MESSAGE TO SHAREHOLDERS
Dear shareholders:
Fiscal 2013 was another record‐setting year for our Company. Not only did we achieve new heights in
terms of financial results, but we made the biggest acquisition in MTY’s history with the acquisition of
the Extreme Pita and Mucho Burrito banners from Extreme Brandz.
On top of this major acquisition, we have also added two other new brands to our portfolio: SushiGo
and Thaïzone. In all, the Company invested over $63 million this year in its continued effort to add
depth to its portfolio of brands, locations and franchise partners.
As a result of these acquisitions and of our continued effort to grow our network, the Company was able
to add a total of 391 new outlets during the last twelve months. Our network stands at 2,590 stores at
the end of the year, representing a stable source of income for our Company. The sales generated by
our network in 2013 amounted to $726 million, another historical high.
Two additional milestones were achieved during the year: our Thaï Express and Thaïzone products made
their entry in grocery stores late during the period, and MTY entered the US market for the first time
with Extreme Pita and Mucho Burrito. Although the return on these two items remains moderate at
year‐end given the start‐up phase we are in, we believe both have the potential to unlock significant
value for our Company.
During the year, a number of our concepts faced intense competitive pressures as the economy
appeared weaker in some regions of Canada. This, combined the adverse weather conditions, has
caused the same store sales growth to decline by 2.0% during 2013.
Despite this disappointing same store sales result, the Company was able to increase its profitability by
17%, to reach $25.7 million, or $1.34 per share.
Shortly after year‐end, the Company announced another major increase in its dividend. This once again
demonstrates the confidence we have in our concepts, our franchise partners, our employees and our
ability to generate cash flows in the future.
Going into 2014, we do not foresee material changes in the competitive and economic environment in
Canada; as such, the coming twelve months will be challenging for MTY, with fierce competition to be
expected for consumers’ food dollars.
We will continue to concentrate on the continuous improvement of our operations, on opening new
locations of existing concepts and on developing our brands locally and internationally. Financial
discipline will remain at the core of our values as we continue to diligently seek new potential
acquisitions in Canada and the United States.
We remain committed to achieving sustainable growth in our network and in the value of our Company
to its shareholders. To that end, we can rely on the energy, enthusiasm and dedication of all MTY
employees, whom I want to thank personally and on behalf of our Board of Directors.
In closing, I wish to personally thank each one of MTY’s franchisees, business partners and shareholders
for their continuous support and contribution to our success in 2013. I truly appreciate and wish to
thank you for being a part of our growing family.
MTY Food Group Inc.
______________________________
Stanley Ma
Chairman and Chief Executive Officer
February 12, 2014
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2013
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 read in conjunction with the
Company’s consolidated financial statements and accompanying notes for the fiscal year ended November
30, 2013.
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.
This MD&A was prepared as at February 12, 2014. Supplementary information about MTY, including its
annual information form (“AIF”), its latest annual and quarterly reports, and press releases, is available on
SEDAR’s website at www.sedar.com.
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 2013. 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 12, 2014 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.
Page 1
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 readers 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 12, 2014. 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 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 12,
2014. 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.
Page 2
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 earnings before interest, taxes, 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 are not a measurement determined in
accordance with GAAP and may not be comparable to those presented by other companies. These non-
GAAP measures are intended to provide additional information about the performance of MTY, and should
not be considered in isolation or as a substitute for measure of performance prepared in accordance with
GAAP.
The Company uses these measures to evaluate the performance of the business as they reflect its ongoing
operations. Management believes that certain investors and analysts use EBITDA to measure a company’s
ability to meet payment obligations or as a common measurement to value companies in the industry.
Similarly, same-store sales growth provides additional information to investors about the performance of
the network that is not available under GAAP. Both measures are components in the determination of
short-term incentive compensation for some employees.
Highlights of significant events during the fiscal year
On September 25, 2013, the Company announced it had completed the acquisition of the assets of Extreme
Pita, PurBlendz and Mucho Burrito ("Extreme Brandz"), for a consideration of $45 million, to be paid in
cash. The transaction was effective September 24, 2013.
The Company also announced on October 1, 2013, that it had completed the acquisition of 80% of the
assets of ThaïZone, with the balance of the ownership remaining with the seven founders of ThaïZone for a
total consideration of $17.7 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, Mr. Souvlaki, SushiGo, Extreme Pita,
Mucho Burrito, PurBlendz and ThaïZone.
As at November 30, 2013, MTY had 2,590 locations in operation, of which 2,565 were franchised or under
operator agreements and the remaining 25 locations were operated by MTY.
MTY’s locations can be found in: i) food courts and shopping malls; ii) street front; and, iii) non-traditional
format within petroleum 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, Sushi Go, Taco Time, Tutti Frutti, Valentine, Mr. Sub, Extreme Pita and Mucho Burrito banners. La
Page 3
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,
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.
On May 31, 2013, the Company acquired the SushiGo banner, with a total of 5 outlets at the date
of closing. The acquisition was effective on June 1, 2013.
On September 24, 2013, the Company acquired the assets of Extreme Pita, PurBlendz and Mucho
Burrito ("Extreme Brandz"), with a total of 305 stores, including five corporately-owned stores. Of
the 305 stores, 34 are operated from the United States.
On September 30, 2013, the Company acquired 80% of the assets of Thaï Zone. The chain operates
25 stores and 3 mobile restaurants.
Page 4
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 turnkey 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 turnkey 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 Supreme franchisees with a broad range of
products required in the day-to-day operations of the restaurants.
Description of recent acquisitions
On September 30, 2013, the Company acquired 80% of the assets of Thaï Zone for a total consideration of
$17.7 million, to be paid from MTY'S cash on hand and available credit facilities. At the date of closing,
Thaï Zone operated 25 stores and 3 mobile restaurants. Of the purchase price, the Company withheld $1.78
million in non-interest bearing holdbacks.
On September 24, 2013, the Company acquired the assets of Extreme Pita, PurBlendz and Mucho Burrito
for a consideration of $45 million, to be paid from MTY's cash on hand. At the date of closing, there were
305 stores in operation, 5 of which were corporate locations and 34 of which were located in the United
States. Of the purchase price, the Company withheld $4.5 million in non-interest bearing holdbacks.
On May 31, 2013, the Company acquired most of the assets of Gestion SushiGo – Sesame Inc.
(www.sushigoexpress.ca), 9161- 9379 Quebec Inc. and 9201-0560 Quebec Inc. for a total consideration of
$1.05 million. At the date of closing, there were 5 SushiGo stores in operation, two of which were
corporate locations. The acquisition was effective on June 1, 2013. Of the purchase price, the Company
withheld $0.1 million in non-interest bearing holdbacks.
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 non-interest bearing holdbacks.
Page 5
Selected annual information
(in thousands of dollars)
Year ended
November 30,2013
Year ended
November 30,2012
Year ended
November 30,2011
Total assets
Total long-term liabilities
Operating revenue
Income before income taxes
Net income attributable to owners
Total comprehensive income
attributable to owners
EPS basic
EPS diluted
Dividends paid on common stock
Dividends per common share
Weighted daily average number of
common shares
Weighted average number of diluted
common shares
$173,044
$9,769
$101,360
$34,610
$25,712
$136,561
$2,575
$96,220
$30,504
$22,067
$115,628
$9,309
$78,358
$22,821
$16,194
$25,718
$22,067
$16,194
$1.34
$1.34
$5,354
$0.280
$1.15
$1.15
$4,206
$0.220
$0.85
$0.85
$3,442
$0.180
19,120,567
19,120,567
19,120,567
19,120,567
19,120,567
19,120,567
Summary of quarterly financial information
in thousands of $
February
2012
May
2012
August
2012
November
2012
February
2013
May
2013
August
2013
November
2013
Quarters ended
Revenue
$21,945
$23,689
$24,239
$26,347
$22,628
$25,342
$25,130
$28,260
Net income
attributable to
owners
Total
comprehensive
income attributable
to owners
Per share
Per diluted share
$4,392
$5,283
$6,129
$6,263
$5,635
$6,250
$6,682
$7,145
$4,392
$5,283
$6,129
$6,263
$5,635
$6,250
$6,682
$7,151
$0.23
$0.23
$0.28
$0.28
$0.32
$0.32
$0.33
$0.33
$0.29
$0.29
$0.33
$0.33
$0.35
$0.35
$0.37
$0.37
Page 6
Results of operations for the fiscal year ended November 30, 2013
Revenue
During the year ended November 30, 2013, the Company’s total revenue increased by 5% to reach $101.4
million. Revenues for the four segments of business are broken down as follows:
November 30, 2013
($ million)
November 30, 2012
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
74.1
11.9
6.2
10.0
(0.9)
101.4
70.9
12.2
6.1
8.1
(1.0)
96.2
5%
(3%)
2%
24%
N/A
5%
As is shown in the table above, revenue from franchise locations progressed by 5%. Several factors
contributed to the variation, as listed below:
Revenues, 2012 fiscal year
Increase in recurring revenue streams
Decrease in turnkey, sales of material to franchisees and rent revenues
Increase in initial franchise fees
Increase in renewal, transfer and management fees
Other non-material variations
Revenues, 2013 fiscal year
$million
70.9
2.4
(0.6)
0.6
0.7
0.1
74.1
During the 2013 fiscal year, the Company benefitted from increased royalties from the acquisitions of
Extreme Pita, PurBlendz, Mucho Burrito and Thaï Zone. This accounted for $2.0 million of the total
increase in recurring revenue streams shown above. The Company also benefitted from the sale of master
franchise rights for some of its brands, which are included with initial franchise fees. These increases were
partially offset by lower revenues from turnkeys, rent and sales of materials to franchisees.
