Dear fellow shareholders,
In last year’s note, I indicated my belief that the restaurant industry would continue to consolidate and
that MTY would participate by being strategic in its search for new opportunities. During the 2017 fiscal
year, MTY further expanded its exposure in the casual dining space through acquisitions worth well over
$29 million. Although none of these acquisitions by themselves were transformational, they
nonetheless continue to strengthen, grow, and diversify MTY’s brand portfolio.
The company has grown significantly over the past ten years; a decade ago we were proud to report
MTY had reached the $250 million mark in system sales for the first time. MTY has evolved a lot since
then, and we continue to evolve every day. Our goals for the next ten years and beyond remain the
same: achieve organic growth and acquire new brands that will bring long-term value for our
shareholders.
In our industry size truly matters. Our increased weight helps us not only to be more efficient in terms
of purchasing, but also in terms of logistics, best practices, and in our ability to attract and retain the
very best people in our industry. Through each acquisition MTY has increased its footprint in the
industry, diversified its offerings, gained access to new territories, and more importantly, added
seasoned leadership to its team.
Last year MTY’s network generated over $2.3 billion in system sales thanks to the acquisitions it realized
in the past few years. This nearly tenfold growth in the last decade is the result of the efforts of the MTY
team in accordance with our core principles of Excellence, Dedication, and Devotion.
The $2 billion mark was an important milestone for us, and we are determined to grow that number
significantly in the future. Industry consolidation is expected to accelerate further, and I believe MTY is
well-positioned to continue to seize on opportunities both in the United States and in Canada. As
mentioned in previous years, despite our strong appetite for growth we will not deviate from being
disciplined, patient, and rigorous in our risk-taking approach when pursuing acquisitions. Over the
course of 2018, MTY will continue to seek strategic acquisitions while integrating the acquisitions
announced since the beginning of the fiscal year.
During the last twelve months, MTY has continued to generate the robust cash flows it has become
known for, with our operations generating 73% more cash than the prior year. Even with a series of
acquisitions, we have been able to pay down a part of our debt and free up capacity for future
opportunities. Although any excess cash flows will be used to reduce our debt, we do not intend to
prioritize debt reduction at this point as we feel a reasonable amount of leverage is acceptable in order
to continue with our long-term growth plans.
The restaurant industry in North America is extremely competitive, but It also provides a lot of
opportunities to flourish for restaurants that provide the best food, the most innovation, and the
greatest value. As such, our team’s focus is oriented towards improving every aspect of our customers’
experience and helping our franchise partners achieve the profitability they envisioned when they
decided to partner with MTY.
Rest assured that our team will make every effort to meet the challenges that stand in our way. I
believe MTY is still in its infancy, and its best years are still ahead. We will grow and prosper with the
help of our exceptional team, our franchisees, and our valued business partners, all of whom I want to
thank personally and on behalf of the Board of Directors.
Stanley Ma
Chairman and Chief Executive Officer
February 15, 2018
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2017
General
This Management's Discussion and Analysis of the financial position and financial performance ("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, 2017.
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, 2016.
This MD&A was prepared as of February 15, 2018. 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 2017. 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, 2018 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 materially
from the expectations expressed in or implied by such forward-looking statements and that the business
Page 1
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, 2018. 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; volatility in foreign exchange rates or borrowing rates; foodborne illness;
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,
2018. 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 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. Same stores sales growth provides information on the comparative performance of the restaurants in
our network from one period to the next.
Similarly, the Company uses system sales to evaluate the size and performance of MTY’s network, as well
as to indicate its income-generation potential. System sales include the sales of existing restaurants, of the
ones that have closed or have opened during the period, as well as the sales of new concepts acquired from
the closing date of the transaction and forward.
These measures are widely accepted financial indicators but are not a measurement determined in accordance
with IFRS and may not be comparable to those presented by other companies. These non-IFRS 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 IFRS.
The Company uses these measures to evaluate the performance of the business as they reflect its ongoing
operations. Management believes that certain investors and analysts use EBITDA to measure a company’s
ability to meet payment obligations or as a common measurement to value companies in the industry.
Similarly, same-store sales growth and system sales provide additional information to investors about the
performance of the network that is not available under IFRS. Both measures are components in the
determination of short-term incentive compensation for some employees.
Highlights of significant events during the fiscal year
On September 29, 2017, the Company announced it had completed through its 100% owned subsidiary MTY
Tiki Ming Entreprises Inc., the acquisition of the assets of Dagwoods Sandwiches and Salads. The total
purchase price was $3.0 million of which $2.6 million was settled in cash. At closing, Dagwoods operated
22 stores in Canada.
On June 16, 2017, the Company announced it had completed through its 80% controlling interest in a
subsidiary the acquisition of the assets of Houston Avenue Bar & Grill (“Houston”) and Industria Pizzeria +
Bar (“Industria”). The Company’s share of the purchase consideration was $16.8 million of which $12.8
million was settled in cash. At closing nine Houston and three Industria were in operation. All locations are
located in Canada.
On June 9, 2017, the Company announced it had completed the acquisition of the assets of The Works
Gourmet Burger Bistro. The purchase price was $8.2 million of which $7.1 million was settled in cash. At
closing, there were 27 locations in operation, all of them located in Canada.
On May 8, 2017, the Company announced that it had completed the acquisition of the assets of Steak Frites
St-Paul and Giorgio Ristorante for an amount of $0.4 million, of which $0.3 million was paid from cash on
hand. At closing, six Giorgio Ristorante and nine Steak Frites were in operation. All locations are located
in Canada.
On April 19, 2017, the Company acquired the remaining non-controlling shareholder interest in 7687567
Canada Inc. (Lucky 8) for a non-material cash consideration.
Page 3
On February 1, 2017, the Company sold its exclusive Canadian master franchise rights of Yogen Früz for an
amount of $0.8 million.
On December 9, 2016, the Company announced that it had completed through its 60% controlling interest in
a subsidiary the acquisition of the assets of La Diperie. The Company’s share of the purchase consideration
amounted to $0.9 million, satisfied by the payment of $0.8 million cash. At closing, La Diperie operated 5
stores in Canada.
Change in accounting estimate
Effective September 1, 2017, the Company refined its method to determine breakage income recognized for
Cold Stone Creamery gift cards that were not acquired as part of the business acquisition. Previously, the
Company would recognize breakage revenue in its consolidated statements of income based on historical
redemption patterns, when it was established that these gift cards had a remote likelihood of being redeemed.
Under the refined method, the Company recognizes breakage on the Cold Stone Creamery gift cards in it is
consolidated statements of income based on historical load and redemption patterns. The redemption rate
was established following an analysis performed over 10 years of the redemption patterns as well as expected
future trends. The expected breakage is then recognized into income on a pro rata basis as gift cards are
redeemed.
The Company has determined that this accounting change represents a change in accounting estimate the
refined method resulted in a cumulative adjustment to increase previously recorded breakage income by $3.4
million. This adjustment has been recorded in the consolidated statements of income for the year ended
November 30, 2017. This change in estimate was accounted for prospectively.
