43
The Company’s subsidiaries have likewise procured the relevant trademark registrations for their respective brands. 2. PROPERTIES The Company’s properties are, primarily, its company-owned Jollibee stores which are located either on Company-owned premises or on land or buildings leased by the Company from third parties under land or building lease agreements. In terms of store area, the largest Company-owned Jollibee stores are the following:
STORE LOCATION Site Owner TYPE OF LEASE
FTI Sunshine Mall Shoppers Paradise FTI Corporation Building lease Tanay Uptown Fidel Melendres Building lease Ortigas Roosevelt Alben Holdings Corp. Land lease C5 Libis Grandworth Resources Corp. Land lease SM Mall of Asia SM Prime Holdings Building lease TriNoma Ayala Land Inc. Building lease E. Rodriguez Linkage Real Estate & Management
Corp. Land lease
Shell SLEX Pilipinas Shell Petroleum Corp. Land lease 1)Northbound Pilipinas Shell Petroleum Corp. Land lease 2)Southbound Pilipinas Shell Petroleum Corp. Land lease Ever Ortigas Building lease Robinsons Luisita (former Lessor Luisita Tarlac)
Robinsons Land Corp. (former Lessor Luisita Realty Corp.)
Land lease
Paseo de Sta. Rosa Greenfield Dev’t. Corp. Building lease Lucena Grand Central Lucena Grand Central Terminal
Inc. Building lease
Zamboanga Camins Grandworth Resources Corp. Building lease Naga 24k Property Ventures Inc. Building lease La Union SFE Leonardo Sia Building lease
Jollibee Foods Corporation 2012 Annual Report
84
STORE LOCATION Site Owner TYPE OF LEASE
Makro Cainta Cash & Carry Makro Philippines Inc.
Land lease
Dolores Junction Jolly Palate Foods Corp. Land lease Pioneer United Mr. & Mrs. Benito Valencia Land lease Zamboanga Veterans Annabelle Santos Adriano Land lease Katipunan V.M. Belizario & Sons Dev’t. Corp. Land lease
The Company houses its main office in the Jollibee Plaza located in Emerald Avenue, Ortigas Center, Pasig City (where it occupies an area totaling approximately 10,104.35 square meters) and in the Jollibee Center located in San Miguel Avenue (where it occupies an area totaling approximately 3,089.50 square meters). It also leases additional office spaces in the Jollibee Plaza, Jollibee Center, and the Karina, Jjaciss and Sheridan buildings. The 10-hectare property occupied by ZFC in Calamba, Laguna is owned by the Company, while the 7,719-square meter property occupied by ZFC in Mandaue City is owned by Freemont Foods Corporation. Additionally and as stated previously, the Company opened a new warehousing and distribution center in Brgy. Marcelo Green Village, Paranaque City. All of the properties owned by the Company are free of liens and encumbrances. 3. LEGAL PROCEEDINGS For purposes of this discussion, a legal proceeding is deemed “material” if the claim involved amounts to at least PhP5,000,000.00. Following are the material pending legal proceedings to which the Company is a party as of December 31, 2011:
SPS. ESCAT, ET AL., VS. JOLLIBEE FOODS CORP., ET AL. Civil Case No. Q-93-17683 Regional Trial Court, Branch 85, Quezon City
This is a claim for damages amounting to PhP5.3 Million arising from various illnesses allegedly suffered by the children of the plaintiffs after dining at the Jollibee Crossroads Arcade, a franchised store owned and operated by Great Foods Corp. The Company has presented its evidence, and is awaiting the completion of presentation of evidence of other parties.
L.O.L. FOOD VENTURES CORP. VS. JOLLIBEE FOODS CORP., ET AL. Civil Case No. 02-105339 Regional Trial Court, Branch 37, Manila LOL Food Ventures Corporation, MALL Food Ventures Corporation (“MALL”) and Royal Garden Restaurant, Inc. (“Royal Garden”) are sub-lessees of the Company. The Company, on the other hand, is the lessee of LOL Realty Corporation. While the Company is the sub-lessor of LOL Food Ventures, MALL and Royal Garden, these sub-lessees remit their rent directly to LOL Realty Corporation, the principal lessor.
Jollibee Foods Corporation 2012 Annual Report
85
LOL Food Ventures filed this case seeking reimbursement from MALL and Royal Garden for the leased premises’ common area expenses that LOL Food Ventures allegedly advanced since 1999 on behalf of MALL and Royal Garden in the amount of PhP3,394,482.24 for Royal Garden and PhP2,740,311.57 for MALL. LOL Food Ventures impleaded the Company as a party defendant and holds the Company liable for the total amount of PhP6,134,793.81 in view of the Company’s role as the sub-lessor of the leased premises and therefore, according to LOL Food Ventures Corporation, responsible for collecting the common area expenses from MALL and Royal Garden. On 7 March 2002, the Company filed its “Answer With Counterclaim and Cross-claim” maintaining that the common area expenses pertain to the operation of the common area as a food court and include the following items: electric and water utility charges, security services, janitorial services and other related food court operating expenses. While the Company is the sub-lessor of the plaintiff, MALL and Royal Garden, the Company never agreed to act as the operator of the food court (the common area) charged with collecting the expenses connected with its day-to-day operation. The parties are still presenting their evidence.
SUSAN SONGCO, ET AL., VS. JOLLIBEE FOODS CORPORATION, ET AL. Civil Case No. 71725 Regional Trial Court, Branch 71, Pasig City Plaintiffs are the lessors of a parcel of land leased to the Company. The property is further sub-leased to Company’s franchisee, Messrs. Jesus Nicdao and Marco Narciso of Line One Foods Corporation. Lessor claims that the lease was entered into allegedly on the condition that the Company shall construct thereon a two-storey building which shall be turned over to the plaintiffs at the end of the lease term. This claim is based on the undertaking of one of the franchisees to construct such property. In their Complaint, plaintiffs pray for the following: PhP5,000,000.00 as penalty for the alleged failure to construct the two-storey building; PhP1,500,000.00 as actual damages; PhP1,000,000.00 as moral damages; PhP250,000.00 as exemplary damages; attorney’s fees and costs of suit. In the Company’s Answer, it stated, among others that the lease contract executed by plaintiffs and Company did not contain such condition or undertaking. On 7 December 2011, the parties agreed to amicably settle the case and executed a "Compromise Agreement" wherein defendants Line One Food Corporation, Jesus S. Nicdao and Narciso Marco dela Fuente acknowledged their obligation to the plaintiffs in the amount of P3,000,000.00. On August 2, 2012, the Court granted the “Motion for Judgment Based on Compromise Agreement.” 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote by security holders of the Company during the fourth quarter of the fiscal year covered by this Report.
Jollibee Foods Corporation 2012 Annual Report
86
PART II. OPERATIONAL AND FINANCIAL INFORMATION 5. MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(A) Market Price of and Dividends on Registrant’s Common Equity, and Related Stockholder Matters
(1) Market Information
Shares traded at the Philippine Stock Exchange 2012 2011
High Low High Low 1st Quarter 119.50 89.20 90.00 68.05 2nd Quarter 118.00 100.00 98.50 83.00 3rd Quarter 107.90 94.00 92.00 81.95 4th Quarter 109.80 99.70 95.00 82.00 Source: Philippine Stock Exchange
The high and low daily closing prices for the first quarter of 2013 are PhP129.50 and PhP104.20 respectively.
(2) Holders
There are approximately 3,325 holders as of December 31, 2012. The Company’s top 20 shareholders as of this date are:
Jollibee Foods Corporation 2012 Annual Report
87
Number of Direct % of Ownership& Indirect Shares* Issued & Outstanding**
1 PCD Nominee Corporation (Non-Filipino) 305,311,830 29.21%2 Hyper Dynamic Corporation 273,218,750 26.14%3 Honeysea Corporation 127,743,747 12.22%4 PCD Nominee Corporation (Filipino) 73,113,730 6.99%5 Winall Holding Corporation 54,140,736 5.18%6 Honeyworth Corporation 43,500,943 4.16%7 Kingsworth Corporation 29,168,935 2.79%8 Centregold Corporation 27,430,964 2.62%9 Gemma Tanbuntiong 21,910,601 2.10%
10 Venice Corporation 18,920,382 1.81%11 A-Star Holding Corporation 16,920,393 1.62%12 Tony Tan Caktiong 15,279,203 1.46%13 Azucena T. King 10,491,199 1.00%14 Longshore Corporation 8,260,184 0.79%15 William Tan Untiong 6,887,389 0.66%16 Ernesto Tanmantiong 4,635,970 0.44%17 Sysmart Corporation 2,703,014 0.26%18 Paul Rosenberg 1,944,340 0.19%19 Great Pacific Life Assurance Corp. 925,000 0.09%20 Susana Tanmantiong 698,857 0.07%
Total 1,043,206,167 99.79%Others 2,196,755 0.21%
Total Issued and Outstanding 1,061,850,262 Treasury Shares ( per SEC 11-C) 16,447,340 1.57%Total Issued and Outstanding* 1,045,402,922 100.00%*(net of Treasury Shares)
Source: JFC Masterlist submitted by RCBC.
(3) Dividends Below are the cash dividend declarations of the Company for the years 2010, 2011 and 2012:
Cash Dividend
Declaration Date Ex-Date Record Date Payment Date
PhP1.43 April 12, 2010 May 04, 2010 May 07, 2010 June 03, 2010 Php0.82 November 10, 2010 November 22, 2010 November 25, 2010 December 21, 2010 PhP0.50 April 13, 2011 May 2, 2011 May 5, 2011 May 31, 2011 PhP0.57 November 4, 2011 November 17, 2011 November 22, 2011 December 16, 2011 PhP0.58 April 12, 2012 May 4, 2012 May 9, 2012 May 31, 2012 PhP0.62 November 12, 2012 November 27, 2012 December 3, 2012 December 19, 2012 PhP1.00 (Special Cash Dividend)
November 12, 2012 November 27, 2012 December 3, 2012 December 19, 2012
(4) Recent Sales of Unregistered Securities There are no recent sales of unregistered securities.
Jollibee Foods Corporation 2012 Annual Report
88
6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR 2012 The following Management Discussion and Analysis should be read in conjunction with the submitted Audited Consolidated Financial Statements for the years ended December 31 2012 and 2011.
Results of Operations Revenues and System Wide Sales (Amounts in Php Millions)
2012 2011 Amount PctSystem Wide Sales 92,271.2 82,170.1 10,101.1 12.3%
Revenues 71,059.0 62,554.9 8,504.1 13.6%
Years Ended December 31 Change
System Wide Sales, a measure of all sales to consumers, both from company-owned and franchised stores grew by 12.3% in 2012 compared to 2011 driven by new store additions, acquisitions and continued strong same base sales in the Philippines, United States, Southeast Asia and the Middle East. The Philippine business reported a 10.3% growth in systemwide sales while the foreign business grew by 21.7% with the China business growing by 27.1%, Southeast Asia and the Middle East business by 23.8% and the US business by 9.2%. Revenues, which pertain to sales of company-owned stores, commissary sales to franchised stores, franchised fees and royalty fees grew by 13.6% in the entire year due to store network expansion and strong same base sales. The Jollibee Group ended 2012 with 2,628 stores, 6.4% higher than a year ago. The Jollibee Group opened a total of 223 stores in 2012 worldwide: 135 in the Philippines and 88 overseas. It closed a total of 102 stores worldwide. The following table shows the total number of company-owned and franchised stores as at December 31, 2012 and 2011:
2012 2011 % Growth% Growth ex‐acquisitions*
Domestic Company 863 818 5.5% 5.5%Franchised 1,211 1,183 2.4% 2.4%Total 2,074 2,001 3.6% 3.6%
Foreign Company 497 419 18.6% 8.4%Franchised 57 49 16.3% 16.3%Total 554 468 18.4% 9.2%
Worldwide Company 1,360 1,237 9.9% 6.5%Franchised 1,268 1,232 2.9% 2.9%Total 2,628 2,469 6.4% 4.7%
*Excludes San Pin Wang (40) and Chowfun (3)
Jollibee Foods Corporation 2012 Annual Report
89
Cost of Sales Consolidated cost of sales increased by 13.7% or P7,030.7 million to P58,434.0 million. The following table summarizes the breakdown of the Jollibee Group’s cost of sales for the years ended December 31 and the percentage of each cost item to total revenues:
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Cost of inventories 33,898.2 29,809.1 4,089.1 13.7% 47.7% 47.7%Personnel costs:
Salaries, wages and benefits 7,772.0 6,896.7 875.2 12.7% 10.9% 11.0%Pension expense 56.5 82.5 (26.1) -31.6% 0.1% 0.1%
Rent 5,499.5 4,830.6 668.8 13.8% 7.7% 7.7%Electricity and water 3,245.1 2,738.8 506.3 18.5% 4.6% 4.4%Depreciation and amortization 2,477.4 2,188.1 289.3 13.2% 3.5% 3.5%Supplies 1,712.1 1,438.8 273.3 19.0% 2.4% 2.3%Contracted services and professional fees 1,237.4 1,034.8 202.7 19.6% 1.7% 1.7%Repairs and maintenance 666.2 605.9 60.3 10.0% 0.9% 1.0%Security and janitorial 294.7 295.1 (0.4) -0.1% 0.4% 0.5%Communication 119.5 109.8 9.7 8.8% 0.2% 0.2%Entertainment, amusement and recreational expenses (EAR) 31.0 27.2 3.8 13.8% 0.0% 0.0%Others 1,424.4 1,345.9 78.6 5.8% 2.0% 2.2%COST OF SALES 58,434.0 51,403.3 7,030.7 13.7% 82.2% 82.2%
Years Ended December 31 Change Pct to Rev
- The increase in cost of sales was largely due to higher cost of inventories resulting from
increase in sales volume due to increase in company-owned store network and the impact of consolidating new businesses such as Jollibee Foods Processing (JFP) and San Pin Wang, both in the People's Republic of China, Chowking in the United States of America, Burger King and the new logistic center in the Philippines.
- The store network expansion and new businesses also drove the increase in salaries and
wages, rent, electricity and water, depreciation, supplies, contracted services and professional fees, repairs and maintenance, communication and EAR.
- Pension expense decreased as a result of the actuarial valuation done in 2012. - Cost of sales - others increased mainly due to higher expenses related to the Jollibee Group’s
SEEDs (or Skills Enhancement and Educational Development for Students) program and increase in expenses pertaining to the delivery services.
Gross Profit Consolidated gross profit for 2012 increased by 13.2% or P1,473.5 million to P12.625.0 million, from P11,151.6 million in 2011. Gross profit margin for the year was maintained at 17.8%. Expenses Consolidated expenses increased by 14.2% or P1,029.1 million to P8,278.5 million. The following table summarizes the breakdown of the Jollibee Group’s expenses for the years ended December 31 and the percentage of each expense item to the total revenues:
Jollibee Foods Corporation 2012 Annual Report
90
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Personnel costs:Salaries, wages and benefits 3,104.7 2,828.7 276.0 9.8% 4.4% 4.5%Pension expense 44.4 74.8 (30.4) -40.6% 0.1% 0.1%Stock option expense 77.0 73.6 3.4 4.6% 0.1% 0.1%
Taxes and licenses 793.1 723.0 70.2 9.7% 1.1% 1.2%Rent 396.4 301.1 95.2 31.6% 0.6% 0.5%Transportation and travel 299.9 301.1 (1.2) -0.4% 0.4% 0.5%Professional fees 268.4 278.3 (9.9) -3.6% 0.4% 0.4%Depreciation and amortization 228.2 213.5 14.7 6.9% 0.3% 0.3%Provisions 140.1 39.7 100.3 252.5% 0.2% 0.1%Entertainment, amusement and recreational expenses 105.4 109.2 (3.8) -3.5% 0.1% 0.2%Communication 87.8 80.0 7.8 9.7% 0.1% 0.1%Training 71.3 40.3 31.0 76.7% 0.1% 0.1%Donation 68.2 37.1 31.1 83.7% 0.1% 0.1%Supplies 59.4 60.6 (1.2) -2.0% 0.1% 0.1%Electricity and water 58.7 57.1 1.5 2.7% 0.1% 0.1%Contracted Services 49.9 51.8 (1.8) -3.6% 0.1% 0.1%Repairs and maintenance 43.8 49.1 (5.4) -10.9% 0.1% 0.1%Security and janitorial 22.2 26.2 (4.0) -15.4% 0.0% 0.0%Insurance 10.3 15.4 (5.1) -33.1% 0.0% 0.0%Corporate events and others 979.6 578.6 401.1 69.3% 1.4% 0.9%Total General and Administrative Expenses 6,908.8 5,939.3 969.5 16.3% 9.7% 9.5%Advertising and promotions 1,369.7 1,310.1 59.6 4.5% 1.9% 2.1%
8,278.5 7,249.4 1,029.1 14.2% 11.7% 11.6%
Years Ended December 31 Change Pct to Rev
- Salaries and wages increased primarily due to performance-related increases in basic pay,
employee promotions, upgrades in employee benefits and additional accrual for stock option expense. The increase also reflected the impact of the consolidation of the new businesses. Pension expense decreased as a result of the actuarial valuation done in 2012.
- Taxes and licenses increased due to higher business-related taxes and license fees resulting from higher revenues.
- The increase in rent was driven by the China business, primarily Yonghe King due to its transfer in October 2011 to a new warehouse with higher rental fees.
- Provisions increased due to impairment in value of receivables of P86.4 million, property,
plant and equipment of P29.5 million, investment property of P21.2 million and security and other deposits of P3.0 million .
- The increase in communication was driven by JFC's domestic business arising from more
frequent coordination via domestic long distance and overseas calls from the head office to local and foreign stores and vice versa.
- The increase in contracted services was driven by the new logistics center in the Philippines. - The increase in training expenses was driven by increased external trainings of the domestic
business, particularly Jollibee and Fresh N' Famous, partially offset by the decline in the foreign business’ training expenses.
- The increase in donation pertained to donations made to the Mind Museum, the Jollibee
Foundation and other sponsorships made in the first half of 2012.
Jollibee Foods Corporation 2012 Annual Report
91
- Corporate events and other expenses increased due to write-off of fixed and other assets arising from store closures particularly in the United States and the People's Republic of China.
The increase in the above expenses was partially offset by lower rent expense, supplies, insurance, securities and janitorial expenses, professional fees and repairs and maintenance mainly due to reclassification to other accounts. - Rent expenses of the new logistics center, booked under operating expenses in 2011 was
reclassified to cost of sales in 2012. - Car plan insurance, booked as insurance expense in 2011 was reclassified to employee-
related expenses in 2012. - Professional fees likewise decreased due to the reclassification of services pertaining to the
new logistics center to contracted services. Security and janitorial was also reclassified to contracted services. These explain the increase in contracted services.
- Repairs and maintenance declined due to lower warehouse repairs and maintenance expenses
in 2012 compared to 2011. Operating Income Consolidated operating income for 2012 increased by 11.4% or P444.4 million to P4,346.5 million driven by strong revenue growth, partially offset by higher store and manufacturing costs and higher general and administrative expenses. Operating income margin for 2012 was 0.1% point lower at 6.1% compared to 6.2% in 2011 due to decline in gross profit margin. Finance Charges
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Interest income 270.1 179.8 90.4 50.3% 1.8% 1.9%Interest expense (206.0) (291.3) 85.3 -29.3% -0.2% -0.1%
64.1 (111.6) 175.7 -157.4% 1.6% 1.8%
Years Ended December 31 Change Pct to Rev
The increase in interest income was primarily due to higher interest income from short-term deposits and loans and advances to JFC's co-venturer. See Note 23 of the accompanying Audited Consolidated Financial Statements for more information. The decrease in interest expense was primarily due to lower bank loans in 2012 compared to 2011. See Note 23 of the accompanying Audited Consolidated Financial Statements for more information. Equity in Net Earnings (Losses) of Joint Ventures and Associate
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Equity in net earnings (losses) of joint ventures and associate (51.0) 0.3 (51.3) -17100.0% 1.8% 1.9%
Years Ended December 31 Change Pct to Rev
Jollibee Foods Corporation 2012 Annual Report
92
Equity in net losses of joint ventures pertain to JFC’s share in the 2012 net losses of SuperFoods Group and Coffeetap Corporation and net earnings of Entrek, the company that operates Jollibee stores in Brunei. Other Income Other income for 2012 was lower compared to 2011 due to the following:
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Write-off of other liabilities 292.1 409.6 (117.5) -28.7% 0.4% 0.7%Rebates and suppliers' incentives 76.1 103.5 (27.4) -26.5% 0.1% 0.2%Charges to franchisees 43.9 34.7 9.2 26.5% 0.1% 0.1%Pre-termination of operating leases 43.8 11.3 32.5 287.3% 0.1% 0.0%Foreign exchange gain (loss) (25.4) (63.6) 38.2 -60.1% 0.0% -0.1%Penalities and charges 16.1 16.1 (0.0) -0.2% 0.0% 0.0%Insurance claims 12.2 16.6 (4.4) -26.7% 0.0% 0.0%Other rentals 7.0 9.9 (2.9) -29.5% 0.0% 0.0%Miscellaneous income 37.8 28.7 9.1 31.7% 0.1% 0.0%
503.5 566.8 (63.3) -11.2% 0.7% 0.9%
Years Ended December 31 Change Pct to Rev
Income Taxes
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Current 1,277.2 1,187.6 89.6 7.5% 1.8% 1.9%Deferred (127.0) (83.7) (43.3) 51.8% -0.2% -0.1%
1,150.1 1,103.9 46.2 4.2% 1.6% 1.8%
Years Ended December 31 Change Pct to Rev
Provision for income tax for 2012 increased compared to 2011 due to higher operating income partially offset by higher deferred income tax resulting from NOLCO of PRC-based entities. The resulting effective tax rate for 2012 was 23.6%, lower compared to the 25.3% effective tax rate for 2011. See Note 24 of the accompanying Audited Consolidated Financial Statements for details. Net Income Consolidated net income for 2012 was P3,713.1 million, 14.1% higher than last year’s consolidated net income of P3,253.8 million. Net income margin (net income as a percent of revenues) was maintained at 5.2%. Net Income Attributable to the Equity Holders of the Parent Company was P3,728.2 million, 15.4% higher than last year while Earnings per Share amounted to P3.578, 14.0% higher year-on-year. Financial Condition The Jollibee Group’s consolidated total assets as of December 31, 2012 stood at P41,990.8 million, 8.0% higher than the P38,881.7 million balance at end of 2011. The following explain the significant movements in the asset accounts: - The Jollibee Group’s cash balance increased by P2,193.3 million or 33.0% to P8,848.6
million coming from the JFC Group’s profit for year. The movements in the Jollibee Group’s cash will be explained further in the cash flow discussion.
- Accounts receivables amounted to P2,750.3 million at the end of 2012 and P2,388.6 million
at the end of 2011. These are primarily receivables from franchisees for royalty payments
Jollibee Foods Corporation 2012 Annual Report
93
and commissary purchases which increased by 17.7% or P369.0, from P2,085.7 million in 2011 to P2,454.6 million in 2012. The Jollibee Group’s days receivables was maintained at 13 days.
- Inventories decreased by P230.4 million or 8.1% to P2,629.7 million from P2,860.1 million
at the end of 2011 on account of higher base due to higher cost per unit of major raw materials in 2011. The JFC Group’s day inventory was 30 days 2012 compared to 31 days in 2011.
- Other current assets amounted to P1,394.5 million, higher by P39.6 million or 2.9%
compared to the year-end 2011 balance of P1,354.9 million. The increase was primarily due to higher prepaid rent and taxes which increased by P56.2 million and P72.2 million, respectively, offset by the decline in deposits to suppliers and others by P86.6 million.
The Jollibee Group’s current ratio as of December 31, 2012 was 0.94:1.00, lower than the current ratio as of December 2011 of 1.10:1.00 due to significant increase in bank loans maturing in 2013. - Available-for-sale (AFS) financial assets consists of unquoted investment in shares of public
utility companies. The increase pertains to a club membership acquired in 2012. See Note 9 of the accompanying Audited Consolidated Financial Statements for more information.
- The increase in interests and advances in joint ventures, co-venturers and associate of P3,008.3 million pertains to investments of JFC’s foreign subsidiary to SuperFoods Group, WJ Investments Limited and Entrek offset by equity in net losses of SuperFoods Group. This was presented under "Other noncurrent assets" in the 2011 Audited Consolidated Financial Statements. See Note 11 of the accompanying Audited Consolidated Financial Statements for more information.
- Operating lease receivables decreased by P4.3 million or 15.9% to P22.6 million resulting
from the termination of some lease contracts of a subsidiary of the Parent Company. The decrease of P4.3 million is the difference of rent income recognized under the straight-line method and the rent amounts in accordance with the terms of the lease agreements
- Deferred tax assets decreased by P62.6 million or 6.5% to P1,030.2 million due to the
following:
Jollibee Foods Corporation 2012 Annual Report
94
(Amounts in Php Millions) 2012 2011 Amount Pct
Operating lease payables 401.4 375.5 25.9 6.9%NOLCO:
PRC-based entities 275.5 178.4 97.1 54.4%Philippine-based entities 44.0 88.5 (44.5) -50.3%
Pension liability and other benefits 97.6 93.3 4.3 4.6%Excess of MCIT over RCIT 12.1 67.2 (55.1) -82.0%Unamortized past service costs 50.2 58.7 (8.5) -14.5%Allowance for impairment loss on receivables 52.0 40.5 11.5 28.4%Unaccreted discount on security deposits and employee car plan receivables 23.6 25.8 (2.2) -8.5%Accumulated impairment loss in value of property, plant & equipment, investment properties and other non- financial assets 23.4 14.9 8.5 57.0%Provisions of legal claims and restructuring costs 9.1 9.1 - 0.0%Allowance for inventory obsolescence 2.2 6.8 (4.6) -67.6%Unrealized foreign exchange loss 32.1 1.6 30.5 1906.3%Others 7.0 7.3 (0.3) -4.1%
1,030.2 967.6 62.6 6.5%
Year Ended December 31 Change
Consolidated current liabilities amounted to P16,571.1 million, P4,468.8 million or 36.9% higher than the 2011 year-end balance of P12,102.4 million. The following explain the significant movements in current liabilities: - Trade payables and other current liabilities increased due to higher employee-related
accruals, higher accrual for local taxes, advertising and promotions, rent, utilities, freight, store operations, corporate events and others. Deposits likewise increased.
- Income tax payable decreased by P75.8 million or 49.0% due JFC's tax savings arising from
the write-off of intercompany advances. - Short-term debt as of December 31, 2011, which consists of unsecured short-term bank loans
of the Parent Company was paid in full, including accrued interest, on April 17, 2012. - The current portion of liability for acquisition of businesses increased by P61.5 million or
58.7% to P166.3 million due to reclassification of maturing liability from non-current to current liabilities.
- Current portion of long-term debt increased by P3,795.5 million to P4,572.8 million as of
December 31, 2012. The increase pertains to bank loans which will mature in 2013. The amount includes three loans obtained by JWPL from a local bank in 2012 (March 1, March 9 and May 29) with a term of 2 years and will originally mature on February 28, March 7 and May 24, 2014. Said loans were preterminated by the Jollibee Group and paid in full, including accrued interest, in February 2013.
Jollibee Foods Corporation 2012 Annual Report
95
Consolidated non-current liabilities amounted to P3,526.3 million, 46.2% or P3,030.6 million lower than the December 31, 2011 balance of P6,556.9 million, due to reclassification of bank loans maturing in 2013 to current liabilities as well as the pretermination of JWPL's 2-year loans. See Note 18 to the accompanying Audited Consolidated Financial Statements for details.
- The derivative liability of P22.8 million pertains to the PHP-denominated loan of PERF Restaurants, Inc. (PERF). The five-year P149.2 million (originally US$3.4 million) availed on December 20, 2011 and bearing fixed interest rate of 5.32% per annum was converted into a deliverable cross-currency swap transaction to hedge in full the foreign currency risk and interest rate risk on its floating rate. Under the cross-currency swap, the PERF received at inception Philippine Peso (PHP) notional amount of P=149.2 million and paid US$ notional amount of US$3.4 million based on the PHP/US$ spot reference rate of P=43.87.
Effectively, the cross-currency swap transformed the floating rate US$ loan into a fixed rate PHP loan.
Since the critical terms of the hedged loan and cross-currency swap match, the hedge was assessed to be highly effective. As such, there was no ineffectiveness recognized in the profit or loss for the period ended December 31, 2012 and 2011. The foreign exchange revaluation of the hedged loan amounting to P=9.7 million was recognized in other comprehensive loss on derivative liability.
For the period ended December 31, 2012, the fair value change of the cross-currency swap amounted to a loss of P=13.1 million and was recognized under other comprehensive loss on derivative liability. As of December 31, 2012, the value of the derivative liability amounted to P=22.8 million.
- Liability for acquisition of businesses (net of current portion) decreased by P99.4 million or
55.5% to P79.6 million due to partial settlement of liabilities to Mang Inasal and Fortune Capital.
- Operating lease payables increased by P116.9 million or 8.7% to P1,460.2 million, arising from increase in number of company-owned stores. The increase of P116.9 million is the difference of rent expense recognized under the straight-line method and the rent amounts due in accordance with the terms of the lease agreements.
Consolidated stockholders’ equity increased by P1,670.9 million or 8.3% to P21,893.3 million primarily due to the net income (attributable to equity holders of the Parent) realized during the year, which amounted to P3,728.2 million, increase in additional paid in capital of P369.7 million for the stock option expense and issuance of new shares in relation to the management stock option plan, offset by cash dividends declared during the year amounting to P2,294.0 million and the unfavorable change of P164.2 million in cumulative translation. The change in translation loss of P164.2 million was mainly due to the appreciation of the Philippine Peso versus RMB and USD from December 31, 2011 compared to December 31, 2012, which decreased the value of the Jollibee Group's net assets as of the end of the year. On February 15, 2012, the Board of Directors of JFC approved the appropriation of additional P3,800.0 million for future expansion. This increased the appropriated retained earnings of JFC to P5,000.0 million, from P1,200.0 million.
Jollibee Foods Corporation 2012 Annual Report
96
Liquidity and Capital Resources Net cash provided by operating activities in 2012 was P8,138.0 million, 38.4% or P2,257.4 million higher compared to net cash provided by operating activities of P5,880.6 million in 2011 mainly due to stronger operating results, higher depreciation and lower working capital requirements. Net cash used in investing activities was P3,783.7 million in 2012, 47.1% or P3,373.1 million lower compared to net cash used for investing activities in 2011 of P7,156.8 million on account of higher base arising from long-term loans receivable and deposit for future business transaction in 2011. Net cash used in financing activities amounted to P2,169.0 million in 2012, primarily due to the return of operating cash flow to our shareholders through dividend payments of P2,274.4 million and loans and interest payments for the bank loans of JFC and its foreign subsidiaries. This was partially offset by proceeds from long-term debt of P1,700.8 million and issuance of new shares in relation to the JFC’s stock option program. Overall, net cash and cash equivalents increased by P2,185.3 million to P8,848.6 million for the year 2012.
Discussion of the Jollibee Group's Top Five (5) Key Performance Indicators System Wide Sales System Wide Sales is a measure of all sales to consumers both from company-owned and franchised stores.
As of end Dec 2012 As of end Dec 2011System Wide Sales P92,271.2 million P82,170.1 million% Growth vs LY 12.3% 17.0%
Revenues Revenues is a measure of (1) all sales made by the Jollibee Group’s owned stores (both food and novelty sales); (2) Commissary sales to franchised stores; (3) rental revenues of the Jollibee Group’s property division; and (4) revenues from services rendered by the in-house Construction and Service Groups.
As of end Dec 2012 As of end Dec 2011Revenues P71,059.9 million P62,554.9 million% Growth vs LY 13.6% 17.2%
Net Income Margin Net Income Margin is the ratio of the Jollibee Group's earnings after interest and tax. This is computed by dividing net income by total revenues. The quotient is expressed in percentage. This measures the Jollibee Group’s return for every peso of revenue earned, after deducting cost of sales, operating expenses, interests and taxes.
Jollibee Foods Corporation 2012 Annual Report
97
As of end Dec 2012 As of end Dec 2011Net Income P3,713.1 million P3,253.8 million% to Revenues 5.2% 5.2%
Basic Earnings Per Share (EPS) EPS is the portion of the Jollibee Group’s profit allocated to each outstanding share of common stock. This is computed by dividing the net income for the year attributable to the equity holders of the Jollibee Group by the weighted average outstanding shares during the year, after considering the retroactive effect of stock dividends declaration, if any. This serves as an indicator of the Jollibee Group’s profitability.
As of end Dec 2012 As of end Dec 2011EPS (Basic) P3.578 P3.138% Growth vs LY 14.0% 0.6%
Return on Equity (ROE) ROE is the ratio of the Jollibee Group’s net income (attributable to equity holders of the parent) to equity (before non-controlling interests). It is computed by dividing net income by average equity. Average equity is calculated by adding the equity at the beginning of the year to the equity at year end and dividing the result by two. ROE is a measure of return for every peso of invested equity. The Jollibee Group also uses ROE for comparing its profitability to that of other firms in the same industry.
As of end Dec 2012 As of end Dec 2011Return on Equity 18.3% 17.6%
Jollibee Foods Corporation 2012 Annual Report
98
Financial Soundness Indicators
Formula: Dec-12 Dec-11Liquidity Ratios
Current Assets 0.94 1.10 Current Liabilities
Financial Leverage Ratios
Asset to Equity Ratio Total Assets 1.98 1.99 Total Equity attributable to equity holders of the Parent Company
Total Debt 48.7% 48.9%Total Debt + Equity attributable to equity holders of the Parent Company
Net Debt Ratio Total Debt - Cash and cash equivalents 34.7% 38.1%(Total debt - Cash and cash equivalents) + equity attibutable to equity holders of the Parent Company
Interest Coverage Ratio Earnings before Interest and Taxes 23.30 15.34 YTD Interest Expense
Solvency Ratio Net income + depreciation 0.32 0.30 Total liabilities
Debt-Service Coverage Net income 0.18 0.17 Ratio Total liabilities
Current Ratio
Debt Ratio
Discussion and Analysis of Material Events and Uncertainties 1. There were no events during the period that will trigger direct or contingent financial
obligation that is material to the Jollibee Group. 2. There were no material off-balance sheet transactions, arrangements, obligations created
during the reporting period. 3. Consolidated actual capital expenditures in 2012 amounted P3,755.9 million, higher by 1.5%
than the 2011 actual expenditures of P3,700.4 million and 35.2% lower than the 2012 budgeted expenditures.
The Jollibee Group’s capital expenditures budget was principally used to finance its store expansions and major renovations, major repairs and upgrades of existing commissaries, improvements in head office and investments in information technology.
4. Food service operations have both peak and lean seasons. Historically, sales in the second
and fourth quarters are strong due to the summer and the Christmas seasons, respectively.
Jollibee Foods Corporation 2012 Annual Report
99
Demand during the first and third quarters usually slackens. The material financial impact of this seasonality has been considered in the Jollibee Group’s financial forecast.
5. All of the Jollibee Group’s income arose from its continuing operations. 6. Events after the Reporting Period:
Dividend Declaration On April 11, 2013, the Board of Directors (BOD) of JFC approved a regular cash dividend of P0.65 a share of common stock to all stockholders of record as of May 7, 2013. Consequently, the cash dividend is expected to be paid out by May 30, 2013. The cash dividend is 12.1% higher than the P0.58 regular cash dividend a share declared on April 12, 2012. Appropriation of Retained Earnings On April 11, 2013, the BOD approved the appropriation of additional retained earnings amounting to P5,200.0 million to be used for future expansion and support the Company's growth strategy. Projects Timeline Amount (in Pesos)Acquisition of businesses 2013‐2018 2,600,000,000 Capital expenditures 2013‐2018 2,600,000,000
5,200,000,000
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR 2011 Results of Operations Revenues and System Wide Sales Revenues of Jollibee Foods Corporation (JFC) expanded by 17.2% in 2011 compared to 2010 as System wide sales, a measure of all sales to consumers both from company-owned and franchised stores rose by 17.0% in 2011 to P 82,170.1 million compared with sales in 2010. System wide sales in the Philippines grew by 16.7% while those abroad increased by 18.3% led by China with a growth of 25.8% and Southeast Asia and the Middle East with 25.2%.
In the Philippines, the acquisition of Mang Inasal and Burger King contributed 8.9% of the 17.0% sales growth while the rest of the brands grew by 8.1%. Sales per store across all brands grew strongly versus year ago driven by higher transaction count, a measure of volume of customer purchases. The Jollibee Group ended 2011 with 2,469 stores, 6.6% higher than a year ago. The JFC Group opened a total of 260 stores in 2011 worldwide: 167 in the Philippines and 93 overseas. It closed a total of 130 stores worldwide.
Jollibee Foods Corporation 2012 Annual Report
100
Cost of Sales Consolidated cost of sales increased by 18.8% or P8,148.6 million to P51,403.4 million. The following table summarizes the breakdown of the JFC Group’s cost of sales for the years ended December 31 and the percentage of each cost item to total revenues:
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Cost of inventories 29,809.1 24,900.0 4,909.1 19.7% 47.7% 46.7%Personnel costs:
Salaries, wages and benefits 6,896.7 6,515.8 380.9 5.8% 11.0% 12.2%Pension expense 82.5 78.5 4.0 5.1% 0.1% 0.1%
Rent 4,830.6 3,903.7 927.0 23.7% 7.7% 7.3%Electricity and water 2,738.8 2,491.7 247.1 9.9% 4.4% 4.7%Depreciation and amortization 2,188.1 1,801.3 386.8 21.5% 3.5% 3.4%Supplies 1,438.8 1,244.8 194.0 15.6% 2.3% 2.3%Contracted services and professional fees 1,034.8 783.7 251.1 32.0% 1.7% 1.5%Repairs and maintenance 605.9 515.4 90.5 17.6% 1.0% 1.0%Security and janitorial 295.1 244.0 51.1 21.0% 0.5% 0.5%Communication 109.8 104.0 5.8 5.6% 0.2% 0.2%Entertainment, amusement and recreational expenses (EAR) 27.2 22.1 5.1 23.3% 0.0% 0.0%Others 1,345.9 649.8 696.1 107.1% 2.2% 1.2%COST OF SALES 51,403.3 43,254.8 8,148.5 18.8% 82.2% 81.0%
Years Ended December 31 Change Pct to Rev
- Cost of inventories increased as a result of increase in sales volume as well as increases in
prices of some raw materials such as beef, sugar, fats and dairy products particularly during the first half of the year. The Jollibee Group’s raw material prices were higher by about 5.4% in 2011 over 2010.
- Personnel costs increased due to additional headcount from newly opened company-owned stores, particularly of the China business which reported a 25.8% year-on-year growth in store network as well as the inclusion of Mang Inasal that was acquired in November 2010. Performance-related increases, employee promotions and upgrade in employees’ car plan also contributed to the increase. As a percent of revenues, personnel costs were lower in 2011 compared to 2010 as a result of lower headcount of Fresh N’ Famous in 2011 over 2010 due to cessation of operations of Manong Pepe Karinderia in April 2011, sale of Delifrance in December 2010 and closure of 26 company-owned stores of Chowking and Greenwich in 2011. The closure of 11 company-owned stores of Red Ribbon also contributed to lower personnel costs as a percentage of revenues.
- Rent increased on account of higher sales, increase in store network, new acquisitions,
annual rent escalation and the mix effect from faster growth in foreign business. A subsidiary of JFC also increased its pallet and warehouse rental. Rent, as a percent of revenues increased from 7.3% in 2010 to 7.7% in 2011, reflecting the impact of the new acquisitions.
- Electricity and water increased relative to the increase in company-owned stores of the
Jollibee Group’s existing brands and new acquisitions (Mang Inasal’s 43 company-owned stores and Chowking USA’s 19 company-owned stores) as well as the increase in power and water rates this year versus 2010.
Jollibee Foods Corporation 2012 Annual Report
101
The closure of several owned stores, particularly of Fresh N’ Famous and Red Ribbon contributed to the decline in electricity and water as a percent of revenues.
- Depreciation and amortization increased due to the consolidation of the new acquisitions
(Mang Inasal and Chowking USA) and the growing asset base of the Jollibee Group's business units such as Jollibee, Red Ribbon and the foreign businesses.
- Operating supplies increased primarily due to the higher cost of Liquified Petroleum Gas
(LPG) arising from the increase in sales volume and higher cost of LPG. - Contracted services increased primarily due to higher fees for contracted services of the
Jollibee business and Zenith Foods Corporation.
- Repairs and maintenance increased primarily due to the consolidation of the new acquisitions and the higher repair and maintenance costs of the foreign businesses.
- Security and janitorial increased relative to the increase in company-owned stores of the Jollibee Group’s existing brands and new acquisitions as well as higher outsourcing costs of Red Ribbon for pan-washing activities in its commissaries in Libis and Tarlac.
- Professional fees increased primarily due to higher expenses incurred by Zenith Foods Corporation in relation to the construction of the logistics center in the Philippines.
- Communication increased due to higher expenses incurred by the foreign businesses as well
as the impact of the new acquisitions.
- Entertainment, amusement and recreational expenses increased mainly due to the consolidation of the new acquisitions and higher expenses incurred by the foreign businesses.
- Cost of sales - others increased mainly due to higher expenses related to the Company’s SEEDs (or Skills Enhancement and Educational Development for Students) program and increase in expenses pertaining to delivery services.
Gross Profit Consolidated gross profit for 2011 increased by 10.2% or P1,034.6 million to P11,151.6 million, from P10,117.0 million in 2010. Gross profit margin for the year was however lower by 1.1% points compared to 2010 as cost of inventories increased faster than revenues. The price adjustments implemented by the Jollibee business in the first half of 2011 and the cost improvement initiatives of the Jollibee Group were not sufficient to cover the increase in the prices of raw materials and other costs of operations. Expenses Consolidated expenses increased by 11.2% or P731.8 million to P7,249.4 million. The following table summarizes the breakdown of the Jollibee Group’s expenses for the years ended December 31 and the percentage of each expense item to the total revenues:
Jollibee Foods Corporation 2012 Annual Report
102
(Amounts in Php Millions) 2012 2011 Amount Pct 2012 2011
Personnel costs:Salaries, wages and benefits 2,828.7 2,477.5 351.2 14.2% 4.5% 4.6%Pension expense 74.8 77.6 (2.8) -3.6% 0.1% 0.1%Stock option expense 73.6 65.6 8.0 12.2% 0.1% 0.1%
Taxes and licenses 723.0 625.6 97.4 15.6% 1.2% 1.2%Rent 301.1 189.1 112.0 59.2% 0.5% 0.4%Transportation and travel 301.1 250.5 50.6 20.2% 0.5% 0.5%Professional fees 278.3 326.0 (47.7) -14.6% 0.4% 0.6%Depreciation and amortization 213.5 176.7 36.8 20.8% 0.3% 0.3%Provisions 39.7 56.3 (16.6) 252.5% 0.1% 0.1%Entertainment, amusement and recreational expenses 109.2 84.8 24.4 28.8% 0.2% 0.2%Communication 80.0 65.9 14.1 21.4% 0.1% 0.1%Training 40.3 47.7 (7.4) -15.4% 0.1% 0.1%Donation 37.1 26.7 10.4 39.0% 0.1% 0.1%Supplies 60.6 46.7 13.9 29.7% 0.1% 0.1%Electricity and water 57.1 52.1 5.0 9.7% 0.1% 0.1%Contracted Services 51.8 34.6 17.2 49.6% 0.1% 0.1%Repairs and maintenance 49.1 35.3 13.8 39.2% 0.1% 0.1%Security and janitorial 26.2 35.9 (9.7) -27.0% 0.0% 0.1%Insurance 15.4 5.6 9.8 174.2% 0.0% 0.0%Corporate events and others 578.6 590.9 (12.3) -2.1% 0.9% 1.1%Total General and Administrative Expenses 5,939.3 5,271.1 668.2 12.7% 9.5% 9.9%Advertising and promotions 1,310.1 1,246.6 63.5 5.1% 2.1% 2.3%
7,249.4 6,517.7 731.7 11.2% 11.6% 12.2%
Years Ended December 31 Change Pct to Rev
- Salaries and wages increased primarily due to increase in headcount of JFC and China
corporate offices as well as the inclusion of Mang Inasal’s personnel costs. Performance-related increases in basic pay, employee promotions and upgrades in employee benefits and the additional accrual for stock option expense also contributed to the increase.
- Taxes and licenses increased due to higher business-related taxes and license fees resulting
from higher revenues. - Rent expense increased due to additional office spaces in the Jollibee Group’s corporate
office, additional warehouse rental and deferred rent for the logistics center which is currently being constructed.
- Professional fees declined this year due to lower legal and tax service fees, in relation to
JFC's business acquisitions and other special projects and lower broker’s commissions relative to stock options exercised during the year.
- Transportation and travel expenses were higher this year versus last year due to higher fuel
consumption and travel expenses, particularly of the foreign businesses and Fresh N’ Famous, as well as the impact of the consolidation of Mang Inasal’s expenses.
- Depreciation and amortization for 2011 was higher compared to last year because of the
impact of the China business’ new corporate office and the inclusion of Mang Inasal’s depreciation expenses.
Jollibee Foods Corporation 2012 Annual Report
103
- Entertainment, amusement and recreational expenses increased primarily due to higher representation expenses of the foreign businesses.
- Communication increased mainly resulting from the increase in expenses of the Jollibee
business as well as the impact of the new acquisitions. - Electricity and water increased mainly due to the increase in consumption resulting from
additional office spaces and increase in power and water rates this year versus last year. - Repairs and maintenance for 2011 was higher compared to 2010 mainly due to higher
expenses of the foreign businesses and Red Ribbon as well as the impact of the new acquisitions.
- Training decreased as a result of the significant decline in the training expenses of Fresh N’
Famous, from P8.7 million in 2010 to P1.2 million in 2011. - Provisions of P39.8 million in 2011 pertained to provisions for impairment in value of
receivables. The decrease was mainly due to lower provision for uncollectible receivables. See Notes 7 and 8 to the accompanying Audited Consolidated Financial Statements for more information.
- Supplies increased mainly due to the increase in volume and purchase prices of various office
supplies. - Contracted services increased primarily due to the consolidation of Mang Inasal.
- Donation increased in 2011 compared 2010 due to higher net income (which was the basis for
the donation made).
- Security and janitorial decreased due to lower expenses incurred by the domestic and foreign businesses.
- Insurance expense increased due to higher property insurance premium rate, increase in number of stores, upgrade in employees’ car plan and higher number of motor vehicles insured in 2011 compared to 2010.
- Advertising and promotions for 2011 increased slightly by 5.1% compared to 2010, but was
lower as a percent of revenues, from 2.3% in 2010 to 2.1% in 2011 as a result of an action being taken by the Jollibee Group to be more conservative in its marketing spending.
Operating Income Considering the factors discussed above, operating income for 2011 increased by 8.4% or P302.8 million to P3,902.1 million. However, operating income margin for 2011 was -0.5% points lower at 6.2% compared to 6.7% in 2010 as higher raw material costs decreased gross profit margin. Finance Charges The increase in interest income was primarily due to interests on loans and advances to the Parent Company’s co-venturer, offset by lower interest income from placements and short term deposits
Jollibee Foods Corporation 2012 Annual Report
104
due to the decline in the Jollibee Group’s cash balance. See Note 23 of the accompanying Audited Consolidated Financial Statements for more information. The increase in interest expense was primarily due to loans acquired in the fourth quarter of 2010 and the first semester of 2011 for business acquisitions. See Note 23 of the accompanying Audited Consolidated Financial Statements for more information. Other Income Other income for the year was P566.8 million, 8.4% or P52.1 million lower than last year’s other income of P618.9 million. The decrease was mainly due to foreign exchange loss of P63.6 million in 2011 compared to foreign exchange gain of P37.1 million in 2010, lower income from pre-termination of operating leases, partially offset by write-off of other liabilities. Income Taxes The Jollibee Group’s provision for income tax increased by P130.5 million or 13.4% due to higher taxable income. Effective tax rate for 2011 was 25.3% compared to the 2010 rate of 23.3% primarily due to the mix of earnings among the Jollibee Group's foreign operations. See Note 24 of the accompanying Audited Consolidated Financial Statements for details. Net Income Net Income Attributable to Equity Holders of the Parent and Earnings Per Share grew versus last year by 1.1% and 0.6%, respectively. Net Income Attributable to the Equity Holders of the Parent reached P3,231.7 million while Earnings per Share amounted to P3.138, just slightly above the amounts in 2010 of P3,197.8 million and P3.118, respectively. The Net Income margin for the year of 5.2%, however, was lower than the 6.0% registered last year, primarily due to lower Gross Profit margin, caused by raw material cost increases, partly offset by lower operating expenses. Financial Condition The Jollibee Group’s consolidated total assets as of December 31, 2011 amounted to P38,881.7 million, an increase of 15.2% from P33,746.0 million. The following explain the significant movements in the asset accounts: - The JFC Group’s cash balance decreased by P1,515.2 million or 18.5% to P6,655.3 million
mainly due to capital investments in new stores and logistics center and settlement of bank loans, partially offset by proceeds from bank loans. The movements in the Jollibee Group’s cash will be explained further in the cash flow discussion.
- Receivables increased by P289.7 million or 13.8% to P2,388.6 million. The increase was
primarily due to higher receivables of Mang Inasal which increased by P247.6 million compared to 2010, directly attributable to higher sales volume arising from expanded store network. Mang Inasal opened 84 stores in 2011, of which 80 are franchised. Receivable days improved from 14 days in 2010 to 13 days in 2011.
- Inventories increased by P725.6 million or 34.0% to P2,860.1 million on account of higher
sales volume, higher cost per unit of major raw materials and higher inventory target level in
Jollibee Foods Corporation 2012 Annual Report
105
2011 compared to 2010. The Jollibee Group’s inventory days increased from 29 days in 2010 to 31 days in 2011.