Revenue from corporate owned locations decreased 3%, to $11.9 million during the year. The decrease is
mainly due to the net decrease in the number of stores classified as Special Purpose Entities.
The Company also generated food processing revenues of $10.0 million during the year, an increase of
24% compared to prior year. The increase is attributable to the introduction of new lines of business during
2013.
Page 7
Cost of sales and other operating expenses
During 2013, operating expenses increased by 4% to $62.1 million compared to $61.3 million for the same
period in 2012. Operating expenses for the four business segments were incurred as follows:
November 30, 2013
($ million)
November 30, 2012
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
36.2
11.0
5.7
10.1
(0.9)
62.1
36.3
12.4
5.6
8.0
(1.0)
61.3
(0%)
(11%)
1%
26%
N/A
4%
Expenses from franchise operations stayed in line with 2012 results. The expenses related to the operations of
the newly acquired brands and the higher provisions taken against our accounts receivable from franchisees
were offset by the decrease in costs of turnkeys, rent and sales of materials to franchisees.
During the year, expenses for corporate owned locations decreased by $1.4 million and expenses for food
processing increased by $2.1 million 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
$74.13
$36.22
$37.91
51%
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
Franchise
$70.91
$36.33
$34.58
49%
Fiscal year ended
November 30, 2013
Corporate Distribution Processing Consolidation
($0.86)
($0.86)
$0.00
N/A
$10.02
$10.07
($0.05)
N/A
$11.85
$11.02
$0.83
7%
$6.22
$5.67
$0.55
9%
Fiscal year ended
November 30, 2012
Corporate Distribution Processing Consolidation
($0.99)
($0.99)
$0.00
N/A
$12.17
$12.35
($0.18)
N/A
$8.05
$7.97
$0.08
1%
$6.08
$5.63
$0.45
7%
Total
$101.36
$62.12
$39.24
39%
Total
$96.22
$61.29
$34.93
36%
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.
Page 8
Total EBITDA increased by 12%, from $34.9 million to $39.2 million for the 2013 fiscal year.
During the year, franchising operations generated $37.9 million in EBITDA, a 10% increase over the
results of the same period last year. The increase is mainly attributable to the contribution of the latest
acquisitions which account for approximately one quarter of the total growth, the sale of master franchises,
the reduction of rental costs and to effective cost management measures carried from the end 2012 into
2013.
EBITDA as a percentage of revenues increased from 49% in 2012 to 51% in 2013 mostly because of the
relative weight of high margin revenue items in the sales mix as well as to the tight cost control measures
that are in place.
EBITDA from corporate owned locations increased slightly during twelve-month period, mainly because
some profitable stores were added during 2013 while some unprofitable ones have been closed during the
period.
EBITDA from the food processing plant declined during the year, mainly because of the ramp-up in new
product lines from new contracts generated at the end of 2012 and in the first part of 2013. A change in the
sales mix towards lower-margin items also affected the business’ profitability.
Net income
For the fiscal year ended November 30, 2013, the Company’s net income attributable to owners increased
by 17% over the same period last year. MTY reported a net income attributable to its owners of $25.7
million or $1.34 per share ($1.34 per diluted share) compared to $22.1 million or $1.15 per share ($1.15 per
diluted share) in 2012.
The increase in net income is mostly attributable to the increase in EBITDA described above. The 2012 net
income was also impacted by impairment charges on plant, property and equipment and adverse, non-
recurring, adjustment to income taxes. 2013 net income has not suffered from either of these items.
Earnings Before interest, taxes, depreciation and amortization (EBITDA)
(In millions)
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Foreign exchange (gains) losses
Interest income
Gain on preferred share redemption
Gain on loan forgiveness of a non-controlling
shareholder of a subsidiary
Impairment on property, plant and equipment
Gain on disposal of property, plant and equipment
Other income
EBITDA
Twelve months ended
November 30, 2013
$
34,610
1,108
4,223
291
(53)
(487)
-
Twelve months ended
November 30, 2012
$
30,504
1,128
3,867
335
27
(282)
(100)
-
(64)
(317)
(76)
39,235
(110)
68
(511)
-
34,926
Page 9
Amortization expense
The amortization of intangible assets increased in 2013 by $0.4 million as a result of additional
franchise rights acquired during 2013.
Other income and charges
The gain on disposal of assets, which generally results from the sale of the assets of corporate stores,
decreased to $0.3 million in 2013 compared to a gain of $0.5 million in 2012. The 2012 gain was mostly
due to the sale of one corporate restaurant that generated above-average returns and thus commanded a
higher sales price.
In 2012, the Company suffered from an impairment of property, plant and equipment of $0.1 million. In
2013, a portion of this impairment was reversed due to improved market conditions.
In 2012, the Company recorded a gain of $0.1 million for the redemption of the preferred shares issued by
one of its subsidiaries. The shares were mandatorily redeemable in yearly instalments, with redemption
values based on the performance of the subsidiary. No such redemptions were made in 2013 as the
subsidiary is no longer consolidated but rather held as an investment held-for-sale. Investment income of
$0.1 million was recorded in 2013 for this investment.
In 2012, the Company also recorded a gain of $0.1 million on the loan forgiveness of non-controlling
sharesholders of a subsidiary. No such gain was recorded in 2013.
Income taxes
The provision for income taxes as a percentage of income before taxes was 25.9% in 2013, a decrease of
1.8% compared to 2012. The 2012 expense was impacted adversely by some non-recurring items.
Results of operations for the fourth quarter ended November 30, 2013
Revenue
During the fourth quarter of our 2013 fiscal year, the Company’s total revenue increased by 7% to reach
$28.3 million. Revenues for the four segments of business are broken down as follows:
November 30, 2013
($ million)
November 30, 2012
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
20.1
3.4
2.0
3.0
(0.3)
28.3
20.0
2.5
1.9
2.3
(0.3)
26.3
0%
36%
6%
32%
N/A
7%
Page 10
As shown in the table above, the revenues from franchise locations increased by $0.1 million compared to
the same period in 2012. Several factors contributed to the variation, as listed below:
Revenues, fourth quarter of 2012
Increase in recurring revenue streams
Decrease in turnkey, sales of material to franchisees and rent revenues
Decrease in initial franchise fees
Increase in renewal, transfer and management fees
Other non-material variations
Revenues, fourth quarter of 2013
$million
20.0
2.0
(2.0)
(0.2)
0.3
0.0
20.1
During the fourth quarter of 2013, the Company benefitted from an increase in recurring revenue streams of
$2.0 million. This increase is mainly due to the current quarter acquisitions, which accounted for $2.0
million of the total increase. This was offset by a decrease in turnkey revenues, rent and sales of materials
to franchisees.
Revenue from corporately-owned locations increased 36%, to $3.4 million during the fourth quarter of our
2013 fiscal year. The increase is mainly due to the acquisition of five corporate stores from Extreme
Brandz in the fourth quarter.
In the fourth quarter, the Company generated $3.0 million from its food processing segment. The increase
of 32% compared to prior year is attributable to the production of new food products.
Cost of sales and other operating expenses
During the fourth quarter of 2013, operating expenses increased by 3% to $17.9 million, from $17.4 million
for the same period in 2012. Operating expenses for the four business segments were incurred as follows:
November 30, 2013
($ million)
November 30, 2012
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
10.5
2.8
1.8
3.0
(0.3)
17.9
11.0
2.7
1.7
2.3
(0.3)
17.4
(5%)
7%
2%
31%
N/A
3%
Operating expenses related to the franchising operations decreased by $0.5 million during the fourth quarter of
2013 mainly as a result of the reduction in the cost turnkeys, rent and sales to franchisees. This was partially
offset by increased operating expenses related to the two acquisitions realized during the fourth quarter and a
higher provision against accounts receivable from franchisees.
During the period, expenses for corporate owned locations and food processing operations increased by $0.1
million and $0.7 million respectively for the reasons described in the Revenues section above.
Page 11
Earnings before interest, taxes, depreciation and amortization (EBITDA)
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
Franchise
$20.14
$10.52
$9.62
48%
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
Franchise
$20.05
$11.02
$9.03
45%
Three months ended
November 30, 2013
Corporate Distribution Processing Consolidation
$(0.24)
$(0.24)
$0.00
N/A
$1.97
$1.78
$0.19
10%
$3.39
$2.84
$0.55
16%
$3.00
$3.00
$0.00
0%
Three months ended
November 30, 2012
Corporate Distribution Processing Consolidation
($0.33)
($0.33)
$0.00
N/A
$2.49
$2.65
($0.16)
N/A
$2.27
$2.28
($0.01)
N/A
$1.87
$1.74
$0.12
7%
Total
$28.26
$17.90
$10.36
37%
Total
$26.35
$17.37
$8.98
34%
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.
Total EBITDA increased by 15%, from $9.0 million for the fourth quarter of 2012 to $10.4 million for the
fourth quarter of 2013.
During the period, the franchising operations generated $9.6 million in EBITDA, a 7% increase over the
results of the same period last year. The increase is mainly due to the acquisitions realized during the
fourth quarter.
EBITDA from franchising operations as a percentage of revenue increased to 48% during the fourth quarter
of 2013 because of the higher weight of revenues generating higher margins such as royalties.
EBITDA from corporate stores increased during the three-month period mainly because of the addition of
some profitable stores acquired during 2013.
EBITDA from the food processing plant was $nil in the fourth quarter 2013, as the increase in revenues
from the production of new food products was offset by the related costs.
Net income
For the three month period ended November 30, 2013, MTY reported a net income attributable to its
owners of $7.1 million or $0.37 per share ($0.37 per diluted share) compared to $6.3 million or $0.33 per
share ($0.33 per diluted share) for the same period in 2012. The increase in net income is mostly
attributable to the acquisitions realized during the fourth quarter.
Page 12
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands of dollars)
Three months ended
November 30, 2013
Three months ended
November 30, 2012
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Foreign exchange (gains) losses
Interest income
Gain on preferred share redemption
Gain on loan forgiveness of a non-controlling
shareholder of a subsidiary
Impairment on property, plant and equipment
Gain on disposal of property, plant and equipment
Other income
EBITDA
9,263
284
1,301
66
1
(104)
-
-
(64)
(311)
(76)
10,360
8,187
256
971
85
(2)
(122)
(100)
(110)
(161)
(26)
-
8,978
Amortization expense
The amortization of intangible assets increased in 2013 by $0.3 million as a result of the
acquisitions of franchise rights realized during 2013.
Other income and charges
The gain on disposal of assets, which results from the sale of assets of corporate stores, increased by $0.3
million in 2013. The 2013 gain was mostly due to the sale of two corporate restaurants.
In the fourth quarter of 2013, the Company reversed a portion of an impairment taken in 2012 on the assets
of eight of its corporate stores (each one representing a cash-generating unit (CGU)). The reversal of $0.1
million is due to improved market conditions for some of the locations.
In the fourth quarter of 2012, the Company recorded a gain of $0.1 million for the redemption of the
preferred shares issued by one of its subsidiaries. The shares were mandatorily redeemable in yearly
instalments, with redemption values based on the performance of the subsidiary. No such redemptions
were made in 2013 as the subsidiary is no longer consolidated but rather held as an investment held-for-
sale.
In 2012, the Company also recorded a gain of $0.1 million on the loan forgiveness of non-controlling
shareholders of a subsidiary. No such gain was recorded in 2013.
Income taxes
The provision for income taxes as a percentage of income before taxes was relatively stable during the
fourth quarter of 2013 compared to the same period last year.
Page 13
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 $)
Long term debt(1)
2014
2015
2016
2017
2018
Balance of commitments
$2,784
$2,364
$2,066
$53
$53
$289
$7,609
Net lease
commitments
$3,205
$3,030
$2,515
$2,521
$1,802
$4,362
$17,435
Total contractual
obligations
$5,989
$5,394
$4,581
$2,574
$1,855
$4,651
$25,044
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted. For
total commitments, please refer to November 30, 2013 consolidated financial statements
Long-term debt includes non-interest bearing holdbacks on acquisitions as well as non-interest bearing
contract cancellation fees.
At year end, the Company had drawn $12 million from the credit facility in the form of bankers’
acceptance with maturity dates of December 2013. This credit facility is subject to covenants of funded
debt to EBITDA ratio of 2 to 1 and a minimum interest coverage ratio of 4.5:1. At year end, the Company
was in compliance with the facility’s covenants. 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.
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 2013 and March 2014. The total commitment
amounts to $0.5 million.
Liquidity and capital resources
As of November 30, 2013, the amount held in cash and cash equivalents net of the line of credit totalled
$(5.9) million, a decrease of $38.9 million over the cash and cash equivalents held at the end of our 2012
fiscal period. The decrease is mainly attributable to the fourth quarter acquisition, for which the Company
disbursed $55.5 million and to repayments of long-term debt of $3.7 million made during the year.
Cash flows generated by operating activities were $26.5 million during the twelve months period of 2013.
Excluding the variation in non-cash working capital items, income taxes and interest paid, our operations
generated $39.7 million in cash flows, compared to $35.8 million in 2012, which represents an increase of
11% compared to the same period last year. The main driver for this increase is the 12% increase in
EBITDA discussed above.
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 franchise networks.
Page 14
As at November 30, 2013, The Company has an additional $18 million available out of the total available
credit facility of $30.0 million. The additional facility, when used, bears the same interest as the current
$12 million line of credit outstanding.
Excess 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
Accounts receivable at the end of the fourth quarter were at $13.5 million, compared to $13.6 million at the
end of the 2012 fiscal period. Gross accounts receivable increased by $1.0 million; this increase was offset
by a higher provision for doubtful accounts, which increased by $1.1 million during 2013.
Investment in subsidiary held-for-sale consists of the Company’s 51% investment in 7687567 Canada Inc.
(Aliment Flavio). On November 5, 2013, the Company received a letter of intent subject to conditions to
be validated subsequent to year-end. The value of the investment in subsidiary held-for-sale reported in the
consolidated statement of financial position is equal to 7687567 Canada Inc.’s net carrying value of assets
less liabilities before assets were classified as held for sale. No gains or losses were recognized in the
Company’s profit or loss. This investment represents a segment of the Company.
Property, plant and equipment decreased in 2013 due mainly to the reclassification of the subsidiary now
held-for-sale mentioned above. This was partially offset by new acquisitions made in the fourth quarter of
2013.
Net intangible assets increased by $39.8 million in 2013. Acquisitions realized by the Company in the
fourth quarter account for $43.6 million of this increase. This was offset by the 2013 amortization.
As mentioned above, the Company has drawn $12 million from its available line of credit and financed the
amount with bankers’ acceptances. The maturity dates of those instruments are in December 2013.
Accounts payable and accrued liabilities decreased to $11.9 million from $13.4 million between November
30, 2012 and November 30, 2013. This variance is mainly related to a net decrease in the advertising fund
reserves during 2013.
Provisions, which are composed of litigation and dispute, closed store and gift card provisions, were at $1.8
million at November 30, 2013 compared to $2.3 million in 2012. The provision was impacted by additions
of $0.8 million offset by payments of $1.1 million and reversals of $0.5 million.
Deferred revenues consist of supplier contributions, which are earned on a consumption basis, and initial
franchise fees, which are recognized once substantially all of the initial services have been performed by
the Company. The balance as at November 30, 2013 was $3.7 million, an increase of $1.5 million
compared to the balance at the end of 2012. The variation is due to increases in both franchise fee deposits
and supplier contributions; franchise fee deposits are dependent on the level of activity and deliveries
during a certain period; supplier contributions were impacted by fourth quarter acquisitions. These
amounts will be recognized into revenues as they are earned.
The long-term debt is composed of non-interest bearing holdbacks on acquisitions and of non-interest
bearing contract cancellation fees. During the year, an additional $6.5 million in holdbacks was added in
the form holdbacks stemming from the acquisitions realized during the period. Repayments of $3.7 million
were also made on holdbacks.
Page 15
Further details on the above statement of financial position items can be found in the notes to the
November 30, 2013 consolidated financial statements.
Capital stock
No shares were issued during the fiscal year ended November 30, 2013. As at February 12, 2014 there were
19,120,567 common shares of MTY outstanding.
Location information
MTY’s locations can be found in: i) food courts and shopping malls; ii) street front; and iii) non-traditional
format within petroleum 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.
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
November 2013
Number of
locations
fiscal year
ended
November 2012
2,179
20
338
45
56
54
(17)
(31)
(54)
2,590
2,565
25
2,590
2,233
30
14
45
33
51
(49)
(45)
(113)
2,199
2,179
20
2,199
During the fiscal year ended November 30, 2013, the Company’s network experienced a net addition of 53
outlets, compared to a net decrease of 78 outlets for the same period a year ago, excluding those coming
from the acquisitions completed during the two respective years. The variance is mostly due to the
termination of two contracts in 2012 that resulted in the loss of 49 low-volume non-traditional stores.
At the end of the period, the Company had 25 corporate stores, a net increase of five compared to the end
of our 2012 fiscal period. During the year, five corporate-owned locations were sold, four were closed and
fourteen were added, including five stemming from the acquisition of Extreme Brandz and two from the
acquisition of SushiGo.
As at November 30, 2013, there were two test locations in operation, both which were excluded from the
numbers presented above.
Page 16
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,
2013
35%
42%
23%
2012
38%
36%
26%
2013
45%
45%
10%
2012
50%
41%
9%
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,
Ontario
Quebec
Western Canada
Maritimes
International
System wide sales
2013
44%
26%
22%
3%
5%
2012
46%
28%
20%
2%
4%
2013
34%
35%
25%
1%
5%
2012
36%
34%
24%
1%
4%
System wide sales for the year ended November 30, 2013 grew 5%, to $725.8 million, compared to $688.7
million in the same period last year.
Approximately 80% of the growth in system wide sales for the year is attributable to the recent acquisitions.
The remainder of the growth is primarily due to new restaurants opened over the course of the year.