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, 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, Tosto, Big Smoke Burger, Cold Stone Creamery, Blimpie, Surf City Squeeze, The
Great Steak & Potato Company, NrGize Lifestyle Café, Samurai Sam’s Teriyaki Grill, Frullati Café &
Bakery, Rollerz, Johnnie`s New York Pizzeria, Ranch One, America’s Taco Shop, Cereality, Tasti D-Lite,
Planet Smoothie, Maui Wowi, Pinkberry, Baja Fresh Mexican Grill, La Salsa Fresh Mexican Grill, La
Diperie, Steak Frites St-Paul, Giorgio Ristorante, The Works Gourmet Burger Bistro, Houston Avenue Bar
& Grill and Industria Pizzeria + Bar, and Dagwoods Sandwiches and Salads.
As at November 30, 2017, MTY had 5,469 locations in operation, of which 5,402 were franchised or under
operator agreements and the remaining 67 locations were operated by MTY.
MTY’s locations can be found in: i) mall and office tower food courts and shopping malls; ii) street front;
and, iii) non-traditional format within airports, petroleum retailers, convenience stores, cinemas, amusement
parks, in other venues or retailers shared sites, hospitals, universities and food-truck carts. The street front
locations are mostly made up of the Country Style, La Crémière, Sushi Shop, Taco Time, Tutti Frutti,
Valentine, Mr. Sub, ThaïZone, Extreme Pita, Mucho Burrito, Madisons, Houston Avenue Bar & Grill,
Industria Pizzeria + Bar, Steak Frites St-Paul, Giorgio Ristorante, The Works Gourmet Burger Bistro,
Blimpie, Cold Stone Creamery and Baja Fresh Mexican Grill banners. La Crémière , “TCBY” and La Diperie
operate primarily from April to September and the other banners generally operate year-round.
Page 4
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:
# of franchised
locations
18
71
18
24
6
103
91
152
# of corporate
locations
—
3
2
—
—
—
—
—
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 Canada1
Sushi Shop
Koya Japan
Sushi Shop – existing franchise locations
Tutti Frutti
Taco Time – Canadian master franchise
rights
Country Style Food Services Holdings
Inc.
Groupe Valentine inc.
Jugo Juice
Mr. Submarine
Koryo Korean BBQ
Mr. Souvlaki
SushiGo
Extreme Pita, PurBlendz and Mucho
Burrito ("Extreme Brandz")
ThaïZone
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
Kahala Brands Ltd - Cold Stone
Creamery, Blimpie, Taco Time, Surf
Acquisition
year
1999
2001
2002
2003
May 2004
June 2004
September 2005
April 2006
September 2006
October 2006
September 2007
September 2008
October 2008
%
ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
May 2009
100%
September 2010
August 2011
November 2011
November 2011
September 2012
June 2013
September 2013
September 2013
March 2015
July 2014
October 2014
100%
100%
100%
100%
100%
100%
100%
80% +
20%
90%
100%
November 2014
100%
December 2014
100%
September 2015
September 2016
July 2016
60% +
40%
100%
42
24
—
29
117
475
86
134
338
19
14
3
300 - 34 of which
in the United
States
25 and 3 mobile
restaurants
14
88
51
115
13
2,839
1 The Yogen FrüzTM exclusive master franchise rights in Canada were disposed of on February 1st, 2017.
5
—
15
—
—
5
9
2
—
1
—
2
5
—
—
13
1
17
4
40
Page 5
Brand
City Squeeze, The Great Steak & Potato
Company, NrGize Lifestyle Café,
Samurai Sam’s Teriyaki Grill, Frullati
Café & Bakery, Rollerz, Johnnie`s New
York Pizzeria, Ranch One, America’s
Taco Shop, Cereality, Tasti D-Lite,
Planet Smoothie, Maui Wowi and
Pinkberry
BF Acquisition Holdings, LLC – Baja
Fresh Mexican Grill and La Salsa Fresh
Mexican Grill
La Diperie
Steak Frites St-Paul and Giorgio
Ristorante
The Works Gourmet Burger Bistro
Houston Avenue Bar & Grill and
Industria Pizzeria + Bar
Dagwoods Sandwiches and Salads
Acquisition
year
%
ownership
# of franchised
locations
# of corporate
locations
October 2016
100%
167
December 2016
May 2017
60%
83.25%
June 2017
June 2017
100%
80%
September 2017
100%
5
15
23
12
20
16
—
—
4
—
2
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, gift card breakage and program fees and sales of other goods and
services to franchisees, including those generated by the distribution centre that serves the Valentine and
Franx Supreme franchisees. 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.
Revenues from corporate owned locations include sales generated from corporate owned locations.
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 prepared food sold in retail stores. The plant generates most of its revenues selling its products to
distributors and retailers.
Description of recent acquisitions
On September 29, 2017, the Company announced it had completed the acquisition of the assets of Dagwoods
Sandwiches and Salads. The purchase price was $3.0 million of which $2.6 million was settled in cash. At
closing, there were 22 locations in operation, all of them located in Canada.
On June 16, 2017, the Company announced it had completed through its 80% controlling interest in a
subsidiary the acquisition of the assets of Houston Avenue Bar & Grill (“Houston”) and Industria Pizzeria +
Bar (“Industria”). The Company’s share of the purchase consideration was $16.8 million of which $12.8
million was settled in cash. At closing nine Houston and three Industria were in operation. All locations are
located in Canada.
Page 6
On June 9, 2017, the Company announced it had completed the acquisition of the assets of The Works
Gourmet Burger Bistro. The purchase price was $8.2 million of which $7.1 million was settled in cash. At
closing, there were 27 locations in operation, all of them located in Canada.
On May 8, 2017, the Company announced that it had completed the acquisition of the assets of Steak Frites
St-Paul and Giorgio Ristorante for an amount of $0.4 million, of which $0.3 million was paid from cash on
hand. At closing, six Giorgio Ristorante and nine Steak Frites were in operation. All locations are located
in Canada.
On April 19, 2017, the Company acquired the remaining non-controlling shareholder interest in 7687567
Canada Inc. (Lucky 8) for a non-material cash consideration.
On December 9, 2016, the Company announced that it had completed through its 60% controlling interest in
a subsidiary the acquisition of the assets of La Diperie. The Company’s share of the purchase consideration
amounted to $0.9 million, satisfied by the payment of $0.8 million cash. At closing, La Diperie operated 5
stores in Canada.
On October 5, 2016, the Company completed the acquisition of BF Acquisition Holdings, LLC (BFAH),
for a purchase price of approximately $35.4 million. At closing, there were 183 stores in operation in the
United States, 16 of which were corporately-owned.
On September 30, 2016, the Company acquired the interest of the non-controlling shareholders of one of its
subsidiaries (9410198 Canada Inc., doing business as Big Smoke Burger) for $1.2 million. Following this
transaction, the Company has 100% ownership of this subsidiary.
