Dear shareholders,
First and foremost, I wish to personally thank each one of MTY’s franchisee, business partners, team
members and shareholders for their continuous support and contribution to our success in 2015. I truly
appreciate and thank you for being part of our growing family.
During the last year, MTY has reached an important milestone: the sales of our network have for the
first time exceeded $1 billion, a number that far exceeds the dreams I had when I opened my first
restaurant over 30 years ago. This is in no way the end of the journey, I now have dreams of much
bigger numbers for the future; MTY is currently virtually debt free and is generating strong cash flows,
we are set for the next stage of our growth.
From a financial point of view, 2015 was a very good year for MTY. The Company continues to generate
strong cash flows and our EBITDA was over $50 million for the first time, achieving another important
milestone. Recent acquisitions have been successfully integrated and are yielding what we hoped they
would.
Despite reaching those two important milestones, the past year was not a smooth ride, and some of our
brands have experienced a difficult period. Looking at our financial statements, investors will notice we
had to take a material impairment charge on the franchise rights and trademark of Extreme Pita. In
spite of our continued efforts, the Extreme Pita network has been under severe pressure since we
acquired it in 2013 and this year it became clear its value was impaired. We are still confident we can
turn the situation around but it will take time to rebuild the chain to the number of stores we originally
had acquired.
During the year, MTY has made two acquisitions: the first one, Manchu Wok, closed in December 2014.
The second one, Big Smoke Burger, closed in September 2015. The two acquisitions are very different
but fit in MTY’s portfolio perfectly. Manchu Wok is an iconic, mature brand that has a very strong
consumer support and loyalty; Big Smoke Burger is a young brand that is growing rapidly in a very
fashionable segment of the restaurant industry, gourmet burgers.
During 2015, we also saw a large number of our stores close. Although some store closures are normal
and often necessary, it is certainly not a number we want to repeat in the future. MTY’s management
team is taking action to make sure we can keep the good locations open and find new ones in which our
business will flourish. We are currently operating 2,738 restaurants under 41 different brands, and
although some of our concepts might be gradually phased out and replaced by another one of our
concepts, we feel this diversified portfolio is one of the core strengths of MTY.
We approach 2016 in an enviable financial position and as such we are well positioned to continue our
acquisition strategy. Discipline and patience continue to be at the core of our values, we will seek the
best possible targets for MTY, whether they north or south of the US border.
For 2016, we expect to be facing some severe head winds. The economic situation in some of the
territories in which we operate has continued to deteriorate during 2015 and it is uncertain what the
impact will be on consumer spending and on the allocation of food dollars. Competitive pressures are
intensifying and the consumers are becoming increasingly demanding.
MTY will continue to focus its efforts on the quality, assortment and presentation of the food and on
constantly improving the operations in order to offer a superior alternative to consumers. Our success
rests on the strength of our team and of each individual franchisee – we will overcome that challenges
that lay on the road ahead together, united.
I remain committed to achieving sustainable growth in our network and in the value of MTY to its
shareholders. To that end, we can rely on the energy, enthusiasm and dedication of all MTY team
members, whom I want to thank personally and on behalf of the Board of Directors.
MTY Food Group Inc.
Stanley Ma
Chairman and Chief Executive Office
February 15, 2016
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2015
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, 2015.
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 current issued and adopted interpretations applied to fiscal years
beginning on or after December 1, 2014.
This MD&A was prepared as at February 15, 2016. 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 2015. Forward-looking statements also include any
other statements that do not refer to independently verifiable historical facts. A statement made is forward-
looking when it uses what is known and expected 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, forward-looking statements in this MD&A describe the Company’s
expectations at February 15, 2016 and, accordingly, are subject to change after such date. Except as may be
required by Canadian securities laws, the Company does 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, the Company
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 are believed to
be reasonable on February 15, 2016. 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 the Company
has 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 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.
Readers are cautioned 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 15, 2016. 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 December 18, 2014, the Company announced that it had completed the acquisition of 100% of the assets
of Manchu Wok, Wasabi Grill & Noodle and SenseAsian restaurants, for a total consideration of $7.9
million. The transaction was effective on December 18, 2014.
On March 23, 2015, the Company acquired the interest of the non-controlling shareholders of one of its
subsidiaries (9286-5591 Quebec Inc., doing business as Thaï Zone) for $0.8 million. Following this
transaction, the Company has a 100% ownership of this subsidiary.
In May 2015, the Company deemed the future sale of 7687567 Canada Inc. no longer probable in the near
future and as such, reclassified the investment from a subsidiary held-for-sale to a consolidated subsidiary.
Prior year amounts on the consolidated statements of income and of comprehensive income, the statements
of financial position and the statements of cash flows have been restated for the change in classification.
On September 18, 2015, the Company acquired 60% of the assets of Big Smoke Burger for a total
consideration of $3.0 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,
Van Houtte, Manchu Wok, Wasabi Grill & Noodle and SenseAsian, Tosto and Big Smoke Burger.
Page 3
As at November 30, 2015, MTY had 2,738 locations in operation, of which 2,695 were franchised or under
operator agreements and the remaining 43 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, in other venues or
retailers shared sites, hospitals, universities and airports. The non-traditional locations are typically smaller
in size, require a lower investment and generate lower revenues than the locations found in shopping malls,
food courts or street front locations. The street front locations are mostly made up of the Country Style, La
Crémière, “TCBY”, Sushi Shop, Taco Time, Tutti Frutti, Valentine, 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,
O’Burger and Tosto.
Other banners added through acquisitions include:
Brand
Fontaine Santé/Veggirama
La Crémière
Croissant Plus
Cultures
Thaï Express
Mrs. Vanelli’s
TCBY – Canadian master franchise
right
Yogen FrüzTM exclusive master
franchise rights in Canada
Sushi Shop
Koya Japan
Sushi Shop – existing franchise
locations
Tutti Frutti
Taco Time – Canadian master
franchise rights
Country
Holdings Inc.
Groupe Valentine inc.
Jugo Juice
Mr. Submarine
Koryo Korean BBQ
Mr. Souvlaki
SushiGo
Extreme Pita, PurBlendz
and
Mucho Burrito ("Extreme Brandz")
Services
Food
Style
Acquisition
year
1999
2001
2002
2003
May 2004
June 2004
September 2005
April 2006
September 2006
October 2006
September 2007
September 2008
October 2008
May 2009
September 2010
August 2011
November 2011
November 2011
September 2012
June 2013
September 2013
% ownership
100%
100%
100%
100%
100%
100%
100%
# of
franchised
locations
18
71
18
24
6
103
91
# of corporate
locations
—
3
2
—
—
—
—
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
152
42
24
—
29
117
475
86
134
338
19
14
3
300 - 34 of
which in the
United States
—
5
—
15
—
—
5
9
2
—
1
—
2
5
Page 4
Brand
Thaï Zone
Acquisition
year
September 2013
% ownership
80%
Madisons
Café Dépôt, Muffin Plus, Sushi-
Man and Fabrika
Van Houtte Café Bistros –
perpetual franchising license
Manchu Wok, Wasabi Grill &
Noodle and SenseAsian
Big Smoke Burger
July 2014
October 2014
November 2014
December 2014
September 2015
90%
100%
100%
100%
60%
# of
franchised
locations
25 and 3 mobile
restaurants
14
88
51
115
13
# of corporate
locations
—
—
13
1
17
4
MTY also has an exclusive area development agreement with Restaurant Au Vieux Duluth to develop and sub-
franchise Au Vieux Duluth Express quick-service restaurants in the Provinces of Ontario and Quebec.
Revenues from franchise locations are generated from royalty fees, franchise fees, sales of 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 September 18, 2015, the Company acquired 60% of the assets of Big Smoke Burger for a total
consideration of $3,000. As at closing, there were 17 outlets in operations, 4 of which corporately-owned
locations. Of the 17 stores, 8 are located in the United States or overseas.
On March 23, 2015, the Company acquired the interest of the non-controlling shareholders of one of its
subsidiaries (9286-5591 Quebec Inc., doing business as Thaï Zone) for $0.8 million. Following this
transaction, the Company has a 100% ownership of this subsidiary.
On December 18, 2014, the Company announced that it had completed the acquisition of 100% of the assets
of Manchu Wok, Wasabi Grill & Noodle and SenseAsian for a total consideration of $7.9 million. At the
date of closing, there were 132 outlets in operations, including 17 corporately-owned restaurants. 51 of the
restaurants are located in the United States.
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
Page 5
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.
Selected annual information
(in thousands of dollars)
Year ended
November 30,2015
Year ended
November 30,2014
(restated)
Year ended
November 30,2013
(restated)
Total assets
Total long-term liabilities
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
225,387
7,711
145,203
50,682
35,903
43,996
26,015
25,918
1.36
1.36
$7,648
$0.40
199,448
9,744
115,177
42,659
34,308
36,664
25,204
25,184
1.32
1.32
$6,501
$0.34
177,345
9,255
101,360
39,476
34,691
34,691
25,754
25,760
1.35
1.35
$5,354
$0.28
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
2014
May
2014
August
2014
Quarters ended
November
2014
February
2015
May
2015
August
2015
November
2015
Revenue
$25,602
$29,402
$30,234
$29,939
$32,364
$38,355
$35,003
$39,481
EBITDA (restated1)
Net income
attributable to
owners (restated1)
Total
comprehensive
income
attributable to
owners (restated1)
$9,486
$11,405
$10,499
$11,269
$10,423
$13,444
$13,340
$13,475
$5,537
$7,266
$7,102
$5,299
$6,219
$8,501
$8,176
$3,119
$5,519
$7,278
$7,088
$5,299
$5,878
$8,548
$8,336
$3,156
Per share
$0.29
$0.38
$0.37
$0.28
$0.33
$0.44
$0.43
Per diluted share
1 In May 2015, the Company deemed the future sale of 7657567 Canada Inc. no longer probable in the near future and as such,
reclassified the investment from a subsidiary held-for-sale to a consolidated subsidiary. Prior period amounts on the consolidated
statements of income and of comprehensive income, and the statements of financial position have been restated for the change in
classification.