System wide sales include sales for corporate and franchise locations and exclude sales realized by the
distribution center or by the food processing plant.
Same-store sales
Sales results of the fourth quarter were again affected by a difficult economic environment resulting in a
decline in same-store-sales of 1.2%. This brought the year-to-date decline in same-store-sales to 2.0%.
The three and twelve month periods were impacted by sluggish consumer spending and intense price and
offering competition in the foodservice industry. Adverse weather also played its role, with most major
centers in Canada experiencing cooler weather than in 2012, with more precipitation in many cases.
As such, street front locations, which are more impacted by weather patterns and by the intensification of
competition, suffered during the year, while mall and office towers fared better. Some of our concepts are
under intense and continued price competition from major international players; those concepts have
typically experienced a more challenging 2013 and have as a result pulled the network’ average same-store-
sales growth down.
Page 17
The following table shows quarterly information on same-stores sales growth for the last 13
quarters:
Stock options
During the period, no options were granted or exercised. As at November 30, 2013 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.
Page 18
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. 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 year was as follows:
(in thousands)
Short-term benefits
Board member fees
Total remuneration of key management personnel
12 months ended
November 30, 2013
12 months ended
November 30, 2012
$
$
812
38
850
659
40
699
Page 19
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 in June 2012.
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.
The Company also pays employment benefits to individuals related to members of the key management
personnel described above. Their total remuneration for the period was as follows
(in thousands)
Short-term benefits
Total remuneration of employees related to key
management personnel
12 months ended
12 months ended
November 30, 2013
November 30, 2012
$
$
402
402
472
472
A corporation owned by individuals related to key management personnel has non-controlling participation
in two of the Company’s subsidiaries. During the year ended November 30, 2013, dividends of $27 (2012-
nil) were paid by those subsidiaries to the above-mentioned company.
Critical accounting estimates
In the application of the Company’s accounting policies, which are described in Note 3 of the consolidated
financial statements, management is required to make judgements in applying accounting policies and to
make 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.
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.
Page 20
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.
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.
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 cumulative 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.
Page 21
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 periods beyond
this cannot be estimated with reasonable accuracy.
A 1% change to the discount rate used in the calculation of the impairment would not result in any
additional significant impairment of the trademarks and franchise rights or on the property, plant and
equipment of our corporate stores.
During the year, the Company reversed impairment on the property, plant and equipment related to one of
its CGUs following an increase in its performance. The total impairment reversal of $64 represents a part of
the impairment taken on the asset in prior years 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, 2013 and November 30,
2012.
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
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, 2013 and 2012, 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.
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.
Page 22
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 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.
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.
Page 23
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 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.
A date has yet to be determined for when this new standard will apply.
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.
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”;
Page 24
• Simplifying the presentation of changes in assets and liabilities arising from defined benefit plans,
including requiring re-measurements to be presented in other 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.
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 financial liabilities project. IFRS 7
was amended to harmonize the disclosure 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.
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.
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.
Page 25
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
At November 30, 2013
At November 30, 2012
Carrying
amount
$
Fair value
$
Carrying
amount
$
Fair value
$
Cash and cash equivalents
Accounts receivable
Loans receivable
6,136
13,452
978
6,136
13,452
978
33,036
13,631
919
33,036
13,631
919
Financial liabilities
Line of credit
12,000
12,000
-
-
Accounts payable and
accrued liabilities
Long-term debt
Determination of fair value
11,903
7,169
11,903
7,169
13,426
7,476
13,426
7,476
The following methods and assumptions were used to estimate the fair values of each class of financial
instruments:
Cash and cash equivalents, accounts receivable, 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.
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, 2013.
Page 26
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 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 $133 ($55 as at November 30, 2012).
Foreign exchange risk
Foreign exchange risk is the Company’s exposure to decreases or increases in financial instrument values
caused by fluctuations in exchange rates. The Company is mainly exposed to foreign exchange risk on its
purchase of coffee. The Company has entered into a contract to minimize its exposure to fluctuations in
foreign currencies related to the purchase of coffee. As of November 30, 2013, the total value of such
contracts was approximately $544.
In addition, the Company concludes sales denominated in foreign currencies. The Company’s foreign
operations use the U.S. dollar as functional currency. The Company’s exposure to foreign exchange risk
stems mainly from cash and cash equivalents, other working capital items and the financial obligations of
its foreign operations.
Other than the above-mentioned foreign transactions, the Company has minimal exposure to the US$ 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, 2013, the Company carried US$ cash of CAD$887, net accounts receivable of
CAD$437 and net accounts payable of CAD$342 (CAD$425, CAD$429 and CAD$nil respectively as at
November 30, 2012). All other factors being equal, a reasonable possible 1% rise in foreign currency
exchange rates per Canadian dollar would result in a change on profit or loss and net comprehensive
income of $10 Canadian dollars.
Interest rate risk
The Company is exposed to interest rate risk with its revolving credit facility and treasury risk facility.
Both facilities bear interest at a variable rate and as such the interest burden could potentially become more
important. $12,000 of the credit facility was used as at November 30, 2013. A 100 basis points increase in
the bank’s prime rate would result in additional interest of $120 per annum on the outstanding credit
facility. The Company limits this risk by using short-term banker’s acceptance from the credit facility.
Page 27
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, 2013:
In thousands of $
Line of credit
Accounts payable
and accrued
liabilities
Long-term debt
Interest on
long-term debt
Outlook
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
0 to 12
months
$
12 to 24
months
$
12,000
12,000
12,000
-
-
11,903
7,169
-
31,072
11,903
7,609
-
31,512
11,903
378
136
24,417
-
2,406
121
2,527
-
2,364
154
2,518
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.
In the very short term, management will focus of restoring positive same-store-sales by generating more
innovation, focusing on the quality of customer service in each of its outlets and maximizing the value
offered to its customers.
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. Given this difficult competitive context in which more restaurants compete for a finite
amount of consumer dollars, each concept needs to preserve and improve the relevance of its offer to
consumers.
Management will maintain its focus on maximizing the value of 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.
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.
Page 28
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 IFRS.
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, 2013, 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, 2013, 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 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 the recently acquired operations of Extreme Brandz (acquired September
24, 2013), ThaïZone (acquired September 30, 2013) and SushiGo (acquired June 1, 2013). Excluding the
goodwill created on the acquisitions, these operations respectively represent 19%, 8% and 0% of the
Company’s assets (9%, 2% and 2% of current assets, 20%, 9% and 0% of non-current assets); they also
represent 5%, 1% and 0% of current liabilities (10%, 0% and 2% of long-term liabilities), 2%, 0% and 0%
of the Company’s revenues and 2%, 0% and 0% of the Company’s net earnings.
Page 29
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, 2013, 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, 4% 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 30
Consolidated financial statements of
MTY FOOD GROUP INC.
For the years ended November 30, 2013 and 2012
Deloitte LLP
1 Place Ville Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel: 514-393-7115
Fax: 514-390-4120
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, 2013 and
November 30, 2012, and the consolidated income statements, consolidated statements of comprehensive
income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash
flows for the years then ended, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with 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, 2013 and November 30, 2012, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
February 12, 2014
Montreal, Quebec
____________________
1 CPA auditor, CA, public accountancy permit No. A114814
MTY FOOD GROUP INC.
Consolidated income statements
For the years ended November 30, 2013 and 2012
(in thousands of Canadian dollars except per share amounts)
Revenue (notes 24 and 31)
Expenses
Operating expenses (notes 25 and 31)
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Other income (charges)
Foreign exchange gain (loss)
Interest income
Gain on preferred share redemption (note 18)
Gain on loan forgiveness of a non-controlling shareholder of a subsidiary (note 18)
Reversal of impairment (impairment charge ) on property,
plant and equipment (note 4)
Gain on disposal of property, plant and equipment
Other income
Income before taxes
Income taxes (note 30)
Current
Deferred
Net income
Net income (loss) attributable to:
Owners
Non controlling interest
Earnings per share (note 21)
Basic
Diluted
See accompanying notes to the consolidated financial statements
Page 3 of 56
2013
$
2012
$
101,360
96,220
62,125
1,108
4,223
291
67,747
53
487
-
-
64
317
76
997
61,294
1,128
3,867
335
66,624
(27)
282
100
110
(68)
511
-
908
34,610
30,504
7,713
1,236
8,949
8,511
(61)
8,450
25,661
22,054
25,712
(51)
25,661
22,067
(13)
22,054
1.34
1.34
1.15
1.15
MTY FOOD GROUP INC.
Consolidated statements of comprehensive income
For the years ended November 30, 2013 and 2012
(in thousands of Canadian dollars except per share amounts)
Net earnings
Other comprehensive gain, net of income taxes
Foreign exchange impact of The Extreme Pita Franchising USA Inc. and Mucho
Burrito Franchising USA Inc.
Other comprehensive gain
Total comprehensive income
Total comprehensive income (loss) attributable to:
Owners
Non controlling interest
See accompanying notes to the consolidated financial statements
2013
$
2012
$
25,661
22,054
6
6
-
-
25,667
22,054
25,718
(51)
25,667
22,067
(13)
22,054
Page 4 of 56
MTY FOOD GROUP INC.
Consolidated statements of financial position
as at November 30, 2013 and 2012
(in thousands of Canadian dollars except per share amounts)
Assets
Current assets
Cash and cash equivalents (note 7)
Accounts receivable (note 8)
Inventories (note 9)
Loans receivable (note 10)
Investment in subsidiary held-for-sale (note 11)
Prepaid expenses and deposits
Loans receivable (note 10)
Property, plant and equipment (note 12)
Intangible assets (note 13)
Deferred income taxes (note 30)
Goodwill (note 14)
Liabilities
Current liabilities
Line of credit (note 15)
Accounts payable and accrued liabilities
Provisions (note 16)
Income taxes payable
Deferred revenue and deposits (note 17)
Current portion of long-term debt (note 18)
Long-term debt (note 18)
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 19)
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Equity attributable to non-controlling interest
See accompanying notes to the consolidated financial statements
Approved by the Board on February 12, 2014
……..“Stanley Ma”……………Director …… “Claude St-Pierre”….. Director
Page 5 of 56
November 30, November 30,
2013
$
2012
$
6,136
13,452
1,029
400
1,377
430
22,824
578
6,213
96,978
-
46,451
173,044
12,000
11,903
1,791
414
3,655
2,703
32,466
4,466
5,303
42,235
19,792
481
6
105,993
126,272
4,537
130,809
173,044
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
MTY FOOD GROUP INC.
Consolidated statements of changes in shareholders’ equity
For the years ended November 30, 2013 and 2012
(in thousands of Canadian dollars except per share amounts)
Equity attributable to owners
Capital
Stock
$
Contributed
surplus
$
Accumulated
Other
Comprehensive
income
$
Retained
earnings
$
Total
$
Equity
attributable
to non-
controlling
interest
$
Total
$
Balance as at November 30, 2011
19,792
481
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
Dividends
-
-
-
-
-
-
-
-
Balance as at November 30, 2012
19,792
481
Net income and comprehensive
income for the year ended
November 30, 2013
Other comprehensive income
Reclassification of investment in
subsidiary now held-for-sale
Acquisition of 9286-5591 Quebec
Inc.
Investment in common stock of a
subsidiary by non-controlling
interest
Dividends
-
-
-
-
-
-
-
-
-
-
-
-
Balance as at November 30, 2013
19,792
481
The following dividends were declared and paid by the Company:
-
-
-
-
-
-
-
6
-
-
-
-
6
67,800
88,073
37
88,110
22,067
22,067
(13)
22,054
-
-
147
147
(26)
(26)
34
8
(4,206)
(4,206)
(50)
(4,256)
85,635
105,908
155
106,063
25,712
25,712
(51)
25,661
-
-
-
-
6
-
-
-
-
69
6
69
4,425
4,425
49
49
(5,354)
(5,354)
(110)
(5,464)
105,993
126,272
4,537
130,809
November 30,
2013
$
November 30,
2012
$
$0.2800 per common share (2012 - $0.220 per common share)
5,354
4,206
See accompanying notes to the consolidated financial statements
Page 6 of 56
MTY FOOD GROUP INC.
Consolidated statements of cash flows
For the years ended November 30, 2013 and 2012
(in thousands of Canadian dollars except per share amounts)
Operating activities
Net 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
Unrealized foreign exchange gains
Unrealized foreign exchange gains on other comprehensive income
Other income
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
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
Reclassification of investment in subsidiary now held as held-for-sale
Cash flows (used in) provided by investing activities
Financing activities
Draw on line of credit
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 acquired (note 6)
Cash and cash equivalents, end of period
Additional cash flow information is presented in note 32.
Page 7 of 56
November 30,
2013
$
November 30,
2012
$
25,661
291
1,108
4,223
(317)
(64)
16
6
(76)
-
-
8,949
(113)
39,684
624
(10,817)
(113)
(2,857)
26,521
(56,469)
-
(838)
(346)
1,041
(117)
(56,729)
12,000
-
(3,677)
49
(110)
(5,354)
2,908
(27,300)
33,036
400
6,136
22,054
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
MTY FOOD GROUP INC.
Table of Contents
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
DESCRIPTION OF THE BUSINESS .................................................................................................................. 9
BASIS OF PREPARATION .............................................................................................................................. 9
SIGNIFICANT ACCOUNTING POLICIES .......................................................................................................... 9
CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY .......................... 24
FUTURE ACCOUNTING CHANGES .............................................................................................................. 28
BUSINESS ACQUISITIONS .......................................................................................................................... 29
CASH AND CASH EQUIVALENTS ................................................................................................................. 34
ACCOUNTS RECEIVABLE ............................................................................................................................ 35
INVENTORIES ............................................................................................................................................ 36
LOANS RECEIVABLE ................................................................................................................................... 36
INVESTMENT IN SUBSIDIARY HELD‐FOR‐SALE ............................................................................................ 37
PROPERTY, PLANT AND EQUIPMENT ......................................................................................................... 37
INTANGIBLE ASSETS .................................................................................................................................. 39
GOODWILL ............................................................................................................................................... 41
CREDIT FACILITIES ..................................................................................................................................... 41
PROVISIONS ............................................................................................................................................. 42
DEFERRED REVENUE AND DEPOSITS ......................................................................................................... 43
LONG‐TERM DEBT ..................................................................................................................................... 43
CAPITAL STOCK ......................................................................................................................................... 44
STOCK OPTIONS ........................................................................................................................................ 44
EARNINGS PER SHARE ............................................................................................................................... 44
FINANCIAL INSTRUMENTS ........................................................................................................................ 45
CAPITAL DISCLOSURES .............................................................................................................................. 47
REVENUES ................................................................................................................................................ 48
25. OPERATING EXPENSES .............................................................................................................................. 49
26. OPERATING LEASE ARRANGEMENTS ......................................................................................................... 49
27.
28.
29.
30.
31.
32.
33.
COMMITMENTS ........................................................................................................................................ 50
GUARANTEE ............................................................................................................................................. 50
CONTINGENT LIABILITIES .......................................................................................................................... 50
INCOME TAXES ......................................................................................................................................... 50
SEGMENTED INFORMATION ..................................................................................................................... 52
STATEMENT OF CASH FLOWS .................................................................................................................... 55
RELATED PARTY TRANSACTIONS ............................................................................................................... 55
Page 8 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(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 and for provisions that have been measured at
management’s best estimate. 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”), issued by the International Accounting Standards Board
(“IASB”).
These consolidated financial statements were authorized for issue by the Board of Directors on February
12, 2014.
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in the
consolidated financial statements.
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.
The Extreme Pita Franchising USA, Inc.
Mucho Burrito Franchising USA, Inc.
9286-5591 Quebec Inc.
154338 Canada Inc.
Percentage of equity interest
%
100
100
100
80
50
Page 9 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Income and expenses of subsidiaries acquired during the year are included in the consolidated income
statement from the effective date of acquisition. The subsidiaries are consolidated from the acquisition date
until the date on which the Company ceases to control them. 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 income statement, 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.
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.
Page 10 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Business combinations (continued)
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.
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.
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.
Page 11 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
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.
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 24).
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 24).
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 24).
Page 12 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Revenue recognition (continued)
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.
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.
Functional and presentation currency
These consolidated financial statements are presented using the Company’s functional currency, which is
the Canadian dollar. Each entity of the Company determines its own functional currency, and the financial
statement items of each entity are measured using that functional currency. Functional currency is the
currency of the primary economic environment in which the entity operates.
Page 13 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Foreign currencies
At the end of each reporting period, monetary assets and liabilities that are denominated in a currency other
than the Company’s functional currency are translated using the exchange rate prevailing at that date. Non-
monetary items are translated using historical exchange rates. Revenues and expenses are translated at the
exchange rate in effect on the transaction date, except for depreciation and amortization, which are
translated using historical exchange rates. Exchange gains and losses are recognized in profit or loss in the
period in which they arise in other (gains) losses. The assets and liabilities of a foreign operation with a
functional currency different from that of the Company are translated using the exchange rate in effect on
the reporting date. Revenues and expenses are translated using the exchange rate in effect on the
transaction date. Exchange differences arising from the translation of a foreign operation are recognized in
other comprehensive income. Upon complete or partial disposal of the investment in the foreign operation,
the foreign currency translation reserve or a portion of it will be recognized in profit or loss in other (gains)
losses.
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.
Page 14 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Taxation (continued)
Deferred tax (continued)
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.
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.
Investment in subsidiary held-for-sale
An investment in a subsidiary is classified as held-for-sale if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use. This condition is regarded as met
only when the sale is highly probable and the investment is available for immediate sale in its present
condition. Management must be committed to the sale and expect the sale to be completed within a year
from the date the investment is classified as held-for-sale.
Investments in subsidiaries classified as held-for-sale are measured at the lower of its carrying amount and
its fair value less costs to sell. Impairment losses on an investment initially classified as held-for-sale and
gains or losses on subsequent remeasurement are recognized in profit or loss. Once classified as held-for-
sale, property, plant and equipment and intangible assets are no longer depreciated and amortized.
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.
Page 15 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Property, plant and equipment (continued)
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
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.
Page 16 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Intangible assets (continued)
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.
Step-in rights
Step-in rights are the rights of the Company to take over the premises and associated lease of a franchised
location in the event the franchise is in default of payments. These are acquired through business
combinations and are recognized at their fair value at the time of the acquisition. They are amortized over
the term of the franchise agreement.
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.
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.
Page 17 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Impairment of tangible and intangible assets other than goodwill (continued)
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.
Impairment of goodwill
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.
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). 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 income statement. An impairment loss recognized for goodwill is not reversed in subsequent
periods. 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.
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.
Page 18 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
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.
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.
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.
Page 19 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Provisions (continued)
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, if any.
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.
Page 20 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Financial instruments (continued)
Financial assets (continued)
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.
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.
Page 21 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
Financial assets (continued)
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.
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.
Page 22 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
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’.
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 22.
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, 2013 and
November 30, 2012.
Page 23 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
3. Significant accounting policies (continued)
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 Income Statement 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 $684 (November 30, 2012 - $2,726). These amounts are included
in accounts payable and accrued liabilities.
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 in applying accounting policies and to make 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.
Page 24 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(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)
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.
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.
Page 25 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(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
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 cumulative 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 periods beyond
this cannot be estimated with reasonable accuracy.
A 1% change to the discount rate used in the calculation of the impairment would not result in any
additional significant impairment of the trademarks and franchise rights or on the property, plant and
equipment of our corporate stores.
During the year, the Company reversed impairment on the property, plant and equipment related to one of
its CGUs following an increase in its performance. The total impairment reversal of $64 represents a part of
the impairment taken on the asset in prior years 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, 2013 and November 30,
2012.
Page 26 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(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 goodwill (continued)
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, 2013 and 2012, 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.
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.
Page 27 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(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)
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 litigations and disputes as a part of its 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.
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, 2013, 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
Company:
Effective for annual periods starting on or after:
Amendment to IFRS 7 Financial Instruments:
Disclosures
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
January 1, 2013
To be determined
January 1, 2013
Early adoption permitted
Early adoption permitted
Early adoption permitted
Page 28 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
5. Future accounting changes (continued)
IFRS 12 Disclosure of Interests in Other
Entities
IFRS 13 Fair Value Measurement
Amendments to IAS 19 Employee Benefits
Amendments to IAS 32 Financial
January 1, 2013
January 1, 2013
January 1, 2013
Early adoption permitted
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.
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) 2013 acquisition
On September 30, 2013, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises Inc.,
acquired 80% of the shares of 9286-5591 Québec Inc. and subsequently used this entity to acquire all of the
assets of 9199-0465 Québec Inc. and Alimentation ThaïZone Inc.( www.thaizone.ca). The balance of the
ownership remained with the seven founders of ThaïZone. The total consideration for MTY's 80% share in
the business was $17.7M and was paid from MTY's cash on hand and available credit facilities (note
15). The acquisition was effective on September 30, 2013. The purpose of the acquisition was to diversify
the Company’s range of offering as well as to complement existing MTY brands.
Page 29 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
I) 2013 acquisition (continued)
Consideration paid
Purchase price
Discount on non-interest bearing holdback
Net obligations assumed
Holdbacks
Net cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash and cash equivalents
Inventories
Property, plant and equipment
Franchise rights
Step-in rights
Trademark
Goodwill (1)
Current Liabilities
Accounts payable
Deferred revenues
Deferred income taxes
Non-controlling interest (2)
Net purchase price
(1) The goodwill is not deductible for tax purposes.
(2) Represents 20% non-controlling ownership, measured at fair value.
Page 30 of 56
$
17,700
(116)
17,584
(359)
(1,664)
15,561
$
100
3
103
4
5,316
1,199
7,417
8,558
22,597
35
65
100
488
588
4,425
17,584
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
I) 2013 acquisition (continued)
Goodwill reflects how the ThaïZone acquisition will impact the Company’s ability to generate future
profits in excess of existing profits. The consideration paid mostly relates to combined synergies, related
mainly to revenue growth. These benefits are not recognized separately from goodwill as they do not meet
the recognition criteria for identifiable intangible assets.
Included in the above-mentioned results are $nil in expensed acquisition-related costs.
II) 2013 acquisition
the assets of Extreme Pita, PurBlendz and Mucho Burrito
On September 24, 2013, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises Inc.,
acquired
("Extreme Brandz")
www.extremebrandz.com for a consideration of $45 million, to be paid from MTY's cash on hand. The
transaction is effective September 24, 2013. 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
Post-closing adjustments
Net purchase price
Holdbacks
Post-closing adjustments payable at year-end
Net cash outflow
$
45,000
(364)
(537)
319
44,418
(4,136)
(319)
39,963
Page 31 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
II) 2013 acquisition (continued)
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Income taxes receivable
Prepaid expense and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1)
Current Liabilities
Accounts payable
Deferred revenues
Long-term debt
Deferred income taxes
Net purchase price
(1) Of the total goodwill, only $12,130 is deductible for tax purposes.
$
300
68
28
33
165
594
500
11,499
17,792
17,696
48,081
294
1,525
1,819
554
1,290
3,663
44,418
Goodwill reflects how the Extreme Brandz acquisition will impact the Company’s ability to generate future
profits in excess of existing profits. The consideration paid mostly relates to combined synergies, related
mainly to revenue growth. These benefits are not recognized separately from goodwill as they do not meet
the recognition criteria for identifiable intangible assets.
Total expenses incurred related to acquisition costs amounted to $245 and are included in the Company’s
consolidated income statement.
The purchase price allocation is still preliminary as post-closing adjustments have not been finalized.
Page 32 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
III) 2013 acquisition
On May 31, 2013, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises Inc., acquired
most of the assets of Gestion SushiGo – Sesame Inc. (www.sushigoexpress.ca), 9161- 9379 Quebec Inc.
and 9201-0560 Quebec Inc. for a total consideration of $1.05 million. The acquisition was effective on
June 1, 2013. 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
Holdbacks
Net cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Assets
Plant, property and equipment
Franchise rights
Goodwill (1)
Net purchase price
(1) The goodwill is not deductible for tax purposes.
$
1,050
(105)
945
$
500
419
131
1,050
Goodwill reflects how the SushiGo acquisition will impact the Company’s ability to generate future profits
in excess of existing profits. The consideration paid mostly relates to combined synergies, related mainly
to revenue growth. These benefits are not recognized separately from goodwill as they do not meet the
recognition criteria for identifiable intangible assets.
Included in the above-mentioned results are $nil in expensed acquisition-related costs.
IV) 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 on the same day. The purpose of the acquisition was to diversify the Company’s range of offering
as well as to complement existing MTY brands.
Page 33 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
6. Business acquisitions (continued)
IV) 2012 acquisition (continued)
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
$
915
(2)
913
165
748
$
629
300
929
2
2
14
16
913
Included in the above-mentioned results are $nil in expensed acquisition-related costs.
7. Cash and cash equivalents
Cash
Cash equivalents
Total cash and cash equivalents
November 30, November 30,
2013
$
2012
$
6,136
-
6,136
13,345
19,691
33,036
Page 34 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
8. Accounts receivable
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:
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 period
November 30, November 30,
2013
$
2012
$
15,739
2,287
13,452
8,245
1,917
633
2,657
13,452
1,168
1,449
(330)
2,287
14,799
1,168
13,631
8,045
2,579
676
2,331
13,631
856
692
(380)
1,168
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 35 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
9.
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
November 30, November 30,
2013
$
2012
$
998
31
-
1,029
1,363
34
212
1,609
Inventories are presented net of a $7 allowance for obsolescence ($11 as at November 30, 2012). All of the
inventories are expected to be sold within the next twelve months.
Inventories expensed during the year ended November 30, 2013 was $21,987 (2012 - $22,952).
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 $32 in aggregate, including
principal and interest, ending in October 2018
Current portion
The capital repayments in subsequent years will be:
November 30, November 30,
2013
$
2012
$
16
31
962
978
(400)
578
888
919
(358)
561
2014
2015
2016
2017
2018
Thereafter
$
398
194
169
145
42
30
978
Page 36 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
11. Investment in subsidiary held-for-sale
In September, 2013, the Company put their 51% investment in 7687567 Canada Inc. (Aliment Flavio), a
food processing plant in Saint-Romuald, Quebec, up for sale.
On November 5, 2013, the Company received a letter of intent subject to conditions to be validated in
2014. The value of the investment in subsidiary held-for-sale reported in the consolidated statement of
financial position is equal to 7687567 Canada Inc.’s net carrying value of assets less liabilities before assets
were classified as held for sale. No gains or losses were recognized in the Company’s profit or loss. This
investment represents a segment of the Company.
As at November 30, 2013, total assets and total liabilities for the investment were $6,192 and $5,982
respectively.