On July 26, 2016, the Company acquired all of the shares of Kahala Brands Ltd. for a total consideration of
$394.2 million. Of this amount, $212.4 million was paid in cash. Financing for the acquisition was composed
of the issuance of 2,253,930 shares, $33.0 million of MTY’s cash on hand and the remainder was paid by
MTY’s new $325 million credit facility. As at closing, Kahala Brands Ltd. operated 18 brands in 27 countries
and had 2,879 locations in operation. The purchase consideration was adjusted and finalized at $393.4 million
pursuant to the receipt of final working capital adjustments and an amendment to the repayment terms of the
holdback payable. Please refer to note 7 of the consolidated financial statements.
Page 7
Selected annual information
(in thousands $)
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
Year ended
November 30, 2017
Year ended
November 30, 2016
Year ended
November 30, 2015
854,345
341,776
276,083
93,726
62,664
63,664
49,507
33,747
2.32
2.32
9,832
$0.46
852,650
359,512
191,275
65,841
68,686
68,686
54,421
57,147
2.73
2.73
$9,314
$0.46
225,387
7,711
145,203
50,682
35,903
43,996
26,015
25,918
1.36
1.36
$7,648
$0.40
21,374,497
21,374,497
19,908,827
19,908,827
19,120,567
19,120,567
Summary of quarterly financial information
(in thousands $)
February
2016
May
2016
August
2016
November
2016
February
2017
May
2017
August
2017
November
2017
Quarters ended
Revenue
EBITDA1
Net income
attributable to
owners
Total comprehensive
income (loss)
attributable to
owners
Earnings per share
Earnings per diluted
share
$35,320
$35,362
$52,886
$67,707
$64,016
$69,962
$72,372
$69,733
$12,106
$12,820
$17,953
$22,962
$16,336
$24,595
$25,576
$27,219
$7,927
$8,335
$22,685
$15,474
$2,015
$16,033
$12,035
$19,424
$8,414
$8,266
$16,900
$23,567
($1,192)
$20,145
($14,344)
$29,138
$0.41
$0.44
$1.13
$0.41
$0.44
$1.13
$0.75
$0.75
$0.09
$0.75
$0.56
$0.09
$0.75
$0.56
$0.91
$0.91
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 17.
Page 8
Segment note disclosure
Management monitors and evaluates results of the Company based on geographical segments; these two
segments being Canadian and United States of America. Each geographical area is managed by their
respective Chief Operating Officers (COO) whom brand leaders report to account for the results of their
operations.
Results of operations for the fiscal year ended November 30, 2017
Revenue
During the 2017 fiscal year, the Company’s total revenue increased by 44% to reach $276.1 million.
Revenues for the two segments of business are broken down as follows:
Segment
Sub-division
November 30, 2017
($ million)
November 30, 2016
($ million)
Variation
Canada
Total Canada
USA &
International
Franchise operation
Corporate stores
Food processing
Intercompany transactions
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total operating revenues
107.9
23.4
14.7
(4.1)
141.9
107.7
26.8
(0.3)
134.2
276.1
107.3
22.2
13.1
(3.1)
139.5
40.7
11.2
(0.1)
51.8
191.3
0%
6%
13%
N/A
2%
165%
139%
N/A
159%
44%
Canada revenue analysis:
As is shown in the table above, revenue from franchise locations in Canada remained stable during 2017.
Several factors contributed to the variation, as listed below:
Revenues, 2016 fiscal year
Increase in recurring revenue streams
Decrease in initial franchise fees, renewal fees and transfer fees
Decrease in turn key, sales of material to franchisees and rent revenues
One-time contract termination settlement
Other non-material variations
Revenues, 2017 fiscal year
$ million
107.3
3.6
(1.1)
(4.1)
1.9
0.3
107.9
Revenue from corporate owned locations increased by 6%, to $23.4 million during the period. The increase
is mainly due to sales from the newly acquired the Works Gourmet Burger Bistro which included 4 corporate
locations and offset by the sale and closure of some corporate stores. At the end of the period, the company
had 29 corporate stores in Canada, compared to 31 a year earlier.
Page 9
Food processing revenues increased by 13% during 2017, mainly due to the continuous addition of new
product lines.
USA/International revenue analysis:
During the 2017 fiscal year, the Company benefitted from the impact of the acquisitions of Kahala Brands
Ltd. and BF Acquisition Holdings, LLC, which account for most of the increase in all revenue streams.
Cost of sales and other operating expenses
During the 2017 fiscal year, operating expenses increased by 45% to $182.4 million, up from $125.4 million
a year ago. Operating expenses for the two business segments were incurred as follows:
Segment
Sub-division
November 30, 2017
($ million)
November 30, 2016
($ million)
Variation
Canada
Total Canada
USA &
International
Franchise operation
Corporate stores
Food processing
Intercompany transactions
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total cost of sales and other operating
expenses
53.0
23.2
13.3
(2.9)
86.6
66.3
31.0
(1.5)
95.8
54.5
22.3
12.0
(2.1)
86.7
27.0
12.8
(1.1)
38.7
182.4
125.4
(3%)
4%
11%
N/A
N/A
145%
143%
N/A
147%
45%
Canada cost of sales and other operating expenses analysis:
Expenses from franchise operations decreased by $1.5 million when compared to fiscal 2016. The decrease is
mostly attributable to a decrease in the number of turnkey projects and fluctuated in line with the associated
revenues and a decrease in lease termination costs and commissions paid. This was partially offset by an increase
in the wages and benefits resulting from the acquisitions realized during the year.
The variation of expenses from the corporate stores and food processing activities were both tightly correlated to
the related revenues.
USA/International cost of sales and other operating expenses analysis:
During the period, the Company incurred additional operational costs for this segment as a result of operating
Kahala Brands Ltd. and BF Acquisition Holdings, LLC. for a full period during 2017 (four and two months
respectively during 2016). Operating expenses in the US were also impacted adversely by provisions taken
on two loans receivable from multiple-unit holders which were deemed to have become impaired.
Page 10
Earnings before interest, taxes, depreciation and amortization (EBITDA)
(In millions $)
Canada
Fiscal year ended November 30, 2017
USA &
International
Total
Revenues
Expenses
EBITDA1
EBITDA as a % of Revenue
141.9
86.6
55.3
39%
134.2
95.8
38.4
28%
276.1
182.4
93.7
34%
Canada
(In millions $)
Revenues
Expenses
EBITDA1
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 12
191.3
125.4
65.9
34%
139.5
86.6
52.9
38%
Fiscal year ended November 30, 2016
USA &
International
51.8
38.8
13.0
25%
Total
Below is a summary of performance segmented by product/service:
(In millions $)
Revenues
Expenses
EBITDA1
EBITDA as a % of
Revenue
Fiscal year ended November 30, 2017
Franchise
Corporate
Processing
Intercompany
transactions
Total
215.6
119.3
96.3
45%
50.2
54.2
(4.0)
N/A
14.7
13.3
1.4
10%
(4.4)
(4.4)
—
N/A
276.1
182.4
93.7
34%
(In millions $)
Franchise
Fiscal year ended November 30, 2016
Processing
Corporate
Intercompany
transactions
Total
148.0
81.5
66.5
Revenues
Expenses
EBITDA1
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 12.
191.3
125.4
65.9
33.4
35.1
(1.7)
(3.2)
(3.2)
—
13.1
12.0
1.1
45%
N/A
34%
N/A
8%
Total EBITDA for the year ended November 30, 2017 was $93.7 million, an increase of 42% compared to
the same period last year. Canada contributed to 59% of total EBITDA while the USA/International
operations contributed to 91% of the total increase. The increase in USA/International EBITDA is due to the
Page 11
acquisition of Kahala Brands Ltd. and BF Acquisition Holdings, LLC which were operated for the entire
twelve-month period in 2017 (four and two months respectively during 2016).
In Canada, EBITDA for 2017 increased when compared to last year mainly as a result of the acquisitions
realized during the period and of a non-recurring gain on the early termination of a contract.
The USA & International EBITDA grew substantially despite the adverse impact of a weaker US dollar in
the fourth quarter of 2017, which affects the value of the EBITDA generated in the USA and internationally
after it is translated into our presentation currency, the Canadian dollar.
Net income
For the year ended November 30, 2017, net income attributable to owners decreased by 9%, to $49.5 million
or $2.32 per share ($2.32 per diluted share) compared to $54.4 million or $2.73 per share ($2.73 per diluted
share) for the same period last year.
Excluding the impact of various non-recurring items realized in 2016, which resulted in other income of
$14.0 million and had an after-tax impact of $13.2 million recorded in 2016, net income would have increased
by 20% during 2017.
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands $)
Period ended
November 30,
2017
Period ended
November 30,
2016
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Foreign exchange gain
Interest income
Loss on revaluation of financial liabilities recorded at
fair value through profit and loss
Other income
Impairment charge on intangible assets and goodwill
Gain on disposal of property, plant and equipment and
intangibles
EBITDA
62,664
2,724
20,178
10,314
(2,004)
(439)
409
—
1,000
(1,120)
93,726
68,686
2,065
10,779
3,855
(3,198)
(287)
—
(13,959)
—
(2,100)
65,841
Other income and charges
Interest on long-term debt increased to $10.3 million from $3.9 million during the period mainly as a result
of the impact of one full year of the interest on the credit facilities related to the acquisition of Kahala Brands
Ltd. and BF Acquisition Holdings, LLC in 2016.
During the year, as the result of a decline in the financial performance of the America’s Taco Shop, Rollerz
and Cereality 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 a non-cash impairment charge
of $1.0 million.
Page 12
Income taxes
The provision for income taxes as a percentage of income before taxes has increased slightly compared to
the rate experienced in 2016. The 2017 provision for income taxes was impacted favorably by changes in
the tax rates at which certain deferred tax assets and liabilities are calculated. That favorable item was
partially offset by some unrealized capital losses for which no tax assets have been recognized; during 2016,
the provision for taxes was favorably impacted by the utilization of previously unrecognized capital losses.
Results of operations for the fourth quarter ended November 30, 2017
Revenue
During the fourth quarter of the 2017 fiscal year, the Company’s total revenue increased by 3% to reach
$69.7 million. Revenues for the two segments of business are broken down as follows:
Segment
Sub-division
November 30, 2017
($ million)
November 30, 2016
($ million)
Variation
Canada
Total Canada
USA &
International
Franchise operation
Corporate stores
Food processing
Intercompany transactions
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total operating revenues
Canada revenue analysis:
31.3
6.2
4.2
(2.1)
39.6
25.3
4.9
(0.1)
30.1
69.7
28.5
5.5
3.5
(1.7)
35.8
26.4
5.6
(0.1)
31.9
67.7
10%
14%
20%
N/A
11%
(4%)
(14%)
N/A
(5%)
3%
As is shown in the table above, revenue from franchise locations in Canada increased by 10%. Several
factors contributed to the variation, as listed below:
Revenues, fourth quarter of 2016
Increase in recurring revenue streams
Decrease in initial franchise fees, renewal fees and transfer fees
Decrease in turn key, sales of material to franchisees and rent revenues
One-time gain; lease contract termination
Other non-material variations
Revenues, fourth quarter of 2017
$ million
28.5
2.2
(0.1)
(1.6)
1.9
0.4
31.3
Revenue from corporate owned locations increased by 14%, to $6.2 million during the three-month period.
The increase is mainly due to sales from the newly acquired the Works Gourmet Burger Bistro which
included 4 corporate locations and offset by the sale and closure of some corporate stores. At the end of the
period, the company had 29 corporate stores in Canada, compared to 31 a year earlier.
Food processing revenues increased by 20% during the fourth quarter of 2017, mainly due to the continuous
addition of new product lines.
Page 13
USA/International revenue analysis:
As is shown in the table above, revenue from franchise locations in the US decreased by 4%. Several
factors contributed to the variation, as listed below:
Revenues, fourth quarter of 2016
Increase in recurring revenue streams
Decrease in initial franchise fees, renewal fees and transfer fees
Decrease in sales of material to franchisees
Increase due to gift card breakage income
Impact of variation in foreign exchange rates
Other non-material differences
Revenues, fourth quarter of 2017
$ million
26.4
1.2
(0.7)
(1.3)
0.5
(1.4)
0.6
25.3
Revenue from corporate owned locations decreased by 14%, to $4.9 million during the three-month period,
due to the sale and closure of corporate stores. At the end of the period, the company had 38 corporate stores
in the US, compared to 51 a year earlier.
Cost of sales and other operating expenses
During the fourth quarter of 2017, operating expenses decreased by 6% to $42.5 million, from $44.7 million
a year ago. Operating expenses for the two business segments were incurred as follows:
Segment
Sub-division
November 30, 2017
($ million)
November 30, 2016
($ million)
Variation
Canada
Total Canada
Franchise operation
Corporate stores
Food processing
Intercompany transactions
USA &
International
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total cost of sales and other operating
expenses
12.4
5.8
3.6
(0.6)
21.2
17.0
5.9
(1.6)
21.3
42.5
Canada cost of sales and other operating expenses analysis:
12.5
4.9
3.2
(0.7)
19.9
17.9
8.0
(1.1)
24.8
44.7
0%
17%
14%
N/A
7%
(5%)
(26%)
N/A
(14%)
(6%)
Expenses from franchise operations decreased by $0.1 million during the fourth quarter of 2017 compared to
the same period last year. Notable variations include an increase in the wages and benefits resulting from
recent acquisitions and higher professional fees and to a decrease in the cost of turnkeys which offset each
other.
Corporate stores costs increased for the three-month period ended November 30, 2017 by 17% compared to
prior year. The increase is attributable to having eight casual dining restaurants corporately-operated during
Page 14
the quarter, compared to none in the same period in 2016; casual dining restaurants are typically generating
higher revenues and expenses than quick-service restaurants.
Expenses from the food processing segment fluctuated mostly as a function of factors explained in the Revenue
section above.
USA/International cost of sales and other operating expenses analysis:
During the three-month period, the Company expenses from US franchise operations decreased by $0.9
million or 5% when compared to the same period last year. The decrease predominantly results from the
foreign exchange rates variation between the two periods.
Corporate stores costs decreased for the three-month period ended November 30, 2017 by 26% compared to
prior year. The decrease is predominantly explained by the decrease in number of locations operating at the
end of the current period versus the prior period. The decrease in expenses is greater than the decrease in
revenues due to the closure of certain underperforming stores during the year.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Canada
Three months ended November 30, 2017
USA &
International
30.1
21.3
8.8
29%
39.6
21.2
18.4
46%
Total
69.7
42.5
27.2
39%
(In millions $)
Revenues
Expenses
EBITDA1
EBITDA as a % of Revenue
(In millions $)
Revenues
Expenses
EBITDA1
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 16.
67.7
44.7
23.0
34%
35.8
19.8
16.0
45%
Canada
Three months ended November 30, 2016
USA &
International
31.9
24.9
7.0
22%
Total
Below is a summary of performance segmented by product/service:
(In millions $)
Revenues
Expenses
EBITDA1
EBITDA as a % of
Revenue
Three months ended November 30, 2017
Franchise
Corporate
Processing
Intercompany
transactions
Total
56.6
29.4
27.2
48%
11.1
11.7
(0.6)
N/A
4.2
3.6
0.6
14%
(2.2)
(2.2)
—
N/A
69.7
42.5
27.2
39%
Page 15
(In millions $)
Franchise
Three months ended November 30, 2016
Processing
Corporate
Intercompany
transactions
Total
54.9
30.4
24.5
Revenues
Expenses
EBITDA1
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 16.
11.1
13.0
(1.8)
(1.8)
(1.8)
—
67.7
44.7
23.0
3.5
3.2
0.3
45%
N/A
34%
N/A
9%
Total EBITDA for the three-month period ended November 30, 2017 was $27.2 million, an increase of 18%
million compared to the same period last year. The USA/International operations contributed to 43% of the
increase, despite suffering from the adverse impact of foreign exchange variations. The increase in
USA/International EBITDA is due to the cumulative adjustment of $3.4 million made to gift card revenues.
In Canada, EBITDA for the fourth quarter of 2017 increased by $2.4 million compared to the same period to
the same period last year as a result of a non-recurring gain from the early termination of a contract and
growth in processing plant EBITDA margin.
Net income
For the three-month period ended November 30, 2017, net income attributable to owners increased to $19.4
million or $0.91 per share ($0.91 per diluted share) from $15.5 million or $0.75 per share ($0.75 per diluted
share) compared to the same period last year, mainly owing to the growth in EBITDA mentioned above
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands $)
Quarter ended
November 30,
2017
Quarter ended
November 30,
2016
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Foreign exchange loss (gain)
Interest income
Other income
Loss on revaluation of financial liabilities recorded at fair
value through profit and loss
Impairment charge on intangible assets and goodwill
Gain on disposal of property, plant and equipment and
intangibles
EBITDA
19,132
576
3,386
2,470
360
(66)
—
409
1,000
(48)
27,219
24,999
846
4,955
2,794
(3,927)
(74)
(5,979)
—
—
(652)
22,962
Page 16
Other income and charges
During the period, as the result of a decline in the financial performance of the America’s Taco Shop,
Rollerz and Cereality 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 a non-cash impairment of
$1.0 million.
Income taxes
The provision for income taxes as a percentage of income before taxes has decreased. The decrease mainly
stems from a change in deferred income tax rates and adjustments made to prior year tax provision recorded
during the quarter.
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 2018
12 months ending November 2019
12 months ending November 2020
12 months ending November 2021
12 months ending November 2022
Balance of commitments due after 2022
5,203
7,974
4,388
210,530
4,085
30
232,210
Net lease
commitments
11,209
10,371
9,923
9,394
7,792
18,843
67,532
Total contractual
obligations
16,412
18,345
14,311
219,924
11,877
18,873
299,742
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted. For total commitments,
please refer to the November 30, 2017 consolidated financial statements
Long-term debt includes interest bearing term loans related to the acquisition of Kahala Brands Ltd. and BF
Acquisition Holdings, LLC, promissory notes related to the acquisition of Houston and Industria, minority
put options, non-interest-bearing holdbacks on acquisitions and non-interest-bearing contract cancellation
fees.
During 2017, the Company modified its term credit facility by rolling it into the existing revolving credit
facility which resulted in the cancellation of its term credit facility and in CAD$210.5 million being drawn
from the revolving credit facility. Interest rates are variable and are based on various financing instruments
that have maturities from 1 to 180 days. Interest rates also depend on the Company’s debt-to-equity ratio,
where a lower indebtedness results in more favorable terms.
For amounts drawn in US dollars, the Company has the option to pay interest based on US base rates 4.75%
as at November 30, 2017 (3.25% as at November 30, 2016), plus a margin not exceeding 2.00%, or based on
LIBOR plus a margin not exceeding 3.00%. For amounts drawn in Canadian dollars, the Company has the
option to pay interest based on the Canada Prime rate, 4.20% as at November 30, 2017 (2.70% as at
November 30, 2016), as determined by the Toronto-Dominion Bank of Canada, plus a margin not exceeding
2.00% or based on Banker’s Acceptances, plus a margin not exceeding 3.00%.
Page 17
Liquidity and capital resources
As of November 30, 2017, the amount held in cash totalled $56.5 million, an increase of $20.2 million since
the end of the 2016 fiscal period. The primary reason for the increase was an accumulation of resources
required to fund the purchase of the limited liability company interests in CB Franchise Systems, LLC ("The
Counter"), Built Franchise Systems, LLC ("Built”) which took place on December 1, 2017.
During the year, the Company paid $9.8 million in dividends to its shareholders. This 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 $89.5 million during the year, compared to $51.7 million
for the same period in 2016. Excluding the variation in non-cash working capital items, income taxes and
interest paid, operations generated $97.3 million in cash flows, compared to $64.5 million in 2016, which
represents an increase of 51% compared to the same period last year. The increase is mostly due to the
increase in EBITDA detailed above.
During the year, the Company modified its existing credit facilities payable to a syndicate of lenders. The
modification resulted in an increase to the revolving credit facility which now has an authorized amount of
$305,000, (November 30, 2016 - $150,000) and the cancellation of the existing term loan of $154,716
(November 30, 2016 $165,000). Transaction costs of $519 were incurred and will be deferred and amortized
over the remaining 4 years of the life of the revolver.
The revolving credit facility now has an authorized amount of $305,000, (November 30, 2016 - $150,000),
of which $210,522 was drawn at November 30, 2017.
The facility has the following financial covenants:
The Debt to EBITDA ratio must be less than or equal to 3.50:1.00 from July 21, 2017 to July 20,
2018 and less than 3.00:1.00 thereafter.
The fixed charges coverage ratio must be at 1.25:1.00 at all times.
The credit agreement also contains various limitations on distributions and on the usage of the proceeds from
the disposal of assets which are not expected to impact the Company during the term of the credit agreement.
The revolving facility is repayable without penalty with the balance due on the date of maturity July 21, 2021.
At year end, the Company was in compliance with the covenants of the credit agreement.
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.
Financial position
Accounts receivable at the end of the period were at $34.1 million, compared to $36.1 million at the end of
the 2016 fiscal period. The decrease is due to the timing of cash receipts.
Property, plant and equipment decreased by $1.0 million and intangible assets by $19.9 million. The
decreases are mostly due to amortization, a non- cash impairment charge on the intangible assets in the US
operations as well as the foreign exchange impact on the assets held by the Company’s foreign subsidiaries.
Page 18
These decreases were offset by the additions resulting from acquisitions of the period. Property, plant and
equipment also decreased due to the sale of certain corporate stores in the USA.
Accounts payable and accrued liabilities increased to $57.6 million as at November 30, 2017, from $48.8
million as at November 30, 2016. The increase of $8.8 million is due to the acquisitions made during 2017,
to the net balance of the advertising funds and to the timing of cash payments to suppliers.
Provisions, which are composed of litigation and dispute, closed store and gift card provisions, decreased to
$75.3 million as at November 30, 2017 from $79.6 million as at November 30, 2016. An increase of breakage
income from gift cards was recorded for the period ended November 30, 2017 which resulted in a decrease
to the overall gift card liability. The increase in breakage income stems from a change in accounting estimate
in during the last quarter of 2017 which results in earlier recognition of breakage income. This change only
impacts Cold Stone gift cards which is the most significant gift card liability of the Company. The decrease
is partially offset by an increase in provisions for litigations and disputes and closed stores.
Deferred revenues consist of distribution rights which are earned on a consumption basis, deferred rent
payment received and include initial franchise fees to be earned once substantially all of the initial services
have been performed. The balance as at November 30, 2017 was $22.7 million, an increase of $2.2 million
since November 30, 2016. The increase is the result of higher unearned franchise fees.
Further details on the above statement of financial position items can be found in the notes to the November
30, 2017 consolidated financial statements.
Capital stock
During 2017 the Company did not issue or redeem shares. In 2016, the Company issued 2,253,930 shares
from treasury to the sellers of Kahala Brands Ltd., to bring the total shares outstanding at 21,374,497 common
shares.
Page 19
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 period
Corporate owned, beginning of year
Canada
United States
Opened during the period
Closed during the period
Acquired during the period
Reduction due to sale of Yogen Früz
Total end of period
Franchises, end of period
Corporate owned, end of period
Canada
United States
Total end of period
Number of locations
November 30,
2017
November 30,
2016
5,599
31
51
260
(454)
81
(99)
5,469
5,402
29
38
5,469
2,695
41
2
182
(301)
3,062
—
5,681
5,599
31
51
5,681
During 2017, the Company completed the following acquisitions:
Concept
Le Diperie
Steak Frites St-Paul
Giorgio Ristorante
The Works Gourmet Burger Bistro
Houston Avenue Bar & Grill
Industria Pizzeria + Bar
Dagwood Sandwiches and Salads
Total number of restaurants acquired
Number of restaurants as
at the date of the
acquisition
5
9
6
27
9
3
22
81
On February 1st, 2017, the Company sold its Yogen Früz Master franchise rights back to Yogen Früz
Canada. This transaction resulted in a reduction of 99 locations to our store count.
Page 20
Excluding the seven transactions above, the Company’s network opened 260 locations (115 in Canada, 85
in the United States and 60 International) and closed 454 locations (179 in Canada, 201 in the United States
and 74 International) during 2017.
The net reduction of 194 locations (60 in the first quarter, 48 in the second quarter, 46 in the third quarter
and 40 in the fourth quarter) results from a multitude of factors, which includes competitive pressures,
leases expiring, and closure of underperforming stores.
The average monthly sales for the stores closed during 2017 was approximately $19,000, while the average
monthly sales of stores opened during the same period was approximately $25,200.
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
% of system sales
year ended
November 30
November 30
2017
23%
48%
29%
2016
24%
47%
29%
2017
27%
57%
16%
2016
36%
50%
14%
The geographical breakdown of MTY’s locations and system sales consists of:
Geographical location
% of location count
% of system sales
year ended
November 30
November 30
Ontario
Quebec & Eastern Canada
Western Canada
United States
International
17%
17%
10%
2017 2016
18%
15%
10%
47% 48%
9%
9%
14%
20%
11%
2017 2016
22%
27%
17%
48% 27%
7%
7%
In the United States, the stores located in the states of California and Florida generate the largest proportion
of total system sales. They respectively represent 11% and 4% of the sales generated by MTY’s network.
During 2017, casual dining concepts generate approximately 4.2% of system sales, while quick-service and
fast casual concepts generated the balance. It is expected casual dining sales will represent between 6% and
8% of sales as the impact of the 2017 acquisitions gets annualized.
Page 21
System wide sales
During 2017, MTY’s network generated $2,301.8 million in sales, an increase of 55% compared to sales
generated during our 2016 fiscal period. The increase is distributed as follows:
Reported sales – 2016 fiscal year
Net increase in sales generated by concepts acquired during 2016
Net increase in sales generated by concepts acquired during 2017
Net decrease resulting from the sale of the Yogen Früz network
Net increase resulting from stores opened in the last 24 months
Net decrease resulting from stores closed in the last 24 months
Impact of same store sales growth
Cumulative impact of foreign exchange variation
Reported sales – 2017 fiscal year
Sales (millions of $)
1,480.3
781.0
42.2
(11.8)
76.5
(52.2)
(3.5)
(10.7)
2,301.8
During 2017, system sales totaled $2,301.8 million, compared to $1,480.3 million last year. The acquisitions
realized in the second half of 2016 and during 2017 accounted for nearly all of the increase. The net impact
of stores opened and closed in the past 24 months was a $24.3 million increase. The strength of the Canadian
dollar in the last few months of 2017 resulted in an unfavorable variation of $10.7 million.
During the fourth quarter of 2017, system sales reached $544.2 million, an increase of 2% over the
comparable period last year. The increase is mainly due to the positive same store sales growth and the
acquisitions realized during 2017, the impact of which was partially offset by the unfavorable variation of
$6.7 million in foreign exchange rates.
During the quarter, 264 locations had to temporarily close because of hurricanes Harvey and Irma, 4 of which
remain closed at the date of this MD&A; together, they were closed for a cumulative 1,764 days in the fourth
quarter, and a total of 1,870 days during the year.
Cold Stone Creamery is the only concept that currently represents more than 10% of system sales, generating
approximately one quarter of the total sales of MTY’s network. Thai Express, Taco Time and Baja Fresh
Mexican Grill are the second, third and fourth largest concepts in terms of system sales, generating
approximately 7% each of the network’s sales.
System wide sales include sales for corporate and franchise locations and exclude sales realized by the
distribution center or by the food processing plant. System sales are converted from the currency in which
they are generated into Canadian dollars for presentation purposes; they are therefore subject to variations in
foreign exchange rates.
Same store sales
During the three months ended November 30, 2017, same store sales grew by 1.2% over the same period last
year, continuing on the trend experienced in the third quarter of 2017. For the twelve-month period, same
store sales have declined 0.2%. Excluding the impact of the leap year in 2016, the same store sales growth
for 2017 would have been 0.0%.
Page 22
Same store sales growth was broken down as follows in MTY’s main regions:
Region
Canada
United States
International
Total
Quarter ended
Year ended
November 30, 2017
+2.2%
-0.1%
+0.4%
+1.2%
+0.2%
-1.1%
-3.2%
-0.2%
During the fourth quarter, same store sales for Canadian locations increased by 2.2% and has now been
positive for the last seven months. Alberta has seen a promising directional improvement but is still negative,
while Saskatchewan, which was already facing the same headwinds, was affected adversely by the
introduction of the new meal tax in which seemed to deter customers. Quebec and British Columbia both
continued on the momentum gained in the first two quarters, posting solid results.
In the United States, the network’s two largest markets, the states of California and Florida were both positive
during the quarter, while some of our smaller markets have been facing challenges.
For 2018, management expects competition in both the Canadian and US markets to intensify further both
from a price and an offering point of view. Drastic minimum wage increases in some regions are expected
to cause some changes to the industry, and the reaction of customers to those changes cannot be anticipated
at this moment. Restaurants are also facing more and more competition for food dollars coming from various
sources including retail stores and “grab and go” types of offering.
Although consumer confidence and the current economic environment seem favorable at the moment,
volatility in the price of commodities and currencies has a very material impact on employment rates and
disposable income for MTY’s customers, resulting in uncertainty with respect to the future. The result of
the NAFTA negotiations could also have impacts that cannot be foreseen at the moment.
Stock options
During the period, 200,000 options were granted. As at November 30, 2017 there were 200,000 options
outstanding and none that are exercisable.
Subsequent Events
Acquisition of the Counter and Built
On December 1, 2017, the Company completed its acquisition of all of the limited liability company interests in
CB Franchise Systems, LLC ("The Counter"), Built Franchise Systems, LLC ("Built”) for a total consideration
of $33 million (US$ 24.6 million) of which $30 million $(US$ 22.3 million) was settled in cash and the remainder
retained as a holdback on the transaction.
Definitive combination agreement Imvescor
On December 12, 2017, the Company announced that it has entered into a definitive combination agreement
under which a wholly owned subsidiary of MTY would acquire all of the outstanding Imvescor Restaurant Group
Inc. ("Imvescor"), common shares for $4.10 per Imvescor share, representing a total consideration of
approximately $248 million. The consideration will be settled approximately 80% in shares and the remaining
Page 23
in cash. The transaction is subject to customary closing conditions, including the receipt of regulatory and
Imvescor shareholder approvals.
US tax reform
On December 22, 2017, the United States proceeded to a tax reform through the enactment of the “Tax Cuts and
Jobs Act” (hereafter the “Act”). One of the significant changes included in the Act is the reduction of the federal
corporate tax rate from 35% to 21% effective January 1, 2018. For the financial year ending November 30, 2018,
the applicable federal corporate tax rate will correspond to a blended rate of 22.19% based on the number of days
in the taxation year before and after the effective date.
Based on temporary differences as of November 30, 2017, the Company preliminarily estimates that it will record
a deferred tax benefit estimated at USD $29.1 million in its financial year ended November 30, 2018, by reducing
its deferred tax liability recorded for its United States-based entities.
The Company made a preliminary analysis of the new Base Erosion Anti-Avoidance Tax (hereafter the “BEAT”)
and changes to interest deduction limitation rules included in the Act and that will impact financial years
November 30, 2019, and after. Based on available information as of financial statement date, the Company expect
to meet the de minimis exception and not be subject to BEAT rules. Based on this preliminary analysis, the new
interest deduction limitation might have an impact in future years. However, any amount disallowed based on
the new interest deduction rule could be carried over future years and used against future taxable profit.
Therefore, the Company does not expect this measure to have any permanent impact.
The new rules provided by the Act are complex and further guidance will be provided by the United States
authorities in upcoming months. Accordingly, the information presented herein is subject to adjustments when
new regulation will be available.
Dividends
On January 15, 2018, the Company approved a quarterly dividend of $0.15 per common share. Dividends were
paid on February 15, 2018 and amounted to $3.2 million.
Agreement to acquire the assets of Timothy’s and Mmmuffins
On February 15, 2018, the Company announced it had entered into agreement to acquire the assets of Timothy’s
World Coffee (“Timothy’s) and Mmmuffins, from Threecaf Brands, Canada, Inc., a subsidiary of Le Duff
America, for an estimated consideration of $1.7 million.
Seasonality
Results of operations for any interim period are not necessarily indicative of the results of operations for the
full year. The Company expects that seasonality will 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; given the
addition of Cold Stone Creamery, which is now MTY’s largest concept and which is also extremely seasonal,
this pattern is expected to be more important in the future. This is generally as a result of higher traffic in the
street front locations, higher sales from seasonal locations only operating during the summer months and
higher sales from shopping centre locations. Sales for shopping mall locations are also higher than average
in December during the Christmas shopping period.
Page 24
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 on certain leases for which it is not the lessee, for a cumulative
amount of $1.4 million (November 30, 2016 - $1.8 million).
Risks and uncertainties
Despite the fact that the Company has various numbers of concepts, diversified in type of locations and
geographies 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.
Off-balance sheet arrangement
MTY has no off-balance sheet arrangements.
Page 25
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 periods was as follows:
Short-term benefits
Share based payment
Board member fees
Total remuneration of key management personnel
2017
$
1,406
401
49
1,856
2016
$
1,011
—
51
1,062
Key management personnel are composed of the Company’s CEO, COO, CFO as well as the COO of the US
operations. 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 23% 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:
Short-term benefits
Total remuneration of individuals related to key
management personnel
2017
$
690
690
2016
$
598
598
Page 26
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, 2017, 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:
Standard
Issue date
Effective date for
the Company
Impact
IFRS 9 Financial Instruments
IFRS 15 Revenue from contracts with customers
IFRS 16 Leases
IAS 12 Income taxes
IAS 7 Statement of cash flows
IFRIC 22 Foreign Currency Transactions
and advance Consideration
IFRIC 23 uncertainty over income tax treatments
July 2014
May 2014
January 2016
January 2016
January 2016
December 2016
December 1, 2018
December 1, 2018
December 1, 2019
December 1, 2017
December 1, 2017
December 1, 2018
June 2017
December 1 2019
In assessment
In assessment
In assessment
In assessment
In assessment
In assessment
In assessment
IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement and IFRIC 9
Reassessment of Embedded Derivatives. 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. IFRS 9 does not replace the
requirement for portfolio fair value hedge accounting for interest risk since this phase of the project was
separated from IFRS project due to the longer-term nature of the macro hedging project which is currently at
the discussion paper phase of the due process. Consequently, the exception in IAS 39 for fair value hedge of
an interest rate exposure of a portfolio of financial assets or financial liabilities continues to apply.
IFRS 15 replaces the following standards: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18
Transfers of Assets from Customers and SIC-31 Revenue – Barter Transactions Involving Advertising
Services. This new standard sets out the requirements for recognizing and disclosing revenue that apply to
all contracts with customers. The core principle of IFRS 15 is that an entity recognizes revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods and services. IFRS 15 also includes a cohesive set
of disclosure requirements that would result in an entity providing comprehensive information about the
nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with
customers.
On April 12, 2016, the IASB issued Clarifications to IFRS 15, Revenue from Contracts with Customers. The
standard contains a single model that applies to contracts with customers and two approaches to recognizing
revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions
to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds
have been introduced, which may affect the amount and/or timing of revenue recognized. The clarifications
to IFRS 15 provide additional guidance with respect to the five-step analysis, transition, and the application
of the Standard to licenses of intellectual property.
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
Page 27
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 12 provides further clarification with regards to the recognition of deferred tax assets for unrealized
losses.
The IASB amended IAS 7 as part of its initiative regarding the disclosure requirements on financing activities
in the statement of cash flows. The Company does not foresee any material impact on the disclosure currently
presented as a result of this amendment.
In December 2016, the IASB issued IFRIC 22 which provides an interpretation on how to determine the date
of the transaction when applying the standard on foreign currency transactions, IAS 1. The interpretation
applies where an entity pays or receives consideration in advance for foreign currency-denominated
contracts. The date of the transaction determines the exchange rate to be used on initial recognition of the
related asset, expense or income. This Interpretation provides guidance for when a single payment or receipt
is made, as well as for situations where multiple payments or receipts are made and aims to reduce diversity
in practice. This standard is effective for annual reporting periods beginning on or after January 1, 2018.
IFRIC 23 clarifies the accounting for uncertainties in income taxes.
The Company is in the process of assessing the impact of these standards on its consolidated financial
statements. Although the extent of the impact has not yet been determined, the Company expects that the
adoption of IFRS 15 and IFRS 16 will result in material changes to its consolidated statement of income and
consolidated statement of financial position
Economic environment risk
The business of the Company is dependent upon numerous aspects of a healthy general economic
environment, from strong consumer spending to provide sales revenue, to available credit to finance the
franchisees and the Company. In light of recent upheaval in economic, credit and capital markets, the
Company’s performance and market price may be adversely affected. The Company’s current planning
assumptions forecast that the quick service restaurant industry will be impacted by the current economic
recession in the provinces in which it operates. However, management is of the opinion that the current
economic situation will not have a major impact on the Company due to the following reasons: 1) the
Company has strong cash flows; 2) quick service restaurants represent an affordable dining out option for
consumers in an economic slowdown.
Financial instruments and financial risk exposure
In the normal course of business, the Company uses various financial instruments which by their nature
involve risk, including market risk and the credit risk of non-performance by counterparties. These financial
instruments are subject to normal credit standards, financial controls, risk management as well as monitoring
procedures.
Page 28
The classification, carrying value and fair value of financial instruments are as follows:
As at November 30, 2017
(In thousands $)
Financial assets
Cash
Accounts receivable
Loans receivable
Deposits
Financial liabilities
Accounts payable and
accrued liabilities
Long-term debt ¹
Loans and
receivables
Other financial
liabilities at
amortized cost
Total carrying
Value
Fair
value
$
56,453
34,151
5,926
1,692
98,222
—
—
—
$
—
—
—
—
—
$
56,453
34,151
5,926
1,692
98,222
$
56,453
34,151
5,926
1,692
98,222
57,555
219,739
277,294
57,555
219,739
277,294
57,555
221,889
279,444
¹ Excludes promissory notes and obligations to repurchase non-controlling interests
As at November 30, 2016
(In thousands $)
Financial assets
Cash
Accounts receivable
Loans receivable
Deposits
Financial liabilities
Accounts payable and
accrued liabilities
Long-term debt ¹
Loans and
receivables
Other financial
liabilities at
amortized cost
Total carrying
Value
Fair
value
$
36,260
36,106
8,004
1,587
81,957
—
—
—
$
—
—
—
—
—
$
36,260
36,106
8,004
1,587
81,957
$
36,260
36,106
8,004
1,587
81,957
48,808
252,677
301,485
48,808
252,677
301,485
48,808
252,677
301,485
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
Page 29
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.
Promissory notes
The Company issued as part of its consideration for the acquisition of Houston Avenue Bar & Grill and
Industria Pizzeria + Bar promissory notes to the vendors and the minority shareholders of 10220396 Canada
Inc. These promissory notes are subject to earn out provisions, which are based on future earnings. These
promissory notes are repayable in June 2019 and June 2022. These promissory notes have been recorded at
fair value and are remeasured on a recurring basis.
A fair value re-measurement of $0.2 million was recorded for these promissory notes for the period ended
November 30, 2017.
Minority interest Obligations
The Company has entered into an agreement to purchase the shares of a minority interest shareholder of
9974644 Canada Inc. at their request. The option is exercisable at anytime after December 9,2017. The
consideration is based on a multiplier of EBITDA, as prescribed by the terms of the shareholder agreement.
As a result, the Company has recorded an obligation at fair value.
A fair value re-measurement of $0.2 million (2016 - $ nil) was recorded for this non-controlling interest
obligation.
The Company, in conjunction with the acquisition of Houston Avenue Bar & Grill and Industria Pizzeria +
Bar, entered into an agreement to acquire the non-controlling interest in 10220396 Canada Inc., in June 2022.
The consideration to be paid for this acquisition will be based on future earnings. As a result, the Company
has recorded an obligation at fair value.
Page 30
A fair value re-measurement of $0.3 million (2016-$ nil) was recorded for this non-controlling interest
obligation.
Fair value hierarchy as at November 30, 2017
(In thousands $)
Financial liabilities
Promissory notes related to the acquisition of
Houston Avenue Bar & Grill and Industria
Pizzeria + Bar
Non-controlling interest put options
Financial Liabilities
Level 1
Level 2
Level 3
—
—
—
—
—
—
5,436
2,027
7,463
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, 2017.
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:
‒ Other than receivables from international locations, the Company’s broad client base is spread
mostly across Canada and USA, 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 $1.2 million (2016 - $0.9 million).
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’s exposure to foreign exchange risk mainly comes
from sales denominated in foreign currencies. The Company’s USA and foreign operations use the U.S.
dollar (USD) as functional currency. The Company’s exposure to foreign exchange risk stems mainly from
cash, accounts receivable, long-term debt denominated in U.S. dollars, other working capital items and
financial obligations from its USA operations.
Fluctuations in USD exchange rate are deemed to have minimal risk as they are mostly offset by the stand-
alone operations of the Company’s US entities.
Total US net income for the period was C$18.9 million, (2016 – C$9.5 million). A 5% change to foreign
exchange would represent a gain or loss to the Company of C$0.9 million (2016 - C$0.5 million).
Page 31
On June 22, 2016, the Company entered into International Swaps & