MESSAGE TO SHAREHOLDERS
Dear shareholders:
Fiscal 2012 will be a year to remember for the exceptional financial growth realized during this period.
MTY Food Group Inc. (“MTY”) takes great pride in its operational and financial success, both past and
future. The results of your corporation for the 2012 fiscal year have once more established new highs,
fueled by the successful integration of its most recent acquisitions.
The following are some highlights of the 2012 fiscal year:
• Net income increased by 36%, to reach $1.15 per share
• Same store sales grew by 1.08% during the year, despite challenging Q3 and Q4
• System sales were up 31%, to $688.7 million
• Cash and equivalents at the end of the year were $33.0 million
• The number of locations were at 2,199 at the end of the year
• MTY acquired the assets of Mr. Souvlaki and its 14 franchised stores in Canada
The 2012 fiscal period was marked by an unpredictable and challenging retail environment as well as
intensification of the competitive pressure on some of our concepts. During this period, MTY has
continued to emphasize on quality and innovation and has worked with its franchise partners to
respond to those external threats.
In January of 2013, MTY announced another major increase of its quarterly dividend. This reflects the
confidence we have in our concepts, our franchise partners, our employees and in our ability to
generate sustainable cash flows in the long run.
Going into 2013, the retail environment is expected to remain very challenging, with a relatively weak
economy and intense competitive pressure. MTY will continue to concentrate on the excellence of its
operations, opening new locations of existing concepts and developing its brands outside of Canada.
Financial discipline will remain at the core of our values, as we continue to diligently seek out new
potential acquisitions.
In closing, I wish to personally thank each member of the MTY team, franchisees, business partners and
shareholders for their continuous support and contribution to our success in 2012. I truly appreciate
and thank you for being a part of our growing family.
MTY Food Group Inc.
______________________________
Stanley Ma
Chairman and Chief Executive Officer
February 13, 2013
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2012
General
Management's Discussion and Analysis of the financial position and results of operations
("MD&A") of MTY Food Group Inc. ("MTY”) is supplementary information and should be
financial statements and
the Company‟s consolidated
read
accompanying notes for the fiscal year ended November 30, 2012.
in conjunction with
In the MD&A, MTY Food Group Inc., MTY, or the Company, designates, as the case may
be, MTY Food Group Inc. and its Subsidiaries, or MTY Food Group Inc., or one of its
subsidiaries.
The disclosures and values in this MD&A were prepared in accordance with International
Financial Reporting Standards (IFRS) and with the current issued and adopted
interpretations applied to fiscal years beginning on or after January 1, 2011. Comparative
figures as at November 30, 2011 have been restated in accordance with IFRS.
As a result of the adoption of IFRS a number of areas of financial reporting are impacted
by the changeover to IFRS; they are highlighted in the MD&A under the heading
“Accounting policies adopted in 2012” and in note 34 of the consolidated financial
statements.
This MD&A was prepared as at February 13, 2013. Supplementary information about
MTY, including its latest annual and quarterly reports, and press releases, is available on
SEDAR‟s website at www.sedar.com.
Page 1
Forward looking statements
This MD&A and, in particular, but without limitation, the sections of this MD&A entitled
Outlook, Same-Store Sales, Contingent Liabilities and Subsequent Event, contain
forward-looking statements. These forward-looking statements include, but are not limited
to, statements relating to certain aspects of the business outlook of the Company during
the course of 2012. Forward-looking statements also include any other statements that
do not refer to independently verifiable historical facts. A statement we make is forward-
looking when it uses what we know and expect today to make a statement about the
future. Forward-looking statements may include words such as aim, anticipate,
assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan,
project, seek, should, strategy, strive, target and will. All such, forward-looking statements
are made pursuant to the „safe harbour‟ provisions of applicable Canadian securities
laws.
Unless otherwise indicated by us, forward-looking statements in this MD&A describe our
expectations at February 13, 2013 and, accordingly, are subject to change after such
date. Except as may be required by Canadian securities laws, we do not undertake any
obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Forward-looking statements, by their very nature, are subject to inherent risks and
uncertainties and are based on several assumptions which give rise to the possibility that
actual results or events could differ materially from our expectations expressed in or
implied by such forward-looking statements and that our business outlook, objectives,
plans and strategic priorities may not be achieved. As a result, we cannot guarantee that
any forward-looking statement will materialize and you are cautioned not to place undue
reliance on these forward-looking statements. Forward-looking statements are provided
in this MD&A for the purpose of giving information about management‟s current strategic
priorities, expectations and plans and allowing investors and others to get a better
understanding of our business outlook and operating environment. Readers are
cautioned, however, that such information may not be appropriate for other purposes.
Forward-looking statements made in this MD&A are based on a number of assumptions
that we believed were reasonable on February 13, 2013. Refer, in particular, to the
section of this MD&A entitled Risks and Uncertainties for a description of certain key
economic, market and operational assumptions we have used in making forward-looking
statements contained in this MD&A. If our assumptions turn out to be inaccurate, our
actual results could be materially different from what we expect.
Unless otherwise indicated in this MD&A, the strategic priorities, business outlooks and
assumptions described in the previous MD&A remain substantially unchanged.
Important risk factors that could cause actual results or events to differ materially from
those expressed in or implied by the above-mentioned forward-looking statements and
other forward-looking statements included in this MD&A include, but are not limited to:
the intensity of competitive activity, and the resulting impact on our ability to attract
Page 2
customers‟ disposable income; our ability to secure advantageous locations and renew
our existing leases at sustainable rates; the arrival of foreign concepts, our ability to
attract new franchisees; changes in customer tastes, demographic trends and in the
attractiveness of our concepts, traffic patterns, occupancy cost and occupancy level of
malls and office towers; general economic and financial market conditions, the level of
consumer confidence and spending, and the demand for, and prices of, our products; our
ability to implement our strategies and plans in order to produce the expected benefits;
events affecting the ability of third-party suppliers to provide to us essential products and
services; labour availability and cost; stock market volatility; operational constraints and
the event of the occurrence of epidemics, pandemics and other health risks.
These and other risk factors that could cause actual results or events to differ materially
from our expectations expressed in or implied by our forward-looking statements are
discussed in this MD&A.
We caution readers that the risks described above are not the only ones that could
impact us. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also have a material adverse effect on our business,
financial condition or results of operations.
Except as otherwise indicated by us, forward-looking statements do not reflect the
potential impact of any non-recurring or other special items or of any dispositions,
monetizations, mergers, acquisitions, other business combinations or other transactions
that may be announced or that may occur after February 13, 2013. The financial impact
of these transactions and non-recurring and other special items can be complex and
depends on the facts particular to each of them. We therefore cannot describe the
expected impact in a meaningful way or in the same way we present known risks
affecting our business.
Compliance with International Financial Reporting Standards
Unless otherwise indicated, the financial information presented below, including tabular
amounts, is expressed in Canadian dollars and prepared in accordance with International
Financial Reporting Standards (“IFRS”). MTY uses income before income taxes, interest
on long-term debt, depreciation and amortization (“EBITDA”) because this measure
enables management to assess the Company‟s operational performance. The Company
also discloses same-store sales growth, which are defined as comparative sales
generated by stores that have been open for at least thirteen months or that have been
acquired more than thirteen months ago.
These measures are widely accepted financial indicators but have no standardized
definition as prescribed by GAAP. As a result, they may not be comparable to the
EBITDA and same store-sales growth presented by other companies.
Page 3
Highlights of significant events during the fiscal year
On September 26, 2012, the Company announced it had completed the acquisition of
most of the assets of Souvlaki Ltd for an estimated consideration of $0.9 million.
Core business
MTY franchises and operates quick-service restaurants under the following banners: Tiki-
Ming, Sukiyaki, La Crémière, Au Vieux Duluth Express, Carrefour Oriental, Panini Pizza
Pasta, Chick „n‟ Chick, Franx Supreme, Croissant Plus, Villa Madina, Cultures, Thaï
Express, Vanellis, Kim Chi, “TCBY”, Yogen Früz, Sushi Shop, Koya Japan, Vie & Nam,
Tandori, O‟Burger, Tutti Frutti, Taco Time, Country Style, Buns Master, Valentine, Jugo
Juice, Mr. Sub, Koryo Korean Barbeque and Mr. Souvlaki.
As at November 30, 2012, MTY had 2,199 locations in operation, of which 2,179 were
franchised or under operator agreements and the remaining 20 locations were operated
by MTY.
format within petroleum
MTY‟s locations can be found in: i) food courts and shopping malls; ii) street front; and, iii)
non-traditional
retailers, convenience stores, cinemas,
amusement parks and in other venues or retailers shared sites. The non-traditional
locations are typically smaller in size, require a lower investment and generate lower
revenues than the locations found in shopping malls, food courts or street front locations.
The street front locations are mostly made up of the Country Style, La Crémière, “TCBY”,
Sushi Shop, Taco Time, Tutti Frutti, Valentine and Mr. Sub banners. La Crémière and
“TCBY” operate primarily from April to September and the others banners operate year
round.
MTY has developed several quick service restaurant concepts: Tiki-Ming (Chinese
cuisine), was its first banner, followed by Sukiyaki (a Japanese delight), Franx Supreme
(hot dog/hamburger), Panini Pizza Pasta, Chick‟n‟Chick, Caferama, Carrefour Oriental,
Villa Madina, Kim Chi, Vie & Nam, Tandori and O‟Burger.
Other banners added through acquisitions include:
18 locations from the Fontaine Santé/Veggirama chain in 1999,
74 locations from the La Crémière ice cream chain in 2001,
20 locations from the Croissant Plus chain in 2002,
24 locations from the Cultures chain in 2003,
6 locations from the Thaï Express chain in May 2004,
103 locations from the Mrs. Vanelli‟s chain in June 2004,
91 locations of The Country‟s Best Yogurt “TCBY” with the undertaking of the
Canadian master franchise right in September 2005,
On April 1, 2006, MTY acquired the exclusive master franchise rights to franchise
Yogen FrüzTM throughout Canada with its network of 152 existing locations,
On September 1, 2006, MTY acquired the Sushi Shop banner with its 42 franchise
locations and 5 corporate owned locations,
Page 4
On October 19, 2006, the Company acquired the Koya Japan banner with its 24
franchise locations and one corporate owned location,
On September 1, 2007 MTY purchased 15 existing Sushi Shop franchise locations
from an investor group,
On September 15, 2008, MTY acquired the Tutti Frutti banner with its 29 outlets.
This banner caters to the breakfast and lunch crowd,
On October 31, 2008, MTY acquired the Canadian franchising rights of Taco Time.
As at the date of acquisition, there were 117 Taco Time restaurants operating in
Western Canada,
On May 1, 2009, the Company acquired the outstanding shares of Country Style
Food Services Holdings Inc. with the 480 outlets operated by its subsidiaries,
On September 16, 2010, the Company acquired the outstanding shares of Groupe
Valentine inc. and of its network of 95 stores. The transaction was effective
September 1, 2010,
On August 24, 2011, the Company acquired the assets of Jugo Juice International
Inc. with 136 outlets in operation at the date of closing. The transaction was effective
August 18, 2011,
On November 1, 2011, the Company acquired the assets of Mr. Submarine Limited,
with 338 stores in operations at the date of closing,
On November 10, 2011, the Company acquired the assets of Koryo Korean BBQ
Franchise Corp. with 20 stores in operations at the effective date of closing. The
transaction was effective November 1, 2011.
On September 26, 2012, the Company acquired the assets of Mr. Souvlaki Ltd. with
14 stores in operation at the effective date of closing.
MTY also has an exclusive area development agreement with Restaurant Au Vieux Duluth
to develop and sub-franchise Au Vieux Duluth Express quick-service restaurants in the
Provinces of Ontario and Quebec.
Revenues from franchise locations are generated from royalty fees, franchise fees, sales
of turn key projects, rent, sign rental, supplier contributions and sales of other goods and
services to franchisees. Revenues from corporate owned locations include sales
generated from corporate owned locations. Operating expenses related to franchising
include salaries, general and administrative costs associated with existing and new
franchisees, expenses in the development of new markets, costs of setting up turn key
projects, rent, supplies and equipment sold to franchisees. Corporate owned location
expenses include the costs incurred to operate corporate owned locations.
MTY generates revenues from the food processing business discussed herein. The plant
produces various products that range from ingredients and ready to eat food sold to
restaurants or other food processing plants to microwavable meals sold in retail stores.
The plant generates most of its revenues selling its products to distributors and retailers.
The Company also generates revenues from its distribution center located on the south
shore of Montreal. The distribution center mainly serves our Valentine and Franx
Page 5
Supreme franchisees with a broad range of products required in the day-to-day
operations of the restaurants.
Description of recent acquisitions
On September 26, 2012, the Company announced it had completed the acquisition of
most of the assets of Mr. Souvlaki Ltd. for a total consideration of $0.9 million. At the date
of closing, there were 14 Mr. Souvlaki stores in operation, all of which were franchised.
Of the purchase price, MTY withheld an amount of $0.17 million in holdbacks.
On November 10, 2011, the Company acquired the assets of Koryo Korean BBQ
Franchise Corp for an estimated total consideration of $1.8 million. At the effective date
of closing, November 1, 2011, the Koryo network was composed of 19 franchised stores
and 1 corporate store. Of the purchase price, MTY withheld an amount of $0.35 million in
holdbacks.
On November 1, 2011, the Company acquired substantially all of the assets of Mr.
Submarine Limited and Mr. Sub Realty Inc. for an estimated total consideration of $23.0
million. At the date of closing, there were 338 Mr. Sub stores in operations, all of which
were franchised or subject to an operator agreement. MTY withheld an amount of $2.5
million as holdback, which will become payable in November 2013.
On August 24, 2011, the Company acquired all of the assets of Jugo Juice International
Inc., Jugo Juice Canada Inc. and Jugo Juice Western Canada Inc. for an estimated total
consideration of $15.45 million. At the effective date of closing, August 18, 2011, 136
Jugo Juice outlets were in operations, 2 of which we corporately owned and 134 were
franchised. Of the total consideration, MTY withheld $1.735 million as holdbacks on the
transaction.
On December 17, 2010, the Company acquired a 51% interest in a food processing plant.
The total transaction value was estimated at approximately $3.5 million including land,
building, equipment, inventories, existing workforce and certifications. The newly formed
company contracted at $3.5 million bank loan to finance the acquisition.
As part of the transaction, one of the shareholders in the newly formed company brought
in existing activities from another operating plant, in exchange for mandatorily
redeemable preferred shares. One third of the preferred shares will be redeemed
annually, at a value contingent on the performance of the plant. The value of such shares
was estimated at $300,000 at the inception of the shareholders‟ agreement and
subsequently revalued at $200,000 following changes in the purchase price allocation.
Page 6
Summary of quarterly financial information
Quarters ended
in thousands of $
February
2011
May
2011
August
2011
November
2011
February
2012
May
2012
August
2012
November
2012
Revenue
$16,761
$18,629
$19,852
$23,116
$21,945
$23,689
$24,239
$26,347
Net income and
comprehensive income
attributable to owners
$3,490
$3,583
$4,388
$4,733
$4,392
$5,283
$6,129
$6,263
Per share
$0.18
$0.19
$0.23
$0.25
$0.23
$0.28
$0.32
$0.33
Per diluted share
$0.18
$0.19
$0.23
$0.25
$0.23
$0.28
$0.32
$0.33
Results of operations for the fiscal year ended November 30, 2012
Revenue
During the year ended November 30, 2012, the Company‟s total revenue increased by
23% to reach $96.2 million. Revenues for the four segments of business are broken
down as follows:
November 30,2012
($ million)
November 30, 2011
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
70.9
12.2
6.1
8.1
(1.0)
96.2
56.0
10.8
6.1
6.3
(0.8)
78.4
27%
13%
0%
27%
N/A
23%
Page 7
As is shown in the table above, revenue from franchise locations progressed by 27%.
Several factors contributed to the variation, as listed below:
Revenues, 2011 fiscal year
Increase in recurring revenue streams
Increase in turn-key, sales of material to franchisees and rent revenues
Increase in initial franchise fees
Other non-material variations
Revenues, 2012 fiscal year
$million
56.0
13.0
0.8
1.0
0.1
70.9
During the 2012 fiscal year, the Company benefitted from the results of its most recent
acquisitions, which account for $10.3 million of the increase in recurring streams of
revenues. Other factors accounting for the increase in the recurring revenue streams
include a favorable same-store-sales growth as well as the good performance of stores
opened in the last 12 months.
Revenue from corporate owned locations increased 13%, to $12.2 million during the
2012 fiscal year. The increase is mainly due to the consolidation of certain Special
Purpose Entities acquired with Mr. Sub during the fourth quarter of 2011, which
generated approximately $4.5 million during the year. This increase was partly offset by
the disposal of certain corporate stores during 2012.
The Company also generated food processing revenues of $8.1 million during the twelve-
month period. The increase of 27% is attributable to the timing of the acquisition in the
first quarter of 2011 as well as to the transition period which affected the performance of
the plant in the early stages following the transaction.
Cost of sales and other operating expenses
During 2012, operating expenses increased by 18% to $61.3 million, from $51.9 million
for the same period in 2011. Operating expenses for the four business segments were
incurred as follows:
November 30, 2012
($ million)
November 30, 2011
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
36.3
12.4
5.6
8.0
(1.0)
61.3
30.2
10.7
5.5
6.2
(0.8)
51.9
20%
15%
2%
29%
N/A
18%
Operating expenses related to the franchising operations increased by $6.1 million,
mainly as a result the additional expenses created by the operations of the recent
acquisitions.
Page 8
During the year, expenses for corporate owned locations increased by $1.7 million. The
increase is caused by the consolidation of the Special Purposes Entities of Mr Sub, which
was partially offset by the divestiture of certain corporate stores during 2012.
The expenses of the food processing plant were up by 29%, for the reasons described in
the Revenues section above.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of
Revenue
Franchise
Corporate
$70.91
$36.33
$34.58
49%
$12.17
$12.35
($0.18)
N/A
Fiscal year ended
November 30, 2012
Distribution Processing Consolidation
($0.99)
($0.99)
$0.00
N/A
$6.08
$5.63
$0.45
7%
$8.05
$7.97
$0.08
1%
Total
$96.22
$61.29
$34.93
36%
Franchise
Corporate
Fiscal year ended
November 30, 2011
Distribution Processing Consolidation
($0.76)
($0.76)
$0.00
$0.00
N/A
(In millions)
Revenues
Expenses
Restructuring
EBITDA(1)
EBITDA as a % of
Revenue
EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure recognized
by IFRS and therefore may not be comparable to similar measures presented by other companies.
(1)EBITDA is defined as operating revenues less operating expenses.
$55.95
$30.23
$0.45
$25.27
45%
$10.78
$10.73
$0.00
$0.05
0%
$78.36
$51.93
$0.45
$25.98
33%
$6.06
$5.53
$0.00
$0.53
9%
$6.33
$6.20
$0.00
$0.13
2%
Total
Total EBITDA increased by 34%, from $26.0 million to $34.9 million for the 2012 fiscal
year.
During the year, the franchising operations generated $34.6 million in EBITDA, a 37%
increase over the results of the same period last year. The increase is mainly attributable
to the contribution of the recent acquisitions which accounts for approximately three
quarters of the growth, the increase in same-store-sales and the performance of stores
opened in the last twelve months. The 2011 EBITDA also included a $0.45 million
restructuring charge.
EBITDA from franchise operations as a percentage of revenue increased to 49%
because of a change in the composition of the revenues that saw a reduced relative
weight for revenues generated by the deliveries of turnkeys and materials to franchisees,
which typically generate low profit margins.
