Dear shareholders:
First and foremost, 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 2014. I truly appreciate
and thank you for being a part of our growing family.
In my letter last year, I indicated that 2014 would be a challenging year for MTY; our apprehensions did
materialize and were compounded by the effect of adverse weather during the first half of 2014.
Strong competitive pressure and a sluggish economy in many regions drove our same store sales down
for a second straight year. We also saw 175 outlets close during the year, while 145 opened.
Despite all its challenges, 2014 brought good news too; MTY closed 3 more acquisitions, adding 167
stores to the network and providing further depth into MTY’s portfolio of brands. Our system sales
grew by 22%, reaching $888 million during the year. We expect system sales to exceed $1 billion in
2015 as a result of the recent acquisitions. MTY’s network stands at 2,727 stores at the end of our 2014
fiscal period.
In that difficult environment, MTY’s employees executed strategies with discipline and creativity, and
our expenses remained well-managed, enabling us to achieve satisfactory results. Excluding the impact
of a one-time impairment charge taken on one of our trademarks, the income attributable to
shareholder would have been up by 6% this year. Our EPS stood at $1.33 per share, a slight decline
compared to 2013.
Cash flows from operations were strong again during 2014, growing by 22% over last year. The
company was able to deploy over $25 million into making new acquisitions while increasing its dividend
and preserving a very healthy financial position. Going into 2015, MTY is well positioned to continue its
acquisition strategy and will continue to diligently seek out new potential acquisition targets.
As I write this letter, the economic environment remains uncertain; from the drop in oil prices and in the
Canadian dollar to the multiple bankruptcies in the retail environment, 2015 will be another challenging
period. To overcome the challenges that lay on the road ahead, MTY will continue to focus on providing
a better alternative than its competitors and on strengthening its competitive position, improving
product quality, assortment and presentation. As such, our success rests on the strength of our team
and of each individual franchisee.
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.
MTY Food Group Inc.
______________________________
Stanley Ma
Chairman and Chief Executive Officer
February 12, 2015
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2014
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, 2014.
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 December 1, 2013.
This MD&A was prepared as at February 12, 2015. Supplementary information about MTY, including its
latest annual and quarterly reports, and press releases, is available on SEDAR’s website at www.sedar.com.
Forward looking statements and use of estimates
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 2014. 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 the Company’s
expectations at February 12, 2015 and, accordingly, are subject to change after such date. Except as may be
required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are
based on several assumptions which give rise to the possibility that actual results or events could differ
Page 1
materially from the expectations expressed in or implied by such forward-looking statements and that the
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 the 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, 2015. 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 the assumptions turn out to be
inaccurate, the actual results could be materially different from what is expected.
In preparing the consolidated financial statements in accordance with IFRS and the MD&A, management
must exercise judgment when applying accounting policies and use assumptions and estimates that have an
impact on the amounts of assets, liabilities, sales and expenses reported in the consolidated financial
statements and on contingent liabilities and contingent assets information provided.
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 the ability to attract customers’ disposable income; the Company’s ability to secure
advantageous locations and renew existing leases at sustainable rates; the arrival of foreign concepts, the
ability to attract new franchisees; changes in customer tastes, demographic trends and in the attractiveness
of 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, the products; the ability to implement strategies and plans in order to produce the
expected benefits; events affecting the ability of third-party suppliers to provide 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 the
expectations expressed in or implied by these 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 the Company.
Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may
also have a material adverse effect on the business, financial condition or results of operations.
Except as otherwise indicated by the Company, 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, 2015. 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. The Company therefore cannot
describe the expected impact in a meaningful way or in the same way that 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 believe 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 July 21, 2014, a 90% owned subsidiary of the Company acquired the Canadian assets of Madisons New
York Grill & Bar. The total consideration for 100% of the assets was $12.9 million. The transaction was
effective on July 18, 2014.
On October 31, 2014, the Company announced that it had completed the acquisition of 100% of the assets
of Café Dépôt, Muffin Plus, Sushi-Man and Fabrika, for a total consideration of $13.95 million.
On November 7, 2014, the Company announced that it had completed the acquisition of 100% of the
franchising operations of Van Houtte Café Bistros for a total consideration of $0.95 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, 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, Sushi Go, Mucho Burrito, Extreme Pita,
PurBlendz, ThaïZone, Madisons New York Grill & Bar, Café Dépôt, Muffin Plus, Sushi-Man, Fabrika and
Van Houtte.
As at November 30, 2014, MTY had 2,727 locations in operation, of which 2,691 were franchised or under
operator agreements and the remaining 36 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
Page 3
locations. The street front locations are mostly made up of the Country Style, La Crémière, “TCBY”, Sushi
Shop, Taco Time, Tutti Frutti, Valentine, Mr. Sub, ThaïZone, Extreme Pita, Mucho Burrito and Madisons
banners. La Crémière and “TCBY” operate primarily from April to September and the others banners
operate year round.
MTY has developed several quick service restaurant concepts: Tiki-Ming (Chinese cuisine), was its first
banner, followed by Sukiyaki (a Japanese delight), Franx Supreme (hot dog/hamburger), Panini Pizza
Pasta, Chick’n’Chick, Caferama, Carrefour Oriental, Villa Madina, Kim Chi, Vie & Nam, Tandori and
O’Burger.
Other banners added through acquisitions include:
• 18 locations from the Fontaine Santé/Veggirama chain in 1999,
• 74 locations from the La Crémière ice cream chain in 2001,
• 20 locations from the Croissant Plus chain in 2002,
• 24 locations from the Cultures chain in 2003,
• 6 locations from the Thaï Express chain in May 2004,
• 103 locations from the Mrs. Vanelli’s chain in June 2004,
• 91 locations of The Country’s Best Yogurt “TCBY” with the undertaking of the Canadian master
franchise right in September 2005,
• On April 1, 2006, MTY acquired the exclusive master franchise rights to franchise Yogen FrüzTM
throughout Canada with its network of 152 existing locations,
• On September 1, 2006, MTY acquired the Sushi Shop banner with its 42 franchise locations and 5
corporate owned locations,
• 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 were operated from the United States.
Page 4
• On September 30, 2013, the Company acquired 80% of the assets of Thaï Zone. At the date of
closing, the chain operated 25 stores and 3 mobile restaurants.
• On July 21, 2014, the Company acquired the assets of Madisons via a 90%-owned subsidiary. At
the date of closing, there were 14 franchised stores located in the province of Quebec. The
transaction was effective July 18, 2014.
• On October 31, 2014, the company acquired the assets of Café Dépôt, Muffin Plus, Sushi-Man and
Fabrika, which operated 101 stores, including 13 corporate restaurants.
• On November 7, 2014, the company acquired 52 Van Houtte Café Bistros, 51 of which were
franchised and 1 corporately-owned.
MTY also has an exclusive area development agreement with Restaurant Au Vieux Duluth to develop and sub-
franchise Au Vieux Duluth Express quick-service restaurants in the Provinces of Ontario and Quebec.
Revenues from franchise locations are generated from royalty fees, franchise fees, sales of turn key
projects, rent, sign rental, supplier contributions and sales of other goods and services to franchisees.
Revenues from corporate owned locations include sales generated from corporate owned locations.
Operating expenses related to franchising include salaries, general and administrative costs associated with
existing and new franchisees, expenses in the development of new markets, costs of setting up turn key
projects, rent, supplies and equipment sold to franchisees. Corporate owned location expenses include the
costs incurred to operate corporate owned locations.
MTY generates revenues from the food processing business discussed herein. The plant produces various
products that range from ingredients and ready to eat food sold to restaurants or other food processing
plants to microwavable meals sold in retail stores. The plant generates most of its revenues selling its
products to distributors and retailers.
The Company also generates revenues from its distribution center located on the south shore of Montreal.
The distribution center mainly serves the 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 November 7, 2014, the Company announced that it had completed the acquisition of 100% of the
franchising operations of Van Houtte Café Bistros for a total consideration of $0.95 million. At the date of
closing, there were 52 outlets in operations, including one corporately-owned restaurant. All of the
restaurants are located in the province of Quebec.
On October 31, 2014, the Company announced that it had completed the acquisition of 100% of the assets
of Café Dépôt, Muffin Plus, Sushi-Man and Fabrika, for a total consideration of $13.95 million. At the time
of closing, there were 101 restaurants in operations, including 13 corporate ones. All of the restaurants are
located in the province of Quebec, with the exception of one restaurant which is located in Ontario.
On July 21, 2014, the Company acquired the assets of Madisons for a total consideration of $12.9 million.
The Company took a 90% ownership position in the newly created subsidiary. The acquisition was
financed using a $3.0 million cash injection from the shareholders, a new credit facility and by a balance of
sale of $1.3 million. At the date of closing, there were 14 franchised restaurants in operation, all of which
are located in Quebec.
On September 30, 2013, the Company acquired 80% of the assets of Thaï Zone for a total consideration of
$17.7 million, paid from MTY's cash on hand and available credit facilities. At the date of closing, Thaï
Page 5
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, 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.
Selected annual information
(in thousands of dollars)
Year ended
November 30,2014
Year ended
November 30,2013
(restated)
Year ended
November 30,2012
Total assets
$196,135
$172,688
$136,561
Total long-term liabilities
$9,965
$9,413
Operating revenue
EBITDA
Income before income taxes
Income before taxes, excluding
impairment charges and reversals
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
$115,177
$101,360
$42,659
$34,530
$36,886
$25,426
$39,235
$34,610
$34,546
$25,712
$2,575
$96,220
$34,926
$30,504
$30,572
$22,067
$25,406
$25,718
$22,067
$1.33
$1.33
$6,501
$0.34
$1.34
$1.34
$5,354
$0.28
$1.15
$1.15
$4,206
$0.22
19,120,567
19,120,567
19,120,567
19,120,567
19,120,567
19,120,567
Page 6
Summary of quarterly financial information
in thousands of $
February
2013
May
2013
August
2013
November
2013
February
2014
May
2014
August
2014
November
2014
Quarters ended
Revenue
$22,628
$25,342
$25,130
$28,260
$25,602
$29,402
$30,234
$29,939
EBITDA
Net income
attributable to
owners
Total
comprehensive
income attributable
to owners
Per share
Per diluted share
$8,803
$9,551
$10,521
$10,360
$9,486
$11,339
$10,515
$11,319
$5,635
$6,250
$6,682
$7,145
$5,537
$7,269
$7,099
$5,521
$5,635
$6,250
$6,682
$7,151
$5,519
$7,281
$7,085
$5,521
$0.29
$0.29
$0.33
$0.33
$0.35
$0.35
$0.37
$0.37
$0.29
$0.29
$0.38
$0.38
$0.37
$0.37
$0.29
$0.29
Results of operations for the fiscal year ended November 30, 2014
Revenue
During the 2014 fiscal year, the Company’s total revenue increased by 14% to reach $115.2 million.