- Other current assets increased by P186.3 million or 15.9% to P1,354.9 million primarily due
to higher deposits to suppliers and receivables from customers and higher prepaid rent and other prepayments partially offset by the decline in supplies.
The Jollibee Group’s current ratio as of December 31, 2011 was 1.10:1.00, slightly higher than year-ago current ratio of 0.99:1.00 - Available-for-sale (AFS) financial assets decreased by P55.6 million or 31.6% to P120.6
million mainly due to the derecognition of AFS resulting from additional acquisitions of controlling interests. See Note 9 of the accompanying Audited Consolidated Financial Statements for more information.
- Interest in and advances in joint ventures, co-venturers and associate of P3.2 million
pertained to the remaining investment of JFC to Coffeetap Corporation. - Property, plant and equipment net of depreciation and retirement amounted to P10,580.4
million from P8,770.5 million due to capital investments in new stores, logistics center in the Philippines and manufacturing plant in China. See Note 12 to the accompanying Audited Consolidated Financial Statements for details.
- Goodwill and other intangible assets amounted to P8,534.6 million, higher by P544.0 million
or 6.8% than the 2010 balance of P7,990.6 million. The increase was mainly due to goodwill acquired through business combinations related to the following food restaurant concepts:
(Amounts in Million Pesos)
Goodwill acquired in 2011 Business Combinations: Chowking US Operations 383.9 Chow Fun 154.9
Burger King 5.2 544.0
(For more information on goodwill, see Note 14 to the accompanying Audited Consolidated Financial Statements)
- Operating lease receivables decreased by P6.2 million or 18.9% due to pre-termination of lease contracts of investment properties of the Jollibee Group.
- Deferred tax assets for 2011 amounted to P967.6 million, arising from tax losses of entities based in the Philippines and the People’s Republic of China (PRC) which may be carried forward to future periods, operating lease payables, pension liabilities, excess of Minimum Corporate Income Tax over Regular Corporate Income Tax and others. See Note 24 to the accompanying Audited Consolidated Financial Statements for details.
- Other noncurrent assets increased by P3,133.5 million or 211.2% to P4,617.0 million primarily due to advances to Viet Thai International Joint Stock Co. (Viet Thai) which amounted to P2,903.5 million. For additional information regarding advances to Viet Thai, see Note 15 to the accompanying Audited Consolidated Financial Statements.
Jollibee Foods Corporation 2012 Annual Report
106
Consolidated current liabilities amounted to P12,102.4 million, P1,591.4 million or 11.6% lower than the 2010 year-end balance of P13,693.8 million. The following explain the significant movements in current liabilities: - Trade payables and other current liabilities increased by P992.9 million or 10.8% to
P10,165.6 million primarily due to higher trade payables and other current liabilities, offset by lower accruals for salaries, wages and employee benefits, advertising and promotions and decrease in dividends payable.
- Income tax payable decreased by P13.0 million or 7.8% due to the availment of Optional
Standard Deduction by Zenith, Grandworth and Red Ribbon Holdings in the computation of regular income tax.
- Short-term debt decreased by P942.0 million or 51.1% to P900.0 million. Of JFC’s short
term loan of P1,800.0 million acquired in the 4th quarter of 2010, P342.0 million has been paid in 2011; the remaining balance of P1,500.0 million was converted to long-term debt. On April 12 2011, JFC entered into an agreement to borrow P900.0 million from The Bank of Tokyo Mitsubishi, UFC, Ltd. to be paid in one year from drawdown at a fixed interest rate. For more information, see Note 18 to the accompanying Audited Consolidated Financial Statements.
- The current portion of liability for acquisition of businesses decreased by P65.4 million or
38.4% to P104.8 million due to the settlement of half of the 10% hold-out amount (current portion) for the Mang Inasal acquisition.
- Current portion of long-term debt decreased by P1,563.8 million or 66.8% primarily due to
the settlement of the Parent Company’s 350 million RMB-denominated loan, offset by loans maturing in 2012.
Consolidated noncurrent liabilities amounted to P6,556.9 million, 176.6% or P4,186.1 million higher than the December 31, 2010 balance of P2,370.8 million, mainly due to the following: - Long-term debt increased by P3,891.2 million to P3,942.7 million due to bank loans acquired
during the year. On April 12, 2011, JFC’s wholly-owned subsidiary, Jollibee Worldwide Pte. Ltd. entered into agreements to borrow money from Citibank, N.A. and The Bank of Tokyo Mitsubishi UFC, Ltd. (Singapore Branch) for US$40 million and US$30 million, respectively. On December 16, 2011, JFC acquired a 2-year unsecured loan from a local bank amounting to P1,500.0 million to refinance its loan obligation which was used for the acquisition of a business.
- Pension liability increased by P66.6 million or 31.4% to P278.7 million due to adjustments in
actuarial estimates and fair valuation of plan assets. - Operating lease payables increased by P176.3 million or 15.1% to P1,343.3 million, arising
from the increase in number of owned stores. - Liability for acquisition of a business (net of current portion) increased by P71.1 million or
50.3%. The increase pertains to the remaining balance for the acquisition of 20 Chowking USA stores by Tokyo Teriyaki Corporation to the Fortune Group.
Jollibee Foods Corporation 2012 Annual Report
107
Consolidated stockholders’ equity increased by P2,541.0 million or 14.4% primarily due to the net income (attributable to equity holders of the Parent) realized in 2011, which amounted to P3,231.7 million, increase in additional paid in capital by P140.8 million for the stock option expense and issuance of new shares in relation to the management stock option plan, and the favorable change of P129.8 million in cumulative translation. This was partially offset by cash dividends declared during the year which amounted to P1,100.0 million. Non-controlling interests pertained to the share in net income or loss attributable to the minority shareholders of various majority owned subsidiaries of JFC. For 2011, non-controlling interests were higher by P141.8 million or 25.2% compared to 2010 arising from the acquisition of Burger King and Chow Fun, additional investments of Jollibee Food Processing in 2011 as well as the share in 2011 net income. Liquidity and Capital Resources Cash flows provided by operating activities amounted to P5,880.6 million and P5,504.2 million for the years ended December 31, 2011 and 2010, respectively. The increase in cash flows from operating activities was primarily the result of higher income before income tax and favorable adjustments for non-cash items, partially offset by higher working capital requirements. Income taxes paid in 2011 compared to 2010 were P138.4 million higher, primarily due to higher taxable income in 2011. Cash flows used in investing activities increased by P2,032.5 million or 39.7% to P7,156.8 million in 2011 from P5,124.2 million in 2010. The increase was primarily due to the P2,849.6 million advances to Viet Thai and higher capital expenditures (P3,700.4 million in 2011 and P2,553.4 million in 2010), offset by lower cash paid for acquisitions. Cash flows used in financing activities amounted to P238.6 million in 2011 primarily due to payments of cash dividends and bank debts amounting to P1,196.6 million and P2,721.9 million, respectively, partially offset by proceeds from the issuance of short term and long-term debts amounting to P900.0 million and P3,131.0 million, respectively. Overall, net cash and cash equivalents decreased by P1,515.2 million to P6,655.3 million for the year ended December 31, 2011. Discussion of the Jollibee Group's Top Five (5) Key Performance Indicators System Wide Sales System Wide Sales is a measure of all sales to consumers both from company-owned and franchised stores.
As of end Dec 2011 As of end Dec 2010System Wide Sales P82,170.1 million P70,254.3 million% Growth vs LY 17.0% 10.2%
Revenues Revenues is a measure of (1) all sales made by the Jollibee Group’s owned stores (both food and novelty sales);
Jollibee Foods Corporation 2012 Annual Report
108
(2) Commissary sales to franchised stores; (3) rental revenues of the JFC Group’s property division; and, (4) revenues from services rendered by the in-house Construction and Service Groups.
As of end Dec 2011 As of end Dec 2010Revenues P62,554.9 million P53,371.7 million% Growth vs LY 17.2% 11.3%
Net Income Margin Net Income Margin is the ratio of the Jollibee Group’s earnings after interest and tax. This is computed by dividing net income by total revenues. The quotient is expressed in percentage. This measures the JFC Group’s return for every peso of revenue earned, after deducting cost of sales, operating expenses, interests and taxes.
As of end Dec 2011 As of end Dec 2010Net Income P3,253.8 million P3,212.5 million% to Revenues 5.2% 6.0%
Basic Earnings Per Share (EPS) EPS is the portion of the Jollibee Group’s profit allocated to each outstanding share of common stock. This is computed by dividing the net income for the year attributable to the equity holders of the Jollibee Group by the weighted average outstanding shares during the year, after considering the retroactive effect of stock dividends declaration, if any. This serves as an indicator of the Jollibee Group’s profitability.
As of end Dec 2011 As of end Dec 2010EPS (Basic) P3.138 P3.118% Growth vs LY 0.6% 19.5%
Return on Equity (ROE) ROE is the ratio of the Jollibee Group’s net income (attributable to equity holders of the parent) to equity (before non-controlling interest). It is computed by dividing net income by average equity. Average equity is calculated by adding the equity at the beginning of the year to the equity at year end and dividing the result by two. ROE is a measure of return for every peso of invested equity. The Jollibee Group also uses ROE for comparing its profitability to that of other firms in the same industry.
As of end Dec 2011 As of end Dec 2010Return on Equity 17.6% 19.1%
Jollibee Foods Corporation 2012 Annual Report
109
Financial Soundness Indicators
Formula: Dec-11 Dec-10Liquidity Ratios
Current Assets 1.10 0.99 Current Liabilities
Financial Leverage Ratios
Asset to Equity Ratio Total Assets 1.99 1.97 Total Equity attributable to equity holders of the Parent Company
Total Debt 48.9% 48.4%Total Debt + Equity attributable to equity holders of the Parent Company
Net Debt Ratio Total Debt - Cash and cash equivalents 38.1% 31.6%(Total debt - Cash and cash equivalents) + equity attibutable to equity holders of the Parent Company
Interest Coverage Ratio Earnings before Interest and Taxes 15.34 21.82 YTD Interest Expense
Solvency Ratio Net income + depreciation 0.30 0.32 Total liabilities
Debt-Service Coverage Net income 0.17 0.20 Ratio Total liabilities
Current Ratio
Debt Ratio
Discussion and Analysis of Material Events and Uncertainties 1. There were no events during the period that will trigger direct or contingent financial
obligation that is material to the Jollibee Group. 2. There were no material off-balance sheet transactions, arrangements, obligations created
during the reporting period. 3. Consolidated actual capital expenditures in 2011 amounted to P3,700.4 million, 44.9% higher
than the 2010 actual expenditures of P2,553.4 million and -26.0% lower than the 2011 budgeted expenditures due to delay in construction of the Jollibee Group’s planned logistic plant.
The Jollibee Group’s capital expenditures budget was principally used to finance its store expansions and major renovations, major repairs and upgrades of existing commissaries, improvements in head office and investments in information technology.
4. Food service operations have both peak and lean seasons. Historically, sales in the second
and fourth quarters are strong due to the summer and the Christmas seasons, respectively.
Jollibee Foods Corporation 2012 Annual Report
110
Demand during the first and third quarters usually slackens. The material financial impact of this seasonality has been considered in the Jollibee Group’s financial forecast.
5. All of the Jollibee Group’s income arose from its continuing operations. 6. Events after Reporting Date:
Dividend Declaration On April 12, 2012, the Board of Directors (BOD) of JFC approved a regular cash dividend of P0.58 a share of common stock to all stockholders of record as of May 9, 2012. The cash dividend is expected to be paid out by May 31, 2012. The cash dividend is 16.0% higher than the P0.50 regular cash dividend a share declared on April 13, 2011. Completion of Acquisition of San Pin Wang
On March 9, 2012, Jollibee Worldwide Pte. Ltd. (JWPL), completed its acquisition of 55% of Guangxi San Pin Wang Food and Beverage Management Company Limited, which operates the San Pin Wang beef noodle business in South China. The remaining 45% is held by Guangxi Zong Kai Food Beverage Investment Company Limited (GZK). This acquisition is pursuant to the framework agreement which was signed on April 30, 2010 and the share purchase agreement signed on October 26, 2010. JWPL is investing RMB30 million for its stake in San Pin Wang. As joint venture partners, JWPL and GZK will also place additional investments totaling RMB 20 million into this fast food chain in anticipation of its expansion.
Appropriation of Retained Earnings On February 15, 2012, the BOD of the Parent Company approved the appropriation of additional P3,800.0 million for future expansion. Consequently, the appropriated retained earnings of the Parent Company will increase from P1,200.0 million to P5,000.0 million. Completion of Acquisition of Coffee, Asian Food Business On January 20, 2012, the Parent Company, through its wholly owned subsidiary, Jollibee Worldwide, completed the acquisition of 50% share of the business of the SuperFoods Group. This consists of a 49% share in SF Vung Tau Joint Stock Company, organized in Vietnam, and a 60% share in Blue Sky Holding Limited in HongKong. The acquisition is an implementation of the Framework Agreement made on May 20, 2011 between the Parent Company and its partner, Viet Thai International Joint Stock Company (“VTI”). The Framework Agreement provided for the Parent Company investing a total of P1,096.0 million for 50% share of the SuperFoods Group. Total investment and advances made in 2011 amounted to P2,830.0 million (See Note 15).
Jollibee Foods Corporation 2012 Annual Report
111
PART III. CONTROL AND COMPENSATION INFORMATION 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER The following Directors of the Company were elected during the stockholders meeting on June 22, 2012, and shall continue to be such until their successors have been elected, and have qualified: TONY TAN CAKTIONG Mr. Tan Caktiong, born in 1953, 60, Filipino, is the Chairman of the Board of Directors of the Company. He has been a member of the Board since 1978, and is the President and Chief Executive Officer. He is also a member of the Executive Committee of the Board of Directors. Other directorships and trusteeships are:
Director Fresh N’Famous Foods, Inc. Director Mang Inasal Phils., Inc. Director Coffeetap Corporation Director BK Titans, Inc. Director PFN Holdings, Corp. Director Perf Restaurants, Inc. Director Perf Trinoma, Inc. Director Perf MOA Pasay, Inc. Director RRB Holdings, Inc. Director Red Ribbon Bakeshop, Inc. Director Honeybee Foods Corp. Director Red Ribbon Bakeshop Inc. (USA) Director Doubledragon Properties Corp. Director Honeystar Holdings Corp. Director Chanceux, Inc. Director Jollibee Worldwide Pte. Ltd. Director Belmont Enterprises Ventures Ltd. Director Jollibee International (BVI) Ltd. Director WJ Investments Limited Director JSF Investments Pte. Ltd. Director Golden Plate Pte. Ltd. Director Golden Beeworks Pte. Ltd. Director SF Vung Tau Joing Stock Company Director Blue Sky Holdings Ltd. Director Southsea Binaries Limited Director Jollibee Foods Processing Pte. Ltd. Director Jollibee (China) Food & Beverage Management Co. Ltd. Director Guangxi San Pin Wang Food & Beverage Co. Ltd. Director Beijing New Hongzhuangyuan Food & Beverage
Management Co. Ltd. Director Shanghai Yong He King Food & Beverage Management
Co. Ltd. Director Hangzhou Yonghe Food and Beverage Co. Ltd. Director Hangzhou Yongtong Food and Beverage Co. Ltd.
Jollibee Foods Corporation 2012 Annual Report
112
Director Tianjin Yong He King Food & Beverage Co. Ltd. Director Beijing Yong He King Food and Beverage Co. Ltd. Director Shenzhen Yong He King Food and Beverage Co. Ltd. Director Wuhan Yonghe King Food and Beverage Co. Ltd. Director Jollibee Foods Processing (Anhui) Co. Ltd. Director Yong He Holdings Co. Ltd. Director Centenary Ventures Limited Director Colossus Global Limited Director Granite Management Limited Director Cosmic Resources Limited Director All Great Resources Limited Director Eastpower Resources Limited Director Eaglerock Developments Limited Director Shanghai Belmont Enterprises Management & Adviser
Co. Ltd. Director Honeysea Corporation Director Hyper Dynamic Corporation Director Mainspring Resources Corporation Director Mary’s Foods Corporation Director Queenbee Resources Corporation Director First Gen Corporation Director Centregold Corporation Director Philippine Long Distance Telephone Company Board Member Temasek Foundation Trustee Asian Institute of Management Trustee St. Luke’s Medical Hospital Trustee Philippine Academy of Sakya, Inc. Member Chief Executives Organization, Inc. Member World Presidents’ Organization Founding Convenor Philippine Business for Education
WILLIAM TAN UNTIONG Mr. Tan Untiong, born in 1953, 60, Filipino, has been the Corporate Secretary of the Company since 1994, and a member of the Board since 1993. He is a member of the Executive, Audit and Finance Committees of the Board of Directors. Mr. Tan Untiong has also been the Vice President for Real Estate since 1989. Other directorships are:
Director Fresh N’Famous Foods, Inc. Director Mang Inasal Phils., Inc. Director Coffeetap Copooration Director BK Titans, Inc. Director RRB Holdings, Inc. Director Red Ribbon Bakeshop, Inc. Director Honeybee Foods Corp. Director Grandworth Resources Corporation Director Zenith Foods Corp. Director Red Ribbon Bakeshop Inc. (USA)
Jollibee Foods Corporation 2012 Annual Report
113
Director Doubledragon Properties Corp. Director Honeystar Holdings Corp. Director Chanceux, Inc. Director JC Properties & Ventures Corporation Director Jollimart Corporation Director Beeguards Corporation Director Honeyworth Corporation Director Mainspring Resources Corporation Director Queenbee Resources Corporation Director Zenith Foods Corporation Director Antares Holdings, Inc. Director Hyper Dynamic Corporation Director Kingsworth Corporation Director Honeysea Corporation Director Adgraphix, Inc. Director Belmont Enterprises Ventures Ltd. Director Golden Plate Pte. Ltd. Director Jollibee (China) Food & Beverage Management Co. Ltd. Director Shanghai Yong He King Food & Beverage Management
Co. Ltd. Director Hangzhou Yonghe Food and Beverage Co. Ltd. Director Tianjin Yong He King Food & Beverage Co. Ltd. Director Beijing Yong He King Food and Beverage Co. Ltd. Director Shenzhen Yong He King Food and Beverage Co. Ltd. Director Wuhan Yonghe King Food and Beverage Co. Ltd. Director Yong He Holdings Co. Ltd. Director Centenary Ventures Limited Director Colossus Global Limited Director Granite Management Limited Director Cosmic Resources Limited Director Eastpower Resources Limited Director Eaglerock Developments Limited
ERNESTO TANMANTIONG Mr. Tanmantiong, born in 1958, 55, Filipino, has been a member of the Board since 1987, and is presently the Treasurer of the Company. He is also a member of the Executive, Nomination and Compensation Committees of the Board of Directors. Mr. Tanmantiong is the Executive Vice-President and Chief Operating Officer (“COO”), JFC Philippines. The heads of the Jollibee, Chowking, Greenwich and Red Ribbon brands in the Philippines report to Mr. Tanmantiong in his capacity as COO. Mr. Tanmantiong is also the point person for the joint ventures (Mang Inasal and Burger King). Additionally, Mr. Tanmantiong has responsibilities over the Corporate Functions. Other directorships are:
Director Fresh N’Famous Foods, Inc. Director Mang Inasal Phils., Inc. Director BK Titans, Inc. Director PFN Holdings, Corp. Director Perf Restaurants, Inc.
Jollibee Foods Corporation 2012 Annual Report
114
Director Perf Trinoma, Inc. Director Perf MOA Pasay, Inc. Director Red Ribbon Bakeshop, Inc. Director Zenith Foods Corp. Director Honeybee Foods Corp. Director Red Ribbon Bakeshop Inc. (USA) Director Honeystar Holdings Corp. Director Chanceux, Inc. Director Adgraphix, Inc. Director Grandworth Resources Corp. Director Jollibee Worldwide Pte. Ltd. Director Belmont Enterprises Ventures Ltd. Director Jollibee International (BVI) Ltd. Director Jollibee Hong Kong Ltd. Director Hanover Holdings Ltd. Commissioner P.T. Jollibee Indonesia Director Jollibee Vietnam Co. Ltd. Commissioner P.T. Chowking Indonesia Director Golden Plate Pte. Ltd. Director Golden Beeworks Pte. Ltd. Director Jollibee (China) Food & Beverage Management Co. Ltd. Director Shanghai Yong He King Food & Beverage Management
Co. Ltd. Director Hangzhou Yonghe Food and Beverage Co. Ltd. Director Tianjin Yong He King Food & Beverage Co. Ltd. Director Beijing Yong He King Food and Beverage Co. Ltd. Director Wuhan Yonghe King Food and Beverage Co. Ltd. Director Yong He Holdings Co. Ltd. Director Centenary Ventures Limited Director Colossus Global Limited Director Granite Management Limited Director Cosmic Resources Limited Director All Great Resources Limited Director Eastpower Resources Limited Director Eaglerock Developments Limited Director Kingsworth Corporation Director Tutuban Chow Foods Corporation Director Antares Holdings, Inc. Director Hyper Dynamic Corporation Director Mary’s Foods Corporation Director Centergold Corporation Director Honeysea Corporation Director Queenbee Resources Corporation Director Winall Holdings Corporation Director Beeguards Corporation Director Mainspring Resources Corporation
ANG CHO SIT Mr. Ang, born in 1950, 63, Filipino, has been a member of the Board since 1978. He is a member of the Nomination Committee of the Board of Directors.
Jollibee Foods Corporation 2012 Annual Report
115
Other directorships are:
Director Venice Corporation Director Grandworth Resources Corporation Director A-Star Holding Company Director Longshore Corporation Director Hyper Dynamic Corporation Director Freemont Foods Corp.
ANTONIO CHUA POE ENG Mr. Chua Poe Eng, born in 1948, 65, Filipino, has been a member of the Board since 1978. He is a member of the Audit Committee of the Board of Directors. Other directorships are:
Chairman, President Honeyworth Corporation Director Albany Resources Corporation Director Hyper Dynamic Corporation
RET. CHIEF JUSTICE ARTEMIO V. PANGANIBAN Mr. Panganiban, born in 1936, 76, was elected to the Board of Directors in 2012. Mr. Panganiban was the Chief Justice of the Philippine Supreme Court from 2005 to 2006. Concurrent with his position as Chief Justice, he was also the Chairperson of the Presidential Electoral Tribunal, the Judicial and Bar Council and the Philippine Judicial Academy. Mr. Panganiban is a member of the Executive and Compensation Committees and is the Chairman of the Nomination Committee. Other directorships and affiliations are:
Independent Director Meralco Independent Director Petron Corporation Independent Director Bank of the Philippine Islands Independent Director First Philippine Holdings Corp. Independent Director Metro Pacific Tollways Corp. Independent Director Metro Pacific Investment Corp. Independent Director GMA Holdings Independent Director Asian Terminals Independent Director Robinsons Land Corp. Independent Adviser Philippine Long Distance Telephone Co.
(PLDT) Senior Adviser Metropolitan Bank and Trust Company Chairman, Board of Advisers Metrobank Foundation Chairman, Board of Trustees Foundation for Liberty and Prosperity; and
Philippine Dispute Resolution Center, Inc. President Manila Cathedral – Basilica Foundation Adviser Mapua Blue Falcon Honor Society Adviser Dela Salle University College of Law
Jollibee Foods Corporation 2012 Annual Report
116
Adviser Asian Institute of Management Corporate Governance Center
Adviser World Bank Adviser Johann Strauss Society
FELIPE B. ALFONSO Mr. Alfonso, born in 1937,6 76, Filipino, has been was a member of the Board since 1995, and was an Independent Director of the Company. Mr. Alfonso was a member of the Executive and Audit Committees of the Board of Directors and chairs the Compensation Committee. Mr. Alfonso was Vice Chairman of the Board of Trustees of the Asian Institute of Management. Other directorships, trusteeships and affiliations were:
Vice Chairman, Board of Trustees, Executive Director
Asian Institute of Management Scientific Research Foundation, Inc.
Director AIG Global Fund, Inc. Director Andorra Ventures Corporation Director Bacnotan Consolidated Industries, Inc. Chairman, Director e-Meralco Ventures, Inc. Director First Philippine Realty Corporation Director First Private Power Corporation Director Franklin Baker Company of the Philippines Director Lopez Holdings Corporation Director PHILAM Bond Fund, Inc. Director PHILAM Dollar Bond Fund, Inc. Director PHILAM Managed Income Fund, Inc. Director PHILAM Fund, Inc. Director Strategic Growth Fund, Inc. Director Philippine Investment Management, Inc. Member RP Thailand Business Council Co-Vice Chair, Executive Committee
Philippine Malaysia Business Council
Chairman STI, Inc. Founding Governor and Chairman
STI – Information and Communications Technology Academy
Trustee Coca-Cola Foundation of the Philippines Trustee First Philippine Conservation, Inc. Trustee Knowledge Channel Foundation, Inc. President Lopez Group Foundation, Inc. Trustee Philippine Foundation for Global Concerns, Inc. Trustee STI Foundation
MONICO JACOB Mr. Jacob, born in 1945, 68, Filipino, has been a member of the Board since 2001. Mr. Jacob is an Independent Director and is a member of the Finance of the Board of Directors. He is also the chair of the Audit Committee. 6 Mr. Alfonso passed away on Friday, April 5, 2013.
Jollibee Foods Corporation 2012 Annual Report
117
Other directorships are:
President and Chief Executive Officer STI Education Services Group Concurrent Chairman Informations and Communications
Technology Academy (iAcademy) President and Chief Executive Officer PhilPlans First, Inc. President and Chief Executive Officer Philhealth First, Inc. Chairman Global Resource for Outsourced Workers,
Inc. Chairman Accent/STI Banawe Management, Inc. Director Advent Capital and Finance Corporation Director Mindanao Energy Systems Director Phoenix Petroleum Philippines Director Philippine Dealing Systems Director STI-Universal Workers, Inc.
CEZAR P. CONSING Mr. Consing, born in 1960, 52, Filipino, was elected as an Independent Director of the Company in 2010. He is the chair of the Finance Committee of the Board of Directors. Mr. Consing was appointed president of the Bank of the Philippine Islands effective April 18, 2013. Mr. Consing was a partner with The Rohatyn Group, a New York-based investment management company, and was an investment banker with J.P. Morgan & Co. from 1985 to 2004. Other directorships are:
Director Premier Development Bank Director Bank of the Philippine Islands Director CIMB Group Holdings Director CIMB Group And. Berhad Director First Gen Corporation
Independent Adviser – Board of Directors Mr. Washington SyCip is an Independent Adviser to the JFC Board of Directors. CORPORATE OFFICERS Effective January 1, 2013, the Corporate Officers are Messrs. Tony Tan Caktiong, Ernesto Tanmantiong, William Tan Untiong, Ysmael V. Baysa, John Victor Tence and Daniel Rafael Ramon Z. Gomez. YSMAEL V. BAYSA Mr. Baysa, born in 1956, 58 Filipino, is the Company’s Vice-President for Corporate Finance and Chief Finance Officer. He joined the Company in 2003. Previously, Mr. Baysa was Senior Vice-President for Financial Comptrollership, Human Resources and Corporate Planning of Union Bank. He was also Finance Director of Procter & Gamble from 1993 to 2001.
Jollibee Foods Corporation 2012 Annual Report
118
JOHN VICTOR R. TENCE Mr. Tence, born in 1954, 59, Filipino, is the Vice-President for Corporate Human Resources. He joined the Company in 2003. He was formerly the Global HR Director of ON (formerly Motorola) Semiconductor for 20 years. DANIEL RAFAEL RAMON GOMEZ Mr. Gomez, born in 1972, 40, Filipino, is the Vice-President for Corporate Marketing and Chief Marketing Officer. He joined the Company in July 2008. He was previously Managing Director for Skin, Deodorants and Home Care of Unilever Philippines and prior to that, Category Director for Skin & Deodorants in the same company. HEADS OF LOCAL BUSINESS UNITS Following are the heads of the Company’s local business units: JOSE MA. A. MINANA, JR. Mr. Minana, born in 1964, 48, Filipino, is the President of Jollibee Business Unit (Philippines). He joined the Company in 2000 and was previously the National Business Unit Head of the Jollibee Business Unit. JOSEPH TANBUNTIONG Mr. Tanbuntiong, born in 1963, 50, Filipino joined the Company in 1993. Mr. Tanbuntiong was previously Head of the Jollibee Business Unit’s Restaurant Systems and Quality Management. He was appointed President of the Red Ribbon Philippines Business Unit effective April 16, 2008. FERNANDO S. YU, JR. Mr. Yu, born in 1967, 45, Filipino, is the General Manager of the Chowking Business Unit effective as of October 16, 2011. He joined the Company in 2004. He was previously the President of the Greenwich Business Unit and, before that, Head of the Metro Manila-South Regional Business Unit of the Jollibee Business Unit. FRANCIS ALDWIN FLORES Mr. Flores, born in 1976, 36, Filipino, is the General Manager of the Greenwich Business Unit effective as of October 1, 2011. He joined the Company in 2007. Prior to his designation as General Manager of the Greenwich Business Unit, Mr. Flores was Assistant Vice-President for Marketing of Jollibee USA and, before that, Marketing Head of Greenwich Business Unit. JUSTO S. ALANO III Mr. Alano, born in 1965, 47, Filipino, is the General Manager of the Mang Inasal Business Unit effective as of February 1, 2012. He joined the Company in 2006 and was formerly the Head of the Metro Manila-North Regional Business Unit of the Jollibee Business Unit.
Jollibee Foods Corporation 2012 Annual Report
119
LEILA F. ACOSTA Ms. Acosta, born in 1967, 46, Filipino, is the Managing Director of the Burger King Business Unit effective as of May 28, 2012. She joined the Company in 1999 and was formerly one of the Operations Directors of the Jollibee Business Unit. HEADS OF INTERNATIONAL BRANDS Following are the officers of the Company’s international brands: ANDREW TAN Mr. Tan, born in 1956, 58, was President and Chief Executive Officer of the Company’s Yonghe King brand in China from June 2007 until August 2012. Mr. Tan was previously connected with McDonald’s Singapore as Operations Manager of McDonald’s Nanjing in 1995, General Manager in 1997, Regional Manager for East China in 1999, and finally, Vice President and General Manager of the North Region in 2005. RAYMOND SU Mr. Su, born in 1968 born in 1956, 45, took over as President of the Yonghe King brand in China in August 2012. Mr. Su was previously the Executive Vice-President of TESCO, East Region and, prior to that, was connected with Procter & Gamble. DR. POLLY YANG (CHUAN HUA YANG) Dr. Yang, born in 1967, 46, is the Vice President for Research and Development since 2008. Prior to this, Dr. Yang was a Professor in the Department of Restaurant, Hotel and Institutional Management in Fu Jen Catholic University. MAGGIE ZHANG Ms. Zhang, born in 1970, 42, was the General Manager of the Hongzhuangyuan brand which the Company acquired in 2008. She was previously the Market Director of Yonghe King brand. PAUL LAI Mr. Lai, born in 1964, 48, took over as President of the Hongzhuangyuan brand in China in June 2012. Prior to this, Mr. Lai was the General Manager of the SSP Shanghai Co. Ltd from 2001 to 2012. FRANKIE TAN CHIEWKUANG Mr. Tan, born in 1956, 56, is currently the President of Jollibee Foods Processing Pte. Ltd.7 Mr. Tan was previously the Chief Executive Officer of Country Foods Hongkong in 2009 and, concurrently, Senior Vice President (Special Projects) of SATS Limited.
7 Please see notes on commissary, infra page 5.
Jollibee Foods Corporation 2012 Annual Report
120
DU HAN Mr. Du, born in 1964, 49, is currently the President of Guangxi San Pin Wang Food and Beverage Management Co. Ltd.8 Mr. Du was previously the President and General Manager of Nanning San Pin Wang Food and Beverage Management Co., Ltd. HEADS OF CORPORATE SERVICES BENIGNO M. DIZON Mr. Dizon, born in 1957, 56, Filipino, has been Vice-President for Corporate Engineering since 2004. He was previously Assistant Vice-President for Engineering, and manager of the Construction and Design Department. WILLIAM S. LORENZANA, JR. Mr. Lorenzana, born in 1957, 56, Filipino, is the President of the Zenith Business Unit (commissary). He joined the Company in 2005 and was previously the Assistant Vice President for Logistics and Physical Distribution of United Laboratories, Inc. ANASTACIA S. MASANCAY Ms. Masancay, born in 1954, 59, Filipino, is the Vice-President for Corporate Audit and Other Businesses. Prior to this, Ms. Masancay held the positions of Vice-President for Comptrollership and Tax Management, Assistant Vice-President for Corporate Accounting, and Corporate Accounting Manager. SUSANA K. TANMANTIONG Ms. Tanmantiong, born in 1958, 55, Filipino, is the Purchasing Vice-President of the Company. She joined the Company in 1984, and previously held the positions of Assistance Vice-President for Purchasing, Purchasing Manager and Purchasing Assistant Manager. LAURO C. MATIAS Mr. Matias, born in 1962, 50, Filipino, is the head of Information Management and Chief Information Officer. He joined the Company in November 2010. Prior to this, Mr. Matias held leadership roles in the Sinarmas Group as Vice President and Chief IT Advisor. LIWAYWAY T. MATEO Ms. Mateo, born in 1966, 46, is the Vice-President for Corporate Quality Management. ERLINDA F. CASTRO Ms. Castro, born in 1957, 56, Filipino, is the branch head of Jollibee Worldwide Services, the Company’s shared services arm. She joined the Company in March 2006. Prior to this, she was an Associate Director in the Manila Service Center of Procter & Gamble’s Shared Services in Asia where she headed various accounting service functions. 8 Please see notes on page 3.
Jollibee Foods Corporation 2012 Annual Report
121
GRACE A. TAN CAKTIONG Ms. Tan Caktiong, born in 1949, 63, Filipino, is the President of the Jollibee Group Foundation, Inc. since 2004. She was previously connected with the Company as head of the Information Technology Division. Ms. Tan Caktiong brings to the Foundation her extensive experience in business management and leadership in socio-civil activities. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Tony Tan Caktiong, Ernesto Tanmantiong, William Tan Untiong and Joseph Tanbuntiong are brothers. Ang Cho Sit is the brother-in-law of Tony Tan Caktiong. Susana K. Tanmantiong is the wife of Ernesto Tanmantiong, and sister-in-law of Tony Tan Caktiong and William Tan Untiong. Antonio Chua Poe Eng is the brother-in-law of Tony Tan Caktiong, Ernesto Tanmantiong and William Tan Untiong. Grace A. Tan is the wife of Tony Tan Caktiong. Some of the Company’s directors own franchises or have minority interests in companies which own and operate franchised stores of the Company. All such franchises are subject to contracts which have been entered into in on an arms-length basis and on terms similar to those granted to other franchisees. INVOLVEMENT IN LEGAL PROCEEDINGS None of the Company’s directors and officers were involved in any bankruptcy petition, or have been convicted by final judgment by any court, or have been subject to any order, judgment or decree or have violated a securities or commodities law within the past five (5) years.
Jollibee Foods Corporation 2012 Annual Report
122
10. Executive Compensation
Name and Position Year Salary (PhP) Bonus (PhP) Total (PhP)
Tony Tan Caktiong Chairman, President and Chief Executive Officer
Ernesto Tanmantiong Treasurer, Executive Vice-President and Chief Operating Officer
2011
65,145,940
24,162,295
89,308,235
Joseph Tanbuntiong President – Red Ribbon Business
2012
51,672,391
28,307,475
79,979,866
Ysmael V. Baysa Chief Finance Officer
2013*
55,759,040
32,242,806
88,001,846
Jose Maria A. Minana President – Jollibee Business Unit
All other officers and directors as a group unnamed
2011
205,961,663
69,968,749
275,930,411
2012 203,384,384 76,411,441 279,795,825 2013* 218,686,566 93,285,778 311,972,344 * Estimate COMPENSATION OF DIRECTORS Standard Arrangements Directors of the Company receive a per diem of PhP60,000.00 for attendance in a Board meeting. Board meetings are scheduled quarterly. A director who attends all regular meetings earns a total of PhP240,000.00 annually. In addition, the Company instituted a performance-based incentive for its directors. The incentive shall be determined by the Compensation Committee.
Other Arrangements The Company has no other arrangements pursuant to which a director is compensated or to be compensated, directly or indirectly. Employment Contracts The Company maintains standard employment contracts with executive officers. The contracts provide for annual salary increases and bonuses. Other than these employment contracts, there are no special compensatory plans or arrangements which results from the resignation, retirement or any other termination of employment of executive officers other than the Company’s retirement plan which is made applicable to all of the Company’s employees.
Jollibee Foods Corporation 2012 Annual Report
123
Senior Management Stock Option and Incentive Plan On December 17, 2002, the SEC approved the exemption requested by the Jollibee Group on the registration requirements of the 101,500,000 options underlying the Parent Company’s common shares to be issued pursuant to the Jollibee Group’s Senior Management Stock Option and Incentive Plan (the Plan). The Plan covers selected key members of management of the Jollibee Group, certain subsidiaries and designated affiliated entities.
The Plan is divided into two programs, namely, the Management Stock Option Program (MSOP) and the Executive Long-term Incentive Program (ELTIP). The MSOP provides a yearly stock option grant program based on company and individual performance while the ELTIP provides stock ownership as an incentive to reinforce entrepreneurial and long-term ownership behavior of participants.
MSOP. The MSOP is a yearly stock option grant program open to members of the corporate management committee of the Jollibee Group and members of the management committee, key talents and designated consultants of some of the business units.
Each MSOP cycle refers to the period commencing on the MSOP grant date and ending on the last day of the MSOP exercise period. Vesting is conditional on the employment of the employee-participants to the Jollibee Group within the vesting period. The options will vest at the rate of one-third of the total options granted on each anniversary of the MSOP grant date until the third anniversary.
The exercise price of the stock options is determined by the Jollibee Group with reference to prevailing market prices over the three months immediately preceding the date of grant for the 1st up to the 7th MSOP cycle. Starting with the 8th MSOP cycle, the exercise price of the option is determined by the Jollibee Group with reference to the market closing price as at date of grant.
The contractual term of each option is seven years. The Jollibee Group does not pay cash as a form of settlement. On July 1, 2004, the Compensation Committee of the Jollibee Group granted 2,385,000 options under the 1st MSOP cycle to eligible participants. The options will vest at the rate of one-third of the total options granted on each anniversary date which will start after a year from the MSOP grant date. One-third of the options granted, or 795,000 options, vested and may be exercised starting July 1, 2005 and will expire on June 30, 2012. On July 1, 2005 to 2012, the Compensation Committee granted a series of MSOP grants under the 2nd to 9th MSOP cycle to eligible participants. The options vest similar to the 1st MSOP cycle.9
ELTIP. The ELTIP entitlement is given to members of the corporate management committee.
Each ELTIP cycle refers to the period commencing on the ELTIP entitlement date and ending on the last day of the ELTIP exercise period. Actual grant and vesting is conditional upon achievement of the Jollibee Group’s minimum medium to long-term goals and individual targets in a given period, and the employment of the employee-participants to the Jollibee Group within
9 Please refer to the notes to the Audited Financial Statements for a discussion on the MSOP.
Jollibee Foods Corporation 2012 Annual Report
124
the vesting period. If the goals are achieved, the options will be granted. Starting with the 3rd ELTIP cycle, a percentage of the options to be granted are based on the percentage of growth in annual earnings per share such that 100%, 50% or 25% of the options granted when percentage of growth in annual earnings per share are 12% and above, and 10% to less than 12% or 8% to less than 10%, respectively.
The exercise price of the stock options is determined by the Jollibee Group with reference to prevailing market prices over the three months immediately preceding the date of entitlement.
The contractual term of each option is five years. The Jollibee Group does not pay cash as a form of settlement. Starting with the 3rd ELTIP cycle, the exercise price of the option is determined by the Jollibee Group with reference to the closing market price as of the date of grant.
On July 1, 2004, the Compensation Committee gave an entitlement of 22,750,000 options under the 1st ELTIP cycle to eligible participants. The options will vest at the rate of one-third of the total options granted from the start of the grant date and on each anniversary of the ELTIP grant date. One-third of the options granted, or 7,583,333 options, vested and may be exercised starting July 1, 2007 and will expire on June 30, 2012. On July 1, 2008 and October 19, 2012, a total entitlement of 20,399,999 and 23,600,000 options was given to eligible particpants under the 2nd and 3rd ELTIP cycles, respectively.10
Warrants and Options Outstanding
There are no outstanding warrants or options held by the Chief Executive Officer, other officers and directors as a group. 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS
Title of Class
Name and Address of Record Owner
Name of Beneficial Owner and Relationship with Record Owner
Citizenship No. of Shares Held
Percent
Common Hyper Dynamic Corporation 6th Floor Jollibee Center San Miguel Ave., Pasig City
Majority of the shares in Hyper Dynamic Corporation are owned or controlled by Tony Tan Caktiong and certain relatives within the second degree of consanguinity or affinity.
Filipino 273,218,750 26.14
Common PCD Nominee Corporation G/F Makati Stock Exchange 6767 Ayala Ave., Makati City
Approximately 646,528 scripless shares lodged with
Non-Filipino
305,311,83011
29.21
10 Please refer to the notes to the Audited Financial Statements for a discussion on the ELTIP. 11 Net of indirect shares of JFC directors and officers.
Jollibee Foods Corporation 2012 Annual Report
125
Title of Class
Name and Address of Record Owner
Name of Beneficial Owner and Relationship with Record Owner
Citizenship No. of Shares Held
Percent
Deutsche Regis Partners Inc. are owned by Queenbee Resources Corporation, a special purpose vehicle which is the issuer of warrants over such shares.
Common Honeysea Corporation 6th Floor Jollibee Center San Miguel Ave., Pasig City
Majority of the shares in Hyper Dynamic Corporation are owned or controlled by Tony Tan Caktiong and certain relatives within the second degree of consanguinity or affinity.
Filipino 127,743,747 12.22
Common PCD Nominee Corporation G/F Makati Stock Exchange 6767 Ayala Ave., Makati City
Filipino 73,113,73012
6.99
Common Winall Holding Corporation
Majority of the shares in Winall Holding Corporation are owned or controlled by certain relatives within the fourth degree of consanguinity or affinity.
Filipino 54,140,736 5.18
(B) Security Ownership of Management The common shares of the Company owned by its directors are as follows
Name and Position Citizenship Nature of Beneficial
Ownership
Number of Shares
Percent of Class
Tony Tan Caktiong
Filipino
Direct -
14,715,203
Total: 1.46%
Chairman, President and Chief Executive Officer
Indirect (through
564,000
12 Net of indirect shares of JFC directors and officers.
Jollibee Foods Corporation 2012 Annual Report
126
Name and Position Citizenship Nature of Beneficial
Ownership
Number of Shares
Percent of Class
Deutsche) Ernesto Tanmantiong
Filipino
Direct
4,178,951
Total: 0.44%
Treasurer, Executive Vice-President and Chief Operating Officer
Indirect (through Deutsche)
457,019
William Tan Untiong
Filipino
Direct
6,607,722
Total: 0.66%
Corporate Secretary and Vice-President for Real Estate
Indirect (through Deutsche)
279,667
Ang Cho Sit
Filipino
Direct
11
Total: 0.0%
Director Indirect (through Deutsche)
Antonio Chua Poe Eng
Filipino
Direct
1
Total: 0.3%
Director (Indirect through Honeyworth)13
2,713,815
C.J. Artemio V. Panganiban
Filipino
Direct
0
Director Indirect (through Deutsche)
1 Total: 0.0%
Felipe B. Alfonso
Filipino
Direct
1
Total: 0.0%
Director Indirect (through Deutsche)
0
Monico Jacob
Filipino
Direct
100
Total: 0.0%
Director Indirect (through Deutsche)
0
Cezar P. Consing
Filipino
Direct
1
Total: 0.0%
Director Indirect (through Deutsche)
0
13 As disclosed in Antonio Chua Poe Eng’s SEC Form 23-B.
Jollibee Foods Corporation 2012 Annual Report
127
The common shares of the Company’s corporate officers are:
Name and Position Citizenship Nature of Beneficial
Ownership
Number of Shares
Percent of Class
Ysmael V. Baysa
Filipino
Direct
511,667
Total: 0.1%
Chief Finance Officer, Vice President for Corporate Finance
Indirect (through Deutsche
0
John Victor R. Tence
Filipino
Direct
100,000
Total: 0.0%
Vice President for Corporate Human Resources
Indirect (through Deutsche
38,095
Daniel Rafael Ramon Gomez
Filipino
Direct
0
Total: 0.0%
Vice President for Corporate Marketing
Indirect (through Deutsche
0
The common shares of the Heads of the Local Business Units are: Name and Position Citizenship Nature of
Beneficial Ownership
Number of Shares
Percent of Class
Jose Ma. A. Minana Jr.
Filipino
Direct
102,398
Total: 0.0%
President, Jollibee Philippines
Indirect (through Deutsche
114,000
Joseph Tanbuntiong
Filipino
Direct
14,630
Total: 0.0%
President, Red Ribbon Business Unit
Indirect (through Deutsche
0
Fernando S. Yu, Jr.
Filipino
Direct
0
Total: 0.0%
General Manager, Chowking Business Unit
Indirect (through Deutsche
0
Francis Aldwin E. Flores
Filipino
Direct
0
Total: 0.0%
General Manager, Greenwich Business Unit
Indirect (through Deutsche
0
Jollibee Foods Corporation 2012 Annual Report
128
Justo S. Alano III
Filipino
Direct
0
Total: 0.0%
General Manager, Mang Inasal Business Unit
Indirect (through Deutsche
0
Leila F. Acosta
Filipino
Direct
6,197
Total: 0.0%
Managing Director, Burger King Business Unit
Indirect (through Deutsche
0
The common shares of the Heads of Corporate Services are:
Name and Position Citizenship Nature of Beneficial
Ownership
Number of Shares
Percent of Class
Benigno M. Dizon
Filipino
Direct
52,514
Total: 0.0%
Vice President for Engineering
Indirect (through Deutsche
0
William S. Lorenzana Jr.
Filipino
Direct
83,334
Total: 0.0%
Vice President for Corporate Supply Chain
Indirect (through Deutsche
0
Anastacia S. Masancay
Filipino
Direct
300,000
Total: 0.0%
Vice-President for Corporate Audit
Indirect (through Deutsche
186,000
Susana K. Tanmantiong
Filipino
Direct
560,857
Total: 0.1%
Vice-President for Corporate Purchasing
Indirect (through Deutsche
138,000
Lauro C. Matias
Filipino
Direct
0
Total: 0.0%
Vice President for Corporate Information Management
Indirect (through Deutsche
0
Liwayway Mateo
Filipino
Direct
4,500
Total: 0.0%
Vice President for Corporate Quality Management
Indirect (through Deutsche
0
Erlinda F. Castro
Filipino
Direct
0
Total: 0.0%
Branch Head, Jollibee Indirect
Jollibee Foods Corporation 2012 Annual Report
129
Name and Position Citizenship Nature of Beneficial
Ownership
Number of Shares
Percent of Class
Worldwide Services; Head – Shared Services
(through Deutsche
0
(C) VOTING TRUST AGREEMENTS
There are no voting trust agreements granting any person the right to exercise the voting rights of a holder of 5% or more of a class of shares.
(D) CHANGES IN CONTROL There are no arrangements which may result in a change in control of the Company. 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As previously stated elsewhere in this Report, Tony Tan Caktiong, Ernesto Tanmantiong, William Tan Untiong and Joseph Tanbuntiong are brothers. Ang Cho Sit is the brother-in-law of Tony Tan Caktiong. Susana K. Tanmantiong is the wife of Ernesto Tanmantiong, and sister-in-law of Tony Tan Caktiong and William Tan Untiong. Antonio Chua Poe Eng is the brother-in-law of Tony Tan Caktiong, Ernesto Tanmantiong and William Tan Untiong. Grace A. Tan is the wife of Tony Tan Caktiong. Some of the Company’s directors own franchises or have minority interests in companies which own and operate franchised stores of the Company. All such franchises are subject to contracts which have been entered into on an arms-length basis and on terms similar to those granted to other franchisees. The Company has no parent company. The Company has no transaction with promoters. PART IV. CORPORATE GOVERNANCE 13. CORPORATE GOVERNANCE The Company has adopted a Manual of Corporate Governance (“Manual”) which was filed with and duly approved by the SEC. Under the terms of the Manual, the Company is required to measure compliance by the Board of Directors and management with the terms of the Manual. Pursuant to the Manual, the Compliance Officer is required annually to prepare a self-rating report on the extent of the Company’s compliance with the Manual, explaining reasons for deviation, if any. On April 1, 2013, the Company submitted its duly-accomplished Disclosure Template for the Corporate Governance Guidelines for Listed Companies to the Philippine Stock Exchange. PART V. EXHIBITS AND SCHEDULES Please see annexes hereto.
Jollibee Foods Corporation and
Subsidiaries
Audited Financial Statements 2012
*SGVMG200087*
7 7 4 8 7 SEC Registration Number
J O L L I B E E F O O D S C O R P O R A T I O N A N D S U
7 B S I D I A R I E S
(Company’s Full Name)
1 0 t h F l o o r , J o l l i b e e P l a z a B u i l d i
n g , N o . 1 0 E m e r a l d A v e n u e , O r t i g a
s C e n t r e , P a s i g C i t y
(Business Address: No. Street City/Town/Province)
Mr. Ysmael V. Baysa (02) 634-1111 (Contact Person) (Company Telephone Number)
1 2 3 1 A A C F S 0 6 2 8 Month Day (Form Type) Month Day
(Calendar Year) (Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc. Amended Articles Number/Section
Total Amount of Borrowings
3,325 P=1,635,899,397 P=3,791,557,019 Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned
File Number LCU
Document ID Cashier
S T A M P S Remarks: Please use BLACK ink for scanning purposes.