Page 9
EBITDA from corporate owned locations declined slightly during the twelve-month period,
mainly because of the disposition of some profitable stores in 2012.
The food processing plant generated $0.1 million EBITDA in the 2012 and 2011 fiscal
year. 2012 results had been affected by a low margin contract which has now been
renegotiated.
Net income
For the fiscal year ended November 30, 2012, the Company‟s net income attributable to
owners increased by 36% over the same period last year. MTY reported a net income
and comprehensive income attributable to its owners of $22.1 million or $1.15 per share
($1.15 per diluted share) compared to $16.5 million or $0.85 per share ($0.85 per diluted
share) in 2011.
The increase in net income is mostly attributable to the impact of recent acquisitions as
well as to strong generic growth in revenues, which more than offset the decline in the
non-recurring other income items.
Amortization expense
The amortization of intangible assets was up by $0.7 million in 2012 because of the
amortization of the recently acquired franchise rights.
Other income and charges
The gain on disposal of assets, which results from the sale of the assets of corporate
stores, was $0.5 million in 2012 compared to a gain of $0.9 million during 2011. The
unusual 2011 gain was mainly caused by the sale of one corporate restaurant that
generated above-average returns and thus commanded a higher sales price.
During the year, the Company took an impairment charge of $0.1 million on the assets of
eight of its corporate stores, each one representing a cash-generating unit (“CGU”). The
charge was taken following disappointing 2012 results, which indicated a potential
impairment. The assets of all eight stores are now carried at their fair value less cost to
sell, which was higher than their value in use based on discounted cash flows.
During the year, the Company recorded a gain of $0.1 million for the redemption of the
preferred shares issued by one of its subsidiaries. The shares are mandatorily
redeemable
instalments, with redemption values based on the
performance of the subsidiary. Due to the financial performance of the subsidiary for
2012, the redemption value of the shares was $nil.
three yearly
in
The Company also recorded a gain of $0.1 million on the loan forgiveness of non-
controlling shareholders of a subsidiary.
Page 10
Income taxes
The provision for income taxes for the 2012 fiscal year was 27.7% of the Company‟s
income before taxes. This is higher than the average statutory rate of 26.9% applicable
to the Company‟s income for the year. The discrepancy is mainly due to an income tax
assessment that resulted in a charge of approximately $0.3 million.
Results of operations for the fourth quarter ended November 30, 2012
Revenue
During the fourth quarter of our 2012 fiscal year, the Company‟s total revenue increased
by 14% to reach $26.3 million. Revenues for the four segments of business are broken
down as follows:
November 30,2012
($ million)
November 30, 2011
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
20.0
2.5
1.9
2.3
(0.3)
26.3
16.1
3.3
1.9
2.0
(0.2)
23.1
24%
(24%)
0%
13%
N/A
14%
As is shown in the table above, revenue from franchise locations progressed by 24%.
Several factors contributed to the variation, as listed below:
Revenues, fourth quarter of 2011
Increase in recurring revenue streams
Increase in turn-key, sales of material to franchisees and rent revenues
Increase in initial franchise fees
Other non-material variations
Revenues, fourth quarter of 2012
$million
16.1
2.5
1.2
0.5
(0.3)
20.0
During the fourth quarter of 2012, the Company benefited from the results of its most
recent acquisitions, which account for $2.2 million of the increase in recurring streams of
revenues. Other factors accounting for the increase in such revenues include the good
performance of stores opened in the last 12 months and higher turnkey revenue.
Revenue from corporately-owned locations decreased 24%, to $2.5 million during the
fourth quarter of our 2012 fiscal period. The decrease is due to the disposal of certain
stores since the beginning of 2012.
The Company generated food processing revenues of $2.3 million during the fourth
quarter of 2012, up 13% compared to the same period last year. The increase is mainly
attributable to a new line of production that was put in place during the fourth quarter.
Page 11
Cost of sales and other operating expenses
During the fourth quarter of 2012, operating expenses increased by 14% to $17.4 million,
from $15.3 million for the same period in 2011. Operating expenses for the four business
segments were incurred as follows:
November 30, 2012
($ million)
November 30, 2011
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
11.0
2.7
1.7
2.3
(0.3)
17.4
8.6
3.3
1.7
1.9
(0.2)
15.3
28%
(20%)
0%
23%
N/A
13%
Operating expenses related to the franchising operations increased by $2.4 million,
mainly as a result the additional expenses created by the operations of its recent
acquisitions, which account for $0.7 million of this increase. The balance of the increase
is due to the increase in revenues generated from turn-keys, sales of material to
franchisees and rent.
During the period, expenses for corporate owned locations decreased by $0.6 million. The
decrease was caused by the reduction in the number of corporate stores in the last 12
months.
The expenses of the food processing plant were up by 23%, increasing as a result of the
additional revenues the plant generates.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of
Revenue
Franchise
Corporate
$20.05
$11.02
$9.03
45%
$2.49
$2.65
($0.16)
N/A
Three months ended
November 30, 2012
Distribution Processing Consolidation
($0.33)
($0.33)
$0.00
N/A
$2.27
$2.28
$(0.01)
N/A
$1.87
$1.74
$0.12
7%
Total
$26.35
$17.37
$8.98
34%
Franchise
Corporate
Three months ended
November 30, 2011
Distribution Processing Consolidation
($0.19)
($0.19)
$0.00
N/A
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of
Revenue
EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure recognized
by IFRS and therefore may not be comparable to similar measures presented by other companies.
(1)EBITDA is defined as operating revenues less operating expenses.
$3.29
$3.34
($0.06)
N/A
$16.15
$8.58
$7.57
47%
$23.12
$15.32
$7.80
34%
$1.87
$1.74
$0.13
7%
$2.01
$1.85
$0.16
8%
Total
Page 12
EBITDA increased by 15%, from $7.8 million in the fourth quarter of 2011 to $9.0 million
for the three months ended November 30, 2012.
During the period, the franchising operations generated $9.0 million in EBITDA, a 19%
increase over the results of the same period last year. The increase is mainly attributable
to the contribution of recent acquisitions and the performance of stores opened in the last
twelve months.
EBITDA from franchise operations as a percentage of revenue decreased to 45%,
because of the higher relative weight of sales to franchises. These revenues typically
generate lower profit margins.
Corporate stores had a loss of $0.2 million in EBITDA, a decrease of $0.1 million
compared to the same period in 2011. This was mainly due to the disposition of some
profitable stores in 2012.
The food processing plant generated a slightly negative EBITDA in the fourth quarter of
2012.
Net income
For the three months ended November 30, 2012, MTY reported a net income and
comprehensive income attributable to its owners of $6.3 million or $0.33 per share ($0.33
per diluted share) compared to $4.7 million or $0.25 per share ($0.25 per diluted share)
for the same period last year, representing a net income increase of 32%.
Amortization expense
The amortization of intangible assets in the fourth quarter of 2012 was comparable to the
same period last year.
Other income and charges
During the fourth quarter, the Company took an impairment charge of $0.1 million on the
assets of eight of its corporate stores (each one representing a cash-generating unit
(“CGU”). The charge was taken following disappointing results in 2012. The assets of all
eight stores are now carried at their fair value, which was higher than their value in use
based on discounted cash flows.
During the fourth quarter, the Company recorded a gain of $0.1 million for the redemption
of the preferred shares of its processing plant. The shares are mandatorily redeemable
in three yearly instalments, with redemption values based on the performance of the
processing plant. Due to the EBITDA generated by the processing plant, the redemption
was valued at zero.
The Company also recorded a gain of $0.1 million on the loan forgiveness of non-
controlling shareholders of a subsidiary which is owned at 45%.
Page 13
Income taxes
The provision for income taxes as a percentage of income before taxes decreased
slightly during the fourth quarter of 2012 compared to the same period last year. This
was mainly due to reductions in the corporate tax rates in the territories in which the
Company has permanent establishments, as well as a rate adjustment on non-capital
losses carried forward accounted for in the fourth quarter of 2011.
Contractual obligations and long-term debt
The obligations pertaining to the long-term debt and the minimum rentals for the leases
that are not subleased are as follows:
For the period ending
(In thousands $)
12 months ending November 2013
12 months ending November 2014
12 months ending November 2015
12 months ending November 2016
12 months ending November 2017
Balance of commitments
Long term
debt(1)
$7,334
$287
$-
$-
$-
$-
$7,621
Net lease
commitments
$2,258
$2,202
$1,883
$1,670
$1,355
$3,918
$13,286
Total contractual
obligations
$9,592
$2,489
$1,883
$1,670
$1,355
$3,918
$20,907
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted.
For total commitments, please refer to November 30, 2012 consolidated financial statements
Long-term debt includes non-interest bearing holdbacks on acquisitions, a bank loan
used to finance the acquisition of the food processing plant acquired in December 2010
as well as mandatorily redeemable preferred shares issued to a minority shareholder of a
subsidiary.
The bank loan used to finance the acquisition of the food processing plant was classified
as current in 2012 as two of the covenants were not met as at November 30, 2012.
In addition to the above, the Company has entered into supplier agreements for
purchases of coffee beans, wheat, sugar and shortening for delivery between December
2012 and March 2013. The total commitment amounts to $1.0 million.
In relation to the items listed above, the Company has entered into contracts to minimize
the impact of variations in foreign currencies. The total commitment on these contracts
amounts to approximately $0.4 million.
Page 14
Liquidity and capital resources
As of November 30, 2012, the amount held in cash and cash equivalents totalled $33.0
million, an increase of $22.4 million over the cash and cash equivalents and temporary
investments held at the end of our 2011 fiscal period. The increase is attributable to the
strong cash flows generated by our operations during the 2012 fiscal year.
Cash flows generated by operating activities were $29.4 million during the 12 months of
2012. Excluding the variation in non-cash working capital items, income taxes and
interest paid, our operations generated $35.8 million in cash flows, compared to $26.2
million in 2011, which represents an increase of 37% compared to the same period last
year.
The main drivers for this increase are the 34% increase in EBITDA discussed above as
well as the receipt of material amounts of deferred revenues that will be recognized into
income in the coming quarters.
In the short-term, Management will continue to open new locations that will be funded by
new franchisees. MTY will continue its efforts to sell some of its existing corporate
owned locations and will seek new opportunities to acquire other food service operations.
MTY has an available line of credit of $10.0 million that remained unused at November
30, 2012. The facility, when used, bears interest at the bank‟s annual prime rate plus a
margin not exceeding 0.5% established based on the Company‟s funded debt/EBITDA
ratio.
Cash flows generated by our operations are typically held in high yield savings account or
guaranteed investment certificates until they are required.
Statement of financial position
During the year, the Company has liquidated its remaining investments and has now
allocated its cash and cash equivalents on hand in high yield savings accounts with
various recognized institutions.
Accounts receivable at the end of the fourth quarter were at $13.6 million, compared to
$10.5 million at the end of our 2011 fiscal period. The increase is mainly due to the
increase in revenues and the related working capital requirements. The provision for
doubtful accounts has increased by $0.3 million since November 30, 2011, mainly as a
result of the unpredictable environment in which some of our franchisees operate that
result in uncertain collection of amounts due.
Page 15
Property, plant and equipment and intangible assets both decreased during the year.
The decrease in property, plant and equipment is the result of the dispositions of some
corporate stores during the period, as well as of the depreciation and amortization
recorded during the period. The decrease in intangible assets, which is due to the
amortization recorded during the period, was partially offset by the acquisition of
franchise rights valued at $0.5 million and the acquisition of Mr. Souvlaki valued at $0.9
million.
Accounts payable remained consistent at $13.4 million from $13.5 million in 2011.
Deferred revenues consist of distribution rights which are earned on a consumption basis
and include initial franchise fees to be earned once substantially all of the initial services
have been performed. The balance as at November 30, 2012 was $2.2 million, an
increase of $0.6 million compared to the balance at the end of 2011. The variation is due
to increases in franchise fee deposits which are dependent on the level of activity and
deliveries during a certain period. These amounts will be recognized into revenues as
they are earned.
The long-term debt is composed of non-interest bearing holdbacks on acquisitions, of
bank loans contracted by a subsidiary to finance an acquisition and of mandatorily
redeemable preferred shares payable to a minority shareholder of a subsidiary.
Repayments of $1.6 million were made on non-interest bearing holdbacks. In addition,
payments were made on the bank loan of a subsidiary following a period during which
only interest payments were required. There were no material issuances since the
beginning of the year.
One third of the preferred shares will be redeemed annually at a value that is contingent
on the performance of a subsidiary. Management expects that the value of the preferred
shares at redemption will be approximately $100,000.
Further details on the above statement of financial position items can be found in the
notes to the November 30, 2012 consolidated financial statements.
Capital stock
No shares were issued during the quarter ended November 30, 2012. As at February 13,
2013 there were 19,120,567 common shares of MTY outstanding.
Page 16
Location information
MTY‟s locations can be found in: i) food courts and shopping malls; ii) street front; and iii)
non-traditional
retailers, convenience stores, cinemas,
amusement parks and in other venues or retailers shared sites. The non-traditional
locations are typically smaller in size, require lower investment and generate lower
revenue than the shopping malls, food courts and street front locations.
format within petroleum
Franchises, beginning of year
Corporate owned, beginning of year
Acquired during the year
Opened during the period
Mall
Street
Non-traditional
Closed during the period
Mall
Street
Non-traditional
Total end of period
Franchises, end of period
Corporate owned, end of period
Total end of period
Number of
locations
fiscal year
ended
Number of
locations
fiscal year
ended
November 2012 November 2011
2,233
30
14
45
33
51
(49)
(45)
(113)
2,199
2,179
20
2,199
1,701
26
494
41
37
49
(16)
(21)
(48)
2,263
2,233
30
2,263
During the fiscal year ended November 30, 2012, the Company‟s network experienced a
net reduction of 78 outlets, compared to a net addition of 42 stores for the same period a
year ago, excluding those coming from the acquisitions completed during the two
respective years. This net reduction is partially attributable to the loss of two non-
traditional store contracts cancellations suffered during the first and third quarter of the
year which resulted in a total reduction of 54 non-traditional outlets. During the year, the
Company closed street and mall locations that were not seen viable in the long term.
Some mall and street locations closures are also due to lease non renewals upon expiry.
At the end of the period, the Company had 20 corporate stores, a net decrease of ten.
During the year, twelve corporate-owned locations were sold, five were added, and three
were closed.
As at November 30, 2012, there were two test locations in operation, both which were
excluded from the numbers presented above.
Page 17
The chart below provides the breakdown of MTY‟s locations and system sales by type:
Location type
% of location count
% of system sales
fiscal year ended
Shopping mall & food court
Street front
Non-traditional format
November 30, November 30,
November 30, November 30,
2012
38%
36%
26%
2011
36%
36%
28%
2012
50%
41%
9%
2011
50%
40%
10%
The geographical breakdown of MTY‟s locations and system sales consists of:
Geographical location
% of location count
% of system sales
fiscal year ended
November 30, November 30,
November 30, November 30,
2012
46%
28%
20%
2%
4%
2011
48%
27%
20%
2%
3%
2012
36%
34%
24%
1%
4%
2011
32%
40%
22%
1%
5%
Ontario
Quebec
Western Canada
Maritimes
International
System wide sales
System wide sales for the year ended November 30, 2012 grew 31%, reaching $688.7
million during the period, compared to $527.6 million for the same period last year.
Approximately 80% of the increase in system wide sales for the year is attributable to the
recent acquisitions. Approximately 4% of the increase comes from the growth in the
same-store sales, and the rest is due to new restaurants opened in the last 12 months.
System wide sales include sales for corporate and franchise locations and exclude sales
realized by the distribution center or by the food processing plant.
Page 18
Same-store sales
During the 2012 fiscal year, same-stores sales improved by 1.08% over the same period
last year. For the fourth quarter, same store sales have declined by 0.91%
Most of our major concepts experienced growth in same-store sales during the year. The
outlets located in western provinces continue to outperform the other regions,
experiencing the strongest same-store sales growth, while those located in Ontario on
average suffered a decrease.
Street front and mall locations showed stronger growth during the 2012 fiscal year, while
non-traditional locations have experienced a slight decrease over the same period.
During the fourth quarter, same store sales performances declined compared to the
previous quarters; this was felt across all regions in which our stores operate, and across
all types of restaurants and concepts.
As discussed in our previous MD&A, we are witnessing high volatility on the market which
seems to affect some of our brands more than others at various times. During the fourth
quarter, this volatility has resulted in a downward pressure that was felt throughout the
network.
The following table shows quarterly information on same-stores sales growth for the last
13 quarters:
Page 19
Stock options
During the period, no options were granted or exercised. As at November 30, 2012 there
were no options outstanding.
Seasonality
Results of operations for the interim period are not necessarily indicative of the results of
operations for the full year. The Company expects that seasonality will not be a material
factor in the quarterly variation of its results. System sales fluctuate seasonally. During
January and February sales are historically lower than average due to weather
conditions. Sales are historically above average during May to August. This is generally
as a result of higher traffic in the street front locations, higher sales from seasonal
locations only operating during the summer months and higher sales from shopping
centre locations. Sales for shopping malls locations are also higher than average in
December during the Christmas shopping period.
Contingent liabilities
The Company is involved in legal claims associated with its current business activities,
the outcome of which is not determinable. Management believes that these legal claims
will have no significant impact on the financial statements of the Company.
Guarantee
The Company has provided a guarantee in the form of a letter of credit for an amount of
$45,000.
Risks and uncertainties
Despite the fact that the Company has various numbers of concepts, diversified in type of
locations and geographics across Canada, the performance of the Company is also
influenced by changes in demographic trends, traffic patterns, occupancy level of malls
and office towers and the type, number, and location of competing restaurants. In
addition, factors such as innovation, increased food costs, labour and benefits costs,
occupancy costs and the availability of experienced management and hourly employees
may adversely affect the Company. Changing consumer preferences and discretionary
spending patterns could oblige the Company to modify or discontinue concepts and/or
menus and could result in a reduction of revenue and operating income. Even if the
Company was able to compete successfully with other restaurant companies with similar
concepts, it may be forced to make changes in one or more of its concepts in order to
respond to changes in consumer tastes or dining patterns. If the Company changes a
concept, it may lose additional customers who do not prefer the new concept and menu,
and it may not be able to attract a sufficient new customer base to produce the revenue
needed to make the concept profitable. Similarly, the Company may have different or
additional competitors for its intended customers as a result of such a concept change
and may not be able to successfully compete against such competitors. The Company's
success also depends on numerous factors affecting discretionary consumer spending,
including economic conditions, disposable consumer income and consumer confidence.
Page 20
Adverse changes in these factors could reduce customer traffic or impose practical limits
on pricing, either of which could reduce revenue and operating income.
The growth of MTY is dependant on maintaining the current franchise system which is
subject to the renewal of existing leases at sustainable rates, MTY‟s ability to continue to
expand by obtaining acceptable store sites and lease terms, obtaining qualified
franchisees, increasing comparable store sales and completing acquisitions. The time,
energy and resources involved in the integration of the acquired businesses into the MTY
system and culture could also have an impact on MTY‟s results.
Off-balance sheet arrangement
MTY has no off-balance sheet arrangements
Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related
parties of the Company, have been eliminated on consolidation. Details of transactions
between the Company and other related parties are disclosed below.