Revenues for the four segments of business are broken down as follows:
November 30, 2014
($ million)
November 30, 2013
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
90.0
12.1
6.0
8.5
(1.4)
115.2
74.1
11.9
6.2
10.0
(0.9)
101.4
21%
2%
(3%)
(15%)
N/A
14%
As is shown in the table above, revenue from franchise locations progressed by 21%. Several factors
contributed to the variation, as listed below:
Revenues, 2013 fiscal year
Increase in recurring revenue streams
Decrease in initial franchise fees, renewal fees and transfer fees
Increase in turn key, sales of material to franchisees and rent revenues
Other non-material variations
Revenues, 2014 fiscal year
$million
74.1
13.2
(0.6 )
3.1
0.2
90.0
Page 7
During the year, the Company benefitted from the impact of the acquisitions realised late in 2013 and in
2014, which accounted for approximately 60% of the increase in recurring streams of revenues and 80% of
the increase in total revenues from franchising.
Revenue from corporate owned locations was stable during the period. There was a reduction in the
revenues derived from Special Purpose Entities, which was offset by a higher average unit volume for the
corporate stores held during 2014 compared to the same period last year.
Distribution and food processing revenues both decreased during 2014. Distribution revenues have
decreased by 3% because of a shift in the sales mix, which is impacted by various internal factors such as
promotions on certain products, as well as by external factors such as consumer preferences and trends.
Revenues from the food processing business were down 15% as certain products have been discontinued
because of a lack of profitability.
Cost of sales and other operating expenses
During 2014, operating expenses increased by 17% to $72.5 million, up from $62.1 million a year ago.
Operating expenses for the four business segments were incurred as follows:
November 30, 2014
($ million)
November 30, 2013
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
47.1
12.5
5.5
8.9
(1.4)
72.5
36.2
11.0
5.7
10.1
(0.9)
62.1
30%
13%
(3%)
(12%)
N/A
17%
Expenses from franchise operations increased by $10.9 million during 2014 compared to the same period last
year.
Approximately 50% of the increase is directly attributable to the new concepts acquired late in 2013 and in
2014. Most of those expenses are in the form a wages and benefits and other expenses related to the workforce
that joined the Company following the acquisitions. Other notable increases during the year include higher
costs of turn keys related to an increased volume of such projects, rent and other materials sold to franchisees,
as well as higher bad debt and lease termination costs.
Expenses from corporate stores increased by 13%, mostly for factors explained in the Revenue section above.
The increase in expenses was greater than that of revenue as the Company sold some stores that produced
above-average profit margins during the year and had to repossess some unprofitable ones.
Page 8
Earnings before interest, taxes, depreciation and amortization (EBITDA)
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
Fiscal year ended
November 30, 2014
Corporate Distribution Processing Consolidation
($1.36)
($1.36)
$0.00
$12.06
$12.46
$(0.40)
$8.49
$8.85
$(0.36)
$6.02
$5.47
$0.55
Franchise
$89.96
$47.09
$42.87
Total
$115.18
$72.52
$42.66
48%
N/A
9%
N/A
N/A
37%
Franchise
$74.13
$36.22
$37.91
Fiscal year ended
November 30, 2013
Corporate Distribution Processing Consolidation
($0.86)
($0.86)
$0.00
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
39%
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. See reconciliation of EBITDA to
Income before taxes on page 10.
$101.36
$62.12
$39.24
$10.02
$10.07
($0.05)
$11.85
$11.02
$0.83
$6.22
$5.67
$0.55
Total
51%
N/A
N/A
9%
7%
Total EBITDA for the fiscal period ended November 30, 2014 was $42.7 million, an increase of 9%
compared to the 2013 fiscal period.
During the period, the franchising operations generated $42.9 million in EBITDA, a 13% increase over the
results of the same period last year. The increase is mainly attributable to the operations of the newly
acquired concepts, which generated most of the total increase in EBITDA. The increase in revenues
generated by existing operations was partly offset by higher bad debts charges and lease termination costs.
EBITDA as a % of revenues was impacted adversely by the higher operating charges, mainly in the form of
bad debts and lease termination costs. This was partly offset by stronger margins on other franchising
activities resulting from the higher recurring stream of revenues.
Net income
For the 2014 fiscal period, net income was adversely impacted by a one-time impairment charge taken on
the Country Style trademark. As a result, net income attributable to owners declined 1% compared to the
results of last year.
On a normalized basis, net income attributable to owners is up by 6%, at $27,127 for the year. The
increase is due to the growth in EBITDA, which was partly offset by higher amortization charges and a
slightly higher tax burden.
Page 9
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands of dollars)
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Foreign exchange gains
Interest income
Gain on preferred share redemption
Impairment (reversal) of impairment charge
Gain on disposal of property, plant and equipment
Other income
EBITDA
Period ended
November 30, 2014
Period ended
November 30, 2013
34,530
869
5,985
422
(106)
(118)
(100)
2,356
(1,179)
-
42,659
34,610
1,108
4,223
291
(53)
(487)
-
(64)
(317)
(76)
39,235
Other income and charges
The gain on disposal of property, plant and equipment increased by $0.9 million mainly because of the
disposal two highly profitable stores during the third quarter of 2014.
During the fourth quarter, as the result of a decline in the financial performance of the Country Style
franchise network, the Company carried out a review of the recoverable amounts of the intangible assets
related to that brand. The review led to the recognition of an impairment loss of $2,356, which has been
recognised in the consolidated statement of income.
Income taxes
The Company’s tax burden was slightly higher during 2014 than it was for 2013. This is mostly
attributable to some prior year adjustments recorded in 2013 that are non-recurring in nature.
Page 10
Results of operations for the quarter ended November 30, 2014
Revenue
During the fourth quarter of the 2014 fiscal year, the Company’s total revenue increased by 6% to reach
$29.9 million. Revenues for the four segments of business are broken down as follows:
November 30, 2014
($ million)
November 30, 2013
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
22.7
3.5
1.9
2.3
(0.5)
29.9
20.1
3.4
2.0
3.0
(0.3)
28.3
13%
4%
(1%)
(23%)
N/A
6%
As is shown in the table above, revenue from franchise locations progressed by 13%. Several factors
contributed to the variation, as listed below:
Revenues, fourth quarter of 2013
Increase in recurring revenue streams
Decrease in franchise fees, renewal fees and transfer fees
Increase in turn-key, sales of material to franchisees and rent revenues
Other non-material variations
Revenues, fourth quarter of 2014
$million
20.1
3.0
(0.4)
0.2
(0.2)
22.7
During the fourth quarter of 2014, the Company continued to benefit from the impact of the acquisitions
realised late in 2013 and during 2014, which contributed to approximately 40% of the increase in recurring
streams of revenues, and over 75% of the increase in total revenues. As shown in the table, the increase in
revenues is entirely attributable to recurring streams of revenues, which provide a solid basis for future
periods.
Revenue from corporate owned locations was relatively stable, with a slight increase caused by the
acquisition of 14 corporate stores late in the quarter.
Food processing revenues have decreased by 23%, mainly as a result of the interruption of the production
of certain non-profitable products.
Page 11
Cost of sales and other operating expenses
During the fourth quarter of 2014, operating expenses increased by 4% to $18.6 million, up from $17.9
million for the same period a year ago. Operating expenses for the four business segments were incurred as
follows:
November 30, 2014
($ million)
November 30, 2013
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
11.1
3.9
1.7
2.4
(0.5)
18.6
10.5
2.8
1.8
3.0
(0.3)
17.9
5%
38%
(3%)
(20%)
N/A
4%
Expenses from franchise operations increased by $0.6 million in the fourth quarter of 2014 compared to the
same period last year.
The increase is attributable to the annualization of the impact of the acquisitions realized in the fourth quarter
of 2013 as well as to the acquisitions realized during 2014.
The expenses of corporate stores increased by 38% as the Company franchised some highly profitable stores
during 2014 and had to repossess more financially challenged locations, causing higher costs in relation to
revenues.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
(In millions)
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
Three months ended
November 30, 2014
Corporate Distribution Processing Consolidation
($0.51)
($0.51)
$0.00
$2.30
$2.41
$(0.11)
$3.54
$3.91
$(0.37)
$1.95
$1.74
$0.21
Franchise
$22.66
$11.07
$11.59
Total
$29.94
$18.62
$11.32
51%
N/A
11%
N/A
N/A
38%
Franchise
$20.14
$10.52
$9.62
Three months ended
November 30, 2013
Corporate Distribution Processing Consolidation
$(0.24)
$(0.24)
$0.00
(In millions)
Revenues
Expenses
EBITDA
EBITDA as a %
37%
of Revenue
EBITDA (income before income taxes, interest, depreciation and amortization) is not an earnings measure
recognized by IFRS and therefore may not be comparable to similar measures presented by other
companies.
(1)EBITDA is defined as operating revenues less operating expenses. See reconciliation of EBITDA to
Income before taxes on page 13.
$28.26
$17.90
$10.36
$3.39
$2.84
$0.55
$1.97
$1.78
$0.19
$3.00
$3.00
$0.00
Total
10%
48%
16%
N/A
0%
Page 12
Total EBITDA for the fourth quarter was $11.3 million, up 9% compared to the fourth quarter of last year.
During the period, the franchising operations generated $11.6 million in EBITDA, a 20% increase over
2013 results. Part of the increase is attributable to the EBITDA generated by acquisitions made in the
fourth quarter of 2013 and during 2014. The remainder of the increase is due to the growth of recurring
revenue streams, which typically generate high EBITDA margins as a result of the scalability of MTY’s
structure.
EBITDA from corporate owned locations decreased during the three-month period as profitable corporate
stores are being franchised throughout the year.
Net income
For the three-month period ended November 30, 2014, the Company’s net income attributable to owners
was $5.5 million or $0.29 per share (0.29 per diluted share), compared to $7.1 million in 2013, or $0.37 per
share ($0.37 per diluted share).
Excluding the impact of the impairment charge taken on one of the trademarks, net income attributable to
owners would have been $7.2 million, or $0.38 per share.
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands of dollars)
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Foreign exchange gains
Interest income
Impairment (reversal) of impairment charge
Gain on disposal of property, plant and equipment
Other income
EBITDA
Period ended
November 30, 2014
Period ended
November 30, 2013
7,478
5
1,613
111
(90)
(64)
2,356
(89)
-
11,319
9,263
284
1,301
66
(1)
(104)
(64)
(311)
(76)
10,360
Other income and charges
During the fourth quarter, as the result of a decline in the financial performance of the Country Style
franchise network, the Company carried out a review of the recoverable amounts of the intangible assets
related to that brand. The review led to the recognition of an impairment loss of $2,356, which has been
recognised in the consolidated statement of income.