COVER SHEET
*SGVMG200087*
JOLLIBEE FOODS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information
Jollibee Foods Corporation (the Parent Company) was incorporated in the Philippines. The Parent Company and its subsidiaries (collectively referred to as “the Jollibee Group”) are involved primarily in the development, operation and franchising of Quick Service Restaurants (QSR) under the trade names “Jollibee”, “Chowking”, “Greenwich”, “Red Ribbon”, “Yong He King”, “Hong Zhuang Yuan”, “Mang Inasal”, “Burger King”, “San Pin Wang” and “12 Hotpot”. The other activities of the Jollibee Group include manufacturing and property leasing in support of the QSR systems and other business activities (see Notes 2 and 5).
The common shares of the Parent Company were listed and have been traded in the Philippine Stock Exchange (PSE) beginning July 14, 1993.
The registered office address of the Parent Company is 10th Floor, Jollibee Plaza Building, No. 10 Emerald Avenue, Ortigas Centre, Pasig City.
The consolidated financial statements as of December 31, 2012 and 2011 and for each of the three years in the year ended December 31, 2012 were reviewed and recommended for approval by the Audit Committee on April 11, 2013. The same consolidated financial statements were also approved and authorized for issuance by the Board of Directors (BOD) on April 11, 2013.
2. Basis of Preparation, Statement of Compliance, Changes in Accounting Policies,
Restatement of Comparative 2011 Financial Statements and Basis of Consolidation
Basis of Preparation The consolidated financial statements of the Jollibee Group have been prepared on the historical cost basis, except for the derivative liability and certain available-for-sale (AFS) financial assets, which are measured at fair value. The consolidated financial statements are presented in Philippine peso, which is the Parent Company’s functional and presentation currency under Philippine Financial Reporting Standards (PFRS). All values are rounded to the nearest peso, except when otherwise indicated.
Statement of Compliance The accompanying consolidated financial statements have been prepared in accordance with PFRS.
Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following amendments to existing PFRS and PAS which became effective on January 1, 2012.
§ PFRS 7 (Amendment), Financial Instruments: Disclosures – Transfers of Financial Assets § PAS 12 (Amendment), Income Taxes – Deferred Tax: Recovery of Underlying Assets
The adoption of these amended standards did not have a significant impact on the Jollibee Group’s consolidated financial statements.
- 2 -
*SGVMG200087*
New Accounting Standards, Interpretations and Amendments to Existing Standards Effective Subsequent to December 31, 2012 The Jollibee Group will adopt the following revised standards, interpretations and amendments when these become effective. Except as otherwise indicated, the Jollibee Group does not expect the adoption of these new and amended standards to have significant impact on its consolidated financial statements.
Effective in 2013
The new and amended PFRS are effective and to be applied for annual periods beginning on or after January 1, 2013 except for PFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities, which is to be applied retrospectively and PAS 1, Financial Statements Presentation – Presentation of Items of Other Comprehensive Income, which is effective for annual periods beginning on or after July 1, 2012.
§ Amendments to PFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in e) (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and f) The net amount after deducting the amounts in (d) from the amounts in the above.
§ PFRS 10, Consolidated Financial Statements This standard replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standing Interpretations Committee (SIC)-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.
- 3 -
*SGVMG200087*
§ PFRS 11, Joint Arrangements This standard replaces PAS 31, Interests in Joint Ventures, and SIC-13, Jointly controlled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly-controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.
§ PFRS 12, Disclosure of Interest in Other Entities This standard includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.
The Jollibee Group expects a more comprehensive disclosure in the notes to the consolidated financial statements about interests in subsidiaries, joint arrangements and associates upon adoption.
§ PFRS 13, Fair Value Measurement This standard establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted.
The Jollibee Group performed a preliminary assessment on the impact of this standard on its financial statements, but on the said assessment, the impact is expected to be immaterial.
§ Revised PAS 19, Employee Benefits The amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The revised standard also requires new disclosures such as, among others, a sensitivity analysis for each significant actuarial assumption, information on asset-liability matching strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature and risk. Once effective, the Jollibee Group has to apply the amendments retroactively to the earliest period presented.
The Jollibee Group reviewed its existing employee benefits and determined that the amended standard has significant impact on its accounting for retirement benefits. The Jollibee Group obtained the services of an external actuary to compute for the impact of the standard to its consolidated financial statements upon adoption. The effects are detailed below:
As at As at December 31, January 1,
2012 2012 Increase (decrease) in:
Statement of Financial Position Pension liability P=267,203,511 (P=288,455,466)
Deferred tax asset (80,161,053) 86,536,640 Remeasurements on defined benefit plan - net of deferred tax (219,212,904) 157,137,717 Retained earnings 32,170,447 44,781,109
- 4 -
*SGVMG200087*
For the year ended December 31
2012 2011
Statement of Comprehensive Income Pension expense P=18,015,232 (P=35,550,158)
Provision for deferred income tax (5,404,570) 10,665,047 Net income (12,610,662) 24,885,111 Remeasurements on defined benefit plans - net of deferred income tax (219,212,904) 157,137,717 Total comprehensive income (231,823,566) (182,022,828)
§ Revised PAS 27, Separate Financial Statements As a consequence of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements.
§ Revised PAS 28, Investments in Associates and Joint Ventures As a consequence of the new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.
§ PAS 1, Financial Statements Presentation - Presentation of Items of Other Comprehensive Income The amendments to PAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified.
§ Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”) and provides guidance on the recognition of production stripping costs as an asset and measurement of the stripping activity asset. This new interpretation is not relevant to the Jollibee Group.
Improvements to Standards
The Annual Improvements to PFRS (2009-2011 cycle) contain non-urgent but necessary amendments to PFRS. The amendments are effective for annual periods beginning on or after January 1, 2013 and are applied retrospectively.
§ PFRS 1, First-time Adoption of PFRS The amendments clarify that an entity that has stopped applying PFRS may choose to either: (a) re-apply PFRS 1, even if the entity applied PFRS 1 in a previous reporting period; or (b) apply PFRS retrospectively in accordance with PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, in order to resume reporting under PFRS. The amendments also clarify that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs.
- 5 -
*SGVMG200087*
§ PAS 1, Presentation of Financial Statements - Clarification of the Requirements for Comparative Information The amendment requires an entity to present a: (a) comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period; and (b) opening statement of financial position when an entity changes its accounting policies, makes retrospective restatements or makes reclassifications, and that change has a material effect on the statement of financial position. The opening statement will be at the beginning of the preceding period.
§ PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise.
§ PAS 32, Financial Instruments: Presentation - Tax effect of Distribution to Holders of Equity Instruments The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes.
§ PAS 34, Interim Financial Reporting - Interim Financial Reporting and Segment Information for Total Assets and Liabilities The amendment clarifies the requirements in PAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirement in PFRS 8, Operating Segments.
Effective in 2014
The amendments to PFRS are effective and to be applied for annual periods beginning on or after January 1, 2014 except for Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities, which is to be applied retrospectively.
§ Amendments to PFRS 10, Consolidated Financial Statements - Investment Entities The amendments require a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss instead of consolidating them. New disclosure requirements relating to investment entities were added in PFRS 12 and PAS 27.
§ Amendments to PFRS 12, Disclosure of Interests in Other Entities - Investment Entities The amendments require a parent that is an investment entity to disclose information about significant judgments and assumptions made in determining that it is an investment entity, as well as and any changes thereto. A parent that is an investment entity is also required to disclose certain information on unconsolidated subsidiaries, which are accounted for at fair value through profit or loss.
§ Amendments to PAS 27, Separate Financial Statements - Investment Entities The amendments require a parent that is an investment entity and does not consolidate its subsidiaries in accordance with the exceptions of PFRS 10, to present separate financial statements as its only financial statements.
- 6 -
*SGVMG200087*
§ Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. While the amendment is expected not to have any impact on the Company’s net assets, any changes in offsetting is expected to impact leverage ratios and regulatory capital requirements.
Effective in 2015
§ PFRS 9, Financial Instruments: Classification and Measurement PFRS 9 as issued reflects the first phase on the replacement of PAS 39, Financial Instruments: Recognition and Measurement, and applies to the classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project.
The Jollibee Group has made an evaluation of the impact of the adoption of this standard and decided not to early adopt PFRS 9 in 2012, ahead of its effectivity date on January 1, 2015, therefore, the Jollibee Group’s financial statements as at and for the year ended December 31, 2012 do not reflect the impact of the said standard.
Only financial assets and liabilities will be affected by the standard and based on this evaluation, loans and receivables (consisting of cash and cash equivalents, trade receivables, receivable from retirement fund, advances to employees, security and other deposits, and employee car plan receivables), AFS financial assets and financial liabilities (consisting of trade payables and other current liabilities, due to related parties, short-term and long-term debt, and liability for acquisition of a business), which are carried at amortized cost will not be significantly affected. Upon adoption, these financial instruments shall continue to be carried at their amortized cost, thus, will have no significant financial impact to the Jollibee Group’s financial position and performance. For the Jollibee Group’s AFS investments which are composed of shares in public utility companies carried at fair value, the Jollibee Group plans to classify these items at fair value through other comprehensive income and will continue to measure these investments at fair value to be presented in other comprehensive income, thus, this has no significant financial impact to financial position and performance.
The Jollibee Group shall conduct another impact evaluation in 2013 using the financial statements as at and for the year ended December 31, 2012.
Restatement of Comparative 2011 Financial Statements On May 27, 2011, the Jollibee Group, through its wholly-owned subsidiary, Tokyo Teriyaki Corporation (TTC), entered into an Asset Purchase Agreement with Fortune Capital Corporation, owner and operator of all Chowking stores in the US as the master licensee therein, to purchase the latter’s property and equipment, inventories and security deposits of its twenty (20) existing stores. The purchase consideration amounted to P=693.3 million.
- 7 -
*SGVMG200087*
In 2012, the valuation of the acquired assets was completed resulting to the recognition of an increase in the fair market value of property and equipment and deferred tax liability and a corresponding reduction in the amount of liability for acquisition of business and goodwill as follows (see Note 14):
Increase
(Decrease) Property and equipment P=22,964,900 Deferred tax liabilities 6,889,470 Liability for acquisition of businesses (33,369,323) Goodwill (49,444,753)
In accordance with PFRS 3, the Jollibee Group restated its comparative 2011 financial statements to reflect the results of the valuation of the assets as if the information existed as of the acquisition date.
Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries as at December 31, 2012.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Jollibee Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full.
Non-controlling interests represent the portion of comprehensive income and net assets not held by the Jollibee Group and are presented separately in the consolidated statements of comprehensive income and within equity in the consolidated statements of financial position, separately from equity attributable to equity holders of the Parent Company. Acquisition of non-controlling interests is accounted for using the entity concept method, whereby the difference between the cost of acquisition and the carrying value of the non-controlling interests acquired is recognized as a direct deduction from the equity section of the consolidated statements of financial position as “Excess of cost over the carrying value of non-controlling interests acquired”.
Losses within a subsidiary are attributed to the non-controlling interests even if these result in a deficit balance.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Jollibee Group loses control over a subsidiary, it:
§ derecognizes the assets (including goodwill) and liabilities of the subsidiary; § derecognizes the carrying amount of any non-controlling interest; § 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 any surplus or deficit in profit or loss; § reclassifies the Parent Company’s share of components previously recognized in other
comprehensive income to profit or loss or retained earnings, as appropriate.
- 8 -
*SGVMG200087*
The consolidated financial statements include the accounts of the Parent Company and the following wholly-owned and majority-owned subsidiaries:
Country of Percentage
of Ownership Incorporation Principal Activities 2012 2011 2010 Fresh N’ Famous Foods, Inc. (Fresh N’ Famous) - Philippines Food service 100 100 100 § Chowking Food Corporation USA United States of
America (USA) Holding company 100 100 100 Zenith Foods Corporation (Zenith) Philippines Food service 100 100 100 Freemont Foods Corporation Philippines Food service 100 100 100 RRB Holdings, Inc. (RRBHI): Philippines Holding company 100 100 100 § Red Ribbon Bakeshop, Inc. (RRBI) Philippines Food service 100 100 100 § Red Ribbon Bakeshop, Inc. USA (RRBI USA) USA Food service 100 100 100 Mang Inasal Philippines, Inc. (Mang Inasal) Philippines Food service 70 70 70 Grandworth Resources Corporation (Grandworth): Philippines Leasing 100 100 100 § Adgraphix, Inc. (Adgraphix) Philippines Digital printing 100 100 100 § IConnect Multimedia Network, Inc. (IConnect) Philippines Advertising 60 60 60 § JC Properties & Ventures Co. Philippines Inactive 50 50 – Honeybee Foods Corporation (Honeybee): USA Food service 100 100 100 § Tokyo Teriyaki Corporation (TTC) USA Food service 100 100 100 Jollibee Worldwide Pte. Ltd. (JWPL): Singapore Holding company 100 100 100 § Regional Operating Headquarters of JWPL (JWS) Philippines Accounting, Human
Resources & Logistic Services
100 100 100
§ Golden Plate Pte. Ltd. (GPPL) Singapore Holding company 100 100 100 ú Golden Beeworks Pte. Ltd. Singapore Food service 60 – – § Beijing New Hongzhuangyuan Food and Beverage
Management Co., Ltd. (Hong Zhuang Yuan) People’s Republic
of China (PRC) Food service 100 100 100 § Southsea Binaries Ltd. (Southsea) British Virgin
Island (BVI) Holding company 100 100 100 § Shanghai Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 100 § Beijing Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 100 § Shenzhen Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 100 § Hangzhou Yongtong Food and Beverage Co., Ltd. PRC Food service 100 100 100 § Hangzhou Yonghe Food and Beverage Co., Ltd. PRC Food service 100 100 100 § Guangxi San Pin Wang Food and Beverage Management Company Limited (San Pin Wang)
PRC Food service 55 – –
§ Wuhan Yonghe King Food and Beverage Co., Ltd. PRC Food service 100 100 100 § Tianjin Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 100 § Jollibee Foods Processing Pte. Ltd. (JFPPL) - Singapore Holding company 70 70 70 ú Jollibee Foods Processing Co. Ltd. (Anhui) PRC Food service 100 100 100 § Kuai Le Feng Food & Beverage (Shenzhen) Co., Ltd. PRC Dormant 100 100 100 § JSF Investments Pte. Ltd. (JSF) Singapore Holding company 99 99 – § Chow Fun Holdings LLC (Chow Fun) USA Food service 81 81 14 § Jollibee (China) Food & Beverage Management Co. Ltd. (formerly Shanghai Chunlv Co. Ltd.)
PRC
Management company 100 100 100
§ Jollibee International (BVI) Ltd. (JIBL): BVI Holding company 100 100 100 ú Jollibee Vietnam Corporation Ltd. Vietnam Food service 100 100 100 ú PT Chowking Indonesia Indonesia Food service 100 100 100 ú PT Jollibee Indonesia Indonesia Dormant 100 100 100 ú Jollibee (Hong Kong) Limited - Hong Kong Dormant 85 85 85 � Hanover Holdings Limited (Hanover) Hong Kong Dormant 100 100 100 ú Belmont Enterprises Ventures Limited (Belmont): BVI Holding company 100 100 100 � Shanghai Belmont Enterprises Management and
Adviser Co., Ltd. (SBEMAC) PRC
Business
management service 100 100 100
� Yong He Holdings Co., Ltd.: BVI Holding company 100 100 100 Centenary Ventures Limited BVI Holding company 100 100 100 Colossus Global Limited BVI Dormant 100 100 100 Granite Management Limited BVI Dormant 100 100 100 Cosmic Resources Limited BVI Dormant 100 100 100 � All Great Resources Limited: BVI Dormant 100 100 100 Eastpower Resources Limited BVI Dormant 100 100 100 Eaglerock Development Limited BVI Dormant 100 100 100 (Forward)
- 9 -
*SGVMG200087*
Country of Percentage
of Ownership Incorporation Principal Activities 2012 2011 2010 Chanceux, Inc. - Philippines Holding company 100 100 – § BK Titans, Inc. - Philippines Holding company 54 54 – ú PFN Holdings, Corp. - Philippines Holding company 99 99 – � Perf Restaurants, Inc. (PERF) (a) Philippines Food Service 100 100 – Donut Magic Phils., Inc.(b) Philippines Dormant 100 100 100 Ice Cream Copenhagen Phils., Inc.(b) Philippines Dormant 100 100 100 Mary’s Foods Corporation (b) Philippines Dormant 100 100 100 QSR Builders, Inc. Philippines Inactive 100 100 100 Jollibee USA USA Dormant 100 100 100
(a) Kuai Le Feng Food and Beverage (Shenzhen) Co. Ltd. (PRC) was deregistered on March 29, 2013. (b) BVI dormant entities are for dissolution which will take effect in 2013. (c) PERF Restaurants, Inc. also holds shares in PERF Trinoma and PERF MOA. (d) On June 18, 2004, the stockholders of the Jollibee Group approved the Plan of Merger of the three dormant companies. The
application is pending approval from the SEC as at December 31, 2012. 3. Summary of Significant Accounting Policies
Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from the date of acquisition and are subject to an insignificant risk of change in value.
Financial Instruments
Date of Recognition. The Jollibee Group recognizes a financial asset or a financial liability in the consolidated statements of financial position when it becomes a party to the contractual provisions of an instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using trade date accounting. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market place concerned.
Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains or losses relating to financial instruments or a component that is financial liability are reported as expense or income. Distribution to holders of financial instruments classified as equity is charged directly to equity, net of any related income tax benefits.
Initial Recognition and Measurement. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). Transaction costs that are directly attributable to the acquisition or issue of the financial instruments are included in the initial measurement of all financial assets and liabilities, except for financial assets and liabilities measured at fair value through profit or loss (FVPL).
Subsequent to initial recognition, the Jollibee Group classifies its financial instruments in the following categories: financial assets and financial liabilities at FVPL, loans and receivables, held-to-maturity (HTM) investments, AFS financial assets, other financial liabilities and derivatives designated as hedging instruments in an effective hedge. The classification depends on the purpose for which the instruments are acquired and as liabilities were incurred whether they are quoted in an active market. Management determines the classification of its financial instruments
- 10 -
*SGVMG200087*
at initial recognition and, where allowed and appropriate, re-evaluates this classification at every reporting date.
Determination of Fair Value. The fair value of financial instruments traded in active markets at reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which observable market prices exist, option pricing models and other relevant valuation models.
Determination of Amortized Cost. The amortized cost of financial instruments is computed using the effective interest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are integral part of the effective interest.
“Day 1” Difference. Where the transaction price in a non-active 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 Jollibee Group recognizes the difference between the transaction price and fair value (a “Day 1” difference) in profit or loss unless it qualifies for recognition as some other type of asset or liability. In cases where unobservable data is used, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Jollibee Group determines the appropriate method of recognizing the “Day 1” difference amount.
Financial Assets
Financial Assets at FVPL. Financial assets at FVPL include financial assets held-for-trading and financial assets designated as at FVPL upon initial recognition.
Financial assets are classified as held-for-trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held-for-trading are recognized in profit or loss.
Financial assets may be designated as at FVPL at initial recognition if the following criteria are met:
§ the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis;
§ the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or
§ the financial asset contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
- 11 -
*SGVMG200087*
The Jollibee Group has no financial assets at FVPL as of December 31, 2012 and 2011.
Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS financial assets or financial assets at FVPL. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest method, less any impairment in value. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.
Loans and receivables are classified as current assets when the Jollibee Group expects to realize or collect the asset within 12 months from the reporting date. Otherwise, these are classified as noncurrent assets.
The Jollibee Group’s cash and cash equivalents, receivables, long-term loan receivable and security and other deposits are classified under this category.
HTM Investments. Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as HTM when there is a positive intention and ability to hold to maturity. Financial assets intended to be held for an undefined period are not included in this category. HTM investments are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount less allowance for impairment. Gains and losses are recognized in profit or loss when the financial assets are derecognized or impaired, as well as through the amortization process. Assets under this category are classified as current assets if maturity is within 12 months from reporting date and as noncurrent assets if maturity date is more than a year from reporting date.
The Jollibee Group has no HTM investments as of December 31, 2012 and 2011.
AFS Financial Assets. AFS financial assets are nonderivative financial assets that are designated in this category or are not classified in any of the other categories. AFS financial assets include equity and debt securities. Equity investments classified as AFS are those which are intended to be held for an indefinite period of time and are neither classified as held-for-trading nor designated as at FVPL. Debt securities are those which are intended to be held for an indefinite period of time and which may be sold in response to needs of liquidity or in response to changes in market conditions.
After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized gains or losses recognized as “Unrealized gain (loss) on available-for-sale financial assets - net” account in other comprehensive income until the financial asset is derecognized or determined to be impaired at which time the accumulated gains or losses previously reported in other comprehensive income are included in profit or loss. If the fair value cannot be measured reliably, AFS financial assets are measured at cost, being the fair value of the consideration paid for the acquisition of the investment, less any impairment in value. All transaction costs directly attributable to the acquisition are also included in the cost of investment.
Assets under this category are classified as current assets if expected to be realized within 12 months from reporting date and as noncurrent assets. Otherwise, these are classified as non-current assets.
- 12 -
*SGVMG200087*
The Jollibee Group’s investments in shares of public utility companies are classified under this category as of December 31, 2012 and 2011.
Financial Liabilities Financial Liabilities at FVPL. Financial liabilities at FVPL include financial liabilities that are held-for-trading and financial liabilities designated as at FVPL upon initial recognition.
Financial liabilities are classified as held-for-trading if acquired for the purpose of repurchasing in the near term. Gains or losses on liabilities held-for-trading are recognized in profit or loss.
The Jollibee Group has no financial liability classified under this category as of December 31, 2012 and 2011.
Derivative Financial Instruments and Hedge Accounting. The Jollibee Group uses currency swaps to manage its foreign exchange and interest rate risk exposures on its United States dollar (USD) denominated variable rate loan. Accruals of interest on the receive- and pay-legs of the cross-currency swap are recorded as interest expense in the consolidated statement of comprehensive income.
Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to profit or loss.
For the purpose of hedge accounting, derivatives can be designated as cash flow hedges or fair value hedges, depending on the type of risk exposure.
At the inception of a hedge relationship, the Jollibee Group formally designates and documents the hedge relationship to which the Jollibee Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
The Jollibee Group accounts for its cross-currency swaps as cash flow hedges of foreign exchange and interest rate exposure on its outstanding floating rate US-denominated loan of PERF (see Note 18).
Cash Flow Hedge. Cash flow hedges are hedges on the exposure to variability of cash flows that are attributable to a particular risk associated with a recognized asset, liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized in the statement of comprehensive income and directly in equity, while the ineffective portion is recognized immediately in profit or loss.
Amounts taken to equity are transferred to the profit or loss when the hedged transaction affects profit or loss, such as when hedged financial income or expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a nonfinancial asset or liability, the
- 13 -
*SGVMG200087*
amounts taken to equity are transferred to the initial carrying amount of the nonfinancial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognized in equity are transferred to the statement of comprehensive income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is recognized in the profit or loss.
Other Financial Liabilities. This category pertains to financial liabilities that are not held-for-trading or not designated as at FVPL upon the inception of the liability where the substance of the contractual arrangements results in the Jollibee Group having an obligation either to deliver cash or another financial asset to the holder, or to exchange financial assets or financial liabilities with the holder under conditions that are potentially unfavorable to the Jollibee Group. These include liabilities arising from operations or borrowings.
Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. Gains and losses are recognized in profit or loss when the liabilities are derecognized, as well as through the amortization process.
This category includes long-term debt (including current portion), liability for acquisition of businesses (including current portion) and trade payables and other current liabilities (excluding local and other taxes and unearned revenue from gift certificates).
The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.
Debt Issue Costs Debt issue costs are deducted against long-term debt and are amortized over the terms of the related borrowings using the effective interest method.
Impairment of Financial Assets The Jollibee Group assesses at each reporting date whether a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an incurred loss event) and that the loss event has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
- 14 -
*SGVMG200087*
Loans and Receivables. The Jollibee Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Factors considered in individual assessment are payment history, past-due status and term, development affecting companies and specific issues with respect to the accounts. The collective assessment would require the Jollibee Group to group its receivables based on the credit risk characteristics (customer type, payment history, past-due status and term) of the customers. Changes in circumstances may cause future assessment of credit risk to be materially different from current assessments, which could require an increase or decrease in the allowance account. The Jollibee Group also considers factors, such as, the type of assets, the financial condition or near term prospect of the related company or account, and the intent and ability to hold on the assets long enough to allow any anticipated recovery. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognized, are not included in the collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in profit or loss under “General and administrative expenses” account. Interest income continues to be recognized based on the original effective interest rate of the asset. Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery.
If, in a subsequent year, the amount of the estimated impairment loss decreases because an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that carrying value of asset does not exceed its amortized cost at the reversal date.
Quoted AFS Equity Investments. In the case of equity investments classified as AFS financial assets, an objective evidence of impairment would include a significant or prolonged decline in the fair value of the investments below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in other comprehensive income under “Unrealized gain (loss) on available-for-sale financial assets”, is removed from equity and recognized in the profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in fair value after impairment are recognized directly as other comprehensive income.
Unquoted AFS Equity Investments. If there is objective evidence that an impairment loss has been incurred in an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
- 15 -
*SGVMG200087*
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:
(a) the rights to receive cash flows from the asset have expired;
(b) the Jollibee Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
(c) the Jollibee Group has transferred its rights to receive cash flows from the asset and either (i) has transferred substantially all the risks and rewards of the asset, or (ii) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Jollibee Group has transferred its rights to receive cash flows from the asset or has entered into a “pass-through” arrangement, and neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Jollibee Group’s continuing involvement in the asset. In that case, the Jollibee Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Jollibee Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that the Jollibee Group could be required to pay.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired.
When 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 is recognized in profit or loss.
Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Inventories Inventories are valued at the lower of cost and net realizable value. Costs are accounted for as follows:
Processed inventories - First-in, first-out basis. Cost includes direct
materials, labor and a proportion of manufacturing overhead costs based on normal operating capacity.
Food supplies, packaging, store and other supplies, and novelty items
- Purchase cost on a first-in, first-out basis.
- 16 -
*SGVMG200087*
Net realizable value of processed inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Net realizable value of food supplies, packaging, store and other supplies is the current replacement cost.
Net realizable value of novelty items is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.
Property, Plant and Equipment Property, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of property, plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less any impairment in value.
The initial cost of property, plant and equipment consists of its purchase price, including import duties and taxes and any other costs directly attributable in bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to income in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional costs of property, plant and equipment.
Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives of the assets:
Land improvements 5 years Plant, buildings, condominium units and improvements 5–40 years Leasehold rights and improvements 2–10 years or term of the lease,
whichever is shorter Office, store and food processing equipment 2–15 years Furniture and fixtures 3–5 years Transportation equipment 3–5 years
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period the asset is derecognized.
The residual values, if any, useful lives and depreciation and amortization method of the assets are reviewed and adjusted, if appropriate, at each financial period.
When each major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation is credited or charged to profit or loss.
- 17 -
*SGVMG200087*
Construction in progress represents structures under construction and is stated at cost less any impairment in value. This includes the cost of construction and other direct costs. Cost also includes interest on borrowed funds incurred during the construction period. Construction in progress is not depreciated until such time that the relevant assets are completed and put into operational use.
Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to profit or loss.
Investment Properties Investment properties consist of land and buildings and building improvements held by the Jollibee Group for capital appreciation and rental purposes. Investment properties, except land, are carried at cost, including transaction costs, less accumulated depreciation and amortization and any impairment in value. Cost also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Land is carried at cost less any impairment in value.
The depreciation of buildings and building improvements are calculated on a straight-line basis over the estimated useful lives of the assets which are five (5) to twenty (20) years.
The residual values, if any, useful lives and method of depreciation and amortization of the assets are reviewed and adjusted, if appropriate, at each financial year-end.
Investment property is derecognized when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in profit or loss in the year of retirement or disposal.
Transfers to investment property are made only when there is a change in use, evidenced by ending of owner-occupation, or commencement of an operating lease to another party. Transfers from investment property are made only when there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sell.
Business Combinations Business combinations are accounted for using the acquisition method. Applying the acquisition method requires the (a) determination whether the Jollibee Group will be identified as the acquirer, (b) determination of the acquisition-date, (c) recognition and measurement of the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree and (d) recognition and measurement of goodwill or a gain from a bargain purchase.
The cost of an acquisition is measured as the aggregate of the (a) consideration transferred by the Jollibee Group, measured at acquisition-date fair value, (b) amount of any non-controlling interest in the acquiree and (c) acquisition-date fair value of the Jollibee Group’s previously held equity interest in the acquire in a business combination achieved in stages. Acquisition costs incurred are expensed and included in “General and administrative expenses” account in the consolidated statement of comprehensive income.
Initial Measurement of Non-controlling Interest. For each business combination, the Jollibee Group measures the non-controlling interest in the acquire using the proportionate share of the acquiree’s identifiable net assets.
- 18 -
*SGVMG200087*
Business Combination Achieved in Stages. In a business combination achieved in stages, the Jollibee Group remeasures its previously held equity interests in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in profit or loss.
Contingent Consideration or Earn-out. Any contingent consideration or earn-out to be transferred by the Jollibee Group 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 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill
Initial Measurement of Goodwill or Gain on a Bargain Purchase. Goodwill is initially measured by the Jollibee Group at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss as gain on a bargain purchase. Before recognizing a gain on a bargain purchase, the Jollibee Group determines whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognize any additional assets or liabilities that are identified in that review.
Subsequent Measurement of Goodwill. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Impairment Testing of Goodwill. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition-date, allocated to each of the Jollibee Group’s cash-generating units (CGU), or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated:
§ represents the lowest level within the Jollibee Group at which the goodwill is monitored for internal management purposes; and
§ is not larger than an operating segment as defined in PFRS 8, Operating Segments, before aggregation.
Frequency of Impairment Testing. Irrespective of whether there is any indication of impairment, the Jollibee Group tests goodwill acquired in a business combination for impairment annually.
Allocation of Impairment Loss. An impairment loss is recognized for a CGU if the recoverable amount of the unit or group of units is less than the carrying amount of the unit or group of units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit or group of units first to reduce the carrying amount of goodwill allocated to the CGU or group of units and then to the other assets of the unit or group of units pro rata on the basis of the carrying amount of each asset in the unit or group of units.
Measurement Period. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Jollibee Group reports in its consolidated financial statements provisional amounts for the items for which the accounting is incomplete. The measurement period ends as soon as the Jollibee Group receives the information it was seeking about facts and circumstances that existed as of the acquisition-date or learns that
- 19 -
*SGVMG200087*
more information is not obtainable. The measurement period does not exceed one year from the acquisition-date.
Intangible Assets The cost of trademarks acquired in a business combination is the fair value as at the date of acquisition. The Jollibee Group assessed the useful life of the trademarks to be indefinite because based on an analysis of all of the relevant factors; there is no foreseeable limit to the period over which the asset is expected to generate cash inflows for the Jollibee Group.
Trademarks and brand names with indefinite useful lives are not amortized but are tested for impairment annually either individually or at the CGU level. The useful life of an intangible asset is assessed as indefinite if it is expected to contribute net cash inflows indefinitely and is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income when the asset is derecognized.
Interests in and Advances to Joint Ventures, Co-venturers and Associate
Interests in and Advances to Joint Ventures and Co-venturers. This account consists of interests in and advances to joint ventures and co-venturers.
A joint venture is a contractual arrangement whereby two or more parties (venturers) undertake an economic activity that is subject to joint control. Joint control exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers. A jointly controlled entity is a joint venture that involves the establishment of a company, partnership or other entity to engage in economic activity that the Jollibee Group jointly controls with its fellow venturer.
The Jollibee Group has interests in joint ventures which are jointly controlled entities accounted for using the equity method based on the percentage share of ownership and capitalization. Interests in joint ventures are accounted for under the equity method from the date the joint control is obtained.
Under the equity method, the interests in joint ventures are carried in the consolidated statements of financial position at cost plus the Jollibee Group’s share in post-acquisition changes in the net assets of the joint ventures and associate, less any impairment in value. Goodwill relating to the joint ventures is included in the carrying amount of the investment and is not amortized. The consolidated statements of comprehensive income include the Jollibee Group’s share in the financial performance of the joint ventures.
When the Jollibee Group’s share of losses in the joint ventures equals or exceeds its interest, including any other unsecured receivables, the Jollibee Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. Where there has been a change recognized directly in the equity of the joint venture, the Jollibee Group recognizes its share in any changes and discloses this, when applicable, in the consolidated statements of changes in equity.
- 20 -
*SGVMG200087*
The reporting dates of the Parent Company and the joint ventures are identical and the latter’s accounting policies conform to those used by the Parent Company for like transactions and events in similar circumstances. Unrealized gains arising from transactions with the joint ventures are eliminated to the extent of the Jollibee Group’s interests 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 Jollibee Group ceases to use the equity method of accounting on the date from which it no longer has joint control, or significant influence in the joint ventures and associate or when the interest becomes held for sale.
Upon loss of joint control, the Jollibee Group measures and recognizes its remaining investment at its fair value. Any difference between the carrying amount of the former jointly controlled entities upon loss of joint control, the fair value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the remaining interest in joint ventures constitutes significant influence, it is accounted for as interest in an associate.
Interest in an Associate. This account consists of investment in an associate. An associate is an entity in which the Jollibee Group has significant influence and which is neither a subsidiary nor a joint venture.
The Jollibee Group’s investment in an associate are accounted for using the equity method. An associate is an entity in which the Jollibee Group has significant influence.
Under the equity method, the investment in an associate is carried in the consolidated statements of financial position at cost plus post acquisition changes in the Jollibee Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.
The consolidated statements of comprehensive income reflect the share of the financial performance of the associate. When there has been a change recognized directly in the equity of the associate, the Jollibee Group recognizes its share of any changes and discloses this, when applicable, in the consolidated statements of changes in equity. Unrealized gains and losses resulting from transactions between the Jollibee Group and the associate are eliminated to the extent of the interest in the associate.
The Jollibee Group’s share in profit (loss) of the associate is shown on the face of the consolidated statements of comprehensive income as “Equity in net earnings (loss) of joint ventures and associate”, which is the profit (loss) attributable to equity holders of the associate.
The financial statements of the associate are prepared for the same reporting period as the Jollibee Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Jollibee Group.
After application of the equity method, the Jollibee Group determines whether it is necessary to recognize an additional impairment loss on its investment in an associate. The Jollibee Group determines at each reporting period whether there is any objective evidence that the investments in associates are impaired. If this is the case, the Jollibee Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the “Equity in net earnings (loss) of joint ventures and an associate” account in the consolidated statements of comprehensive income.
- 21 -
*SGVMG200087*
Upon loss of significant influence over the associate, the Jollibee Group measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.
Impairment of Nonfinancial Assets The carrying values of interests in and advances to joint ventures, co-venturers and associate, property, plant and equipment, investment properties, goodwill and other intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and if the carrying value exceeds the estimated recoverable amount, the assets or CGU are written down to their recoverable amounts. The recoverable amount of the asset is the greater of fair value less costs to sell or value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s-length transaction between knowledgeable, willing parties, less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs. Impairment losses are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.
For nonfinancial assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years.
Such reversal is recognized in profit or loss. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value on a systematic basis over its remaining useful life.
Equity
Capital Stock and Additional Paid-in Capital. Capital stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value, if any, are recognized as additional paid-in capital.
Retained Earnings and Dividend on Capital Stock of the Parent Company. The amount included in retained earnings includes profit attributable to the Parent Company’s equity holders and reduced by dividends on capital stock. Dividends on capital stock are recognized as a liability and deducted from equity when they are approved by the shareholders of the Parent Company and its subsidiaries. Dividends for the year that are approved after the financial reporting date are dealt with as an event after the reporting period.
Treasury Shares. Acquisitions of treasury shares are recorded at cost. The total cost of treasury shares is shown in the consolidated statements of financial position as a deduction from the total equity. Upon re-issuance or resale of the treasury shares, cost of common stock held in treasury account is credited for the cost of the treasury shares determined using the simple average method.
- 22 -
*SGVMG200087*
Gain on sale is credited to additional paid-in capital. Losses are charged against additional paid-in capital but only to the extent of previous gain from original issuance, sale or retirement for the same class of stock. Otherwise, losses are charged to retained earnings.
Subscriptions Receivable. Subscriptions receivable represents common stock subscribed and issued by the Company but payment from the shareholders has not yet been received.
Revenue Revenue is recognized to the extent that it is probable that the economic benefits associated with the transaction will flow to the Jollibee Group and the amount of revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, sales taxes and duties. The Jollibee Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Jollibee Group has concluded that it is acting as a principal in all of its revenue arrangements.
The following specific recognition criteria must also be met before revenue is recognized:
Sale of Goods. Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the customers, which is normally upon delivery. Sales returns and sales discounts are deducted from sales to arrive at net sales shown in profit or loss.
Royalty Fees. Revenue from royalty fees is recognized as the royalty accrues based on certain percentages of the franchisees’ net sales.
Franchise Fees. Revenue from franchise fees is recognized when all services or conditions relating to a transaction have been substantially performed.
Service Fees. Revenue is recognized in the period in which the service has been rendered.
Dividend Income. Dividend income is recognized when the Jollibee Group’s right as a shareholder to receive the payment is established.
Rent Income. Rent income from operating leases is recognized on a straight-line basis over the lease terms. For income tax reporting, rent income is continued to be recognized on the basis of the terms of the lease agreements.
Interest Income. Interest income is recognized as the interest accrues, taking into account the effective yield on the asset.
Cost and Expenses Cost and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Cost and expenses included under “Cost of sales” and “General and administrative expenses” in the consolidated statement of comprehensive income are recognized as incurred.
Advertising and promotions expenses include costs incurred for advertising schemes and promotional activities for new products. The amount of expenses incurred by the Company is reduced by the network advertising and promotional costs reimbursed by the Company’s franchisees and subsidiaries.
- 23 -
*SGVMG200087*
Pension Benefits The Jollibee Group has a number of funded, non-contributory pension plans, administered by trustees, covering the permanent employees of the Parent Company and its Philippine-based subsidiaries. The cost of providing benefits under the defined benefit plans is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for the plans at the end of the previous reporting year exceeds 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans.
Past service cost, if any, is recognized as expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately.
Pension liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, and reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plans or reductions in the future contributions to the plans.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial loss of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gain of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plans or reductions in the future contributions to the plans. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gain of the current period after the deduction of past service cost of the current period are recognized immediately.
The Jollibee Group also participates in various government defined contribution schemes for the PRC-based and USA-based subsidiaries. Under these schemes, pension benefits of existing and retired employees are guaranteed by the local pension benefit plan, and each subsidiary has no further obligations beyond the annual contribution.
Share-based Payments The Jollibee Group has stock option plans granting its management and employees an option to purchase a fixed number of shares of stock at a stated price during a specified period (“equity-settled transactions”).
The cost of the options granted to the Jollibee Group’s management and employees that becomes vested is recognized in profit or loss over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant management and employees become fully entitled to the award (“vesting date”).
- 24 -
*SGVMG200087*
The fair value is determined using the Black-Scholes Option Pricing Model. The cumulative expense recognized for the share-based transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Jollibee Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit in profit or loss or the investment account for a period represents the movement in cumulative expense recognized as of the beginning and end of that period.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the management and employee as measured at the date of modification.
Where a share-based award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if there were a modification of the original award.
Research and Development Costs Research costs are expensed as incurred. Development cost incurred on an individual project is capitalized when its future recoverability can reasonably be regarded as assured. Any expenditure capitalized is amortized in line with the expected future sales from the related project.
Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the agreement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Jollibee Group as Lessee. Leases which do not transfer to the Jollibee Group substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as expense in profit or loss on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.
Jollibee Group as Lessor. Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating leases. Rent income from operating leases is recognized as income in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rent income. Contingent rents are recognized as revenue in the period in which they are earned.
Provisions Provisions are recognized when the Jollibee Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where
- 25 -
*SGVMG200087*
discounting is used, the increase in the provision due to the passage of time is recognized as interest expense.
Foreign Currency Transactions and Translations The consolidated financial statements are presented in Philippine peso, which is the Parent Company’s functional and presentation currency. Each entity in the Jollibee 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 recorded in Philippine peso using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the closing rate of exchange at reporting date. All differences are recognized in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
The functional currencies of the Jollibee Group’s foreign operations are US dollar (US$), PRC renminbi (RMB), Indonesia rupiah, Vietnam dong and Hong Kong dollar. As of the reporting date, the assets and liabilities of foreign subsidiaries are translated into the presentation currency of the Parent Company at the rate of exchange ruling at the reporting date while the income and expense accounts are translated at the weighted average exchange rates for the year. The resulting translation differences are included in the consolidated statements of changes in equity under the account “Cumulative translation adjustments of foreign subsidiaries” and in other comprehensive income. On disposal of a foreign subsidiary, the accumulated exchange differences are recognized in profit or loss.
Taxes
Current Tax. Current tax liabilities for the current and prior periods are measured at the amount expected to be paid to the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at reporting date.
Deferred Tax. Deferred tax is provided using balance sheet liability method, on all temporary differences at reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are recognized for all deductible temporary differences and carryforward benefits of unused tax credits from excess of minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) and net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of excess of MCIT over RCIT and NOLCO can be utilized except:
§ where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit; and
§ in respect of deductible temporary differences associated with investments in subsidiaries and interest in a joint venture, deferred 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.
- 26 -
*SGVMG200087*
The carrying amount of deferred 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 tax assets to be utilized. Unrecognized deferred 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 tax assets to be recovered.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
§ where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transactions, affects neither the accounting profit nor taxable profit; and
§ in respect of taxable temporary differences associated with investments in subsidiaries and interest in a joint venture, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted at the reporting date.
Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Value Added Tax. Revenue, expenses and assets are recognized net of the amount of tax, except:
§ where the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
§ receivables and payables that are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the taxation authority is included as part of “Other current assets” or “Trade payables and other current liabilities” accounts in the consolidated statements of financial position.
Earnings per Share (EPS) Attributable to Equity Holders of the Parent Company Basic EPS is calculated by dividing the net income for the year attributable to the equity holders of the Parent Company by the weighted average number of common shares outstanding during the year, after considering the retroactive effect of stock dividend declaration, if any.
Diluted EPS is computed by dividing the net income for the year attributable to the equity holders of the Parent Company by the weighted average number of common shares outstanding during the period, adjusted for any potential common shares resulting from the assumed exercise of outstanding stock options. Outstanding stock options will have dilutive effect under the treasury stock method only when the average market price of the underlying common share during the period exceeds the exercise price of the option.
Where the EPS effect of the shares to be issued to management and employees under the stock option plan would be anti-dilutive, the basic and diluted EPS would be stated at the same amount.
- 27 -
*SGVMG200087*
Contingencies Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed when an inflow of economic benefits is probable.
Business Segments The Jollibee Group is organized and managed separately according to the nature of operations and geographical locations of businesses. The three major operating businesses of the Jollibee Group are food service, franchising and leasing while geographical segments are segregated to Philippine businesses and international businesses. These operating and geographical businesses are the basis upon which the Jollibee Group reports its primary segment information presented in Note 5.
Events after the Reporting Period Post year-end events that provide additional information about the Jollibee Group’s financial position at reporting date (adjusting events) are reflected in the Jollibee Group’s consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.
4. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts on the consolidated financial statements and related notes at the end of the reporting period.
Judgments, estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Judgments In the process of applying the Jollibee 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.
Functional Currency. Management has determined that the functional and presentation currency of the Parent Company and its Philippine-based subsidiaries is the Philippine peso, being the currency of the primary environment in which the Parent Company and its major subsidiaries operate. The functional currencies of its foreign operations are determined as the currency in the country where the subsidiary operates. For consolidation purposes, the foreign subsidiaries’ balances are translated to Philippine peso which is the Parent Company’s functional and presentation currency.
Operating Lease Commitments - Jollibee Group as Lessee. The Jollibee Group has entered into commercial property leases for its QSR and offices as a lessee. Management has determined, based on an evaluation of the terms and condition of the arrangements that all the significant risks and benefits of ownership of these properties, which the Jollibee Group leases under operating lease arrangements, remain with the lessors. Accordingly, the leases are accounted for as operating leases.
Rent expense amounted to P=5,895.9 million, P=5,131.8 million and P=4,092.8 million in 2012, 2011 and 2010, respectively (see Notes 21, 22 and 29).
- 28 -
*SGVMG200087*
Operating Lease Commitments - Jollibee Group as Lessor. The Jollibee Group has entered into commercial property leases on its investment property portfolio and various sublease agreements. Management has determined, based on an evaluation of the terms and conditions of the arrangements, that the Jollibee Group retains all the significant risks and benefits of ownership of the properties which are leased out. Accordingly, the leases are accounted for as operating leases.
Rent income amounted to P=93.6 million, P=88.4 million and P=88.6 million in 2012, 2011 and 2010, respectively (see Notes 13, 20 and 29).
Impairment of AFS Financial Assets - Significant or Prolonged Decline in Fair Value and Calculation of Impairment Loss. The Jollibee Group determines that an AFS financial asset is impaired when there has been a significant or prolonged decline in the fair value below its cost. The Jollibee Group determines that a decline in fair value of greater than 20% of cost is considered to be a significant decline and a decline for a period of more than 12 months is considered to be a prolonged decline. This determination of what is significant or prolonged requires judgment. In making this judgment, the Jollibee Group evaluates, among other factors, the normal volatility in price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance.
To compute for the impairment of AFS equity instruments, the Jollibee Group expands its analysis to consider changes in the investee’s industry and sector performance, legal and regulatory framework, changes in technology, and other factors that affect the recoverability of the Jollibee Group’s investments.
For unquoted equity shares, the Jollibee Group estimates the expected future cash flows from the investment and calculates the amount of impairment as the difference between the present value of expected future cash flows from the investment and its acquisition cost and recognizes the amount in the consolidated statements of comprehensive income.
There were no provisions for impairment loss on AFS financial assets in 2012, 2011 and 2010. The carrying amount of AFS financial assets amounted to P=128.1 million and P=120.6 million as of December 31, 2012 and 2011, respectively (see Note 10).
Estimates and Assumptions The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at reporting date that has a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Impairment Loss on Receivables. The Jollibee Group maintains an allowance for impairment losses at a level considered adequate to provide for potential uncollectible receivables. The level of allowance is evaluated on the basis of factors that affect the collectability of the accounts. These factors include, but are not limited to, the length of the Jollibee Group’s relationship with the customers and counterparties, average age of accounts and collection experience. The Jollibee Group performs a regular review of the age and status of these accounts, designed to identify accounts with objective evidence of impairment and provide the appropriate allowance for impairment losses. The review is done quarterly and annually using a combination of specific and collective assessments. The amount and timing of recorded expenses for any period would differ if the Jollibee Group made different judgments or utilized different methodologies. An increase in allowance account would increase general and administrative expenses and decrease current and noncurrent assets.
Provision for impairment loss on receivables in 2012, 2011 and 2010 amounted to P=98.1 million, P=35.4 million and P=50.3 million, respectively, resulting from specific and collective assessments.
- 29 -
*SGVMG200087*
The carrying amount of receivables amounted to P=2,750.3 million and P=2,388.6 million as of December 31, 2012 and 2011, respectively (see Note 7).
Net Realizable Value of Inventories. The Jollibee Group writes down inventories to net realizable value, through the use of an allowance account, whenever the net realizable value of inventories becomes lower than the cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes.
The estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made of the amounts the inventories are expected to be realized. These estimates take into consideration fluctuations of prices or costs directly relating to events occurring after reporting date to the extent that such events confirm conditions existing at reporting date. The allowance account is reviewed on a regular basis to reflect the accurate valuation in the financial records.
The Jollibee Group assessed that the net realizable value for some inventories is lower than cost, hence, it recognized provision for inventory obsolescence amounting to P=42.2 million, P=19.5 million and P=5.9 million in 2012, 2011 and 2010, respectively (see Note 22). The Jollibee Group wrote-off allowance for inventory obsolescence amounting to P=4.4 million, P=70.0 million and nil in 2012, 2011 and 2010, respectively. The carrying amount of inventories amounted to P=2,629.7 million and P=2,860.1 million as of December 31, 2012 and 2011, respectively (see Note 8).
Estimation of Useful Lives of Property, Plant and Equipment and Investment Properties. The Jollibee Group estimates the useful lives of property, plant and equipment and investment properties based on the period over which the property, plant and equipment and investment properties are expected to be available for use and on the collective assessment of the industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of property, plant and equipment and investment properties are reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits in the use of property, plant and equipment and investment properties. However, it is possible that future financial performance could be materially affected by changes in the estimates brought about by changes in the factors mentioned above. The amount and timing of recording the depreciation and amortization for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of property, plant and equipment and investment properties would increase the recorded depreciation and amortization and decrease noncurrent assets.
There was no change in the estimated useful lives of property, plant and equipment and investment properties in 2012 and 2011.
Impairment of Goodwill and Other Intangible Assets. The Jollibee Group determines whether goodwill and other intangible assets with indefinite useful life is impaired at least on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. This requires an estimation of the value in use of the CGU to which the goodwill is allocated. Estimating the value in use requires the Jollibee Group to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
Management has determined that goodwill and other intangible assets are not impaired. The carrying amount of goodwill and other intangible assets amounted to P=8,705.0 million and P=8,534.6 million as of December 31, 2012 and 2011, respectively (see Note 14).
- 30 -
*SGVMG200087*
Estimating the Fair Values of Acquiree’s Identifiable Assets and Liabilities. Where the fair values of the acquiree’s identifiable assets and liabilities cannot be derived from active markets, the Jollibee Group determined the fair values using internal valuation techniques and generally accepted valuation approaches. The inputs to these valuation approaches are taken from historical experience and observable markets where possible, but where this is not feasible, estimates are used in establishing fair values. The estimates may include discount rates and assumptions used in cash flow projections.
In 2012, the fair values of the identifiable net assets acquired from San Pin Wang amounted to P=46.4 million (see Note 11).
In 2011, the fair values of the identifiable net assets acquired from Mang Inasal, BK Group, Chowking US Operations and Chow Fun amounted to P=1,707.1 millions, P=111.5 million, P=276.1 million and P=17.2 million, respectively (see Note 11).