Compensation of key management personnel
The remuneration of key management personnel and directors during the fiscal year was
as follows:
(in thousands)
Period ended
November 30,
2012
Period ended
November 30,
2011
$
$
Short-term benefits
Post-employment benefits, share-based payments
and other long-term benefits
Board member fees
Total remuneration of key management personnel
659
Nil
40
699
581
Nil
40
621
Key management personnel is composed of the Company‟s CEO, COO and CFO. The
remuneration of directors and key executives is determined by the Board of directors
having regard to the performance of individuals and market trends.
The increase in the remuneration of key management personnel is mainly due to the
division in the COO/CFO role into two distinct positions.
Given its widely held share base, the Company does not have an ultimate controlling
party; its most important shareholder is its CEO, who controls 26% of the outstanding
shares.
Page 21
The Company also pays employment benefits to individuals related to members of the
key management personnel described above. Their total remuneration for the year was
as follows
(in thousands)
Short-term benefits
Post-employment benefits, share-based
payments and other long-term benefits
Period ended
November 30,
2012
Period ended
November 30,
2011
$
472
Nil
$
447
nil
Total remuneration of employees related to key
management personnel
472
447
A corporation owned by individuals related to key management personnel has
participation in two of the Company‟s subsidiaries. During the period, dividends of nil
(2011- $140) were paid by those subsidiaries to the above-mentioned company, and
advances of nil (2011- $78) were repaid. During the year, one of the Company‟s
subsidiaries loan payable to its non-controlling shareholders was forgiven by individuals
related to key management personnel for an amount of $50.
Critical accounting estimates
In the application of the Company's accounting policies, which are described in note 3 of
the consolidated financial statements, the directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. The estimates and associated assumptions are
based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate is revised if
the revision affects only that period, or in the period of the revision and future periods if
the revision affects both current and future periods.
Critical judgments in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that
management has made in the process of applying the Company's accounting policies
and that have the most significant effect on the amounts recognized in the consolidated
financial statements.
Page 22
Identification of cash-generating units
The Company assesses whether there are any indicators of impairment for all non-
financial assets at each reporting period date. Doing so first requires the identification of
cash-generating units; the determination is done based on management‟s best
estimation of what constitutes the lowest level at which an asset or group of asset has
the possibility of generating cash inflows.
Revenue recognition
In making their judgement, management considered the detailed criteria for the
recognition of revenue from the sale of goods and for construction contracts set out in
IAS 18 Revenue and, in particular, whether the Company had transferred to the buyer
the significant risks and rewards of ownership of the goods.
Consolidation of special purpose entities
In determining which entities are required to be consolidated in the fashion described
below, the Company must exercise judgment to determine who has de facto control of
the entities being considered. Such judgment is reassessed yearly to take into account
the most recent facts relevant to each entity‟s situation.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year.
Business combinations
For business combinations, the Company must make assumptions and estimates to
determine the purchase price allocation of the business being acquired. To do so, the
Company must determine the acquisition-date fair value of the identifiable assets
acquired, including such intangible assets as franchise rights and trademarks, and
liabilities assumed. Goodwill is measured as the excess of the fair value of the
consideration transferred including the recognized amount of any non-controlling interest
in the acquiree over the net recognized amount of the identifiable assets acquired and
liabilities assumed, all measured at the acquisition date. These assumptions and
estimates have an impact on the asset and liability amounts recorded in the consolidated
statement of financial position on the acquisition date. In addition, the estimated useful
lives of the acquired amortizable assets, the identification of intangible assets and the
determination of the indefinite or finite useful lives of intangible assets acquired will have
an impact on the Company‟s future profit or loss.
Page 23
Impairment of non-financial assets
The recoverable amounts of the Company‟s assets is generally estimated based on
value-in-use calculations as this was determined to be higher than fair value less cost to
sell, except for certain corporate store assets for which fair value less cost to sell was
higher than their value in use. The fair value less cost to sell of corporate stores is
generally determined by estimating the liquidation value of the restaurant equipment.
Other than the value of the assets of certain corporate stores and of one of the
company‟s trademarks, the value in use of cash-generating units (“CGUs”) tested was
higher or equal to the carrying value of the assets. Impairment assessments were
established using a 17% discount rate on the corporate store CGU‟s and 15% on the
trademarks and franchise rights. Discount rates are based on pre-tax rates that reflect the
current market assessments, taking the time value of money and the risks specific to the
CGU into account.
During the year, the Company recognized impairments on the property, plant and
equipment related to eight of its CGUs following a decline in their performance. All eight
CGUs are groups of assets related to corporate-owned stores. The total impairment of
$135 represents a write down of the carrying value of the leasehold improvements and
equipment to their fair value less cost to sell, which was higher than their value in use.
These calculations take into account our best estimate of future cash flows, using
previous year‟s cash flows for each CGU to extrapolate a CGU‟s future performance to
the earlier of the termination of the lease (if applicable) or 5 years and a terminal value is
calculated beyond this period, assuming no growth to the cash flows of previous periods.
A cash flow period of 5 years was used as predictability for future periods cannot be
estimated with reasonable accuracy.
A 1% change to the discount rate used in the calculation of the impairment would result in
an additional impairment of $41 on the trademarks and franchise rights and $7 on the
property, plant and equipment of our corporate stores.
During the year, the Company also reversed an impairment of $67 related to the
trademark of one of its brands. The reversal, which is shown on the consolidated
statement of comprehensive income on the “impairment of property, plant and
equipment” line, represents the full original impairment taken on the asset and is based
on new estimated future cash flows of the CGU.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the
CGUs to which goodwill has been allocated. The value in use calculation requires
management to estimate the future cash flows expected to arise from the cash-
generating unit and a suitable discount rate in order to calculate present value. It was
determined that goodwill is not impaired as at November 30, 2012, November 30, 2011
and December 1, 2010.
Page 24
The Company used a 13% discount rate for its assessment of goodwill. No growth was
applied to the cash flows used to estimate the terminal value.
Useful lives of property, plant and equipment and intangible assets
As described in Note 3 above, the Company reviews the estimated useful lives of
property, plant and equipment and intangible assets with definite useful lives at the end
of each year and assesses whether the useful lives of certain items should be shortened
or extended, due to various factors including technology, competition and revised service
offerings. During the years ended November 30, 2012 and 2011, the Company was not
required to adjust the useful lives of any assets based on the factors described above.
Provisions
The Company makes assumptions and estimations based on its current knowledge of
future disbursements it will have to make in connection with various events that have
occurred in the past and for which the amount to be disbursed and the timing of such
disbursement are uncertain at the date of producing its financial statements.
Valuation of financial instruments
The Company uses valuation techniques that include inputs that are not based on
observable market data to estimate the fair value of certain types of financial instruments.
Management believe that the chosen valuation techniques and assumptions used are
appropriate in determining the fair value of financial instruments.
Consolidation of special purpose entities
The Company is required to consolidate a small number of special purpose entities. In
doing so, the Company must make assumptions with respect to some information that is
either not readily available or that is not available within reporting time frames. As a
result, assumptions and estimates are made to establish a value for the current assets,
short-term and long-term liabilities and results of operations in general.
Onerous contracts
A provision for onerous contracts is recognized when the unavoidable costs of meeting
our obligations under the contract exceed the expected benefits to be received from the
contract. The provision is measured at the present value of the lower of the expected
cost of terminating the contract and the expected net cost of completing the contract.
Contingencies
The Company is involved in various litigation and disputes as a part of the business that
could affect some of its operating segments. Pending litigations represent potential loss
to the business.
Page 25
MTY accrues potential losses if it believes the loss is probable and can be reasonably
estimated, based on information that is available at the time. Any accrual would be
charged to earnings and included in accounts payable and accrued liabilities. Any cash
settlement would be deducted from cash from operating activities. Management
estimates the amount of the loss by analyzing potential outcomes and assuming various
litigation and settlement strategies.
Accounts receivable
The Company recognizes an allowance for doubtful accounts based on past experience,
outlet-specific situation, counterparty‟s current financial situation and age of the
receivables.
Trade receivables include amounts that are past due at the end of the reporting period
and for which the Company has not recognized an allowance for doubtful accounts
because there was no significant change in the credit quality of the counterparty and the
amounts are therefore considered recoverable.
Accounting policies adopted in 2012
On December 1, 2010, MTY adopted International Financial Reporting Standards for its
financial reporting, using December 1, 2010 as its transition date. Accordingly, the
consolidated financial statements for the fiscal year ended November 30, 2012 and
comparative figures have been prepared in accordance with IFRS 1 “First-Time Adoption
of International Financial Reporting Standards” issued by the International Accounting
Standards Board (“IASB”).
The accounting policies used to prepare these financial statements and the comparative
figures are presented in Note 3 of the consolidated financial statements for the year
ended November 30, 2012. These accounting policies have been applied retrospectively
to December 1, 2010. Reconciliations for the Company‟s income and financial position
are presented in Note 34 of the consolidated financial statements.
The following standards had an impact on the financial information that had previously
been presented in accordance with Canadian GAAP:
IFRS 3 “Business Combinations”
IFRS 3 eliminated the concept of negative goodwill and instead introduces “gain on
bargain purchase”. Under Canadian GAAP, when the consideration paid for an
acquisition was lower than the fair value of the identifiable assets received, the difference
was pro-rated over the non-financial assets acquired. Under IFRS 3, a gain needs to be
recognized on the statement of comprehensive income. This resulted in the restatement
of one of the acquisitions realized during our 2011 fiscal year; as a result, the historical
cost of the non-financial assets acquired was increased by $0.1 million, deferred income
taxes were restated to reflect the variation in the temporary differences and the
depreciation charge on the increased cost of the property, plant and equipment was also
restated. The net impact on the net income and comprehensive income was $0.1 million.
Page 26
IAS 12 “Income Taxes”
Under IFRS, deferred taxes related to intangible assets and goodwill are accounted for
differently than they were under Canadian GAAP when intangible assets are acquired
through a business combination. Upon initial recognition of the business combination, a
long-term deferred tax asset or liability must be recognized when a difference, temporary
or permanent, exists between the fair value of an asset and its tax base according to the
applicable corporate tax laws. Specifically, the Company had to restate the deferred
taxes on its trademarks. Because the Company had elected not to apply IFRS 3 to
acquisitions made prior to the transition date, the adjustment to deferred taxes related to
this period was applied against retained earnings. For acquisitions subsequent to that
date, the adjustment impacted the amount of goodwill recognized on each business
combination.
In addition, IAS 12 eliminates the short-term portion of deferred income taxes.
Consequently, short-term deferred tax assets are now reported with long term assets. As
at December 1, 2010, the Company reclassified an amount of $3.6 million in such
fashion.
IAS 16 “Property, Plant and Equipment”
The Company has elected to use the cost method of accounting for its property, plant
and equipment (“PP&E”) and will continue to use this method to recognize such assets.
Other than the impact on property, plant and equipment (“PP&E”) of IFRS 3 discussed
above, the Company has identified a conversion adjustment resulting from a difference in
the consumption patterns of components of PP&E. Under IFRS, components of
capitalized assets are required to be isolated and depreciated separately. Previously,
components of one given asset were depreciated as a whole. The effect of this change
has been to reduce the carrying value of PP&E by $0.04 million at the date of transition,
December 1, 2010, reduce the deferred tax liability by $0.01 million and reduce retained
earnings by the net of the two previously mentioned amounts. Subsequent depreciation
and gains or losses on disposition were also impacted by the change in the depreciation
policy.
IAS 18 “Revenue”
Under Canadian GAAP, the Company accounted for its turnkey projects using the
completed contract method and as a result recognized revenues, expenses and profits
from projects once they were delivered to the franchisees. Under IFRS, the Company is
required to use the percentage of completion method, which accelerates the recognition
of revenues and expenses on individual projects. Accordingly, accounts receivable,
accounts payable and inventories of projects under construction held for resale had to be
restated.
Page 27
As of December 1, 2010, the Company had to increase its retained earnings by $0.10
million for amounts that should have been recognized in the previous fiscal period; as a
result, the net income of the subsequent period, in which such profits had been
recognized under Canadian GAAP, were reduced by the same amount. The reversal of
revenues and expenses recognized in previous fiscal periods on transition date creates a
reduction of revenues in the first quarter of 2011 of $1.08 million, a reduction of expenses
of $0.94 million and a reduction of the income tax expense of $0.04 million. This change
if partly offset by additional revenues and expenses recognized in the first quarter of
2011. The net impact is presented in Note 34 to the consolidated financial statements.
IAS 39 “Financial instruments: recognition and measurement”
Under Canadian GAAP, the Company did not discount the non-interest bearing
holdbacks on its acquisitions because a specific exemption existed. Under IFRS, such
exemption is no longer available; as a result, the Company discounted its non-interest
bearing holdbacks and adjusted the consideration paid for its acquisitions accordingly,
with the impact of the reduction in the fair value of the holdbacks being allocated to
goodwill.
Because of the exemption available under IFRS 1, the Company did not, however,
restate the purchase price of the Valentine acquisition; the differences between the
carrying values of the holdbacks per Canadian GAAP and IFRS were offset into retained
earnings. The impact on retained earnings was $0.1 million.
Future accounting changes
IFRS 9 “Financial Instruments”
IFRS 9 “Financial Instruments” was issued in November 2009 and contains requirements
for financial assets. It addresses classification and measurement of financial assets and
replaces the multiple category and measurement models in IAS 39 “Financial
Instruments: Recognition and Measurement” for debt instruments with a new mixed
measurement model having only two categories: amortized cost and fair value through
profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and
such instruments are either recognized at fair value through profit or loss or at fair value
through other comprehensive income. Where such equity instruments are measured at
fair value through other comprehensive income, dividends are recognized in profit or loss
to the extent they do not clearly represent a return on investment; however, other gains
and losses (including impairments) associated with such instruments remain in
accumulated other comprehensive income indefinitely.
In October 2010, the IASB amended IFRS 9 “Financial Instruments,” which replaced
IFRS 9 “Financial Instruments” and IFRIC 9 “Reassessment of Embedded Derivatives.”
This change provides guidance on classification, reclassification and measurement of
financial liabilities and on the presentation of gains and losses, through profit or loss, of
financial liabilities designated as measured at fair value. The requirements for financial
liabilities, added in October 2010, largely replicate the requirements of IAS 39 “Financial
Instruments: Recognition and Measurement,” except with respect to changes in fair value
Page 28
attributable to credit risk for liabilities designated as measured at fair value through profit
or loss, which would generally be recognized in other comprehensive income.
This new standard applies to fiscal years beginning on or after January 1, 2015. Early
application is permitted.
IFRS 10 “Consolidated Financial Statements”
In May 2011, the IASB issued IFRS 10 “Consolidated Financial Statements,” which
establishes principles for the preparation and presentation of consolidated financial
statements when an entity controls one or more other entities. IFRS 10 provides a single
consolidation model that identifies control as being the basis for consolidation. The new
standard describes how to apply the principle of control to identify situations when a
company controls another company and must therefore present consolidated financial
statements. IFRS 10 also provides disclosure requirements for the presentation of
consolidated financial statements. IFRS 10 cancels and replaces IAS 27 “Consolidated
and Separate Financial Statements” and SIC-12 “Consolidation – Special Purpose
Entities.”
This new standard applies to fiscal years beginning on or after January 1, 2013. Early
application is permitted.
IFRS 12 “Disclosure of Interests in Other Entities”
In May 2011, the IASB issued IFRS 12 “Disclosure of Interests in Other Entities.” IFRS 12
incorporates, in a single standard, guidance on disclosing interests in subsidiaries, joint
arrangements, associates and structured entities. The objective of IFRS 12 is to require
the disclosure of information that enables users of financial statements to evaluate the
basis of control, any restrictions on consolidated assets and liabilities, exposures to risks
arising from interests in non-consolidated structured entities and the share of minority
interests in the activities of consolidated entities.
This new standard applies to fiscal years beginning on or after January 1, 2013. Early
application is permitted.
IFRS 13 “Fair Value Measurement”
In May 2011, the IASB issued a guide to fair value measurement providing note
disclosure requirements. The guide is set out in IFRS 13 “Fair Value Measurement,” and
its objective is to provide a single framework for measuring fair value under IFRS. It does
not provide additional opportunities to use fair value.
This new standard applies to fiscal years beginning on or after January 1, 2013. Early
application is permitted.
Page 29
IAS 1 “Presentation of Financial Statements”
In June 2011, the IASB amended IAS 1 “Presentation of Financial Statements” requiring
entities preparing financial statements in accordance with IFRS to group together items of
other comprehensive income (OCI) that potentially may be reclassified to the profit or
loss section of the income statement and to separately group items that will not be
reclassified to the profit or loss section of the income statement. The amendments also
reaffirm existing requirements that profit or loss and OCI be presented as either a single
statement or two consecutive statements.
This amended version of this standard applies to fiscal years beginning on or after July 1,
2012. Early application is permitted.
IAS 19 “Employee Benefits”
In June 2011, the IASB amended IAS 19 “Employee Benefits” to improve the accounting
for pensions and other post-employment benefits. The amendments make important
improvements by:
• Eliminating the option to defer the recognition of gains and losses, known as the
“corridor method” or the “deferral and amortization approach”;
• Simplifying the presentation of changes in assets and liabilities arising from defined
in other
benefit plans,
comprehensive income, thereby separating those changes from changes frequently
perceived to be the result of day-to-day operations; and
• Enhancing the disclosure requirements for defined benefit plans, providing better
information about the characteristics of defined benefit plans and the risks to which
entities are exposed through their participation in those plans.
to be presented
re-measurements
including
requiring
This amended version of this standard applies to fiscal years beginning on or after
January 1, 2013. Early application is permitted.
IFRS 7 “Financial Instruments: Disclosures” and IAS 32 “Financial Instruments:
Presentation”
In December 2011, the IASB amended IFRS 7 “Financial Instruments: Disclosures” and
IAS 32 “Financial Instruments: Presentation” as part of its offsetting financial assets and
the disclosure
financial
requirements with those of the Financial Accounting Standards Board (FASB), while IAS
32 was amended to clarify certain items and address inconsistencies encountered upon
practical application of the standard.
IFRS 7 was amended
liabilities project.
to harmonize
The amended versions of IFRS 7 and IAS 32 apply retrospectively to annual periods
beginning on or after January 1, 2013 and on or after January 1, 2014, respectively. Early
application is permitted.
The Company is assessing the impact of adopting these new standards on its
consolidated financial statements and will determine whether it will opt for early
application.
Page 30
Economic environment risk
The business of the Company is dependent upon numerous aspects of a healthy general
economic environment, from strong consumer spending to provide sales revenue, to
available credit to finance the franchisees and the Company. In light of recent upheaval in
economic, credit and capital markets, the Company‟s performance and market price may
be adversely affected. The Company‟s current planning assumptions forecast that the
quick service restaurant industry will be impacted by the current economic recession in
the provinces in which it operates. However, management is of the opinion that the
current economic situation will not have a major impact on the Company due to the
following reasons: 1) the Company has strong cash flows; 2) quick service restaurants
represent an affordable dining out option for consumers in an economic slowdown.
Financial instruments and financial risk exposure
In the normal course of business, the Company uses various financial instruments which
by their nature involve risk, including market risk and the credit risk of non-performance
by counterparties. These financial instruments are subject to normal credit standards,
financial controls, risk management as well as monitoring procedures.