$0.43
$0.38
$0.37
$0.33
$0.44
$0.29
$0.28
$0.16
$0.16
Results of operations for the fiscal year ended November 30, 2015
Revenue
During the 2015 fiscal year, the Company’s total revenue increased by 26% to reach $145.2 million.
Revenues for the four segments of business are broken down as follows:
November 30, 2015
($ million)
November 30, 2014
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
101.7
30.4
6.4
8.8
(2.1)
145.2
90.0
12.1
6.0
8.5
(1.4)
115.2
13%
152%
7%
3%
N/A
26%
Page 7
As is shown in the table above, revenue from franchise locations progressed by 13%. Several factors
contributed to the variation, as listed below:
Revenues, 2014 fiscal year
Increase in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease in turn key, sales of material to franchisees and rent revenues
Other non-material variations
Revenues, 2015 fiscal year
$million
90.0
11.2
0.4
(1.5)
1.6
101.7
During the year, the Company benefitted from the impact of the acquisitions realised late in 2014 and in
2015, which accounted for nearly all of the increase in recurring streams of revenues.
Revenue from corporate owned locations increased by 152%, to $30.4 million during the year. The
increase is mainly due to the corporate stores added through the acquisitions made in the past 12 months.
At the end of the year, the company had 43 corporate stores, compared to 36 a year earlier.
Distribution revenues increased by 7% year-to-date mainly due to an increase in the system sales of the
concepts it supports during the period. System sales for the concepts it supports increased by more than 5%
year-over-year.
Food processing revenues increased by 3% during the year mainly due to the addition of new contracts
during the second half of the fiscal year.
Cost of sales and other operating expenses
During the year, operating expenses increased by 30% to $94.5 million, up from $72.5 million a year ago.
Operating expenses for the four business segments were incurred as follows:
November 30, 2015
($ million)
November 30, 2014
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
52.7
29.1
5.8
9.0
(2.1)
94.5
47.1
12.5
5.5
8.8
(1.4)
72.5
12%
133%
6%
1%
N/A
30%
Expenses from franchise operations increased by $5.6 million during 2015 compared to the same period last
year. The increase is mostly attributable to the direct and indirect costs of the workforce required to operate the
new concepts acquired late in 2014 and in 2015, which more than offset the decline in rent and resale material
and in the cost of bad debts. Other notable variations during the period include higher expenditures and
provisions for lease termination costs.
Expenses from the other segments fluctuated mostly as a function of factors explained in the Revenue section
above.
Page 8
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Fiscal year ended November 30, 2015
(In millions $)
Franchise
Corporate Distribution Processing
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
101.71
52.75
48.96
48%
30.36
29.05
1.31
4%
6.43
5.81
0.62
8.77
8.98
(0.21)
Intercompany
transactions
(2.07)
(2.07)
0.00
Total
145.20
94.52
50.68
10%
N/A
N/A
35%
Intercompany
transactions
(1.36)
(1.36)
0.00
(In millions $)
Franchise
Corporate Distribution Processing
Total
Fiscal year ended November 30, 2014
12.06
12.46
(0.40)
89.96
47.09
42.87
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
37%
(1)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. EBITDA is defined as operating revenues less operating expenses. See reconciliation of
EBITDA to Income before taxes on page 10.
115.18
72.52
42.66
8.49
8.85
(0.36)
6.02
5.47
0.55
N/A
48%
N/A
9%
N/A
Total EBITDA for the year ended November 30, 2015 was $50.7 million, an increase of 19% compared to
the same period last year.
During the period, the franchising operations generated $49.0 million in EBITDA, a 14% 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. Corporate stores also generated
a higher EBITDA in 2015 mainly as a result of the new stores acquired at the end of 2014 and in 2015.
EBITDA as a % of revenues decreased slightly for the year mainly due to the higher relative weight of
corporate stores which caused the overall margin to go down as corporate stores convert a lower proportion
of their revenues into EBITDA. EBITDA was also negatively affected by higher lease termination cost.
Net income
For the year ended November 30, 2015, net income attributable to owners increased by 3%, to $26.0
million or $1.36 per share ($1.36 per diluted share) compared to $25.2 million or $1.32 per share ($1.32 per
diluted share) for the same period last year. Net income for both 2015 and 2014 was adversely impacted by
impairment charges taken on the Extreme Pita and Country Style intangible assets.
On a normalized basis, net income attributable to owners for 2015 and 2014 would have been $31.9 million
and $26.9 million respectively. This represents a 19% increase year-over-year. The increase is mainly due
to the growth in EBITDA described above and higher gain on the disposal of property, plant and
equipment. This was partly offset by higher depreciation and amortization charges resulting from the
acquisitions realized in the last twelve months.
Page 9
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands of dollars)
Period ended
November 30, 2015
Period ended
November 30, 2014
(Restated)
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Foreign exchange gains
Interest income
Impairment charge
Gain on redemption of preferred shares
Gain on disposal of property, plant and equipment and
intangibles
EBITDA
35,903
1,535
6,744
436
(64)
(144)
8,093
—
(1,821)
50,682
34,308
1,091
5,985
422
(106)
(118)
2,356
(100)
(1,179)
42,659
Other income and charges
The gain on disposal of property, plant and equipment and intangible assets increased by $0.6 million in
2015 compared to the same period last year. The increase is mainly because of the disposal of some
profitable corporate stores during the second and fourth quarter of 2015.
During the fourth quarter, as a result of a decline in the financial performance of the Extreme Pita and
Croissant Plus franchise network, the Company carried out a review of the recoverable amounts of the
intangible assets related to those brands. The review led to the recognition of an impairment loss of $7.8
million and $0.1 million respectively. As well, during the second quarter, the Company recorded a $0.2
million impairment loss for the goodwill associated with 7687567 Canada Inc. The goodwill was mainly
associated to a contract that was contributed by a minority shareholder at the inception of operations. This
contract was terminated in 2015.
Income taxes
The provision for income taxes as a percentage of income before taxes increased slightly compared to the
same period last year. The slightly higher statutory rate is caused by a higher proportion of the profitability
of the Company being realized in the United States during 2015 as a result of the acquisition of Manchu
Wok.
Page 10
Results of operations for the fourth quarter ended November 30, 2015
Revenue
During the fourth quarter of our 2015 fiscal year, the Company’s total revenue increased by 32% to reach
$39.5 million. Revenues for the four segments of business are broken down as follows:
November 30, 2015
($ million)
November 30, 2014
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating revenues
27.7
8.0
2.1
2.6
(0.9)
39.5
22.7
3.5
1.9
2.3
(0.5)
29.9
22%
127%
6%
11%
N/A
32%
As is shown in the table above, revenue from franchise locations progressed by 22%. Several factors
contributed to the variation, as listed below:
Revenues, fourth quarter of 2014
Increase in recurring revenue streams
Increase 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, fourth quarter of 2015
$million
22.7
2.5
0.6
1.2
0.7
27.7
During the fourth quarter of 2015, the company benefitted from the impact of the acquisitions realized late
in 2014 and early in 2015, which contributed to most of the increase in recurring streams of revenues. The
fourth quarter also saw an increase to turnkey revenues compared to the same period last year mostly from
the expansion of one of its banners.
Revenue from corporate owned locations increased to $8.0 million during the quarter, up from $3.5 million
for the same period last year. The increase is mainly due to the corporate stores acquired through the
acquisitions made in the past 12 months. At quarter end, the company had 43 corporate stores, compared to
36 a year earlier.
Distribution and food processing revenues increased by 6% and 11% respectively during the fourth quarter.
Distribution revenues increased mainly due to an increase in system sales of the concepts it supports during
the period. Revenues from the food processing business increased 11%, benefitting from the introduction
of new products to the portfolio.
Page 11
Cost of sales and other operating expenses
During the fourth quarter of 2015, operating expenses increased by 39% to $26.0 million, up from $18.6
million for the same period a year ago. Operating expenses for the four business segments were incurred as
follows:
November 30, 2015
($ million)
November 30, 2014
($ million)
Variation
Franchise operation
Corporate stores
Distribution
Food processing
Intercompany transactions
Total operating expenses
14.9
7.5
1.8
2.7
(0.9)
26.0
11.1
3.9
1.7
2.4
(0.5)
18.6
34%
91%
7%
11%
N/A
39%
Expenses from franchise operations increased by $3.8 million in the fourth quarter of 2015 compared to the
same period last year. The increase is mostly attributable to the additional costs caused by the operations of
newly acquired concepts. This was partially offset by a decrease in cost of turnkeys and sale of material.
The expenses of the other segments varied in correlation with their respective revenues.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Three months ended November 30, 2015
(In millions $)
Franchise
Corporate Distribution Processing
Revenues
Expenses
EBITDA(1)
EBITDA as a %
of Revenue
27.70
14.90
12.80
46%
8.05
7.48
0.57
7%
2.07
1.86
0.21
10%
2.56
2.67
(0.11)
N/A
Intercompany
transactions
(0.90)
(0.90)
0.00
N/A
Total
39.48
26.01
13.47
34%
Three months ended November 30, 2014
(In millions $)
Franchise
Corporate Distribution Processing
Total
3.54
3.91
(0.37)
N/A
22.66
11.12
11.54
51%
Revenues
Expenses
EBITDA
EBITDA as a %
of Revenue
(1)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. EBITDA is defined as operating revenues less operating expenses. See reconciliation of
EBITDA to Income before taxes on page 13.
2.30
2.41
(0.11)
N/A
29.94
18.67
11.27
38%
1.95
1.74
0.21
11%
Total EBITDA for the fourth quarter was $13.5 million, an increase of 20% compared to the same period in
2014.
Page 12
Intercompany
transactions
(0.51)
(0.51)
0.00
N/A
During the period, the franchising operations generated $12.8 million in EBITDA, an 11% increase over
the results of the same period last year. The increase is mainly attributable to the operations of the newly
acquired concepts, which accounted for most of increase in EBITDA. Corporate stores also generated a
higher EBITDA in 2015 mainly as a result of the new stores acquired in the last 12 months.
EBITDA as a % of revenues for the franchising operations has decreased during the fourth quarter, mainly
as a result of the higher relative weight of turnkeys, rent and resale material during 2015.
Net income
For the three-month period ended November 30, 2015, the Company’s net income attributable to owners
decreased by 41% over the same period last year. MTY reported a net income attributable to its owners of
$3.1 million or $0.16 per share ($0.16 per diluted share) compared to $5.3 million or $0.28 per share ($0.28
per diluted share) in 2014.
The decrease in net income is mostly attributable to the impairment charge taken on two of its concepts in
the last quarter of 2015. On a normalized basis, net income attributable to owners excluding the impact of
impairment charges would have been $8.9 million ($0.46 per diluted share) during the fourth quarter of
2015 and $7.0 million ($0.37 per diluted shares) in the fourth quarter of 2014.
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 losses
Interest income
Impairment charge
Gain on disposal of property, plant and equipment
and intangibles
EBITDA
Quarter ended
November 30, 2015
Quarter ended
November 30, 2014
(Restated)
4,146
397
1,627
95
(91)
(133)
7,893
(459)
13,475
7,255
227
1,613
61
(90)
(64)
2,356
(89)
11,269
Other income and charges
During the fourth quarter, as a result of a decline in the financial performance of the Extreme Pita and
Croissant Plus franchise network, the Company carried out a review of the recoverable amounts of the
intangible assets related to those brands. The review led to the recognition of an impairment loss of $7.8
million and $0.1 million respectively in 2015 compared to an impairment loss of $2.4 million in 2014 for
the impairment of the Country Style franchise network.
The Company also generated a non-recurring gain of $0.5 million on the disposal of certain corporate
stores during the fourth quarter. This is an increase of $0.3 million compared to the same period in 2014.
Income taxes
The provision for income taxes as a percentage of income before taxes decreased from 26.3% in 2014 to
23.0% in 2015. This decrease is mainly due to variations in prior period adjustments.
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
Long term debt(1)
(In thousands $)
12 months ending November 2016
12 months ending November 2017
12 months ending November 2018
12 months ending November 2019
12 months ending November 2020
Balance of commitments
6,420
883
558
196
8
33
8,098
Net lease
commitments
5,506
4,708
3,675
3,056
2,424
7,597
26,966
Total contractual
obligations
11,926
5,591
4,233
3,252
2,432
7,630
35,064
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted. For
total commitments, please refer to the November 30, 2015 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 quarter, the Company had drawn $6.3 million from its credit facilities. The credit
facilities are subject to covenants of funded debt to EBITDA ratio of 2 to 1 and a minimum interest
coverage ratio of 4.5 to 1. At November 30, 2015, 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, 2015, the amount held in cash net of the line of credit totalled $27.1 million, an
increase of $32.2 million since the end of the 2014 fiscal period.
During the year, the Company finalized the acquisition of Manchu Wok and Big Smoke Burger, investing a
total of $5.0 million and $2.6 million respectively. The Company also paid $7.6 million in dividends to its
shareholders year-to-date. All those items had no significant impact on the cash position of the Company
as a result of strong cash flows generated by operations.
Cash flows generated by operating activities were $51.1 million during the year, compared to $33.0 million
for the same period in 2014. Excluding the variation in non-cash working capital items, income taxes and
interest paid, operations generated $52.2 million in cash flows, compared to $42.8 million in 2014, which
represents an increase of 22% compared to the same period last year. The main driver for the increase
stems from the increase to recurring revenue streams.
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 $33.7 million was available as at November 30, 2015.
Page 14
Financial position
Accounts receivable at the end of the quarter were at $18.7 million, compared to $16.8 million at the end of
the 2014 fiscal period. The increase is mainly due to the growth in franchising revenues.
Property, plant and equipment, intangible assets and goodwill all increased during the year as a result of the
acquisitions made during the first and fourth quarter of 2015. The Company has also built three corporate
stores and renovated some others during the period, which contributed to the increase in property, plant and
equipment. This was partially offset by the impairment charge taken during the year.
Accounts payable increased to $24.4 million as at November 30, 2015, from $14.2 million as at November
30, 2014. The increase is mainly due to the growth of the franchising business, to an increase in security
and construction deposits and to an increase in the net balance of advertising funds.
Provisions, which are composed of litigation and dispute, closed store and gift card provisions, increased
slightly to $3.5 million as at November 30, 2015 from $3.1 million as at November 30, 2014. The company
saw an increase for closed stores and litigations provision. This was partially offset by a decrease in the
gift card provision.
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, 2015 was $5.7 million, an increase of $2.0 million since November 30, 2014. The
increase stems from new supplier contributions received during the second quarter of 2015. 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 a non-interest bearing holdback on the
acquisition of Manchu Wok and Big Smoke Burger.
Further details on the above statement of financial position items can be found in the notes to the
November 30, 2015 consolidated financial statements.
Capital stock
No shares were issued during the quarter ended November 30, 2015. As at February 15, 2016 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, in other venues or
retailer shared sites, hospitals, universities and airports. 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 period
Corporate owned, end of period
Total end of period
Number of locations for the
fiscal year ended
November 30,
2015
November 30,
2014
2,691
36
2,565
25
49
46
25
(67)
(99)
(92)
149
2,738
2,695
43
2,738
42
40
63
(42)
(49)
(84)
167
2,727
2,691
36
2,727
During 2015, the Company’s network grew by 11 outlets. The increase is attributable to the acquisitions of
the 132 stores added as a result of the acquisition of Manchu Wok, Wasabi Grill & Noodle and SenseAsian,
and to the 17 stores added as a result of the Big Smoke Burger acquisition.
For the year, there were 258 store closures, compared to 175 store closures a year earlier. The high number
of closures during 2015 was driven by a number of factors including closure of locations that had
suboptimal real estate, that were under severe competitive pressures, for which landlords were renovating
the premises and changing the usage of a location or for which the lease had expired and was not renewed.
Including in the store closures were also 33 Yogen Fruz and TCBY locations, most of which were closed as
a result of the termination by one franchisee of multiple locations.
During 2015, there were 120 new stores opened, which is slightly lower than the result achieved in 2014.
There were more mall and street front locations opened, but fewer non-traditional ones.
The average monthly sales of the stores closed during 2015 were approximately $18,700, while the average
monthly sales of stores opened during 2015 were approximately $34,000. The total combined sales of the
stores opened during 2015 were approximately $0.5M more than the total combined sales of the stores that
were closed, thus producing a net positive impact despite the large net loss in store count.
Page 16
At the end of the period, the Company had 43 corporate stores, a net increase of 7 compared to the end of
the 2014 fiscal year. During the period, 21 corporate-owned locations were acquired, 23 were franchised, 9
were closed and 18 were added.
The chart below provides the breakdown of MTY’s locations and system sales by type:
Location type
Shopping mall & food court
Street front
Non-traditional format
% of location count,
November 30
2015
41%
40%
19%
2014
38%
40%
22%
% of system sales
Year ended November 30
2015 2014
40%
50%
10%
44%
44%
12%
The geographical breakdown of MTY’s locations and system sales consists of:
% of location count,
November 30
2015 2014
41%
31%
21%
3%
4%
39%
30%
20%
3%
8%
% of system sales
Year ended November 30
2015 2014
29%
36%
24%
2%
9%
31%
35%
27%
2%
5%
Geographical location
Ontario
Quebec
Western Canada
Maritimes
International
System wide sales
For the first time in MTY’s history, system wide sales have exceeded the $1 billion mark, reaching $1.07
billion, up 20% over the same period a year ago. Approximately 97% of the increase was attributable to
acquisitions realized in 2014 and 2015.
For the fourth quarter, system sales were $274.7 million, up 16%. All of the increase was attributable to the
acquisitions realized in late 2014 and during 2015.
System wide sales include sales for corporate and franchise locations and exclude sales realized by the
distribution center or by the food processing plant. During 2015, only Thai Express represented more than
10% of the company’s system sales. The Company’s 10 biggest concepts combined represent 68% of
system sales.
Same-store sales
During the quarter ended November 30, 2015, same-stores sales decreased by 1.2% over the same period
last year. For the year, the decrease is 0.5%.
The fourth quarter was marked by weakness in Western Canada and to a lesser extent in Ontario, while
Quebec was positive for the year. For the 12-month period, Western Canada remained positive however,
the last few months of the year indicated that the decrease in oil prices and the resulting job losses affected
the sales of the restaurants in the network. The fourth quarter rebound in Quebec was driven by strong sales
Page 17
in Mall locations, while street locations were flat for the period. Ontario was down both in the fourth
quarter and for the year, with the results being impacted by declines in two major brands.
During the quarter, 17 of MTY’s concepts produced positive same-store sales growth1, compared to 15 in
the third quarter.
Of the top 10 brands in MTY’s portfolio, 9 are included in the calculation of same store sales. On average,
these 9 brands had flat same store sales for the year, and declined by 1.2% during the fourth quarter; 3
brands had positive same stores sales during the quarter (5 for the 12-month period), while 6 had negative
same store sales (4 for the 12-month period).
Same store sales for those same 9 concepts ranged between -6.3% and +5.0% during the fourth quarter, and
between -5.6% and +3.6% for the 2015 fiscal year.
The restaurant industry remains uncertain, as competition continues to intensify both from a price and an
offering point of view. Some signs of weakness are materializing in Western Canada, with Alberta and
Saskatchewan both experiencing above-average same-store sales declines resulting from job losses and
reduced consumer spending.
Of all Canadian provinces, British Columbia fared the best during the fourth quarter, while Alberta,
Saskatchewan and Newfoundland had the weakest performance. Once again this quarter, stores located in
malls performed significantly better than other types of stores, especially in Quebec and Ontario.
The following table shows quarterly information on same-stores sales growth for the last 13 quarters:
2.0%
1.0%
0.0%
‐1.0%
‐2.0%
‐3.0%
‐4.0%
‐5.0%
Quarterly Same Store Sales Growth
0.8%
0.7% ‐0.1%
‐0.9%
‐1.4%
‐1.7%
‐1.2%
‐1.7% ‐2.0%
‐1.6%
‐1.6%
‐1.2%
‐4.0%
Q
4
1
2
'
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
'
Q
1
1
5
'
Q
2
1
5
'
Q
3
1
5
'
Q
4
1
5
'
1 Includes only the concepts owned by MTY for more than twelve months.
Page 18
Stock options
During the period, no options were granted or exercised. As at November 30, 2015 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.
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 $66.
Risks and uncertainties
Despite the fact that the Company has various numbers of concepts, diversified in type of locations and
geographics across Canada and the United States, 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 dependent 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.
Page 19
Off-balance sheet arrangement
MTY has no off-balance sheet arrangements.
Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties of the
Company, have been eliminated on consolidation. Details of transactions between the Company and other
related parties are disclosed below.
Compensation of key management personnel
The remuneration of key management personnel and directors during the period was as follows:
Three
months
ended
November
30, 2015
$
Fiscal
year
ended
November
30, 2015
$
Three
months
ended
November
30, 2014
$
Fiscal
year
ended
November
30, 2014
$
Short-term benefits
Board member fees
Total remuneration of key management personnel
204
11
215
842
42
884
188
10
198
809
40
849
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, 2015
$
Fiscal
year
ended
November
30, 2015
$
Three
months
ended
November
30, 2014
$
Fiscal
year
ended
November
30, 2014
$
Short-term benefits
Total remuneration of individuals related to key
management personnel
115
115
394
394
119
119
538
538
Page 20
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 Company on December 1, 2014.
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
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, 2015, 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:
IFRS 9 Financial Instruments
IFRS 15 Revenue from contracts with customers
IFRS 16 Leases
IAS1 Presentation of financial statements
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2016
Early adoption permitted
Early adoption permitted
Early adoption permitted
Early adoption permitted
Effective for annual periods beginning on or after:
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.
On January 13, 2016, the IASB issued IFRS 16 that provides a comprehensive model for the identification
of lease arrangements and their treatment in the financial statements of both lessees and lessors. It
Page 21
supersedes IAS 17 Leases and its associated interpretive guidance. Significant changes were made to
lessee accounting with the distinction between operating and finance leases removed and assets and
liabilities recognized in respect of all leases (subject to limited exceptions for short-term leases and leases
of low value assets). In contrast, IFRS 16 does not include significant changes to the requirements for
lessors. IFRS 16 is effective January 1, 2019 with earlier application permitted for companies that have
also adopted IFRS 15, Revenue from Contracts with Customers.
IAS 1 provides further clarification and amendments on note disclosure requirements.
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.
The classification, carrying value and fair value of financial instruments are as follows:
As at November 30, 2015
Financial assets
Cash
Accounts receivable
Loans receivable
Deposits
Financial liabilities
Line of credit
Accounts payable and
accrued liabilities
Long-term debt ¹
Loans and
receivables
$
33,417
18,734
457
242
52,850
-
-
-
-
Other financial
liabilities at
amortized cost
$
-
-
-
-
-
6,300
24,361
7,956
38,617
Total carrying
Value
Fair
value
$
33,417
18,734
457
242
52,850
6,300
24,361
7,956
38,617
$
33,417
18,734
457
242
52,850
6,300
24,361
7,956
38,617
Page 22
As at November 30, 2014
Financial assets
Cash
Accounts receivable
Loans receivable
Deposits
Financial liabilities
Line of credit
Accounts payable and
accrued liabilities
Long-term debt ¹
Loans and
receivables
$
6,701
16,809
686
240
24,436
-
-
-
-
Other financial
liabilities at
amortized cost
$
-
-
-
-
-
11,750
14,151
10,668
36,569
Total carrying
Value
Fair
value
$
6,701
16,809
686
240
24,436
11,750
14,151
10,668
36,569
$
6,701
16,809
686
240
24,436
11,750
14,151
10,668
36,569
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
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.
Page 23
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, 2015.
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 $11 (2014 - $9).
Foreign exchange risk
Foreign exchange risk is the Company’s exposure to decreases or increases in financial instrument values
caused by fluctuations in exchange rates. The Company is mainly exposed to foreign exchange risk on sales
denominated in foreign currencies. The Company’s foreign operations use the U.S. dollar as functional
currency. The Company’s exposure to foreign exchange risk stems mainly from cash, other working capital
items and the financial obligations of its foreign operations.
Other than the above-mentioned foreign transactions, the Company has minimal exposure to the US$ 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, 2015, the Company carried US$ cash of CAD$1,511, net accounts receivable of
CAD$874 and net accounts payable of CAD$954 (CAD$1,766, CAD$945 and CAD$836 in 2014). 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 $15 (2014 - $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. $6,300 (2014 - $11,750) of the credit facility was used as at November 30, 2015. A 100 basis
points increase in the bank’s prime rate would result in additional interest of $63 per annum (2014 - $118)
on the outstanding credit facility. The Company limits this risk by using short-term banker’s acceptance
from the credit facility.
Page 24
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, 2015:
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
thereafter
$
6,300
6,300
6,300
—
—
—
24,361
7,956
24,361
8,098
24,361
3,788
n/a
38,617
270
39,029
105
34,554
—
2,632
58
2,690
—
883
60
943
—
795
47
842
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
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.
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
Page 25
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, 2015 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, 2015,
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, 2015, 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.
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 Big Smoke Burger (acquired
September 18, 2015) and Manchu Wok, Wasabi Grill & Noodle and SenseAsian (acquired December 18,
2014). Excluding the goodwill created on the acquisitions, these operations respectively represent 3% and
Page 26
4% of the Company’s assets (2% and 3% of current assets, 3% and 4% of non-current assets); they also
represent 2% and 7% of current liabilities and 11% and 8% of long-term liabilities, 1% and 10% of the
Company’s revenues and 0% and 12% of the Company’s net earnings for the period ended November 30,
2015.
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
condensed interim consolidated financial statements. For the year ended November 30, 2015, these SPEs
represent 0% of the Company’s current assets, 0% of its non-current assets, 0% of the Company’s current
liabilities, 0% of long-term liabilities, 4% of the Company’s revenues and 0% of the Company’s net
earnings.
__________________________
Stanley Ma, Chief Executive Officer
__________________________
Eric Lefebvre, CPA, CA, MBA Chief Financial Officer
Page 27
Consolidated financial statements of
MTY Food Group Inc.
November 30, 2015 and 2014
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 ............................................. 10–56
Deloitte LLP
La Tour Deloitte
1190 Avenue des
Canadiens-de-Montréal
Suite 500
Montreal QC H3B 0M7
Canada
Tel: 514-393-7115
Fax: 514-390-4111
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, 2015 and
November 30, 2014, 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of MTY Food Group Inc. as at November 30, 2015 and November 30, 2014, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
February 15, 2016
_________________
1 CPA auditor, CA, public accountancy permit No. A110972
MTY Food Group Inc.
Consolidated statements of income
Years ended November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
Revenue
Expenses
Operating expenses
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Other income (charges)
Foreign exchange gain
Interest income
Gain on preferred share redemption
Impairment charge of intangible assets and goodwill
Gain on disposal of property, plant and equipment and
intangible assets
Income before taxes
Income taxes
Current
Deferred
Net income
Net income (loss) attributable to:
Owners
Non-controlling interests
Earnings per share
Basic
Diluted
Notes
5
24 and
30
25 and
30
12
13
2015
$
2014
$
(Restated)
145,203
115,177
94,521
1,535
6,744
436
103,236
64
144
—
72,518
1,091
5,985
422
80,016
106
118
100
4, 13
and 14
(8,093 )
(2,356)
1,821
(6,064 )
1,179
(853)
35,903
34,308
10,454
(774 )
9,680
26,223
8,820
303
9,123
25,185
26,015
208
26,223
25,204
(19)
25,185
1.36
1.36
1.32
1.32
29
21
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, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
Net income
26,223
25,185
Notes
5
2015
$
2014
$
(Restated)
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
(97 )
(97 )
26,126
(20)
(20)
25,165
25,918
208
26,126
25,184
(19)
25,165
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, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
Capital
stock
$
Contributed
surplus
$
Accumulated
other
comprehen-
sive income
$
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. (Note 5)
Acquisition of 8825726 Canada Inc.
Dividends
Balance as at November 30, 2014
Net income for the year ended November 30, 2015
Other comprehensive income
Acquisition of a portion of the non-controlling
interest in 7687567 Canada Inc. (Note 5)
Acquisition of non-controlling interest in
9286-5591 Canada Inc.
Acquisition of 9410198 Canada Inc.(note 8)
Dividends
Balance as at November 30, 2015
19,792
—
—
—
—
—
19,792
—
—
—
—
—
—
19,792
The following dividends were declared and paid by the Company:
481
—
—
—
—
—
481
—
—
—
—
—
—
481
6
—
(20 )
—
—
—
(14)
—
(97 )
—
—
—
—
(111 )
$0.40 per common share (2014 - $0.34 per common share)
The accompanying notes are an integral part of the consolidated financial statements.
Equity attributable to owners
Retained
earnings
$
(Restated,
Note 5)
106,035
25,204
—
(407)
—
(6,501)
124,331
26,015
—
Total
$
(Restated,
Note 5)
126,314
25,204
(20)
(407)
—
(6,501)
144,590
26,015
(97)
(23)
(23)
3,817
—
(7,648)
146,492
3,817
—
(7,648)
166,654
Equity
attributable
to non-
controlling
interest
$
(Restated,
Note 5)
4,549
(20)
—
107
300
(55)
4,881
208
—
123
(4,617)
2,000
(40)
2,555
2015
$
7,648
Total
$
(Restated,
Note 5)
130,863
25,184
(20 )
(300 )
300
(6,556 )
149,471
26,223
(97 )
100
(800 )
2,000
(7,688 )
169,209
2014
$
6,501
Page 5
MTY Food Group Inc.
Consolidated statements of financial position
As at November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
Assets
Current assets
Cash
Accounts receivable
Inventories
Loans receivable
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
2015
$
5
9
10
11
11
12
13
14
15
16
17
18
18
29
33,417
18,734
2,208
240
620
55,219
217
10,506
103,925
55,520
225,387
6,300
24,361
3,468
2,334
5,660
6,344
48,467
1,612
6,099
56,178
Commitments, guarantee and contingent liabilities
26, 27 and
28
2014
$
(Restated)
6,701
16,809
2,294
181
1,045
27,030
505
9,855
107,484
54,574
199,448
11,750
14,151
3,053
716
3,709
6,854
40,233
3,814
5,930
49,977
Page 6
MTY Food Group Inc.
Consolidated statements of financial position (continued)
As at November 30, 2015 and 2014
(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
5
19
2015
$
2014
$
(Restated)
19,792
481
(111 )
146,492
166,654
2,555
169,209
225,387
19,792
481
(14)
124,331
144,590
4,881
149,471
199,448
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the Board on February 15, 2016
____________________________________________ , Director
____________________________________________ , Director
Page 7
MTY Food Group Inc.
Consolidated statements of cash flows
Years ended November 30, 2015 and 2014
(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 and
intangible assets
Impairment of intangible assets
Unrealized foreign exchange (loss) gain
Gain on preferred share redemption
Income tax expense
Deferred revenue
Other
Income tax refunds received
Income taxes paid
Interest paid
Changes in non-cash working capital items
Cash flows provided by operating activities
Investing activities
Net cash outflow on acquisitions
Share buyback paid to non-controlling shareholder
Acquisition of the non-controlling interest in
9286-5591 Quebec Inc.
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of property, plant and equipment
Cash flows used in investing activities
Notes
5
2015
$
2014
$
(Restated)
26,223
25,185
436
1,535
6,744
(1,821 )
8,093
(145 )
—
9,680
1,439
100
52,284
25
(8,930 )
(188 )
8,046
51,237
(7,579 )
—
(800 )
(3,426 )
(48 )
4,853
(7,000 )
5
31
8
5
422
1,091
5,985
(1,179)
2,356
27
(100)
9,123
(95)
—
42,815
508
(9,027)
(162)
(1,175)
32,959
(25,100)
(300)
—
(610)
(247)
2,034
(24,223)
Page 8
MTY Food Group Inc.
Consolidated statements of cash flows (continued)
Years ended November 30, 2015 and 2014
(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 financing activities
Net increase in cash
Cash, beginning of year
Cash acquired
Cash, end of year
Notes
5
8
2015
$
17,300
(22,750 )
(4,411 )
—
(40 )
(7,648 )
(17,549 )
26,688
6,701
28
33,417
2014
$
(Restated)
26,750
(27,000)
(1,655)
300
(55)
(6,501)
(8,161)
575
6,113
13
6,701
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, 2015 and 2014
(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 realizable value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorized 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 15, 2016.
Page 10
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(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;
•
• has the ability to use its power to affect its returns.
is exposed, or has rights, to variable returns from its involvement with the investee; and
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.
7687561 Canada Inc.
BSB Franchising USA, Inc.
9410198 Canada Inc.
Percentage of equity interest
%
100
100
100
100
50
90
99
60
60
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, 2015 and 2014
(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 statements of
income 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, revenue and expenses are eliminated in full on
consolidation.
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
recognized directly in equity and attributed to owners of the Company.
When the Company loses control of a subsidiary, a gain or loss is recognized 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 recognized 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.
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.
Page 12
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Business combinations (continued)
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity
interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable
assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition date
amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the
consideration transferred, the amount of any non-controlling interests in the acquiree and the fair
value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized
immediately in profit or loss as a bargain purchase gain.
Non-controlling interests are present ownership interests and entitle their holders to a proportionate
share of the entity’s net assets in the event of liquidation. 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.
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.
Page 13
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
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.
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, revenue is 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 revenue on certain leases it holds and sign rental revenue; the
Company’s policy is described below.
Page 14
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Revenue recognition (continued)
i) Revenue from franchise locations (continued)
The Company receives considerations from certain suppliers. Supplier contributions are
recognized as revenue as they are earned and are recorded in other franchising revenue
(Note 24).
ii) Revenue from distribution center
Distribution revenue is 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 revenue is recognized when goods have been delivered to end-users or
when significant risks and rewards of ownership have been transferred to distributors and it is
probable that the economic benefit associated with the transaction will flow to the Company.
iv) Revenue from corporate-owned locations
Revenue from corporate-owned locations is recorded when goods are delivered to customers.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases.
The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the
relevant lease.
The Company as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease
term, except where another systematic basis is more representative of the time pattern in which
economic benefits from the leased asset are consumed. Contingent rentals arising under
operating leases are recognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives
are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of
rental expense on a straight-line basis, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased asset are
consumed.
Functional and presentation currency
These consolidated financial statements are presented using the Company’s functional currency,
which is the Canadian dollar. Each entity of the Company determines its own functional currency,
and the financial statement items of each entity are measured using that functional currency.
Functional currency is the currency of the primary economic environment in which the entity
operates.
Page 15
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Foreign currencies
At the end of each reporting period, monetary assets and liabilities that are denominated in a
currency other than the Company’s functional currency are translated using the exchange rate
prevailing at that date. Non-monetary items are translated using historical exchange rates.
Revenue 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
foreign exchange gain. 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. Revenue 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.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets
and liabilities in the consolidated financial statements and the corresponding tax bases used in
the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilised. Such deferred tax assets and liabilities
are not recognized if the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with
investments in subsidiaries, except where the Company is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognized to the extent that it is
probable that there will be sufficient taxable profits against which to utilise the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Page 16
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Taxation (continued)
Deferred tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that
are recognized in other comprehensive income or directly in equity, in which case, the current
and deferred tax are also recognized in other comprehensive income or directly in equity
respectively. Where current tax or deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the business combination.
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
Page 17
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortization and accumulated impairment losses, if applicable. 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, if
applicable.
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, if applicable, on the same basis as intangible assets that are acquired separately.
Intangible assets having an indefinite life are not amortized and are therefore carried at cost
less accumulated impairment losses, if applicable.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are
expected from use or disposal. Gains or losses arising from derecognition of an intangible
asset, measured as the difference between the net disposal proceeds and the carrying amount
of the asset, are recognized in profit or loss when the asset is derecognized.
The Company currently carries the following intangible assets in its books:
Franchise rights and master franchise rights
The franchise rights and master franchise rights acquired through business combinations were
recognized at the fair value of the estimated future cash inflows 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 revenue through changing
economic conditions with no foreseeable time limit.
Page 18
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Intangible assets (continued)
Leases
Leases, which represent the value associated to preferential terms or locations, are amortized on a
straight-line basis over the term of the leases.
Other
Included in other intangible assets are primarily purchased software, which are being amortized
over their expected useful life on a straight-line basis.
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. A majority of the Company’s
intangible assets do not have cash inflows independent of those from other assets and as such are
tested within their respective cash generating units.
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. The Company
does not reduce the carrying value of an asset below the highest of its fair value less cost to sell
and its value in use.
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.
Page 19
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Impairment of goodwill (continued)
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 statement of
income. An impairment loss recognized for goodwill is not reversed in subsequent periods.
Regardless of whether there is an indication of impairment or not, goodwill is tested for impairment
at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted.
Cash and cash equivalents
Cash and cash equivalents item includes cash on hand and short-term investments, if any, with
maturities upon acquisition of generally three months or less or that are redeemable at any time at
full value and for which the risk of a change in value is not significant.
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. Provisions are measured at the present value of the cash
flows expected to be required to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the obligation. This is
recorded in cost of goods sold and rent (Note 25) on the consolidated statement of income.
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.
Page 20
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Provisions (continued)
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.
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.
Page 21
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Financial instruments (continued)
Classification
Cash
Accounts receivable
Deposits
Loans receivable
Accounts payable and accrued liabilities
Line of credit
Long-term debt
Financial assets
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Financial assets are classified into the following specified categories: financial assets ‘at fair value
through profit or loss’ (“FVTPL”), ‘held-to-maturity’ investments and ‘loans and receivables’. The
classification depends on the nature and purpose of the financial assets and is determined at the
time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument
and of allocating interest income over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash receipts (including all fees and points paid or
received that form an integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the debt instrument, or, where appropriate,
a shorter period, to the net carrying amount on initial recognition.
Income is recognized on an effective interest basis for debt instruments other than those
financial assets classified as at FVTPL.
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.
Page 22
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Financial assets (continued)
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-organization; or
the disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial assets, such as trade receivables, assets that are assessed not
to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective
evidence of impairment for a portfolio of receivables could include the Company’s past experience
of collecting payments, an increase in the number of delayed payments in the portfolio past a
certain credit period, as well as observable changes in national or local economic conditions that
correlate with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the
difference between the asset’s carrying amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the
difference between the asset’s carrying amount and the present value of the estimated future cash
flows discounted at the current market rate of return for a similar financial asset. Such impairment
loss will not be reversed in subsequent periods.
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.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment was recognized, the previously recognized impairment loss is reversed through
profit or loss to the extent that the carrying amount of the investment at the date the impairment is
reversed does not exceed what the amortized cost would have been had the impairment not been
recognized.
Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows
from the asset expire, or when it transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another entity. On derecognition of a financial asset in its
entirety, the difference between the asset’s carrying amount and the sum of the consideration
received and receivable and the cumulative gain or loss that had been recognized in other
comprehensive income and accumulated in equity is recognized in profit or loss.
Page 23
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
3.
Accounting policies (continued)
Financial liabilities
Classification as debt or equity
Debt and equity instruments issued by an entity are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities. Equity instruments issued by the Company are recognized at
the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial
liabilities’.
Other financial liabilities
Other financial liabilities (including borrowings) are subsequently measured at amortized cost
using the effective interest method.
Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Company’s obligations
are discharged, cancelled or they expire. The difference between the carrying amount of the
financial liability derecognized and the consideration paid and payable is recognized in profit or
loss.
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 surplus of $1,270 (November 30, 2014 – deficit of $1,018). 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 30). 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 24
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(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.
Impairment of non-financial assets
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 25
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(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 and master 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 using a discounted cash flow approach 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 two of the Company’s cash generating units (“CGUs”), the value in use
of CGU’s 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 (2014 - $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 two of its CGU’s following a decline
in the performance of the related brand. The total impairment of $7,893 represents a write down
of the carrying value to the value in use of the CGU’s. A 1% change to the discount rate used in
the calculation of the impairment would result in a change of $221 in the amount of the
impairment.
Page 26
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(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. During the year, an impairment of $200 (2014 -
$nil) was taken for the goodwill associated with 7687567 Canada Inc. upon the re-consolidation
of the subsidiary (note 5). The original valuation of the goodwill was primarily associated to a
contract that was contributed to the business by one of the minority shareholders at inception.
This contract was terminated in 2015.
The Company used a 13% discount rate for its assessment of goodwill. No growth was applied
to the cash flows used to estimate the terminal value.
Useful lives of property, plant and equipment and intangible assets
As described in Note 3 above, the Company reviews the estimated useful lives of property, plant
and equipment and intangible assets with definite useful lives at the end of each year and
assesses whether the useful lives of certain items should be shortened or extended, due to
various factors including technology, competition and revised service offerings. During the years
ended November 30, 2015 and 2014, 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. This includes provisions for onerous
contracts, litigations and disputes and contingencies.
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.
Consolidation of special purpose entities
The Company is required to consolidate a small number of special purpose entities. In doing so,
the Company must make assumptions with respect to some information that is either not readily
available or that is not available within reporting time frames. As a result, assumptions and
estimates are made to establish a value for the current assets, current and long-term liabilities
and results of operations in general.
Page 27
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(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)
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. Consolidation
Changes in non-controlling interests
In March 2015, the Company acquired the remaining 20% non-controlling interests of 9286-5591
Quebec Inc. (Thaï Zone), for $800. Following the transaction, 9286-5591 Quebec Inc. has become
a wholly-owned subsidiary.
Changes in basis of consolidation
In September 2013, the Company put its 51% investment in 7687567 Canada Inc., a food processing
plant in Saint-Romuald, Quebec, up for sale. The investment was then reclassified as an investment
in subsidiary held-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 owned
91% of the shares of 7687567 Canada Inc.
In December 2014, the Company increased its ownership of 7687567 Canada Inc. to 99% through
the conversion of a $750 investment, which diluted the minority shareholder’s ownership. The cash
call was required to help finance the operations of the subsidiary.
In May 2015, the Company deemed the future sale of 7687567 Canada Inc. no longer probable in
the near future and as such, reclassified the investment from a subsidiary held-for-sale to a
consolidated subsidiary. Prior year amounts on the consolidated statements of income and of
comprehensive income, the statements of financial position and the statements of cash flows have
been restated for the change in classification.
6. Accounting policy developments
The following standard issued by the IASB was adopted by the Company on December 1, 2014.
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
recognized in the Company's consolidated financial statements.
Page 28
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
7. 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, 2015, 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:
IFRS 9 Financial Instruments
IFRS 15 Revenue from contracts with customers
IFRS 16 Leases
IAS1 Presentation of financial statements
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2016
Early adoption permitted
Early adoption permitted
Early adoption permitted
Early adoption permitted
Effective for annual periods beginning on or after:
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.
On January 13, 2016, the IASB issued IFRS 16 that provides a comprehensive model for the
identification of lease arrangements and their treatment in the financial statements of both lessees
and lessors. It supersedes IAS 17 Leases and its associated interpretive guidance. Significant
changes were made to lessee accounting with the distinction between operating and finance
leases removed and assets and liabilities recognized in respect of all leases (subject to limited
exceptions for short-term leases and leases of low value assets). In contrast, IFRS 16 does not
include significant changes to the requirements for lessors. IFRS 16 is effective January 1, 2019
with earlier application permitted for companies that have also adopted IFRS 15, Revenue from
Contracts with Customers.
IAS 1 provides further clarification and amendments on note disclosure requirements.
The Company is in the process of determining the extent of the impact of these standards on its
consolidated financial statements.
Page 29
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
8. Business acquisitions
I) 2015 acquisition
On September 18, 2015, the Company acquired the assets of Big Smoke Burger for a total
consideration of $5,000. The purpose of the transaction was to further diversify the Company’s range
of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Discount on non-interest bearing holdback
Net obligations assumed
Net purchase price
Issuance of shares to non-controlling interest
Holdback
Net cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Inventories
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Deferred income taxes
Net purchase price
(1) Goodwill is deductible for tax purposes
2015
$
5,000
(38)
(98)
4,864
(2,000)
(262)
2,602
2015
$
3
44
33
80
853
852
3,305
840
5,930
18
447
601
1,066
4,864
Page 30
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
8.
Business acquisitions (continued)
I) 2015 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.
II) 2015 acquisition
On December 18 2014, the Company acquired the assets of Manchu Wok, Wasabi Grill & Noodle
and SenseAsian for a total consideration of $7,889. The purpose of the transaction was to further
diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Discount on non-interest bearing holdback
Net obligations assumed
Net purchase price
Holdbacks
Net cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Inventories
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1)
2015
$
7,889
(81)
(1,662)
6,146
(1,169)
4,977
2015
$
25
145
309
479
930
1,217
5,529
306
8,461
Page 31
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
8.
Business acquisitions (continued)
II) 2015 acquisition (continued)
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Deferred income taxes
Net purchase price
(1) Goodwill is deductible for tax purposes
2015
$
1,907
65
343
2,315
6,146
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 $80 and are included in the
Company’s consolidated statement of income.
During the fourth quarter of 2015, the Company completed its comprehensive evaluation of the fair
value of the net assets acquired from Manchu Wok, Wasabi Grill & Noodle and SenseAsian and the
purchase price allocation. As a result, initial goodwill of $397 recognized upon the acquisition of
Manchu Wok, Wasabi Grill & Noodle and SenseAsian on December 18, 2014 in the Business
Acquisitions note to the February 28, 2015 condensed interim consolidated financial statements
has been adjusted in the fourth quarter of 2015, as a result of the finalization of fair value
measurements of intangible assets during the measurement period. Adjustments were made to the
provisional amounts disclosed in the February 28, 2015 condensed interim consolidated financial
statements for the recognition and measurement of intangible assets and deferred income taxes.
The following provides the changes in the carrying value of the goodwill on the acquisition of
Manchu Wok, Wasabi Grill & Noodle and SenseAsian to November 30, 2015:
Initial Manchu Wok, Wasabi Grill & Noodle and SenseAsian goodwill,
February 28, 2015 previously reported
Recognition and measurement of intangible assets
Adjustment to deferred income taxes
Adjusted balance, February 28, 2015
397
(147)
56
306
Page 32
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
8.
Business acquisitions (continued)
III) 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
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
(1) The goodwill is deductible for tax purposes
2014
$
12,925
(284)
12,641
(1,250)
11,391
2,700
300
1,250
7,141
11,391
2014
$
66
6,846
3,410
2,895
13,217
350
226
576
12,641
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 was finalized in 2015 and no post-closing adjustments were required.
Page 33
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
8.