Impairment of Property, Plant and Equipment and Investment Properties. The Jollibee Group performs impairment review of property, plant and equipment and investment properties when certain impairment indicators are present. Determining the fair value of assets, which requires the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Jollibee Group to make estimates and assumptions that can materially affect the consolidated financial statements. Future events could cause the Jollibee Group to conclude that the assets are impaired. Any resulting impairment loss could have a material adverse impact on the Jollibee Group’s financial position and performance.
Provision for impairment loss amounted to P=50.7 million and nil in 2012 and 2011, respectively. The aggregate carrying values of property, plant and equipment and investment properties amounted to P=11,813.5 million and P=11,352.8 million as of December 31, 2012 and 2011, respectively (see Notes 12 and 13).
Realizability of Deferred Tax Assets. The carrying amounts of deferred tax assets at each reporting date is reviewed and reduced to the extent that there are no longer sufficient taxable profits available to allow all or part of the deferred tax assets to be utilized. The Jollibee Group’s assessment on the recognition of deferred tax assets on deductible temporary differences and carryforward benefits of excess of MCIT over RCIT and NOLCO is based on the forecasted taxable income. This forecast is based on past results and future expectations on revenue and expenses.
The carrying amount of deferred tax assets amounted to P=1,030.2 million and P=967.6 million as of December 31, 2012 and 2011, respectively (see Note 24).
Present Value of Defined Benefit Obligation. The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions include, among others, discount rate, expected rate of return on plan assets and rate of salary increase. Actual results that differ from the Jollibee Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.
The assumption on the expected return on plan assets is determined on a uniform basis, taking into consideration the long-term historical returns, asset allocation and future estimates of long-term investment returns.
The Jollibee Group determines the appropriate discount rate at the end of each year. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Jollibee
- 31 -
*SGVMG200087*
Group considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
Other key assumptions for pension obligations are based in part on current market conditions.
While Jollibee Group’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect pension and other pension obligations.
The carrying amount of pension liability amounted to P=288.4 million and P=278.7 million as of December 31, 2012 and 2011, respectively. Unrecognized net actuarial gains (losses) amounted to P=206.6 million and (P=293.8 million) as of December 31, 2012 and 2011, respectively (see Note 25).
Share-based Payments. The Parent Company measures the cost of its equity-settled transactions with management and employees by reference to the fair value of the equity instruments at the grant date. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. The estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about these inputs. The fair value of the share option is being determined using the Black-Scholes Option Pricing Model. The expected life of the stock options is based on the expected exercise behavior of the stock option holders and is not necessarily indicative of the exercise patterns that may occur. The volatility is based on the average historical price volatility which may be different from the expected volatility of the shares of the Parent Company.
Total expense arising from share-based payment recognized by the Jollibee Group amounted to P=77.0 million, P=73.6 million and P=65.7 million in 2012, 2011 and 2010, respectively (see Notes 22 and 26).
Fair Value of Financial Assets and Liabilities. The Jollibee Group carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgments. The significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates). The amount of changes in fair value would differ if different valuation methodologies and assumptions are utilized. Any changes in the fair value of these financial assets and liabilities would directly affect profit or loss and other comprehensive income.
The fair value of financial assets and liabilities are discussed in Note 31.
Contingent Consideration or Earn-out. The Jollibee Group has an existing joint venture agreement with contingent consideration or earn-out provisions. This requires the estimation of payout associated with the probability-weighted discounted cash flow model, taking into consideration the specific conditions outlined in the purchase agreement that must be met to satisfy the contingency. Based on management’s assessment, there was no additional consideration to be recognized as of December 31, 2012 and 2011 (see Note 11)
Provisions. The Jollibee Group recognizes a provision for an obligation resulting from a past event when it has assessed that it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. These assessments are made based on available evidence, including the opinion of experts. Future events and developments
- 32 -
*SGVMG200087*
may result in changes in these assessments which may impact the financial condition and results of operations.
There were no additional provisions recorded in 2012 and 2011. Total outstanding provisions for legal claims and restructuring costs amounted to P=30.5 million as of December 31, 2012 and 2011 (see Note 17).
Contingencies. The Jollibee Group is currently involved in litigations, claims and disputes which are normal to its business. The estimate of the probable costs for the resolution of these claims has been developed in consultation with the Jollibee Group’s legal counsels and based upon an analysis of potential results. Except for those legal claims provided under Note 17, management believes that the ultimate liability, if any, with respect to the other litigations, claims and disputes will not materially affect the financial position and performance of the Jollibee Group. 5. Segment Information
For management purposes, the Jollibee Group is organized into segments based on the nature of the products and services offered and geographical locations. The Executive Management Committee monitors the operating results of its segments separately for resource allocation and performance assessment. Segment results are evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements.
Business Segments The Jollibee Group’s operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.
§ The food service segment is involved in the operations of QSR and the manufacture of food products to be sold to Jollibee Group-owned and franchised QSR outlets.
§ The franchising segment is involved in the franchising of the Jollibee Group’s QSR store concepts.
§ The leasing segment leases store sites mainly to the Jollibee Group’s independent franchisees.
The following tables present certain information on revenue, expenses, assets and liabilities and other segment information of the different business segments as of December 31, 2012 and 2011 and for each of the three years in the period ended December 31, 2012:
2012 Food Service Franchising Leasing Eliminations Consolidated
(In Thousands)
Revenue from external customers P=67,751,942 P=3,143,620 P=163,477 P=– P=71,059,039 Inter-segment revenue 21,173,546 559,947 1,889,953 (23,623,446) – Segment revenue 88,925,488 3,703,567 2,053,430 (23,623,446) 71,059,039 Segment expenses (87,601,981) (559,947) (2,120,384) 23,623,446 (66,658,866) Impairment losses on property, plant and equipment, investment properties and security deposits (53,677) – – – (53,677) Equity in net earnings (loss) of joint ventures and an associate (50,954) – – – (50,954) Other segment income 488,029 – 15,506 – 503,535 Segment result P=1,706,905 P=3,143,620 (P=51,448) P=– 4,799,077 2012
- 33 -
*SGVMG200087*
Food Service Franchising Leasing Eliminations Consolidated Interest income 270,114 Interest expense (206,013) Income before income tax 4,863,178 Provision for income tax (1,150,115) Net income P=3,713,063
Assets and Liabilities Segment assets P=40,516,074 P=– P=444,490 P=– P=40,960,564 Deferred tax assets 1,011,965 – 18,283 – 1,030,248 Consolidated assets P=41,528,039 P=– P=462,773 P=– P=41,990,812
Segment liabilities 13,677,760 P=– P=123,023 P=– P=13,800,783 Deferred tax liabilities 786,811 – 3,465 – 790,276 Long-term debt - including
current portion 5,427,456 – – – 5,427,456 Income tax payable 77,361 – 1,597 – 78,958 Consolidated liabilities P=19,969,388 P=– P=128,085 P=– P=20,097,473
Other Segment Information Capital expenditures P=3,755,907 P=– P=– P=– P=3,755,907 Depreciation and amortization 2,700,694 – 4,942 – 2,705,636 2011 Food Service Franchising Leasing Eliminations Consolidated
(In Thousands)
Revenue from external customers P=59,513,806 P=2,893,497 P=147,624 P=– P=62,554,927 Inter-segment revenue 8,331,488 448,801 1,000,582 (9,780,871) – Segment revenue 67,845,294 3,342,298 1,148,206 (9,780,871) 62,554,927 Segment expenses (66,763,505) (448,801) (1,221,356) 9,780,871 (58,652,791) Equity in net earnings (loss) of a joint venture 299 – – – 299 Other segment income 557,656 – 9,159 – 566,815 Segment result P=1,639,744 P=2,893,497 (P=63,991) P=– 4,469,250 Interest income 179,763 Interest expense (291,343) Income before income tax 4,357,670 Provision for income tax (1,103,867) Net income P=3,253,803
Assets and Liabilities Segment assets P=37,533,050 P=– P=381,083 P=– P=37,914,133 Deferred tax assets 947,884 – 19,730 – 967,614 Consolidated assets P=38,480,934 P=– P=400,813 P=– P=38,881,747
Segment liabilities P=13,012,672 P=– (P=10,912) P=– P=13,001,760 Deferred tax liabilities 778,428 – 4,345 – 782,773 Long-term debt - including
current portion 4,720,044 – – – 4,720,044 Income tax payable 153,606 – 1,111 – 154,717 Consolidated liabilities P=18,664,750 P=– (P=5,456) P=– P=18,659,294
Other Segment Information Capital expenditures P=3,708,461 P=– P=– P=– P=3,708,461 Depreciation and amortization 2,393,467 – 8,127 – 2,401,594
2010 Food Service Franchising Leasing Eliminations Consolidated
(In Thousands)
Revenue from external customers P=50,726,553 P=2,478,141 P=167,031 P=– P=53,371,725 Inter-segment revenue 14,670,445 519,205 957,085 (16,146,735) – Segment revenue 65,396,998 2,997,346 1,124,116 (16,146,735) 53,371,725 Segment expenses (64,262,293) (519,205) (1,139,808) 16,146,735 (49,774,571) Equity in net earnings (loss) of a joint venture (2,181) – – – (2,181) Other segment income 619,128 – 1,951 – 621,079 Segment result P=1,751,652 P=2,478,141 (P=13,741) P=– 4,216,052
- 34 -
*SGVMG200087*
2010 Food Service Franchising Leasing Eliminations Consolidated Interest income P=163,081 Interest expense (193,201) Income before income tax 4,185,932 Provision for income tax (973,396) Net income P=3,212,536
Assets and Liabilities Segment assets P=32,461,107 P=– P=364,761 P=– P=32,825,868 Deferred tax assets 878,654 – 41,485 – 920,139 Consolidated assets P=33,339,761 P=– P=406,246 P=– P=33,746,007
Segment liabilities P=12,566,756 P=– P=168,961 P=– P=12,735,717 Deferred tax liabilities 760,320 – 8,061 – 768,381 Long-term debt - including
current portion 2,392,714 – – – 2,392,714 Income tax payable 166,154 – 1,598 – 167,752 Consolidated liabilities P=15,885,944 P=– P=178,620 P=– P=16,064,564
Other Segment Information Capital expenditures P=2,584,111 P=– P=– P=– P=2,584,111 Depreciation and amortization 1,972,717 – 5,289 – 1,978,006
Geographical Segments The Jollibee Group’s geographical segments are based on the location of the assets producing revenues in the Philippines and in other locations (which includes PRC and the U.S.). Sales to external customers disclosed in the geographical segments are based on the geographical location of the customers.
Majority of the Jollibee Group’s revenues were generated from the Philippines, which is the Jollibee Group’s country of domicile.
The Jollibee Group does not have a single external customer which revenue amounts to 10% or more of the Jollibee Group’s revenues.
The following table presents revenues, segment assets and capital expenditures of the Jollibee Group’s geographical segments:
Philippines International Eliminations Consolidated (In Thousands)
2012 Revenues P=55,680,452 P=15,668,586 (P=289,999) P=71,059,039 Segment assets 26,317,863 14,642,701 – 40,960,564 Capital expenditures 2,250,655 1,505,252 – 3,755,907
2011 Revenues 50,235,281 12,475,708 (156,062) 62,554,927 Segment assets 24,440,521 13,473,612 – 37,914,133 Capital expenditures 2,263,819 1,444,642 – 3,708,461
2010 Revenues 43,525,283 9,956,400 (109,958) 53,371,725 Segment assets 23,510,189 9,315,678 – 32,825,867 Capital expenditures 1,584,893 999,218 – 2,584,111
- 35 -
*SGVMG200087*
6. Cash and Cash Equivalents
This account consists of:
2012 2011 Cash on hand P=194,069,517 P=169,886,592 Cash in banks 3,289,593,582 2,315,131,475 Short-term deposits 5,364,928,485 4,170,294,808 P=8,848,591,584 P=6,655,312,875
Cash in banks earn interest at the respective savings or special demand deposit rates.
Short-term deposits are made for varying periods of up to three months depending on the immediate cash requirements of the Jollibee Group, and earn interest at the respective short-term deposit rates.
Interest income earned from cash in banks and short-term deposits amounted to P=159.9 million, P=101.1 million and P=138.1 million in 2012, 2011 and 2010, respectively (see Note 23).
7. Receivables
This account consists of:
2012 2011 Trade P=2,714,763,623 P=2,250,407,136 Less allowance for impairment loss 260,138,120 164,744,992 2,454,625,503 2,085,662,144 Receivable from retirement fund 130,494,012 137,745,214 Advances to employees 95,502,388 100,368,090 Current portion of employee car plan receivables 50,300,588 43,901,365 Others 19,419,000 20,940,239 P=2,750,341,491 P=2,388,617,052
Trade receivables are noninterest-bearing and are generally on a 30-60 days term.
Receivable from retirement fund represents retirement benefits advanced by the Jollibee Group to employees which are expected to be collected from the retirement fund within the next financial year.
Advances to employees, current portion of employee car plan receivables and other receivables are expected to be collected within the next financial year.
- 36 -
*SGVMG200087*
The movements in the allowance for impairment loss for trade receivables as of December 31 are as follows:
2012 2011 Balance at beginning of year P=164,744,992 P=136,082,073 Provisions (Note 22) 98,068,162 35,354,094 Recovery (Note 22) (508,671) (1,711,028) Write-offs (1,113,709) (5,000,000) Translation adjustments (1,052,654) 19,853 Balance at end of year P=260,138,120 P=164,744,992
The provisions in 2012 and 2011 resulted from specific and collective impairment assessments performed by the Jollibee Group.
8. Inventories
This account consists of:
2012 2011 At cost: Food supplies and processed inventories P=2,498,077,691 P=2,659,794,971 Packaging, store and other supplies 118,104,894 176,813,937 2,616,182,585 2,836,608,908 At net realizable value - Novelty items 13,560,892 23,494,371 Total inventories at lower of cost and net
realizable value P=2,629,743,477 P=2,860,103,279
The cost of novelty items carried at net realizable value amounted to P=20.8 million and P=46.2 million as of December 31, 2012 and 2011, respectively.
The movements in the allowance for inventory obsolescence as of December 31 are as follows:
2012 2011 Balance at beginning of year P=22,731,966 P=86,644,301 Provisions (Note 22) 2,154,527 19,476,323 Reversals (Note 22) (13,316,722) (13,378,752) Write-offs (4,370,891) (70,009,906) Balance at end of year P=7,198,880 P=22,731,966
- 37 -
*SGVMG200087*
9. Other Current Assets
This account consists of:
2012 2011 Deposits to suppliers and others P=567,340,190 P=653,903,361 Prepaid expenses: Rent 421,171,321 364,942,365 Taxes 184,878,704 112,741,258 Insurance and other prepayments 145,314,639 170,509,345 Supplies 75,820,509 52,818,366 P=1,394,525,363 P=1,354,914,695
Deposits to suppliers and others are generally applied to purchase of inventories and availment of services within the next financial year.
Prepaid expenses and supplies are charged to operations in the next financial year as the related expenses are incurred.
10. Available-for-Sale Financial Assets
This account consists of unquoted investments in shares of public utility companies amounting to P=128.1 million and P=120.6 million as of December 31, 2012 and 2011, respectively.
The movements on the carrying value of AFS financial assets are as follows:
2012 2011 Balance at beginning of year P=120,649,438 P=176,283,046 Additions 7,500,000 – Reclassification – (50,866,500) Fair value changes – (4,537,748) Write-offs – (229,360) Balance at end of year P=128,149,438 P=120,649,438
As of December 31, 2012 and 2011, there is no change in the unrealized gain on AFS financial assets amounting to P=102.6 million.
Reclassification out of AFS in 2011 pertains to previously held equity interest in Chow Fun Holdings which was increased to 80.55% ownership (see Note 11).
- 38 -
*SGVMG200087*
11. Business Combinations, Incorporation of New Subsidiaries, and Interests in and Advances to Joint Ventures, Co-venturers and Associate
Acquisition in 2012
Business Combination through Acquisition of Equity Shares
San Pin Wang. On March 9, 2012, the Jollibee Group, through JWPL, completed its acquisition of 55% of Guangxi San Pin Wang Food and Beverage Management Company Limited (“San Pin Wang”) which operates the San Pin Wang beef noodle business in South China for a total acquisition cost of RMB30 million (P=195.9 million). The Jollibee Group paid RMB20 million (P=135.1 million) as of December 31, 2012. The remaining RMB10 million (P=67.6 million) was paid in March 2013. The remaining 45% is held by Guangxi Zong Kai Food Beverage Investment Company Limited (“GZK”).
Subsuequent to the acquisition date, the Jollibee Group and GZK contributed additional investments amounting to P=74.6 million and P=59.3 million, respectively.
The primary reason for the acquisition of San Pin Wang is to expand the Jollibee Group’s chain of QSRs and to serve high-quality but affordable noodles to urban areas in China.
The fair values of the identifiable assets acquired and liabilities assumed as at the date of acquisition were as follows:
Cash and cash equivalents P=7,525,090 Receivables 2,894,103 Inventories 13,041,495 Other current assets 31,336,869 Property, plant and equipment (see Note 12) 71,613,166 Other noncurrent assets 13,891,399 Total identifiable assets acquired 140,302,122 Less: Trade payables and other current liabilities 93,867,653 Net identifiable assets acquired P=46,434,469
Goodwill acquired in the business combination was determined as follows:
Fair value of consideration transferred: Cash P=135,110,309 Liability 60,826,786 Total 195,937,095 Non-controlling interests’ share in the net assets acquired 20,895,511 Aggregate amount 216,832,606 Less acquisition - date fair value of net assets acquired 46,434,469 Goodwill (Note 14) P=170,398,137
Goodwill pertains to the value of expected synergy arising from the business combination.
The fair value of acquired receivables approximates their carrying value. No impairment loss was provided on these receivables.
- 39 -
*SGVMG200087*
The net cash outflow on the acquisition is as follows:
Cash paid on acquisition P=135,110,309 Less cash acquired from subsidiary 7,525,090 P=127,585,219
San Pin Wang contributed P=709.6 million and P=6.5 million from the date of acquisition to December 31, 2012 to the consolidated revenue and net income for the period, respectively. If the business combination had taken place at the beginning of 2012, consolidated revenue and net income for the year would have been P=71,212.6 million and P=3,712.2 million, respectively.
Acquisitions prior to 2012
Business Combination through Acquisition of Equity Shares
Burger King. On September 30, 2011, the Jollibee Group, through its Parent Company, acquired a majority ownership of the firm that operates Burger King in the Philippines. The Parent Company invested P=65.5 million to purchase 54% equity interest in BK Titans, Inc., owner of PERF Restaurants, Inc. (or collectively the BK Group), the sole franchisee of the Burger King Brand in the Philippines.
The Jollibee Group’s primary reason for the business combination is to gain presence in the premium price segment of the hamburger category in the fast food market.
Mang Inasal. On November 22, 2010, the Jollibee Group, through its Parent Company, acquired 70% of the issued and outstanding shares of Mang Inasal from Injap Investments, Inc. (the seller), owner and operator of Mang Inasal restaurant business in the Philippines, for a total acquisition cost of P=2,976.2 million. The Jollibee Group paid P=2,700.0 million as of December 31, 2010. The present value of the remaining 10% of the purchase price amounting to P=276.2 million is payable over a 3-year period until 2013. Such amount was withheld as assurance for indemnification against the seller’s representations and warranties. The first half of the remaining liability was paid in 2011 while the second installment was paid in 2012.
The Jollibee Group’s primary reason for the business combination is to grow Mang Inasal’s sales from existing stores through application of the Jollibee Group’s knowledge of consumers and available recipes and products, continued expansion of Mang Inasal’s store network, cost improvement on its raw materials and operational efficiency by applying the Jollibee Group’s technology and scale.
Mang Inasal contributed P=432.2 million and P=49.1 million from the date of acquisition to December 31, 2010 to the consolidated revenue and net income for the period, respectively. If the business combination had taken place at the beginning of 2010, consolidated revenue and net income for the year would have been P=55,751.2 million and P=3,392.4 million, respectively.
Business Combination through Purchase of Assets
Chowking US operations. On May 27, 2011, the Jollibee Group, through its wholly-owned subsidiary, TTC, entered into an Asset Purchase Agreement with Fortune Capital Corporation, owner and operator of all Chowking stores in the US as the master licensee therein, to purchase the latter’s property and equipment, inventories and security deposits of its twenty (20) existing stores. The purchase consideration amounted to P=693.3 million. The Jollibee Group paid
- 40 -
*SGVMG200087*
P=520.0 million of the total consideration as of December 31, 2011. The balance shall be paid over the next five (5) years.
In May 2012, P=33.7 million (US$0.8 million) of the outstanding balance was paid.
With this acquisition, the Jollibee Group will be poised to take a more active role to further the growth of the Chowking business in the USA.
Business Combination Achieved in Stages
Jinja Bar and Bistro. On March 31, 2011, the Jollibee Group, through its wholly-owned subsidiary, JWPL, acquired from Aspen Partners, LLC 2,400 shares of Chow Fun Holdings, LLC (“Chow Fun”) for US$3.2 million (P=139.6 million), bringing up its equity share in Chow Fun to 80.55%. The Jollibee Group (through JWPL) previously held 13.89% equity share in Chow Fun. Chow Fun is the developer and owner of Jinja Bar and Bistro in New Mexico, USA.
The carrying amount of the previously held equity interest in Chow Fun was presented as part of AFS financial assets in 2010. Prior to the business combination, the previously held equity interest was remeasured at the acquisition-date fair value resulting to a loss amounting to P=12.8 million which was recognized in the statements of comprehensive income under “General and administrative expenses” account in 2011 (see Note 22).
The Jollibee Group’s objective in this venture is to enhance its capability in developing Asian food restaurant concepts for the mainstream consumers in the United States as part of its long-term strategy.
The fair values of the identifiable assets acquired and liabilities assumed from Mang Inasal, BK Group, Chowking US Operations, and Chow Fun as at the dates of acquisitions were as follows:
Mang Inasal BK Group
Chowking US Operations
(As restated -Note 2) Chow Fun
Cash and cash equivalents P=132,213,023 P=17,071,231 P=– P=4,870,336 Receivables 113,733,554 5,951,921 – 331,325 Inventories 126,423,715 13,302,567 14,515,550 3,883,969 Other current assets 557,888 3,245,199 – 3,073,027 Property, plant and equipment* 263,083,640 222,303,494 262,106,940 105,912,607 Trademark 2,004,255,942 – – – Deferred tax assets – 3,323,559 – – Other noncurrent assets 26,086,618 50,269,948 6,322,410 – Total identifiable assets acquired 2,666,354,380 315,467,919 282,944,900 118,071,264 Less: Trade payables and other
current liabilities P=271,381,354 P=168,691,196 P=– P=23,760,278 Long-term liabilities – – – 77,128,142 Income tax payable 59,145,715 1,102,058 – – Deferred tax liabilities 628,717,866 30,976,291 6,889,470 – Pension liability (Note 25) – 3,199,600 – – Total identifiable liabilities assumed 959,244,935 203,969,145 6,889,470 100,888,420 Net identifiable assets acquired P=1,707,109,445 P=111,498,774 P=276,055,430 P=17,182,844 * The carrying amount of Mang Inasal and BK Group’s property, plant and equipment amounted to
P=171.6 million and P=119.9 million at the date of acquisition.
- 41 -
*SGVMG200087*
Goodwill acquired in the business combinations was determined as follows:
Mang Inasal BK Group
Chowking US Operations
(As restated - Note 2)
Chow Fun
Fair value of consideration transferred:
Cash P=2,700,000,000 P=– P=519,960,000 P=139,644,000 Advances – 65,454,545 – – Liability 276,243,250 – 139,950,677 – Total 2,976,243,250 65,454,545 659,910,677 139,644,000 Non-controlling interests’ share in
the net assets acquired 512,132,834 51,289,436 – 3,340,345 Previously held equity interests
(13.89%) – – – 29,092,500 Aggregate amount 3,488,376,084 116,743,981 659,910,677 172,076,845 Less acquisition - date fair value
of net assets acquired 1,707,109,445 111,498,774 276,055,430 17,182,844 Goodwill P=1,781,266,639 P=5,245,207 P=383,855,247 P=154,894,001
Advances were made to the BK Group prior to its acquisition in 2011.
The net cash outflows on the acquisitions are as follows:
2011 2010 Cash paid Mang Inasal P=– P=2,700,000,000 BK Group – – Chowking US Operations 519,960,000 – Chow Fun 139,644,000 – 659,604,000 2,700,000,000 Less cash acquired from subsidiary Mang Inasal P=– P=132,213,023 BK Group 17,071,231 – Chowking US Operations – – Chow Fun 4,870,336 – 21,941,567 132,213,023 P=654,733,664 P=2,567,786,977
- 42 -
*SGVMG200087*
The BK Group, Chowking US Operations, and Chow Fun contributed P=719.4 million and P=23.6 million from the date of acquisition to December 31, 2011 to the consolidated revenue and net income for the period, respectively. If the business combinations had taken place at the beginning of 2011, consolidated revenue and net income for the year would have been P=63,170.9 million and P=3,262.1 million, respectively. The rollforward analysis of the liability for acquisition of businesses follows:
San Pin Wang
Chowking US Operations
(Note 2) Mang Inasal Hangzhou
Yonghe Total Balance at January 1, 2011 P=– P=– P=279,783,543 P=31,665,403 P=311,448,946 Accretion – – 11,953,746 – 11,953,746 Additions – 139,950,657 – – 139,950,657 Settlements – – (146,459,707) (31,665,403) (178,125,110) Acquisition price adjustment – – (3,540,293) – (3,540,293) Translation adjustments – 2,040,000 – – 2,040,000 Balance at December 31, 2011 – 141,990,657 141,737,289 – 283,727,946 Additions 60,826,786 – – 60,826,786 Accretion 5,391,461 10,298,401 5,554,978 – 21,244,840 Settlements – (33,696,000) (75,000,000) – (108,696,000) Translation adjustments (2,439,259) (8,835,568) – – (11,274,827) Balance at December 31, 2012 P=63,778,988 P=109,757,490 P=72,292,267 P=– P=245,828,745
Incorporation of New Subsidiaries Golden Beeworks Pte. Ltd. (Golden Beeworks). On May 16, 2012, the Jollibee Group, through GPPL, entered into an agreement to form Golden Beeworks together with Beeworks, Inc ("Beeworks”), to own and operate Jollibee stores in Singapore. Under the agreement, the parties will establish Golden Beeworks in Singapore which will be owned 60% by GPPL and 40% by Beeworks. GPPL will have full management control of the company, while leveraging on Beework’s experience, reputation and network to establish the “Jollibee” brand in Singapore. The initial funding for Golden Beeworks is US$1 million. Golden Beeworks was incorporated on July 19, 2012 but has not yet started its commercial operation as of December 31, 2012.
As of December 31, 2012, capital contributions of the Jollibee Group to Beeworks amounted to P=31.2 million.
JFPPL. On July 27, 2010, the Jollibee Group, through JWPL, signed an agreement with Hua Xia Harvest Holdings Pte. Ltd. (Hua Xia Harvest), a Singapore-based company, to undertake food manufacturing operations to supply products to food service businesses primarily to entities within the Jollibee Group. Under the terms of the agreement, the Jollibee Group and Hua Xia Harvest formed JFPPL in Singapore which is 70% owned by the Jollibee Group and 30% owned by Hua Xia Harvest. JFPPL started commercial operation in the last quarter of 2011.
Interests in and Advances to Joint Ventures, Co-venturers and Associate
2012 2011 Interests in and advances to SuperFoods joint
ventures and co-venturers P=2,891,167,600 P=– Interest in joint venture - Wowprime 98,040,000 – Interest in joint venture - Coffeetap – 3,188,515 2,989,207,600 3,188,515 Interest in an associate 22,293,981 – P=3,011,501,581 P=3,188,515
- 43 -
*SGVMG200087*
Wowprime. On August 22, 2012, the Jollibee Group, through JWPL and GPPL, entered into an agreement with Hoppime Ltd., a subsidiary of Wowprime Corporation of Taiwan (Wowprime) and some key executives of Wowprime, to establish a joint venture entity to own and operate the 12 Hotpot brand in the People’s Republic of China, Hong Kong and Macau. The “12 Hotpot” restaurant is known in Taiwan for its low-priced hot dishes.
The joint venture entity, incorporated as WJ Investments Limited (WJ), is 48% owned by the Jollibee Group and 48% by Wowprime’s subsidiary and executives. The remaining 4% is owned by certain individuals with experience in the retail sector in China. Through their subsidiaries, Jollibee Group and Wowprime will share equal control and management of WJ. The expected investment from Jollibee Group for the period 2012 to 2015 is equivalent to approximately US$8 million.
The Jollibee Group has invested US$2.4 million (P=98.0 million) as of December 31, 2012. No stores were opened in 2012.
SuperFoods Group. On January 20, 2012, upon fulfillment of certain legal and regulatory requirements in Vietnam, the Jollibee Group, through JWPL, acquired effective ownership of 50% share in the business of the SuperFoods Group through formation of joint ventures. This consists of a 49% share in SF Vung Tau Joint Stock Company, organized in Vietnam, and a 60% share in Blue Sky Holding Limited in Hongkong (the SuperFoods Holding Companies). The formation of joint ventures is an implementation of the Framework Agreement made on May 20, 2011 between the Jollibee Group, through JWPL and its partner, Viet Thai International Joint Stock Company and Viet Thai International Company limited (collectively, Superfoods Group). The Framework Agreement provided for the Jollibee Group to contribute a total of US$25 million to gain 50% effective ownership of the joint ventures. Loans and deposits were made to Superfoods Group and co-venturers prior to the formation of the joint ventures in 2012 (see Note 15).
Pursuant to the Framework Agreement, the preliminary consideration for the 50% share in Superfoods Group amounted to a cash payment of US$25 million in 2011.
The Supplemental Agreement further provides the following formula that might result in additional payment on the part of JWPL in 2016:
(a) The actual EBITDA results of Superfoods Group multiplied by specified multiples reduced by its net debt and multiplied by 30% weight recognized for the First Portion Measurement Period (January 1-December 31, 2012) and the actual EBITDA results of Superfoods Group multiplied by specified multiples reduced by its net debt and multiplied by 20% weight recognized for the Second Portion Measurement Period (for July 1, 2015 to June 30, 2016); the resulting amount of which will be compared with:
(b) The aggregate balance of ‘Interests in the joint ventures’ and ‘Advances to joint ventures and co-venturers’ and accrued interests as of June 30, 2016.
If the resulting amount of the above formula is positive (contingent consideration):
(i) The co-venturers shall sell its 1 share in JSF Investments to JWPL for a purchase price equal to the Loan to co-ventureres and accrued interests (the Outstanding Balance) and the proceeds shall be used by the co-venturers to repay the Loan; and
(ii) The contingent consideration is payable in cash to the co-venturers.
- 44 -
*SGVMG200087*
If the result of the above formula is negative (negative earnout): (i) The co-venturers shall still sell its 1 share in JSF Investments to JWPL at US$1.00; (ii) The co-venturers shall repay the loan if the consolidated EBITDA of the Superfoods
Holding Companies for the Second Portion Measurement Period is: a. above US$25.0 million, the Outstanding Balance shall be deemed paid; b. US$25.0 million or below, JSF Investments shall have the right to acquire such
number of shares in the Superfoods Holding Companies as would satisfy the repayment of the Outstanding Balances;
c. Negative as a result of which the Outstanding Balance cannot be fully satisfied even if JSF Investments acquires 100% of the co-venturers’ shares in Superfoods Holding Companies, the deficiency shall be paid to JSF Investments in cash. The co-venturers shall have a period of 6 months from the last day of the Second Portion Measurement Period within which to repay the Outstanding Balance in cash, before JSF Investments may exercise its option to be paid with shares of Superfoods Holding Companies. If JSF Investments exercises its option to be paid in shares of Superfoods Holding Companies, the co-venturers shall, within a 6 month period from JSF Investments’ exercise of its option, have the right to acquire additional equity in Superfoods Holding Companies to the extent required to restore the ownership interest of the co-venturers and JSF Investments to the proportion prior to exercise of the option; provided that the co-venturers’ acquisition of additional equity shall be at the same valuation applied to JSF Investments.
JWPL shall be required to pay the co-venturers an additional amount based upon achieving a positive amount resulting from the above formula. Based on management’s assessment using the above earn-out formula, no additional consideration needs to be recognized as of January 20, 2012 and as of December 31, 2012. The resulting amount is a negative earn-out, as a result of inputs for the Second Portion Measurement on EBITDA, computed using a probability-weighted discounted cash flow model.
Loans and deposits made to SuperFoods Group prior to its formation in 2012 was presented as advances to SuperFoods Group under “Other noncurrent asssets” in 2011 (see Note 15).
The details of Jollibee Group’s interests in SuperFoods joint venture and advances to co-venturers as of December 31, 2012 are as follows:
Interest in a joint venture - cost P=1,086,562,975 Equity in net loss for the year (72,463,639)
1,014,099,336
Advances to the joint ventures and co-venturer: Balance at beginning of year (Note 15) 2,903,505,390
Reclassification (Note 15) (1,086,562,975) Additions 105,179,193 Accrual of interest 84,322,262 Translation adjustments (129,375,606) Balance at end of year 1,877,068,264 P=2,891,167,600
- 45 -
*SGVMG200087*
The aggregate amounts as of December 31, 2012 related to the Jollibee Group’s 50% interest in SuperFoods Group follow:
Current assets P=364,076,454 Noncurrent assets 1,754,029,008 Total assets 2,118,105,462
Total liabilities 828,490,870
Income 1,443,108,084 Expenses (1,588,035,362) Net loss (P=144,927,278)
Coffeetap Corporation (Coffeetap). On May 4, 2010, the Jollibee Group, through its Parent Company, entered into a joint venture agreement with its partners to become the master franchisee in the Philippines of “Caffe Ti-Amo”, a Korean restaurant brand offering coffee and gelato (Italian ice cream) in a casual dining format. The joint venture entity, incorporated as Coffeetap Corporation, is 50%-owned by the Jollibee Group and 50%-owned by its partners, with an initial capitalization of P=10.0 million.
On November 30, 2011, Coffeetap sold its assets to CaféFrance Corporation with cash proceeds of P=20.8 million. The Company also terminated its franchise agreement with Caffe Ti-Amo Korea on the same date. The dissolution plans for Coffeetap has been formally approved by the BOD on June 26, 2012. As at June 30, 2012, the Company distributed the original capital to its stockholders, net of deficit, amounting to P=4.7 million.
Accordingly, the Company has changed its basis of accounting from the going concern basis to the liquidation basis whereby as at June 30, 2012 and December 31, 2011 assets are presented at estimated realizable values and all liabilities at estimated settlement amounts.
Interest in an Associate
The Jollibee Group, through JIBL, has 33% ownership over Entrek (B) SDN BHD (Entrek), a company that operates Jollibee stores in Brunei. As of December 31, 2011, the Jollibee Group’s investment in Entrek is carried at nil due to its equity share in the previous losses of Entrek. As of and for the period ended December 31, 2012, the Jollibee Group recognized its investment in the associate and equity in net earnings amounting to P=22.3 million coming from Entrek’s improved operations.
The details of the Jollibee Group’s interest in an associate as of December 31, 2012 and 2011 are as follows:
2012 2011 Interests in an associate - cost P=16,660,000 P=16,660,000 Cumulative equity in net loss: Balance at beginning of year (16,660,000) (16,660,000) Equity in net earnings during the year 22,293,981 – Balance at end of year 5,633,981 – P=22,293,981 P=–
- 46 -
*SGVMG200087*
Cessation of Operations of Manong Pepe Karinderia On April 9, 2011, the Jollibee Group, through its wholly-owned subsidiary, Fresh N’ Famous, discontinued the operations of its Manong Pepe Karinderia business unit. The move is part of the Jollibee Group’s plan to concentrate resources in building larger QSR businesses. The cessation of operation of Manong Pepe Karinderia did not have a material impact on the Jollibee Group’s consolidated financial statements.
Sale of Delifrance Business Unit’s Assets Fresh N’ Famous terminated its franchise agreement with Delifrance Asia Limited effective December 31, 2010. Assets of Delifrance Business Unit were sold to CaféFrance Corporation on December 31, 2010 with cash proceeds of P=110.3 million. The termination of the franchise agreement is part of the management’s intention to concentrate its resources in building larger QSR businesses.
12. Property, Plant and Equipment
The rollforward analysis of property, plant and equipment are as follows:
2012
Land and Land
Improvements
Plant,Buildings,
CondominiumUnits and
Improvements
Leasehold Rights and
Improvements
Office, Store and Food
Processing Equipment
Furniture and Fixtures
Transportation
Equipment Construction
in Progress Total
(In Thousands) Cost Balance at beginning of year P=679,254 P=966,833 P=11,203,440 P=9,210,906 P=877,229 P=404,697 P=672,799 P=24,015,158 Additions 2,000 760,670 1,343,646 1,106,655 97,220 38,084 407,632 3,755,907 Arising from business combination (Note 11) – 2,906 39,122 41,801 5,833 1,742 2,275 93,679 Retirements and disposals – (38,316) (1,069,962) (445,367) (43,004) (38,025) (12,377) (1,647,051)Reclassifications (Note 13) (15,773) (7,304) 395,729 360,364 (1,969) (41,087) (713,556) (23,596) Translation adjustments (3,687) (6,128) (228,055) (84,222) (11,442) (3,436) (64,019) (400,989)Balance at end of year 661,794 1,678,661 11,683,920 10,190,137 923,867 361,975 292,754 25,793,108 Accumulated Depreciation and Amortization Balance at beginning of year 7,220 699,836 5,566,671 6,330,640 583,019 247,405 – 13,434,791 Depreciation and amortization (Notes 21 and 22) 143 48,535 1,369,815 1,105,570 123,007 45,344 – 2,692,414 Arising from business combination (Note 11) – 277 6,960 12,684 1,510 634 – 22,065 Retirements and disposals – (10,434) (864,279) (347,909) (36,303) (29,869) – (1,288,794)Reclassifications (177) (65,043) 78,511 (3,767) (1,222) (8,302) – – Translation adjustments – (4,637) (93,265) (51,425) (4,465) (2,540) – (156,332)Balance at end of year 7,186 668,534 6,064,413 7,045,793 665,546 252,672 – 14,704,144 Accumulated Impairment Losses Balance at beginning of year – – – – – – – – Impairment loss during the year (Note 22) – – – 29,500 – – – 29,500 Balance at end of year – – – 29,500 – – – 29,500 Net Book Value P=654,608 P=1,010,127 P=5,619,507 P=3,114,844 P=258,321 P=109,303 P=292,754 P=11,059,464
2011 (As restated - Note 2)
Land and Land
Improvements
Plant,Buildings,
CondominiumUnits and
Improvements
Leasehold Rights and
Improvements
Office, Store and Food
Processing Equipment
Furniture and Fixtures
Transportation Equipment
Construction in Progress Total
(In Thousands) Cost Balance at beginning of year P=657,165 P=996,048 P=9,126,262 P=8,604,349 P=611,650 P=364,786 P=205,466 P=20,565,726 Additions – 3,675 1,520,970 1,078,019 171,422 75,017 851,346 3,700,449 Arising from business combination (Note 11) 21,826 – 571,204 334,979 158,214 6,018 7,234 1,099,475 Retirements and disposals (278) (36,698) (433,903) (873,487) (69,066) (42,364) (7,185) (1,462,981) Reclassifications (Note 13) 541 2,359 337,400 44,583 6,017 (18) (386,678) 4,204 Translation adjustments – 1,449 81,507 22,463 (1,008) 1,258 2,616 108,285 Balance at end of year 679,254 966,833 11,203,440 9,210,906 877,229 404,697 672,799 24,015,158 Accumulated Depreciation and Amortization Balance at beginning of year 6,674 680,629 4,568,886 5,843,478 456,008 239,532 – 11,795,207 Depreciation and amortization (Notes 21 and 22) 820 42,698 1,162,513 1,032,343 106,122 42,821 – 2,387,317 Arising from business combination (Note 11) – – 92,995 244,748 74,495 5,443 – 417,681 Retirements and disposals (274) (23,627) (295,297) (801,120) (53,213) (41,178) – (1,214,709) Translation adjustments – 136 37,574 11,191 (393) 787 – 49,295 Balance at end of year 7,220 699,836 5,566,671 6,330,640 583,019 247,405 – 13,434,791 Net Book Value P=672,034 P=266,997 P=5,636,769 P=2,880,266 P=294,210 P=157,292 P=672,799 P=10,580,367
- 47 -
*SGVMG200087*
The cost of fully depreciated property, plant and equipment still in use amounted to P=5,809.3 million as of December 31, 2012 and 2011, respectively.
Loss on disposals and retirements of property, plant and equipment amounted to P=317.1 million, P=216.3 million and P=183.8 million in 2012, 2011, and 2010, respectively.
Construction in progress account mainly pertains to costs incurred for ongoing construction of plant, properties and soon-to-open stores.
13. Investment Properties
The rollforward analysis of this account follows: 2012
Land
Buildings and Building
Improvements Total (In Thousands) Cost Balance at beginning of year P=692,858 P=333,654 P=1,026,512 Additions – – – Retirements and disposals (1,999) (4,264) (6,263) Translation adjustments – (6,304) (6,304) Reclassifications (Note 12) 23,596 – 23,596 Balance at end of year 714,455 323,086 1,037,541 Accumulated Depreciation and
Amortization Balance at beginning of year – 228,773 228,773 Depreciation (Notes 21 and 22) – 13,212 13,212 Retirements and disposals – (4,121) (4,121) Translation adjustments – (783) (783) Reclassifications (Note 12) – – – Balance at end of year – 237,081 237,081 Accumulated Impairment Losses Balance at beginning and end of year 25,270 – 25,270 Additions (Note 22) 21,177 – 21,177 Balance at end of year 46,447 – 46,447 Net Book Value P=668,008 P=86,005 P=754,013
2011
Land
Buildings and Building
Improvements Total (In Thousands) Cost Balance at beginning of year P=684,853 P=331,959 P=1,016,812 Additions 8,005 6 8,011 Translation adjustments – 5,893 5,893 Reclassifications (Note 12) – (4,204) (4,204) Balance at end of year 692,858 333,654 1,026,512 Accumulated Depreciation and
Amortization Balance at beginning of year P=– P=213,822 P=213,822 Depreciation (Notes 21 and 22) – 14,277 14,277 Translation adjustments – 674 674 Balance at end of year – 228,773 228,773 Accumulated Impairment Losses Balance at beginning and end of year 25,270 – 25,270 Net Book Value P=667,588 P=104,881 P=772,469
- 48 -
*SGVMG200087*
The accumulated impairment loss provided in the value of land amounting to P=46.4 million and P=25.3 million as of December 31, 2012 and 2011 respectively, represents the excess of the carrying values over the estimated recoverable amounts of non-income-generating investment properties, which is its estimated fair value less costs to sell.
The cost of fully depreciated buildings still being leased out by the Jollibee Group amounted to P=202.0 million as of December 31, 2012 and 2011.
The Jollibee Group’s investment properties have aggregate fair values P=1,334.2 million as determined by independent appraisers in 2011. The management does not expect a significant change in the fair value in 2012.
In determining the fair value of the investment properties, the independent appraisers used the market data approach which considered the local market conditions, the extent, character and utility of the property, sales and holding prices of similar parcels of land and the highest and best use of the investment properties. The fair value represents the amount at which the assets can be exchanged between a knowledgeable, willing seller and a knowledgeable, willing buyer in an arm’s-length transaction at the date of valuation in accordance with International Valuation Standards.
Rent income derived from income-generating properties amounted to P=32.0 million, P=56.8 million and P=63.5 million in 2012, 2011 and 2010, respectively (see Notes 20 and 29).
Direct operating costs relating to the investment properties that generated rent income recognized under “Cost of sales” and “General and administrative expenses” account in the statements of comprehensive income amounted to P=21.5 million, P=26.5 million and P=17.3 million in 2012, 2011 and 2010, respectively.
No investment properties as at December 31, 2012 and 2011 have been pledged as security or collateral for the Company’s debts (see Note 18).
14. Goodwill and Other Intangible Asset
This account consists of goodwill and trademark acquired through business combinations related to the following food restaurants:
2012
2011 (As restated -
Note 2) Goodwill: Hong Zhuang Yuan P=2,497,252,906 P=2,497,252,906 Mang Inasal (see Note 11) 1,781,266,639 1,781,266,639 Red Ribbon Bakeshop: Philippine operations 737,939,101 737,939,101 US operations 434,651,055 434,651,055 Yong He King: Yong He King 429,016,109 429,016,109 Hangzhou Yonghe 106,264,544 106,264,544 Chowking US operations (see Note 11) 383,855,247 383,855,247 San Pin Wang (see Note 11) 170,398,137 – (Forward)
- 49 -
*SGVMG200087*
2012
2011 (As restated -
Note 2) Jinja Bar & Bistro (see Note 11) P=154,894,001 P=154,894,001 Burger King Group (see Note 11) 5,245,207 5,245,207 Total goodwill 6,700,782,946 6,530,384,809 Trademark - Mang Inasal (see Note 11) 2,004,255,942 2,004,255,942 Goodwill and other intangible asset P=8,705,038,888 P=8,534,640,751
The rollforward analysis of goodwill follows:
2012
2011 (As restated -
Note 2) Balance at beginning of year P=6,530,384,809 P=5,986,390,354 Additions 170,398,137 543,994,455 Balance at end of year P=6,700,782,946 P=6,530,384,809
Impairment Testing of Goodwill and Other Intangible Asset Goodwill acquired through business combinations have been allocated to nine (9) CGUs, which are subsidiaries of the Parent Company, owned directly or indirectly. The recoverable amounts of the CGUs have been determined based on value in use calculations using cash flow projections from financial budgets approved by senior management covering a five-year period.
The calculation of value in use is most sensitive to the following assumptions which vary per geographical location:
CGUs Geographical
Location Pre-tax
Discount Rate Long-term
Growth Rate Hong Zhuang Yuan PRC 12.02% 8.5% Mang Inasal Philippines 12.84% 5.0% Red Ribbon Bakeshop: Philippine operations Philippines 13.28% 5.0% US operations USA 13.48% 3.0% Yong He King PRC 12.02% 8.5% Chowking US operations USA 12.50% 3.0% Jinja Bar & Bistro USA 12.50% 3.0% Burger King Philippines 12.88% 5.0% San Pin Wang PRC 12.36% 8.5%
Key assumptions with respect to the calculation of value in use of the cash-generating units as of December 31, 2012 and 2011 on which management had based its cash flow projection to undertake impairment testing of goodwill are as follows:
a) Discount rates - discount rates represent the current market assessment of the risks specific to each CGU, regarding the time value of money and individual risks of the underlying assets which have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Jollibee Group and its CGUs and derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived using the Capital Asset Pricing Model (CAPM). The cost of debt is based on the interest bearing borrowings the Jollibee Group is obliged to
- 50 -
*SGVMG200087*
service. CGU-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data.
b) Long-term growth rates - rates are determined with consideration of historical and projected results, as well as the economic environment in which the CGUs operate.
c) Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin - is based on the most recent value achieved in the year preceding the start of the budget period, and adjusted for planned efficiency improvement, if any.
No impairment loss was recognized for each of the three years in 2012, 2011 and 2010. 15. Other Noncurrent Assets
This account consists of:
2012 2011 Security and other deposits - net (Notes 30 and 31) P=1,161,089,780 P=1,069,719,992 Noncurrent portion of: Rent and other long-term prepayments 225,658,848 219,830,829 Employee car plan receivables
(Notes 30 and 31) 93,029,410 92,835,860 Deferred rent expense 68,937,730 63,566,673 Deferred compensation 13,866,716 15,598,069 Advances to SuperFoods Group (Note 11) – 2,903,505,390 Other assets 94,053,660 251,975,279 P=1,656,636,144 P=4,617,032,092
Advances to SuperFoods Group On May 20, 2011, the Parent Company, through JWPL, signed a Framework Agreement with Viet Thai International Joint Stock Company and Viet Thai International Company Limited (collectively “SuperFoods Group”) to establish jointly controlled entities that will own and operate a portfolio of restaurants in various territories including Vietnam, Hongkong, Macau and Southern China. SuperFoods Group owns and operates various brands including Highlands Coffee Shops and Hard Rock Café franchised-stores in Macau, Hong Kong and Vietnam and Pho 24 brand.
In accordance with the Framework Agreement, JWPL, through its 99%-owned subsidiary JSF, extended loans to the Superfoods Group with the details as follows:
Loan to co-venturers Loan to the owners of the SuperFoods Group amounting to US$35.0 million (P=1,436.8 million), extended on June 30, 2011, is payable in June 2016. The loan bears interest of 5% per annum payable in lump sum also in June 2016. The loan is agreed to be used for general corporate purposes. Total interest from this loan amounted to P=75.1 million and P=43.3 million in 2012 and 2011, respectively. The US$35 million loan is secured by a mortgage by the co-venturers of all their shares in SuperFoods Holding Companies.
- 51 -
*SGVMG200087*
Deposits for formation of joint ventures As of December 31, 2011, the formation of the joint ventures in Vietnam and Hong Kong are in process pending fulfillment of certain legal and regulatory requirements. JSF advanced a total amount of US$25.0 million (P=1,086.6 million) to gain 50% effective ownership of the joint ventures. Before the formation of the joint ventures, the deposits are treated as advances bearing interests of 5% per annum. Total interest from these deposits amounted to P=5.2 million. On January 20, 2012, the formation of these joint ventures was completed.
Loan to Blue Sky On June 10, 2011, a loan was extended to Blue Sky Holdings Limited (Blue Sky), the Hong Kong-based joint venture, amounting to US$5.0 million (P=219.2 million) payable in June 2013. The loan bears interest of 5% per annum payable also in June 2013. Total interest from this loan amounted to P=10.7 million and P=6.0 million for the years ended December 31, 2012 and 2011, respectively.
On May 7, 2012, an additional loan was extended to Blue Sky amounting to US$2.5 million (P=102.6 million) payable in May 2013. The loan bears interest of 5% per annum payable also in May 2013. Total interest from this loan amounted to P=3.5 million for the year ended December 31, 2012.
The carrying amount of these loans, deposits and advances, including accrued interests were reclassified to “Interests in and advances to joint ventures, co-venturers and associate” account in 2012.
Security and Other Deposits Security and other deposits represent deposits for operating leases entered into by the Jollibee Group as lessee, including returnable containers and other deposits. The security deposits are recoverable from the lessors at the end of the lease term. These are presented at amortized cost. The discount rates used range from 2% to 22% in 2012 and 2011. The difference between the fair value at initial recognition and the notional amount of the security deposits is charged to “Deferred rent expense” account and amortized on straight-line basis over the lease terms.
Accretion of interest on financial assets amounted to P=21.6 million, P=24.1 million and P=22.2 million in 2012, 2011 and 2010, respectively (see Note 23).
The allowance for impairment loss for security and other deposits amounted to P=3.0 million and nil as of December 31, 2012 and 2011, respectively (see Note 22).
- 52 -
*SGVMG200087*
16. Trade Payables and Other Current Liabilities
This account consists of:
2012 2011 Trade P=4,717,064,438 P=4,727,839,645 Accruals for: Local and other taxes 1,534,231,068 1,218,775,444 Salaries, wages and employee benefits 1,304,409,208 994,079,595 Advertising and promotions 741,335,875 583,427,974 Rent 456,127,663 375,760,995 Utilities 340,883,386 205,784,551 Freight 169,388,956 112,605,492 Store operations, corporate events and others 1,440,107,859 1,336,924,567 Deposits 600,180,289 300,922,559 Unearned revenue from gift certificates 75,881,257 95,225,956 Dividends payable 26,173,052 6,563,034 Other current liabilities 347,283,001 207,685,057 P=11,753,066,052 P=10,165,594,869
Trade payables are noninterest-bearing and are normally settled on a 30-day term.
Accruals, deposits, dividends payable and other current liabilities are expected to be settled within the next financial year.
Unearned revenue from gift certificates will be recognized as revenue as the gift certificates are redeemed.
17. Provisions
The Jollibee Group has outstanding provisions amounting to P=30.5 million as of December 31, 2012 and 2011, consisting of provisions for legal claims and restructuring costs.
Provisions for legal claims which amounted to P=29.3 million include estimates of legal services, settlement amounts and other costs of claims made against the Jollibee Group. Other information on the claims are not disclosed as this may prejudice the Jollibee Group’s position on such claims. The Jollibee Group’s management, after consultation with its legal counsel, believes that the provisions are sufficient to meet the costs related to the claims.
The provision for restructuring costs amounting to P=1.2 million relates to the Jollibee Group’s Cost Improvement Program to improve the quality of services and reduce the costs of backroom operations for its various QSR systems.
- 53 -
*SGVMG200087*
18. Short-term and Long-term Debts
Short-term Debt Short-term debt as of December 31, 2011 consists of unsecured short-term bank loan of the Parent Company with an interest rate of 2.63%. This loan was paid in full, including accrued interest, on April 17, 2012.
Short-term debt amounted to nil and P=900.0 million as of December 31, 2012 and 2011, respectively. Interest expense recognized on short-term debt amounted to P=14.8 million, P=78.9 million and P=9.5 million in 2012, 2011 and 2010, respectively (see Note 23).
Long-term Debt The details of the Jollibee Group’s long-term debt as of December 31, 2012 and 2011 are as follows:
2012 2011 USD-denominated: Loan 1 P=1,231,500,000 P=1,753,600,000 Loan 2 916,998,808 1,304,591,970 Loan 3 287,350,000 – Loan 4 533,650,000 – Loan 5 821,000,000 – Loan 6 1,058,211 19,973,021 PHP-denominated: Loan 7 1,496,329,397 1,492,650,649 Loan 8 139,570,000 149,228,380 5,427,456,416 4,720,044,020 Less current portion 4,572,839,927 777,301,991 P=854,616,489 P=3,942,742,029
USD-denominated loans of JWPL. Loan 1 consists of a 3-year unsecured loan acquired from a local bank on April 29, 2011 amounting to US$40.0 million (or P=1,712.0 million) with a fixed interest rate of 2.53%. The principal is payable in 4 semi-annual installments commencing on October 29, 2012 up to April 28, 2014, the date of maturity.
Loan 2 consists of a 3-year unsecured loan acquired from a foreign bank on May 9, 2011 amounting to US$30.0 million (or P=1,287.9 million) with a fixed interest rate of 2.72%. The principal is payable in 4 semi-annual installments commencing on November 9, 2012 up to May 8, 2014, the date of maturity.
The loan agreements above provide certain restrictions and requirements principally with respect to maintenance of required financial ratios and material change in ownership or control. As at December 31, 2012 and 2011, the Jollibee Group is in compliance with the terms of its loan covenants.
Loans 3, 4 and 5 availed by JWPL amounting to US$7.0 million (P=287.4 million), US$13.0 million (P=533.7 million), and US$20.0 million (P=821.0 million), respectively consist of three loans obtained from a local bank with a recalibrated fixed interest rate of 2.55% each on March 1, March 9 and May 29, 2012, respectively. The loans have a term of 2 years and will originally mature on February 28, March 7 and May 28, 2014, respectively. However, the loans were preterminated by the Jollibee Group and paid in full, including accrued interest, in February 2013.
- 54 -
*SGVMG200087*
USD-denominated loan of RRBI USA. Loan 6 consists of a 5-year unsecured loan acquired from a foreign bank in December 2007 amounting to US$1.9 million with an interest rate of 6.50%. The principal is payable in 60 monthly installments commencing on January 1, 2008 up to January 1, 2013, the date of maturity. The loan was fully paid in January 2013.
PHP-denominated loan of the Parent Company. Loan 7 resulted from the combination of extended unsecured short-term debts as of December 16, 2011 consisting of P=700.0 million and P=800.0 million loans to form a single long-term loan due on December 16, 2013. The fixed interest rate on the loan is 3.9% payable on a quarterly basis.
PHP-denominated loan of PERF Restaurants, Inc. Loan 8 was originally a five-year unsecured US$-denominated loan availed on December 20, 2011 by PERF Restaurants, Inc. (PERF). On the same day, the loan of US$3.4 million was converted to P=149.2 million bearing fixed interest rate of 5.32% per annum.
Derivative and hedging activities on Loan 8 In 2012, Loan 8 was converted into a deliverable cross-currency swap transaction to hedge in full the foreign currency risk and interest rate risk on its floating rate. Under the cross-currency swap, the PERF received at inception PHP notional amount of P=149.2 million and paid US$ notional amount of US$3.4 million based on the PHP/US$ spot reference rate of P=43.87. At every interest payment date, the Company will receive variable interest based on 3-month US LIBOR plus spread and will pay fix interest rate. At maturity date, the Company will receive US$ notional amount of US$3.4 million and pay PHP notional amount of P=149.2 million. The US$ receipts from the cross-currency swap correspond with the expected interest fixed principal amount due on the hedged loan. Similar with the hedged loan, the cross-currency swap is non-amortizing and will mature on December 21, 2016.
Effectively, the cross-currency swap transformed the floating rate US$ loan into a fixed rate PHP loan.
Hedge effectiveness results Since the critical terms of the hedged loan and cross-currency swap matched, the hedge was assessed to be highly effective. As such, there was no ineffectiveness recognized in the profit or loss for the period ending December 31, 2012 and 2011.
The movement in fair value of cash flow hedge presented in equity under other comprehensive loss follows:
Balance at beginning of year P=– Changes in fair value of the cash flow hedge 22,782,820 Foreign exchange revaluation (9,658,381) Balance at end of year 13,124,439 Non-controlling interests’ share (6,037,242) P=7,087,197
The foreign exchange revaluation of the hedged loan amounting to P=9.7 million was recognized in other comprehensive loss on derivative liability.
- 55 -
*SGVMG200087*
Debt Covenants
Jollibee Group’s loans, through its subsidiary PERF, contain certain restrictive covenants and requirements with respect to the following:
(a) Maintenance of the following ratios for the duration of the loan agreements: (1) minimum debt service coverage of 1.5:1; and (2) maximum debt to earnings before interest, taxes, depreciation and amortization (EBITDA) of 4:1.
(b) Restrictions on changes in ownership structure; incurrence of any additional loans with term of more than one year; repayment of intercompany borrowings from the Parent Company except those agreed upon signing of this Facility Agreement; investing or entering into any business substantially different from the business in which PERF is presently engaged; and enter into merger or consolidation, except where PERF is the surviving corporation, and Parent Company remains as the majority beneficial owner of the surviving corporation.
As of December 31, 2012 and 2011, the PERF is in compliance with the terms of the loan agreement.
As of December 31, long-term debt consists of the following:
2012 2011 Principal P=5,437,753,211 P=4,738,001,401 Unamortized debt issue cost (10,296,795) (17,957,381) P=5,427,456,416 P=4,720,044,020
The movements in unamortized debt issue cost in 2012 and 2011 are as follows:
2012 2011 Balance at beginning of year P=17,957,381 P=7,085,160 Additions – 18,108,030 Amortization (7,660,586) (7,235,809) Balance at end of year P=10,296,795 P=17,957,381
Interest expense recognized on long-term debt amounted to P=171.1 million, P=193.7 million and P=180.6 million in 2012, 2011 and 2010, respectively (see Note 23).
- 56 -
*SGVMG200087*
19. Equity
a. Capital Stock
The movements in the number of shares follow:
2012 2011 Authorized - P=1 par value 1,450,000,000 1,450,000,000
Issued: Balance at beginning of year 1,052,943,936 1,051,429,521 Issuances 8,906,326 1,514,415 Balance at end of year 1,061,850,262 1,052,943,936
Subscribed: Balance at beginning of year 2,009,297 2,009,297 Subscriptions 8,906,326 1,514,415 Issuances (8,906,326) (1,514,415) Balance at end of year 2,009,297 2,009,297 1,063,859,559 1,054,953,233
On February 15, 1993, the SEC approved the increase of the Parent Company’s authorized capital stock from 6.6 million shares, with a par value of P=10 per share, to 750.0 million shares, with a par value of P=1 per share, for the Parent Company’s initial public offering (IPO). The offer price of the shares for such IPO ranged from P=7.5 to P=10.5 per share.
The total number of shareholders is 3,325 and 3,437 as of December 31, 2012 and 2011, respectively.
b. Treasury Shares
The cost of common stock held in treasury of P=180.5 million consists of 16,447,340 shares as of December 31, 2012 and 2011.
c. Excess of Cost over the Carrying Value of Non-controlling Interests Acquired
The amount of excess of cost over the carrying value of non-controlling interests acquired as of December 31, 2012 and 2011, recognized as part of “Equity Attributable to Equity Holders of the Parent Company” section in the consolidated statements of financial position resulted from the following acquisitions of non-controlling interests:
20% of Greenwich in 2006 P=168,257,659 15% of Belmont in 2007 375,720,914 40% of Adgraphix in 2010 (1,214,087) P=542,764,486
d. Retained Earnings
The Jollibee Group has a Cash Dividend Policy of declaring one-third of its net income for the year as cash dividends. It uses best estimate of its net income as basis for declaring cash dividends. Actual cash dividends per share declared as a percentage of the EPS are 61.5%, 34.1% and 72.2% in 2012, 2011 and 2010, respectively.
- 57 -
*SGVMG200087*
An important part of the Jollibee Group’s growth strategy is the acquisition of new businesses in the Philippines and abroad. Examples were acquisitions of 85% of Yonghe King in 2004 in PRC (P=1,200.0 million), 100% of Red Ribbon in 2005 (P=1,700.0 million), the remaining 20% minority share in Greenwich in 2007 (P=384.0 million), the remaining 15% share of Yonghe King in 2007 (P=413.7 million), 100% of Hong Zhuang Yuan restaurant chain in PRC in 2008 (P=2,600.0 million), 70% of Mang Inasal in 2010 (P=2,979.8 million), 100% of Chowking US Operations in 2011 (P=659.9 million), 55% of San Pin Wang (P=195.9 million) and 48% of WJ Investments Limited (P=98.0 million) in 2012.
The Jollibee Group plans to continue to make substantial acquisitions in the coming years. The Jollibee Group uses its cash generated from operations to finance these acquisitions and capital expenditures. These limit the amount of cash dividends that it can declare and pay making the level of the Retained Earnings higher than the paid-up capital stock.
In support of the Jollibee Group’s strategy, the BOD approved the appropriation of additional P=3,800.0 million for future expansion on February 15, 2012 for the Parent Company. The details of the appropriation include:
Projects Timeline Amount
(in millions) Acquisition of Businesses 2013 - 2018 P=5,000.0
The retained earnings of the Parent Company is restricted to the extent of P=5,180.5 million and P=1,380.5 million as of December 31, 2012 and 2011, respectively. The 2012 appropriation consists of appropriation for future expansion and cost of common stock held in treasury amounting to P=5,000.0 and P=180.5 million, respectively while the 2011 appropriation consists of appropriation for future expansion and cost of common stock held in treasury amounting to P=1,200.0 and P=180.5 million, respectively.
Consolidated retained earnings include undeclared retained earnings of subsidiaries amounting to P=685.4 million and P=593.2 million as of December 31, 2012 and 2011, respectively. The Parent Company’s retained earnings available for dividend declaration, computed based on the guidelines provided in SEC Memorandum Circular No. 11, amounted to P=11,617.3 million and P=14,166.5 million as of December 31, 2012 and 2011, respectively.
The Parent Company’s cash dividend declarations for 2012, 2011 and 2010 follow:
Declaration Date Record Date Payment Date Cash Dividend per
Share Total Cash Dividends
Declared 2012 April 12 May 9 May 31 P=0.58 P=602,206,230 November 12 December December 19 1.00 1,044,303,255 November 12 December December 19 0.62 647,468,018 P=2.20 P=2,293,977,503 2011 April 13 May 5 May 31 P=0.50 P=513,586,071 November 4 November 22 December 16 0.57 586,430,790 P=1.07 P=1,100,016,861
2010 April 12 May 7 June 3 P=0.43 P=439,332,609 April 12 May 7 June 3 1.00 1,021,703,742 November 10 November 25 December 21 0.82 841,916,455 P=2.25 P=2,302,952,806
- 58 -
*SGVMG200087*
20. Royalty, Franchise Fees and Others
The Company has existing Royalty and Franchise Agreements with certain subsidiaries and independent franchisees for the latter to operate QSR outlets under the “Jollibee” concept and trade name. In consideration thereof, the franchisees agree to pay franchise fees and monthly royalty fees equivalent to a certain percentage of the franchisees’ net sales.
The franchisees and subsidiaries also reimburse the Company a share in the network advertising and promotional activities based on certain percentages of the former’s net sales. This account consists of:
2012 2011 2010 Royalty fees P=3,103,707,056 P=2,832,972,317 P=2,435,145,967 Franchise fees 108,902,005 128,673,840 110,777,580 Rent income (Note 29) 93,552,079 88,362,582 88,587,881 Service fees 69,925,324 59,261,700 78,443,482 Other revenues 188,999,169 179,212,280 151,802,659 P=3,565,085,633 P=3,288,482,719 P=2,864,757,569
21. Cost of Sales
This account consists of:
2012 2011 2010 Cost of inventories P=33,898,232,334 P=29,809,091,674 P=24,900,006,693 Personnel costs: Salaries, wages and employee
benefits 7,771,959,348 6,896,745,053 6,515,788,872 Pension expense (Note 25) 56,450,965 82,500,195 78,542,800 Rent (Note 29) 5,499,468,204 4,830,622,917 3,903,657,688 Electricity and other utilities 3,245,101,747 2,738,766,887 2,491,684,514 Depreciation and amortization
(Notes 12 and 13) 2,477,433,446 2,188,138,252 1,801,293,696 Supplies 1,712,100,856 1,438,771,466 1,244,811,120 Contracted services and
professional fees 1,237,433,220 1,034,756,176 783,696,936 Repairs and maintenance 666,242,481 605,944,943 515,366,896 Security and janitorial 294,667,278 295,104,115 243,980,998 Communication 119,488,497 109,814,775 104,033,676 Entertainment, amusement
and recreation 31,015,693 27,245,491 22,066,898 Others 1,424,426,678 1,345,856,874 649,799,673 P=58,434,020,747 P=51,403,358,818 P=43,254,730,460
- 59 -
*SGVMG200087*
22. General and Administrative Expenses
This account consists of:
2012 2011 2010 Personnel costs: Salaries, wages and employee
benefits P=3,104,737,878 P=2,828,734,808 P=2,477,525,828 Pension expense (Note 25) 44,443,247 74,821,548 77,575,074 Stock options expense
(Note 26) 76,984,373 73,596,182 65,657,862 Taxes and licenses 793,134,792 722,967,654 625,572,401 Rent (Note 29) 396,384,343 301,131,941 189,141,489 Transportation and travel 299,910,571 289,157,362 250,493,661 Professional fees 268,376,135 292,142,725 326,009,405 Depreciation and amortization
(Notes 12 and 13) 228,192,916 213,455,645 176,712,298 Impairment in value of: Receivables and inventory
(Notes 7 and 8) 86,397,297 39,740,636 56,255,685 Property, plant and equipment
(Note 12) 29,500,000 – – Investment property (Note 13) 21,177,361 – – Security and other deposits
(Note 15) 3,000,000 – – Entertainment, amusement
and recreation 105,401,780 109,224,257 84,790,392 Communication 87,824,802 80,021,816 65,940,549 Training 71,311,451 40,349,256 47,662,662 Donations 68,199,176 37,125,360 26,668,997 Supplies 59,372,615 60,553,898 46,652,158 Electricity and other utilities 58,686,416 57,143,954 52,076,181 Contracted services 49,912,515 37,878,401 34,570,979 Repairs and maintenance 43,774,873 49,141,586 35,286,344 Security and janitorial 22,168,913 26,209,649 35,886,424 Insurance 10,284,642 15,357,507 5,643,678 Corporate events and others 979,626,851 590,563,624 590,944,778 P=6,908,802,947 P=5,939,317,810 P=5,271,066,845
- 60 -
*SGVMG200087*
23. Interest Income (Expense) and Other Income
2012 2011 2010 Interest income: Cash and cash equivalents: Cash in banks P=14,216,627 P=14,079,032 P=19,426,990 Short-term deposits 145,680,630 87,044,606 118,650,729 Accretion of interest on
financial assets (Note 15) 21,613,453 24,062,575 22,219,843 Loan and advances 88,603,447 54,577,023 2,783,556 P=270,114,157 P=179,763,236 P=163,081,118
Interest expense: Long-term debt (Note 18) (P=171,059,541) (P=193,702,854) (P=180,594,225) Short-term debt (Note 18) (14,799,129) (78,916,052) (9,502,363) Accretion of interest on financial liabilities (20,154,030) (18,723,885) (3,104,615) (206,012,700) (P=291,342,791) (P=193,201,203)
Other income: Write-off of other liabilities P=292,136,540 P=409,556,985 P=331,926,520 Rebates and suppliers' incentives 76,099,289 103,475,060 42,113,542 Charges to franchisees 43,898,382 34,672,903 17,677,407 Pre-termination of operating
leases 43,765,252 11,335,719 28,610,502 Foreign exchange gain (loss) (25,371,670) (63,571,440) 37,086,479 Penalties and charges 16,063,313 16,135,487 11,060,166 Insurance claims 12,170,251 16,589,565 9,143,868 Other rentals 6,977,700 9,881,900 7,814,942 Gain on asset sale – – 106,006,901 Miscellaneous income 37,795,782 28,737,438 27,458,072 P=503,534,839 P=566,813,617 P=618,898,399
24. Income Taxes
The Jollibee Group’s provision for current income tax consists of the following:
2012 2011 2010 Final tax withheld on: Royalty and franchise fee
income P=691,731,651 P=566,346,862 P=535,435,633 Interest income 28,094,896 17,314,010 20,458,463 RCIT: With itemized deduction 401,169,566 447,091,709 341,920,182 With optional standard
deduction 156,164,621 126,619,231 107,504,110 MCIT – 30,192,053 35,609,591 P=1,277,160,734 P=1,187,563,865 P=1,040,927,979
- 61 -
*SGVMG200087*
On December 18, 2008, the BIR issued Revenue Regulations No. 16-2008, which implemented the provisions of Republic Act 9504 (R.A. 9504) on Optional Standard Deduction (OSD). This regulation allowed both individuals and corporate taxpayers to use OSD in computing for taxable income. Corporations may elect a standard deduction equivalent to 40% of gross income, as provided by law, in lieu of the itemized allowed deductions.
For the years ended December 31, 2012 and 2011, Zenith, Grandworth and RRBHI, wholly-owned subsidiaries, elected to use OSD in computing for its taxable income. In 2010, only ZFC elected to use OSD. The total tax benefit from the availment of OSD amounted to P=47.8 million, P=43.8 million and P=35.7 million in 2012, 2011 and 2010, respectively.
The components of the Jollibee Group’s recognized deferred tax assets and liabilities follow:
2012
2011 (As restated -
Note 2) Deferred tax assets: Operating lease payables P=401,437,097 P=375,501,157 NOLCO: PRC-based entities 275,552,028 178,380,252 Philippine-based entities 43,966,714 88,474,713 Pension liability and other benefits 97,631,104 93,269,607 Allowance for impairment loss on receivables 51,966,719 40,497,598 Unamortized past service costs 50,233,543 58,718,821 Unrealized foreign exchange loss 32,085,931 1,622,647 Unaccreted discount on security deposits and
employee car plan receivables 23,593,436 25,835,415 Accumulated impairment loss in value of
property, plant and equipment, investment properties, and other nonfinancial assets 23,359,590 14,883,112
Excess of MCIT over RCIT 12,127,543 67,210,194 Provisions for legal claims and restructuring
costs 9,150,192 9,150,192 Allowance for inventory obsolescence 2,159,664 6,819,589 Others 6,984,030 7,251,187 1,030,247,591 967,614,484 Deferred tax liabilities: Excess of fair value over book value of
identifiable assets of acquired businesses 718,144,665 734,158,249 Deferred rent expense 17,886,026 18,689,914 Prepaid rent 22,416,209 16,683,538 Operating lease receivables 3,149,598 4,210,150 Unrealized foreign exchange gain 20,969,532 252,068 Others 7,709,705 8,778,700 790,275,735 782,772,619 Deferred tax assets – net P=239,971,856 P=184,841,865
- 62 -
*SGVMG200087*
The rollforward analysis of the account follows:
2012 2011
(Note 2) Balance at beginning of year P=184,841,865 P=151,758,133 Provisions 127,045,741 83,696,480 Application of excess of MCIT over RCIT (62,011,755) – Movement arising from business combination
(Note 11) – (61,983,286) Translation adjustments (9,903,995) 11,370,538 P=239,971,856 P=184,841,865
The components of unrecognized deferred tax assets of BK Group in 2012 are as follows:
NOLCO P=11,318,615 Other comprehensive loss 3,958,446 Unrealized foreign exchange loss 4,962 P=15,282,023
OSD The availment of the OSD method also affected the recognition of several deferred tax assets and liabilities. Deferred tax assets and liabilities, for which the related income and expense are not considered in determining gross income for income tax purposes, are not recognized. This is because the manner by which the Jollibee Group expects to recover or settle the underlying assets and liabilities, for which the deferred tax assets and liabilities were initially recognized, would not result to any future tax consequence under the OSD method. Meanwhile, deferred tax assets and liabilities, for which the related income and expense are considered in determining gross income for income tax purposes, are recognized only to the extent of their future tax consequence under OSD method. Hence, the tax base of these deferred tax assets and liabilities is reduced by the 40% allowable deduction provided for under the OSD method.
Accordingly, the Jollibee Group’s deferred tax assets and liabilities, which were not recognized due to the use of the OSD method in future years, are as follows:
2012 2011 Deferred tax assets: Allowance for impairment losses on: Investment properties P=10,334,189 P=3,980,982 Receivables 3,963,705 3,963,705 Other noncurrent assets 1,641,000 1,641,000 Operating lease payables 15,634,527 12,798,357 Pension liability 1,737,049 1,696,689 Unamortized past service costs 749,019 790,318 Unaccreted discount on financial instruments 426,256 250,180 Unrealized foreign exchange loss 4,735 4,056 Others 152,376 185,968 34,642,856 25,311,255
- 63 -
*SGVMG200087*
2012 2011 Deferred tax liabilities: Operating lease receivables P=7,820,394 P=2,251,507 Deferred rent expense 339,514 380,088 Others 339,000 345,778 8,498,908 2,977,373 P=26,143,948 P=22,333,882
As of December 31, 2012, NOLCO and excess of MCIT over RCIT of the Philippine-based entities that can be claimed as deductions from taxable income and income tax due, respectively, are as follows:
Year Incurred/Paid Carry Forward Benefit Up to NOLCO
Excess of MCIT over
RCIT 2012 December 31, 2015 P=79,364,066 P=7,099,048 2011 December 31, 2014 15,632,140 3,468,224 2010 December 31, 2013 51,559,507 1,560,271 P=146,555,713 P=12,127,543
The PRC enterprise income tax law provides that income tax rates are unified at 25%. As of December 31, 2012, NOLCO of the PRC-based entities that can be claimed as deductions from taxable income are as follows:
Year Incurred Carry Forward Benefit Up to Tax Losses
Deferred Tax at 25%
2012 December 31, 2017 P=626,622,226 P=156,655,557 2011 December 31, 2016 182,968,705 45,742,176 2010 December 31, 2015 106,315,191 26,578,798 2009 December 31, 2014 130,182,545 32,545,636 2008 December 31, 2013 56,119,443 14,029,861 P=1,102,208,110 P=275,552,028
The following are the movements in deferred tax assets on NOLCO of the PRC-based entities:
2012 2011 Balance at beginning of year P=178,380,252 P=174,770,129 Additions 156,655,557 73,275,766 Expired (37,731,948) (2,412,380) Write-off (13,893,801) (73,363,383) Translation adjustments (7,858,032) 4,859,496 Increase in effective tax rate – 1,250,624 Balance at end of year P=275,552,028 P=178,380,252
- 64 -
*SGVMG200087*
The reconciliation of provision for income tax computed at the statutory income tax rates to provision for income tax as shown in the consolidated statements of comprehensive income are as follows:
2012 2011 2010 Provision for income tax at
statutory income tax rates P=1,458,953,310 P=1,307,301,093 P=1,255,779,527 Income tax effects of: Effect of different tax rate for
royalty and franchise fees and interest income (359,171,819) (292,576,022) (279,194,311)
Expired/written off NOLCO and excess of MCIT over RCIT 51,625,749 83,661,073 11,959,542
Difference between OSD and itemized deductions (47,781,922) (43,785,314) (35,690,321)
Nondeductible expenses 27,788,407 38,688,395 25,168,148 Unrecorded tax losses of BK
Group 11,323,577 18,125,689 4,208,193 Net movement in
unrecognized DTA (4,138,108) – – Others 11,515,799 (7,547,529) (8,835,016) P=1,150,114,993 P=1,103,867,385 P=973,395,762
25. Pension Costs
Defined Benefit Plan The Parent Company and certain Philippine-based subsidiaries have funded, independently administered, non-contributory defined benefit plans covering all permanent and regular employees with benefits based on years of service and latest compensation. The assets of the Jollibee Group’s retirement plans are managed by a trustee bank.
The following tables summarize the components of net pension expense recognized in the consolidated statements of comprehensive income and the funded status and amounts recognized in the consolidated statements of financial position for the plans.
Net Pension Expense
2012 2011 2010 Current service cost P=99,916,987 P=103,419,805 P=91,496,560 Interest cost 107,904,046 152,865,858 135,969,783 Expected return on plan assets (88,943,512) (96,084,188) (71,412,182) Recognized net actuarial loss
(gain) (17,983,309) (2,879,732) 63,713 P=100,894,212 P=157,321,743 P=156,117,874
- 65 -
*SGVMG200087*
Pension Liability
2012 2011 Present value of defined benefit obligation P=1,896,964,592 P=1,301,088,666 Fair value of plan assets (1,401,957,417) (1,316,251,463) Present value of underfunded (overfunded)
obligation 495,007,175 (15,162,797) Unrecognized net actuarial gains (loss) (206,570,972) 293,837,311 P=288,436,203 P=278,674,514
The movements in the present value of benefit obligation are as follows:
2012 2011 Balance at beginning of year P=1,301,088,666 P=1,364,744,185 Interest cost 107,904,046 152,865,858 Current service cost 99,916,987 103,419,805 Arising from business combination (Note 11) – 3,199,600 Actual benefits paid: Out of plan assets (133,300,505) (103,908,857) Out of Jollibee Group’s funds (44,777,712) (22,958,089) Net actuarial loss (gain): Due to experience adjustments 371,011,197 (559,592,159) Due to change in assumptions 195,121,913 363,318,323 Balance at end of year P=1,896,964,592 P=1,301,088,666
The movements in the fair value of plan assets are as follows:
2012 2011 Balance at beginning of year P=1,316,251,463 P=1,201,052,350 Expected return on plan assets 88,943,512 96,084,188 Contributions 46,354,811 70,977,928 Actual benefits paid (133,300,505) (103,908,857) Actuarial gain on plan assets 83,708,136 52,045,854 Balance at end of year P=1,401,957,417 P=1,316,251,463
Actual return on plan assets P=172,651,648 P=148,130,042
The following table presents the carrying amounts and estimated fair values of the assets of the retirement plans: 2012 2011
Carrying Amount Fair Value
Carrying Amount Fair Value
Cash and cash equivalents P=993,931,235 P=993,931,235 P=916,611,093 P=916,611,093 Investments in equity securities 332,567,871 332,567,871 255,630,660 255,630,660 Investments in government
securities, bonds and other debt instruments 58,002,779 58,002,779 126,981,644 126,981,644
Others 17,455,532 17,455,532 17,028,066 17,028,066 P=1,401,957,417 P=1,401,957,417 P=1,316,251,463 P=1,316,251,463
- 66 -
*SGVMG200087*
The retirement plans’ assets and investments consist of the following:
§ Cash and cash equivalents include regular savings and time deposits.
§ Investments in equity securities consist of listed equity securities including investment in equity securities of the Parent Company for certain retirement plans of the Jollibee Group (see Note 27).
§ Investments in government securities consist of retail treasury bonds that bear interest ranging from 5.50% to 7.38% and have maturities from August 2020 to October 2037; and fixed-income treasury notes that bear interest ranging from 4.42% to 9.91% and have maturities from February 2015 to August 2037.
§ Investments in debt and other securities consist of long-term corporate bonds, which bear interest ranging from 6.30% to 7.75% and have maturities ranging from 2012 to 2037.
§ Other financial assets held by the Jollibee Group’s retirement plans are primarily accrued interest income on cash and cash equivalents, debt instruments and other securities.
The Jollibee Group expects to contribute in 2013 an amount equivalent to the underfunded defined benefit obligation based on 2012 actuarial valuation.
The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period within which the obligation is expected to be settled. The latest actuarial valuation of the defined benefit plan is as of December 31, 2012.
As of December 31, 2012 and 2011, the principal actuarial assumptions used to determine pension benefits obligations are as follow:
2012 2011 Discount rate 5.70%–6.30% 6.50%–7.20% Salary increase rate 7.00%–7.50% 5.00%–7.50% Rate of return on plan assets 7.00% 5.00%–7.00%
The amounts for the current and previous four periods are as follows:
2012 2011 2010 2009 2008 Defined benefit obligation P=1,896,964,592 P=1,301,088,666 P=1,364,744,185 P=1,213,954,564 P=985,573,966 Plan assets 1,401,957,417 1,316,251,463 1,201,052,350 973,263,844 531,760,226 Deficit (surplus) 495,007,175 (P=15,162,797) P=163,691,835 P=240,690,720 P=453,813,740
Experience adjustments on: Plan obligation (P=371,011,197) P=559,592,159 (P=36,832,650) (P=62,252,853) P=– Plan assets 83,708,136 52,045,854 151,659,394 47,163,376 (34,311,708)
Defined Contribution Plan The employees of the PRC-domiciled and USA-based subsidiaries of the Jollibee Group are members of a state-managed pension benefit scheme operated by the national governments. These subsidiaries are required to contribute a specified percentage of their payroll costs to the pension benefit scheme to fund the benefits. The only obligation of these subsidiaries with respect to the pension benefit scheme is to make the specified contributions.
- 67 -
*SGVMG200087*
The contributions made to the scheme and recognized as part of other employee benefits amounted to P=280.2 million, P=121.2 million and P=94.9 million in 2012, 2011 and 2010, respectively.
26. Stock Option Plans
Senior Management Stock Option and Incentive Plan On December 17, 2002, the SEC approved the exemption requested by the Jollibee Group on the registration requirements of the 101,500,000 options underlying the Parent Company’s common shares to be issued pursuant to the Jollibee Group’s Senior Management Stock Option and Incentive Plan (the Plan). The Plan covers selected key members of management of the Jollibee Group, certain subsidiaries and designated affiliated entities.
The Plan is divided into two programs, namely, the Management Stock Option Program (MSOP) and the Executive Long-term Incentive Program (ELTIP). The MSOP provides a yearly stock option grant program based on company and individual performance while the ELTIP provides stock ownership as an incentive to reinforce entrepreneurial and long-term ownership behavior of executive participants.
MSOP. The MSOP is a yearly stock option grant program open to members of the corporate management committee of the Jollibee Group and members of the management committee, key talents and designated consultants of some of the business units.
Each MSOP cycle refers to the period commencing on the MSOP grant date and ending on the last day of the MSOP exercise period. Vesting is conditional on the employment of the employee-participants to the Jollibee Group within the vesting period. The options will vest at the rate of one-third of the total options granted on each anniversary of the MSOP grant date until the third anniversary.
The exercise price of the stock options is determined by the Jollibee Group with reference to prevailing market prices over the three months immediately preceding the date of grant for the 1st up to the 7th MSOP cycle. Starting with the 8th MSOP cycle, the exercise price of the option is determined by the Jollibee Group with reference to the market closing price as at date of grant.
The contractual term of each option is seven years. The Jollibee Group does not pay cash as a form of settlement.
On July 1, 2004, the Compensation Committee of the Jollibee Group granted 2,385,000 options under the 1st MSOP cycle to eligible participants. The options will vest at the rate of one-third of the total options granted on each anniversary date which will start after a year from the MSOP grant date. One-third of the options granted, or 795,000 options, vested and may be exercised starting July 1, 2005 will expired on June 30, 2012. On July 1, 2005 to 2012, the Compensation Committee granted series of MSOP grants under the 2nd to 9th MSOP cycle to eligible participants. The options vest similar to the 1st MSOP cycle.
- 68 -
*SGVMG200087*
The movements in the number of stock options outstanding and related weighted average exercise prices (WAEP) are as follows:
2012 2011 2010
Number of
Options WAEP Number of
Options WAEP Number of
Options WAEP Total options granted
as at end of year 29,808,694 P=53.07 26,790,664 P=46.89 23,273,694 P=40.39
Outstanding at beginning of year 17,505,395 P=52.39 15,904,997 P=43.46 15,911,282 P=39.43
Options granted during the year 3,018,030 107.9 3,516,970 89.90 3,172,744 57.77
Options exercised during the year (3,375,915) 41.8 (1,507,813) 43.07 (2,730,984) 36.78
Options forfeited during the year (359,454) 80.52 (408,759) 62.03 (448,045) 42.36
Outstanding at end of year 16,788,056 P=63.90 17,505,395 P=52.39 15,904,997 P=43.46
Exercisable at end of year 10,367,798 P=45.83 10,424,829 P=40.10 8,234,603 P=37.86
The average share price is P=103.41, P=85.48 and P=71.74 in 2012, 2011 and 2010, respectively. The weighted average remaining contractual life for the stock options outstanding as of December 31, 2012, 2011 and 2010 is 4.66 years, 4.88 years and 5.31 years, respectively.
The weighted average fair value of stock options granted in 2012, 2011 and 2010 is P=23.43, P=23.67 and P=22.77, respectively. The fair value of share options as at the date of grant is estimated using the Black-Scholes Option Pricing Model, taking into account, the terms and conditions upon which the options were granted. The option style used for this plan is the American style because this option plan allows exercise before the maturity date. The inputs to the model used for the options granted on the dates of grant for each MSOP cycle are shown below:
MSOP Cycle
Year of Grant
Dividend Yield
Expected Volatility
Risk-free Interest
Rate
Expected Life of
the Option
Stock Price on Grant
Date Exercise
Price 1st 2004 1.72% 36.91% 6.20% 5-7 years P=24.00 P=20.00 2nd 2005 1.72% 36.91% 6.20% 5-7 years 29.00 27.50 3rd 2006 1.72% 36.91% 6.20% 5-7 years 35.00 32.32 4th 2007 1.70% 28.06% 6.41% 3-4 years 52.50 50.77 5th 2008 1.80% 26.79% 8.38% 3-4 years 34.00 39.85 6th 2009 2.00% 30.37% 5.28% 3-4 years 48.00 45.45 7th 2010 2.00% 29.72% 5.25% 3-4 years 70.00 57.77 8th 2011 2.00% 34.53% 4.18% 3-4 years 89.90 89.90 9th 2012 2.00% 28.72% 3.50% 3-4 years 107.90 107.90
The expected life of the stock options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
- 69 -
*SGVMG200087*
ELTIP. The ELTIP entitlement is given to members of the corporate management committee.
Each ELTIP cycle refers to the period commencing on the ELTIP entitlement date and ending on the last day of the ELTIP exercise period. Actual grant and vesting is conditional upon achievement of the Jollibee Group’s minimum medium to long-term goals and individual targets in a given period, and the employment of the employee-participants to the Jollibee Group within the vesting period. If the goals are achieved, the options will be granted. Starting with the 3rd ELTIP cycle, a percentage of the options to be granted are based on the percentage of growth in annual earnings per share such that 100%, 50% or 25% of the options granted when percentage of growth in annual earnings per share are 12% and above, 10% to less than 12% or 8% to less than 10%, respectively.
The exercise price of the stock options is determined by the Jollibee Group with reference to prevailing market prices over the three months immediately preceding the date of entitlement.
The contractual term of each option is five years. The Jollibee Group does not pay cash as a form of settlement. Starting with the 3rd ELTIP cycle, the exercise price of the option is determined by the Jollibee Group with reference to the closing market price as of the date of grant.
On July 1, 2004, the Compensation Committee gave an entitlement of 22,750,000 options under the 1st ELTIP cycle to eligible participants. The options will vest at the rate of one-third of the total options granted from the start of the grant date and on each anniversary of the ELTIP grant date. One-third of the options granted, or 7,583,333 options, vested and may be exercised starting July 1, 2007 and will expire on June 30, 2012. On July 1, 2008 and October 19, 2012, a total entitlement of 20,399,999 and 23,600,000 options was given to eligible participants under the 2nd and 3rd ELTIP cycle, respectively.
The movements in the number of stock options outstanding for the 2nd and 3rd ELTIP cycles and related WAEP for the years ended December 31, 2012, 2011 and 2010 follow:
2012 2011 2010
Number of
Options WAEP Number of
Options WAEP Number of
Options WAEP Total options given
as of end of year 66,499,999 P=55.94 43,149,999 P=29.38 42,399,999 P=29.20
Outstanding at beginning of year 27,674,569 P=32.52 30,661,735 P=32.72 33,387,498 P=31.53
Options granted during the year 23,600,000 105.00 750,000 39.85 250,000 39.85
Options exercised during the year (12,962,905) 24.19 (787,166) 20.00 (2,975,763) 20.00
Options forfeited during the year (499,999) 39.85 (2,950,000) 39.85 – –
Outstanding at end of year 37,811,665 P=80.51 27,674,569 P=32.52 30,661,735 P=32.72
Exercisable at end of year 7,411,665 P=39.85 10,224,570 P=20.00 11,011,736 P=20.00
The weighted average remaining contractual life for the stock options outstanding as of 2012, 2011 and 2010 is 5.68 years, 3.02 years and 3.74 years, respectively.
- 70 -
*SGVMG200087*
The fair value of stock options granted is P=23.43 and P=7.26 in 2012 and 2011, respectively. The fair value of share options as at the date of grant is estimated using the Black-Scholes Option Pricing Model, taking into account the terms and conditions upon which the options were granted. The option style used for this plan is the American style because this option plan allows exercise before the maturity date. The inputs to the model used for the options granted on the dates of grant for each ELTIP cycle are shown below:
ELTIP Cycle
Year of Grant
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of
the option
Stock price on grant
date Exercise
price 1st 2004 1.72% 36.91% 6.20% 5 years P=24.00 P=20.00 2nd 2008 1.80% 26.79% 8.38% 3-4 years 34.00 39.85 3rd 2012 2.00% 28.74% 3.60% 3-4 years 105.00 105.00
The expected life of the stock options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
The cost of the stock options expense charged to operations under “General and administrative expenses” account amounted to P=77.0 million, P=73.6 million and P=65.7 million in 2012, 2011 and 2010, respectively.
27. Related Party Transactions
The Jollibee Group has transactions within and among the consolidated entities and related parties. A related party is an entity that has the ability to control or exercise significant influence, directly or indirectly, over the other party in making financial and operating decisions. Transactions between members of the Jollibee Group and the related balances are eliminated at consolidation and are no longer included in the disclosures.
Compensation of Key Management Personnel of the Jollibee Group The aggregate compensation and benefits to key management personnel of the Jollibee Group in 2012, 2011 and 2010 are as follows:
2012 2011 2010 Salaries and short-term benefits P=243,239,599 P=391,620,377 P=389,010,761 Stock options expense (Note 26) 76,984,373 73,596,182 65,657,862 Net pension expense from defined
benefit plan 13,442,416 28,897,958 23,822,756 Employee car plan and other long-
term benefits 14,385,260 25,322,690 23,818,817 P=348,051,648 P=519,437,207 P=502,310,196
- 71 -
*SGVMG200087*
Transactions with the Retirement Plans As at and for the years ended December 31, 2012 and 2011, certain retirement funds of the Jollibee Group include investment in equity securities of the Parent Company with details as follows:
2012 2011 Number of shares 782,130 2,234,737
Cost P=25,598,922 P=73,185,976 Market value 79,777,260 202,131,962 Unrealized gain P=54,178,338 P=128,945,986
28. Earnings Per Share
Basic and diluted EPS are computed as follows:
2012 2011 2010 (a) Net income attributable to the equity
holders of the Parent Company P=3,728,151,351 P=3,231,666,940 P=3,197,793,977
(b) Weighted average number of shares - basic 1,041,923,753 1,029,743,055 1,025,590,715 Weighted average number of shares
outstanding under the stock option plan 33,470,157 21,979,743 22,434,043 Weighted average number of shares that
would have been purchased at fair market value (14,521,214) (7,827,084) (8,649,309)
(c) Adjusted weighted average shares - diluted 1,060,872,696 1,043,895,714 1,039,375,449
EPS: Basic (a/b) P=3.578 P=3.138 P=3.118 Diluted (a/c) 3.514 3.096 3.077
There were no anti-dilutive options outstanding as of December 31, 2012 and 2011. 29. Commitments and Contingencies
a. Operating lease commitments - Jollibee Group as lessee
The Jollibee Group has various operating lease commitments for QSR outlets and offices. The noncancellable periods of the leases range from 3 to 20 years, mostly containing renewal options. Some of the leases contain escalation clauses. The lease contracts on certain sales outlets provide for the payment of additional rentals based on certain percentages of sales of the outlets. Rent payments in accordance with the terms of the lease agreements amounted to P=5,779.0 million, P=4,955.5 million and P=3,936.0 million in 2012, 2011 and 2010, respectively.
- 72 -
*SGVMG200087*
The future minimum lease payments for the noncancellable periods of the operating leases follows:
2012 2011 Within one year P=2,391,671,677 P=2,407,191,659 After one year but not more than five years 7,953,687,706 8,699,820,241 More than five years 5,965,097,801 5,546,484,166 P=16,310,457,184 P=16,653,496,066
The difference of rent expense recognized under the straight-line method and the rent amounts due in accordance with the terms of the lease agreements amounting to P=116.9 million and P=176.3 million in 2012 and 2011, respectively, are charged to “Operating lease payables” account in the consolidated statements of financial position. Rent expense recognized on a straight-line basis amounted to P=5,895.9 million, P=5,131.8 million and P=4,092.8 million in 2012, 2011 and 2010, respectively (see Notes 21 and 22).
b. Operating lease commitments - Jollibee Group as lessor
The Jollibee Group entered into commercial property leases for its investment property units and various sublease agreements. Noncancellable periods of the lease range from 3 to 20 years, mostly containing renewal options. All leases include a clause to enable upward revision of the rent charges on an annual basis based on prevailing market conditions. Rent income in accordance with the terms of the lease agreements amounted to P=97.8 million, P=94.6 million and P=100.3 million in 2012, 2011 and 2010, respectively.
The future minimum rent receivables for the noncancellable periods of the operating leases follows:
2012 2011 Within one year P=25,350,190 P=25,856,500 After one year but not more than five years 41,607,749 66,466,637 More than five years 2,314,149 – P=69,272,088 P=92,323,137
The difference of rent income recognized under the straight-line method and the rent amounts in accordance with the terms of the lease agreements amounting to P=4.2 million and P=6.2 million in 2012 and 2011, respectively, are included under “Operating lease receivables” account in the consolidated statements of financial position. Rent income recognized on a straight-line basis amounted to P=93.6 million, P=88.4 million and P=88.6 million in 2012, 2011 and 2010, respectively (see Note 20).
c. Contingencies
The Jollibee Group is involved in litigations, claims and disputes which are normal to its business, except for the legal claims provided in Note 17. Management believes that the ultimate liability, if any, with respect to these litigations, claims and disputes will not materially affect the financial position and financial performance of the Jollibee Group.
- 73 -
*SGVMG200087*
30. Financial Risk Management Objectives and Policies
The Jollibee Group is exposed to a variety of financial risks which result from both its operating and investing activities. The Jollibee Group’s risk management policies focus on actively securing the Jollibee Group’s short-term to medium-term cash flows by minimizing the exposure to financial markets. The Jollibee Group does not actively engage in trading of financial assets for speculative purposes.
The Jollibee Group’s principal financial instruments are cash and cash equivalents, trade receivables, trade payables and other current liabilities (excluding accruals for local and other taxes and unearned revenue from gift certificates) and short-term and long-term debts. The main purpose of these financial instruments is to raise financing for the Jollibee Group’s operations. The Jollibee Group has other financial assets and liabilities such as other non-trade receivables, long-term loan receivable, security and other deposits, AFS financial assets and liability for acquisition of businesses which arise from the Jollibee Group’s current operations. The main risks arising from the Jollibee Group’s financial instruments are foreign currency risk, credit risk and liquidity risk.
The Jollibee Group’s BOD and management review and agree on the policies for managing each of these risks as summarized below.
Equity Price Risk The Jollibee Group is not exposed to significant equity price risk on its investment in quoted equity securities consisting of investment in club shares and shares of public utility companies.
Interest Rate Risk The Jollibee Group is not exposed to significant interest rate risk as majority of its interest-bearing short-term and long-term debts bear fixed interest rates.
The Jollibee Group’s exposure to interest rate risk relates primarily to PERF’s long-term debt with floating interest rates. Floating rate financial instruments are subject to cash flow interest rate risk. The Company’s interest rate exposure management policy centers on reducing the Company’s overall interest expense and exposure to changes in the interest rates.
To manage the interest rate risk related to the Company’s long-term debt, the Company uses a derivative instrument to fix the interest rate over the term of the debt (see Note 18).
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s equity as of December 31, 2012. The impact on the Company’s equity is due to changes in the fair value of cross-currency swaps designated as cash flow hedges.
Increase/Decrease
in Basis Points Equity USD +100 (9,209) -100 5,699 PHP +100 (378,029) -100 233,944
- 74 -
*SGVMG200087*
Foreign Currency Risk The Jollibee Group’s exposure to foreign currency risk arises from the Parent Company’s investments outside the Philippines, which are mainly in PRC and USA. While the foreign businesses have been rapidly growing, the net assets of foreign businesses account for only 15.57% and 10.44% of the consolidated net assets of the Jollibee Group as of December 31, 2012 and 2011, respectively. Therefore, the total exposure to foreign exchange risk of the Jollibee Group is still not significant.
The Jollibee Group also has transactional foreign currency exposures. Such exposure arises from the Jollibee Group’s Philippine operations’ cash and cash equivalents, receivables and long-term debt in foreign currencies.
The following table shows the Jollibee Group’s Philippine operations’ foreign currency-denominated monetary assets and liabilities and their peso equivalents as of December 31:
2012 2011 USD RMB PHP Equivalent USD RMB PHP Equivalent Assets Cash and cash
equivalents 2,193,789 8,072 90,108,394 1,624,507 8,067 71,274,453 Receivables 228,184 – 9,366,953 140,089 – 6,141,502 Long-term debt (3,400,000) – (139,570,000) (3,400,000) – (149,056,000) Net exposure (978,027) 8,072 (40,094,653) (1,635,404) 8,067 (71,640,045)
Foreign Currency Risk Sensitivity Analysis The Jollibee Group has recognized in its profit or loss, foreign currency exchange gain (loss) included under “Other income” account which amounted to (P=25.4 million), (P=63.6 million) and P=37.1 million on its net foreign currency-denominated assets in 2012, 2011 and 2010, respectively (see Note 23). This resulted from the movements of the Philippine peso against the USD and RMB as shown in the following table:
Peso to USD RMB December 31, 2012 P=41.05 P=6.61 December 31, 2011 43.84 6.95
The following table demonstrates the sensitivity to a reasonably possible change in USD and RMB to Philippine peso exchange rate, with all other variables held constant, of the Jollibee Group’s income before income tax (due to changes in the fair value of monetary assets and liabilities) as of December 31:
2012 2011 Appreciation (Depreciation)
of P= against Foreign Currency Effect on Income
Before Income Tax Effect on Income
Before Income Tax (In Thousands) USD
P=1.50 (P=1,467) (P=2,453) (1.50) 1,467 2,453 1.00 (978) (1,635)
(1.00) 978 1,635 RMB
0.95 (7.7) (7.7) (0.95) 7.7 7.7 0.63 (5.1) (5.1)
(0.63) 5.1 5.1
- 75 -
*SGVMG200087*
Credit Risk Credit risk is the risk that a customer or a counterparty fails to fulfill its contractual obligations to the Jollibee Group. This includes risk of non-payment by borrowers and issuers, failed settlement of transactions and default on outstanding contracts.
The Jollibee Group has a very strict credit policy. Its credit transactions are only with franchisees that have gone through rigorous screening before granting them the franchise. The credit terms are very short, deposits and advance payments are also required before rendering the service or delivering the goods, thus, mitigating the possibility of non-collection. In cases of defaults of debtors, the exposure is contained as transactions that will increase the exposure of the Jollibee Group are not permitted.
Credit Risk Exposure and Concentration. The Jollibee Group has no significant concentration of credit risk with counterparty since it has short credit terms to franchisees, which it implements consistently. In addition, the Jollibee Group’s franchisee profile is such that no single franchisee accounts for more than 5% of the total systemwide sales of the Jollibee Group.
With respect to credit risk arising from financial assets of the Jollibee Group, the Jollibee Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Credit Quality. The tables below show the credit quality by class of financial assets that are neither past due nor impaired, based on the Jollibee Group’s credit rating system as of December 31, 2012 and 2011.
2012 Neither Past Due nor Impaired Past Due or
Impaired Total A B C (In Millions) Loans and Receivables Cash and cash equivalents (excluding cash on hand) P=8,654.5 P=8,654.5 P=– P=– P=– Receivables: Trade 2,714.8 1,280.9 367.7 39.5 1,026.7 Employee car plan receivables* 143.3 143.3 – – – Receivable from retirement fund 130.5 130.5 – – – Advances to employees 95.5 95.5 – – – Other receivables 19.4 19.4 – – – Other noncurrent assets - – – – Security and other deposits 1,161.1 1,158.1 – – 3 P=12,919.1 P=11,482.2 P=367.7 P=39.5 P=1,029.7 *Including noncurrent portion shown as part of “Other noncurrent assets” account in the consolidated statements of financial position.
2011 Neither Past Due nor Impaired Past Due or
Impaired Total A B C (In Millions) Loans and Receivables Cash and cash equivalents (excluding cash on hand) P=6,485.4 P=6,485.4 P=– P=– P=– Receivables: Trade 2,250.4 1,249.8 159.2 12.0 829.4 Receivable from retirement fund 137.7 137.7 – – – Employee car plan receivables* 136.7 136.7 – – – Advances to employees 100.4 100.4 – – – Other receivables 20.9 20.9 – – – Other noncurrent assets - Security and other deposits 1,069.7 1,069.7 – – – P=10,201.2 P=9,200.6 P=159.2 P=12.0 P=829.4 *Including noncurrent portion shown as part of “Other noncurrent assets” account in the consolidated statements of financial position.
- 76 -
*SGVMG200087*
The credit quality of financial assets is managed by the Jollibee Group using internal credit ratings, as shown below:
A - For counterparty that is not expected by the Jollibee Group to default in settling its
obligations, thus, credit risk exposure is minimal. This counterparty normally includes financial institutions, related parties and customers who pay on or before due date.
B - For counterparty with tolerable delays (normally from 1 to 30 days) in settling its obligations to the Jollibee Group. The delays may be due to cut-off differences and/or clarifications on contracts/billings.
C - For counterparty who consistently defaults in settling its obligation, but with continuing business transactions with the Jollibee Group, and may be or actually referred to legal and/or subjected to cash before delivery (CBD) scheme. Under this scheme, the customer’s credit line is suspended and all subsequent orders are paid in cash before delivery. The CBD status will only be lifted upon full settlement of the receivables and approval of management. Thereafter, the regular credit term and normal billing and collection processes will resume.
The aging analyses of receivables are as follows:
2012
Neither Past Due
nor Past Due but not Impaired (Age in Days) Total Impaired 1-30 31-60 61-120 Over 120 Impaired (In Millions) Receivables: Trade P=2,714.8 P=1,688.1 P=286.9 P=64.0 P=74.8 P=340.9 P=260.1 Employee car plan receivables* 143.3 143.3 – – – – – Receivable from retirement fund 130.5 130.5 – – – – – Advances to employees 95.5 95.5 – – – – – Other receivables 19.4 19.4 – – – – – Other noncurrent assets - Security and other deposits 1,161.1 1,158.1 – – – – 3.0
P=4,264.6 P=3,234.9 P=286.9 P=64.0 P=74.8 P=340.9 P=263.1 *Including noncurrent portion shown as part of “Other noncurrent assets” account in the consolidated statements of financial position.
2011
Neither Past Due
nor Past Due but not Impaired (Age in Days) Total Impaired 1-30 31-60 61-120 Over 120 Impaired (In Millions) Receivables: Trade P=2,250.4 P=1,421.1 P=192.8 P=115.0 P=156.5 P=200.3 P=164.7 Receivable from retirement fund 137.7 137.7 – – – – – Employee car plan receivables* 136.7 136.7 – – – – – Advances to employees 100.4 100.4 – – – – – Other receivables 20.9 20.9 – – – – – Other noncurrent assets - Security and other deposits 1,069.7 1,069.7 – – – – –
P=3,715.8 P=2,886.5 P=192.8 P=115.0 P=156.5 P=200.3 P=164.7 *Including noncurrent portion shown as part of “Other noncurrent assets” account in the consolidated statements of financial position.
Liquidity Risk The Jollibee Group’s exposure to liquidity risk refers to the risk that its financial liabilities are not serviced in a timely manner and that its working capital requirements and planned capital expenditures are not met. To manage this exposure and to ensure sufficient liquidity levels, the Jollibee Group closely monitors its cash flows.
- 77 -
*SGVMG200087*
On a weekly basis, the Jollibee Group’s Cash and Banking Team monitors its collections, expenditures and any excess/deficiency in the working capital requirements, by preparing cash position reports that present actual and projected cash flows for the subsequent week. Cash outflows resulting from major expenditures are planned so that money market placements are available in time with the planned major expenditure. In addition, the Jollibee Group has short-term cash deposits and has available credit lines with accredited banking institutions, in case there is a sudden deficiency. The Jollibee Group maintains a level of cash and cash equivalents deemed sufficient to finance the operations. No changes were made in the objectives, policies or processes of the Jollibee Group during the years ended December 31, 2012 and 2011.
The Jollibee Group’s financial assets, which have maturity of less than 12 months and are used to meet its short-term liquidity needs, are cash and cash equivalents and receivables amounting to P=8,848.6 million and P=2,750.3 million, respectively, as of December 31, 2012 and . P=6,655.3 million and P=2,388.6 million, respectively, as of December 31, 2011.
The tables below summarize the maturity profile of the Jollibee Group’s financial liabilities based on the contractual undiscounted cash flows as of December 31:
2012 Within 1 Year 2–3 Years 4–5 Years Total Trade payables and other current liabilities* P=10,142,953,727 P=– P=– P=10,142,953,727 Long-term debt (including current portion) 4,725,260,141 751,985,098 146,995,124 5,624,240,363 Liability for acquisition of businesses
(including current portion) 168,984,534 79,551,944 – 248,536,478 P=15,037,198,402 P=831,537,042 P=146,995,124 P=16,015,730,568 *Excluding accruals for local and other taxes and unearned revenue from gift certificates.
2011 Within 1 Year 2–3 Years 4–5 Years Total Trade payables and other current liabilities* P=8,851,593,469 P=– P=– P=8,851,593,469 Short-term debt 923,670,000 – – 923,670,000 Long-term debt (including current portion) 806,816,334 3,904,007,733 157,167,330 4,867,991,397 Liability for acquisition of businesses
(including current portion) 110,072,000 145,144,000 70,144,000 325,360,000 P=10,692,151,803 P=4,049,151,733 P=227,311,330 P=14,968,614,866 *Excluding accruals for local and other taxes and unearned revenue from gift certificates.
Capital Management Capital includes equity attributable to equity holders of the Parent Company.
The primary objective of the Jollibee Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Jollibee Group has sufficient capitalization.
The Jollibee Group generates cash flows from operations sufficient to finance its organic growth. It declares cash dividends representing about one-third of its consolidated net income, a ratio that would still leave some additional cash for future acquisitions. If needed, the Jollibee Group would borrow money for acquisitions of new businesses.
- 78 -
*SGVMG200087*
As of December 31, 2012 and 2011, the Jollibee Group’s debt ratio and net debt ratio are as follows:
Debt Ratio
2012 2011 Total debt (a) P=20,097,472,797 P=18,659,293,599 Total equity attributable to equity holders
of the Parent Company 21,160,238,680 19,518,762,522 Total debt and equity attributable to equity
holders of the Parent Company (b) P=41,257,711,477 P=38,178,056,121
Debt ratio (a/b) 49% 49%
Net Debt Ratio
2012 2011 Total debt P=20,097,472,797 P=18,659,293,599 Less cash and cash equivalents 8,848,591,584 6,655,312,875 Net debt (a) 11,248,881,213 12,003,980,724 Total equity attributable to equity holders
of the Parent Company 21,160,238,680 19,518,762,522 Total net debt and equity attributable
to equity holders of the Parent Company (b) P=32,409,119,893 31,522,743,246
Net debt ratio (a/b) 38% 38% 31. Fair Value of Financial Assets and Liabilities
The following table sets forth the carrying values and estimated fair values of financial assets and liabilities, by category and by class, as of December 31. There are no material unrecognized financial assets and liabilities as of December 31, 2012 and 2011.
2012 2011 Carrying Value Fair Value Carrying Value Fair Value Loans and Receivables Cash and cash equivalents P=8,848,591,584 P=8,848,591,584 P=6,655,312,875 P=6,655,312,875 Receivables: Trade 2,454,625,503 2,454,625,503 2,085,662,144 2,085,662,144 Employee car plan receivables* 143,329,998 157,196,713 136,737,225 152,335,294 Receivable from retirement fund 130,494,012 130,494,012 137,745,214 137,745,214 Advances to employees 95,502,388 95,502,388 100,368,090 100,368,090 Other receivables 19,419,000 19,419,000 20,940,239 20,940,239 Other noncurrent assets - Security and other deposits 1,161,089,780 1,230,027,510 1,069,719,992 1,133,286,665 12,853,052,265 12,935,856,710 10,206,485,779 10,285,650,521 AFS Financial Assets Investments in club shares and shares
of public utility companies 128,149,438 128,149,438 120,649,438 120,649,438 P=12,981,201,703 P=13,064,006,148 P=10,327,135,217 P=10,406,299,959
- 79 -
*SGVMG200087*
2012 2011 Carrying Value Fair Value Carrying Value Fair Value Other Financial Liabilities Trade payables and other current
liabilities** P=10,142,953,727 P=10,142,953,727 P=8,851,593,469 P=8,851,593,469 Short-term debt – – 900,000,000 900,000,000 Long-term debt (including current
portion) 5,427,456,416 5,515,503,960 4,720,044,020 4,738,001,401 Liability for acquisition of businesses
(including current portion) 245,828,745 248,022,444 317,097,289 321,130,578 Derivative liability 22,782,819 22,782,819 – – P=15,839,021,707 P=15,929,262,950 P=14,788,734,778 P=14,810,725,448 **Including noncurrent portion shown as part of “Other noncurrent assets” account in the consolidated statements of financial position. **Excluding accruals for local and other taxes and unearned revenue from gift certificates.
Financial Instruments Carried at other than Fair Value Management has determined that the estimated fair value of security and other deposits, noncurrent portion of employee car plan receivables, long-term debt and liability for acquisition of businesses (including noncurrent portion) are based on the discounted value of future cash flows using applicable rates as follows:
2012 2011 Security and other deposits 2.01%–5.50% 1.72%–7.64% Employee car plan receivables 1.95%–4.11% 1.66%–5.08% Long-term debt (including current portion) 1.01%–2.89% 1.78%–2.64% Liability for acquisition of businesses
(including current portion) 0.84%–3.90% 1.57%–2.11%
AFS Financial Assets The fair value of investments that are traded in organized financial markets are determined by reference to quoted market bid prices at the close of business at reporting date.
Unquoted AFS financial assets are carried at cost less any impairment in value. These financial assets are equity shares of private entities and are not traded in an active market, hence their fair value cannot be determined reliably.
The Jollibee Group does not have the intention to dispose these financial assets in the near term.
Fair Value Hierarchy The Jollibee Group uses the following hierarchy for determining and disclosing the fair value of financial instruments 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 that have a significant effect on the recorded fair value that are not based on observable market data
As of December 31, 2012 and 2011, the Company’s AFS financial assets mainly consist of shares in public utility companies that are no longer quoted in an active market. As a result, the Company did not recognize any gain or loss from fair value measurement in the parent company
- 80 -
*SGVMG200087*
statement of comprehensive income. The Company believes that the investments are not impaired and will continue to carry them until they are redeemed by such public utility companies.
The Jollibee Group’s used Level 2 in determining and disclosing the fair value of the derivative liability.
There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements during the year.
32. Event after the Reporting Period
Dividend Declaration On April 11, 2013, the BOD approved a regular cash dividend of P=0.65 a share of common stock to all stockholders of record as at May 7, 2013. Consequently, the cash dividend is expected to be paid out by March 30, 2013. The cash dividend is 12.1% higher than the P=0.58 regular dividend a share declared in April 2012.
Appropriation of Retained Earnings On April 11, 2013, the BOD approved the appropriation of additional retained earnings amounting to P=5,200.0 million to be used for future expansion and support the Company’s growth strategy.
Projects Timeline Amount Acquisition of businesses 2013-2018 P=2,600,000,000 Capital expenditures 2013-2018 2,600,000,000 P=5,200,000,000
33. Non-cash Transactions
The Jollibee Group’s principal non-cash transaction under financing activities pertains to the extension of the terms of two short-term loans that have both matured in 2011 totaling P=1,500.0 million, combined to form a new loan which are now due to be paid in 2013, under a new loan agreement.
The Jollibee Group’s non-cash transaction under investing activities pertains to the formation of joint ventures with 50% equity interest in SuperFoods Group and 54% equity interest in BK Group through advances given prior to 2012.
Jollibee Foods Corporation
Audited Financial Statements 2012
*SGVMG200088*
7 7 4 8 7 SEC Registration Number
J O L L I B E E F O O D S C O R P O R A T I O N
(Company’s Full Name)
1 0 t h F l o o r , J o l l i b e e P l a z a B u i l d i
n g , N o . 1 0 E m e r a l d A v e n u e , O r t i g a
s C e n t r e , P a s i g C i t y
(Business Address: No. Street City/Town/Province)
Mr. Ysmael V. Baysa 634-1111 (Contact Person) (Company Telephone Number)
1 2 3 1 A A P F S 0 6 2 8 Month Day (Form Type)
Month Day (Fiscal Year) (Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc. Amended Articles Number/Section
Total Amount of Borrowings
3,325 P=1,496,329,396 P=– Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned
File Number LCU
Document ID Cashier
S T A M P S Remarks: Please use BLACK ink for scanning purposes.
COVER SHEET
*SGVMG200088*
JOLLIBEE FOODS CORPORATION PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 2012 2011
REVENUES Net sales (Note 27) P=29,371,540,246 P=27,016,948,097 Royalty and franchise fees (Notes 19 and 27) 2,642,339,250 2,408,949,489 Rent income (Notes 12, 27 and 28) 192,191,058 117,176,818 Others (Note 27) 287,054,636 251,777,671 32,493,125,190 29,794,852,075
COST OF SALES AND SERVICES (Note 20) Cost of sales 25,397,039,598 23,000,693,357 Cost of services 437,812,599 264,797,340 25,834,852,197 23,265,490,697
GROSS PROFIT 6,658,272,993 6,529,361,378
EXPENSES General and administrative (Note 21) 3,656,009,524 3,227,240,137 Advertising and promotions 402,146,720 477,940,337 4,058,156,244 3,705,180,474
INTEREST INCOME (EXPENSE) (Note 22) Interest income 54,099,267 60,376,188 Interest expense (104,111,417) (239,599,895) (50,012,150) (179,223,707)
OTHER INCOME (Note 23) 1,973,354,223 1,928,870,926
INCOME BEFORE INCOME TAX 4,523,458,822 4,573,828,123
PROVISION FOR INCOME TAX (Note 24) Current 723,423,127 749,952,309 Deferred (16,358,083) 2,533,038 707,065,044 752,485,347
NET INCOME 3,816,393,778 3,821,342,776
OTHER COMPREHENSIVE INCOME – –
TOTAL COMPREHENSIVE INCOME P=3,816,393,778 P=3,821,342,776 See accompanying Notes to Parent Company Financial Statements.
*SGVMG200088*
JOLLIBEE FOODS CORPORATION
PARENT COMPANY STATEMENTS OF CASH FLOWS Years Ended December 31 2012 2011
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=4,523,458,822 P=4,573,828,123 Adjustments for: Dividend income (Note 23) (1,365,959,760) (1,350,000,000) Depreciation and amortization (Notes 11 and 12) 662,673,903 598,919,767 Write-off of other liabilities (Note 23) (182,355,552) (268,791,561) Interest expense (Note 22) 104,111,417 239,599,895 Stock options expense (Note 26) 70,752,823 65,880,814 Pension expense (Note 25) 50,703,852 91,993,527 Interest income (Note 22) (54,099,267) (60,376,188) Net unrealized foreign exchange loss (gain) (34,934,659) 1,683,590 Impairment loss on property, plant and equipment
(Notes 11 and 21) 10,000,000 – Net loss on disposals and retirements of property
and equipment (Note 23) 10,914,976 6,809,535 Income before working capital changes 3,795,266,555 3,899,547,502 Decrease (increase) in: Receivables (768,017,559) (266,819,895) Inventories (84,606,080) (147,434,389) Other current assets (74,235,158) 47,278,499 Operating lease receivables (Note 28) (26,022,347) 2,241,712 Increase (decrease) in: Trade payables and other current liabilities 1,129,381,522 786,655,098 Due to related parties 916,221,621 (489,144,466) Operating lease payables (Note 28) 21,774,070 43,401,848 Cash generated from operations 4,909,762,624 3,875,725,909 Income taxes paid (807,799,333) (707,865,518) Contributions to plan asset (Note 25) – (63,267,300) Interest received 40,692,126 47,591,651 Pension benefits paid from the Company’s funds (Note 25) (12,090,403) (3,351,746) Net cash provided by operating activities 4,130,565,014 3,148,832,996
CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from subsidiaries (Notes 27 and 32) 1,265,959,760 350,000,000 Acquisitions of: Investment properties (Note 12) (670,449,438) (8,011,386) Property, plant and equipment (Note 11) (614,886,887) (1,109,086,971) Subsidiaries and interest in a joint venture (Notes 10 and 32) (301,655,001) (146,459,706) Available-for-sale financial assets (Note 9) (7,500,000) – Increase in: Advances to related parties (328,060,830) (906,890,964) Other noncurrent assets (2,243,608) (35,302,034) Proceeds from: Disposal of property, plant and equipment 26,334,747 5,730,058 Return of capital on interest in a joint venture (Note 10) 2,333,580 – Net cash used in investing activities (630,167,677) (1,850,021,003)
(Forward)
*SGVMG200088*
- 2 -
Years Ended December 31 2012 2011
CASH FLOWS FROM FINANCING ACTIVITIES Payments of: Long-term debt (Note 16) P=– (P=2,309,794,661) Dividends (Note 18) (2,075,705,364) (1,060,098,451) Short-term debt (Note 16) (900,000,000) (300,000,000) Interest paid (113,999,960) (255,394,049) Proceeds from: Issuances of and subscriptions to capital stock 301,597,338 68,699,994 Short-term debt (Note 16) – 900,000,000 Net cash used in financing activities (2,788,107,986) (2,956,587,167)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 712,289,351 (1,657,775,174)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (226,956) 615,658
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,607,423,017 3,264,582,533
CASH AND CASH EQUIVALENTS AT END OF YEAR P=2,319,485,412 P=1,607,423,017 See accompanying Notes to Parent Company Financial Statements.
*SGVMG200088*
JOLLIBEE FOODS CORPORATION NOTES TO PARENT COMPANY FINANCIAL STATEMENTS 1. Corporate Information
Jollibee Foods Corporation (the Company) is a Philippine company primarily involved in the development, operation and franchising of Quick Service Restaurants (QSR) under the “Jollibee” trade name mainly in the Philippines. The operation and franchising of Jollibee QSR outside the Philippines are handled through the Company’s subsidiaries. The Company was registered with the Philippine Securities and Exchange Commission (SEC) on January 11, 1978.
The Company has subsidiaries also engaged in the development, operation and franchising of QSR under the trade names: “Greenwich”, “Chowking”, “Yonghe King”, “Red Ribbon”, “Hong Zhuang Yuan”, “Mang Inasal” and “Burger King”. Other subsidiaries are engaged in the manufacturing and property leasing activities in support of the systems of the Company and its subsidiaries and in other business activities. The list of the Company’s subsidiaries is presented in Note 10.
The Company’s shares of stock are listed in the Philippine Stock Exchange.
The registered office address of the Company is 10th Floor, Jollibee Plaza Building, No. 10 Emerald Avenue, Ortigas Centre, Pasig City.
The parent company financial statements as at and for the years ended December 31, 2012 and 2011 were reviewed and recommended for approval by the Audit Committee on April 11, 2013. The same parent company financial statements were also approved and authorized for issuance by the Board of Directors (BOD) on April 11, 2013.
2. Basis of Preparation, Statement of Compliance and Changes in Accounting Policies
Basis of Preparation The accompanying parent company financial statements have been prepared on the historical cost basis, except for certain available-for-sale (AFS) financial assets, which are measured at fair value. The parent company financial statements are presented in Philippine peso, which is the Company’s functional and presentation currency under Philippine Financial Reporting Standards (PFRS). All values are rounded to the nearest Philippine peso, except when otherwise indicated.
Statement of Compliance The parent company financial statements have been prepared in accordance with PFRS. PFRS also includes Philippine Accounting Standards (PAS) and Philippine Interpretations from International Financial Reporting Interpretations Committee (IFRIC) issued by the Philippine Financial Reporting Standards Council (FRSC).
Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following amendments to existing PFRS and PAS which became effective on January 1, 2012.
§ PFRS 7 (Amendment), Financial Instruments: Disclosures - Transfers of Financial Assets § PAS 12 (Amendment), Income Taxes - Deferred Tax: Recovery of Underlying Assets
The adoption of these amended standards did not have a significant impact on the Company’s financial statements.
- 2 -
*SGVMG200088*
New Accounting Standards, Interpretations and Amendments to Existing Standards Effective Subsequent to December 31, 2012 The Company will adopt the following standards and Philippine interpretations when these become effective. Except as otherwise indicated, the Company does not expect the adoption of these new, amended and improved standards to have significant impact on its financial statements upon adoption.
Effective in 2013
The new and amended PFRS are effective and to be applied for annual periods beginning on or after January 1, 2013 except for PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities, which is to be applied retrospectively and PAS 1, Financial Statements Presentation - Presentation of Items of Other Comprehensive Income, which is effective for annual periods beginning on or after July 1, 2012.
• Amendments to PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of
the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
• PFRS 10, Consolidated Financial Statements This standard replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standing Interpretations Committee (SIC)-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.
• PFRS 11, Joint Arrangements This standard replaces PAS 31, Interests in Joint Ventures, and SIC-13, Jointly-controlled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly-controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.
- 3 -
*SGVMG200088*
• PFRS 12, Disclosure of Interest in Other Entities This standard includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.
The Company expects a more comprehensive disclosure in the notes to the parent company financial statements about interests in subsidiaries, joint arrangements and associates upon adoption.
• PFRS 13, Fair Value Measurement This standard establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted.
The Company is currently assessing the impact of this standard on its financial statements, but based on its preliminary assessment, the impact is expected to be immaterial.
• Revised PAS 19, Employee Benefits The amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The revised standard also requires new disclosures such as, among others, a sensitivity analysis for each significant actuarial assumption, information on asset-liability matching strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature and risk. Once effective, the Company has to apply the amendments retroactively to the earliest period presented.
The Company reviewed its existing employee benefits and determined that the amended standard has significant impact on its accounting for retirement benefits. The Company obtained the services of an external actuary to compute for the impact of the standard to its financial statements upon adoption. The effects are detailed below:
As at December 31,
2012
As at January 1,
2012 Increase (decrease) in:
Statement of Financial Position Pension liability P=168,409,173 (P=232,004,638)Deferred tax asset 50,522,752 (69,601,391)Remeasurements on defined benefit plan -
net of deferred tax (268,538,820) 134,432,498 Retained earnings 18,027,981 29,778,830
- 4 -
*SGVMG200088*
For the year ended
December 31, 2012 Statement of Comprehensive Income Pension expense P=3,696,348 Provision for income tax - deferred (1,108,904) Net income 2,587,444 Remeasurements on defined benefit plan - net of
deferred tax (280,289,668) Total comprehensive income (277,702,224)
• Revised PAS 27, Separate Financial Statements As a consequence of the new PFRS 10, Consolidated Financial Statements, and PFRS 12, Disclosure of Involvement with Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements.
• Revised PAS 28, Investments in Associates and Joint Ventures As a consequence of the new PFRS 11, Joint Arrangements, and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.
• PAS 1, Financial Statements Presentation - Presentation of Items of Other Comprehensive Income The amendments to PAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified.
• Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”) and provides guidance on the recognition of production stripping costs as an asset and measurement of the stripping activity asset. This new interpretation is not relevant to the Company.
Improvements to Standards
The Annual Improvements to PFRS (2009-2011 cycle) contain non-urgent but necessary amendments to PFRS. The amendments are effective for annual periods beginning on or after January 1, 2013 and are applied retrospectively.
• PFRS 1, First-time Adoption of PFRS The amendments clarify that an entity that has stopped applying PFRS may choose to either: (a) re-apply PFRS 1, even if the entity applied PFRS 1 in a previous reporting period; or (b) apply PFRS retrospectively in accordance with PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, in order to resume reporting under PFRS. The amendments also clarify that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs.
- 5 -
*SGVMG200088*
• PAS 1, Presentation of Financial Statements - Clarification of the Requirements for Comparative Information The amendment requires an entity to present a: (a) comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period; and (b) opening statement of financial position when an entity changes its accounting policies, makes retrospective restatements or makes reclassifications, and that change has a material effect on the statement of financial position. The opening statement will be at the beginning of the preceding period.
• PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise.
• PAS 32, Financial Instruments: Presentation - Tax effect of Distribution to Holders of Equity Instruments The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes.
• PAS 34, Interim Financial Reporting - Interim Financial Reporting and Segment Information for Total Assets and Liabilities The amendment clarifies the requirements in PAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirement in PFRS 8, Operating Segments.
Effective in 2014
The amendments to PFRS are effective and to be applied for annual periods beginning on or after January 1, 2014 except for Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities, which is to be applied retrospectively.
• Amendments to PFRS 10, Consolidated Financial Statements - Investment Entities The amendments require a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss instead of consolidating them. New disclosure requirements relating to investment entities were added in PFRS 12 and PAS 27.
• Amendments to PFRS 12, Disclosure of Interests in Other Entities - Investment Entities The amendments require a parent that is an investment entity to disclose information about significant judgments and assumptions made in determining that it is an investment entity, as well as and any changes thereto. A parent that is an investment entity is also required to disclose certain information on unconsolidated subsidiaries, which are accounted for at fair value through profit or loss.
• Amendments to PAS 27, Separate Financial Statements - Investment Entities The amendments require a parent that is an investment entity and does not consolidate its subsidiaries in accordance with the exceptions of PFRS 10, to present separate financial statements as its only financial statements.
- 6 -
*SGVMG200088*
• Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. While the amendment is expected not to have any impact on the Company’s net assets, any changes in offsetting is expected to impact leverage ratios and regulatory capital requirements.
Effective in 2015
• PFRS 9, Financial Instruments: Classification and Measurement PFRS 9 as issued reflects the first phase on the replacement of PAS 39, Financial Instruments: Recognition and Measurement, and applies to the classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project.
The Company has made an evaluation of the impact of the adoption of this standard and decided not to early adopt PFRS 9 in 2012, ahead of its effectivity date on January 1, 2015, therefore, the Company’s financial statements as at and for the year ended December 31, 2012 do not reflect the impact of the said standard.
Only financial assets and liabilities will be affected by the standard and based on this evaluation, loans and receivables (consisting of cash and cash equivalents, receivables, receivable from retirement fund, advances to related parties, refundable deposits, and employee car plan receivables), AFS financial assets and financial liabilities (consisting of trade payables and other current liabilities, due to related parties, short-term and long-term debt, and liability for acquisition of a business), which are carried at amortized cost will not be significantly affected. Upon adoption, these financial instruments shall continue to be carried at their amortized cost, thus, will have no significant financial impact to the Company’s financial position and performance. For the Company’s AFS financial assets which are composed of shares in public utility companies carried at fair value, the Company plans to classify these items at fair value through other comprehensive income and will continue to measure these investments at fair value to be presented in other comprehensive income, thus, this has no significant financial impact to financial position and performance.
The Company shall conduct another impact evaluation in 2013 using the financial statements as at and for the year ended December 31, 2012.
3. Summary of Significant Accounting Policies
Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from the date of acquisition and are subject to an insignificant risk of change in value.
- 7 -
*SGVMG200088*
Financial Instruments
Date of Recognition. The Company recognizes a financial asset or a financial liability in the statements of financial position when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using trade date accounting. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market place.
Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains or losses relating to financial instruments or a component that is financial liability are reported as expense or income. Distribution to holders of financial instruments classified as equity is charged directly to equity, net of any related income tax benefits.
Initial Recognition and Measurement. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The initial measurement of financial instruments, except for those designated at fair value through profit or loss (FVPL), includes transaction costs.
Subsequent to initial recognition, the Company classifies its financial instruments in the following categories: financial assets and financial liabilities at FVPL, loans and receivables, held-to-maturity (HTM) investments, AFS financial assets and other financial liabilities. The classification depends on the purpose for which the instruments are acquired and as liabilities are incurred whether they are quoted in an active market. Management determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates this classification at every reporting date.
Determination of Fair Value. The fair value of financial instruments traded in active markets at reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models and other relevant valuation models.
Determination of Amortized Cost. The amortized cost of financial instruments is computed using the effective interest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are integral part of the effective interest.
“Day 1” Difference. Where the transaction price in a non-active market is different from the fair value based on other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a “Day 1” difference) in profit or loss unless it qualifies for recognition as some other type of asset or liability. In cases where unobservable data is used, the difference between the transaction price and model value is recognized in profit or loss when the inputs become observable or when the instrument is
- 8 -
*SGVMG200088*
derecognized. For each transaction, the Company determines the appropriate method of recognizing the “Day 1” difference.
Financial Assets
Financial Assets at FVPL. Financial assets at FVPL include financial assets held-for-trading and financial assets designated upon initial recognition as at FVPL.
Financial assets are classified as held-for-trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognized in the parent company statements of comprehensive income.
Financial assets may be designated at initial recognition as at FVPL if the following criteria are met:
§ the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis;
§ the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or
§ the financial assets contain an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
The Company has no financial assets at FVPL as at December 31, 2012 and 2011.
Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are not entered into with the intention of immediate or short-term resale and are not designated as AFS financial asset or financial assets at FVPL. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest method, less any impairment in value. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.
Loans and receivables are classified as current assets when the Company expects to realize the asset within 12 months from reporting date. Otherwise, these are classified as noncurrent assets.
The Company’s cash and cash equivalents, receivables, advances to related parties, refundable deposits and noncurrent portion of employee car plan receivables recorded under “Other noncurrent assets” are classified under this category.
HTM Investments. HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which the Company’s management has the positive intention and ability to hold to maturity. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets. After initial measurement, these investments are measured at amortized cost using the effective interest method, less any impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest method. Gains and losses are recognized in the parent company statements of comprehensive income when the HTM investments are derecognized or impaired, as well as
- 9 -
*SGVMG200088*
through the amortization process. Assets under this category are classified as current assets if maturity date is within 12 months from reporting date and as noncurrent assets if maturity date is more than a year from the reporting date.
The Company has no HTM investments as at December 31, 2012 and 2011.
AFS Financial Assets. AFS financial assets are nonderivative financial assets that are designated in this category or are not classified in any of the other categories. AFS financial assets include equity and debt securities. Equity investments classified as AFS are those which are intended to be held for an indefinite period of time and are neither classified as held-for-trading nor designated as at FVPL. Debt securities are those which are intended to be held for an indefinite period of time and which may be sold in response to needs of liquidity or in response to changes in market conditions.
After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized gains or losses recognized as “Net unrealized gain on available-for-sale financial assets” account in other comprehensive income until the financial asset is derecognized or determined to be impaired at which time the accumulated gains or losses previously reported in other comprehensive income are included in profit or loss. AFS financial assets that are not quoted in an active market and whose fair value cannot be measured reliably are measured at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributable to the acquisition are also included in the cost of investment. If a reliable measure ceases to be available, AFS financial assets are thereafter measured at cost, which is deemed to be the fair value carrying amount at that date.
Assets under this category are classified as current assets if expected to be realized within 12 months from reporting date. Otherwise, these are classified as noncurrent assets.
The Company’s investments in public utility companies are classified under this category as at December 31, 2012 and 2011.
Financial Liabilities
Financial Liabilities at FVPL. Financial liabilities at FVPL include financial liabilities that are held-for-trading and financial liabilities designated upon initial recognition as at FVPL.
Financial liabilities are classified as held-for-trading if acquired for the purpose of repurchasing in the near term. Gains or losses on liabilities held-for-trading are recognized in profit or loss.
The Company has no financial liability classified under this category as at December 31, 2012 and 2011.
Other Financial Liabilities. This category pertains to financial liabilities that are not held-for- trading or not designated as at FVPL upon the inception of the liability where the substance of the contractual arrangements results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to exchange financial assets or financial liabilities with the holder under conditions that are potentially unfavorable to the Company. These include liabilities arising from operations or borrowings.
- 10 -
*SGVMG200088*
Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. Gains and losses are recognized in profit or loss when the liabilities are derecognized, as well as through the amortization process.
This category includes trade payables and other current liabilities (excluding local and other taxes payable, liabilities to government agencies and gift certificates), due to related parties, short-term and long-term debts, and liability for acquisition of a business.
Debt Issue Costs Debt issue costs are deducted against long-term debt and are amortized over the terms of the related borrowings using the effective interest method.
Impairment of Financial Assets The Company assesses at each reporting date whether a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired, if and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an incurred loss event) and that the loss event has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Loans and Receivables. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Factors considered in individual assessment are payment history, past-due status and term, development affecting companies and specific issues with respect to the accounts. The collective assessment would require the Company to group its receivables based on the credit risk characteristics (customer type, payment history, past-due status and term) of the customers. Changes in circumstances may cause future assessment of credit risk to be materially different from current assessments, which could require an increase or decrease in the allowance account. The Company also considers factors, such as, the type of assets, the financial condition or near term prospect of the related company or account, and the intent and ability to hold on the assets long enough to allow any anticipated recovery. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognized, are not included in the collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in parent company statements of comprehensive income under “General and administrative
- 11 -
*SGVMG200088*
expenses” account. Interest income continues to be recognized based on the original effective interest rate of the asset. Receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collaterals have been realized or have been transferred to the Company.
If, in a subsequent year, the amount of the estimated impairment loss decreases because an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
AFS Financial Assets. The Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.
In the case of equity investments classified as AFS financial assets, an objective evidence of impairment would include a significant or prolonged decline in fair value of investments below its cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the parent company statements of comprehensive income, is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in fair value after impairment are recognized directly as other comprehensive income.
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:
§ the right to receive cash flows from the asset has expired;
§ the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; or
§ the Company has transferred its right 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 substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its right to receive cash flows from an asset or has entered into a “pass-through” arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred the control of asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired.
When 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 is recognized in profit or loss.
- 12 -
*SGVMG200088*
Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the parent company statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Inventories Inventories are valued at the lower of cost and net realizable value. Costs are accounted for as follows:
Processed inventories - First-in, first-out basis. Cost includes direct
materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity.
Food supplies, packaging, store and other supplies, and novelty items
- Purchase cost on a first-in, first-out basis.
The net realizable value of processed inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
The net realizable value of food supplies, packaging, store and other supplies and novelty items is the current replacement cost.
Investments in Subsidiaries and Interest in a Joint Venture The Company’s investments in subsidiaries and interest in a joint venture, classified as jointly controlled entity, are accounted for under the cost method. Distributions from retained earnings of the subsidiaries and joint venture arising after the date of acquisition and date of formation are recognized as income from the investments and interest in joint venture. Any distributions in excess of the subsidiaries’ and joint venture’s retained earnings are regarded as a recovery of investments and interest in a joint venture and recognized as a reduction from the costs of the investments and interest in a joint venture.
Property, Plant and Equipment Property, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of property, plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less any impairment in value.
The initial cost of property, plant and equipment consists of its purchase price, including import duties and nonrefundable taxes and any other costs directly attributable in bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to profit or loss in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional costs of property, plant and equipment.
- 13 -
*SGVMG200088*
Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives of the assets:
Plant and buildings, commercial condominium
units and improvements 5-40 years
Leasehold rights and improvements 2-10 years or term of the lease, whichever is shorter
Office, store and food processing equipment 2-15 years Furniture and fixtures 3-5 years Transportation equipment 3-5 years
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period the asset is derecognized.
The residual values, if any, useful lives and depreciation and amortization method of the assets are reviewed and adjusted, if appropriate, at each financial period.
When each major inspection is performed, its cost is recognized in the carrying amount of property, plant and equipment as a replacement if the recognition criteria are satisfied.
Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to profit or loss.
Construction in progress represents structures under construction and is stated at cost less any impairment in value. This includes cost of construction and other direct costs. Cost also includes interest on borrowed funds incurred during the construction period. Construction in progress is not depreciated until such time that the relevant assets are completed and are ready for use.
Investment Properties Investment properties consist of land and land improvements and buildings and building improvements held by the Company for capital appreciation and rental purposes. Investment properties, except land, are carried at cost, including directly attributable costs, less accumulated depreciation and amortization and any impairment in value. Cost also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing of an investment property. Land is carried at cost less any impairment in value.
The depreciation of land improvements, buildings and building improvements are calculated on a straight-line basis over the estimated useful lives of the assets which ranges between 5 to 20 years.
The residual values, if any, useful lives and depreciation and amortization method of the assets are reviewed and adjusted, if appropriate, at each financial year-end.
Investment property is derecognized when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in profit or loss in the year of retirement or disposal.
- 14 -
*SGVMG200088*
Transfers are made to investment property only when there is a change in use or commencement of an operating lease to another party. Transfers are made from investment property only when there is a change in use, evidenced by commencement of the Company’s occupation or commencement of development with a view to sell.
Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that investment in subsidiaries, interest in joint venture, property, plant and equipment and investment properties may be impaired. If any indication exists, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’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 exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators. Impairment losses are recognized in the parent company statements of comprehensive income in expense categories consistent with the function of the impaired asset.
An assessment is also made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Equity
Capital Stock and Additional Paid-in Capital. Capital stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value, if any, are recognized as additional paid-in capital.
Cost of Common Stock Held in Treasury. Acquisitions of treasury shares are recorded at cost. The total cost of treasury shares is shown in the parent company statement of financial position as a deduction from total equity. Upon re-issuance or resale of treasury shares, “Cost of common stock held in treasury” account is credited for the cost of the treasury shares determined using the simple average method. Gain on sale of treasury shares are credited to additional paid-in capital. Losses are charged against additional paid-in capital but only to the extent of previous gains from original issuance, sale or retirement for the same class of stock. Otherwise, losses are charged to retained earnings.
- 15 -
*SGVMG200088*
Dividends on Common Stock of the Company. Dividends on common stock are recognized as a liability and deducted from equity when these are approved by the shareholders of the Company. Dividends for the year that are approved after the financial reporting date are dealt with as an event after the reporting period.
Subscriptions Receivable. Subscriptions receivable represents common stock subscribed and issued by the Company but payment from the shareholders has not yet been received.
Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, sales taxes and duties. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements.
The following specific recognition criteria must also be met before revenue is recognized:
Sale of Goods. Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the customers, which is normally upon delivery. Sales returns and sales discounts are deducted from sales to arrive at net sales shown in the parent company statement of comprehensive income.
Royalty Fees. Revenue from royalty fees is recognized based on certain percentages of the franchisees’ net sales.
Franchise Fees. Revenue from franchise fees is recognized when all services or conditions relating to a transaction have been substantially performed.
Service Revenue and Management Fees. Revenue is recognized in the period in which the service has been rendered.
Dividend Income. Dividend income is recognized when the Company’s right as a shareholder to receive the payment is established.
Rent Income. Rent income from operating leases is recognized on a straight-line basis over the lease term. For income tax reporting, rent income is continued to be recognized on the basis of the terms of the lease agreements.
Interest Income. Interest income is recognized as the interest accrues, taking into account the effective yield on the asset.
Cost and Expenses Cost and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Cost and expenses included under “Cost of sales”, “Cost of services”, “General and administrative expenses” and “Advertising and promotions” are recognized as incurred.
Advertising and promotions expenses include costs incurred for advertising schemes and promotional activities for new products. The amount of expenses incurred by the Company is reduced by the network advertising and promotional costs charged to the Company’s franchisees and subsidiaries.
- 16 -
*SGVMG200088*
Pension Benefits The Company has a funded, noncontributory retirement plan, administered by a trustee bank, covering the permanent employees of the Company. The cost of providing benefits under the defined benefit plans is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized in the parent company statements of comprehensive income when the net cumulative unrecognized actuarial gains and losses for the plans at the end of the previous reporting year exceeds 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.
Any past service cost, if any, is recognized as expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately.
Pension liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plans or reductions in the future contributions to the plan.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial loss of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gain of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plans or reductions in the future contributions to the plans. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gain of the current period after the deduction of past service cost of the current period are recognized immediately.
Share-based Payments The Company has stock option plans granting the management and its employees, an option to purchase a fixed number of shares of stock at a stated price during a specified period (“equity-settled transactions”).
The cost of the options granted to the Company’s management and employees that become vested is recognized in the parent company statements of comprehensive income over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cost of the options granted to personnel of the subsidiaries are recognized as additional investments over the vesting period with a corresponding credit to additional paid-in capital in the equity section of the parent company statements of financial position.
- 17 -
*SGVMG200088*
The fair value is determined using the Black-Scholes Option Pricing Model. The cumulative expense is recognized for the share-based payment transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The amount recognized in the parent company statements of comprehensive income or the “Investments in subsidiaries and interest in a joint venture” account for a period represents the movement in cumulative expense recognized as of the beginning and end of that period.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the employee as measured at the date of modification.
Where a share-based award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award.
Research and Development Costs Research costs included under “General and administrative expenses” are expensed as incurred. Development cost incurred on an individual project is carried forward when its future recoverability can be reasonably regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project.
Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that is not explicitly specified in an arrangement.
Company as Lessee. Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as expense in profit or loss on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.
Company as Lessor. Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating leases. Rent income from operating leases is recognized as income in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rent income. Contingent rents are recognized as revenue in the period in which these are earned.
Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by
- 18 -
*SGVMG200088*
discounting the expected future cash flows at a pre-tax 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 interest expense.
Foreign Currency Denominated Transactions Transactions in foreign currencies are recorded in Philippine peso using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the closing rate of exchange at the reporting date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. For income tax purposes, foreign exchange gains and losses are treated as taxable income or deductible expenses when realized.
Taxes
Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted at reporting date.
Deferred Tax. Deferred tax is provided, using the liability method, on all temporary differences at reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are recognized for all deductible temporary differences and carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) and net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of MCIT and NOLCO can be utilized except:
§ where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit; and
§ in respect of deductible temporary differences associated with investments in subsidiaries and interest in a joint venture, deferred 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 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 tax assets to be utilized. Unrecognized deferred 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 tax assets to be recovered.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
§ where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transactions, affects neither the accounting profit nor taxable profit; and
- 19 -
*SGVMG200088*
§ in respect of taxable temporary differences associated with investments in subsidiaries and interest in a joint venture, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted at reporting date.
Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Value-added Tax. Revenue, expenses and assets are recognized net of the amount of tax, except:
§ where the tax incurred on a purchase of assets or service is not recoverable from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
§ receivables and payables that are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the taxation authority is included as part of “Other current assets” or “Trade payables and other current liabilities” accounts in the parent company statements of financial position.
Contingencies Contingent liabilities are not recognized in the parent company financial statements. These are disclosed in the notes to parent company financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the parent company financial statements but disclosed in the notes to parent company financial statements when an inflow of economic benefit is probable.
Business Segments The Company is organized and managed separately according to the nature of business. The three major operating businesses of the Company are food service, franchising and leasing. These operating businesses are the basis upon which the Company reports its primary segment information presented in the consolidated financial statements.
Events after the Reporting Period Post year-end events that provide additional information about the Company’s financial position at the reporting date (adjusting events) are reflected in the parent company financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the parent company financial statements when material.
- 20 -
*SGVMG200088*
4. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the parent company financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported in the parent company financial statements and related notes at the end of the reporting period.
Judgments, estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Judgments In the process of applying the Company’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 parent company financial statements.
Functional Currency. The Company has determined that its functional currency is the Philippine peso. It is the currency of the primary economic environment in which the Company operates.
Operating Lease - Company as Lessor. The Company has entered into commercial property leases on its investment property portfolio and subleased properties. The Company has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all significant risks and benefits of the owned properties which are being leased out. Accordingly, the leases are accounted for as operating leases.
Rent income amounted to P=192.2 million and P=117.2 million in 2012 and 2011, respectively (see Note 28).
Operating Lease - Company as Lessee. The Company has entered into commercial property leases for its QSR and offices as the lessee. The Company has determined that all significant risks and benefits of ownership of these properties remain with the lessors. Accordingly, the leases are accounted for as operating leases.
Rent expense amounted to P=1,216.4 million and P=1,226.2 million in 2012 and 2011, respectively (see Note 28).
Impairment of AFS Financial Assets - Significant or Prolonged Decline in Fair Value and Calculation of Impairment Losses. The Company determines that AFS financial assets are impaired when there has been a significant or prolonged decline in the fair value below its cost. The Company determines that a decline in fair value of greater than 20% of cost is considered to be a significant decline and a decline for a period of more than 12 months is considered to be a prolonged decline. The determination of what is significant or prolonged requires judgment. In making this judgment, the Company evaluates, among other factors, the normal volatility in price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance.
In the computation of impairment for AFS equity instruments, the Company expands its analysis to consider changes in the investee’s industry and sector performance, legal and regulatory framework, changes in technology, and other factors that affect the recoverability of the Company’s investments.
No impairment loss for AFS financial assets was recognized in 2012 and 2011. The carrying values of AFS financial assets amounted to P=87.0 million and P=79.5 million as at December 31, 2012 and 2011, respectively (see Note 9).
- 21 -
*SGVMG200088*
Estimates and Assumptions The key estimates and assumptions are based on management’s evaluation of relevant facts and circumstances as of the date of the parent company financial statements. Actual results could differ from such estimates. The key estimates and assumptions that may have significant risks of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Impairment of Receivables. The Company maintains an allowance for impairment loss at a level considered adequate to provide for potential uncollectible receivables. The level of allowance is evaluated on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Company’s relationship with the customers and counterparties, average age of accounts, collection experience and average actual write-off. The Company performs a regular review of the age and status of these accounts, designed to identify accounts with objective evidence of impairment and provide the appropriate allowance for impairment loss. The review is done quarterly and annually using specific and collective assessments, respectively. The amount and timing of recorded expenses for any period would differ if the Company made different judgments or utilized different methodologies. An increase in allowance account would increase general and administrative expenses and decrease current assets.
Provision for impairment loss on receivables in 2012 and 2011 amounted to P=5.2 million and P=14.8 million, respectively, resulting from specific and collective assessments (see Note 21). The carrying value of receivables amounted to P=2,731.6 million and P=1,828.5 million as at December 31, 2012 and 2011, respectively (see Note 6).
Net Realizable Value of Inventories. The Company writes down inventories to net realizable value, through the use of an allowance account, whenever the net realizable value of inventories becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes.
The estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made of the amounts the inventories are expected to be realized. These estimates take into consideration fluctuations of prices or costs directly relating to events occurring after reporting date to the extent that such events confirm conditions existing at reporting date. The allowance account is reviewed on a regular basis to reflect the accurate valuation in the financial records.
Provision for allowance for inventory obsolescence in 2012 and 2011 amounted to P=0.1 million and nil, respectively (see Note 21). The Company wrote off allowance for inventory obsolescence amounting to nil and P=70.0 million in 2012 and 2011, respectively. The carrying value of inventories amounted to P=906.7 million and P=822.1 million as at December 31, 2012 and 2011, respectively (see Note 7).
Estimation of Useful Lives of Property, Plant and Equipment and Investment Properties. The Company estimated the useful lives of property, plant and equipment and investment properties based on the period over which the property, plant and equipment and investment properties are expected to be available for use and on the collective assessment of the industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of property, plant and equipment and investment properties are reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits in the use of property, plant and equipment and investment properties. However, it is possible that future financial performance could be materially affected by changes in the estimates brought about by changes in the factors mentioned above. The amount and timing of recording the depreciation and amortization for any period would be
- 22 -
*SGVMG200088*
affected by changes in these factors and circumstances. A reduction in the estimated useful lives of property, plant and equipment and investment properties would increase the recorded depreciation and amortization and decrease noncurrent assets.
There were no changes in the estimated useful lives of property, plant and equipment and investment properties in 2012 and 2011.
Impairment of Property, Plant and Equipment and Investment Properties. The Company performs annual impairment review of property, plant and equipment and investment properties when certain impairment indicators are present. Determining the fair value of assets, which requires the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Company to make estimates and assumptions that can materially affect the parent company financial statements. Future events could cause the Company to conclude that the assets are impaired. Any resulting impairment loss could have a material adverse impact on the Company’s financial position and performance.
Provisions for impairment losses on property, plant and equipment amounted to P=10.0 million and nil in 2012 and 2011, respectively (see Notes 11 and 21). However, there were no provisions for impairment losses on investment properties in 2012 and 2011. The aggregate carrying amounts of property, plant and equipment and investment properties amounted to P=3,873.4 million and P=3,297.9 million as at December 31, 2012 and 2011, respectively (see Notes 11 and 12).
Impairment of Investments in Subsidiaries and Interest in a Joint Venture. Impairment review of investments in subsidiaries and interest in a joint venture is performed when events or changes in circumstances indicate that the carrying value may not be recoverable. This requires management to make an estimate of the expected future cash flows from investments in subsidiaries and interest in a joint venture and to choose a suitable discount rate in order to calculate the present value of those cash flows.
There were no provisions for impairment losses on investments in subsidiaries and interest in a joint venture in 2012 and 2011. The carrying values of investments in subsidiaries amounted to P=19,346.3 million and P=16,108.9 million as at December 31, 2012 and 2011, respectively, while the carrying value of interest in a joint venture amounted to P=2.7 million and P=5.0 million as at December 31, 2012 and 2011, respectively (see Note 10).
Realizability of Deferred Tax Assets. The carrying amounts of deferred tax assets at each reporting date is reviewed and reduced to the extent that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilized. The Company’s assessment on the recognition of deferred tax assets is based on forecasted taxable income. This forecast is based on the Company’s past results and future expectations on revenues and expenses.
Deferred tax assets amounted to P=373.1 million and P=324.3 million as at December 31, 2012 and 2011, respectively (see Note 24). There were no unrecognized deferred tax assets as at December 31, 2012 and 2011.
Present Value of Defined Benefit Obligation. The present value of the defined benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions include, among others, discount rate, salary increase rate and expected rate of return on plan assets. Actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.
- 23 -
*SGVMG200088*
The assumption on the expected return on plan assets is determined on a uniform basis, taking into consideration the long-term historical returns, asset allocation and future estimates of long-term investment returns.
The Company determines the appropriate discount rate at the end of each year. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle pension liability. In determining the appropriate discount rate, the Company considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
Other key assumptions for pension liability are based in part on current market conditions.
While it is believed that the Company’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect net pension expense and pension liability.
The Company has a net cumulative unrecognized actuarial loss of P=136.5 million and gain of P=232.0 million as at December 31, 2012 and 2011, respectively. Pension liability amounted to P=181.2 million and P=142.6 million as at December 31, 2012 and 2011, respectively (see Note 25).
Share-based Payment. The Company measures the cost of its equity-settled transactions with management and employees by reference to the fair value of the equity instruments at the grant date. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. The estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about these inputs. The fair value of the share option is being determined using the Black-Scholes Option Pricing Model.
The expected life of the stock options is based on the expected exercise behavior of the stock option holders and is not necessarily indicative of the exercise patterns that may occur. The volatility is based on the average historical price volatility.
Total expense arising from share-based payments recognized by the Company amounted to P=70.8 million and P=65.9 million in 2012 and 2011, respectively (see Note 26).
Fair Value of Financial Assets and Liabilities. The Company carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgments. The significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates and volatility rates). The amount of changes in fair value would differ if different valuation methodologies and assumptions are utilized. Any changes in the fair value of these financial assets and liabilities would directly affect the parent company statements of comprehensive income.
The fair value of financial assets and liabilities are discussed in Note 30.
Provisions. The Company recognizes a provision for an obligation resulting from a past event when it has assessed that it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. These assessments are made based on available evidence, including the opinion of experts. Future events and developments may result in changes in these assessments which may impact the Company’s financial position and performance.
- 24 -
*SGVMG200088*
Provisions for legal claims and restructuring costs amounted P=30.5 million as at December 31, 2012 and 2011 (see Note 15).
Contingencies. The Company is currently involved in litigations, claims and disputes which are normal to its business. The estimate of the probable costs for the resolution of these claims has been developed in consultation with the Company’s legal counsels and based upon an analysis of potential results. Except for those legal claims provided under Note 15, management believes that the ultimate liability, if any, with respect to the other litigations, claims and disputes will not materially affect the financial position and performance of the Company.
5. Cash and Cash Equivalents
This account consists of:
2012 2011 Cash on hand P=73,268,230 P=67,198,680 Cash in banks 611,650,027 394,969,899 Short-term deposits 1,634,567,155 1,145,254,438 P=2,319,485,412 P=1,607,423,017
Cash in banks earn interest at the respective savings or special demand deposit rates.
Short-term deposits are made for varying periods of up to three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.
Interest income earned from cash in banks amounted to P=1.9 million and P=3.4 million in 2012 and 2011, respectively, and interest earned from short-term deposits amounted to P=38.7 million and P=27.8 million in 2012 and 2011, respectively (see Note 22).
6. Receivables
This account consists of:
2012 2011 Trade: Franchisees and others P=1,333,004,726 P=1,023,055,062 Related parties (Note 27) 1,219,968,289 708,026,191 2,552,973,015 1,731,081,253 Less allowance for impairment loss 69,891,839 64,736,371 2,483,081,176 1,666,344,882 Dividend receivable (Note 27) 100,000,000 – Receivable from retirement fund 70,537,035 82,137,335 Loans and advances to employees 44,490,970 40,666,294 Current portion of employee car plan
receivables (Note 13) 30,964,117 29,892,580 Interest receivable 375,836 440,582 Others 2,123,907 8,976,940 P=2,731,573,041 P=1,828,458,613
- 25 -
*SGVMG200088*
Trade receivables are noninterest-bearing and are generally on a 7-14 days term.
Dividends receivable, loans and advances to employees, current portion of employee car plan receivables, interest receivable and other receivables are expected to be collected within the next financial year.
Receivable from retirement fund represents retirement benefits advanced by the Company to employees which are expected to be collected from the retirement fund within the next financial year.
The terms and conditions of receivables from related parties are discussed in Note 27.
The movements in allowance for impairment loss on trade receivables from franchisees and others as at December 31 follow:
2012 2011 Balance at beginning of year P=64,736,371 P=49,944,384 Provisions (Note 21) 5,155,468 14,791,987 Balance at end of year P=69,891,839 P=64,736,371
The provisions in 2012 and 2011 resulted from specific and collective impairment assessments performed by the Company.
7. Inventories
This account consists of:
2012 2011 At cost: Food supplies and processed inventories P=856,406,691 P=747,172,253 Packaging, store and other supplies 37,217,695 42,438,660 893,624,386 789,610,913 At net realizable value - Novelty items 13,097,504 32,504,897 Total inventories at lower of cost and net
realizable value P=906,721,890 P=822,115,810
The cost of novelty items carried at net realizable value amounted to P=15.2 million and P=34.5 million as at December 31, 2012 and 2011, respectively.
The Company assesses the age of novelty items on hand in determining the amount of provision or reversal to be recognized. Based on this assessment, the Company booked provisions for impairment of inventory amounting to P=0.1 million as at December 31, 2012. In 2011, the Company reversed the allowance provided in 2010 amounting to P=5.3 million (see Note 21).
The Company wrote-off allowance for inventory obsolescence amounting to nil and P=70.0 million in 2012 and 2011, respectively.
- 26 -
*SGVMG200088*
8. Other Current Assets
This account consists of:
2012 2011 Deposits to suppliers and others P=119,484,119 P=85,654,042 Prepaid taxes 33,216,153 5,737,613 Current portion of prepaid car plan (Note 13) 33,161,882 34,164,694 Prepaid expenses 23,221,501 18,981,385 P=209,083,655 P=144,537,734
Deposits to suppliers and others are generally applied to purchase of inventories and availment of services and others within the next financial year.
Prepaid taxes represent creditable withholding taxes to be applied in the following year against the Company’s corporate income tax.
Prepaid expenses consist of insurance, office and operating supplies, rent, advertising and other expenses.
9. Available-for-sale Financial Assets
Investments in shares of stock consist mainly of shares in certain public utility companies that are no longer quoted in an active market as at December 31, 2012 and 2011 (see Note 30). The additional AFS financial assets also pertain to shares in public utility companies.
The movements in the carrying values of this account follow:
2012 2011 Balance at beginning of year P=79,469,742 P=79,469,742 Additions 7,500,000 – Balance at end of year P=86,969,742 P=79,469,742
The net unrealized gain on AFS financial assets presented in the parent company statements of changes in equity amounted to P=66.1 million as at December 31, 2012 and 2011.
- 27 -
*SGVMG200088*
10. Investments in Subsidiaries and Interest in a Joint Venture
The carrying values of investments follow:
2012 2011 Subsidiaries: Jollibee Worldwide Pte. Ltd. P=8,626,032,979 P=6,016,570,136 Mang Inasal Philippines Inc. 2,976,497,076 2,976,243,250 RRB Holdings, Inc. 2,515,867,960 2,488,462,594 Fresh N’ Famous Foods, Inc. 2,304,023,895 2,300,597,656 Honeybee Foods Corporation 1,529,622,377 932,782,000 Zenith Foods Corporation 996,057,105 996,057,105 Grandworth Resources Corporation 270,000,000 270,000,000 BKTitans, Inc. 65,513,120 65,454,546 Freemont Foods Corporation 59,930,558 59,930,558 Jollibee USA 2,800,000 2,800,000 19,346,345,070 16,108,897,845 Joint venture - Coffeetap Corporation 2,666,420 5,000,000 P=19,349,011,490 P=16,113,897,845
The movements in this account are as follows:
2012 2011 Investments in subsidiaries Acquisition costs: Balance at beginning of year P=16,122,012,845 P=15,421,212,942 Additional investments 3,231,215,676 696,624,829 Share-based payments (Note 26) 6,231,549 7,715,368 Acquisition price adjustment – (3,540,294) Balance at end of year 19,359,460,070 16,122,012,845 Less allowance for impairment loss 13,115,000 13,115,000 19,346,345,070 16,108,897,845 Interest in a joint venture Balance at beginning of year 5,000,000 5,000,000 Return of capital (2,333,580) – Balance at end of year 2,666,420 5,000,000 P=19,349,011,490 P=16,113,897,845
- 28 -
*SGVMG200088*
The Company’s subsidiaries include the following:
Country of Percentage
of Ownership Incorporation Principal Activities 2012 2011 Fresh N’ Famous Foods, Inc. (Fresh N’ Famous) - Philippines Food service 100 100 § Chowking Food Corporation USA
United States of America (USA)
Holding company
100
100
Zenith Foods Corporation (Zenith) Philippines Food service 100 100 Freemont Foods Corporation Philippines Food service 100 100 RRB Holdings, Inc. (RRBHI): Philippines Holding company 100 100 § Red Ribbon Bakeshop, Inc. (RRBI) Philippines Food service 100 100 § Red Ribbon Bakeshop, Inc. USA (RRBI USA) USA Food service 100 100 Mang Inasal Philippines Inc. (Mang Inasal) Philippines Food service 70 70 Grandworth Resources Corporation (Grandworth): Philippines Leasing 100 100 § Adgraphix, Inc. (Adgraphix) Philippines Digital printing 100 100 § IConnect Multimedia Network, Inc. (IConnect) Philippines Advertising 60 60 § JC Properties & Ventures Corp. Philippines Inactive 50 50 Honeybee Foods Corporation (Honeybee) - USA Food service 100 100 § Tokyo Teriyaki Corporation (TTC) USA Food service 100 100 Jollibee Worldwide Pte. Ltd. (JWPL): Singapore Holding company 100 100 § Regional Operating Headquarters of JWPL (JWS) Philippines Accounting, human
resources and logistics services
100
100
§ Golden Plate Pte. Ltd. (GPPL) Singapore Holding company 100 100 ú Golden Beeworks Pte. Ltd. Singapore Food service 60 – § Beijing New Hongzhuangyuan Food and Beverage Management Co., Ltd. (Hong Zhuang Yuan)
Peoples’ Republic of China (PRC)
Food service
100
100
§ Southsea Binaries Ltd. (Southsea)
British Virgin Island (BVI)
Holding company
100
100
§ Shanghai Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 § Beijing Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 § Shenzhen Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 § Hangzhou Yongtong Food and Beverage Co., Ltd. PRC Food service 100 100 § Hangzhou Yong He Food and Beverage Co., Ltd. PRC Food service 100 100 § Wuhan Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 § Tianjin Yong He King Food and Beverage Co., Ltd. PRC Food service 100 100 § Guangxi San Pin Wang Food and Beverage Management Company Limited (San Pin Wang)
PRC
Food service
55
–
§ Jollibee Foods Processing Co. Ltd. (JFPPL) - Singapore Holding company 70 70 ú Jollibee Foods Processing (Anhui) Co. Ltd. PRC Food service 100 100 § Kuai Le Feng Food and Beverage (Shenzen) Co. Ltd.(a) § JSF Investments Pte. Ltd. (JSF) Singapore Holding company 99 99 § Chow Fun Holdings LLC (Chow Fun) USA Food service 81 81 § Jollibee (China) Food & Beverage Management Co. Ltd. (formerly Shanghai Chunlv Co. Ltd)
PRC
Management company
100 100
§ Jollibee International (BVI) Ltd. (JIBL) BVI Holding company 100 100 ú Jollibee Vietnam Corporation Ltd. Vietnam Food service 100 100 ú PT Chowking Indonesia Indonesia Food service 100 100 ú PT Jollibee Indonesia Indonesia Dormant 100 100 ú Jollibee (Hong Kong) Limited - Hong Kong Dormant 85 85 � Hanover Holdings Limited (Hanover) Hong Kong Dormant 100 100 ú Belmont Enterprises Ventures Limited (Belmont): BVI Holding company 100 100 � Shanghai Belmont Enterprises Management and
Adviser Co., Ltd. (SBEMAC) PRC Business
management service
100 100
� Yong He Holdings Co., Ltd.: BVI Holding company 100 100 Centenary Ventures Limited BVI Holding company 100 100 Colossus Global Limited(b) BVI Dormant 100 100 Granite Management Limited(b) BVI Dormant 100 100 Cosmic Resources Limited(b) BVI Dormant 100 100 � All Great Resources Limited:(b) BVI Dormant 100 100 Eastpower Resources Limited(b) BVI Dormant 100 100 Eaglerock Development Limited(b) BVI Dormant 100 100 Chanceux, Inc. Philippines Holding company 100 100 § BKTitans, Inc. (BKTitans) Philippines Holding company 54 54 ú PFN Holdings, Corp. - Philippines Holding company 99 99 � PERF Restaurants, Inc.(c) Philippines Food service 100 100 (Forward)
- 29 -
*SGVMG200088*
Country of Percentage
of Ownership Incorporation Principal Activities 2012 2011 Donut Magic Phils., Inc. (Donut Magic)(d) Philippines Dormant 100 100 Ice Cream Copenhagen Phils., Inc. (ICCP)(d) Philippines Dormant 100 100 Mary’s Foods Corporation (Mary’s)(d) Philippines Dormant 100 100 QSR Builders, Inc. Philippines Inactive 100 100 Jollibee USA USA Dormant 100 100
(a) Kuai Le Feng Food and Beverage (Shenzen) Co. Ltd. (PRC) was deregistered on March 29, 2013. (b) BVI dormant entities are for dissolution which will take effect in 2013. (c) PERF Restaurants, Inc. also holds shares in PERF Trinoma and PERF MOA. (d) On June 18, 2004, the stockholders of the Jollibee Group approved the Plan of Merger of the three dormant companies. The
application is pending approval from the SEC as at December 31, 2012.
Incorporation of a New Subsidiary through GPPL
Golden Beeworks Pte. Ltd. (Golden Beeworks). On May 16, 2012, the Company, through GPPL, entered into an agreement to form Golden Beeworks together with Beeworks, Inc. (“Beeworks”), to own and operate Jollibee stores in Singapore. Under the agreement, the parties will establish Golden Beeworks in Singapore which will be owned 60% by GPPL and 40% by Beeworks. GPPL will have full management control of the company, while leveraging on Beework’s experience, reputation and network to establish the “Jollibee” brand in Singapore. The initial funding for Golden Beeworks is US$1 million. Golden Beeworks was incorporated on July 19, 2012 but has not yet started its commercial operation as at December 31, 2012.
As at December 31, 2012, capital contributions of the Company to Beeworks amounted to P=31.2 million.
Additional Interests in Joint Ventures through JWPL
Wowprime. On August 22, 2012, the Company, through JWPL and GPPL, entered into an agreement with Hoppime Ltd., a subsidiary of Wowprime Corporation of Taiwan (Wowprime) and some key executives of Wowprime, to establish a joint venture entity to own and operate the 12 Sabu brand in the People’s Republic of China, Hong Kong and Macau.
The joint venture entity, incorporated as WJ Investments Limited (WJ), is 48% owned by the Company and 48% by Wowprime’s subsidiary and executives. The remaining 4% is owned by certain individuals with experience in the retail sector in China. Through its subsidiaries, the Company and Wowprime will share equal control and management of WJ. The expected investment from the Company for the period 2012 to 2015 is equivalent to approximately US$8 million.
The Company has invested US$2.4 million (P=98.0 million) as at December 31, 2012.
SuperFoods Group. On January 20, 2012, the Company, through its wholly-owned subsidiary, JWPL, contributed a total of P=1,086.6 million to gain 50% effective ownership in the business of the SuperFoods Group through the formation of joint ventures. This consists of a 49% share in SF Vung Tau Joint Stock Company, organized in Vietnam, and a 60% share in Blue Sky Holding Limited in Hong Kong. The formation of joint ventures is an implementation of the Framework Agreement made on May 20, 2011 between the Company, through JWPL and Viet Thai International Joint Stock Company and Viet Thai International Company Limited (collectively, “SuperFoods Group” or the “co-venturers”).
- 30 -
*SGVMG200088*
In 2011, JWPL granted interest-bearing advances to the co-venturers amounting to P=1,436.8 million payable in 2016, which is secured by the shares of the co-venturers in SuperFoods Group.
Capital Infusions On June 22, 2012, the BOD of the Company approved additional capital infusions in JWPL, Honeybee and RRBHI by converting its advances amounting to P=2,381.6 million, P=596.8 million and P=26.1 million, respectively, to additional investments. Such conversion formed part of the additional paid-in capital of the subsidiaries and no additional shares were issued. An additional equity investment was also made to JWPL amounting to P=226.7 million, the proceeds of which shall be used to finance loan amortizations.
In 2011, the BOD of the Company approved additional capital infusions to RRBHI and Zenith by converting the Company’s advances to additional investments amounting to P=489.4 million and P=139.0 million, respectively. The conversion formed part of the subsidiaries’ additional paid-in capital and no additional shares were issued.
Acquisition of BKTitans On September 30, 2011, the Company acquired a majority ownership of the firm that operates Burger King in the Philippines. The Company invested P=65.5 million to purchase 54% equity interest in BKTitans, owner of PERF Restaurants, Inc., the sole franchisee of the Burger King Brand in the Philippines.
The Company’s primary reason for the business combination is to gain presence in the premium price segment of the hamburger category in the fast food market.
Acquisition of Mang Inasal On November 22, 2010, the Company acquired 70% of the issued and outstanding shares of Mang Inasal, owner and operator of Mang Inasal business in the Philippines, for a total acquisition cost of P=2,979.8 million. The Company has already paid P=2,700.0 million as at December 31, 2010. The present value of the remaining 10% of the purchase price amounting to P=279.8 million is payable over a 3-year period until 2013, which was withheld as assurance for indemnification against the seller’s representations and warranties and will be settled as follows:
50% 12 months from November 22, 2010 (closing date) 25% 24 months from closing date 25% 36 months from closing date
The balance of liability for acquisition of a business as at December 31, 2012 and 2011 are as follows:
2012 2011 Principal P=300,000,000 P=300,000,000 Payment (221,459,706) (146,459,706) Acquisition price adjustment (3,540,294) (3,540,294) Unamortized discount (2,707,733) (8,262,711) 72,292,267 141,737,289 Less current portion of liability for acquisition
of a business 72,292,267 69,691,179 Noncurrent portion of liability for acquisition
of a business P=– P=72,046,110
- 31 -
*SGVMG200088*
Amortization of the discount recorded under “Interest expense” account amounted to P=5.6 million and P=12.0 million in 2012 and 2011, respectively (see Note 22).
Coffeetap On May 17, 2012, the Company received P=2.3 million from Coffeetap as return of capital due to the latter’s dissolution during 2011.
In November 2011, Coffeetap completed an asset purchase agreement to sell its inventory and property and equipment to CaféFrance Corporation. On the same date, Coffeetap terminated its franchise of “Caffe Ti-amo” brand. Consequently, dissolution plans have been underway and were formally approved by Coffeetap’s BOD on February 28, 2012. Gain on sale of inventories and property and equipment recorded by Coffeetap in its profit or loss amounted to P=2.0 million and P=5.7 million, respectively.
11. Property, Plant and Equipment
The rollforward analysis of this account follows:
2012
Land
Plant and Buildings,
Commercial Condominium
Units and Improvements
Leasehold Rights
and Improvements
Office, Store and Food
Processing Equipment
Furniture and Fixtures
Transportation Equipment
Construction in Progress Total
(In Thousands)
Cost: Balance at beginning of year P=18,586 P=496,785 P=2,649,335 P=2,615,718 P=296,250 P=193,167 P=301,187 P=6,571,028 Additions 2,000 – 204,724 303,721 29,076 17,297 58,069 614,887 Retirements and disposals – (38,316) (389,991) (72,795) (8,667) (11,108) (6,892) (527,769) Reclassifications 8,000 – 95,313 231,286 (601) 29 (334,027) – Balance at end of year 28,586 458,469 2,559,381 3,077,930 316,058 199,385 18,337 6,658,146 Accumulated depreciation and
amortization: Balance at beginning of year – 407,328 1,499,647 1,883,564 219,500 112,699 – 4,122,738 Additions (Notes 20 and 21) – 9,880 260,625 310,638 43,711 23,040 – 647,894 Retirements and disposals – (38,280) (378,253) (58,629) (7,736) (7,622) – (490,520) Balance at end of year – 378,928 1,382,019 2,135,573 255,475 128,117 – 4,280,112 Accumulated impairment loss: Balance at beginning of year – – – – – – – – Impairment loss (Note 21) – – – 10,000 – – – 10,000 Balance at end of year – – – 10,000 – – – 10,000 Net Book Value P=28,586 P=79,541 P=1,177,362 P=932,357 P=60,583 P=71,268 P=18,337 P=2,368,034
2011
Land
Plant and Buildings,
Commercial Condominium
Units and Improvements
Leasehold Rights
and Improvements
Office, Store and Food
Processing Equipment
Furniture and Fixtures
Transportation Equipment
Construction in Progress Total
(In Thousands)
Cost: Balance at beginning of year P=18,586 P=496,770 P=2,256,788 P=2,440,661 P=256,282 P=153,960 P=42,086 P=5,665,133 Additions – 66 290,169 326,736 41,958 45,142 405,016 1,109,087 Retirements and disposals – – (41,310) (151,052) (9,099) (5,935) – (207,396) Reclassifications (Note 12) – (51) 143,688 (627) 7,109 – (145,915) 4,204 Balance at end of year 18,586 496,785 2,649,335 2,615,718 296,250 193,167 301,187 6,571,028 Accumulated depreciation and
amortization: Balance at beginning of year – 388,546 1,319,120 1,732,977 187,367 97,487 – 3,725,497 Additions (Notes 20 and 21) – 18,782 218,926 292,853 40,974 20,562 – 592,097 Retirements and disposals – – (38,399) (142,266) (8,841) (5,350) – (194,856) Balance at end of year – 407,328 1,499,647 1,883,564 219,500 112,699 – 4,122,738 Net Book Value P=18,586 P=89,457 P=1,149,688 P=732,154 P=76,750 P=80,468 P=301,187 P=2,448,290
The cost of fully depreciated assets still used by the Company amounted to P=2,636.5 million and P=2,665.9 million as at December 31, 2012 and 2011, respectively.
- 32 -
*SGVMG200088*
Construction in progress account as at December 31, 2012 and 2011 mainly pertains to costs incurred for ongoing construction of soon-to-open stores.
In 2012, the Company provided allowance for impairment loss on office, store and food processing equipment amounting to P=10.0 million. Due to typhoon and other calamities, the Company performed a preliminary impairment assessment of its store fixed assets which indicated that the carrying value may not be fully recoverable.
No property, plant, and equipment as at December 31, 2012 and 2011 have been pledged as security or collateral for the Company’s debts (see Note 16).
12. Investment Properties
The rollforward analysis of this account follows:
2012
Land and Land Improvements
Buildings and Building
Improvements Total Cost: Balance at beginning of year P=766,461,538 P=241,750,327 P=1,008,211,865 Additions – 670,449,438 670,449,438 Balance at end of year 766,461,538 912,199,765 1,678,661,303 Accumulated depreciation and
amortization: Balance at beginning of year – 146,562,596 146,562,596 Additions (Note 20) – 14,780,354 14,780,354 Balance at end of year – 161,342,950 161,342,950 Accumulated impairment loss: Balance at beginning and
end of year 12,000,000 – 12,000,000 P=754,461,538 P=750,856,815 P=1,505,318,353
2011
Land and Land Improvements
Buildings and Building
Improvements Total Cost: Balance at beginning of year P=758,456,205 P=245,948,103 P=1,004,404,308 Additions 8,005,333 6,053 8,011,386 Reclassifications to property
plant and equipment (Note 11) – (4,203,829) (4,203,829) Balance at end of year 766,461,538 241,750,327 1,008,211,865 Accumulated depreciation and
amortization: Balance at beginning of year – 139,739,577 139,739,577 Additions (Note 20) – 6,823,019 6,823,019 Balance at end of year – 146,562,596 146,562,596 Accumulated impairment loss: Balance at beginning and
end of year 12,000,000 – 12,000,000 P=754,461,538 P=95,187,731 P=849,649,269
The cost of fully depreciated buildings still being leased out by the Company amounted to P=112.4 million as at December 31, 2012 and 2011.
- 33 -
*SGVMG200088*
The additions to “Building and Building Improvements” in 2012 pertains to the Company’s commissary and logistics center in Metro Manila. The Company did not avail of specific loans to finance the construction of building and building improvements. No borrowing cost was capitalized and recognized as part of investment property in 2012.
The Company’s investment properties have aggregate fair value of P=1,785.3 million as determined by independent appraisers on September 21, 2011. The fair value represents the amount at which the assets can be exchanged between knowledgeable willing parties in an arm’s-length transaction at the date of valuation in accordance with International Valuation Standards.
In determining the fair value of the investment properties, the independent appraisers used the market data approach which considered the local market conditions, the extent, character and utility of the property, sales and holding prices of similar parcels of land and the highest and best use of the investment properties.
The accumulated impairment loss in the value of land amounting to P=12.0 million as at December 31, 2012 and 2011 represents the excess of the carrying value over the estimated recoverable amount.
Rent income derived from income-generating properties on the straight-line basis amounted to P=88.9 million and P=10.7 million in 2012 and 2011, respectively, recorded under “Rent income” account.
Direct operating costs relating to the investment properties recognized under “Cost of services” and “General and administrative expenses” accounts amounted to P=63.2 million and P=9.0 million in 2012 and 2011, respectively.
No investment properties as at December 31, 2012 and 2011 have been pledged as security or collateral for the Company’s debts (see Note 16).
13. Other Noncurrent Assets
This account consists of:
2012 2011 Refundable deposits (Notes 29 and 30) P=307,427,912 P=280,402,459 Noncurrent portion of: Prepaid car plan (Note 8) 69,860,922 71,732,936 Employee car plan receivables
(Notes 6, 29 and 30) 61,995,041 63,206,343 Prepaid rent 66,395,262 51,969,197 Deferred rent and compensation 43,908,696 49,581,027 Returnable containers 19,032,550 18,684,150 Others 28,420,722 45,749,498 P=597,041,105 P=581,325,610
Refundable deposits represent the Company’s deposits for operating leases entered into by the Company as a lessee (see Note 28). The refundable deposits are recoverable from the lessors at the end of the related lease terms. The refundable deposits are presented at amortized cost. The discount rates used range from 2% to 22% in 2012 and 2011. The difference between the fair value at initial recognition and the notional amount of the refundable deposits is recognized as deferred rent expense and amortized on a straight-line basis over the lease terms. Accretion of
- 34 -
*SGVMG200088*
interest pertaining to refundable deposits amounted to P=6.9 million and P=7.7 million in 2012 and 2011, respectively (see Note 22).
Employee car plan receivables are presented at amortized cost. The difference between the fair value at initial recognition and the notional amount of the employee car plan receivables is recognized as deferred compensation and amortized on a straight-line basis over the credit period. Accretion of interest pertaining to employee car plan receivables amounted to P=6.6 million in 2012 and 2011 (see Note 22).
14. Trade Payables and Other Current Liabilities
This account consists of:
2012 2011 Trade payables: Suppliers P=2,462,230,408 P=2,152,520,803 Related parties (Note 27) 354,784,293 201,285,149 Accruals for: Salaries, wages and employee benefits 743,350,469 646,324,352 Advertising and promotions 458,806,857 420,198,949 Rebates 123,163,928 – Rent 121,369,078 133,470,479 Electricity, other utilities and communication 99,937,825 99,198,042 Retention 83,764,686 – Repairs, maintenance and security 43,453,479 37,479,965 Supplies 39,048,489 33,032,812 Professional fees 35,982,869 50,418,762 Novelties 31,295,897 54,176,827 Gift certificates 26,467,424 67,261,568 Transportation and travel 6,548,067 6,227,131 Insurance 5,184,128 2,673,967 Interest (Note 16) 3,365,753 19,316,637 Internal events, trainings, seminars and others 243,104,605 132,997,727 Local and other taxes payable 868,262,674 699,961,171 Customers’ deposits 285,574,552 152,585,318 Dividends payable 26,173,052 6,563,034 P=6,061,868,533 P=4,915,692,693
Trade payables are noninterest-bearing and are settled within a 30-day term.
Accrued expenses, local and other taxes payable, customers’ deposits and dividends payable are noninterest-bearing and are normally settled within the next financial year.
The terms and conditions of payables to related parties are discussed in Note 27.
- 35 -
*SGVMG200088*
15. Provisions
The Company has outstanding provisions amounting to P=30.5 million as at December 31, 2012 and 2011, consisting of provisions for legal claims and restructuring costs.
Provisions for legal claims amounting to P=29.3 million include estimates of legal services, settlement amounts and other costs of claims made against the Company. Other information on the claims is not disclosed as this may prejudice the Company’s position on such claims. The Company’s management, after consultation with its legal counsel, believes that the provisions are sufficient to meet the costs related to the claims.
The provision for restructuring costs amounting to P=1.2 million relates to the Company’s Cost Improvement Program to improve the quality of services and reduce the costs of backroom operations for its various QSR systems.
16. Short-term and Long-term Debt
Short-term Debt On April 12, 2011, the Company entered into a general credit agreement and obtained a short-term loan amounting to P=900.0 million with an interest rate of 2.63%. The loan was paid in full, including accrued interest, on April 17, 2012.
Current portion of Long-term Debt On December 16, 2011, the remaining P=700.0 million of the P=1,000.0 million loan, together with the P=800.0 million loan, both of which have already matured, were combined to form a single long-term loan with a renegotiated due date on December 16, 2013. The interest rate on the loan was 3.9% payable on a quarterly basis.
The balance as at December 31, 2012 is as follows:
Principal P=1,500,000,000 Less unamortized debt issue cost (3,670,604) P=1,496,329,396
Debt Issue Cost The movements in unamortized debt issue cost in 2012 and 2011 are as follows:
2012 2011 Balance at beginning of year P=7,349,351 P=7,085,161 Additions – 7,500,000 Amortization (Note 21) (3,678,747) (7,235,810) Balance at end of year P=3,670,604 P=7,349,351
Interest expense incurred related to short-term and long-term debt amounted to P=65.8 million and P=215.6 million in 2012 and 2011, respectively (see Note 22). Accrued interest expense included in “Trade payables and other current liabilities” account amounted to P=3.4 million and P=19.3 million as at December 31, 2012 and 2011, respectively (see Note 14).
- 36 -
*SGVMG200088*
17. Capital Stock
The movements in the number of shares are as follows:
2012 2011 Authorized - P=1 par value 1,450,000,000 1,450,000,000 Issued: Balance at beginning of year 1,052,943,936 1,051,429,521 Issuances 8,906,326 1,514,415 Balance at end of year 1,061,850,262 1,052,943,936 Subscribed: Balance at beginning of year 2,009,297 2,009,297 Subscriptions 8,906,326 1,514,415 Issuances (8,906,326) (1,514,415) Balance at end of year 2,009,297 2,009,297 1,063,859,559 1,054,953,233
On February 15, 1993, the SEC approved the increase of the Company’s authorized capital stock from 6.6 million shares, with a par value of P=10.00 per share, to 750.0 million shares, with a par value of P=1.00 per share, for the Company’s initial public offering (IPO). The offer price of the shares for such IPO ranged from P=7.50 to P=10.50 per share.
The total number of shareholders is 3,325 and 3,437 as at December 31, 2012 and 2011, respectively.
The Company’s common stock held in treasury amounted to P=180.5 million which is equivalent to 16.4 million shares as at December 31, 2012 and 2011.
18. Retained Earnings
The Company has a Cash Dividend Policy of declaring one-third of its net income for the year as cash dividends. It uses best estimate of its net income as basis for declaring cash dividends. Actual cash dividends per share declared as a percent of the earnings per share are 61.8% and 34.1% in 2012 and 2011, respectively.
The Company’s cash dividend declarations for 2012 and 2011 follow:
2012
Declaration Date Record Date Payment Date Cash Dividend
per Share
Total Cash Dividends Declared
April 12 May 9 May 31 P=0.58 P=602,206,230 November 12 December 3 December 19 1.62 1,691,771,273 P=2.20 P=2,293,977,503
- 37 -
*SGVMG200088*
2011
Declaration Date Record Date Payment Date Cash Dividend
per Share
Total Cash Dividends
Declared April 13 May 5 May 31 P=0.50 P=513,586,071 November 4 November 22 December 16 0.57 586,430,790 P=1.07 P=1,100,016,861
An important part of the Company’s growth strategy is the acquisition of new businesses in the Philippines and abroad. Examples were acquisitions of 85% of Yonghe King in 2004 in PRC (P=1,200.0 million), 100% of Red Ribbon in 2005 (P=1,700.0 million), the remaining 20% minority share in Greenwich in 2007 (P=384.0 million), the remaining 15% share of Yonghe King in 2007 (P=413.7 million), 100% of Hong Zhuang Yuan restaurant chain in PRC in 2008 (P=2,600.0 million), 70% of Mang Inasal in 2010 (P=2,979.8 million), 100% of Chowking US operations in 2011 (P=659.9 million), 55% of San Pin Wang (P=195.9 million) and 48% of WJ Investments Limited (P=98.0 million) in 2012.
The Company plans to continue to make substantial acquisitions in 2013 and in the next few years. The Company uses its cash generated from operations to finance these acquisitions and capital expenditures. These limit the amount of cash dividends that it can declare and pay making the level of retained earnings higher than the paid-in capital stock.
On February 15, 2012, the BOD approved the appropriation of P=3,800.0 million retained earnings to be used for future expansion and support the Company’s growth strategy, increasing the existing appropriation of P=1,200.0 million to P=5,000.0 million.
Project Timeline Amount Acquisition of businesses 2013-2018 P=5,000,000,000
The unappropriated retained earnings is restricted for the payment of dividends to the extent of P=5,180.5 million, representing appropriations for future expansion of P=5,000.0 million and the cost of common stock held on treasury amounting to P=180.5 million as at December 31, 2012.
19. Royalty and Franchise Fees
The Company has existing Royalty and Franchise Agreements with certain subsidiaries and independent franchisees for the latter to operate QSR outlets under the “Jollibee” concept and trade name. In consideration thereof, the franchisees agree to pay franchise fees and monthly royalty fees equivalent to a certain percentage of the franchisees’ net sales.
The Company also charges the franchisees and subsidiaries a share in the network advertising and promotional activities based on certain percentages of the latter’s net sales.
- 38 -
*SGVMG200088*
20. Cost of Sales and Services
This account consists of:
2012 2011 Cost of Sales Cost of inventories (Notes 7 and 27) P=18,529,253,495 P=16,673,740,595 Personnel expenses: Salaries, wages and employee benefits 2,020,443,243 1,921,821,230 Pension expense (Note 25) 19,049,839 35,092,158 Electricity and other utilities 982,391,341 882,902,519 Rent (Notes 27 and 28) 955,656,790 995,792,200 Freight 651,228,367 517,612,627 Depreciation and amortization (Notes 11 and 12) 526,500,262 483,700,323 Supplies 430,298,404 403,526,203 Contracted services 273,549,763 244,352,709 Professional and service fees (Note 27) 225,330,815 113,033,304 Repairs and maintenance 171,003,018 179,420,245 Security and janitorial 114,461,138 106,144,967 Taxes and licenses 57,876,300 53,719,573 Transportation and travel 54,693,246 55,125,778 Communication 22,491,765 23,269,224 Entertainment, amusement and recreation 11,050,183 10,656,797 Training 3,492,521 2,557,640 Others 348,269,108 298,225,265 25,397,039,598 23,000,693,357
Cost of Services Cost of labor and materials 271,798,537 237,493,806 Rent 99,063,737 26,308,943 Professional and service fees (Note 27) 42,274,567 404,128 Depreciation and amortization (Notes 11 and 12) 16,570,824 – Security and janitorial 2,644,629 – Taxes and licenses 2,103,230 – Pension expense (Note 25) 775,867 590,463 Electricity and other utilities 90,633 – Repairs and maintenance 35,143 – Communication 22,500 – Transportation and travel 20,300 – Supplies 10,000 – Others 2,402,632 – 437,812,599 264,797,340 P=25,834,852,197 P=23,265,490,697
Others consist mainly of delivery costs, share in common usage area and insurance.
Cost of services pertains to store machine repairs and maintenance rendered to franchised stores and related parties. Cost of labor and materials, included in “Cost of services” account, pertains to salaries, wages and employee benefits of engineering personnel and materials used in rendering services.
- 39 -
*SGVMG200088*
In 2012, the Company entered into a lease agreement with a related party for the lease of its commissary and logistics center in Metro Manila for a period of 5 years commencing on May 1, 2012 (see Note 27).
21. General and Administrative Expenses
This account consists of:
2012 2011 Personnel expenses: Salaries, wages and employee benefits P=1,483,234,840 P=1,386,656,468 Stock options expense (Note 26) 70,752,823 65,880,814 Pension expense (Note 25) 30,878,146 56,310,906 Write-off of uncollectible accounts 347,688,870 – Professional and service fees (Note 27) 327,152,742 387,596,235 Taxes and licenses 313,776,156 294,129,842 Rent (Notes 27 and 28) 161,677,145 204,100,614 Corporate events and research 161,196,477 147,397,977 Transportation and travel 129,174,800 123,400,136 Depreciation and amortization (Notes 11 and 12) 119,602,817 115,219,444 Donations 68,199,176 37,511,530 Training 56,601,727 40,059,323 Entertainment, amusement and recreation 55,112,881 51,904,935 Electricity and other utilities 34,940,701 32,937,328 Communication 34,887,193 29,693,209 Supplies 29,839,173 26,483,048 Contracted services 26,975,938 23,116,290 Repairs and maintenance 22,171,633 27,399,092 Delivery charges 13,073,703 18,233,651 Provisions (reversals) for impairment losses on: Property, plant, and equipment (Note 11) 10,000,000 – Trade receivables (Note 6) 5,155,468 14,791,987 Security deposits 3,000,000 – Inventories (Note 7) 112,032 (5,304,145) Insurance 5,482,624 9,363,596 Amortization of debt issue cost (Note 16) 3,678,747 7,235,810 Security and janitorial 396,091 5,838,059 Others 141,247,621 127,283,988 P=3,656,009,524 P=3,227,240,137
- 40 -
*SGVMG200088*
22. Interest Income (Expense)
The Company’s interest income and expenses consist of the following:
2012 2011 Interest income: Short-term deposits (Note 5) P=38,734,586 P=27,816,459 Accretion of interest on financial assets
(Note 13) 13,471,887 14,280,344 Cash in banks (Note 5) 1,892,794 3,406,316 Advances to related parties (Note 27) – 14,873,069 54,099,267 60,376,188
Interest expense: Current portion of long-term debt (Note 16) (58,660,274) (136,709,357) Due to related parties (Note 27) (32,281,592) (12,016,858) Short-term debt (Note 16) (7,107,210) (78,916,052) Accretion of interest on financial liabilities
(Note 10) (6,062,341) (11,957,628) (104,111,417) (239,599,895) (P=50,012,150) (P=179,223,707)
23. Other Income
This account consists of:
2012 2011 Dividend income (Note 27) P=1,365,959,760 P=1,350,000,000 Management fees (Note 27) 364,737,683 329,685,954 Write-off of other liabilities 182,355,552 268,791,561 Net foreign exchange loss (Note 29) (19,659,695) (62,935,907) Net loss on disposals and retirements of property
and equipment (10,914,976) (6,809,535) Penalty charges 7,340,588 60,114 Pre-termination of operating leases 5,639,238 238,187 Logistics service fees 4,000,672 2,082,756 Others 73,895,401 47,757,796 P=1,973,354,223 P=1,928,870,926
Others consist mainly of rent income from lease of minor equipment and containers and cash overages.
- 41 -
*SGVMG200088*
24. Income Taxes
The provision for current income tax consists of the following:
2012 2011 Final taxes on: Royalty and franchise fees P=515,644,392 P=468,854,667 Interest income 8,122,979 5,781,488 RCIT 199,655,756 275,316,154 P=723,423,127 P=749,952,309
The details of the Company’s deferred tax assets and liabilities are as follows:
2012 2011 Deferred tax assets: Operating lease payables P=193,836,261 P=187,304,040 Pension liability 54,356,050 42,772,016 Net unrealized foreign exchange loss 31,449,914 689,775 Allowance for impairment losses on: Receivables 20,967,552 19,420,911 Prepaid leases 10,321,024 10,694,546 Investment properties 3,600,000 3,600,000 Property, plant and equipment 3,000,000 – Inventories 644,453 610,843 Unamortized past service cost 16,737,848 19,527,490 Unaccreted discount on: Refundable deposits 14,001,426 14,966,401 Employee car plan receivables 2,714,891 3,215,028 Accrued employee benefits 12,300,000 12,300,000 Provisions for legal claims and restructuring
costs 9,150,192 9,150,192 Deferred rent revenue 2,310 2,310 373,081,921 324,253,552
Deferred tax liabilities: Prepaid rent 22,416,209 16,683,538 Net unrealized foreign exchange gain 20,969,516 184,698 Deferred rent expense 10,457,718 11,659,280 Operating lease receivables 9,745,925 1,939,221 Deferred compensation expense 2,714,891 3,215,028 Unamortized discount on liability for acquisition
of a business 2,478,813 2,478,813 Unamortized discount on customer’s liability (149,921) 2,287 68,633,151 36,162,865 P=304,448,770 P=288,090,687
- 42 -
*SGVMG200088*
The reconciliation between provision for income tax computed at the statutory tax rate with the provision for income tax as shown in the parent company statements of comprehensive income are as follows:
2012 2011 Provision for income tax at statutory income tax rate P=1,357,037,647 P=1,372,148,437 Adjustments to provision for income tax for: Dividend income (409,787,928) (405,000,000) Effect of different tax rate for royalty, franchise
fees and interest income (261,887,430) (238,012,678) Nondeductible expenses 25,516,465 23,349,588 Adopt-A-School (RA 8525) (3,813,710) – P=707,065,044 P=752,485,347
25. Pension Costs
The Company has a funded, independently administered, non-contributory defined benefit retirement plan covering all permanent and regular employees with benefits based on years of service and latest compensation. The assets of the Parent Company’s retirement plan are managed by a trustee bank.
The following tables summarize the components of net pension expense recognized in profit or loss and the funded status and amounts recognized in the parent company statements of financial position for the plan.
Net Pension Expense
2012 2011 Current service cost P=73,375,354 P=56,992,738 Interest cost 52,024,871 94,448,989 Expected return on plan assets (61,605,795) (59,448,200) Net actuarial gain recognized during the year (13,090,578) – P=50,703,852 P=91,993,527
Pension Liability
2012 2011 Present value of defined benefit obligation P=1,255,721,133 P=790,651,529 Fair value of plan assets (938,065,846) (880,082,781) Present value of under (over) funded obligation 317,655,287 (89,431,252) Unrecognized net actuarial gain (loss) (136,468,452) 232,004,638 P=181,186,835 P=142,573,386
- 43 -
*SGVMG200088*
The movements in the present value of defined benefit obligation are as follows:
2012 2011 Balance at beginning of year P=790,651,529 P=844,048,159 Current service cost 73,375,354 56,992,738 Interest cost 52,024,871 94,448,989 Actual benefits paid from: Plan assets (67,571,900) (22,024,168) Company’s funds (12,090,403) (3,351,746) Actuarial loss (gain) on benefit obligation: Due to experience adjustments 367,442,149 (454,195,118) Due to change in assumptions 51,889,533 274,732,675 Balance at end of year P=1,255,721,133 P=790,651,529
The movements in the fair value of plan assets are as follows:
2012 2011 Balance at beginning of year P=880,082,781 P=743,102,497 Benefits paid (67,571,900) (22,024,168) Actuarial gain on plan assets 63,949,170 36,288,952 Expected return on plan assets 61,605,795 59,448,200 Contributions – 63,267,300 Balance at end of year P=938,065,846 P=880,082,781
Actual return on plan assets P=125,554,965 P=95,737,152
The following table presents the carrying amounts and estimated fair values of the assets of the retirement plan:
2012 2011
Carrying
Amount Fair Value Carrying
Amount Fair Value Cash and cash equivalents P=2,982,228 P=2,982,228 P=82,479,842 P=82,479,842 Investment in equity
securities 267,632,854 267,632,854 203,000,167 203,000,167 Investments in government securities, bonds and
other debt instruments 656,835,527 656,835,527 584,151,818 584,151,818 Others 10,615,237 10,615,237 10,450,954 10,450,954 P=938,065,846 P=938,065,846 P=880,082,781 P=880,082,781
The retirement plan’s assets and investments consist of the following:
§ Cash and cash equivalents includes regular savings and time deposits.
§ Investment in equity securities consists of listed equity securities including investment in equity securities of the Company (see Note 27).
§ Investments in government securities consist of retail treasury bonds that bear interest ranging from 5.50%-7.38% and have maturities from August 2020 to October 2037; and fixed-income
- 44 -
*SGVMG200088*
treasury notes that bear interest ranging from 4.42%-9.91% and have maturities from February 2015 to August 2037.
§ Investments in debt and other securities consist of long-term corporate bonds, which bear interest ranging from 6.30%-7.75% maturing on April 2017.
§ Other financial assets held by the retirement plan are primarily accrued interest income on cash and cash equivalents, debt instruments and other securities.
The Company expects to further contribute an amount equivalent to the underfunded defined benefit obligation based on 2012 actuarial valuation.
The overall expected rate of return on plan assets is determined based on the market prices, prevailing on that date, applicable to the period within which the obligation is to be settled. The latest actuarial valuation of the defined benefit retirement plan is as at December 31, 2012.
The principal actuarial assumptions used to determine retirement benefit obligations as at December 31are as follows:
2012 2011 Discount rate 5.70% 6.58% Salary increase rate 7.00% 7.50% Expected rate of return on plan assets 7.00% 7.00%
The amounts for the current and previous four periods are as follows:
2012 2011 2010 2009 2008 Plan assets P=938,065,846 P=880,082,781 P=743,102,497 P=590,476,961 P=359,953,803 Defined benefit obligation (1,255,721,133) (790,651,529) (844,048,159) (755,004,212) (486,965,586) Surplus (Deficit) (P=317,655,287) P=89,431,252 (P=100,945,662) (P=164,527,251) (P=127,011,783)
Experience adjustments on: Plan obligation P=367,442,149 (P=454,195,118) P=– P=193,809,415 P=– Plan assets 63,949,170 36,288,952 90,323,471 45,372,635 (6,572,450)
- 45 -
*SGVMG200088*
26. Stock Option Plans
Senior Management Stock Option and Incentive Plan On December 17, 2002, the SEC approved the exemption requested by the Company on the registration requirements of the 101,500,000 options underlying the Company’s common shares to be issued pursuant to the Company’s Senior Management Stock Option and Incentive Plan (the Plan). The Plan covers selected key members of management of the Company, certain subsidiaries and designated affiliated entities.
The Plan is divided into two programs, namely, the Management Stock Option Program (MSOP) and the Executive Long-term Incentive Program (ELTIP). The MSOP provides a yearly stock option grant program based on company and individual performance while the ELTIP provides stock ownership as an incentive to reinforce entrepreneurial and long-term ownership behavior of participants.
MSOP. The MSOP is a yearly stock option grant program open to members of the corporate management committee of the Company and members of the management committee, key talents and designated consultants of some of the business units.
Each MSOP cycle refers to the period commencing on the MSOP grant date and ending on the last day of the MSOP exercise period. Vesting is conditional on the employment of the employee-participants to the Company within the vesting period. The options will vest at the rate of one-third of the total options granted on each anniversary of the MSOP grant date until the third anniversary.
The exercise price of the stock options is determined by the Company with reference to prevailing market prices over the three months immediately preceding the date of grant for the 1st to the 7th MSOP cycle. Starting with the 8th MSOP cycle, the exercise price of the option is determined by the Company with reference to the closing market price as at date of grant.
The contractual term of each option is seven years. The Company does not pay cash as a form of settlement.