12. Property, plant and equipment
Cost
Balance at
Leasehold
improve-
Land Buildings
ments Equipment
$
$
$
$
Computer
hardware
$
Rolling
stock
$
Total
$
November 30, 2011
1,975
3,778
2,777
3,708
506
40 12,784
Additions
Disposals
Impairment
Balance at
-
-
-
57
392
540
81
-
-
(642)
(111)
(615)
(47)
(24)
-
-
-
-
1,070
(1,304)
(135)
November 30, 2012
1,975
3,835
2,416
3,609
540
40 12,415
Additions
Disposals
Reclass of investment in a
subsidiary now held-for-
sale
Impairment reversal
Additions through business
combinations
Balance at
November 30, 2013
-
37
300
432
69
-
838
(150)
(287)
(266)
(186)
-
(10)
(899)
(690)
(1,309)
-
-
-
-
(1,843)
(13)
-
24
40
-
-
(3,855)
64
1,004
-
2
705
297
1,135
2,276
3,179
2,349
598
30
9,567
Page 37 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
12. Property, plant and equipment (continued)
Accumulated depreciation Land Buildings
ments Equipment
$
$
$
$
Leasehold
improve-
Computer
hardware
$
Rolling
stock
$
Total
$
Balance at
November 30, 2011
Eliminated on disposal of
assets
Depreciation expense
Balance at
November 30, 2012
Eliminated on disposal of
assets
Reclass of investment in a
subsidiary now held-for-
sale
Depreciation expense
Balance at
November 30, 2013
-
-
-
-
-
-
-
-
167
1,462
732
216
22
2,599
-
(443)
(224)
(27)
-
(694)
178
339
345
1,358
485
993
115
304
11
1,128
33
3,033
(41)
(73)
(53)
-
(9)
(176)
(203)
-
(404)
135
428
236
1,713
443
979
(4)
98
-
4
(611)
1,108
398
28
3,354
Carrying amounts
Land Buildings
ments Equipment
$
$
$
$
Leasehold
improve-
Computer
hardware
$
Rolling
stock
$
Total
$
November 30, 2012
November 30, 2013
1,975
1,135
3,490
2,040
1,058
1,466
2,616
1,370
236
200
7
2
9,382
6,213
Land, buildings and equipment with a carrying amount of $Nil as at November 30, 2013 ($3,294 as at
November 30, 2012) have been pledged as security to secure borrowings of the Company’s food processing
division.
Page 38 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
13. Intangible assets
Cost
Franchise and
master
franchise
rights(1)
$
Trademarks
$
Step-in
rights
$
Balance at November 30, 2011
40,045
32,666
Additions (2)
Reversal of impairment
Acquisition through business
combinations
500
-
-
67
629
300
Balance at November 30, 2012
41,174
33,033
Additions (2)
Disposals
15
-
-
-
-
-
-
-
-
-
-
Acquisition through business
combinations
17,234
25,209
1,199
Leases
$
Other
$
Total
$
1,000
272
73,983
-
-
-
18
518
-
-
67
929
1,000
290
75,497
-
-
-
331
346
(272)
(272)
-
43,642
Balance at November 30, 2013
58,423
58,242
1,199
1,000
349
119,213
Accumulated amortization
Franchise and
master
franchise
rights(1)
$
Trademarks
$
Step-in
rights
$
Leases
$
Other
$
Total
$
Balance at November 30, 2011
13,555
Amortization
3,723
Balance at November 30, 2012
17,278
Amortization
Disposals
4,064
-
Balance at November 30, 2013
21,342
-
-
-
-
-
-
-
-
-
20
-
20
628
105
733
107
234
14,417
39
3,867
273
18,284
32
4,223
-
(272)
(272)
840
33
22,235
Page 39 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
13. Intangible assets (continued)
Carrying amounts
November 30, 2012
November 30, 2013
Franchise
and master
franchise
rights(1)
$
23,896
37,081
Trademarks
$
33,033
58,242
Step-in
rights
$
-
1,179
Leases Other Total
$
17
316
$
267
160
$
57,213
96,978
(1) Franchise and master franchise rights include an amount of $1,500 ($1,500 in November 2012) 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 2013 are comprised of purchased franchise rights of $15 and purchased software of $331
($500 and $18 in 2012 respectively)
Indefinite life intangibles have been allocated for impairment testing purposes to the following cash
generating units:
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
Extreme Pita
Mucho Burrito
ThaïZone
November 30, November 30,
2013
$
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
7,976
9,816
7,417
59,742
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
Page 40 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
14. 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)
Reclassification of investment in subsidiary held for sale (1)
Balance, end of year
November 30,
2013
$
20,266
26,385
(200)
46,451
November 30,
2012
$
20,266
-
-
20,266
(1) Goodwill of $200 was removed in the fourth quarter of 2013 as the Company’s investment in
the food processing plant was reclassified as an investment in subsidiary held-for-sale.
Goodwill has been allocated for impairment testing purposes to the following cash generating units or
groups of cash generating units:
Food processing plant
Franchising activities (1)
November 30,
2013
$
November 30,
2012
$
-
46,451
46,451
200
20,066
20,266
(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.
15. Credit facilities
As at November 30, 2013, the Company has access to an authorized revolving credit facility of $30,000
and a treasury risk facility of $1,000. Bank indebtedness’s are secured by a moveable hypothec on all the
assets of the Company.
The revolving credit facility bears interest at the bank’s prime rate for advances in C$ (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, 2013, the bank’s prime rate was 3.00%.
The treasury risk facility bears interest at the market rate as determined by the lender’s treasury department.
Page 41 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
15. Credit facilities (continued)
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, 2013, $12,000 was drawn from the facilities in the form of banker’s
acceptance, with December 2013 maturity dates. The Company is in compliance with the facility’s
covenants.
16. Provisions
Included in provisions are the following amounts:
Litigations and disputes
Closed stores
Gift card liabilities/loyalty programs liabilities
Total
November 30, November 30,
2013
$
2012
$
420
306
726
1,065
1,791
433
923
1,356
910
2,266
The provision for litigation and disputes represent management’s best estimate of the outcome of litigations
and disputes that are on-going 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.
In the litigation and disputes and closed store provisions above, $465 was unused and reversed into income.
The amounts used in the period include $946 of the provisions for 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 $781 to the litigation and closed stores provisions. The provisions were
increased to reflect new information available to management.
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.
Page 42 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
17. Deferred revenue and deposits
Franchise fee deposits
Deferred landlord lease incentives
Supplier contributions and other allowances
Current portion
18. Long-term debt
November 30, November 30,
2013
$
2012
$
2,570
-
1,085
3,655
1,825
72
272
2,169
(3,655)
-
(2,169)
-
November 30, November 30,
2013
$
2012
$
Non-interest bearing holdbacks on acquisition of Valentine, repayable
January 2014. The effective interest rate is 4.50%.
Non-interest bearing holdbacks on acquisition of Jugo Juice,
repayable August 2014. The effective interest rate is 4.50%.
Non-interest bearing holdback on acquisition of Mr. Sub. The
effective interest rate is 4.50%.
Non-interest bearing holdback on acquisition of Koryo
Non-interest bearing holdbacks on acquisition of Mr. Souvlaki,
repayable September 2014
Non-interest bearing holdbacks on acquisition of SushiGo, repayable
December 2014
Non-interest bearing holdbacks on acquisition of Extreme Brandz,
repayable between September 2014 and March 2016. The effective
interest rate is 4.50%.
Non-interest bearing holdbacks on acquisition of ThaïZone ,
repayable between September 2014 and September 2015. The
effective interest rate is 4.50%.
364
129
-
-
165
105
4,167
1,677
351
810
2,399
248
165
-
-
-
Page 43 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
18. Long-term debt (continued)
Non-interest bearing contract cancellation fees
Bank loan(i) bearing interest at the bank’s prime plus 0.50%, secured
by the property, plant and equipment of a subsidiary.
Mandatorily redeemable preferred shares, non-cumulative, redeemable
in three yearly instalments beginning December 2011,with
redemption value based on the performance of a subsidiary
Current portion
(i) Reclassed to investment in subsidiary held-for-sale (note 11)
November 30, November 30,
2013
$
2012
$
562
-
-
7,169
(2,703)
4,466
-
3,403
100
7,476
(7,199)
277
19. Capital stock
Authorized, unlimited number of common shares without nominal or par value
Balance at beginning and end of period
19,120,567
Number
Amount
$
19,792
November 30, 2013
November 30, 2012
Number
Amount
$
19,792
19,120,567
20. 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, 2013. There are no options outstanding as at November 30, 2013 or November 30, 2012.
21. 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,
2013
2012
Page 44 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
22. 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:
Financial assets
Cash and cash equivalents
Accounts receivable
Loans receivable
Financial liabilities
Line of credit
Accounts payable and
accrued liabilities
Long-term debt
November 30, 2013
Fair
value
$
Carrying
amount
$
November 30, 2012
Fair
Carrying
value
amount
$
$
6,136
13,452
978
12,000
11,903
7,169
6,136
13,452
978
12,000
11,903
7,169
33,036
13,361
919
33,036
13,631
919
-
-
13,426
7,476
13,426
7,476
Determination of fair value
The following methods and assumptions were used to estimate the fair values of each class of financial
instruments:
Cash and cash equivalents, accounts receivable, 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.
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, 2013.
Page 45 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
22. Financial instruments (continued)
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 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 $133 ($55 as at November 30, 2012).
Foreign exchange risk
Foreign exchange risk is the Company’s exposure to decreases or increases in financial instrument values
caused by fluctuations in exchange rates. The Company is mainly exposed to foreign exchange risk on its
purchase of coffee. The Company has entered into a contract to minimize its exposure to fluctuations in
foreign currencies related to the purchase of coffee. As of November 30, 2013, the total value of such
contracts was approximately $544.
In addition, the Company concludes sales denominated in foreign currencies. The Company’s foreign
operations use the U.S. dollar as functional currency. The Company’s exposure to foreign exchange risk
stems mainly from cash and cash equivalents, other working capital items and the financial obligations of
its foreign operations.
Other than the above-mentioned foreign transactions, the Company has minimal exposure to the US$ 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, 2013, the Company carried US$ cash of CAD$887, net accounts receivable of
CAD$437 and net accounts payable of CAD$342 (CAD$425, CAD$429 and CAD$nil respectively as at
November 30, 2012). All other factors being equal, a reasonable possible 1% rise in foreign currency
exchange rates per Canadian dollar would result in a change on profit or loss and net comprehensive
income of $10 Canadian dollars.
Page 46 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
22. Financial instruments (continued)
Interest rate risk
The Company is exposed to interest rate risk with its revolving credit facility and treasury risk facility.
Both facilities bear interest at a variable rate and as such the interest burden could potentially become more
important. $12,000 of the credit facility was used as at November 30, 2013. A 100 basis points increase in
the bank’s prime rate would result in additional interest of $120 per annum on the outstanding credit
facility. The Company limits this risk by using short-term banker’s acceptance from the credit facility.
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, 2013:
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
12,000
12,000
12,000
-
-
11,903
7,169
-
31,072
11,903
7,609
-
31,512
11,903
378
136
24,417
-
2,406
121
2,527
-
2,364
154
2,518
Line of credit
Accounts payable
and accrued
liabilities
Long-term debt
Interest on
long-term debt
23. 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
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.
Page 47 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
23. Capital disclosure (continued)
The Company monitors capital on the basis of the debt-to-equity ratio. The debt-to-equity ratios at
November 30, 2013 and November 30, 2012 were as follows:
Debt
Equity
Debt-to-equity ratio
November 30, November 30,
2013
$
2012
$
42,235
30,498
130,809
0.32
106,063
0.29
During the year ended November 30, 2013, the Company’s debt-to-equity ratio increased slightly due to
$12,000 credit facility outstanding. 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, 2013, the Company does not have any debt outstanding that is subject to its
consolidated debt to equity ratio.
24. Revenues
The Company’s revenues include:
Royalties
Initial franchise fees
Rent
Sale of goods, including construction revenues
Other franchising revenue
Other
November 30,
2013
$
November 30,
2012
$
36,496
3,466
5,381
36,481
15,586
3,950
101,360
34,483
2,890
5,173
35,132
15,163
3,379
96,220
Page 48 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
25. Operating expenses
Operating expenses are broken down as follows:
Cost of goods sold and rent
Wages and benefits
Consulting and professional fees
Royalties
Other (1)
November 30,
2013
$
November 30,
2012
$
35,039
13,728
3,397
1,321
8,640
62,125
36,503
13,343
3,445
778
7,225
61,294
(1) Other operating expenses are comprised mainly of rental assistance, travel & promotional costs, bad
debt expense and other office administration expenses
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.
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:
2014
2015
2016
2017
2018
Thereafter
Lease
commitments
$
Sub-leases
$
Net
commitments
$
61,726
57,390
52,263
46,981
40,117
98,936
357,413
58,521
54,360
49,748
44,460
38,315
94,574
339,978
3,205
3,030
2,515
2,521
1,802
4,362
17,435
Payments recognized as a net expense during the year ended November 30, 2013 amount to $7,643 (2012 -
$8,260).
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.
Page 49 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
26. Operating lease arrangements (continued)
During the year ended November 30, 2013, the Company has earned rental income of $5,381 (2012 -
$5,173).
The Company has recognized a liability of $306 (November 30, 2012 - $923) for the leases of premises in
which it no longer has operations but retains the obligations contained in the lease agreement (Note 16).
27. Commitments
The Company has entered into supplier agreements for purchases of coffee beans, wheat, sugar and
shortening for delivery dates ranging from December 2013 to March 2014. The total commitment amounts
to approximately $544.
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, 2012).
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 16. 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:
Disposition of capital
property
Non-deductible items
Losses in a subsidiaries for which no
deferred income tax asset was
recorded
Non-taxable investment income
Failure to file – additional credit
Change in applicable tax rate
Adjustment to prior year provisions
Other – net
Provision for income taxes
November 30, 2012
$
8,205
%
26.9
(69)
26
(46)
-
-
(200)
543
(9)
8,450
(0.2)
0.1
(0.2)
-
-
(0.7)
1.8
0.0
27.7
November 30, 2013
%
$
9,189
26.6
(0.1)
0.2
0.1
0.1
(0.2)
-
(0.8)
0.0
25.9
(42)
59
55
20
(76)
-
(271)
15
8,949
Page 50 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
30. Income taxes (continued)
The statutory tax rate has decreased in 2013 as a result of a change in the provincial allocation of the
Company’s taxable income.
The variation in deferred income taxes during the year were as follows:
2013
Net deferred tax assets
(liabilities) in relation to:
Property, plant and equipment
Provisions
Holdbacks
Non-capital losses
Intangible assets
November 30,
2012
$
Recognized in
profit or loss
$
held for sale (1) Acquisition
$
$
Reclassified
investment
November 30,
2013
$
204
457
(39)
132
(2,885)
(2,131)
(130)
273
50
137
(1,566)
(1,236)
82
(10)
-
(230)
-
(158)
(16)
-
(135)
-
(1,627)
(1,778)
140
720
(124)
39
(6,078)
(5,303)
(1) In 2013, the Company reclassified its investment in 7687567 Canada Inc. as an investment in subsidiary
held-for-sale. As such, all deferred income taxes were removed from the consolidated statement of
financial position.
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)
As at November 30, 2013 there were approximately $6,706 (2012 – 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, 2013, there were approximately $nil (2012- $110) in non-capital losses accumulated in
one of the Company’s subsidiaries for which no deferred income tax asset was recognized.
Page 51 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
30. Income taxes (continued)
The deductible temporary difference in relation to an investment in a subsidiary for which a deferred tax
asset has not been recognized amounts to $nil (2012 - $120).
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.
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. In the last quarter of 2013, the food processing investment in subsidiary
was reclassified as an investment in subsidiary held-for-sale and as such, the segmented summary for the
processing operations only shows the results of the first three quarters of 2013.
Page 52 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
31. Segmented information (continued)
Below is a summary of each segment’s performance during the periods.
For the year ended November 30, 2013:
Franchising
$
Corporate Distribution
$
$
Processing
$
Inter-
company
$
11,850
11,024
826
6,215
5,665
550
10,019
10,068
(49)
(855)
(855)
-
Operating revenues
Operating expenses
Other expenses
Depreciation - property,
plant and equipment
Amortization – intangible
assets
Interest on long-term debt
Other income
Foreign exchange gain (loss)
Interest income
Investment income
Impairment on property,
plant and equipment
Gain on disposal of property,
plant and equipment
Operating income
Current income taxes
Deferred income taxes
Net income
Total assets
Total liabilities
74,131
36,223
37,908
439
4,223
176
57
486
76
-
317
34,006
7,464
1,236
25,306
511
-
-
-
-
-
64
-
379
102
-
277
1
-
-
-
-
-
-
-
549
147
-
402
157
-
115
(4)
1
-
-
-
(324)
-
-
(324)
(1)
(1)
Total
$
101,360
62,125
39,235
1,108
4,223
291
53
487
76
64
317
34,610
7,713
1,236
25,661
-
-
-
-
-
-
-
-
-
-
-
-
170,229
2,981
1,079
41,368
725
347
(1,245)
173,044
(205)
42,235
(1) As at November 30, 2013, total assets and total liabilities for the processing segment were $6,192 and
$5,982 respectively.
Page 53 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(in thousands of Canadian dollars except per share amounts)
31. Segmented information (continued)
For the year ended November 30, 2012:
Franchising
$
Corporate Distribution
$
$
Processing
$
Inter-
company
$
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
–
–
–
–
–
–
–
–
–
–
–
–
–
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
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
12,174
12,352
(178)
441
–
–
–
–
–
110
(135)
(55)
(699)
(188)
(64)
(447)
8
–
–
–
–
–
–
–
–
438
118
–
320
243
–
162
1
–
100
–
–
–
(223)
–
(53)
(170)
5,437
4,318
None of the segments had customers who represented more than 10% of their revenues.
Page 54 of 56
128,457
2,988
1,296
25,385
429
508
(1,617)
136,561
(142)
30,498
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(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
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Provisions
November 30,
2013
November 30,
2012
$
(991)
(301)
106
(155)
(1 041)
(475)
(2,857)
$
(3,135)
(41)
200
(26)
(116)
1,116
(2,002)
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
Board member fees
Total remuneration of key management personnel
November 30,
2013
November 30,
2012
$
$
812
38
850
659
40
699
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 55 of 56
MTY FOOD GROUP INC.
Notes to the consolidated financial statements
As at November 30, 2013
(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:
Short-term benefits
Total remuneration of individuals related to key management personnel
November 30,
2013
$
November 30,
2012
$
402
402
472
472
A corporation owned by individuals related to key management personnel has non-controlling participation
in two of the Company’s subsidiaries. During the period ended November 30, 2013, dividends of $27
(2012- nil) were paid by those subsidiaries to the above-mentioned company.
Page 56 of 56