Fair value of recognized financial instruments
Following is a table which sets out the fair values of recognized financial instruments
using the valuation methods and assumptions described below:
In thousands of $
Financial assets
Cash and cash equivalents
Temporary investments
Accounts receivable
Loans receivable
Prepaid and deposits
Financial liabilities
Accounts payable and accrued
At November 30, 2012
At November 30, 2011
Carrying
amount
$
Fair value
$
Carrying
amount
$
Fair value
$
33,036
-
13,631
919
338
33,036
-
13,631
919
338
5,995
4,632
10,496
1,119
312
5,995
4,632
10,496
1,119
312
liabilities
Long-term debt
13,426
7,476
13,426
7,476
13,540
9,008
13,540
9,008
Determination of fair value
The following methods and assumptions were used to estimate the fair values of each
class of financial instruments:
Page 31
Cash and cash equivalents, temporary investments, accounts receivable, deposits,
accounts payable and accrued liabilities - The carrying amounts approximate fair
values due to the short maturity of these financial instruments.
Loans receivable - The loans receivable bear interest at market rates and therefore it is
management‟s opinion that the carrying value approximates the fair value.
Long-term debt - The fair value of long-term debt is determined using the present value
of future cash flows under current financing agreements based on the Company‟s current
estimated borrowing rate for a similar debt.
Risk management policies
The Company, through its financial assets and liabilities, is exposed to various risks. The
following analysis provides a measurement of risks as at November 30, 2012.
Credit risk
The Company‟s credit risk is primarily attributable to its trade receivables. The amounts
disclosed in the statement of financial position are net of allowances for bad debts,
estimated by the Company‟s management based on prior experience and their
assessment of the current economic environment. The Company believes that the credit
risk of accounts receivable is limited for the following reasons:
- Other than receivables from international locations, the Company‟s broad client base is
spread mostly across Canada limits the concentration of credit risk.
- The Company accounts for a specific bad debt provision when management considers
that the expected recovery is less than the actual account receivable.
The credit risk on cash and cash equivalents and temporary investments is limited
because the Company invests its excess liquidity in high quality financial instruments and
with credit-worthy counterparties.
The credit risk on the loans receivable is similar to that of accounts receivable. There is
currently an allowance for doubtful accounts recorded for loans receivable of $55 ($nil as
at November 30, 2011).
Foreign exchange risk
The Company has entered into a contract to minimize its exposure to fluctuations in
foreign currencies, mainly on purchases of coffee. As of November 30, 2012, the total
value of such contracts was approximately $458,000.
Other than the above-mentioned contracts, the Company has minimal exposure to the
US$ and is subject to fluctuations as a result of exchange rate variations to the extent
that transactions are made in the currency. The Company considers this risk to be
relatively limited.
Page 32
As of November 30, 2012, the Company carried US$ cash of CDN$425,000 and had net
accounts receivable of CDN$429,000. As a result, a 1% change in foreign exchange
rates would result in a change in net comprehensive income of approximately $9,000
Canadian dollars.
Interest rate risk
The Company is exposed to interest rate risk with regards temporary investments. Given
the very short term nature of the temporary investments, the risk that changes in interest
rates will cause material fluctuations in the fair value is considered limited.
The Company‟s is also exposed to interest rate risk with its operating line of credit and a
bank loan contracted by a subsidiary. Both facilities bear interest at a variable rate and as
such the interest burden could potentially become more important. The line of credit is
not currently used by the Company; as a result, the exposure to interest rate risk in
minimal.
A 100 basis points increase in the bank‟s prime rate would result in additional interest of
$34,000 per annum on the outstanding bank loan.
Liquidity risk
The Company actively maintains credit facilities to ensure it has sufficient available funds
to meet current and foreseeable financial requirements at a reasonable cost.
The following are the contractual maturities of financial liabilities as at November 30,
2012:
In thousands of $
Accounts payable
and accrued
liabilities
Long-term debt
Interest on
long-term debt
Outlook
Carrying
Amount
$
Contractual
Cash Flows
$
0 to 6
Months
$
6 to 12
Months
12 to 24
Months
$
$
13,426
7,476
N/A
20,902
13,426
7,621
N/A
21,047
13,426
3,733
151
17,310
-
3,601
130
3,731
-
287
137
424
It is Management‟s opinion that the trend in the quick service restaurants industry will
continue to grow in response to the demand from busy and on-the-go consumers.
Page 33
Management will maintain its focus on completing the integration of the latest acquisitions
and maximizing the value of those new locations and concepts to our network.
Management also remains committed on offering its customers a wide range of
innovative menus and modern store designs. The quick service restaurant industry will
remain challenging in the future, and management believes that the focus on the food
offering, consistency and store design will give MTY‟s restaurants a stronger position to
face challenges.
Controls and Procedures
Disclosure controls and procedures
Disclosure controls and procedures are designed to provide reasonable assurance that
information required to be disclosed in reports filed with the securities regulatory
authorities are recorded, processed, summarized and reported in a timely fashion. The
disclosure controls and procedures are designed to ensure that information required to
be disclosed by the Company in such reports is then accumulated and communicated to
the Company‟s management to ensure timely decisions regarding required disclosure.
Internal controls over financial reporting
The Chief Executive Officer and the Chief Financial Officer are responsible for
establishing and maintaining internal control over financial reporting. The Company‟s
internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian GAAP.
The Chief Executive Officer and the Chief Financial Officer, together with Management,
after evaluating the effectiveness of the Company‟s internal control over financial
reporting as at November 30, 2012, have concluded that the Company‟s internal control
over financial reporting was effective.
The Chief Executive Officer and the Chief Financial Officer, together with Management,
have concluded after having conducted an evaluation and to the best of their knowledge
that, as at November 30, 2012, no change in the Company‟s internal control over
financial reporting occurred that could have materially affected or is reasonably likely to
materially affect the Company‟s internal control over financial reporting.
Limitations of Controls and Procedures
Management, including the President and Chief Executive Officer and Chief Financial
Officer, believes that any disclosure controls and procedures or internal control over
financial reporting, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, they cannot provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have
Page 34
been prevented or detected. These inherent limitations include the realities judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by unauthorized override of the control.
The design of any control system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions.
Accordingly, because of the inherent limitations in a cost effective control system,
misstatements due to error or fraud may occur and not be detected.
Limitation on scope of design
The Company‟s management, with the participation of its President and Chief Executive
Officer and Chief Financial Officer, has limited the scope of the design of the Company‟s
disclosure controls and procedures and internal control over financial reporting to exclude
controls, policies and procedures and internal control over financial reporting of certain
special purpose entities (“SPEs”) on which the Company has the ability to exercise de
facto control and which have as a result been consolidated in the Company‟s
consolidated financial statements. For the twelve-month period ended November 30,
2012, these SPEs represent 0% of the Company‟s current assets, 0% of its non-current
assets, 1% of the Company‟s current liabilities, 0% of long-term liabilities, 5% of the
Company‟s revenues and 0% of the Company‟s net earnings.
“Stanley Ma”
__________________________
Stanley Ma, Chief Executive Officer
“Eric Lefebvre”
__________________________
Eric Lefebvre, CPA, CA, MBA Chief Financial Officer
Page 35
Consolidated financial statements of
MTY FOOD GROUP INC.
For the years ended November 30, 2012 and 2011
Deloitte s.e.n.c.r.l.
1 Place Ville Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel: 514-393-7115
Fax: 514-390-4104
www.deloitte.ca
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of MTY Food Group Inc.
We have audited the accompanying consolidated financial statements of MTY Food Group Inc., which
comprise the consolidated statements of financial position as at November 30, 2012, November 30, 2011
and December 1, 2010 , and the consolidated statements of comprehensive income, consolidated
statements of changes in shareholders’ equity and consolidated statements of cash flows for the years
ended November 30, 2012 and November 30 2011, and a summary of significant accounting policies and
other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of MTY Food Group Inc. as at November 30, 2012, November 30, 2011 and December 1, 2010,
and its financial performance and its cash flows for the years ended November 30, 2012 and
November 30, 2011 in accordance with International Financial Reporting Standards.
February 13, 2013
____________________
1 CPA auditor, CA, public accountancy permit No. A114814
MTY FOOD GROUP INC.
Consolidated statements of comprehensive income
For the years ended November 30, 2012 and 2011
(in thousands of Canadian dollars except per share amounts)
Revenue (notes 23 and 31)
Expenses
Operating expenses (notes 24 and 31)
Depreciation – property, plant and equipment
Amortization – intangible assets
Restructuring
Interest on long-term debt
Other income (charges)
Foreign exchange (loss) gain
Interest income
Gain on bargain purchase
Gain on preferred share redemption (note 17)
Gain on loan forgiveness of a non-controlling shareholder of a subsidiary (note 17)
Impairment of property, plant and equipment (note 4)
Gain on disposal of property, plant and equipment
Income before taxes
Income taxes (note 30)
Current
Deferred
Net income and comprehensive income
Net income (loss) and comprehensive income (loss) attributable to:
Owners
Non controlling interest
Earnings per share (note 20)
Basic
Diluted
See accompanying notes to the consolidated financial statements
Page 3 of 66
2012
$
2011
$
96,220
78,358
61,294
1,128
3,867
-
335
66,624
(27)
282
-
100
110
(68)
511
908
51,928
1,233
3,179
447
213
57,000
18
357
140
-
-
-
948
1,463
30,504
22,821
8,511
(61)
8,450
2,957
3,344
6,301
22,054
16,520
22,067
(13)
22,054
16,194
326
16,520
1.15
1.15
0.85
0.85
MTY FOOD GROUP INC.
Consolidated statements of financial position
as at November 30, 2012 and 2011
(in thousands of Canadian dollars except per share amounts)
Assets
Current assets
Cash and cash equivalents (note 7)
Temporary investments
Accounts receivable (note 8)
Income taxes receivable
Inventories (note 9)
Loans receivable (note 10)
Prepaid expenses and deposits
Loans receivable (note 10)
Other receivable
Property, plant and equipment (note 11)
Intangible assets (note 12)
Deferred income taxes (note 30)
Goodwill (note 13)
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Provisions (note 15)
Income taxes payable
Deferred revenue and deposits (note 16)
Current portion of long-term debt (note 17)
Deferred revenue and deposits (note 16)
Long-term debt (note 17)
Deferred income taxes (note 30)
Commitments, guarantee and contingent liabilities
(notes 26, 27, 28 and 29)
Shareholders’ equity
Equity attributable to owners
Capital stock (note 18)
Contributed surplus
Retained earnings
Equity attributable to non-controlling interest
November 30, November 30, December 1,
2011
$
2010
$
2012
$
33,036
-
13,631
-
1,609
358
338
48,972
561
-
9,382
57,213
167
20,266
136,561
13,426
2,266
2,863
2,169
7,199
27,923
-
277
2,298
30,498
19,792
481
85,635
105,908
155
106,063
136,561
5,995
4,632
10,496
1,419
1,568
414
312
24,836
705
-
10,185
59,566
70
20,266
115,628
13,540
1,150
–
1,561
1,958
18,209
11
7,050
2,248
27,518
19,792
481
67,800
88,073
37
88,110
115,628
5,637
23,383
8,156
-
795
336
186
38,493
909
2,698
6,941
36,208
116
7,125
92,490
10,992
1,034
851
1,485
1,873
16,235
9
853
-
17,097
19,792
481
55,048
75,321
72
75,393
92,490
See accompanying notes to the consolidated financial statements
Approved by the Board on February 13, 2013
……“Stanley Ma”……………Director …… “Claude St-Pierre”….. Director
Page 4 of 66
MTY FOOD GROUP INC.
Consolidated statements of changes in shareholders’ equity
For the years ended November 30, 2012 and 2011
(in thousands of Canadian dollars except per share amounts)
Equity attributable to owners
Share
capital
$
Contributed
surplus
$
Retained
earnings
$
Total
$
Equity
attributable
to non-
controlling
interest
$
Total
$
Balance as at December 1, 2010
19,792
481
55,048
75,321
72
75,393
Net income and comprehensive
income for the year ended
November 30, 2011
Dividends
–
–
–
–
16,194
16,194
(3,442)
(3,442)
326
(361)
16,520
(3,803)
Balance as at November 30, 2011
19,792
481
67,800
88,073
37
88,110
Net income and comprehensive
income for the year ended
November 30, 2012
Investment in common stock of a
subsidiary by non-controlling interest
Equity transaction with non-controlling
interest
-
-
-
-
-
-
22,067
22,067
(13)
22,054
-
-
147
147
(26)
(26)
34
(50)
155
8
(4,256)
106,063
Dividends
Balance as at November 30, 2012
-
19,792
-
481
(4,206)
85,635
(4,206)
105,908
The following dividends were declared and paid by the Company:
For the
year ended
November 30,
2012
$
For the
year ended
November 30,
2011
$
$0.220 per common share (2011 - $0.180 per common share)
4,206
3,442
See accompanying notes to the consolidated financial statements
Page 5 of 66
MTY FOOD GROUP INC.
Consolidated statements of cash flows
For the years ended November 30, 2012 and 2011
(in thousands of Canadian dollars except per share amounts)
Operating activities
Net income and comprehensive income
Items not affecting cash:
Interest on long-term debt
Depreciation – property, plant and equipment
Amortization – intangible assets
Gain on disposal of property, plant and equipment
Impairment of property, plant and equipment
Gain on bargain purchase
Gain on preferred share redemption
Gain on loan forgiveness of a non-controlling shareholder of a subsidiary
Income tax expense
Deferred revenue
Income tax refunds received
Income taxes paid
Interest paid
Changes in non-cash working capital items (note 32)
Cash flows provided by operating activities
Investing activities
Net cash outflow on acquisitions
Temporary investments
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of property, plant and equipment
Cash flows provided by (used in) investing activities
Financing activities
Share buy-back paid to non-controlling shareholders of subsidiaries
Issuance of long-term debt
Repayment of long-term debt
Issuance of shares to non-controlling interest of subsidiaries
Dividends paid to non-controlling shareholders of subsidiaries
Dividends paid
Cash flows used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
See accompanying notes to the consolidated financial statements
Page 6 of 66
November 30, November 30,
2012
$
2011
$
22,054
16,520
335
1,128
3,867
(511)
68
-
(100)
(110)
8,450
608
35,789
1,041
(5,269)
(162)
(2,002)
29,397
(748)
4,632
(1,057)
(518)
1,108
3,417
-
58
(1,722)
147
(50)
(4,206)
(5,773)
27,041
5,995
33,036
213
1,233
3,179
(948)
-
(140)
-
-
6,301
(143)
26,215
321
(5,479)
(143)
(2,905)
18,009
(36,088)
18,751
(954)
–
1,655
(16,636)
(16)
3,500
(721)
25
(361)
(3,442)
(1,015)
358
5,637
5,995
8
8
9
24
29
30
36
36
37
37
38
40
42
43
MTY FOOD GROUP INC.
Table of Contents
Note 1
Note 2
Note 3
Note 4
Note 5
Description of the business…………………………………………………….
Basis of preparation…………………………………………………………....
Significant accounting policies………………………………………………...
Critical accounting judgments and key sources of estimation uncertainty……
Future accounting changes…………………………………………………….
Note 6
Business acquisitions………………………………………………………......
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Note 25
Note 26
Note 27
Note 28
Note 29
Note 30
Note 31
Note 32
Note 33
Note 34
Note 35
Cash and cash equivalents……………………………………………………..
Accounts receivable.…………………………………………………………...
Inventories……………………………………………………………………..
Loans receivable……………………………………………………………….
Property, plant and equipment…………………………………………………
Intangible assets………………………………………………………………..
Goodwill……………………………………………………………………….
Credit facilities…………………………………………………………………
Provisions……………………………………………………………………… 44
Deferred revenue and deposits…………………………………………………
Long-term debt………………………………………………………………...
45
45
Capital stock…………………………………………………………………… 46
Stock options…………………………………………………………………...
Earnings per share……………………………………………………………...
Financial instruments…………………………………………………………..
Capital disclosures……………………………………………………………..
Revenues……………………………………………………………………….
Operating expenses…………………………………………………………….
Restructuring…………………………………………………………………...
Operating lease arrangements………………………………………………….
Commitments…………………………………………………………………..
Guarantee………………………………………………………………………
Contingent liabilities…………………………………………………………...
46
47
47
50
51
51
51
51
52
52
53
Income taxes…………………………………………………………………… 53
Segmented information………………………………………………………… 54
Statement of cash flows………………………………………………………...
Related party transactions……………………………………………………...
Transition to IFRS……………………………………………………………..
Subsequent events……………………………………………………………...
57
57
58
66
Page 7 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
1. Description of the business
MTY Food Group Inc. (the “Company”) is a franchisor in the quick service food industry. Its
activities consist of franchising and operating corporate-owned locations under a multitude of
banners. The Company also operates a distribution center and a food processing plant, both of
which are located in the province of Quebec.
The Company is incorporated under the Canada Business Corporations Act and is listed on the
Toronto Stock Exchange. The Company’s head office is located at 8150, Autoroute
Transcanadienne, Suite 200, Ville Saint-Laurent, Quebec.
2. Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for
derivative financial instruments that have been measured at fair value. The consolidated financial
statements are presented in Canadian dollars, which is the functional currency of the Company, and
tabular amounts are rounded to the nearest thousand ($000) except when otherwise indicated.
Statement of compliance
The Company’s consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”), which include interpretations as issued by the
International Accounting Standards Board (“IASB”) and the International Financial Reporting
Standards Interpretation Committee. They are the first annual consolidated financial statements
prepared in accordance with IFRS and IFRS 1 First Time Adoption of IFRS. The IFRS transition
date was December 1, 2010.
The Company’s consolidated financial statements were previously prepared in accordance with
Canadian Generally Accepted Accounting Principles (GAAP). The transition from previous GAAP
to IFRS had impacts on the Company’s financial position, financial performance and cash flows.
An explanation of how the transition to IFRS has affected these is provided in Note 34, Transition to
IFRS.
These consolidated financial statements were authorized for issue by the Board of Directors on
February 13, 2013.
Page 8 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in the
consolidated financial statements and in preparing the opening consolidated statement of financial
position as at December 1, 2010 for the purposes of the transition to IFRS, unless otherwise
indicated (note 34).
Basis of consolidation
The consolidated financial statements include the accounts of the Company and entities (including
special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the
Company has the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. Principal subsidiaries are as follows:
Principal subsidiaries
MTY Tiki Ming Enterprises Inc.
7687567 Canada Inc
154338 Canada Inc.
Percentage of equity interest
%
100
51
50
Income and expenses of subsidiaries acquired during the year are included in the consolidated
statement of comprehensive income from the effective date of acquisition. Total comprehensive
income of subsidiaries is attributed to the owners of the Company and to the non-controlling
interests even if this results in the non-controlling interests having a deficit balance.
All intercompany transactions, balances, revenues and expenses are eliminated in full on
consolidation.
Pursuant to the franchise agreements, franchisees must pay a fee to the promotional fund. These
amounts are collected by the Company in its capacity as agent and must be used for promotional
and advertising purposes, since the amounts are set aside to promote the respective banners for the
franchisees’ benefit. The fees collected by the Company for the promotional fund are not recorded
in the Company’s consolidated statement of comprehensive income, but rather as operations in the
accounts payable to the promotional fund.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration
transferred in a business combination is measured at fair value. This is calculated as the sum of the
acquisition-date fair values of the assets transferred by the Company and liabilities incurred by the
Company to the former owners of the acquiree in exchange for control of the acquiree. Acquisition-
related costs are recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at
their fair value at the acquisition date, except for deferred tax assets or liabilities and liabilities or
assets related to employee benefit arrangements, which are recognized and measured in accordance
with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively.
Page 9 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Business combinations (continued)
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity
interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts
of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and the fair value of the
acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in
profit or loss as a bargain purchase gain.