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)
12 months ending November 2015
12 months ending November 2016
12 months ending November 2017
12 months ending November 2018
12 months ending November 2019
Balance of commitments
$4,102
$3,268
$257
$257
$194
$517
$8,595
Net lease
commitments
$4,148
$4,024
$3,347
$2,568
$2,047
$6,602
$22,736
Total contractual
obligations
$8,250
$7,292
$3,604
$2,825
$2,241
$7,119
$31,332
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted. For
total commitments, please refer to the November 30, 2014 consolidated financial statements
Long-term debt includes non-interest bearing holdbacks on acquisitions, non-interest bearing contract
cancellation fees as well as a balance of sale related to the acquisition of Madisons.
At the end of the year, the Company had drawn $11,750 from its credit facilities. The credit facilities are
subject to covenants of funded debt to EBITDA ratio of 2 to1 and a minimum interest coverage ratio of 4.5
to 1. At November 30, 2014, the Company was in compliance with the facilities’ covenants. The facilities,
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.
Liquidity and capital resources
As of November 30, 2014, the amount held in cash net of the line of credit totalled $(5.2) million, an
increase of $0.7 million since the end of the 2013 fiscal period.
During 2014, the Company finalized three acquisitions, investing a total of $25 million. The Company also
paid $6.1 million in dividends to its shareholders during the year. All those items had no significant
impact on the cash position of the Company as a result of strong cash flow generation during the year.
Cash flows generated by operating activities were $32.4 million during the 2014 fiscal period, up 22% over
the results of the 2013 fiscal period. During the fourth quarter, operating cash flows were $9.6 million, a
growth of 17% over the fourth quarter of 2013.
In the short-term, Management will continue to open new locations that will be funded by new franchisees.
MTY will continue its efforts to sell some of its existing corporate owned locations and will seek new
opportunities to acquire other food service operations. MTY has an available line of credit of $40.0 million,
of which $28.3 million was available at year end.
Page 14
Financial position
Accounts receivable at the end of the year were at $16.0 million, compared to $13.5 million at the end of
the 2013 fiscal period. The increase is mainly due to the growth in franchising revenues.
The provision for doubtful accounts has increased by $2.0 million since November 30, 2013. New amounts
added into the provision for bad debts this year exceeded 3% of franchising revenue, a historical high. This
is mainly a consequence of the difficult and competitive environment in which some of the franchisees
operate, which result in higher uncertainty regarding the collection of amounts due.
Investment in subsidiary held-for-sale consists of the Company’s investment in 7687567 Canada Inc.,
which was classified as held-for-sale during the 2013 fiscal year. During the 2014 third quarter, the
Company acquired the shares of one of the minority shareholders for $0.3 million, bringing its total
ownership to 91%. This additional investment was made to facilitate the restructuring of the plant’s
operations. 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. This
investment represents a segment of the Company.
Accounts payable increased to $13.2 million as at November 30, 2014, from $11.9 million as at November
30, 2013. The increase is mainly due to the growth of the franchising business and the number of turn key
projects in progress at year end; this was partially offset by a decrease in the total amount of promotional
fund reserves at year end.
Provisions, which are composed of litigation and dispute, closed store and gift card provisions, increased to
$3.1 million from $1.8 million. Part of the increase is due to higher gift card liabilities at year end,
following the acquisition of Madisons and the net gift card liability it carried. Closed store and litigation
and disputes provisions have also increased in light of new information that became known during the year.
Deferred revenues consist of distribution rights which are earned on a consumption basis and include initial
franchise fees to be earned once substantially all of the initial services have been performed. The balance as
at November 30, 2014 was $3.7 million, in line with the balance at the end of 2013. These amounts will be
recognized into revenues as they are earned.
Long-term debt is composed of non-interest bearing holdbacks on acquisitions and non-interest bearing
contract cancellation fees. During the year, the Company added two new items into long-term debt; a
balance of sale on the acquisition of Madisons, and a non-interest bearing holdback on the acquisition of
Café Dépôt. During the year, total repayments of $1.4 million were made on five of the holdbacks.
Further details on the above statement of financial position items can be found in the notes to the
November 30, 2014 consolidated financial statements.
Capital stock
No shares were issued during the year ended November 30, 2014. As at February 12, 2015 there were
19,120,567 common shares of MTY outstanding.
Page 15
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
retailer 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
Opened during the period
Mall
Street
Non-traditional
Closed during the period
Mall
Street
Non-traditional
Acquired during the period
Total end of period
Franchises, end of year
Corporate owned, end of year
Total end of year
Number of
locations
fiscal year
ended
November 2014
Number of
locations
fiscal year
ended
November 2013
2,565
25
2,179
20
42
40
63
(42)
(49)
(84)
167
2,727
2,691
36
2,727
45
56
54
(17)
(31)
(54)
338
2,590
2,565
25
2,590
During the period, the Company’s network experienced a net decrease of 30 outlets, compared to a net
addition of 53 outlets for the same period a year ago, excluding the new stores resulting from acquisitions.
Most of the difference comes from a higher number of stores closed during 2014; among the major factors
explaining that decline is the loss of a contract in the non-traditional environment which resulted in 36
stores closing. Most other closures were attributable to the termination of agreements for stores that had
been underperforming. Approximately 50% of the stores closed during the period were located in Ontario.
At the end of the period, the Company had 36 corporate stores, a net increase of 11 compared to the end of
the 2013 fiscal year. During the period, 14 corporate-owned locations were acquired, 17 were sold, 4 were
closed and 18 were added.
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,
2014
38%
40%
22%
2013
35%
42%
23%
2014
40%
50%
10%
2013
45%
45%
10%
The geographical breakdown of MTY’s locations and system sales consists of:
Geographical location
% of location count
% of system sales
fiscal year ended
November 30, November 30,
November 30, November 30,
2014
41%
31%
21%
3%
4%
2013
44%
26%
22%
3%
5%
2014
31%
35%
27%
2%
5%
2013
34%
35%
25%
1%
5%
Ontario
Quebec
Western Canada
Maritimes
International
System wide sales
System wide sales for the 2014 fiscal year reached $887.8 million, up 22% over the 2013 fiscal period.
Approximately 70% of the increase was realized as a result of acquisitions, while the rest came from
internal growth. For the fourth quarter of 2014, system sales totaled $236.1 million, an increase of 13%
over the fourth quarter last year; approximately 75% of that increase came from acquisitions.
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
During the quarter ended November 30, 2014, same-stores sales increased by 0.8% over the same period
last year. For the fiscal period, same-stores sales have declined by 0.9%.
During the fourth quarter of 2014, sixteen of the concepts produced positive same-store sales growth,
compared to nine in the third quarter. While some brands experienced very positive changes during the
quarter, other brands experienced further deterioration in their comparative sales.
Despite the improvement of same-store sales in the fourth quarter, management remains prudent in drawing
conclusions from the most recent quarter. The environment remains highly uncertain as the competition
continues to intensify both from a price and an offering point of view. Consumers are looking for value
when they spend food dollars, making it increasingly difficult for stores to maintain the average ticket per
customer and traffic.
Page 17
Many of the brands were adversely impacted by the unusually cold weather in many regions of Canada
during the first six months of the fiscal period, which the Company believes has caused a reduction in the
number of visits to the restaurants. This was mostly felt in street front locations, which suffered the biggest
decrease. Mall locations produced flat same-store sales growth during the period.
Once again this quarter, Western provinces fared significantly better than Ontario and Quebec, as
economies for these two provinces have remained sluggish during the period. Restaurants located in malls
outperformed those on street or non-traditional locations during the period.
The following table shows quarterly information on same-stores sales growth for the last 13 quarters:
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
Quarterly Same Store Sales Growth
3.6%
1.3%
1.9%
-0.6%
-0.9%
-1.2%
0.8%
-1.6%
-2.0%
-1.4%
-1.7%
-1.7%
Q
4
1
1
'
Q
1
1
2
'
Q
2
1
2
'
Q
3
1
2
'
Q
4
1
2
'
-4.0%
Q
1
1
3
'
Q
2
1
3
'
Q
3
1
3
'
Q
4
1
3
'
Q
1
1
4
'
Q
2
1
4
'
Q
3
1
4
'
Q
4
1
4
'
Stock options
During the period, no options were granted or exercised. As at November 30, 2014 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
mall locations are also higher than average in December during the Christmas shopping period.
Page 18
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.
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.
Page 19
Compensation of key management personnel
The remuneration of key management personnel and directors during the period was as follows:
Three months
ended
November 30,
2014
Fiscal year
ended
November 30,
2014
Three months
ended
November 30,
2013
Fiscal year
ended
November 30,
2013
$
188
10
198
$
809
40
849
$
$
219
812
6
38
225
850
Short-term benefits
Board member fees
Total remuneration
of key management personnel
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.
The Company also pays employment benefits to individuals related to members of the key management
personnel described above. Their total remuneration was as follows:
Three months
ended
November 30,
2014
$
Fiscal year
ended
November 30,
2014
$
Three months
ended
November 30,
2013
$
Fiscal year
ended
November 30,
2013
$
Short-term benefits
Total remuneration of individuals
related to key management personnel
119
119
538
538
142
142
402
402
A corporation owned by individuals related to key management personnel has non-controlling participation
in one of the Company’s subsidiaries, which has no operations.
Adoption of IFRS Standards
The following standards issued by the IASB were adopted by the Corporation on December 1, 2013.
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities
The Company has applied the amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities for the
first time in the current year. The amendments to IFRS 10 define an investment entity and require a
reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but
instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate
financial statements.
Page 20
To qualify as an investment entity, a reporting entity is required to:
•
•
•
obtain funds from one or more investors for the purpose of providing them with investment
management services;
commit to its investor(s) that its business purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
measure and evaluate performance of substantially all of its investments on a fair value basis.
Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure
requirements for investment entities.
As the Company is not an investment entity, the application of the amendments has had no impact on the
disclosures or the amounts recognised in the Company's consolidated financial statements.
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
The Company has applied the amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
for the first time in the current year. The amendments to IAS 32 clarify the requirements relating to the
offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of
‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement’.
As the Company does not have any financial assets and financial liabilities that qualify for offset, the
application of the amendments has had no impact on the disclosures or on the amounts recognised in the
Group's consolidated financial statements.
Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
The Company has applied the amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial
Assets for the first time in the current year. The amendments to IAS 36 remove the requirement to disclose
the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with
indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of
the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to
when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These
new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are
in line with the disclosure required by IFRS 13 Fair Value Measurements.
The application of these amendments has had no material impact on the disclosures in the Company's
consolidated financial statements.
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, 2014, and have not been applied in preparing the consolidated financial statements.
The following standards may have a material impact on the consolidated financial statements of the
Company:
Effective for annual periods beginning on or after:
IFRS 9 Financial Instruments
IFRS 15 Revenue from contracts with customers
Amendments
IAS 32 Financial
Instruments:
to
Presentation
January 1, 2018 Early adoption permitted
January 1, 2017 Early adoption permitted
January 1, 2014 Early adoption permitted
Page 21
IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement. The
Standard includes requirements for recognition and measurement, impairment, derecognition and general
hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it
completed each phase. The version of IFRS 9 issued in 2014 supersedes all previous versions; however,
for a limited period, previous versions of IFRS 9 may be adopted early if not already done so provided the
relevant date of initial application is before February 1, 2015. IFRS 9 does not replace the requirement for
portfolio fair value hedge accounting for interest risk since this phase of the project was separated from
IFRS project due to the longer term nature of the macro hedging project which is currently at the discussion
paper phase of the due process Consequently, the exception in IAS 39 for fair value hedge of an interest
rate exposure of a portfolio of financial assets or financial liabilities continues to apply.
IFRS 15 replaces the following standards: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18
Transfers of Assets from Customers and SIC-31 Revenue – Barter Transactions Involving Advertising
Services. This new standard sets out the requirements for recognizing and disclosing revenue that apply to
all contracts with customers.
The Company is in the process of determining the extent of the impact of these 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 22
The classification, carrying value and fair value of financial instruments are as follows:
As at November 30, 2014
Financial assets
Cash
Accounts receivable
Loans receivable
Financial liabilities
Line of credit
Accounts payable and
accrued liabilities
Long-term debt ¹
As at November 30,2013
(restated)
Financial assets
Cash
Accounts receivable
Loans receivable
Financial liabilities
Line of credit
Accounts payable and
accrued liabilities
Long-term debt ¹
Total carrying
Value
Fair
value
Loans and
receivables
$
6,589
15,987
686
23,262
-
-
-
-
Other financial
liabilities at
amortized cost
$
-
-
-
-
11,750
13,214
7,849
32,813
$
6,589
15,987
686
23,262
11,750
13,214
7,849
32,813
Loans and
receivables
$
6,136
13,452
978
20,566
Other financial
liabilities at
amortized cost
$
-
-
-
-
Total carrying
Value
$
6,136
13,452
978
20,566
-
-
-
-
12,000
12,000
11,903
6,682
30,585
11,903
6,682
30,585
$
6,589
15,987
686
23,262
11,750
13,214
7,849
32,813
Fair
value
$
6,136
13,452
978
20,566
12,000
11,903
6,682
30,585
¹ Includes the current portion of long-term debt.
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. It is established
based on market information available at the date of the consolidated statement of financial position. In the
absence of an active market for a financial instrument, the Company uses the valuation methods described
below to determine the fair value of the instrument. To make the assumptions required by certain valuation
models, the Company relies mainly on external, readily observable market inputs. Assumptions or inputs
that are not based on observable market data are used in the absence of external data. These assumptions or
Page 23
factors represent management’s best estimates of the assumptions or factors that would be used by market
participants for these instruments. The credit risk of the counterparty and the Company’s own credit risk
have been taken into account in estimating the fair value of all financial assets and financial liabilities,
including derivatives.
The following methods and assumptions were used to estimate the fair values of each class of financial
instruments:
Cash, 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, 2014.
Credit risk
The Company’s credit risk is primarily attributable to its trade receivables. The amounts disclosed in the
consolidated statement of financial position are net of allowances for bad debts, estimated by Company’s
management based on prior experience and their assessment of the current economic environment. The
Company believes that the credit risk of accounts receivable is limited for the following reasons:
- Other than receivables from international locations, the Company’s broad client base is spread
mostly across Canada limits the concentration of credit risk.
- The Company accounts for a specific bad debt provision when management considers that the
expected recovery is less than the actual account receivable.
The credit risk on cash 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 $9 (2013 - $133).
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 contracts to minimize its exposure to fluctuations in
foreign currencies related to the purchase of coffee. As of November 30, 2014, the total value of such
contracts was approximately $12 (2013 - $Nil).
Page 24
In addition, the Company concludes sales denominated in foreign currencies. The Company’s foreign
operations use the U.S. dollar as functional currency. The Company’s exposure to foreign exchange risk
stems mainly from cash, other working capital items and the financial obligations of its foreign operations.
Other than the above-mentioned foreign transactions, the Company has minimal exposure to the US$ 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, 2014, the Company carried US$ cash of CAD$1,766, net accounts receivable of
CAD$945 and net accounts payable of CAD$836 (CAD$887, CAD$437 and CAD$342 in 2013). 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 $18 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. $11,750 of the credit facility was used as at November 30, 2014. A 100 basis points increase in
the bank’s prime rate would result in additional interest of $118 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, 2014:
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
thereafter
$
11,750
11,750
11,750
—
—
—
13,214
7,849
13,214
8,595
13,214
2,232
—
1,870
—
3,268
n/a
201
32,813
33,760
39
27,235
36
1,906
58
3,326
—
1,225
68
1,293
Line of credit
Accounts payable
and accrued
liabilities
Long-term debt
Interest on long-term
debt
Outlook
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’s primary focus will be on restoring positive same-store sales by
generating more innovation, focusing on the quality of customer service in each of its outlets and
Page 25
maximizing the value offered to its customers. Management will also focus on finalizing the integration of
the recently acquired brands.
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 shareholder value by adding new locations of its
existing concepts and remains committed to seek potential acquisitions to increase its market share.
Subsequent Event
On December 18, 2014, the Company finalized the acquisition of the North American assets of Manchu
Wok, Wasabi Grill & Noodle and SenseAsian for a total consideration of $7.9 million.
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.
Management regularly reviews disclosure controls and procedures; however, they cannot provide an
absolute level of assurance because of the inherent limitations in control systems to prevent or detect all
misstatements due to error or fraud.
The Company’s Chief Executive Officer and the Chief Financial Officer have concluded that the design of
the disclosure controls and procedures (“DC&P”) as at November 30, 2014 provide reasonable assurance
that significant information relevant to the Company, including that of its subsidiaries, is reported to them
during the preparation of disclosure documents.
Internal controls over financial reporting
The Chief Executive Officer and the Chief Financial Officer are responsible for establishing and
maintaining internal controls over financial reporting. The Company’s internal controls 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 controls over financial reporting as at November 30, 2014,
have concluded that the Company’s internal controls 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, 2014, no
change in the Company’s internal controls over financial reporting occurred that could have materially
affected or is reasonably likely to materially affect the Company’s internal controls over financial
reporting.
Page 26
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 controls 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 errors or mistakes. 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 controls over financial reporting to exclude controls, policies and procedures and internal
controls over financial reporting of the recently acquired operations of Madisons (acquired July 18, 2014),
Café Dépôt, Muffin Plus, Sushi-Man and Fabrika (acquired October 31, 2014) and Van Houtte Café Bistro
(acquired November 7, 2014). Excluding the goodwill created on the acquisitions, these operations
respectively represent 5%, 5% and 0% of the Company’s assets (1%, 2% and 0% of current assets, 6%, 5%
and 1% of non-current assets); they also represent 24%, 1% and 1% of current liabilities (9%, 10% and 0%
of long-term liabilities), 1%, 1% and 0% of the Company’s revenues and 1%, 1% and 0% of the
Company’s net earnings for the fiscal year ended November 30, 2014.
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 controls over financial reporting to exclude controls, policies and procedures and internal
controls 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 fiscal year ended November 30, 2014, these SPEs represent 1%
of the Company’s current assets, 0% of its non-current assets, 0% of the Company’s current liabilities, 0%
of long-term liabilities, 3% 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 27
Consolidated financial statements of
MTY Food Group Inc.
November 30, 2014 and 2013
Independent auditor’s report .............................................................................. 1–2
Consolidated statements of income ....................................................................... 3
Consolidated statements of comprehensive income ............................................. 4
Consolidated statements of changes in shareholders’ equity ............................... 5
Consolidated statements of financial position .................................................... 6–7
Consolidated statements of cash flows ............................................................. 8–9
Notes to the consolidated financial statements ............................................. 10–60
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, 2014 and November 30,
2013, and the consolidated statements of income, 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 audits 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, 2014 and November 30, 2013, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
February 12, 2015
____________________
1 CPA auditor, CA, public accountancy permit No. A114814
MTY Food Group Inc.
Consolidated statements of income
Years ended November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
Notes
2014
$
2013
$
Revenue
24 and 31
115,177
101,360
Expenses
Operating expenses
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
25 and 31
Other income (charges)
Foreign exchange gain
Interest income
Gain on preferred share redemption
(Impairment) reversal of impairment charge
4
Gain on disposal of property, plant and equipment
Other income
72,518
869
5,985
422
79,794
106
118
100
(2,356 )
1,179
—
(853 )
62,125
1,108
4,223
291
67,747
53
487
—
64
317
76
997
Income before taxes
34,530
34,610
Income taxes
Current
Deferred
Net income
Net income (loss) attributable to:
Owners
Non-controlling interests
Earnings per share
Basic
Diluted
30
21
8,820
303
9,123
25,407
7,713
1,236
8,949
25,661
25,426
(19 )
25,407
25,712
(51)
25,661
1.33
1.33
1.34
1.34
The accompanying notes are an integral part of the consolidated financial statements.
Page 3
MTY Food Group Inc.
Consolidated statements of comprehensive income
Years ended November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
Net income
Items that may be reclassified subsequently to profit or
loss
Foreign exchange impact of foreign subsidiaries
Other comprehensive (loss) gain
Total comprehensive income
Total comprehensive income (loss) attributable to:
Owners
Non-controlling interest
2014
$
2013
$
25,407
25,661
(20 )
(20 )
25,387
6
6
25,667
25,406
(19 )
25,387
25,718
(51)
25,667
The accompanying notes are an integral part of the consolidated financial statements.
Page 4
MTY Food Group Inc.
Consolidated statements of changes in shareholders’ equity
Years ended November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
Equity attributable to owners
Notes
Capital
stock
$
Contributed
surplus
$
19,792
481
—
—
—
—
—
—
19,792
—
—
—
—
—
19,792
—
—
—
—
—
—
481
—
—
—
—
—
481
11
Accumulate
d other
comprehen-
sive income
$
—
—
6
—
—
—
—
6
—
(20 )
—
—
—
(14 )
Balance as at November 30, 2012
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
Net income for the year ended
November 30, 2014
Other comprehensive income
Acquisition of a portion of the
non-controlling interest in
7687567 Canada Inc.
Acquisition of 8825726 Canada Inc.
Dividends
Balance as at November 30, 2014
The following dividends were declared and paid by the Company:
$0.34 per common share (2013 – $0.28 per common share)
The accompanying notes are an integral part of the consolidated financial statements.
Retained
earnings
$
Total
$
Equity
attributable
to non-
controlling
interest
$
Total
$
85,635
105,908
155
106,063
25,712
—
25,712
6
—
—
—
(5,354)
105,993
25,426
—
(407)
—
(6,501)
124,511
—
—
—
(5,354)
126,272
25,426
(20)
(407)
—
(6,501)
144,770
(51)
—
69
4,425
49
(110)
4,537
(19)
—
160
300
(55)
4,923
2014
$
6,501
25,661
6
69
4,425
49
(5,464 )
130,809
25,407
(20 )
(247 )
300
(6,556 )
149,693
2013
$
5,354
Page 5
MTY Food Group Inc.