Business acquisitions (continued)
IV) 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 holdbacks
Net obligations assumed
Net purchase price
Holdbacks
Net cash outflow
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventories
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1)
Current liabilities
Accrued liabilities
Deferred revenue
Deferred income taxes
Net purchase price
(1) 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 34
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
8.
Business acquisitions (continued)
IV) 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 was finalized in 2015 and no post-closing adjustments were required.
V) 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)
Current liabilities
Provisions
Accounts payable and accrued liabilities
Deferred Revenue
Deferred taxes
Net purchase price
2014
$
950
(153)
797
(185)
612
2014
$
13
1
14
45
518
347
50
974
19
108
27
154
23
797
Page 35
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
8.
Business acquisitions (continued)
V) 2014 acquisition
(1) The goodwill is deductible for tax purposes
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 was finalized in 2015 and no post-closing adjustments were required.
9. 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
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
Reversals
Write-off
Allowance for doubtful accounts end of year
2015
$
24,122
5,388
18,734
2015
$
13,069
1,620
766
3,279
18,734
4,305
1,829
(233 )
(513 )
5,388
2014
$
(Restated,
Note 5)
21,114
4,305
16,809
2014
$
(Restated,
Note 5)
11,692
635
914
3,568
16,809
2,287
3,002
(65)
(919)
4,305
The Company has recognized an allowance for doubtful accounts based on past experience,
outlet-specific circumstances, counterparty’s current financial situation and age of the receivables.
Page 36
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
9.
Accounts receivable (continued)
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.
10.
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
2015
$
1,210
70
928
2,208
2014
$
(Restated,
Note 5)
1,277
—
1,017
2,294
Inventories are presented net of a $22 allowance for obsolescence ($13 as at November 30, 2014).
All of the inventories are expected to be sold within the next twelve months.
Inventories expensed during the year ended November 30, 2015 was $23,887 (2014 - $24,965).
11. Loans receivable
The loans receivable generally result from the sales of franchises and of various advances to
certain franchisees and consist of the following:
Loans receivable, carrying no interest and without terms
of repayment
Loans receivable bearing interest between nil and 11% per
annum, receivable in monthly instalments of $16 in aggregate,
including principal and interest, ending in March 2021
Current portion
2015
$
15
442
457
(240 )
217
2014
$
15
671
686
(181)
505
Page 37
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
11. Loans receivable (continued)
The capital repayments in subsequent years will be:
2016
2017
2018
2019
2020
Thereafter
$
240
131
46
10
11
19
457
12. Property, plant and equipment
Cost
Land Buildings
ments Equipment
$
(restated,
note 5)
$
(restated,
note 5)
$
(restated,
note 5)
$
(restated,
note 5)
Leasehold
improve-
Computer
hardware
Rolling
stock
$
$
(restated,
note 5)
Total
$
(restated,
note 5)
1,825
—
—
3,584
37
—
3,232
123
(914)
4,142
301
(672)
435
131
(18 )
30
42
—
13,248
634
(1,604)
Balance at
November 30, 2013
Additions
Disposals
Additions through
business
combinations
Balance at
—
—
782
1,006
—
November 30, 2014
1,825
3,621
3,223
4,777
548
Additions
Disposals
Additions through
business
combinations
Balance at
—
(589 )
124
(447)
1,936
(1,494)
1,281
(1,406)
85
(143 )
—
—
768
1,015
—
November 30, 2015
1,236
3,298
4,433
5,667
490
—
72
—
—
—
72
1,788
14,066
3,426
(4,079)
1,783
15,196
Page 38
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
12. Property, plant and equipment (continued)
Accumulated
depreciation
Balance at
November 30,
2013
Eliminated on
disposal of
assets
Depreciation
expense
Balance at
November 30,
2014
Eliminated on
disposal of
assets
Foreign exchange
Depreciation
expense
Balance at
November 30,
2015
Leasehold
improve-
Land Buildings
ments Equipment
$
$
(restated,
note 5)
$
(restated,
note 5)
$
(restated,
note 5)
Computer
hardware
Rolling
stock
$
$
(restated,
note 5)
Total
$
(restated,
note 5)
—
454
1,738
1,399
274
28
3,893
—
—
—
(508)
(247)
(18)
—
(773)
140
424
462
62
3
1,091
—
594
1,654
1,614
318
31
4,211
—
—
—
(77)
—
(497)
1
(343)
2
(142)
—
—
—
(1,059)
3
138
567
744
81
5
1,535
—
655
1,725
2,017
257
36
4,690
Leasehold
improve-
Carrying amounts
Land Buildings
ments Equipment
November 30, 2014
November 30, 2015
$
(restated,
note 5)
1,825
1,236
$
(restated,
note 5)
3,027
2,643
$
(restated,
note 5)
1,569
2,708
$
(restated,
note 5)
3,163
3,650
Computer
hardware
Rolling
stock
$
$
(restated,
note 5)
230
233
41
36
Total
$
(restated,
note 5)
9,855
10,506
Page 39
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
13.
Intangible assets
Cost
Balance at
November 30,
2013
Additions
Impairment
Acquisition through
business
combinations
Balance at
November 30,
2014
Additions
Disposals
Foreign exchange
Impairment
Acquisition through
business
combinations
Balance at
November 30,
2015
Franchise
and master
franchise
rights(1) Trademarks
$
$
Step-in
rights
$
Leases
$
Other(2)
$
Total
$
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
—
—
177
(2,962)
63,084
12
—
—
(4,931)
1,199
—
—
—
—
1,000
—
(92)
—
—
703
36
(132 )
—
—
135,704
48
(224)
177
(7,893)
2,069
8,834
—
—
—
10,903
69,002
66,999
1,199
908
607
138,715
Accumulated
amortization
Franchise
and master
franchise
rights(1) Trademarks
$
$
Step-in
rights
$
Leases
$
Other(2)
$
Total
$
Balance at
December 1,
2013
Amortization
Balance at
November 30,
2014
Eliminated on disposal
of assets
Foreign exchange
Amortization
Balance at
November 30,
2015
21,342
5,704
27,046
—
43
6,464
33,553
—
—
—
—
—
—
—
20
120
140
—
—
120
840
83
923
(92)
—
54
33
78
22,235
5,985
111
28,220
(125 )
—
106
(217)
43
6,744
260
885
92
34,790
Page 40
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
13.
Intangible assets (continued)
Franchise
and master
franchise
Carrying amounts
rights(1) Trademarks
$
$
Step-in
rights
$
November 30, 2014
November 30, 2015
42,672
35,449
63,084
66,999
1,059
939
Leases
$
77
23
Other(2)
$
Total
$
592
515
107,484
103,925
(1) Franchise and master franchise rights include an amount of $1,500 ($1,500 as at November
30, 2014) 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.
(2) Other items include $347 ($347 as at November 30, 2014) of unamortizable licenses with an
indefinite term.
During the year, as the result of a decline in the financial performance of the Extreme Pita and
Croissant Plus franchise networks, the Company carried out a review of the recoverable amounts
of the intangible assets related to these brands. The review led to the recognition of an impairment
loss of $7,893, which has been recognized in the consolidated statement of income. Impairment
charges of $2,356 were recognized in 2014 related to the decline in the financial performance of
the Country Style franchise network.
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
2015
$
1,500
9
—
500
145
2,700
1,600
1,100
1,253
1,740
3,338
5,425
11,319
1,135
300
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
Page 41
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
13.
Intangible assets (continued)
Extreme Pita
Mucho Burrito
ThaïZone
Madisons New York Grill & Bar
Café Dépôt
Muffin Plus
Sushi-Man
Van Houtte
Manchu Wok
Big Smoke Burger
14. Goodwill
The changes in the carrying amount of goodwill are as follows:
Balance, beginning of year
Impairment of 7687567 Canada Inc. goodwill
Additional amounts recognized from
business acquisitions (Note 8)
Balance, end of year
2015
$
3,194
9,816
7,417
3,410
2,959
371
434
347
5,529
3,305
68,846
2015
$
54,574
(200 )
1,146
55,520
2014
$
8,000
9,816
7,417
3,410
2,959
371
434
347
—
—
64,931
2014
$
(restated,
note 5)
46,295
—
8,279
54,574
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.
An impairment was taken for the goodwill associated with 7687567 Canada Inc. upon the re-
consolidation of the subsidiary (note 5). The original valuation of the goodwill was primarily
associated to a contract that was contributed to the business by one of the minority shareholders at
inception. This contract was terminated in 2015.
Page 42
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
15. Credit facilities
As at November 30, 2015, 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, 2015, the bank’s prime rate was 2.70%.
The treasury risk facility bears interest at the market rate as determined by the lender’s treasury
department.