Non-controlling interests are present ownership interests and entitle their holders to a proportionate
share of the entity’s net assets in the event of liquidation. This may be initially measured either at
fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the
acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-
transaction basis. Other types of non-controlling interests are measured at fair value or, when
applicable, on the basis specified in another IFRS.
When the consideration transferred by the Company in a business combination includes assets or
liabilities resulting from a contingent consideration arrangement, the contingent consideration is
measured at its acquisition-date fair value and included as part of the consideration transferred in a
business combination. Changes in the fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with corresponding adjustments
against goodwill. Measurement period adjustments are adjustments that arise from additional
information obtained during the ‘measurement period’ (which cannot exceed one year from the
acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not
qualify as measurement period adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity is not remeasured at subsequent
reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates
in accordance with IAS 39 Financial Instruments: recognition and measurement, or IAS 37
Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding
gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Company’s previously held equity interest
in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Company
obtains control) and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising
from interests in the acquiree prior to the acquisition date that have previously been recognized in
other comprehensive income are reclassified to profit or loss where such treatment would be
appropriate if that interest were disposed of.
Page 10 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Business combinations (continued)
If the initial accounting for a business combination is incomplete by the end of the reporting period
in which the combination occurs, the Company reports provisional amounts for the items for which
the accounting is incomplete. Those provisional amounts are adjusted retrospectively during the
measurement period (see above), or additional assets or liabilities are recognized, to reflect new
information obtained about facts and circumstances that existed at the acquisition date that, if
known, would have affected the amounts recognized at that date.
Changes of ownership interest in a subsidiary that do not result in a loss of control are accounted for
as equity transactions, with no effect on net earnings or on other comprehensive income.
Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of
acquisition of the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Company’s cash-
generating units (or groups of cash-generating units) that is expected to benefit from the synergies of
the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or
more frequently when there is indication that the unit may be impaired. If the recoverable amount of
the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the
unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for
goodwill is recognized directly in profit or loss in the consolidated statement of comprehensive
income. An impairment loss recognized for goodwill is not reversed in subsequent periods.
Where goodwill forms part of a cash-generating unit and part of the operation within the unit is
disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation and the
portion of the cash-generating unit retained.
Revenue recognition
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, regardless of when the payment is being made.
Revenue is measured at the fair value of the consideration received or receivable, taking into
account contractually defined terms of payment and excluding taxes and duty.
Revenue is generally recognized on the sale of products or services when the products are delivered
or the services are performed, all significant contractual obligations have been satisfied and the
collection is reasonably assured.
Page 11 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Revenue recognition (continued)
i. Revenue from franchise locations
Royalties are based either on a percentage of gross sales as reported by the franchisees or on a fixed
monthly fee. They are recognized on an accrual basis in accordance with the substance of the
relevant agreement, provided that it is probable that the economic benefits will flow to the Company
and the amount of income can be measured reliably.
Initial franchise fees are recognized when substantially all of the initial services as required by the
franchise agreement have been performed. This usually occurs when the location commences
operations.
Revenue from the sale of franchise locations is recognized at the time the franchisee assumes
control of the franchise location.
Restaurant construction and renovation revenue is recognized by reference to the stage of
completion of the contract activity at the end of the reporting period. This is measured based on the
proportion of contract costs incurred for work performed to date relative to the estimated total
contract costs, except where this would not be representative of the stage of completion. Variations
in contract work, claims and incentive payments are included to the extent that the amount can be
measured reliably and its receipt is considered probable. When it is probable that total contract costs
will exceed contract revenue, the expected loss is recognized as an expense immediately. When the
outcome of the project cannot be estimated reliably, revenues are recognized to the extent of
expenses recognized in the period. The excess of revenue recognized over amounts billed is
recorded as part of accounts receivable.
Master license fees are recognized when the Company has performed substantially all material
initial obligations under the agreement, which usually occurs when the agreement is signed, which
is recorded in initial franchise fees (note 23).
Renewal and transfer fees are recognized when substantially all applicable services required by the
Company under the franchise agreement have been performed. This generally occurs when the
agreement is signed. This revenue is recorded in other revenue (note 23).
The Company earns rent revenues on certain leases it holds and sign rental revenues; the
Company’s policy is described below.
The Company receives considerations from certain suppliers. Supplier contributions are recognized
as revenues as they are earned and are recorded in other franchising revenue (note 23).
ii. Revenue from distribution center
Distribution revenues are recognized when goods have been delivered or when significant risks and
rewards of ownership have been transferred and it is probable that the economic benefit associated
with the transaction will flow to the Company.
Page 12 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Revenue recognition (continued)
iii. Revenue from food processing
Food processing revenues are recognized when goods have been delivered to end-users or when
significant risks and rewards of ownership have been transferred to distributors and it is probable
that the economic benefit associated with the transaction will flow to the Company.
iv. Revenue from corporate-owned locations
Revenue from corporate-owned locations is recorded when goods are delivered to customers.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the
relevant lease.
The Company as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rentals arising under operating leases are
recognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are
recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more representative of the
time pattern in which economic benefits from the leased asset are consumed.
Foreign currencies
At the end of each reporting period, monetary items denominated in foreign currencies are
translated at the rates prevailing at that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences on monetary items are recognized in profit or loss in the period in which they
arise.
Page 13 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
reported in the consolidated statement of comprehensive income because of items of income or
expense that are taxable or deductible in other years and items that are never taxable or deductible.
The Company’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable profits will be available against which those
deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not
recognized if the temporary difference arises from goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments
in subsidiaries, except where the Company is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred
tax assets arising from deductible temporary differences associated with such investments and
interests are only recognized to the extent that it is probable that there will be sufficient taxable
profits against which to utilise the benefits of the temporary differences and they are expected to
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period. The measurement of
deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in
which the Company expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Page 14 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Taxation (continued)
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are
recognized in other comprehensive income or directly in equity, in which case, the current and
deferred tax are also recognized in other comprehensive income or directly in equity respectively.
Where current tax or deferred tax arises from the initial accounting for a business combination, the
tax effect is included in the accounting for the business combination.
Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for
administrative purposes, are stated in the consolidated statement of financial position at their
historical costs less accumulated depreciation (buildings) and accumulated impairment losses. Cost
includes expenditures that are directly attributable to the acquisition of the asset, including any costs
directly attributable to bringing the asset to a working condition for its intended use.
Equipment, leasehold improvements, rolling stock and computer hardware are stated at cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is recognized so as to write off the cost or valuation of assets (other than land) less
their residual values over their useful lives, using the straight-line method. The estimated useful
lives, residual values and depreciation methods are reviewed at the end of each year, with the effect
of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising
on the disposal or retirement of an item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying amount of the asset and is recognized in
profit or loss.
Depreciation is based on the following terms:
Buildings
Structure and components
Equipment
Leasehold improvements and signs
Rolling stock
Computer hardware
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
25 to 50 years
3 to 10 years
Term of the lease
5 to 7 years
3 to 7 years
Page 15 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortization and accumulated impairment losses. Amortization is recognized on a
straight-line basis over their estimated useful lives. The estimated useful lives and amortization
methods are reviewed at the end of each year, with the effect of any changes in estimate being
accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired
separately are carried at cost less accumulated impairment losses.
Intangible assets acquired in a business combination and recognized separately from goodwill are
initially recognized at their fair value at the acquisition date.
Subsequent to initial recognition, intangible assets having a finite life acquired in a business
combination are reported at cost less accumulated amortization and accumulated impairment losses,
on the same basis as intangible assets that are acquired separately. Intangible assets having an
indefinite life are not amortized and are therefore carried at cost less accumulated impairment
losses, if applicable.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected
from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as
the difference between the net disposal proceeds and the carrying amount of the asset, are
recognized in profit or loss when the asset is derecognized.
The Company currently carries the following intangible assets in its books:
Franchise rights and master franchise rights
The franchise rights and master franchise rights acquired through business combinations were
recognized at the fair value of the estimated future revenue stream related to the acquisition of
franchises. The franchise rights and master franchise rights are generally amortized on a
straight-line basis over the term of the agreements which typically range between 10 to 20 years.
Some master franchise rights have no specific terms; as a result, those are not amortized as they
have an indefinite life.
Trademarks
Trademarks acquired through business combinations were recognized at their fair value at the time
of the acquisition and are not amortized. Trademarks were determined to have an indefinite useful
life based on their strong brand recognition and their ability to generate revenues through changing
economic conditions with no foreseeable time limit.
Page 16 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Intangible assets (continued)
Leases
Leases, which represent the value associated to preferential terms or locations, are amortized on a
straight-line basis over the term of the leases.
Other
Included in other intangible assets are distributions rights obtained from the acquisition of Country
Style Food Services Inc., which were being amortized over the remaining life of the contracts. The
distribution rights were fully amortized at the end of the period.
Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Company estimates the recoverable amount of the
cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual cash-generating units,
or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable
and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested
for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-
generating unit) is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognized immediately in profit or loss.
Page 17 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Intangible assets (continued)
Impairment of goodwill
At the end of each reporting period, the Company reviews the carrying amounts of goodwill to
determine whether there is any indication that it has suffered an impairment loss. If any such
indication exists, the recoverable amount of the cash-generating unit to which goodwill is allocated
is estimated in order to determine the extent of the impairment loss (if any). Regardless of whether
there is an indication of impairment or not, goodwill is tested for impairment at least annually, and
whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 which the estimates of future cash flows have not been adjusted.
If the recoverable amount of the cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the goodwill is reduced to its recoverable amount. An impairment
loss is recognized immediately in profit or loss.
Cash and cash equivalents
Cash and cash equivalents item includes cash on hand and short-term investments, if any, with
maturities upon acquisition of generally three months or less or that are redeemable at any time at
full value and for which the risk of a change in value is not significant.
Inventories
Inventories are measured at the lower of cost and net realizable value. Costs of inventories are
determined on a first-in-first-out basis and include acquisition costs, conversion costs and other
costs incurred to bring inventories to their present location and condition. The cost of finished goods
includes a pro rata share of production overhead based on normal production capacity.
In the normal course of business, the Company enters into contracts for the construction and sale of
franchise locations. The related work in progress inventory includes all direct costs relating to the
construction of these locations, and is recorded at the lower of cost and net realizable value.
Net realizable value represents the estimated selling price for inventories less all estimated costs of
completion and costs necessary to make the sale.
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 the Company will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation.
Page 18 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Provisions (continued)
The amount recognized as a provision is the best estimate of the consideration required to settle the
present obligation at the end of the reporting period, taking into account the risks and uncertainties
surrounding the obligation. When a provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value of those cash flows (where the effect
of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be
recovered from a third party, a receivable is recognized as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable can be measured reliably.
Onerous contracts
Present obligations arising under onerous contracts are recognized and measured as provisions. An
onerous contract is considered to exist where the Company has a contract under which the
unavoidable costs of meeting the obligations under the contract exceed the economic benefits
expected to be received from the contract.
Gift card and loyalty program liabilities
Gift card liability represents liabilities related to unused balances on reloadable payment cards.
Loyalty program liabilities represent the dollar value of the loyalty points earned and unused by
customers.
Restructuring
A restructuring provision is recognized when the Company has developed a detailed formal plan for
the restructuring and has raised a valid expectation in those affected that it will carry out the
restructuring by starting to implement the plan or announcing its main features to those affected by
it. The measurement of a restructuring provision includes only the direct expenditures arising from
the restructuring, which are those amounts that are both necessarily entailed by the restructuring and
not associated with the ongoing activities of the entity.
Litigation, disputes and closed stores
Provisions for the expected cost of litigation, disputes and the cost of settling leases for closed stores
are recognized when it becomes probable the Company will be required to settle the obligation, at
management’s best estimate of the expenditure required to settle the Company’s obligation.
Contingent liabilities acquired in a business combination
Contingent liabilities acquired in a business combination are initially measured at fair value at the
acquisition date. At the end of subsequent reporting periods, such contingent liabilities are measured
at the higher of the amount that would be recognized in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets and the amount initially recognized less cumulative
amortization recognized.
Page 19 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Financial instruments
Financial assets and financial liabilities are recognized when an entity becomes a party to the
contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities (other
than financial assets and financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognized immediately in profit or loss.
The subsequent measurement of financial assets and financial liabilities is dependent on their
classification as described below. Their classification depends on the purpose for which the
financial instruments were acquired or issued, their characteristics and the Company’s designation
of such instruments.
Classification
Cash and cash equivalents and temporary investments Loans and receivables
Loans and receivables
Accounts receivable
Loans and receivables
Deposits
Loans and receivables
Loans receivable and other receivables
Other financial liabilities
Accounts payable and accrued liabilities
Other financial liabilities
Long-term debt
Financial assets
Financial assets are classified into the following specified categories: financial assets ‘at fair value
through profit or loss’ (“FVTPL”), ‘held-to-maturity’ investments, ‘available-for-sale’ (“AFS”)
financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of
the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument and
of allocating interest income over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts (including all fees and points paid or received that
form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period,
to the net carrying amount on initial recognition.
Income is recognized on an effective interest basis for debt instruments other than those financial
assets classified as at FVTPL.
Page 20 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Financial assets (continued)
Available-for-sale financial assets (AFS financial assets)
AFS financial assets are non-derivatives that are either designated as AFS or are not classified as (a)
loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through
profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Loans and receivables (including trade and other receivables,
cash and cash equivalents and deposits) are measured at amortized cost using the effective interest
method, less any impairment.
Interest income is recognized by applying the effective interest rate, except for short-term
receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of
each reporting period. Financial assets are considered to be impaired when there is objective
evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the investment have been affected.
For all other financial assets, objective evidence of impairment could include:
• significant financial difficulty of the issuer or counterparty; or
• breach of contract, such as a default or delinquency in interest or principal payments; or
•
•
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial assets, such as trade receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis. Objective
evidence of impairment for a portfolio of receivables could include the Company’s past experience
of collecting payments, an increase in the number of delayed payments in the portfolio past a certain
credit period, as well as observable changes in national or local economic conditions that correlate
with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the
difference between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the difference
between the asset’s carrying amount and the present value of the estimated future cash flows
discounted at the current market rate of return for a similar financial asset. Such impairment loss
will not be reversed in subsequent periods.
Page 21 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Financial assets (continued)
The carrying amount of the financial asset is reduced by the impairment loss directly for all
financial assets with the exception of trade receivables, where the carrying amount is reduced
through the use of an allowance account. When a trade receivable is considered uncollectible, it is
written off against the allowance account. Subsequent recoveries of amounts previously written off
are credited against the allowance account. Changes in the carrying amount of the allowance
account are recognized in profit or loss.
When an AFS financial asset is considered to be impaired, cumulative gains or losses previously
recognized in other comprehensive income are reclassified to profit or loss in the period.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the previously recognized impairment loss is reversed through profit or
loss to the extent that the carrying amount of the investment at the date the impairment is reversed
does not exceed what the amortized cost would have been had the impairment not been recognized.
Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity. On derecognition of a financial asset in its entirety, the
difference between the asset’s carrying amount and the sum of the consideration received and
receivable and the cumulative gain or loss that had been recognized in other comprehensive income
and accumulated in equity is recognized in profit or loss.
Financial liabilities
Classification as debt or equity
Debt and equity instruments issued by an entity are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Company are recognized at the
proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial
liabilities’.
Page 22 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Financial liablities (continued)
Other financial liabilities
Other financial liabilities (including borrowings) are subsequently measured at amortized cost using
the effective interest method.
Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Company’s obligations
are discharged, cancelled or they expire. The difference between the carrying amount of the
financial liability derecognized and the consideration paid and payable is recognized in profit or
loss.
Derivative financial instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to the
volatility in the price of certain commodities and foreign exchange rate risks, including foreign
exchange forward contracts. Further details of derivative financial instruments are disclosed in note
21.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into
and are subsequently remeasured to their fair value at the end of each reporting period. The resulting
gain or loss is recognized in profit or loss immediately unless the derivative is designated and
effective as a hedging instrument, in which event the timing of the recognition in profit or loss
depends on the nature of the hedge relationship. The Company currently has no designated hedges.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of the host contracts and the host contracts
are not measured at FVTPL. The Company does not have any embedded derivatives as at
November 30, 2012 and November 30, 2011.
Promotional funds
The Company manages the promotional funds of its banners. They are established specifically for
each banner to collect and administer funds dedicated for use in advertising and promotional
programs as well as other initiatives designed to increase sales and enhance the image and
reputation of the banners. Contributions to the funds are made based on a percentage of sales. The
revenue and expenses of the promotional funds are not included in the Company’s Statement of
Comprehensive Income because the contributions to these funds are segregated and designated for
specific purposes. The combined amount payable resulting from the promotional fund reserves
amounts to $2,726 (November 30, 2011 - $2,902; December 1, 2010 - $2,556). These amounts are
included in accounts payable and accrued liabilities.
Page 23 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Segment disclosure
An operating segment is a distinguishable component of the Company that engages in business
activities from which it may earn revenue and incur expenses, including revenue and expenses that
relate to transactions with any of the Company’s other components, and for which separate financial
information is available. Segment disclosures are provided for the Company’s operating segments
(note 31). The operating segments are determined based on the Company’s management and
internal reporting structure. All operating segments’ operating results are regularly reviewed by
management to make decisions on resources to be allocated to the segment and to assess its
performance. The Company operates in four separate segments: franchising, corporate, distribution
and processing.
4. Critical accounting judgments and key sources of
estimation uncertainty
In the application of the Company’s accounting policies, which are described in Note 3,
management is required to make judgements, estimates and assumptions about the carrying amounts
of assets and liabilities that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision affects both
current and future periods.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that management
has made in the process of applying the Company’s accounting policies and that have the most
significant effect on the amounts recognized in the consolidated financial statements.
Identification of cash-generating units
The Company assesses whether there are any indicators of impairment for all non-financial assets at
each reporting period date. Doing so requires the identification of cash-generating units; the
determination is done based on management’s best estimation of what constitutes the lowest level at
which an asset or group of asset has the possibility of generating cash inflows.
Revenue recognition
In making their judgement, management considered the detailed criteria for the recognition of
revenue from the sale of goods and for construction contracts set out in IAS 18 Revenue and IAS
11 Construction contracts and, in particular, whether the Company had transferred to the buyer the
significant risks and rewards of ownership of the goods.
Page 24 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
4. Critical accounting judgments and key sources of
estimation uncertainty (continued)
Critical judgements in applying accounting policies (continued)
Consolidation of special purpose entities
In determining which entities are required to be consolidated in the fashion described above, the
Company must exercise judgment to determine who has de facto control of the entities being
considered. Such judgment is reassessed yearly to take into account the most recent facts relevant to
each entity’s situation.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year.
Business combinations
For business combinations, the Company must make assumptions and estimates to determine the
purchase price allocation of the business being acquired. To do so, the Company must determine the
acquisition-date fair value of the identifiable assets acquired, including such intangible assets as
franchise rights and trademarks, and liabilities assumed. Goodwill is measured as the excess of the
fair value of the consideration transferred including the recognized amount of any non-controlling
interest in the acquiree over the net recognized amount of the identifiable assets acquired and
liabilities assumed, all measured at the acquisition date. These assumptions and estimates have an
impact on the asset and liability amounts recorded in the consolidated statement of financial position
on the acquisition date. In addition, the estimated useful lives of the acquired amortizable assets, the
identification of intangible assets and the determination of the indefinite or finite useful lives of
intangible assets acquired will have an impact on the Company’s future profit or loss.
Impairment of non-financial assets
The recoverable amounts of the Company’s assets is generally estimated based on value-in-use
calculations as this was determined to be higher than fair value less cost to sell, except for certain
corporate store assets for which fair value less cost to sell was higher than their value in use. The
fair value less cost to sell of corporate stores is generally determined by estimating the liquidation
value of the restaurant equipment.
Other than the value of the assets of certain corporate stores and of one of the company’s
trademarks, the value in use of cash-generating units (“CGUs”) tested was higher or equal to the
carrying value of the assets. Impairment assessments were established using a 17% discount rate on
the corporate store CGU’s and 15% on the trademarks and franchise rights. Discount rates are based
on pre-tax rates that reflect the current market assessments, taking the time value of money and the
risks specific to the CGU into account.
Page 25 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
4. Critical accounting judgments and key sources of
estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
Impairment of non-financial assets (continued)
During the year, the Company recognized impairments on the property, plant and equipment related
to eight of its CGUs following a decline in their performance. All eight CGUs are groups of assets
related to corporate-owned stores. The total impairment of $135 represents a write down of the
carrying value of the leasehold improvements and equipment to their fair value less cost to sell,
which was higher than their value in use.
These calculations take into account our best estimate of future cash flows, using previous year’s
cash flows for each CGU to extrapolate a CGU’s future performance to the earlier of the termination
of the lease (if applicable) or 5 years and a terminal value is calculated beyond this period, assuming
no growth to the cash flows of previous periods. A cash flow period of 5 years was used as
predictability for future periods cannot be estimated with reasonable accuracy.
A 1% change to the discount rate used in the calculation of the impairment would result in an
additional impairment of $41 on the trademarks and franchise rights and $7 on the property, plant
and equipment of our corporate stores.
During the year, the Company also reversed an impairment of $67 related to the trademark of one of
its brands. The reversal, which is shown on the consolidated statement of comprehensive income on
the “impairment of property, plant and equipment” line, represents the full original impairment
taken on the asset and is based on new estimated future cash flows of the CGU.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the CGUs to
which goodwill has been allocated. The value in use calculation requires management to estimate
the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in
order to calculate present value. It was determined that goodwill is not impaired as at November 30,
2012, November 30, 2011 and December 1, 2010.
The Company used a 13% discount rate for its assessment of goodwill. No growth was applied to
the cash flows used to estimate the terminal value.
Useful lives of property, plant and equipment and intangible assets
As described in Note 3 above, the Company reviews the estimated useful lives of property, plant
and equipment and intangible assets with definite useful lives at the end of each year and assesses
whether the useful lives of certain items should be shortened or extended, due to various factors
including technology, competition and revised service offerings. During the years ended
November 30, 2012 and 2011, the Company was not required to adjust the useful lives of any assets
based on the factors described above.
Page 26 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
4. Critical accounting judgments and key sources of
estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
Provisions
The Company makes assumptions and estimations based on its current knowledge of future
disbursements it will have to make in connection with various events that have occurred in the past
and for which the amount to be disbursed and the timing of such disbursement are uncertain at the
date of producing its financial statements.
Revenue recognition for construction and renovation contracts
Restaurant construction and renovation revenue is recognized by reference to the stage of
completion of the contract activity at the end of the reporting period. Management makes an
estimate on the percentage of completion based on costs incurred to date relative to the estimated
total contract costs, except where this would not be representative of the stage of completion.
Valuation of financial instruments
The Company uses valuation techniques that include inputs that are not based on observable market
data to estimate the fair value of certain types of financial instruments.
Management believes that the chosen valuation techniques and assumptions used are appropriate in
determining the fair value of financial instruments.
Consolidation of special purpose entities
The Company is required to consolidate a small number of special purpose entities. In doing so, the
Company must make assumptions with respect to some information that is either not readily
available or that is not available within reporting time frames. As a result, assumptions and
estimates are made to establish a value for the current assets, current and long-term liabilities and
results of operations in general.
Onerous contracts
A provision for onerous contracts is recognized when the unavoidable costs of meeting our
obligations under the contract exceed the expected benefits to be received from the contract. The
provision is measured at the present value of the lower of the expected cost of terminating the
contract and the expected net cost of completing the contract.
Page 27 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
4. Critical accounting judgments and key sources of
estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
Contingencies
The Company is involved in various litigations and disputes as a part of our business that could
affect some of our operating segments. Pending litigations represent potential losses to the business.
Management accrues potential losses if they believe the loss is probable and can be reasonably
estimated, based on information that is available at the time. Any accrual would be charged to
earnings and included in provisions. Any cash settlement would be deducted from cash from
operating activities. Management estimate the amount of the losses by analyzing potential outcomes
and assuming various litigation and settlement strategies.
Accounts receivable
The Company recognizes an allowance for doubtful accounts based on past experience, outlet-
specific situation, counterparty’s current financial situation and age of the receivables.
Trade receivables include amounts that are past due at the end of the reporting period and for which
the Company has not recognized an allowance for doubtful accounts because there was no
significant change in the credit quality of the counterparty and the amounts are therefore considered
recoverable.
Page 28 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
5. Future accounting changes
A number of new standards, interpretations and amendments to existing standards were issued by
the International Accounting Standard Board (“IASB”) that are not yet effective for the period
ended November 30, 2012, and have not been applied in preparing these consolidated financial
statements.
The following standards may have a material impact on the consolidated financial statements of the
Corporation:
Effective for annual periods starting on or after:
Amendment to IFRS 7 Financial Instruments:
Disclosures
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 12 Disclosure of Interests in Other
Entities
IFRS 13 Fair Value Measurement
Amendments to IAS 1 Presentation of
Financial Statements
Amendments to IAS 19 Employee Benefits
Amendments to IAS 32 Financial
January 1, 2013
January 1, 2015
January 1, 2013
Early adoption permitted
Early adoption permitted
Early adoption permitted
January 1, 2013
January 1, 2013
Early adoption permitted
Early adoption permitted
January 1, 2013
January 1, 2013
Early adoption permitted
Early adoption permitted
Instruments: Presentation
January 1, 2014
Early adoption permitted
IFRS 7 was amended to harmonize the disclosure requirements with those of the Financial
Accounting Standard Board (“FASB”).
IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement on the
classification and measurement of financial assets and financial liabilities. The replacement of IAS
39 is a three-phase project with the objective of improving and simplifying the reporting for
financial instruments. This is the first phase of that project.
IFRS 10 replaces the consolidation requirements in IAS 27 Consolidated and Separate Financial
Statements and SIC-12 Consolidation – Special Purpose Entities. It provides a single model to be
applied in the control analysis for all investees.
IFRS 12 establishes disclosure requirements for entities that have interests in subsidiaries, joint
arrangements, associates and/or unconsolidated structured entities.
IFRS 13 replaces the fair value measurement guidance contained in individual IFRS with a single
source of fair value measurement guidance. The standard clarifies the definition of fair value,
establishes a framework for measuring fair value and sets out disclosure requirements for fair value
measurements.
Page 29 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
5. Future accounting changes (continued)
The amendments to IAS 1 require that an entity present separately the items of other comprehensive
income (“OCI”) that may be reclassified to profit or loss in the future from those that would never
be reclassified to profit or loss.
The Company is in the process of determining the extent of the impact of these standards on its
consolidated financial statements.
6. Business acquisitions
I) 2012 acquisition
On September 26, 2012, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises
Inc., acquired the assets of Mr. Souvlaki Ltd. for a total consideration of $0.9 million. The
acquisition was effective September 26, 2012. The purpose of the acquisition was to diversify the
Company’s range of offering as well as to complement existing MTY brands.
Consideration paid
Purchase price
Net obligations assumed
Net purchase price
Holdbacks
Net cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Franchise rights
Trademark
Current liabilities
Accounts payable
Deferred income taxes
Net purchase price
Included in the above-mentioned results are $nil in expensed acquisition-related costs.
Page 30 of 66
915
(2)
913
165
748
$
$
629
300
929
2
2
14
16
913
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
I) 2012 acquisition (continued)
From September 26 to November 30, 2012, the business has generated $43 in revenues and $27 in
pre-tax profits. Had the acquisition occurred December 1, 2011, consolidated revenues and pre-tax
profits would have been $96,477 and $30,698 respectively.
II) 2011 acquisition
On December 17, 2010 the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises Inc.,
acquired a 51% interest in a newly formed company established to purchase a food processing plant.
The purpose of the acquisition is to further integrate MTY’s business and enable the production of
certain goods destined to the retail markets. The acquisition was financed by a long-term bank loan
of $3,500 (Note 17).
Consideration paid
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Inventories
Deferred expenses
Land
Building
Equipment
Deferred income tax asset
Goodwill
Current liabilities
Accounts payable
Mandatorily redeemable preferred shares
Fair value of net assets acquired
Less: Gain on bargain purchase, net of deferred tax impact
Total purchase price
$
3,497
340
30
370
690
1,210
1,470
42
200
3,982
178
178
200
3,604
107
3,497
At the date of the acquisition of the plant, a gain was recognized as the consideration paid for the
identifiable tangible assets acquired was lower than their fair value, as determined by an
independent valuation specialist.
Page 31 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
II) 2011 acquisition (continued)
The goodwill was fully deducted for tax purposes as this acquisition was an asset purchase.
The redeemable preferred shares were issued in exchange for the existing business relationships and
activities (classified as goodwill) of one of the shareholders of the newly formed company. One
third of the issued preferred shares is redeemable annually, at a price contingent on the performance
of the plant for the three years following the inception of business. Management estimates the
contingent consideration at $200, with a range of redemption values comprised between $100 and
$300.
From December 17 to November 30, 2011, the business generated $6,330 in revenues and $219 in
pre-tax loss.
Included in the above-mentioned results are $nil in expensed acquisition-related costs.
III) 2011 acquisition
On August 24, 2011, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises Inc.,
acquired the assets of Jugo Juice International Inc., Jugo Juice Canada Inc., and Jugo Juice Western
Canada Inc. for a total consideration of $15,450. The acquisition was effective August 18, 2011.
The purpose of the acquisition was to diversify the Company’s range of offering as well as to
complement existing MTY brands.
Consideration paid
Purchase price
Discount on non-interest bearing holdbacks
Net obligations assumed
Net purchase price
Holdbacks
Balance of sale
Net cash outflow
$
15,450
(99)
(609)
14,742
1,636
1,200
11,906
Page 32 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
III) 2011 acquisition (continued)
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash and cash equivalents
Inventories
Current portion of loans receivable
Deposits
Loans receivable
Property, plant and equipment
Franchise rights
Trademark
Goodwill
Deferred income taxes
Current liabilities
Accounts payable
Unearned revenue
Net purchase price
$
1
46
62
10
119
60
551
3,273
5,425
5,533
569
15,530
587
201
788
14,742
Acquisition-related costs of approximately $50 have been expensed during the Company’s 2011
fiscal period.
The goodwill created by the transaction primarily results from the anticipated synergies in revenue
creation resulting from the combination of Jugo Juice’s strong brand and network to MTY’s
expertise and experience in franchising quick service restaurant. The full amount of goodwill was
deducted for tax purposes.
Non-interest bearing holdbacks were discounted using a rate of 4.5%, which is the rate paid on the
bank loan used to acquire the food processing plant.
From August 18 to November 30, 2011, the business generated $855 in revenues and $184 in pre-
tax profits.
Page 33 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
IV) 2011 acquisition
On November 1, 2011, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises Inc.,
acquired the assets of Mr Submarine Ltd. and Mr Submarine Realty Ltd. for a total consideration of
$23 million. The purpose of the acquisition was to diversify the Company’s range of offering as
well as to complement existing MTY brands.
Consideration paid
Purchase price
Discount on non-interest bearing holdback
Net obligations assumed
Net purchase price
Holdbacks
Net cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Prepaid and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill
Deferred income taxes
Current liabilities
Accounts payable
Deferred income taxes
Net purchase price
$
23,000
(272)
(1,233)
21,495
2,228
19,267
417
417
332
4,745
11,307
5,957
395
23,153
1,650
1,650
8
1,658
21,495
Acquisition-related costs of approximately $50 have been expensed during the Company’s 2011
fiscal period.
The goodwill created by the transaction primarily results from the anticipated synergies in revenue
creation resulting from the combination of Mr Sub’s strong brand and network to MTY’s expertise
and experience in franchising quick service restaurant. The full amount of goodwill was deducted
for tax purposes.
Non-interest bearing holdbacks were discounted using a rate of 4.5%, which is the rate paid on the
bank loan used to acquire the food processing plant.
From November 1 to November 30, 2011, the business generated $662 in revenues and $419 in pre-
tax profits.
Page 34 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
V) 2011 acquisition
On November 10, 2011, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises
Inc., acquired the assets of Koryo Korean BBQ Franchise Corp. for a total consideration of
$1.8 million. The acquisition was effective November 1, 2011. The purpose of the acquisition was
to diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid
Purchase price
Net obligations assumed
Net purchase price
Holdbacks
Net cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Inventories
Property, plant and equipment
Franchise rights
Trademark
Current liabilities
Accounts payable
Unearned revenues
Deferred income taxes
Net purchase price
$
1,800
(33)
1,767
350
1,417
$
2
2
20
652
1,135
1,809
13
20
33
9
42
1,767
Acquisition-related costs of approximately $10 have been expensed during the Company’s 2011
fiscal period.
From November 1 to November 30, 2011, the business generated $38 in revenues and $32 in pre-tax
profits.
On a consolidated basis, had the four 2011 acquisitions occurred December 1, 2010, the revenues
and pre-tax profits of the Company would have been approximately $96,475 and $29,069
respectively.
Page 35 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
7. Cash and cash equivalents
Cash
Cash equivalents
Total cash and cash equivalents
8. Accounts receivable
November 30, November 30, December 1,
2012
$
2011
$
2010
$
13,345
19,691
33,036
2,962
3,033
5,995
5,637
-
5,637
The following table sets forth details of the age of receivables that are not overdue as well as an
analysis of overdue amounts and the related allowance for doubtful accounts:
November 30, November 30, December 1,
2012
$
2011
$
2010
$
Total accounts receivable
Less : Allowance for doubtful accounts
Total accounts receivable, net
Of which:
Not past due
Past due for more than one day
but for no more than 30 days
Past due for more than 31 days
but for no more than 60 days
Past due for more than 61 days
Total accounts receivable, net
Allowance for doubtful accounts beginning of year
Additions
Write-off
Allowance for doubtful accounts end of year
14,799
1,168
13,631
8,045
2,579
676
2,331
13,631
856
692
(380)
1,168
11,352
856
10,496
8,939
783
8,156
8,024
6,245
739
256
215
1,518
10,496
783
336
(263)
856
217
1,438
8,156
754
384
(355)
783
The Company has recognized an allowance for doubtful accounts based on past experience, outlet-
specific situation, counterparty’s current financial situation and age of the receivables.
Trade receivables disclosed above include amounts that are past due at the end of the reporting
period and for which the Company has not recognized an allowance for doubtful accounts because
there was no significant change in the credit quality of the counterparty and the amounts are
therefore considered recoverable. The Company does not hold any collateral or other credit
enhancements over these balances nor does it have the legal right of offset against any amounts
owed by the Company to the counterparty.
The concentration of credit risk is limited due to the fact that the customer base is large and
unrelated.
Page 36 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
9.
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
November 30, November 30, December 1,
2012
$
2011
$
2010
$
1,363
34
212
1,609
1,348
27
193
1,568
646
149
-
795
Inventories are presented net of an $11 allowance for obsolescence ($26 as at November 30, 2011
and $30 as at December 1, 2010). All of the inventories are expected to be sold within the next
twelve months.
Inventories expensed during the year ended November 30, 2012 was $22,952 (2011 - $19,327).
10. Loans receivable
The loans receivable generally result from the sales of franchises and of various advances to certain
franchisees and consist of the following:
Loans receivable, carrying no interest and
without terms of repayment
Loans receivable bearing interest between nil and 10%
per annum, receivable in monthly instalments of $28 in
aggregate, including principal and interest, ending in
April 2017
Current portion
The capital repayments in subsequent years will be:
November 30, November 30, December 1,
2012
$
2011
$
2010
$
31
45
-
888
919
(358)
561
1,074
1,119
(414)
705
1,245
1,245
(336)
909
2013
2014
2015
2016
2017
Thereafter
$
358
222
155
64
28
92
919
Page 37 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
11. Property, plant and equipment
Leasehold
improve-
Land Buildings
ments Equipment
$
$
$
$
Computer
hardware
$
Rolling
stock
$
Total
$
1,285
2,064
3,152
1,947
392
40
8,880
-
-
73
(4)
355
378
93
(819)
(435)
(10)
-
-
899
(1,268)
Cost
Balance at
December 1, 2010
Additions
Disposals
Acquisition through
business combinations
690
1,645
89
1,818
31
-
4,273
Balance at
November 30, 2011
1,975
3,778
2,777
3,708
506
40 12,784
Additions
Disposals
Impairment
Balance at
November 30, 2012
-
-
-
57
392
540
81
-
-
(642)
(111)
(615)
(47)
(24)
-
-
-
-
1,070
(1,304)
(135)
1,975
3,835
2,416
3,609
540
40 12,415
Page 38 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
11. Property, plant and equipment (continued)
Accumulated depreciation Land Buildings
ments Equipment
$
$
$
$
Leasehold
improve-
Computer
hardware
$
Rolling
stock
$
Total
$
Balance at
December 1, 2010
Eliminated on disposal of
assets
Depreciation expense
Balance at
November 30, 2011
Eliminated on disposal of
assets
Depreciation expense
Balance at
November 30, 2012
-
-
-
-
-
-
-
19
1,289
501
120
10
1,939
(3)
(363)
(203)
(4)
-
(573)
151
536
167
1,462
434
732
100
216
12
1,233
22
2,599
-
(443)
(224)
(27)
-
(694)
178
339
345
1,358
485
993
115
304
11
1,128
33
3,033
Carrying amounts
Land Buildings
ments Equipment
$
$
$
$
Leasehold
improve-
Computer
hardware
$
Rolling
stock
$
Total
$
December 1, 2010
November 30, 2011
November 30, 2012
1,285
1,975
1,975
2,045
3,611
3,490
1,863
1,315
1,058
1,446
2,976
2,616
272
290
236
30
6,941
18 10,185
9,382
7
Land, buildings and equipment with a carrying amount of $3,294 as at November 30, 2012 ($3,262
as at November 30, 2011 and $nil as at December 1, 2010) have been pledged as security to secure
borrowings of the Company’s food processing division.
Page 39 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
12. Intangible assets
Cost
Balance at December 1, 2010
Acquisition through business
combinations
Franchise and
master
franchise
rights(1)
$
31,375
Trademarks
$
14,799
Leases
$
1,000
Other
$
272
Total
$
47,446
8,670
17,867
-
-
26,537
Balance at November 30, 2011
40,045
32,666
1,000
272
73,983
Additions (2)
Reversal of impairment
Acquisition through business
combinations
500
-
-
67
629
300
-
-
-
18
518
-
-
67
929
Balance at November 30, 2012
41,174
33,033
1,000
290
75,497
Accumulated amortization
Balance at December 1, 2010
Amortization
Balance at November 30, 2011
Amortization
Balance at November 30, 2012
Franchise and
master
franchise
rights(1)
$
10,614
2,941
13,555
3,723
17,278
Trademarks
$
Leases
$
-
-
-
-
-
481
147
628
105
733
Other
$
143
Total
$
11,238
91
3,179
234
14,417
39
3,867
273
18,284
Page 40 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
12. Intangible assets (continued)
Carrying amounts
December 1, 2010
November 30, 2011
November 30, 2012
Franchise
and master
franchise
rights(1)
$
20,761
26,490
23,896
Trademarks
$
14,799
32,666
33,033
Leases Other Total
$
129
38
17
$
519
372
267
$
36,208
59,566
57,213
(1) Franchise and master franchise rights include an amount of $1,500 ($1,500 in November 2011
and December 1, 2010) of unamortizable master franchise right. The master franchise right has
no specific terms and is valid for as long as MTY does not default on the agreement.
(2) Additions in 2012 are comprised of purchased franchise rights of $500 and purchased software of
$18.
Indefinite life intangibles have been allocated for impairment testing purposes to the following cash
generating units:
November 30, November 30, December 1,
Taco Time
La Crémière
Croissant Plus
Cultures
Thai Express
Mrs Vanelli’s
Sushi Shop
Tutti Frutti
Koya
Country Style
Valentine
Jugo Juice
Mr. Sub
Koryo
Mr. Souvlaki
2012
$
1,500
9
125
500
145
2,700
1,600
1,100
1,253
4,096
3,338
5,425
11,307
1,135
300
34,533
2011
$
1,500
9
125
500
145
2,700
1,600
1,100
1,186
4,096
3,338
5,425
11,307
1,135
-
34,166
2010
$
1,500
9
125
500
145
2,700
1,600
1,100
1,186
4,096
3,338
-
-
-
-
16,299
Page 41 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
13. Goodwill
The changes in the carrying amount of goodwill are as follows:
Balance, beginning of year
Goodwill acquired during the year through
business acquisitions (note 6)
Adjustment of purchase price following
settlement of litigation (1)
Balance, end of period
November 30,
2012
$
20,266
November 30,
2011
$
7,125
-
-
20,266
11,691
1,450
20,266
(1) An amount of $2,698 of post-closing adjustments was claimed to the sellers following
the acquisition of Country Style Food Services Holdings Inc. In May of 2011, a
settlement was reached that ended the litigation whereby MTY Tiki Ming Enterprises
Inc. received a compensation of $1,247 from the sellers, which was made of $205
received in cash (note 32) and $1,042 as an offset from the remaining holdbacks and
withholding taxes. The resulting adjustment was recorded as goodwill.
Goodwill has been allocated for impairment testing purposes to the following cash generating units
or groups of cash generating units:
November 30, November 30, December 1,
Food processing plant
Franchising activities (1)
2012
$
200
20,066
20,266
2011
$
200
20,066
20,266
2010
$
-
7,125
7,125
(1) This portion of goodwill was not allocated to individual CGUs; the Company has determined
that the valuation of goodwill cannot be done at the CGU level, since the strength of the network
comes from grouping the many banners from which the goodwill arose from. As a result, except
for the goodwill related to the acquisitions of the food processing plant, which operate relatively
independently, goodwill will be tested as a whole, at the franchising operating segment level.
14. Credit facilities
As at November 30, 2012, the Company has access to an authorized revolving credit facility of
$10,000 and a treasury risk facility of $1,000. Bank indebtedness’s are secured by a moveable
hypothec on all the assets of the Company.
Page 42 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
14. Credit facilities (continued)
The revolving credit facility bears interest at the bank’s prime rate for advances in C$ (or the bank’s
U.S. base rate for advance in US$) plus a margin not exceeding 0.5% established based on the
Company’s funded debt/EBITDA ratio. As at November 30, 2012, the bank’s prime rate was
3.25%.
The treasury risk facility bears interest at the market rate as determined by the lender’s treasury
department.
Under the terms of the credit facilities, the Company must satisfy a funded debt to EBITDA ratio of
2 to 1 and a minimum interest coverage ratio of 4.5:1. The credit facility is payable on demand and
is renewable annually. As at November 30, 2012, no amounts were drawn from the facilities and the
Company is in compliance with the facility’s covenants.
15. Provisions
Included in provisions are the following amounts:
November 30, November 30, December 1,
2011
$
2010
$
2012
$
Litigations and disputes
Closed stores
Gift card liabilities/loyalty programs liabilities
Restructuring
Other
Total
433
923
910
-
-
2,266
195
211
493
205
46
1,150
553
196
239
-
46
1,034
The provision for litigation and disputes represent management’s best estimate of the outcome of
litigations and disputes that are on-going or that are expected to happen at the date of the statement
of financial position. This provision is made of multiple items; the timing of the settlement of this
provision is unknown given its nature, as the Company does not control the litigation timelines.
The payables related to closed stores mainly represent amounts that are expected to be disbursed to
exit leases of underperforming or closed stores. The negotiations with the various stakeholders are
typically short in duration and are expected to be settled within a few months following the
recognition of the provision.
Page 43 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
15. Provisions (continued)
The gift card and loyalty programs liabilities are the estimated value in gift cards and points
outstanding at the date of the statement of financial position. The timing of the reversal of this
provision is dependent on customer behaviour and therefore outside of the Company’s control.
The restructuring provision is made of amounts that remain payable following the restructuring of
the Country Style activities that occurred during our 2011 fiscal period. This provision was fully
extinguished during the third quarter of 2012 (note 25).
In the provisions above, $121 was unused and reversed into income. The amounts used in the period
include $393 of the provisions for restructuring and disputes and closed stores; this amount was
used for the settlement of litigation and for the termination of the leases of closed stores.
Additions during the year include $1,464 to the litigation and closed stores provisions. The
provisions were increased to reflect new information available to management.
16. Deferred revenue and deposits
November 30, November 30, December 1,
2011
$
2010
$
2012
$
Franchise fee deposits
Deferred landlord lease incentives
Supplier contributions and other allowances
Current portion
1,825
72
272
2,169
(2,169)
-
1,023
-
549
1,572
(1,561)
11
904
-
590
1,494
(1,485)
9
Page 44 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
17. Long-term debt
November 30, November 30, December 1,
2012
$
2011
$
2010
$
Non-interest bearing holdbacks on acquisition
Non-interest bearing holdbacks on acquisition, repayable
September 2013. The effective interest rate is 4.50%.
Non-interest bearing holdbacks on acquisition, repayable
between February 2013 and August 2014. The
effective interest rate is 4.50%.
Non-interest bearing holdback on acquisition, repayable
in November 2013. The effective interest rate is 4.50%.
Non-interest bearing holdback on acquisition, repayable
between December 2012 and November 2013
Bank loans backed by the assets of two subsidiaries
Non-interest bearing holdbacks and withholding taxes on
the acquisition of Country Style Food Services
Holdings Inc.
Non-interest bearing holdbacks on acquisition of Mr.
Souvlaki, repayable September 2014
Bank loan(i) bearing interest at the bank’s prime plus
0.50%, secured by the property, plant and equipment of
a subsidiary, repayable in fixed monthly capital
repayments at $24 plus interest with a maturity date of
November 1, 2015. As of November 30, 2012, the
bank’s prime rate is 4.00%
Mandatorily redeemable preferred shares(ii), non-
cumulative, redeemable in three yearly instalments
beginning December 2011,with redemption value based
on the performance of a subsidiary
-
351
810
2,399
248
-
-
165
-
892
1,662
2,294
350
-
-
-
3,403
3,500
100
200
179
885
-
-
-
126
1,253
-
-
-
Page 45 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
17. Long-term debt (continued)
Non-interest bearing loans(iii) from non-controlling
shareholders of subsidiaries with no terms of repayment
Current portion
November 30, November 30, December 1,
2012
$
2011
$
2010
$
-
7,476
(7,199)
277
110
9,008
(1,958)
7,050
283
2,726
(1,873)
853
(i) This loan is subject to restrictive covenants that have to be respected as at November 30, 2012.
The requirements are for a subsidiary of the corporation to maintain certain working capital,
interest coverage and debt to equity ratios. As of November 30, 2012, two of the covenants were
not met. As a result of the breach in covenant, the debt was classified as current on the
consolidated statement of financial position.
(ii) The Company recorded a gain of $100 for the redemption of the preferred shares as the shares
were redeemed for a value of $0 given the performance of the subsidiary.
(iii) The Company recorded a gain of $110 for the loan forgiveness of a non-controlling shareholder
of a subsidiary of one of its corporate stores which was franchised during the year.
18. Capital stock
Authorized, unlimited number of common shares without nominal or par value
November 30, 2012
December 1, 2010
November 30, 2011
Number Amount Number Amount Number Amount
$
$
$
19,120,567
19,792 19,120,567
19,792 19,120,567
19,792
Balance at beginning
and end of period
19. Stock options
Under various plans, the Company may grant stock options on the common shares at the discretion
of the Board of Directors, to senior executives, directors and certain key employees. Of the
3,000,000 common shares initially reserved for issuance, 699,500 were available for issuance under
the share option plan as at November 30, 2012. There are no options outstanding as at November
30, 2012, November 2011 or December 1, 2010.
Page 46 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
20. Earnings per share
The following table provides the weighted average number of common shares used in the
calculation of basic earnings per share and that used for the purpose of diluted earnings per share:
Weighted daily average number of common shares
19,120,567
19,120,567
November 30, November 30,
2012
2011
21. Financial instruments
In the normal course of business, the Company uses various financial instruments which by their
nature involve risk, including market risk and the credit risk of non-performance by counterparties.
These financial instruments are subject to normal credit standards, financial controls, risk
management as well as monitoring procedures.
Fair value of recognized financial instruments
Following is a table which sets out the fair values of recognized financial instruments using the
valuation methods and assumptions described below:
November 30, 2012
Carrying
amount
$
Fair
value
$
November 30, 2011
Carrying
amount
$
Fair
value
$
December 1, 2010
Fair
value
$
Carrying
amount
$
Financial assets
Cash and cash equivalents 33,036
Temporary investments
-
13,631
Accounts receivable
919
Loans receivable
Other receivable
-
Prepaid expense and
33,036
-
13,631
919
-
5,995
4,632
10,496
1,119
-
5,995
4,632
10,496
1,119
-
5,637
23,383
8,156
1,245
2,698
5,637
23,383
8,156
1,245
N/A
deposits
338
338
312
312
186
186
Financial liabilities
Accounts payable and
accrued liabilities
Long-term debt
Determination of fair value
13,426
7,476
13,426
7,476
13,540
9,008
13,540
9,008
10,992
2,726
10,992
2,726
The following methods and assumptions were used to estimate the fair values of each class of
financial instruments:
Cash and cash equivalents, temporary investments, accounts receivable, deposits, accounts
payable and accrued liabilities - The carrying amounts approximate fair values due to the short
maturity of these financial instruments.
Loans receivable - The loans receivable generally bear interest at market rates and therefore it is
management’s opinion that the carrying value approximates the fair value.
Page 47 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
21. Financial instruments (continued)
Determination of fair value (continued)
Other receivable - The other receivable was the result of post-closing adjustments claimed by the
Company from the sellers of Country Style Food Services Holdings Inc. in accordance with the
provisions of the purchase agreement. The litigation has been settled during the second quarter of
our 2011 fiscal period.
Long-term debt - The fair value of long-term debt is determined using the present value of future
cash flows under current financing agreements based on the Company’s current estimated
borrowing rate for a similar debt.
Risk management policies
The Company, through its financial assets and liabilities, is exposed to various risks. The following
analysis provides a measurement of risks as at November 30, 2012.
Credit risk
The Company’s credit risk is primarily attributable to its trade receivables. The amounts disclosed
in the statement of financial position are net of allowances for bad debts, estimated by the
Company’s management based on prior experience and their assessment of the current economic
environment. The Company believes that the credit risk of accounts receivable is limited for the
following reasons:
- Other than receivables from international locations, the Company’s broad client base is spread
mostly across Canada, which limits the concentration of credit risk.
- The Company accounts for a specific bad debt provision when management considers that the
expected recovery is less than the actual account receivable.
The credit risk on cash and cash equivalents and temporary investments is limited because the
Company invests its excess liquidity in high quality financial instruments and with credit-worthy
counterparties.
The credit risk on the loans receivable is similar to that of accounts receivable. There is currently an
allowance for doubtful accounts recorded for loans receivable of $55 ($nil as at November 30, 2011
and December 1, 2010).
Foreign exchange risk
The Company has entered into a contract to minimize its exposure to fluctuations in foreign
currencies, mainly on purchases of coffee. As of November 30, 2012, the total value of such
contracts was approximately $458.
Page 48 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
21. Financial instruments (continued)
Foreign exchange risk (continued)
Other than the above-mentioned contracts, the Company has minimal exposure to the US$ and is
subject to fluctuations as a result of exchange rate variations to the extent that transactions are made
in the currency. The Company considers this risk to be relatively limited.
As of November 30, 2012, the Company carried US$ cash of CAD$425 and had net accounts
receivable of CAD$429. As a result, a 1% change in foreign exchange rates would result in a change
in net comprehensive income of $9 Canadian dollars.
Interest rate risk
The Company is exposed to interest rate risk with regards temporary investments. Given the very
short term nature of the temporary investments, the risk that changes in interest rates will cause
material fluctuations in the fair value is considered limited.
The Company is also exposed to interest rate risk with its revolving credit facility and treasury risk
facility and a bank loan contracted by a subsidiary. Both facilities bear interest at a variable rate and
as such the interest burden could potentially become more important. The line of credit is not
currently used by the Company; as a result, the exposure to interest rate risk in minimal.
A 100 basis points increase in the bank’s prime rate would result in additional interest of $34 per
annum on the outstanding bank loan.
Liquidity risk
The Company actively maintains credit facilities to ensure it has sufficient available funds to meet
current and foreseeable financial requirements at a reasonable cost.
The following are the contractual maturities of financial liabilities as at November 30, 2012:
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
0 to 12
months
$
12 to 24
months
$
Accounts payable
and accrued
liabilities
Long-term debt
Interest on
long-term debt
13,426
7,476
-
20,902
13,426
7,621
-
21,047
13,426
3,733
151
17,310
-
3,601
130
3,731
-
287
137
424
Page 49 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
22. Capital disclosures
The Company’s objectives when managing capital are:
1- To safeguard the Company’s ability to obtain financing should the need arise;
2- To provide an adequate return to its shareholders;
3- To maintain financial flexibility in order to have access to capital in the event of future
acquisitions.
The company defines its capital as follows:
1- Shareholders’ equity;
2- Long-term debt including the current portion;
3- Deferred revenue including the current portion;
4- Cash and cash equivalents and temporary investments.
The Company’s financial strategy is designed and formulated to maintain a flexible capital structure
consistent with the objectives stated above and to respond to changes in economic conditions and
the risk characteristics of the underlying assets. The Company may invest in longer or shorter-term
investments depending on eventual liquidity requirements.
The Company monitors capital on the basis of the debt-to-equity ratio. The debt-to-equity ratios at
November 30, 2012, November 30, 2011 and December 1, 2010 were as follows:
Debt
Equity
Debt-to-equity ratio
November 30, November 30, December 1,
2012
$
30,498
106,063
0.29
2011
$
27,518
88,110
0.31
2010
$
17,097
75,393
0.23
During the year ended November 30, 2012, the Company has generated cash flows that have
enabled it to improve its debt-to-equity ratio to 0.29. Maintaining a low debt to equity ratio is a
priority in order to preserve the Company’s ability to secure financing at a reasonable cost for future
acquisitions.
As at November 30, 2012, the Company does not have any debt outstanding that is subject to its
consolidated debt to equity ratio.
Page 50 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
23. Revenues
The Company’s revenues include:
Royalties
Initial franchise fees
Rent
Sale of goods, including construction revenues
Other franchising revenue
Other
24. Operating expenses
Operating expenses are broken down as follows:
Cost of goods sold and rent
Wages and benefits
Consulting and professional fees
Royalties
Other
25. Restructuring
November 30,
2012
$
November 30,
2011
$
34,483
2,890
5,173
35,132
15,163
3,379
96,220
25,671
1,852
5,865
30,432
11,024
3,514
78,358
November 30, November 30,
2012
$
36,503
13,343
3,445
778
7,225
61,294
2011
$
30,575
11,003
1,678
2,222
6,450
51,928
During the second quarter of 2011, the Company has undertaken a restructuring of its Country Style
operations following unsatisfactory performances. The total cost of the terminations incurred at that
time was $447. As at November 30, 2012, the full liability has been paid.
26. Operating lease arrangements
Operating leases as lessee relate to leases of premises in relation to the Company’s operations.
Leases typically have terms ranging between 5 and 10 years at inception. The Company does not
have options to purchase the premises on any of its operating leases.
Page 51 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
26. Operating lease arrangements (continued)
The Company has entered into various long-term leases and has sub-leased substantially all of the
premises based on the same terms and conditions as the original lease to unrelated franchisees. The
minimum rentals, exclusive of occupancy and escalation charges, and additional rent paid on a
percentage of sales basis, payable under the leases are as follows:
2013
2014
2015
2016
2017
Thereafter
Lease
commitments
$
Sub-leases
$
Net
commitments
$
49,368
46,607
42,573
37,951
32,517
84,227
293,243
47,110
44,405
40,690
36,281
31,162
80,309
279,957
2,258
2,202
1,883
1,670
1,355
3,918
13,286
Payments recognized as a net expense during the year ended November 30, 2012 amount to $8,260
(2011 - $6,681).
Operating leases as lessor relate to the properties leased or owned by the Company, with lease terms
ranging between 5 to 10 years. Some have options to extend the duration of the agreements, for
periods ranging between 1 and 15 years. None of the agreements contain clauses that would enable
the lessee or sub-lessee to acquire the property.
During the year ended November 30, 2012, the company has earned rental income of $5,173 (2011 -
$5,865).
The Company has recognized a liability of $923 (November 30, 2011 - $211) for the leases of
premises in which it no longer has operations but retains the obligations contained in the lease
agreement (Note 15).
27. Commitments
The Company has entered into supplier agreements for purchases of coffee beans, wheat, sugar and
shortening for delivery dates ranging from December 2012 to March 2013. The total commitment
amounts to approximately $1,042.
28. Guarantee
The Company has provided a guarantee in the form of a letter of credit for an amount of $45 ($45 as
at November 30, 2011 and December 1, 2010).
Page 52 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
29. Contingent liabilities
The Company is involved in legal claims associated with its current business activities. The
Company’s estimate of the outcome of these claims is disclosed in Note 15. The timing of the
outflows, if any, is out of the control of the Company and is as a result undetermined at the moment.
30. Income taxes
Variations of income tax expense from the basic Canadian Federal and Provincial combined tax
rates applicable to income from operations before income taxes are as follows:
Combined income tax rate
Add effect of:
Impact of disposition of capital
property
Non-deductible items
Losses in a subsidiaries for which no
deferred income tax asset was
recorded
Change in applicable tax rate
Adjustment to prior year provisions
Other – net
Provision for income taxes
November 30, 2012
November 30, 2011
$
8,205
%
26.9
$
6,458
%
28.3
(69)
26
(46)
(200)
543
(9)
8,450
(0.2)
0.1
(0.2)
(0.7)
1.8
0.0
27.7
(134)
16
(114)
218
(142)
(1)
6,301
(0.6)
0.1
(0.5)
0.9
(0.6)
(0.0)
27.6
The statutory tax rate has decreased in 2012 as a result of the reduction in the applicable Federal tax
rate.
Included in the adjustment to prior year provisions is an amount of $171 in deferred income taxes
resulting from an income tax reassessment, while $372 is an adjustment to current income taxes.
The variation in deferred income taxes during the year were as follows:
2012
Net deferred tax assets
(liabilities) in relation to:
Property, plant and equipment
Provisions
Holdbacks
Non-capital losses
Intangible assets
November 30,
2011
Recognized in
profit or loss
Acquisition
November 30,
2012
(302)
417
(85)
50
(2,258)
(2,178)
506
40
46
82
(613)
61
-
-
-
-
(14)
(14)
204
457
(39)
132
(2,885)
(2,131)
Page 53 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
30. Income taxes (continued)
2011
Net deferred tax assets
(liabilities) in relation to:
Property, plant and equipment
Provisions
Holdbacks
Revenue recognition
Non-capital losses
Intangible assets
December 1,
2010
Recognized in
profit or loss
Acquisitions Other
November
30, 2011
55
279
(22)
(39)
3,562
(3,719)
116
(447)
138
19
39
(3,512)
419
(3,344)
90
-
(82)
-
-
981
989
-
-
-
-
-
61
61
(302)
417
(85)
-
50
(2,258)
(2,178)
Included in deferred income taxes are non-capital losses of a subsidiary which suffered a loss in its
previous fiscal period. The realization of the $132 deferred income tax asset is dependent on the
realization of future taxable profits. The Company is confident that sufficient taxable income will be
generated to use the non-capital losses.
As at November 30, 2012 there were approximately $6,706 of capital losses which may be applied
against capital gains for future years and be carried forward indefinitely. The deferred income tax
benefit of these capital losses has not been recognized.
As at November 30, 2012, there were approximately $110 (2011- $60) in non-capital losses
accumulated in one of the Company’s subsidiaries for which no deferred income tax asset was
recognized. These losses will expire in 2030 and 2031.
The deductible temporary difference in relation to an investment in a subsidiary for which a deferred
tax asset has not been recognized amounts to $120 (2011 - $28).
31. Segmented information
The Company’s activities are comprised of Franchise operations, Corporate store operations,
Distribution operations and Food processing operations. Operating segments were established based
on the differences in the types of products or services offered by each division.
The products and services offered by each segment are as follows:
Franchising operations
The franchising business mainly generates revenues from royalties, supplier contributions, franchise
fees, rent and the sale of turnkeys.
Corporate store operations
Corporate stores generate revenues from the direct sale of prepared food to customers.
Page 54 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
31. Segmented information (continued)
Distribution operations
The distribution operations generate revenues by distributing raw materials to restaurants of our
Valentine and Franx banners.
Food processing operations
The Food processing plant generates revenues from the sale of ingredients and prepared food to
restaurant chains, distributors and retailers.
Below is a summary of each segment’s performance during the periods.
For the year ended November 30, 2012:
Franchising
$
Corporate Distribution
$
$
Processing
$
Inter-
company
$
6,076
5,630
446
8,051
7,970
81
(990)
(990)
–
Operating revenues
Operating expenses
Other expenses
Depreciation - property,
plant and equipment
Amortization – intangible
assets
Interest on long-term debt
Other income
Foreign exchange (loss) gain
Interest income
Gain on preferred share
redemption
Gain on shareholder loan
forgiveness
Impairment of property,
plant and equipment
Gain on disposal of property,
plant and equipment
Operating income
Current income taxes
Deferred income taxes
Net income and
comprehensive income
Total assets
Total liabilities
70,909
36,332
34,577
436
3,867
173
(28)
282
–
–
67
566
30,988
8,581
56
22,351
128,457
25,385
12,174
12,352
(178)
441
–
–
–
–
–
110
(135)
(55)
(699)
(188)
(64)
(447)
2,988
429
Page 55 of 66
Total
$
96,220
61,294
34,926
1,128
3,867
335
(27)
282
100
110
(68)
511
30,504
8,511
(61)
22,054
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,617)
136,561
(142)
30,498
8
–
–
–
–
–
–
–
–
438
118
–
320
1,296
508
243
–
162
1
–
100
–
–
–
(223)
–
(53)
(170)
5,437
4,318
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
31. Segmented information (continued)
For the year ended November 30, 2011:
Franchising
$
Corporate Distribution
$
$
Processing
$
Inter-
company
$
Total
$
Operating revenues
Operating expenses
Other expenses
Depreciation - property,
plant and equipment
Amortization – intangible
assets
Restructuring
Interest on long-term debt
Other income
Foreign exchange gain
Interest income
Gain on bargain purchase
Gain on disposal of property,
plant and equipment
Operating income
Current income taxes
Deferred income taxes
Net income and
comprehensive income
Total assets
Total liabilities
55,954
30,234
25,720
617
3,179
447
63
18
357
–
948
22,737
2,807
3,470
16,460
108,432
22,285
10,775
10,728
47
401
–
–
9
–
–
–
–
(363)
–
(103)
(260)
3,604
637
6,063
5,528
535
6,330
6,202
128
(764)
(764)
–
78,358
51,928
26,430
1,233
3,179
447
213
18
357
140
948
22,821
2,957
3,344
16,520
–
–
–
–
–
–
–
–
–
–
–
–
(1,866)
115,628
–
27,518
7
–
–
–
–
–
–
–
528
150
–
378
1,163
409
208
–
–
141
–
–
140
–
(81)
–
(23)
(58)
4,295
4,187
During the year ended November 30, 2012, two customers of the food processing segment
respectively accounted for 25% and 13% of the revenues of the segment.
None of the other segments had customers who represented more than 10% of their revenues.
Page 56 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
32. Statement of cash flows
Net changes in non-cash working capital balances relating to continuing operations are as follows:
Accounts receivable
Inventories
Loans receivable
Other receivable (note 13)
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Provisions
November 30, November 30,
2012
$
2011
$
(3,135)
(41)
200
–
(26)
(116)
1,116
(2,002)
(2,340)
(385)
248
205
331
(1,080)
116
(2,905)
The Company acquired the remaining control in one of the corporate stores through a non-cash
transaction. This resulted in a reversal of NCI of $26 which is not reflected in the consolidated
statements of cash flows.
33. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties of the
Company, have been eliminated on consolidation. Details of transactions between the Company and
other related parties are disclosed below.
Compensation of key management personnel
The remuneration of key management personnel and directors during the period was as follows:
Short-term benefits
Post-employment benefits, share-based
payments and other long-term benefits
Board member fees
Total remuneration of key management personnel
November 30,
2012
$
November 30,
2011
$
659
–
40
699
581
–
40
621
Key management personnel is composed of the Company’s CEO, COO and CFO. The remuneration
of directors and key executives is determined by the Board of directors having regard to the
performance of individuals and market trends.
Given its widely held share base, the Company does not have an ultimate controlling party; its most
important shareholder is its CEO, who controls 26% of the outstanding shares.
Page 57 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
33. Related party transactions (continued)
The Company also pays employment benefits to individuals related to members of the key
management personnel described above. Their total remuneration was as follows:
November 30,
2012
$
November 30,
2011
$
Short-term benefits
Post-employment benefits, share-based
payments and other long-term benefits
Total remuneration of individuals related to key management personnel
472
–
472
447
–
447
A corporation owned by individuals related to key management personnel has participation in two
of the Company’s subsidiaries. During the year ended November 30, 2012, dividends of nil (2011-
$140) were paid by those subsidiaries to the above-mentioned company, and advances of nil (2011-
$78) were repaid. During the year, one of the Company’s subsidiaries loan payable was forgiven by
two members for an amount of $50.
34. Transition to IFRS
Our accounting policies presented in Note 3, Significant accounting policies, have been applied in
preparing the consolidated financial statements for the year ended November 30, 2012, the
comparative information for the year ended November 30, 2011 and the opening statement of
financial position at December 1, 2010.
First-time adoption elections
As the burden of issuers adopting IFRS for the first time could be significant, IFRS 1 provides for a
limited number of mandatory exceptions required to apply the mandatory exceptions, but they have
a choice to apply or not the optional exemptions. The Company has applied all mandatory
exceptions and has applied certain of the optional exemptions, resulting in the prospective
application of IFRS related to these exceptions and exemptions. The following are the transition
optional exemptions which have been applied:
a. The Company has elected not to apply IFRS 3 – Business combinations retrospectively to
business combinations that occurred prior to transition date.
b. The Company has elected not to apply IFRS 2 – Share-based payment for equity settled share-
based payments granted on or before November 7th, 2002, nor to share-based payments granted
after November 7th, 2002 but that vested before the date of transition.
c. The Company has elected not to apply IAS 32 – Financial Instruments: Presentation to its
compound financial instruments for which the liability component did not exists at the transition
date.
d. The Company has elected not to apply IAS 37 – Provision, contingent liabilities and contingent
assets, to its decommissioning liabilities retrospectively to changes in such liabilities that
occurred before the date of transition.
Page 58 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
The following tables and accompanying notes provide explanations on how the transition from
previous GAAP to IFRS impacted the Company’s financial position, financial performance and cash
flows.
Reconciliation of the consolidated statement of financial position as at December 1, 2010
Canadian Reclassi-
Notes GAAP
fications Adjustments
Assets
Current assets
Cash and cash equivalents
Temporary investments
Accounts receivable
Inventories
Franchise locations under
construction
Loans receivable
Prepaid expenses and deposits
Deferred income taxes
Loans receivable
Other receivable
Property, plant and equipment
Intangible assets
Deferred income taxes
Goodwill
Liabilities
Current liabilities
Accounts payable and
accrued liabilities
Provisions
Income taxes payable
Deferred revenue and deposits
Current portion of long-term debt
a
a
a
bd
de
a
Deferred revenue and deposits
Long-term debt
Deferred income taxes
Non-controlling interest
g
abdefg
Shareholders’ equity
Equity attributable to owners
Capital stock
Contributed surplus
Retained earnings
Equity attributable to non-
controlling interest
$
$
$
5,637
23,383
7,577
645
1,091
336
186
3,562
42,417
909
2,698
7,138
36,266
-
7,125
96,553
12,530
-
851
1,485
1,873
16,739
9
930
2,606
72
20,356
19,792
481
55,924
76,197
-
76,197
96,553
-
-
-
150
(150)
-
-
(3,562)
(3,562)
-
-
-
-
116
-
(3,446)
(1,034)
1,034
-
-
-
-
-
-
(3,446)
(72)
(3,518)
-
-
-
-
72
72
(3,446)
-
-
579
-
(941)
-
-
-
(362)
-
-
(197)
(58)
-
-
(617)
(504)
-
-
-
-
(504)
-
(77)
840
-
259
-
-
(876)
(876)
-
(876)
(617)
Page 59 of 66
IFRS
$
5,637
23,383
8,156
795
-
336
186
-
38,493
909
2,698
6,941
36,208
116
7,125
92,490
10,992
1,034
851
1,485
1,873
16,235
9
853
-
-
17,097
19,792
481
55,048
75,321
72
75,393
92,490
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
Reconciliation of the consolidated statement of financial position as at November 30, 2011
Canadian Reclassi-
Notes GAAP
fications Adjustments
Assets
Current assets
Cash and cash equivalents
Temporary investments
Accounts receivable
Income taxes receivable
Inventories
Franchise locations under
construction
Loans receivable
Prepaid expenses and deposits
Deferred income taxes
Loans receivable
Property, plant and equipment
Intangible assets
Deferred income taxes
Goodwill
Liabilities
Current liabilities
Accounts payable and
accrued liabilities
Provisions
Deferred revenue and deposits
Current portion of long-term debt
a
a
a
bcd
de
f
fg
a
g
Deferred revenue and deposits
Long-term debt
Deferred income taxes
g
bcdefg
Shareholders’ equity
Equity attributable to owners
Capital stock
Contributed surplus
Retained earnings
Equity attributable to non-
controlling interest
c
$
$
$
5,995
4,632
9,549
1,419
1,540
1,202
414
312
440
25,503
705
10,180
59,624
1,531
19,509
117,053
14,908
-
1,561
1,982
18,451
11
7,343
2,337
28,142
19,792
481
68,637
88,910
-
88,911
117,053
-
-
-
-
28
(28)
-
-
(440)
(440)
-
-
-
(564)
-
(1,004)
(1,140)
1,150
-
-
10
-
-
(1,004)
(994)
-
-
-
-
(10)
(10)
(1,004)
-
-
947
-
-
(1,174)
-
-
-
(227)
-
5
(58)
(897)
757
(420)
(228)
-
-
(24)
(252)
-
(293)
915
370
-
-
(837)
(837)
47
(790)
(420)
IFRS
$
5,995
4,632
10,496
1,419
1,568
-
414
312
-
24,836
705
10,185
59,566
70
20,266
115,628
13,540
1,150
1,561
1,958
18,209
11
7,050
2,248
27,518
19,792
481
67,800
88,073
37
88,110
115,628
Page 60 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
Reconciliation of the consolidated statement of comprehensive income for the year ended November
30, 2011:
Canadian Reclassi-
Notes GAAP
fications Adjustments
$
$
$
IFRS
$
Revenues
Expenses
Operating expenses
Depreciation – property, plant
and equipment
Amortization – intangible assets
Restructuring
Interest on long-term debt
Other income
Gain (loss) on foreign exchange
Interest income
Gain on bargain purchase
Gain (loss) on disposal of property,
plant and equipment
Income before taxes
Income taxes
Current
Deferred
a
a
bc
g
c
b
f
Net income and comprehensive income
78,465
51,819
1,262
3,179
447
150
56,858
18
357
-
858
1,233
22,841
2,957
3,467
6,424
16,417
Net income and comprehensive income attributable to:
Owners
Non-controlling interest
16,154
263
16,417
Basic and diluted earnings per share (Note 20)
0.84
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(107)
78,358
109
51,928
(29)
-
-
63
143
-
-
140
90
230
(20)
-
(123)
(123)
103
40
63
103
1,233
3,179
447
213
57,000
18
357
140
948
1,463
22,821
2,957
3,344
6,301
16,520
16,194
326
16,520
0.85
Page 61 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
Notes to the reconciliation tables:
a. Franchise locations under construction held for resale
Under IAS 11, the Company is required to use the percentage of completion method to
recognize revenues and expenses on projects for which construction is in progress, whereas
under Canadian GAAP the completion method was used to recognize such revenues and
expenses. When retrospectively applying IAS 18, the Company increased revenues and
expenses and impacted accounts receivable, accrued liabilities and retained earnings in the
process, while creating a reduction in the amount capitalized for such projects on the statement
of financial position.
Statement of comprehensive income
Change in revenues
Change in operating expenses
Change in income before taxes
Statement of financial position
Change in accounts receivable
Change in inventories
Change in franchise locations under
construction held for resale
Change in accounts payable and accrued liabilities
Change in deferred income tax liability
November 30,
2011
$
(107)
109
(216)
November 30,
2011
$
December 1,
2010
$
947
28
579
150
(1,202)
(1,091)
(228)
-
(504)
39
Page 62 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
b. Property, plant and equipment
As part of the conversion to IAS 16, the Company identified different components for some
items of property, plant and equipment and therefore adjusted its depreciation methods to reflect
the consumption pattern of these components.
Statement of comprehensive income
Change in depreciation of property, plant and equipment
Change in gains (losses) on disposals of assets
Change in income before taxes
Statement of financial position
Change in property, plant and equipment
Change in deferred income tax liability
November 30,
2011
$
(34)
90
124
November 30,
2011
$
December 1,
2010
$
32
(8)
(35)
(9)
c. Bargain purchase
In December 2010, the Company, through a subsidiary, acquired a food processing plant; in the
transaction the fair value of the assets acquired, as determined by an independent evaluator,
exceeded the consideration paid. Under previous GAAP, the discrepancy was allocated over
non-monetary assets as a proportion of their carrying value; under IFRS 3, such discrepancy is
recorded as a gain on the statement of comprehensive income. This results in higher property,
plant and equipment and therefore has an impact on deferred income taxes. Because the
Company owns 51% of the subsidiary, the gain on the bargain purchase and the increase in the
depreciation of the identifiable assets acquired with finite useful lives it created have an impact
on the equity attributable to non-controlling interest.
Statement of comprehensive income
Gain on bargain purchase
Change in depreciation of property, plant and equipment
Change in income before taxes
November 30,
2011
$
140
5
135
Page 63 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
Statement of financial position
Change in property, plant and equipment
Change in deferred income tax liability
Equity attributable to non-controlling interest
d. Impairment of assets
November 30,
2011
$
December 1,
2010
$
135
28
47
-
-
-
At transition date, the Company had to perform impairment tests on its assets based on
discounted cash flows, as required by IAS 36, whereas under Canadian GAAP, the primary tests
for assets with a finite life were performed using undiscounted cash flows. This resulted in
impairments being recorded on one of the Company’s trademarks as well as on some property,
plant and equipment used for corporate restaurant operations.
Statement of financial position
Change in property, plant and equipment
Change in intangible assets
Change in deferred income tax liability
e. Intangible assets
November 30,
2011
$
(162)
(67)
(64)
December 1,
2010
$
(162)
(67)
(64)
Under IFRS, intangible assets with indefinite useful lives are not amortized but tested at least
annually for impairment. IAS 38, Intangible assets, requires retrospective application of those
requirements. Under Canadian GAAP, those assets were amortized until November 30, 2002
and transitional provisions did not require the reversal of amortization previously recorded.
Therefore, at the date of transition, the Company reversed all amortization recorded in respect
of intangible assets with indefinite lives. The impact of the change is as follows:
Statement of financial position
Change in intangible assets
Change in deferred income tax liability
November 30,
2011
$
December 1,
2010
$
9
2
9
2
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MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
f. Deferred income tax assets and liabilities
The retrospective application of IAS 12 resulted in decreases in deferred income taxes assets
and increases in deferred income tax liabilities, mainly as a result of the accounting treatment of
permanent differences between accounting and tax values on certain intangible assets and
goodwill.
Statement of comprehensive income
Change in deferred income taxes
Statement of financial position
Change in goodwill
Change in deferred income tax liability
Change in deferred income tax asset
g. Long-term debt
November 30,
2011
$
(90)
November 30,
2011
$
December 1,
2010
$
980
872
(897)
-
848
-
Under IAS 39, holdbacks on business acquisitions are required to be discounted using an
interest rate similar to one the Company could obtain on open markets. Under previous GAAP,
the effective interest method was not used because the timing of the cash outflows could not be
easily determined in cases in which the holdbacks were to be applied against transactions
prescribed in the asset purchase agreements. The resulting adjustment reduces the value of the
consideration paid (lower value attributed to holdbacks) and therefore reduces the amount of
goodwill on the transactions. It also gives rise to periodic interest charges and the resulting
deferred income tax impact.
Statement of comprehensive income
Interest on long-term debt
November 30,
2011
$
63
Page 65 of 66
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2012
(in thousands of Canadian dollars except per share amounts)
34. Transition to IFRS (continued)
Statement of financial position
Change in goodwill
Change in long-term debt
Change in deferred income tax liability
h. Goodwill
November 30,
2011
$
December 1,
2010
$
(223)
(317)
85
-
(77)
22
Goodwill was impacted by the variations of the deferred income tax assets and liabilities
described in Note f. above relating to acquisitions realised during the 2010 and 2011 fiscal
periods. It was also impacted by the difference in the recognized amounts for holdbacks,
described in Note g. above. Goodwill being the difference between the consideration paid and
the fair value of the identifiable net assets acquired (which include deferred income taxes),
variations in the value of deferred income taxes result in direct impacts on the value attributed
to goodwill.
Other than the transition to IAS12, the Company has chosen not to present the income tax
impact of the other reconciling items presented above.
Reconciliation of the statement of cash flows
There were no material changes to the statement of cash flows on adoption of IFRS other than the
changes to presentation of certain elements, including interest on long-term debt and income taxes.
35. Subsequent events
On January 23, 2013, the Company declared dividends of $0.07 per share payable
February 15, 2013. This will result in a total payment of $1,338.
Page 66 of 66