Consolidated statements of financial position
As at November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
Assets
Current assets
Cash
Accounts receivable
Inventories
Loans receivable
Investment in subsidiary held-for-sale
Prepaid expenses and deposits
Loans receivable
Property, plant and equipment
Intangible assets
Goodwill
Liabilities and Shareholders’ equity
Liabilities
Current liabilities
Line of credit
Accounts payable and accrued liabilities
Provisions
Income taxes payable
Deferred revenue and deposits
Current portion of long-term debt
Long-term debt
Deferred income taxes
Notes
2014
$
8
9
10
11
10
12
13
14
15
16
17
18
18
30
6,589
15,987
1,566
181
1,691
1,017
27,031
505
6,741
107,484
54,374
196,135
11,750
13,214
3,053
716
3,709
4,035
36,477
3,814
6,151
46,442
2013
$
(restated,
Note 7)
6,136
13,452
1,029
400
1,377
430
22,824
578
6,213
96,978
46,095
172,688
12,000
11,903
1,791
414
3,655
2,703
32,466
3,979
5,434
41,879
Commitments, guarantee and contingent liabilities
26, 27, 28
and 29
Page 6
MTY Food Group Inc.
Consolidated statements of financial position (continued)
As at November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
Shareholders’ equity
Equity attributable to owners
Capital stock
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Equity attributable to non-controlling interest
Notes
19
2014
$
2013
$
19,792
481
(14 )
124,511
144,770
4,923
149,693
196,135
19,792
481
6
105,993
126,272
4,537
130,809
172,688
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the Board on February 12, 2015
____________________________________________ , Director
____________________________________________ , Director
Page 7
MTY Food Group Inc.
Consolidated statements of cash flows
Years ended November 30, 2014 and 2013
(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
Reversal of impairment of property, plant and equipment
Impairment of intangible assets
Unrealized foreign exchange (loss) gains
Other income
Gain on preferred share redemption
Income tax expense
Deferred revenue
Income tax refunds received
Income taxes paid
Interest paid
Variation in valuation of subsidiary classified as held for sale
Changes in non-cash working capital items
Cash flows provided by operating activities
Investing activities
Net cash outflow on acquisitions
Share buyback paid to non-controlling shareholder
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 investing activities
32
7
11
Notes
2014
$
2013
$
25,407
25,661
422
869
5,985
(1,179 )
—
2,356
(73 )
—
(100 )
9,123
(95 )
42,715
508
(9,027 )
(29 )
(161 )
(1,587 )
32,419
(25,100 )
(300 )
(464 )
(247 )
2,034
—
(24,077 )
291
1,108
4,223
(317)
(64)
—
22
(76)
—
8,949
(113)
39,684
624
(10,817)
(113)
—
(2,857)
26,521
(56,469)
—
(838)
(346)
1,041
(117)
(56,729)
Page 8
MTY Food Group Inc.
Consolidated statements of cash flows (continued)
Years ended November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
Financing activities
Issuance of banker’s acceptances
Repayment of banker’s acceptances
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) provided by financing activities
Net increase in cash
Cash, beginning of year
Cash acquired
Cash, end of year
Notes
2014
$
2013
$
26,750
(27,000 )
(1,396 )
300
(55 )
(6,501 )
(7,902 )
440
6,136
13
6,589
12,000
—
(3,677)
49
(110)
(5,354)
2,908
(27,300)
33,036
400
6,136
7
The accompanying notes are an integral part of the consolidated financial statements.
Page 9
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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 the historical cost basis except for
certain properties and financial instruments that are measured at revalued amounts or fair values at
the end of each reporting period, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods
and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another valuation technique. In estimating the
fair value of an asset or a liability, the Company takes into account the characteristics of the asset
or liability if market participants would take those characteristics into account when pricing the
asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes
in these consolidated financial statements is determined on such a basis, except for share-based
payment transactions that are within the scope of IFRS 2, leasing transactions that are within the
scope of IAS 17, and measurements that have some similarities to fair value but are not fair value,
such as net realisable value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1,
2 or 3 based on the degree to which the inputs to the fair value measurements are observable and
the significance of the inputs to the fair value measurement in its entirety, which are described as
follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the entity can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable
for the asset or liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
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, 2015.
Page 10
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
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 and its subsidiaries.
The consolidated financial statements incorporate the financial statements of the Company and
entities (including special purpose entities) controlled by the Company and its subsidiaries. Control
is achieved when the Company:
• has power over the investee;
•
is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
Principal subsidiaries are as follows:
Principal subsidiaries
MTY Tiki Ming Enterprises Inc.
MTY Franchising USA, Inc.
Mucho Burrito Franchising USA, Inc.
9286-5591 Quebec Inc.
154338 Canada Inc.
8825726 Canada Inc.
Percentage of equity interest
%
100
100
100
80
50
90
The Company reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over
the investee when the voting rights are sufficient to give it the practical ability to direct the relevant
activities of the investee unilaterally. The Company considers all relevant facts and circumstances
in assessing whether or not the Company's voting rights in an investee are sufficient to give it
power, including:
•
the size of the Company's holding of voting rights relative to the size and dispersion of holdings
of the other vote holders;
• potential voting rights held by the Company, other vote holders or other parties;
•
rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that the Company has, or does not have,
the current ability to direct the relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders' meetings.
Page 11
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Basis of consolidation (continued)
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and
ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated statement of
profit or loss and other comprehensive income from the date the Company gains control until the
date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of
the Company and to the non-controlling interests. 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.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Company's accounting policies.
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.
Changes in the Company's ownership interests in existing subsidiaries
Changes in the Company's ownership interests in subsidiaries that do not result in the Company
losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts
of the Company's interests and the non-controlling interests are adjusted to reflect the changes in
their relative interests in the subsidiaries. Any difference between the amount by which the non-
controlling interests are adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to owners of the Company.
When the Company loses control of a subsidiary, a gain or loss is recognised in profit or loss and is
calculated as the difference between (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the previous carrying amount of the
assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All
amounts previously recognised in other comprehensive income in relation to that subsidiary are
accounted for as if the Company had directly disposed of the related assets or liabilities of the
subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as
specified/permitted by applicable IFRSs). The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the fair value on initial recognition for
subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an
investment in an associate or a joint venture.
Page 12
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
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, except for deferred tax assets or liabilities, and assets or liabilities 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. These may be initially measured either at
fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the
acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-
transaction basis. Other types of non-controlling interests are measured at fair value or, when
applicable, on the basis specified in another IFRS.
When the consideration transferred by the Company in a business combination includes assets or
liabilities resulting from a contingent consideration arrangement, the contingent consideration is
measured at its acquisition-date fair value and included as part of the consideration transferred in a
business combination. Changes in the fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with corresponding adjustments
against goodwill. Measurement period adjustments are adjustments that arise from additional
information obtained during the ‘measurement period’ (which cannot exceed one year from the
acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not
qualify as measurement period adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity is not remeasured at subsequent
reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is remeasured at subsequent reporting
dates in accordance with IAS 39 Financial Instruments: recognition and measurement, or IAS 37
Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding
gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Company’s previously held equity interest
in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Company
obtains control) and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising
from interests in the acquiree prior to the acquisition date that have previously been recognized in
other comprehensive income are reclassified to profit or loss where such treatment would be
appropriate if that interest were disposed of.
Page 13
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Business combinations (continued)
If the initial accounting for a business combination is incomplete by the end of the reporting period
in which the combination occurs, the Company reports provisional amounts for the items for which
the accounting is incomplete. Those provisional amounts are adjusted retrospectively during the
measurement period (see above), or additional assets or liabilities are recognized, to reflect new
information obtained about facts and circumstances that existed at the acquisition date that, if
known, would have affected the amounts recognized at that date.
Changes of ownership interest in a subsidiary that do not result in a loss of control are accounted
for as equity transactions, with no effect on net earnings or on other comprehensive income.
Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of
acquisition of the business less accumulated impairment losses, if any.
Where goodwill forms part of a cash-generating unit and part of the operation within the unit is
disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation and the
portion of the cash-generating unit retained.
Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Company and the revenue can be reliably measured, regardless of when the payment is being
made. Revenue is measured at the fair value of the consideration received or receivable, taking
into account contractually defined terms of payment and excluding taxes and duty.
Revenue is generally recognized on the sale of products or services when the products are
delivered or the services are performed, all significant contractual obligations have been satisfied
and the collection is reasonably assured.
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.
Page 14
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Revenue recognition (continued)
i) Revenue from franchise locations (continued)
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. 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).
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.
Page 15
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Leasing (continued)
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.
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 the
consolidated statement of income in other income (charges).
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 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.
Page 16
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Taxation (continued)
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets
and liabilities in the consolidated financial statements and the corresponding tax bases used in
the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilised. Such deferred tax assets and liabilities
are not recognized if the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with
investments in subsidiaries, except where the Company is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognized to the extent that it is
probable that there will be sufficient taxable profits against which to utilise the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the period in which the liability is settled or the asset realised, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
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.
Page 17
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for
administrative purposes, are stated in the consolidated statement of financial position at their
historical costs less accumulated depreciation (buildings) and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset, including
any costs directly attributable to bringing the asset to a working condition for its intended use.
Equipment, leasehold improvements, rolling stock and computer hardware are stated at cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is recognized so as to write off the cost or valuation of assets (other than land) less
their residual values over their useful lives, using the straight-line method. The estimated useful
lives, residual values and depreciation methods are reviewed at the end of each year, with the
effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item of property, plant and equipment is determined as
the difference between the sales proceeds and the carrying amount of the asset and is recognized
in profit or loss.
Depreciation is based on the following terms:
Buildings
Structure and components Straight-line
Straight-line
Equipment
Leasehold improvements and
signs
Rolling stock
Computer hardware
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.
Page 18
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Intangible assets (continued)
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are
expected from use or disposal. Gains or losses arising from derecognition of an intangible
asset, measured as the difference between the net disposal proceeds and the carrying
amount of the asset, are recognized in profit or loss when the asset is derecognized.
The Company currently carries the following intangible assets in its books:
Franchise rights and master franchise rights
The franchise rights and master franchise rights acquired through business combinations were
recognized at the fair value of the estimated future revenue stream related to the acquisition of
franchises. The franchise rights and master franchise rights are generally amortized on a straight
line basis over the term of the agreements which typically range between 10 to 20 years.
Some master franchise rights have no specific terms; as a result, those are not amortized as they
have an indefinite life.
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 primarily purchased software, which are being amortized
over their expected useful life on a straight-line basis.
Page 19
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). Where it is not possible to estimate
the recoverable amount of an individual asset, the Company estimates the recoverable amount of
the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual cash-generating units,
or otherwise they are allocated to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives 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.
Page 20
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Cash and cash equivalents
Cash and cash equivalents item includes cash on hand and short-term investments, if any, with
maturities upon acquisition of generally three months or less or that are redeemable at any time at
full value and for which the risk of a change in value is not significant.
Inventories
Inventories are measured at the lower of cost and net realizable value. Costs of inventories are
determined on a first-in-first-out basis and include acquisition costs, conversion costs and other
costs incurred to bring inventories to their present location and condition. The cost of finished
goods includes a pro rata share of production overhead based on normal production capacity.
In the normal course of business, the Company enters into contracts for the construction and sale
of franchise locations. The related work in progress inventory includes all direct costs relating to the
construction of these locations, and is recorded at the lower of cost and net realizable value.
Net realizable value represents the estimated selling price for inventories less all estimated costs of
completion and costs necessary to make the sale.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a
result of a past event, it is probable that the Company will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation.
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 21
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
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
Accounts receivable
Deposits
Loans receivable
Accounts payable and accrued liabilities
Line of credit
Long-term debt
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
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 22
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (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 deposits) are measured at amortized cost using the effective interest
method, less any impairment.
Interest income is recognized by applying the effective interest rate, except for short-term
receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the
end of each reporting period. Financial assets are considered to be impaired when there is
objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the investment have been
affected.
For all other financial assets, objective evidence of impairment could include:
significant financial difficulty of the issuer or counterparty; or
breach of contract, such as a default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial assets, such as trade receivables, assets that are assessed not
to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective
evidence of impairment for a portfolio of receivables could include the Company’s past experience
of collecting payments, an increase in the number of delayed payments in the portfolio past a
certain credit period, as well as observable changes in national or local economic conditions that
correlate with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the
difference between the asset’s carrying amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective interest rate.
Page 23
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Financial assets (continued)
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.
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.
Page 24
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Financial liabilities (continued)
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, 2014 and 2013.
Promotional funds
The Company manages the promotional funds of its banners. They are established specifically for
each banner to collect and administer funds dedicated for use in advertising and promotional
programs as well as other initiatives designed to increase sales and enhance the image and
reputation of the banners. Contributions to the funds are made based on a percentage of sales.
The revenue and expenses of the promotional funds are not included in the Company’s Statement
of income because the contributions to these funds are segregated and designated for specific
purposes. The combined amount payable resulting from the promotional fund reserves amounts to
a deficit of $(1,018) (November 30, 2013 – surplus of $684). 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.
Page 25
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
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.
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 considers 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
A special purpose entity (‘‘SPE’’) is consolidated if, based on an evaluation of the substance of
its relationship with the Company and the SPE’s risks and rewards, the Company concludes
that it controls the SPE. A SPE controlled by the Company is established under terms that
impose strict limitations on the decision-making powers of the SPE’s management, resulting in
the Company receiving the majority of the benefits related to the SPE’s operations and net
assets, being exposed to the majority of the risks incident to the SPE’s activities, and retaining
the majority of the residual or ownership risks related to the SPE or its assets.
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.
Page 26
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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)
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, trademarks, step-in rights and liabilities
assumed. Among other things, the determination of these fair market values involves the use
of discounted cash flow analyses and future system sales growth. 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 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.
The total cumulative impairment on property, plant and equipment of $158 (2013 – $158)
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 on the property, plant and equipment of our corporate
stores.
During the year, the Company recognized an impairment on one of its trademarks following a
decline in the performance of the related brand. The total impairment of $2,356 represents a
write down of the carrying value to the value in use of the trademark. A 1% change to the
discount rate used in the calculation of the impairment would result in a change of $184 in the
amount of the impairment.
Page 27
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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
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, 2014 and 2013.
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
year ended November 30, 2014 and 2013, 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 28
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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 the
Company’s 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 the Company’s 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.
Accounting policy developments
The following standards issued by the IASB were adopted by the Company on December 1, 2013.
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities
The Company has applied the amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities
for the first time in the current year. The amendments to IFRS 10 define an investment entity and
require a reporting entity that meets the definition of an investment entity not to consolidate its
subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its
consolidated and separate financial statements.
To qualify as an investment entity, a reporting entity is required to:
• obtain funds from one or more investors for the purpose of providing them with investment
management services;
• commit to its investor(s) that its business purpose is to invest funds solely for returns from
capital appreciation, investment income, or both; and
• measure and evaluate performance of substantially all of its investments on a fair value basis.
Page 29
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
5.
Accounting policy developments (continued)
Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure
requirements for investment entities.
As the Company is not an investment entity, the application of the amendments has had no impact
on the disclosures or the amounts recognised in the Company’s consolidated financial statements.
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
The Company has applied the amendments to IAS 32 Offsetting Financial Assets and Financial
Liabilities for the first time in the current year. The amendments to IAS 32 clarify the requirements
relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify
the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation
and settlement’.
As the Company does not have any financial assets and financial liabilities that qualify for offset,
the application of the amendments has had no impact on the disclosures or on the amounts
recognised in the Group's consolidated financial statements.
Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
The Company has applied the amendments to IAS 36 Recoverable Amount Disclosures for Non-
Financial Assets for the first time in the current year. The amendments to IAS 36 remove the
requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill
or other intangible assets with indefinite useful lives had been allocated when there has been no
impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce
additional disclosure requirements applicable to when the recoverable amount of an asset or a
CGU is measured at fair value less costs of disposal. These new disclosures include the fair value
hierarchy, key assumptions and valuation techniques used which are in line with the disclosure
required by IFRS 13 Fair Value Measurements.
The application of these amendments has had no material impact on the disclosures in the
Company’s consolidated financial statements.
6.
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, 2014, 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 beginning on or after:
IFRS 9 Financial Instruments
IFRS 15 Revenue from contracts with customers
Amendments to IAS 32 Financial Instruments:
January 1, 2018
January 1, 2017
Early adoption permitted
Early adoption permitted
Presentation
January 1, 2014
Early adoption permitted
Page 30
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
6.
Future accounting changes (continued)
IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement. The
Standard includes requirements for recognition and measurement, impairment, derecognition and
general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to
the standard as it completed each phase. The version of IFRS 9 issued in 2014 supersedes all
previous versions; however, for a limited period, previous versions of IFRS 9 may be adopted early
if not already done so provided the relevant date of initial application is before February 1, 2015.
IFRS 9 does not replace the requirement for portfolio fair value hedge accounting for interest risk
since this phase of the project was separated from IFRS project due to the longer term nature of
the macro hedging project which is currently at the discussion paper phase of the due process
Consequently, the exception in IAS 39 for fair value hedge of an interest rate exposure of a
portfolio of financial assets or financial liabilities continues to apply.
IFRS 15 replaces the following standards: IAS 11 Construction Contracts, IAS 18 Revenue,
IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real
Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transactions
Involving Advertising Services. This new standard sets out the requirements for recognizing and
disclosing revenue that apply to all contracts with customers.
The Company is in the process of determining the extent of the impact of these standards on its
consolidated financial statements.
7.
Business acquisitions
I) 2014 acquisition
On July 21, 2014, a 90% owned subsidiary of the Company acquired the Canadian assets of
Madisons New York Grill & Bar. The total consideration for the transaction was $12,925. The
transaction was effective July 18, 2014. The purpose of the transaction was to diversify the
Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Net obligations assumed
Net purchase price
Balance of sale (Note 18)
Net cash outflow
2014
$
12,925
(284)
12,641
(1,250)
11,391
Page 31
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
I) 2014 acquisition (continued)
Sources of funds:
Cash
Issuance of shares to non-controlling interest
Balance of sale (Note 18)
Line of credit (Note 15)
The purchase price allocation is as follows:
Net assets acquired:
Assets
Lease deposits
Franchise rights
Trademark
Goodwill (1)
Current liabilities
Gift card liability
Deferred income taxes
Net purchase price
2014
$
2,700
300
1,250
7,141
11,391
66
6,846
3,410
2,895
13,217
350
226
576
12,641
(1) The goodwill is deductible for tax purposes
Goodwill reflects how Madisons 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 $nil.
The purchase price allocation is still preliminary as post-closing adjustments have not been
finalized.
Page 32
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
II) 2014 acquisition
On October 31, 2014, the Company acquires the assets of Café Depôt, Muffin Plus, Sushi-Man
and Fabrika for a total consideration of $13,950. The purpose of the transaction was to further
diversify the Company’s range of offering.
Consideration paid:
Purchase price
Discount on non-interest bearing holdback
Net obligations assumed
Net purchase price
Holdbacks
Net cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventories
Prepaid expense and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1)
Current liabilities
Accrued liabilities
Deferred revenues
Deferred income taxes
Net purchase price
(2) The goodwill is deductible for tax purposes
2014
$
13,950
(75)
(10)
13,865
(975)
12,890
2014
$
13
14
77
116
220
1,743
3,717
3,763
5,127
14,570
418
122
540
165
705
13,865
Page 33
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
II) 2014 acquisition (continued)
Goodwill reflects how the 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 $nil.
The purchase price allocation is still preliminary as post-closing adjustments have not been
finalized.
III) 2014 acquisition
On November 7, 2014, the Company acquired the franchising operations of Van Houtte Café
Bistros for a total consideration of $950. The purpose of the transaction was to further diversify the
Company’s range of offerings.
Consideration paid
Purchase price
Net obligations assumed
Net purchase price
Payable to vendor after closing
Net cash outflow
The purchase price allocation is as follows:
Assets
Accounts receivables
Inventories
Property, plant and equipment
Franchise rights
Perpetual license
Goodwill (1)
Gift cards
Accounts payable and accrued liabilities
Deferred Revenues
Deferred taxes
Net purchase price
(1) The goodwill is deductible for tax purposes
2014
$
950
(153)
797
(185)
612
2014
$
13
1
14
45
518
347
50
974
(19)
(108)
(27)
(154)
(23)
797
Page 34
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
III) 2014 acquisition (continued)
Goodwill reflects how the 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 $nil.
The purchase price allocation is still preliminary as post-closing adjustments have not been
finalized.
IV) 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. The balance of the
ownership remained with the seven founders of ThaïZone. The total consideration for MTY’s 80%
share in the business was $17,700 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.
Consideration paid
Purchase price
Discount on non-interest bearing holdback
Net obligations assumed
Holdbacks
Net cash outflow
2013
$
17,700
(116)
17,584
(359)
(1,664)
15,561
Page 35
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
IV) 2013 acquisition (continued)
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
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
2013
$
100
3
103
4
5,316
1,199
7,417
8,558
22,597
35
65
100
488
588
4,425
17,584
(1) The goodwill is deductible for tax purposes.
(2) Represents 20% non-controlling ownership, measured at fair value.
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.
Page 36
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
V) 2013 acquisition
On September 24, 2013, the Company’s wholly-owned subsidiary, MTY Tiki-Ming Enterprises Inc.,
acquired the assets of Extreme Pita, PurBlendz and Mucho Burrito (“Extreme Brandz”) for a
consideration of $45,000, paid from MTY’s cash on hand. The transaction was 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
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventories
Income taxes receivable
Prepaid expense and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1) (2) (3)
2013
$
(restated)
45,000
(364)
(537)
528
44,625
(4,136)
(528)
39,963
2013
$
(restated)
300
68
28
33
165
594
500
11,499
17,792
17,547
47,932
Page 37
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
V) 2013 acquisition (continued)
Current liabilities
Accounts payable
Deferred revenues
Long-term debt (2)
Deferred income taxes (2)
Net purchase price
2013
$
(restated)
294
1,525
1,819
67
1,421
3,307
44,625
(1) Of the total goodwill, only $12,130 is deductible for tax purposes.
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.
(2) Following the finalization of the purchase price allocation, there was a measuring period
adjustment resulting in a decrease in long-term debt of $487, a decrease in goodwill of $356
and an increase in deferred income tax liabilities of $131.
(3) As a result of post-closing adjustments, the net purchase price was increased by $207, which
was allocated in goodwill.
Total expenses incurred related to acquisition costs amounted to $245 and are included in the
Company’s consolidated statement of income.
VI) 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., 9161- 9379 Quebec Inc. and
9201-0560 Quebec Inc. for a total consideration of $1,050. 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
Holdback
Net cash outflow
2013
$
1,050
(105)
945
Page 38
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
7.
Business acquisitions (continued)
VI) 2013 acquisition (continued)
The purchase price allocation is as follows:
Net assets acquired:
Assets
Plant, property and equipment
Franchise rights
Goodwill (1)
Net purchase price
2013
$
500
419
131
1,050
(1) The goodwill is deductible for tax purposes.
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.
8.
Accounts receivable
The following table provides details on trade accounts receivable not past due, past due and the
related allowance for doubtful accounts:
Total accounts receivable
Less : Allowance for doubtful accounts
Total accounts receivable, net
2014
$
20,292
4,305
15,987
2013
$
15,739
2,287
13,452
Page 39
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
8.
Accounts receivable (continued)
Of which:
Not past due
Past due for more than one day but for no more than 30 days
Past due for more than 31 days but for no more than 60 days
Past due for more than 61 days
Total accounts receivable, net
Allowance for doubtful accounts beginning of year
Additions
Write-off
Allowance for doubtful accounts end of year
2014
$
10,958
618
886
3,525
15,987
2,287
2,937
(919 )
4,305
2013
$
8,245
1,917
633
2,657
13,452
1,168
1,449
(330)
2,287
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.
9.
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
2014
$
803
—
763
1,566
2013
$
998
31
—
1,029
Inventories are presented net of a $13 allowance for obsolescence ($7 as at November 30, 2013).
All of the inventories are expected to be sold within the next twelve months.
Inventories expensed during the year ended November 30, 2014 was $24,965 (2013 – $21,987).
Page 40
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
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:
2014
$
15
671
686
(181 )
505
2013
$
16
962
978
(400)
578
Loans receivable, carrying no interest and without terms
of repayment
Loans receivable bearing interest between nil and 11% per
annum, receivable in monthly instalments of $24 in aggregate,
including principal and interest, ending in October 2018
Current portion
The capital repayments in subsequent years will be:
2015
2016
2017
2018
2019
Thereafter
$
181
269
145
51
10
30
686
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.
In July 2014, the Company acquired the interest of one of the minority shareholders for $300 in
order to facilitate a restructuring of the plant’s operations. Following this transaction, the Company
owns 91% of the shares of 7687567 Canada Inc.
The value of the investment in subsidiary held-for-sale reported in the consolidated statements of
financial position is equal to 7687567 Canada Inc.’s net carrying value of assets less liabilities plus
the value of a loan from the Company to 7687567 Canada Inc. 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, 2014, total assets and total liabilities for the investment were $5,447 and
$3,756 respectively.
Page 41
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
12. Property, plant and equipment
Cost
Land Buildings
ments Equipment
Leasehold
improve-
Computer
hardware
Rolling
stock
$
$
$
$
$
$
Total
$
Balance at
November 30,
2012
Additions
Disposals
Reclass of
investment in a
subsidiary now
held-for-sale
Impairment reversal
Additions through
business
combinations
Balance at
November 30,
1,975
3,835
2,416
3,609
540
40
12,415
—
(150 )
37
(287)
300
(266)
432
(186)
69
—
—
(10 )
838
(899)
(690 )
(1,309)
—
—
—
—
—
24
(1,843)
(13 )
—
(3,855)
40
—
—
64
705
297
2
—
1,004
2013
1,135
2,276
3,179
2,349
598
—
—
22
—
211
171
18
30
42
9,567
464
(914)
(672)
(18 )
—
(1,604)
Additions
Disposals
Additions through
business
combinations
Balance at
November 30,
2014
—
—
782
1,006
—
—
1,788
1,135
2,298
3,258
2,854
598
72
10,215
Page 42
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
12. Property, plant and equipment (continued)
Accumulated
depreciation
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
Eliminated on
disposal of
assets
Depreciation
expense
Balance at
November 30,
2014
Leasehold
improve-
Land Buildings
ments Equipment
Computer
hardware
Rolling
stock
$
$
$
$
$
$
Total
$
—
345
1,358
993
304
33
3,033
—
(41)
(73)
(53)
—
(9 )
(176)
—
(203)
—
135
—
428
(404)
443
(4 )
98
—
(611)
4
1,108
—
236
1,713
979
398
28
3,354
—
—
—
—
81
(485)
(247)
(18 )
—
(750)
423
302
60
3
869
317
1,651
1,034
440
31
3,474
Carrying amounts
Land Buildings
ments Equipment
Leasehold
improve-
Computer
hardware
Rolling
stock
$
$
$
$
$
$
Total
$
November 30, 2013
November 30,
1,135
2,040
1,466
1,370
200
2
6,213
2014
1,135
1,981
1,607
1,820
158
41
6,741
Land, buildings and equipment with a carrying amount of $Nil as at November 30, 2014 (Nil as at
November 30, 2013) have been pledged as security to secure borrowings of the Company’s food
processing division. The assets are grouped with the investment in subsidiary held-for-sale.
Page 43
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
13.
Intangible assets
Cost
Balance at
November 30,
2012
Additions
Disposals
Acquisition through
business
combinations
Balance at
November 30,
2013
Additions
Impairment
Acquisition through
business
combinations
Balance at
November 30,
2014
Accumulated
amortization
Balance at
November 30,
2012
Amortization
Disposals
Balance at
November 30,
2013
Amortization
Balance at
November 30,
2014
Franchise
and master
franchise
rights(1) Trademarks
$
$
41,174
15
—
33,033
—
—
Step-in
rights
$
—
—
—
Leases
Other
Total
$
$
$
1,000
—
—
290
331
(272 )
75,497
346
(272)
17,234
25,209
1,199
—
—
43,642
58,423
215
—
58,242
25
(2,356)
1,199
—
—
1,000
—
—
349
7
—
119,213
247
(2,356)
11,080
7,173
—
—
347
18,600
69,718
63,084
1,199
1,000
703
135,704
Franchise
and master
franchise
rights(1) Trademarks
$
$
Step-in
rights
$
Leases
Other
Total
$
$
$
17,278
4,064
—
21,342
5,704
27,046
—
—
—
—
—
—
—
20
—
20
120
733
107
—
840
83
273
32
18,284
4,223
(272 )
(272)
33
78
22,235
5,985
140
923
111
28,220
Page 44
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
13.
Intangible assets (continued)
Carrying amounts
Franchise
and master
franchise
rights(1) Trademarks
$
$
Step-in
rights
$
November 30, 2013
November 30, 2014
37,081
42,672
58,242
63,084
1,179
1,059
Leases
Other
Total
$
160
77
$
$
316
592
96,978
107,484
(1) Franchise and master franchise rights include an amount of $1,500 ($1,500 as at November
30, 2013) of unamortizable master franchise right. The master franchise right has no specific
terms and is valid for as long as the Company does not default on the agreement.
During the year, as the result of a decline in the financial performance of the Country Style
franchise network, the Company carried out a review of the recoverable amounts of the intangible
assets related to that brand. The review led to the recognition of an impairment loss of $2,356,
which has been recognised in the consolidated statement of income. The Company also estimated
the fair value less costs of disposal of the assets, which are based on the observation of recent
transactions for similar assets. The fair value less costs of disposal is less than the value in use
and hence the recoverable amount of the relevant assets has been determined on the basis of their
value in use, which amounted to $2,968 as at November 30, 2014. No impairment charges were
recognized in 2013 as the value in use exceeded the book value of the CGU’s assets.
Indefinite life intangibles, which consist of trademarks, master franchise rights and perpetual
licenses 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
2014
$
1,500
9
125
500
145
2,700
1,600
1,100
1,253
1,740
3,338
5,425
11,307
1,135
300
8,001
9,816
7,417
2013
$
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
Page 45
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
13.
Intangible assets (continued)
Madisons New York Grill & Bar
Café Dépôt
Muffin Plus
Sushi-Man
Van Houtte
14. Goodwill
The changes in the carrying amount of goodwill are as follows:
Balance, beginning of year
Additional amounts recognized from
business acquisitions (Note 7)
Reclassification of investment in subsidiary held for sale (1)
Balance, end of year
2014
$
3,410
2,959
371
434
347
64,931
2014
$
46,095
8,279
—
54,374
2013
$
—
—
—
—
—
59,742
2013
$
(restated)
20,266
26,029
(200)
46,095
(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 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, goodwill is tested as a whole, at
the franchising operating segment level.
15. Credit facilities
As at November 30, 2014, the Company has access to an authorized revolving credit facility of
$30,000 and a treasury risk facility of $1,000. One of the Company’s subsidiaries also has access
to a $10,000 credit facility under the same terms and conditions. Bank indebtedness’s are secured
by a moveable hypothec on all the assets of the Company.
The revolving credit facility bears interest at the bank’s prime rate for advances in C$ (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, 2014, 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 46
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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 to 1. The credit facility is payable on demand
and is renewable annually. As at November 30, 2014, $11,750 was drawn from the facilities in the
form of banker’s acceptance, with maturity dates ranging from December 2014 and January 2015.
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
2014
$
546
768
1,314
1,739
3,053
2013
$
420
306
726
1,065
1,791
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, $239 (2013 – $465) was unused
and reversed into income. The amounts used in the year include $657 (2013 – $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 $1,484 (2013 – $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 47
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
17. Deferred revenue and deposits
Franchise fee deposits
Supplier contributions and other allowances
Current portion
18. Long-term debt
2014
$
2,388
1,321
3,709
2013
$
2,570
1,085
3,655
(3,709 )
—
(3,655)
—
2014
$
2013
$
(restated)
Non-interest bearing holdbacks on acquisition of Valentine,
repayable January 2014.
Non-interest bearing holdbacks on acquisition of Jugo Juice,
repayable August 2014.
Non-interest bearing holdbacks on acquisition of Mr. Souvlaki,
repayable September 2015
Non-interest bearing holdbacks on acquisition of SushiGo,
repayable December 2014
Non-interest bearing holdbacks on acquisition of Extreme Brandz,
repayable between December 2014 and March 2016.
Non-interest bearing holdbacks on acquisition of ThaïZone,
repayable between March 2015 and September 2015.
Non-interest bearing contract cancellation fees, payable in US
dollars based on the performance of certain stores
Non-interest bearing holdbacks on acquisition of Café Dépôt,
repayable between July 2015 and October 2016.
Balance of sale on acquisition of Madisons, bearing interest at
7.00%, repayable in quarterly capital payments of $62 and
expiring in July 2019
Current portion
—
—
88
—
4,347
1,156
96
974
1,188
7,849
(4,035 )
3,814
364
129
165
105
4,167
1,677
75
—
—
6,682
(2,703)
3,979
Page 48
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
19. Capital stock
Authorized, unlimited number of common shares without nominal or par value
Number
2014
Amount
$
Number
2013
Amount
$
Balance at beginning
and end of year
19,120,567
19,792
19,120,567
19,792
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, 2014 and 2013. There are no options outstanding
as at November 30, 2014 and 2013.
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:
2014
2013
Weighted daily average number of common shares
19,120,567
19,120,567
Page 49
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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:
Carrying
amount
$
6,589
15,987
686
2014
Fair
value
$
6,589
15,987
686
Carrying
amount
$
(restated)
6,136
13,452
978
2013
Fair
value
$
(restated)
6,136
13,452
978
11,750
11,750
12,000
12,000
13,214
7,849
13,214
7,849
11,903
6,682
11,903
6,682
Financial assets
Cash
Accounts receivable
Loans receivable
Financial liabilities
Line of credit
Accounts payable and
accrued liabilities
Long-term debt
Determination of fair value
The following methods and assumptions were used to estimate the fair values of each class of
financial instruments:
Cash, 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, 2014.
Page 50
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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 consolidated 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 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 $9 (2013 - $133).
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 contracts to minimize its
exposure to fluctuations in foreign currencies related to the purchase of coffee. As of
November 30, 2014, the total value of such contracts was approximately $12 (2013 – $Nil).
In addition, the Company concludes sales denominated in foreign currencies. The Company’s
foreign operations use the U.S. dollar as functional currency. The Company’s exposure to foreign
exchange risk stems mainly from cash, other working capital items and the financial obligations of
its foreign operations.
Other than the above-mentioned foreign transactions, the Company has minimal exposure to the
US$ 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, 2014, the Company carried US$ cash of CAD$1,766, net accounts receivable
of CAD$945 and net accounts payable of CAD$836 (CAD$887, CAD$437 and CAD$342 in 2013).
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 $18
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. $11,750 of the credit facility was used as at
November 30, 2014. A 100 basis points increase in the bank’s prime rate would result in additional
interest of $118 per annum on the outstanding credit facility. The Company limits this risk by using
short-term banker’s acceptance from the credit facility.
Page 51
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
22. Financial instruments (continued)
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, 2014:
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
thereafter
$
11,750
11,750
11,750
—
—
—
13,214
7,849
n/a
32,813
13,214
8,595
13,214
2,232
—
1,870
—
3,268
201
33,760
39
27,235
36
1,906
58
3,326
—
1,225
68
1,293
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:
(a) To safeguard the Company’s ability to obtain financing should the need arise;
(b) To provide an adequate return to its shareholders;
(c) To maintain financial flexibility in order to have access to capital in the event of future
acquisitions.
The Company defines its capital as follows:
(a) Shareholders’ equity;
(b) Long-term debt including the current portion;
(c) Deferred revenue including the current portion;
(d) Cash
The Company’s financial strategy is designed and formulated to maintain a flexible capital structure
consistent with the objectives stated above and to respond to changes in economic conditions and
the risk characteristics of the underlying assets. The Company may invest in longer or shorter-term
investments depending on eventual liquidity requirements.
The Company monitors capital on the basis of the debt-to-equity ratio. The debt-to-equity ratios at
November 30, 2014 and 2013 were as follows:
Debt
Equity
Debt-to-equity ratio
2014
$
2013
$
(restated)
46,442
41,879
149,693
0.31
130,809
0.32
Page 52
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
23. Capital disclosures (continued)
During the year ended November 30, 2014, the Company’s debt-to-equity ratio decreased slightly
as operating cash flows exceeded amounts disbursed for acquisitions and dividends. 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, 2014, 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
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)
2014
$
45,565
3,633
4,698
38,605
19,454
3,222
115,177
2014
$
41,888
18,244
3,855
949
7,582
72,518
2013
$
36,496
3,466
5,381
36,481
15,586
3,950
101,360
2013
$
35,039
13,728
3,397
1,321
8,640
62,125
(1) Other operating expenses are comprised mainly of rental assistance, travel & promotional
costs, bad debt expense and other office administration expenses
Page 53
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
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:
Lease
commitments
$
Sub-leases
$
Net
commitments
$
66,983
64,196
57,792
50,880
44,197
105,063
389,111
62,835
60,172
54,445
48,312
42,150
98,461
366,375
4,148
4,024
3,347
2,568
2,047
6,602
22,736
2015
2016
2017
2018
2019
Thereafter
Payments recognized as a net expense during the year ended November 30, 2014 amount to
$8,739 (2013 – $7,643).
Operating leases as lessor relate to the properties leased or owned by the Company, with lease
terms ranging between 5 to 10 years. Some have options to extend the duration of the agreements,
for periods ranging between 1 and 15 years. None of the agreements contain clauses that would
enable the lessee or sub-lessee to acquire the property.
During the year ended November 30, 2014, the Company earned rental revenue of $4,698 (2013 –
$5,381).
The Company has recognized a liability of $768 (2013 – $306) 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 2014 to February 2015. The total
commitment amounts to approximately $147 (2013 – $544).
The Company has entered into contracts to minimize its exposure to fluctuation in foreign currency
related to the purchase of coffee. The total commitment amounts to approximately $844 (2013 –
nil).
28. Guarantee
The Company has provided a guarantee in the form of a letter of credit for an amount of $45 (2013
– $45).
Page 54
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
29. Contingent liabilities
The Company is involved in legal claims associated with its current business activities. The
Company’s estimate of the outcome of these claims is disclosed in Note 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-deductible
investment losses
Failure to file –
additional credit
Adjustment to prior
year provisions
Other – net
Provision for income
taxes
$
9,150
(156)
23
—
99
—
(6)
13
9,123
2014
%
26.5
(0.5)
0.1
—
0.3
—
(0.0)
0.0
26.4
$
9,189
(42 )
59
55
20
(76 )
(271 )
15
8,949
2013
%
26.6
(0.1)
0.2
0.1
0.1
(0.2)
(0.8)
0.0
25.9
The statutory tax rate has decreased in 2014 as a result of a change in the provincial allocation of
the Company’s taxable income.
Page 55
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
30.
Income taxes (continued)
The variation in deferred income taxes during the year were as follows:
Recognized
in profit or
loss Acquisition
$
$
November 30,
2014
$
November 30,
2013
$
(restated)
140
720
(255)
39
(6,078)
(5,434)
(36)
196
74
(10)
(527)
(303)
—
—
(20 )
—
(394 )
(414 )
104
916
(201)
29
(6,999)
(6,151)
Net deferred tax
assets (liabilities)
in relation to:
Property, plant and
equipment
Provisions
Long-term debt
Non-capital losses
Intangible assets
As at November 30, 2014 there were approximately $6,706 (2013 – $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, 2014, there were approximately $nil (2013 – $nil) in non-capital losses
accumulated in one of the Company’s subsidiaries for which no deferred income tax asset was
recognized.
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 (2013 – $nil).
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 construction and renovation of restaurants.
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.
Page 56
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
31. Segmented information (continued)
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 2014, the food processing investment in subsidiary was reclassified as an investment in subsidiary held-for-
sale.
Below is a summary of each segment’s performance during the years.
For the year ended November 30, 2014:
Franchising
$
Corporate
$
Distribution Processing(1)
$
$
Operating revenues
Operating expenses
89,962
47,092
42,870
12,062
12,461
(399)
6,023
5,470
553
Other expenses
Depreciation – property, plant and
equipment
Amortization – intangible assets
Interest on long-term debt
Other income
Foreign exchange gain (loss)
Interest income
Gain on redemption of preferred shares
Impairment (charges) reversals
Gain on disposal of property, plant
and equipment
Operating income
Current income taxes
Deferred income taxes
Net income
Total assets
Total liabilities
495
5,985
278
142
118
—
(2,356)
1,179
35,195
8,879
303
26,013
189,738
46,048
372
—
—
—
—
—
—
—
(771)
(207)
—
(564)
4,338
701
2
—
—
—
—
—
—
—
551
148
—
403
929
254
8,487
8,851
(364)
—
—
144
(36)
—
100
—
—
(444)
—
—
(444)
1,691
—
Inter-
company
$
2014
Total
$
(1,357)
(1,357)
—
115,177
72,518
42,659
—
—
—
—
—
—
—
—
—
—
—
—
(561)
(561)
869
5,985
422
106
118
100
(2,356)
1,179
34,530
8,820
303
25,407
196,135
46,442
Page 57
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 2013
(In thousands of Canadian dollars, except per share amounts)
31. Segmented information (continued)
For the year ended November 30, 2013:
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
Impairment reversal on property, plant
and equipment
Gain on disposal of property, plant
and equipment
Investment income
Operating income
Current income taxes
Deferred income taxes
Net income
Total assets
Total liabilities
Franchising
$
Corporate
$
Distribution
$
Processing(1)
$
74,131
36,223
37,908
11,850
11,024
826
6,215
5,665
550
10,019
10,068
(49)
439
4,223
176
57
486
—
317
76
34,006
7,464
1,236
25,306
168,496
41,012
511
—
—
—
—
64
—
—
379
102
—
277
2,981
725
1
—
—
—
—
—
—
—
549
147
—
402
1,079
347
157
—
115
(4)
1
—
—
—
(324)
—
—
(324)
1,377
—
Inter-
company
$
(855)
(855)
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,245)
(205)
(1) The assets and liabilities of the food processing plant are classified as Investment in subsidiary held for sale.
2013
(restated)
Total
$
101,360
62,125
39,235
1,108
4,223
291
53
487
64
317
76
34,610
7,713
1,236
25,661
172,688
41,879
Page 58
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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
2014
$
(2,508 )
(459 )
292
(405 )
250
1,243
(1,587 )
2013
$
(991)
(301)
106
(155)
(1,041)
(475)
(2,857)
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 years was as follows:
Short-term benefits
Board member fees
Total remuneration of key management personnel
2014
$
809
40
849
2013
$
812
38
850
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 59
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2014 and 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
2014
$
538
538
2013
$
402
402
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, 2014,
dividends of $nil (2013 – $27) were paid by those subsidiaries to the above-mentioned company.
34. Subsequent Events
On December 18, 2014, the Company finalized the acquisition of the North American assets of
Manchu Wok, Wasabi Grill & Noodle and SenseAsian for a total consideration of $7,900.
Page 60