Under the terms of the credit facilities, the Company must satisfy a funded debt to EBITDA ratio of
2 to 1 and a minimum interest coverage ratio of 4.5 to 1. The credit facility is payable on demand
and is renewable annually. As at November 30, 2015, $6,300 (2014 - $11,750) was drawn from the
facilities in the form of banker’s acceptance, with maturity dates ranging from December 2015 to
February 2016. 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 and loyalty programs liabilities
Total
2015
$
1,329
804
2,133
1,335
3,468
2014
$
546
768
1,314
1,739
3,053
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, $229 (2014 - $239) was unused
and reversed into income. The amounts used in the year include $1,269 (2014 - $657) 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 $2,317 (2014 - $1,484) 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 43
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(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
Non-interest bearing holdbacks on acquisition of Mr. Souvlaki,
repayable September 2015
Non-interest bearing holdbacks on acquisition of Extreme Brandz,
repayable between December 2015 and March 2016
Non-interest bearing holdbacks on acquisition of ThaïZone,
repayable 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 December 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
Bank loan bearing interest at the bank’s prime plus 0.50%,
secured by the property, plant and equipment of a subsidiary,
repayable in fixed monthly capital repayments at $24 plus
interest with a maturity date of November 1, 2015
Non-interest bearing holdbacks on acquisition of Manchu Wok,
repayable between December 2015 and December 2016
Non-interest bearing holdbacks on acquisition of Big Smoke
Burger, repayable September 2018
Current portion
2015
$
2,633
3,027
5,660
2014
$
2,388
1,321
3,709
(5,660 )
—
(3,709)
—
2015
$
—
4,430
—
88
1,021
2014
$
(restated,
note 5)
88
4,347
1,156
96
974
937
1,188
—
2,819
1,216
264
7,956
(6,344 )
1,612
—
—
10,668
(6,854)
3,814
Page 44
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
19. Capital stock
Authorized, unlimited number of common shares without nominal or par value
Number
2015
Amount
$
Number
2014
Amount
$
19,120,567
19,792
19,120,567
19,792
Balance at beginning
and end of year
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, 2015 and 2014. There are no options outstanding
as at November 30, 2015 and 2014.
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 for the purpose of diluted earnings per share:
2015
2014
Weighted daily average number of common shares
19,120,567
19,120,567
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.
Page 45
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
22. Financial instruments (continued)
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
$
33,417
18,734
457
242
2015
Fair
value
$
33,417
18,734
457
242
Carrying
amount
$
(restated,
note 5)
6,701
16,809
686
240
2014
Fair
value
$
(restated,
note 5)
6,701
16,809
686
240
6,300
6,300
11,750
11,750
24,361
7,956
24,361
7,956
14,151
10,668
14,151
10,668
Financial assets
Cash
Accounts receivable
Loans receivable
Deposits
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, 2015.
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 past experience and counterparty specific circumstances.
The Company believes that the credit risk of accounts receivable is limited for the following
reasons:
Page 46
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
22. Financial instruments (continued)
Credit risk (continued)
‒ 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 $11 (2014 - $9).
Foreign exchange risk
Foreign exchange risk is the Company’s exposure to decreases or increases in financial instrument
values caused by fluctuations in exchange rates. The Company is mainly exposed to foreign
exchange risk on sales denominated in foreign currencies. The Company’s foreign operations use
the U.S. dollar as functional currency. The Company’s exposure to foreign exchange risk stems
mainly from cash, other working capital items and the financial obligations of its foreign operations.
Other than the above-mentioned foreign transactions, the Company has minimal exposure to the
US$ 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, 2015, the Company carried US$ cash of CAD$1,511, net accounts receivable
of CAD$874 and net accounts payable of CAD$954 (CAD$1,766, CAD$945 and CAD$836 in
2014). 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 $15 (2014 - $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. $6,300 (2014 - $11,750) of the credit facility was used as at
November 30, 2015. A 100 basis points increase in the bank’s prime rate would result in additional
interest of $63 per annum (2014 - $118) 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.
Page 47
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
22. Financial instruments (continued)
Liquidity risk (continued)
The following are the contractual maturities of financial liabilities as at November 30, 2015:
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
thereafter
$
6,300
6,300
6,300
—
—
—
24,361
7,956
n/a
38,617
24,361
8,098
24,361
3,788
126
38,885
31
34,480
—
2,632
27
2,659
—
883
40
923
—
795
28
823
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, 2015 and 2014 were as follows:
Debt
Equity
Debt-to-equity ratio
2015
$
56,178
169,209
0.33
2014
$
(restated,
note 5)
49,977
149,471
0.33
Page 48
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
23. Capital disclosures (continued)
During the year ended November 30, 2015, the Company’s debt-to-equity ratio remained stable
compared to 2014. 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, 2015, the Company does not have any debt outstanding that is subject to its
consolidated debt to equity ratio.
24. Revenue
The Company’s revenue includes:
Royalties
Initial franchise fees
Rent
Sale of goods, including construction revenue
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)
2015
$
54,714
2,881
3,984
57,612
21,502
4,510
145,203
2015
$
49,472
31,426
4,983
1,083
7,557
94,521
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
(1) Other operating expenses are comprised mainly of travel & promotional costs, bad debt
expense and other office administration expenses
Page 49
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(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
$
80,610
73,420
65,800
58,511
47,133
118,196
443,670
75,104
68,712
62,125
55,455
44,709
110,599
416,704
5,506
4,708
3,675
3,056
2,424
7,597
26,966
2016
2017
2018
2019
2020
Thereafter
Payments recognized as a net expense during the year ended November 30, 2015 amount to
$9,639 (2014 - $8,739).
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, 2015, the Company earned rental revenue of $3,984 (2014 -
$4,698).
The Company has recognized a liability of $804 (2014 - $768) for the leases of premises in which it
no longer has operations but retains the obligations contained in the lease agreement (Note 16).
27. Guarantee
The Company has provided guarantees in the form of letters of credit for an amount of $66 as at
November 2015 (2014 - $45).
28. 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.
Page 50
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
29.
Income taxes
Variations of income tax expense from the basic combined applicable 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 subsidiaries
for which no
deferred income tax
asset was recorded
Variation in deferred
taxes attributable to
foreign exchange
Adjustment to prior
year provisions
Other – net
Provision for income
taxes
$
9,622
(229)
24
2015
%
26.8
(0.7)
0.1
$
9,092
(156 )
23
2014
%
26.5
(0.5)
0.1
218
0.6
157
0.5
26
25
(6)
0.1
0.1
(0.0)
—
(6 )
13
9,680
27.0
9,123
—
(0.0)
0.0
26.6
The statutory tax rate has increased in 2015 as a result of the higher proportion of the Company’s
income earned in the United States during the year.
Page 51
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
29.
Income taxes (continued)
The variation in deferred income taxes during the year were as follows:
Recognized
in profit or
loss
$
Acquisition
$
November 30,
2015
$
November 30,
2014
$
(restated, note 5)
167
916
(201)
187
(6,999)
(5,930)
(670)
(467)
138
236
1,537
774
92
—
(32 )
—
(1,003 )
(943 )
(411)
449
(95)
423
(6,465)
(6,099)
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, 2015 there were approximately $6,706 (2014 – $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, 2015, there were approximately $1,241 (2014 - $406) 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 $321 (2014 - $105).
30. 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 revenue from royalties, supplier contributions, franchise
fees, rent and the construction and renovation of restaurants.
Corporate store operations
Corporate stores generate revenue from the direct sale of prepared food to customers.
Distribution operations
The distribution operations generate revenue by distributing raw materials to restaurants of our
Valentine and Franx banners.
Page 52
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
30. Segmented information (continued)
Food processing operations
The Food processing plant generates revenue from the sale of ingredients and prepared food to restaurant chains, distributors and retailers.
Below is a summary of each segment’s performance during the years.
For the year ended November 30, 2015:
Franchising
$
Corporate
$
Distribution Processing
$
$
Inter-
company
$
2015
Total
$
Operating revenue
Operating expenses
101,712
52,749
48,963
30,363
29,055
1,308
6,432
5,810
622
8,769
8,980
(211)
(2,073)
(2,073)
—
145,203
94,521
50,682
Other expenses
Depreciation - property, plant and
equipment
Amortization – intangible assets
Interest on long-term debt
Other income
Foreign exchange gain
Interest income
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
430
6,744
323
64
142
(7,893)
1,821
35,600
10,161
(774)
26,213
221,559
54,198
835
—
—
—
—
—
—
473
127
—
346
2,061
1,247
6
—
—
—
2
—
—
618
166
—
452
1,173
291
264
—
113
—
—
(200)
—
(788)
—
—
(788)
608
516
—
—
—
—
—
—
—
—
—
—
—
(14)
(74)
1,535
6,744
436
64
144
(8,093)
1,821
35,903
10,454
(774)
26,223
225,387
56,178
Page 53
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
30. Segmented information (continued)
For the year ended November 30, 2014:
Franchising
$
Corporate
$
Distribution Processing
$
$
Operating revenue
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 preferred share redemption
Impairment on intangible assets
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
190,986
46,048
372
—
—
—
—
—
—
(771)
(207)
—
(564)
4,338
701
2
—
—
—
—
—
—
551
148
—
403
929
254
8,487
8,852
(365)
222
—
144
(36)
—
100
—
—
(667)
—
—
(667)
5,004
4,783
2014
(restated, Note
5)
Total
$
115,177
72,518
42,659
1,091
5,985
422
106
118
100
(2,356)
1,179
34,308
8,820
303
25,185
199,448
49,977
Inter-
company
$
(1,357)
(1,357)
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,809)
(1,809)
Page 54
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
31. 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
32. Related party transactions
2015
$
(1,925 )
275
229
767
8,285
415
8,046
2014
$
(1,927)
15
292
(371)
(427)
1,243
(1,175)
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
2015
$
842
42
884
2014
$
809
40
849
Key management personnel is composed of the Company’s CEO, COO and CFO. The
remuneration of directors and key executives is determined by the Board of directors having regard
to the performance of individuals and market trends.
Given its widely held share base, the Company does not have an ultimate controlling party; its most
important shareholder is its CEO, who controls 26% of the outstanding shares.
Page 55
MTY Food Group Inc.
Notes to the consolidated financial statements
November 30, 2015 and 2014
(In thousands of Canadian dollars, except per share amounts)
32. 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
2015
$
394
394
2014
$
538
538
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, 2015,
dividends of $nil (2014 - $nil) were paid by those subsidiaries to the above-mentioned company.
Page 56