On July 1, 2004, the Compensation Committee of the Company granted 2,385,000 options under the 1st MSOP cycle to eligible participants. The options will vest at the rate of one-third of the total options granted on each anniversary date which will start after a year from the MSOP grant date. One-third of the options granted, or 795,000 options, vested and may be exercised starting July 1, 2005 and expired on June 30, 2012. From July 1, 2005 to 2012, the Compensation Committee granted series of MSOP grants under the 2nd to 9th MSOP cycles to eligible participants. The options vest similar to the 1st MSOP cycle.
- 46 -
*SGVMG200088*
The movements in the number of stock options outstanding for the 1st up to the 9th MSOP cycles and related weighted average exercise prices (WAEP) for the years ended December 31, 2012 and 2011 follow:
2012 2011
Number
of options WAEP Number
of options WAEP Total options granted as of end of year 29,808,694 P=53.07 26,790,664 P=46.89
Outstanding at beginning of year 17,505,395 52.39 15,904,997 43.46 Options granted during the year 3,018,030 107.90 3,516,970 89.90 Options exercised during the year (3,375,915) 41.80 (1,507,813) 43.07 Options forfeited during the year (359,454) 80.52 (408,759) 62.03 Outstanding at end of year 16,788,056 P=63.90 17,505,395 P=52.39
Exercisable at end of year 10,367,798 P=45.83 10,424,829 P=40.10
The weighted average share price was P=103.41 and P=85.48 in December 31, 2012 and 2011, respectively. The weighted average remaining contractual life for the stock options outstanding as at December 31, 2012 and 2011 is 4.66 years and 4.88 years, respectively.
The weighted average fair value of stock options granted in 2012 and 2011 is P=23.43 and P=23.67, respectively. The fair value of the share options as at the date of grant is estimated using the Black-Scholes Option Pricing Model, taking into account, the terms and conditions upon which the options were granted. The option style used for this plan is the American style because this option plan allows exercise before the maturity date. The inputs to the model used for the options granted on the dates of grant for each MSOP cycle are as follows:
MSOP cycle
Year
of grant Dividend
yield Expected volatility
Risk-free interest
rate
Expected life of
the option
Stock price on grant
date Exercise
price 1st 2004 1.72% 36.91% 6.20% 5-7 years P=24.00 P=20.00 2nd 2005 1.72% 36.91% 6.20% 5-7 years 29.00 27.50 3rd 2006 1.72% 36.91% 6.20% 5-7 years 35.00 32.32 4th 2007 1.70% 28.06% 6.41% 3-4 years 52.50 50.77 5th 2008 1.80% 26.79% 8.38% 3-4 years 34.00 39.85 6th 2009 2.00% 30.37% 5.28% 3-4 years 48.00 45.45 7th 2010 2.00% 29.72% 5.25% 3-4 years 70.00 57.77 8th 2011 2.00% 34.53% 4.18% 3-4 years 89.90 89.90 9th 2012 2.00% 28.72% 3.50% 3-4 years 107.90 107.90
The expected life of the stock options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
ELTIP. The ELTIP entitlement is given to members of the corporate management committee.
Each ELTIP cycle refers to the period commencing on the ELTIP entitlement date and ending on the last day of the ELTIP exercise period. Actual grant and vesting is conditional upon achievement of the Company’s minimum medium to long-term goals and individual targets in a given period, and the employment of the employee-participants to the Company within the vesting
- 47 -
*SGVMG200088*
period. If the goals are achieved, the options will be granted. Starting with the 3rd ELTIP cycle, a percentage of the options to be granted are based on the percentage of growth in annual earnings per share such that 100%, 50% or 25% of the options are granted when percentage of growth in annual earnings per share are 12% and above, 10% to less than 12% or 8% to less than 10%, respectively.
The exercise price of the stock options is determined by the Company with reference to prevailing market prices over the three months immediately preceding the date of entitlement. Starting with the 3rd ELTIP cycle, the exercise price of the option is determined by the Company with reference to the closing market price as at date of grant.
The contractual term of each option is five years. The Company does not pay cash as a form of settlement.
On July 1, 2004, the Compensation Committee gave an entitlement of 22,750,000 options under the 1st ELTIP cycle to eligible participants. The options will vest at the rate of one-third of the total options granted from the start of the grant date and on each anniversary of the ELTIP grant date. One-third of the options granted, or 7,583,333 options, vested and may be exercised starting July 1, 2007 and expired on June 30, 2012. On July 1, 2008 and October 19, 2012, a total entitlement of 20,399,999 and 23,600,000 options was given to eligible participants under the 2nd and 3rd ELTIP cycle, respectively.
The movements in the number of stock options outstanding for the 2nd and 3rd ELTIP cycles and related WAEP for the years ended December 31, 2012 and 2011 follow:
2012 2011
Number
of options WAEP Number
of options WAEP
Total options given as at end of year 66,749,999 P=56.12 43,149,999 P=29.38
Outstanding at beginning of year 27,674,569 32.52 30,661,735 32.72 Options granted during the year 23,600,000 105.00 750,000 39.85 Options exercised during the year (12,962,905) 24.19 (787,166) 20.00 Options forfeited during the year (499,999) 39.85 (2,950,000) 39.85 Outstanding at end of year 37,811,665 P=80.51 27,674,569 P=32.52
Exercisable at end of year 7,411,665 P=39.85 10,224,570 P=20.00
The weighted average remaining contractual life for the stock options outstanding is 5.68 years and 3.02 years as at December 31, 2012 and 2011, respectively.
The fair value of stock options granted is P=23.43 and P=7.26 in 2012 and 2011, respectively. The fair value of share options as at the date of grant is estimated using the Black-Scholes Option Pricing Model, taking into account, the terms and conditions upon which the options were granted. The option style used for this plan is the American style because this option plan allows exercise before the maturity date.
- 48 -
*SGVMG200088*
The inputs to the model used for the options granted on the dates of grant for each ELTIP cycle are as follows:
ELTIP cycle
Year of grant
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of
the option
Stock price on grant
date Exercise
price 1st 2004 1.72% 36.91% 6.20% 5 years P=24.00 P=20.00 2nd 2008 1.80% 26.79% 8.38% 3-4 years 34.00 39.85 3rd 2012 2.00% 28.74% 3.60% 3-4 years 105.00 105.00
The expected life of the stock options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
The cost of the stock options charged to operations under “General and administrative expenses” account amounted to P=70.8 million and P=65.9 million in 2012 and 2011, respectively (see Note 21). The cost of share options for employees of the subsidiaries amounted to P=6.2 million and P=7.7 million in 2012 and 2011, respectively, and was recognized as additional investments (see Note 10).
27. Related Party Transactions
Enterprises and individuals that directly, or indirectly through one or more intermediaries, control or are controlled by, or under common control with the Company, including holding companies, subsidiaries and fellow subsidiaries are related entities of the Company. Individuals owning, directly or indirectly, an interest in the voting power of the Company that give them significant influence over the enterprise; key management personnel, including directors and officers of the Company, and close members of the family of these individuals and companies associated with these individuals also constitute related entities.
In the normal course of business, the Company engages in transactions with its subsidiaries and other related parties.
- 49 -
*SGVMG200088*
The following table provides the summary of transactions that have been entered into with related parties as at and for the years ended December 31, 2012 and 2011:
Volume of Transactions Outstanding Receivable (Payable) Category 2012 2011 2012 2011 Terms Conditions
Subsidiaries: Fresh N’ Famous Sales P=49,733,929 P=63,775,578 P=– P=4,559,219 On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 64,100,156 59,488,099 2,261,682 5,067,059 On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 28,837,005 32,780,584 1,568,971 2,505,073 On demand; Noninterest-bearing
Unsecured; No impairment
Management Fees
61,990,629 79,558,589 6,728,130 7,256,594 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 3,331,194 6,727,737 On demand; Noninterest-bearing
Unsecured; No impairment
Dividend Income 171,000,000 650,000,000 – – On demand; Noninterest-bearing
Unsecured; No impairment
Interest Income – 54,323 – – Monthly; Floating interest rate
Unsecured; No impairment
Purchases 20,115,699 83,376,756 (1,585,341) (1,447,278) On demand; Noninterest-bearing
Unsecured
Service Fee – 380,522 – – On demand; Noninterest-bearing
Unsecured
Royalty Expense 558,427 791,185 – – On demand; Noninterest-bearing
Unsecured
Interest Expense 26,895,342 5,759,202 (3,063,618) – Monthly; Floating interest rate
Unsecured
Due to FNF – – (749,000,000) – 5-years term; Floating interest rate
Unsecured
Pass-on Charges - Payables
– – (832,357) (605,182) On demand; Noninterest-bearing
Unsecured
Zenith Sales 21,723,992 228,067,918 1,254,163 1,454,860 On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 14,738,000 14,736,000 1,344,350 – On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 4,735,646 4,659,876 402,929 121,885 On demand; Noninterest-bearing
Unsecured; No impairment
Management Fees
51,009,784 46,762,056 22,979,217 2,407,011 On demand; Noninterest-bearing
Unsecured; No impairment
Interest Income – 4,132,267 – 668,793 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 519,475 6,203,073 On demand; Noninterest-bearing
Unsecured; No impairment
Dividend Income 500,000,000 700,000,000 – – On demand; Noninterest-bearing
Unsecured; No impairment
Purchases 5,180,178,397 4,941,490,664 (188,877,239) (150,933,598) On demand; Noninterest-bearing
Unsecured
Service Fee 81,488,000 130,729,474 – – On demand; Noninterest-bearing
Unsecured
Interest Expense – 4,039,774 – – On demand; Noninterest-bearing
Unsecured
Red Ribbon Sales 1,759,501 2,477,828 226,291 1,097,719 On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 14,685,429 14,406,905 179,041 2,154,170 On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 13,093,730 13,883,150 1,188,724 473,862 On demand;
Noninterest-bearing Unsecured; No impairment
Management Fees
36,718,925 33,857,084 3,272,818 984,729 On demand; Noninterest-bearing
Unsecured; No impairment
Interest Income – 10,686,479 – – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 405,975 801,390 On demand; Noninterest-bearing
Unsecured; No impairment
Dividend Income 189,959,760 – – – On demand; Noninterest-bearing
Unsecured; No impairment
Purchases 16,105,583 27,605,316 (1,820,333) (420,887) On demand; Noninterest-bearing
Unsecured
(Forward)
- 50 -
*SGVMG200088*
Volume of Transactions Outstanding Receivable (Payable)
Category 2012 2011 2012 2011 Terms Conditions Royalty Expense P=142,359 P=477,390 (P=12,738) (P=12,034) On demand;
Noninterest-bearing Unsecured
Franchise Fee (22,321) 61,161 – – On demand; Noninterest-bearing
Unsecured
Royalty Advertising
237,265 795,651 (21,231) (20,057) On demand; Noninterest-bearing
Unsecured
Pass-on Charges - Payables
– – (4,236,076) (1,870,940) On demand; Noninterest-bearing
Unsecured
Grandworth Sales – 25,758 – – On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 145,536 101,526 – 31,257 On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 4,184 – – – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – – 43,861 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Payables
– – – (28,120,223) On demand; Noninterest-bearing
Unsecured
Rent Expense 47,222,294 44,993,695 (1,618,729) – On demand; Noninterest-bearing
Unsecured
Service Fee 37,210,974 43,230,551 (942,963) – On demand; Noninterest-bearing
Unsecured
Freemont Sales 2,583,946,494 2,149,855,388 576,782,777 189,181,496 On demand;
Noninterest-bearing Unsecured; No impairment
Royalty Income 519,701,620 443,135,770 48,087,778 42,114,586 On demand; Noninterest-bearing
Unsecured; No impairment
Service Revenue 39,443,993 32,437,226 2,964,379 2,264,890 On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 24,574 397,711 7,970 – On demand; Noninterest-bearing
Unsecured; No impairment
Management Fees
173,233,873 147,711,923 37,383,635 24,633,966 On demand; Noninterest-bearing
Unsecured; No impairment
Advertising 173,233,873 147,711,923 21,176,575 18,414,210 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 13,248 – On demand; Noninterest-bearing
Unsecured; No impairment
Dividend Income 400,000,000 – 100,000,000 – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Payables
– – (497,552) (1,188,601) On demand; Noninterest-bearing
Unsecured
JWS Sales 995,621 1,244,126 30,589 84,553 On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 516,223 303,656 2,419,633 – On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 74,010,124 28,154,835 11,762,974 3,409,036 On demand; Noninterest-bearing
Unsecured; No impairment
Management Fees
7,572,000 7,298,400 20,482,629 – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 12,319,630 57,065 On demand; Noninterest-bearing
Unsecured; No impairment
Service Fee 671,722,920 215,710,196 (109,322,224) (60,687) On demand; Noninterest-bearing
Unsecured
Management Fees
24,718,879 – (23,915,160) – On demand; Noninterest-bearing
Unsecured
Interest Expense 5,386,250 2,217,882 (613,542) – Monthly; Floating interest rate
Unsecured
Due to JWS – – (150,000,000) – 5-years term; Floating interest rate
Unsecured
Pass-on Charges - Payables
– – (277,620) (3,975,782) On demand; Noninterest-bearing
Unsecured
(Forward)
- 51 -
*SGVMG200088*
Volume of Transactions Outstanding Receivable (Payable)
Category 2012 2011 2012 2011 Terms Conditions Mang Inasal Sales P=14,857 P=– P=13,012 P=– On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 2,663,000 – 248,547 – On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 1,985,903 422,540 262,976 – On demand; Noninterest-bearing
Unsecured; No impairment
Management Fees
13,954,697 – 1,773,164 – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 4,933,256 89,004 On demand; Noninterest-bearing
Unsecured; No impairment
Dividend Income 105,000,000 – – – On demand; Noninterest-bearing
Unsecured; No impairment
Burger King Service Revenue 1,113,782 – 629,478 – On demand;
Noninterest-bearing Unsecured; No impairment
Rent Revenue 68,101 – 32,280 – On demand; Noninterest-bearing
Unsecured; No impairment
Management Fees
1,952,567 – 1,942,670 – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – – – On demand; Noninterest-bearing
Unsecured; No impairment
Adgraphix Marketing collaterals
64,444,948 78,370,805 (17,147,570) (12,432,130) On demand; Noninterest-bearing
Unsecured
Jollibee Vietnam Corporation Ltd. Sales 6,545,303 12,757,289 6,545,303 8,042,850 On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 1,971,000 1,806,659 1,971,000 1,774,249 On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 10,269 25,767 10,269 25,767 On demand; Noninterest-bearing
Unsecured; No impairment
Management Fees
18,305,208 12,203,661 18,305,208 12,203,661 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 121,329,150 183,002,376 On demand; Noninterest-bearing
Unsecured; No impairment
PT Chowking Indonesia Rent Revenue – 64,442 – – On demand;
Noninterest-bearing Unsecured; No impairment
Management Fees
– 171,936 – 171,936 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 29,434,902 41,986,860 On demand; Noninterest-bearing
Unsecured; No impairment
Honeybee Sales 60,731,551 39,657,687 60,731,551 23,364,913 On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue – 250,000 – 165,000 On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 379 – 379 – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– 93,888,577 30,825,458 On demand; Noninterest-bearing
Unsecured; No impairment
Due from HFC – – – 520,440,000 On demand; Noninterest-bearing
Unsecured; No impairment
JWPL Royalty Income 15,450,513 – 14,221,171 – On demand;
Noninterest-bearing Unsecured; No impairment
Pass-on Charges - Receivables
– – – – On demand; Noninterest-bearing
Unsecured; No impairment
Due from JWPL – – 370,058,061 2,353,501,212 On demand; Noninterest-bearing
Unsecured; No impairment
RRBI USA
Service Revenue – 160,000 – – On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue 450 – 450 – On demand; Noninterest-bearing
Unsecured; No impairment
(Forward)
- 52 -
*SGVMG200088*
Volume of Transactions Outstanding Receivable (Payable)
Category 2012 2011 2012 2011 Terms Conditions Pass-on Charges - Receivables
P=– P=– P=292,415 P=199,016 On demand; Noninterest-bearing
Unsecured; No impairment
Due from RRBI USA
– – – 2,623,200 On demand; Noninterest-bearing
Unsecured; No impairment
JIBL Royalty Income 19,986,780 – 19,986,780 – On demand;
Noninterest-bearing Unsecured; No impairment
Pass-on Charges - Receivables
– – – – On demand; Noninterest-bearing
Unsecured; No impairment
TTC Sales 2,013,371 2,216,214 2,013,371 2,216,214 On demand;
Noninterest-bearing Unsecured; No impairment
Pass-on Charges - Receivables
– – 15,202,551 13,338,404 On demand; Noninterest-bearing
Unsecured; No impairment
Singapore Service Revenue 231,000 – – – On demand;
Noninterest-bearing Unsecured; No impairment
Rent Revenue 7,306 – 6,974 – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 3,395,288 – On demand; Noninterest-bearing
Unsecured; No impairment
Hong Zhuang Yuan (HZY) Pass-on Charges - Receivables
– – 559,947 641,869 On demand; Noninterest-bearing
Unsecured; No impairment
Due to HZY – – (2,924,312) (2,924,312) On demand; Noninterest-bearing
Unsecured
Shanghai Yong He King Pass-on Charges - Receivables
– – 21,750,040 22,842,190 On demand; Noninterest-bearing
Unsecured; No impairment
Beijing Yong He King Pass-on Charges - Receivables
– – 2,026,680 2,150,267 On demand; Noninterest-bearing
Unsecured; No impairment
Shenzhen Yong He King Pass-on Charges - Receivables
– – 1,519,412 1,578,238 On demand; Noninterest-bearing
Unsecured; No impairment
Hangzhou Yongtong Pass-on Charges - Receivables
– – 558,111 587,159 On demand; Noninterest-bearing
Unsecured; No impairment
Hangzhou Yong He King Pass-on Charges - Receivables
– – 564,021 587,159 On demand; Noninterest-bearing
Unsecured; No impairment
Wuhan Yong He King Pass-on Charges - Receivables
– – 1,369,863 1,439,467 On demand; Noninterest-bearing
Unsecured; No impairment
Jollibee (China) Food & Beverage Management Co. Ltd.
Management Fees
– 2,122,302 – 2,122,302 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 40,970,826 16,926,328 On demand; Noninterest-bearing
Unsecured; No impairment
Due to Jollibee China
– – (45,668,966) (28,447,345) On demand; Noninterest-bearing
Unsecured
San Pin Wang Pass-on Charges - Receivables
– – 2,737,468 – On demand; Noninterest-bearing
Unsecured; No impairment
Hong Kong Pass-on Charges - Receivables
– – 362,408 387,039 On demand; Noninterest-bearing
Unsecured; No impairment
SBEMAC Pass-on Charges - Receivables
– – 3,947 86,020 On demand; Noninterest-bearing
Unsecured; No impairment
(Forward)
- 53 -
*SGVMG200088*
Volume of Transactions Outstanding Receivable (Payable)
Category 2012 2011 2012 2011 Terms Conditions China Pass-on Charges - Receivables
P=– P=– P=4,629,420 P=17,677,243 On demand; Noninterest-bearing
Unsecured; No impairment
Affiliate - Jollibee Foundation Service Revenue 42,695 48,382 15,984 – On demand;
Noninterest-bearing Unsecured; No impairment
Rent Revenue 185,302 94,525 – 13,645 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – 842,614 793,247 On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Payables
– – – (197,750) On demand; Noninterest-bearing
Unsecured
Joint Venture - Coffeetap Sales – 64,518 – – On demand;
Noninterest-bearing Unsecured; No impairment
Service Revenue 73,750 25,179 – – On demand; Noninterest-bearing
Unsecured; No impairment
Rent Revenue – 171,544 – – On demand; Noninterest-bearing
Unsecured; No impairment
Pass-on Charges - Receivables
– – – 70,216 On demand; Noninterest-bearing
Unsecured; No impairment
There have been no guarantees provided or received for any related party receivables or payables.
The Company sells and purchases food items, processed inventories, packaging and other store supplies to/from related parties, at normal market prices. Purchased items temporarily warehoused at the Company are charged for logistics and warehousing costs. In addition, the Company receives management fees for services rendered under an existing Management Services Agreement and services fees for various services rendered by the Company’s personnel.
Pass-on charges pertain to advances made by a related party for another. These include payments for various expenditures incurred.
Fresh N’ Famous
a) Fresh N’ Famous leases its office space and some store locations from the Company. The agreements are for a period of 5 to 20 years with escalation clauses and subject to renewal upon mutual agreement of both parties.
b) On April 3, 2012, Fresh N’ Famous declared cash dividends amounting to P=171.0 million or P=0.57 dividends per share, paid on April 16, 2012, in favor of stockholders of record as at December 31, 2011.
On April 5, 2011, Fresh N’ Famous declared cash dividends amounting to P=650.0 million or P=2.17 dividends per share, paid on April 29, 2011, in favor of stockholders of record as at December 31, 2010. The dividends were used to pay-off the Company’s trade payables to Zenith (see Note 32).
c) On April 16, 2012, the Company received advances from Fresh N’ Famous amounting to P=749.0 million. The advances is payable in full on April 16, 2017. The interest rate on the advances is based on the available top money market placement rates plus 1%, payable on a monthly basis. These were used to pay-off the Company’s short-term loan amounting to P=900.0 million which has matured on April 12, 2012.
- 54 -
*SGVMG200088*
Zenith
a) The Company (lessor) leases to Zenith (lessee) the land where the lessee’s manufacturing plant is situated. The lease is for a period of 5 years with fixed annual rental rates commencing on January 1, 2004. On January 1, 2010, Zenith renewed the lease contract for another 5 years. Based on the terms of the agreement, Zenith may pre-terminate the lease provided that an advance notice is provided to the lessor within the prescribed period as indicated in the agreement.
b) The Company pays service fees to Zenith for supply chain services and customer and order management, including warehousing and logistic services, under an existing Service Contract.On October 1, 2012, Zenith declared cash dividends amounting to P=500.0 million or P=116.30 dividends per share, paid on October 31, 2012, in favor of stockholders of record as at December 31, 2011.
On April 5 and March 1, 2011, Zenith declared cash dividends amounting to P=700.0 million, paid on April 29, 2011, in favor of stockholders of record as at December 31, 2010. The dividends were used to pay-off the Company’s trade payables to Zenith (see Note 32).
Red Ribbon
a) Red Ribbon leases its office space and warehouse from the Company on an annual basis.
b) On November 19, 2012, Red Ribbon declared cash dividends amounting to P=190.0 million or P=120.00 dividends per share, paid on December 3, 2012, in favor of stockholders of record as at November 30, 2012.
Grandworth
a) The Company is a lessee under various operating lease agreements with Grandworth. These lease agreements have terms ranging from 5 to 20 years, which mostly contain renewal options. The lease agreements include escalation clauses on an annual basis based on prevailing market conditions.
b) Grandworth also provides construction services to the Company for the building and/or renovation of store spaces.
Freemont
a) Freemont operates “Jollibee” stores in Visayas and Mindanao under a Franchise Agreement with the Company. Royalty and advertising fees due to the Company are based on a certain percentage of Freemont’s net sales as provided in the Franchise Agreement.
b) Freemont leases office spaces in properties owned by the Company.
c) On March 28, 2012, Freemont declared cash dividends amounting to P=400.0 million or P=673.54 dividends per share, in favor of stockholders of record as at December 31, 2011. The cash dividend amounting to P=100.0 million and P=200.0 million was paid on July 31, 2012 and December 28, 2012, respectively while the remaining cash dividend of P=100.0 million is expected to be paid on March 27, 2013.
- 55 -
*SGVMG200088*
Jollibee Worldwide Services
a) Jollibee Worldwide Services leases its office space from the Company on an annual basis.
b) The Company receives accounting and human resource services from Jollibee Worldwide Services. Starting 2012, Jollibee Worldwide Services provides logistics services relating to inbound and outbound logistics, warehousing, scrap disposal and other inventory handling services. The contract is for one year and service fees are determined on an annual basis.
c) On March 20, 2012, the Company entered into a sub-lease agreement with Jollibee Worldwide Services for the use of the Company’s land and building for a period of five years beginning May 1, 2012 until April 30, 2017. The land and building are used by Jollibee Worldwide Services for its logistics services. The Company received security deposits amounting to P=29.7 million, which will be refunded at the end of the lease term.
The future minimum lease receivables on the lease as at December 31, 2012 are as follows:
Amount Within one year P=125,052,632 After one year but not more than five years 381,795,410 P=506,848,042
d) On April 16, 2012, the Company received advances from Jollibee Worldwide Services amounting to P=150.0 million. The advances is payable in full on April 16, 2017. The interest rate on the advances is based on the available top money market placement rates plus 1%, payable on a monthly basis. These were used to pay-off the Company’s short-term loan amounting to P=900.0 million which has matured on April 12, 2012.
Mang Inasal On November 12, 2012, Mang Inasal declared cash dividends amounting to P=150.0 million or P=1,200.00 dividends per share, in favor of stockholders of record as at December 31, 2011. The cash dividend amounting to P=100.0 million and P=50.0 million was paid on November 29, 2012 and December 28, 2012, respectively. The Company received a total of P=105.0 million cash dividend from Mang Inasal during the year.
Jollibee Vietnam and Chowking Indonesia On June 22, 2012, the BOD of the Company approved the write-off of its receivables from Jollibee Vietnam and Chowking Indonesia amounting to P=153.0 million and P=194.7 million, respectively.
Honeybee and JWPL The Company made advances to Honeybee and JWPL which are intended for future capital subscription. In 2012, the Company entered into a Royalty Agreement with JWPL. The terms and conditions are similar in nature with those discussed in Note 19.
- 56 -
*SGVMG200088*
Others Related party transactions and balances for other subsidiaries of the Company are similar in nature with those discussed above.
Related Party Advances The Company, in the normal course of business, receives from and provides to related parties, interest-bearing cash advances for working capital requirements and operations. Interest income from advances to related parties amounted to nil and P=14.9 million in 2012 and 2011, respectively (see Note 22). Interest expense from due to related parties amounted to P=32.3 million and P=12.0 million in 2012 and 2011, respectively (see Note 22).
Guarantees Provided by the Company to JWPL In 2011, the Company acted as a guarantor to loans amounting to US$40.0 million (P=1,753.6 million) and US$30.0 million (P=1,315.2 million) availed by JWPL from separate foreign financial institutions. The loans were fully-drawn on April 29, 2011 and May 9, 2011, respectively. The loans bear fixed interest rates of 2.53% and 2.72%, respectively, and will mature three years after draw date. The loan agreements provided for specific covenants which shall be tested based on the Jollibee Group’s consolidated financial statements on a periodic basis.
Terms and Conditions of Transactions with Related Parties Transactions with related parties are made at normal market prices. The Company did not make any provision for impairment losses on receivables from related parties. An assessment is undertaken at each financial year by evaluating the financial position of the related party and the market in which the related party operates.
Compensation of Key Management Personnel of the Company The compensation and benefits to key management personnel of the Company for the years ended December 31, 2012 and 2011 are as follows:
2012 2011 Short-term employee benefits P=243,239,599 P=228,825,687 Stock option expense (Notes 21 and 26) 70,752,823 65,880,814 Pension costs 13,442,416 18,036,575 Employee car plan and other long-term benefits 14,385,261 13,554,258 P=341,820,099 P=326,297,334
Transactions with the Retirement Plan As at and for the years ended December 31, 2012 and 2011, the retirement fund of the Company includes investment in equity securities of the Company with details as follows:
2012 2011 Number of shares 782,130 2,234,737
Cost P=25,598,922 P=73,185,976 Market value 79,777,260 202,131,962 Unrealized gain P=54,178,338 P=128,945,986
- 57 -
*SGVMG200088*
28. Commitments and Contingencies
Operating Lease Commitments - the Company as Lessee The Company has various operating lease commitments for QSR outlets and offices with third party and related party lessors. The noncancellable periods of the leases range from 3 to 20 years, mostly containing renewal options. Some of the leases contain escalation clauses. The lease contracts on certain sales outlets provide for the payment of additional rental based on a certain percentage of sales of the outlets. Rental payments in accordance with the terms of the lease agreements amounted to P=1,182.5 million and P=1,175.8 million in 2012 and 2011, respectively.
The future minimum rental payables for the noncancellable periods of the operating leases follow:
2012 2011 Within one year P=502,607,112 P=485,951,982 After one year but not more than five years 1,908,374,232 1,953,565,879 After more than five years 2,904,079,704 1,347,577,815 P=5,315,061,048 P=3,787,095,676
The difference of rent expense recognized under the straight-line method and the rent amounts due in accordance with the terms of the lease agreements amounting to P=646.1 million and P=624.3 million in 2012 and 2011, respectively, are charged to “Operating lease payables” account. Rent expense recognized on a straight-line basis amounted to P=1,216.4 million and P=1,226.2 million in 2012 and 2011, respectively (see Notes 20 and 21).
The rental agreements with third party contractors are short-term in nature.
Operating Lease Commitments - the Company as Lessor The Company entered into commercial property leases on its investment property portfolio and subleased properties with third party and related party lessees. Noncancellable periods of the leases range from 3 to 20 years, mostly containing renewal options. All leases include a clause to enable upward revision of the rental charges on an annual basis based on prevailing market conditions. Rent received in accordance with the terms of the lease agreements amounted to P=165.6 million and P=119.0 million in 2012 and 2011, respectively.
The future minimum rent receivables for the noncancellable periods of the operating leases follow:
2012 2011 Within one year P=139,480,653 P=13,049,086 After one year but not more than five years 386,261,169 16,422,422 P=525,741,822 P=29,471,508
The difference of rent income recognized under the straight-line method and the rent amounts in accordance with the terms of the lease agreements amounting to P=32.5 million and P=6.5 million in 2012 and 2011, respectively, are included under “Operating lease receivables” account. Rent income recognized on a straight-line basis amounted to P=192.2 million and P=117.2 million in 2012 and 2011, respectively.
- 58 -
*SGVMG200088*
Contingencies The Company is involved in litigations, claims and disputes which are normal to its business. Except for those legal claims provided for in Note 15, management believes that the ultimate liability, if any, with respect to these litigations, claims and disputes will not materially affect the financial position and performance of the Company. Accordingly, no additional provision for possible losses was recognized in the parent company financial statements in 2012 and 2011.
29. Financial Risk Management Objectives and Policies
The Company is exposed to a variety of financial risks which result from both its operating and investing activities. The Company’s risk management policies focus on actively securing the Company’s short-term to medium-term cash flows by minimizing the exposure to financial markets. Long-term financial investments are managed to generate lasting returns.
The Company’s principal financial instruments comprise of cash and cash equivalents, trade payables and other current liabilities (excluding local and other taxes payable, liabilities to government agencies and gift certificates) and short-term and long-term debts. The main purpose of these financial instruments is to raise financing for the Company’s operations. The Company has other financial assets and liabilities such as receivables, advances to related parties, refundable deposits, employee car plan receivables, AFS financial assets and due to related parties.
The Company does not actively engage in trading of financial assets for speculative purposes nor does it have options.
Foreign Currency Risk The Company has transactional foreign currency exposures. Such exposure arises from cash in banks, short-term deposits and trade receivables denominated in foreign currencies.
The following table shows the Company’s foreign currency-denominated monetary assets and their peso equivalents as at December 31:
2012 2011
US$ RMB PhP= US$ RMB PhP= Cash and cash equivalents $1,740,971 RMB8,072 P=71,520,167 $948,814 RMB8,067 P=41,652,071 Trade receivables 7,923,099 11,633,883 401,176,941 6,194,163 9,751,061 346,755,824 $9,664,070 RMB11,641,955 P=472,697,108 $7,142,977 RMB9,759,128 P=388,407,895
The Company recognized in the parent company statement of comprehensive income included under “Other income” account, net foreign exchange loss amounting to P=19.7 million and P=62.9 million on its foreign currency-denominated monetary assets for the years ended December 31, 2012 and 2011, respectively (see Note 23). This resulted from the movements of the Philippine peso against the US dollar and RMB as shown in the following table:
Peso to US Dollar RMB December 31, 2012 P=41.05 P=6.61 December 31, 2011 43.84 6.95
- 59 -
*SGVMG200088*
Foreign Currency Risk Sensitivity Analysis. The following table demonstrates the sensitivity to a reasonably possible change in US dollar and RMB to Philippine peso exchange rate, with all other variables held constant, of the Company’s cash and cash equivalents and trade receivables before income tax as at December 31, 2012 and 2011 (due to the changes in the fair value of monetary assets).
Appreciation
(Depreciation) of PhP= Effect in Income Before Tax
PhP= to US$ Rate PhP= to RMB Rate
(In millions) 2012 P=1.50 (P=14.5) (P=17.5) 1.00 (9.7) (11.6) (1.50) 14.5 17.5 (1.00) 9.7 11.6 2011 1.50 (3.8) (14.4) 1.00 (2.6) (9.6) (1.50) 3.8 14.4 (1.00) 2.6 9.6
Interest Rate Risk Interest rate risk arises from the possibility that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Company’s exposure to interest rate risk relates primarily to the Company’s long-term advances from subsidiaries, Fresh N’ Famous and Jollibee Worldwide Services amounting to P=749.0 million and P=150.0 million, respectively as at December 31, 2012, which are subject to floating interest rates as discussed in Note 27. Floating rate financial instruments are subject to cash flow interest rate risk.
There is minimal exposure on the other sources of the Company’s interest rate risk. These other sources are from the Company’s cash in bank, short-term deposits, refundable deposits and employee car plan receivables.
Interest Rate Risk Sensitivity Analysis. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s income before income tax.
Increase (Decrease) in
Basis PointsEffect on Income
Before Income Tax2012 100 (P=899,000,000) 50 (449,500,000) (100) 899,000,000 (50) 449,500,000
Fixed rate debts, although subject to fair value interest rate risk, are not included in the sensitivity analysis as these are carried at amortized costs. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.
- 60 -
*SGVMG200088*
Credit Risk Credit risk is the risk that a customer or a counterparty fails to fulfill its contractual obligations to the Company. This includes risk of non-payment by borrowers and issuers, failed settlement of transactions and default on outstanding contracts.
The Company has a very strict credit policy. Its credit transactions are only with franchisees that have gone through rigorous screening before granting them the franchise. The credit terms are very short period, while deposits and advance payments are also required before rendering the service or delivering the goods, thus, mitigating the possibility of non-collection. In cases of non-collection, defaults of the debtors are not tolerated; the exposure is contained the moment a default occurs and transactions that will increase the exposure of the Company are not permitted. Significant credit transactions are only with related parties.
The Company has no significant concentration of credit risk with counterparty since it has short credit terms to franchisees, which it implements consistently. In addition, the Company’s franchisee profile is such that no single franchisee accounts for more than 5% of the total systemwide sales of the Company.
With respect to credit risk arising from financial assets of the Company, exposure arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
The aging analysis of financial assets as at December 31, 2012 and 2011 are as follows:
2012
Neither Past
Due nor Past Due but not Impaired (Age in Days) Total Impaired 1-30 31-60 61-120 Over 120 Impaired Loans and receivables Cash and cash equivalents
(excluding cash on hand) P=2,246,217,182 P=2,246,217,182 P=– P=– P=– P=– P=–
Receivables: Franchisees and others 1,333,004,726 1,082,168,766 87,513,779 19,658,310 19,433,125 54,338,907 69,891,839 Related parties 1,219,968,289 508,159,232 245,767,688 67,130,250 33,277,867 365,633,252 – Dividend receivable 100,000,000 100,000,000 – – – – – Receivable from
retirement fund 70,537,035 70,537,035 – – – – – Loans and advances to
employees 44,490,970 44,490,970 – – – – – Current portion of
employee car plan receivables 30,964,117 30,964,117 – – – – –
Interest receivable 375,836 375,836 – – – – – Others 2,123,907 2,123,907 – – – – – Advances to related parties 455,299,486 455,299,486 – – – – – Other noncurrent assets: Refundable deposits 307,427,912 307,427,912 – – – – – Noncurrent portion of
employee car plan receivables 61,995,041 61,995,041 – – – – –
5,872,404,501 4,909,759,484 333,281,467 86,788,560 52,710,992 419,972,159 69,891,839 AFS Financial Assets 86,969,742 86,969,742 – – – – – P=5,959,374,243 P=4,996,729,226 P=333,281,467 P=86,788,560 P=52,710,992 P=419,972,159 P=69,891,839
- 61 -
*SGVMG200088*
2011
Neither Past
Due nor Past Due but not Impaired (Age in Days) Total Impaired 1-30 31-60 61-120 Over 120 Impaired Loans and receivables Cash and cash equivalents
(excluding cash on hand) P=1,540,224,337 P=1,540,224,337 P=– P=– P=– P=– P=–
Receivables: Franchisees and others 1,023,055,062 760,991,022 57,750,073 54,995,296 46,786,654 37,795,646 64,736,371 Related parties 708,026,191 352,279,705 16,195,141 20,669,733 16,896,101 301,985,511 – Receivable from
retirement fund 82,137,335 82,137,335 – – – – – Loans and advances to
employees 40,666,294 40,666,294 – – – – – Current portion of
employee car plan receivables 29,892,580 29,892,580 – – – – –
Interest receivable 440,582 440,582 – – – – – Others 8,976,940 8,976,940 – – – – – Advances to related parties 3,122,110,095 3,122,110,095 – – – – – Other noncurrent assets: Refundable deposits 280,402,459 280,402,459 – – – – – Noncurrent portion of
employee car plan receivables 63,206,343 63,206,343 – – – – –
6,899,138,218 6,281,327,692 73,945,214 75,665,029 63,682,755 339,781,157 64,736,371 AFS Financial Assets 79,469,742 79,469,742 – – – – – P=6,978,607,960 P=6,360,797,434 P=73,945,214 P=75,665,029 P=63,682,755 P=339,781,157 P=64,736,371
Credit Quality. The table below shows the credit quality by class of financial assets, based on the Company’s credit rating system.
2012 Neither Past Due nor Impaired
Past Due or Impaired Total A B C Loans and Receivables Cash and cash equivalents (excluding cash on hand) P=2,246,217,182 P=2,246,217,182 P=– P=– P=– Receivables: Franchisees and others 1,333,004,726 903,686,179 178,291,942 190,645 250,835,960 Related parties 1,219,968,289 508,159,232 – – 711,809,057 Dividend receivable 100,000,000 100,000,000 – – – Receivable from retirement fund 70,537,035 70,537,035 – – – Loans and advances to employees 44,490,970 44,490,970 – – – Current portion of employee car plan receivables 30,964,117 30,964,117
– – –
Interest receivable 375,836 375,836 – – – Others 2,123,907 2,123,907 – – – Advances to related parties 455,299,486 455,299,486 – – – Other noncurrent assets: Refundable deposits 307,427,912 307,427,912 – – – Noncurrent portion of employee car plan receivables 61,995,041 61,995,041 – – – 5,872,404,501 4,731,276,897 178,291,942 190,645 962,645,017 AFS Financial Assets 86,969,742 86,969,742 – – – P=5,959,374,243 P=4,818,246,639 P=178,291,942 P=190,645 P=962,645,017
- 62 -
*SGVMG200088*
2011 Neither Past Due nor Impaired
Past Due or Impaired Total A B C Loans and Receivables Cash and cash equivalents (excluding cash on hand) P=1,540,224,337 P=1,540,224,337 P=– P=– P=– Receivables: Franchisees and others 1,023,055,062 646,894,469 113,362,243 734,310 262,064,040 Related parties 708,026,191 352,279,705 – – 355,746,486 Receivable from retirement fund 82,137,335 82,137,335 – – – Loans and advances to employees 40,666,294 40,666,294 – – – Current portion of employee car plan receivables 29,892,580 29,892,580 – – – Interest receivable 440,582 440,582 – – – Others 8,976,940 8,976,940 – – – Advances to related parties 3,122,110,095 3,122,110,095 – – – Other noncurrent assets: Refundable deposits 280,402,459 280,402,459 – – – Noncurrent portion of employee car plan receivables 63,206,343 63,206,343 – – – 6,899,138,218 6,167,231,139 113,362,243 734,310 617,810,526 AFS Financial Assets 79,469,742 79,469,742 – – – P=6,978,607,960 P=6,246,700,881 P=113,362,243 P=734,310 P=617,810,526
The credit quality of financial assets is managed by the Company using internal credit ratings, as shown below:
A − For counterparty who is not expected by the Company to default in settling its obligations, thus, credit risk exposure is minimal. This counterparty normally includes banks, related parties and customers who pay on or before due date.
B − For counterparty with tolerable delays (normally from 1-30 days) in settling its obligations to the Company. The delays may be due to cut-off differences and/or clarifications on contracts/billings.
C − For counterparty who consistently defaults in settling its obligation and may be or actually referred to legal and/or subjected to cash before delivery (CBD) scheme. Under this scheme, the customer’s credit line is suspended and all subsequent orders are paid in cash before delivery. The CBD status will only be lifted upon full settlement of the receivables and approval of management. Thereafter, the regular credit term and normal billing and collection processes will resume.
Liquidity Risk The Company’s exposure to liquidity risk refers to the risk that its financial liabilities are not serviced on a timely manner and that its working capital requirements and planned capital expenditures are not met. To manage this exposure and to ensure sufficient liquidity levels, the Company closely monitors its cash flows to be able to finance its capital expenditures and to pay its obligations, as and when they fall due.
On a weekly basis, the Jollibee Group’s Cash and Banking Team monitors the Company’s collections, expenditures and any excess/deficiency in the working capital requirements, by preparing cash position reports. The Company submits actual and projected cash flows for the subsequent week. Cash outflows resulting from major expenditures are planned and properly monitored to ensure availability of funds, i.e., pre-terminate money market placements if deemed necessary. In addition, the Company has short-term cash deposits and has available credit lines with accredited banking institutions. The Company maintains a sufficient level of cash and cash equivalents to finance the Company’s operations.
- 63 -
*SGVMG200088*
No changes were made in the objectives, policies or processes of the Company during the years ended December 31, 2012 and 2011.
The Company’s financial assets, which have maturity of less than 12 months and used to meet its short-term liquidity needs, are cash and cash equivalents and receivables amounting to P=2,319.5 million and P=2,731.6 million, respectively, as at December 31, 2012 and P=1,607.4 million and P=1,828.5 million, respectively, as at December 31, 2011.
The tables below summarize the maturity profile of the Company’s financial liabilities as at December 31, 2012 and 2011 based on contractual undiscounted payments:
2012
On Demand Within 1 Year 2-4 Years Total
Trade payables and other current liabilities* P=5,124,429,271 P=– P=– P=5,124,429,271
Current portion of: Long-term debt – 1,556,062,500 – 1,556,062,500 Liability for acquisition of a
business – 75,000,000 – 75,000,000 Due to related parties (including
current portion) – 48,593,278 899,000,000 947,593,278 P=5,124,429,271 P=1,679,655,778 P=899,000,000 P=7,703,085,049 *Excluding local and other taxes payable, liabilities to government agencies and gift certificates amounting to P=937.5 million.
2011
On Demand Within 1 Year 2-4 Years Total
Trade payables and other current liabilities* P=4,113,837,677 P=– P=– P=4,113,837,677
Short-term debt – 923,690,700 – 923,690,700 Current portion of long-term debt – 58,500,000 1,558,500,000 1,617,000,000 Liability for acquisition of a business
(including current portion) – 75,000,000 75,000,000 150,000,000 Due to related parties – 31,371,657 – 31,371,657 P=4,113,837,677 P=1,088,562,357 P=1,633,500,000 P=6,835,900,034 *Excluding local and other taxes payable, liabilities to government agencies and gift certificates amounting to P=801.9 million.
Capital Management The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company has sufficient capitalization.
The Company generates cash flows from operations sufficient to finance its organic growth. It declares cash dividends representing about 1/3 of its net income, a ratio that would still leave some additional cash for future acquisitions. If needed, the Company would borrow money for acquisitions of new businesses.
- 64 -
*SGVMG200088*
As at December 31, 2012 and 2011, the Company’s ratio of liabilities to total equity and ratio of net liabilities to total equity are as follows:
Debt Ratio
2012 2011 Total debt (a) P=9,435,891,818 P=8,363,249,319 Total equity 21,429,581,487 19,528,583,502 Total debt and equity (b) P=30,865,473,305 P=27,891,832,821
Debt ratio (a/b) 30.57% 29.98%
Net Debt Ratio
2012 2011 Total debt P=9,435,891,818 P=8,363,249,319 Less cash and cash equivalents 2,319,485,412 1,607,423,017 Net debt (a) 7,116,406,406 6,755,826,302 Total equity 21,429,581,487 19,528,583,502 Net debt and equity (b) P=28,545,987,893 P=26,284,409,804
Net debt ratio (a/b) 24.93% 25.70% 30. Fair Value of Financial Assets and Liabilities
Set below is a comparison of the carrying amounts and fair values, by category and by class, of the Company’s financial instruments as at December 31, 2012 and 2011:
2012 2011 Carrying Amount Fair Value Carrying Amount Fair Value Financial Assets Loans and Receivables: Cash and cash equivalents P=2,319,485,412 P=2,319,485,412 P=1,607,423,017 P=1,607,423,017 Receivables 2,731,573,041 2,731,573,041 1,828,458,613 1,828,458,613 Other noncurrent assets: Refundable deposits 307,427,912 329,666,225 280,402,459 302,165,420 Noncurrent portion of employee car plan receivables 61,995,041 64,341,605 63,206,343 66,801,706 5,420,481,406 5,445,066,283 3,779,490,432 3,804,848,756 AFS financial assets 86,969,742 86,969,742 79,469,742 79,469,742 Total financial assets P=5,507,451,148 P=5,532,036,025 P=3,858,960,174 P=3,884,318,498 Financial Liabilities Trade payables and other current liabilities* P=5,124,429,271 P=5,124,429,271 P=4,113,837,677 P=4,113,837,677 Short-term debt – – 900,000,000 900,000,000 Long-term debt (including current portion) 1,496,329,396 1,544,371,856 1,492,650,649 1,539,517,500 Liability for acquisition of a business
(including current portion) 72,292,267 74,436,504 141,737,289 145,770,578 Due to related parties (including
current portion) 947,593,278 947,593,278 31,371,657 31,371,657 Total financial liabilities P=7,640,644,212 P=7,690,830,909 P=6,679,597,272 P=6,730,497,412 *Excluding local and other taxes payable, liabilities to government agencies and gift certificates amounting to P=937.5 million and P=801.9 million as at December 31, 2012 and 2011, respectively.
- 65 -
*SGVMG200088*
Financial Instruments Whose Carrying Amounts Approximate Fair Value. Management has determined that the carrying amounts of cash and cash equivalents, receivables, trade payables and other current liabilities, short-term debt and due to related parties, based on their notional amounts, reasonably approximate their fair values because of their short-term maturities.
AFS Financial Assets. The fair value of investments in quoted shares of stock is based on quoted market prices. When market prices cease to be available, the shares of stock are measured at cost which is deemed to be the fair value at that date.
Financial Instruments Carried at Other than Fair Value. Management has determined that the estimated fair value of refundable deposits, noncurrent portion of employee car plan receivables, long-term debt and liability for acquisition of a business are based on the discounted value of future cash flows using applicable rates as follows:
2012 2011 Refundable deposits 2.01%-5.50% 1.72%-7.64% Noncurrent portion of employee car plan receivables 1.95%-4.11% 1.66%-5.08% Long-term debt (including current portion) 1.01%-2.89% 1.78%-2.64% Liability for acquisition of a business (including
current portion) 0.76% 1.57%-2.11%
Fair Value Hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments 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
AFS Investments As at December 31, 2012 and 2011, the Company’s AFS financial assets mainly consist of shares in public utility companies that are no longer quoted in an active market. As a result, the Company did not recognize any gain or loss from fair value measurement in the parent company statement of comprehensive income. The Company believes that the investments are not impaired and will continue to carry them until they are redeemed by such public utility companies.
31. Events after the Reporting Period
Dividend Declaration On April 11, 2013, the BOD approved a regular cash dividend of P=0.65 a share of common stock to all stockholders of record as at May 7, 2013. Consequently, the cash dividend is expected to be paid out by March 30, 2013. The cash dividend is 12.1% higher than the P=0.58 regular dividend a share declared in April 2012.
- 66 -
*SGVMG200088*
Appropriation of Retained Earnings On April 11, 2013, the BOD of the Company approved the appropriation of additional P=5,200.0 million for future expansion and support the Company’s growth strategy. Consequently, the appropriated retained earnings of the Company will increase from P=5,000.0 million to P=10,200.0 million.
Projects Timeline Amount Acquisition of businesses 2013-2018 P=2,600,000,000 Capital expenditures 2013-2018 2,600,000,000 P=5,200,000,000
32. Non-cash Transactions
In 2012, the Company converted a portion of its advances to Red Ribbon, Honeybee and JWPL amounting to P=26.1 million, P=596.8 million and P=2,381.6 million, respectively, to additional investments recorded under “Investments in subsidiaries and interest in a joint venture” account. These formed part of the subsidiaries’ additional paid-in capital and no additional shares were issued.
In 2011, the Company’s principal non-cash transactions under investing activities pertain to dividends received from Zenith and Fresh N’ Famous amounting to P=700.0 million and P=300.0 million, respectively. These were offset against the Company’s trade payables to Zenith and due to related party balances with Fresh N’ Famous.
In 2011, the Company converted a portion of its advances to Red Ribbon and Zenith amounting to P=489.4 million and P=139.0 million, respectively, to additional investments recorded under “Investments in subsidiaries and interest in a joint venture” account. These formed part of the subsidiaries’ additional paid-in capital and no additional shares were issued.
The Company’s principal non-cash transaction under financing activities pertains to the extension of the terms of two short-term loans amounting to P=1,500.0 million that have matured in 2011 which are now due to be paid in 2013 under a new loan agreement.
33. Supplementary Tax Information Required Under Revenue Regulations 19-2011 and 15-2010
The Bureau of Internal Revenue has issued Revenue Regulations 19-2011 and 15-2010 which requires certain tax information to be disclosed in the notes to parent company financial statements. The Company presented the required supplementary tax information as a separate schedule attached to its annual income tax return.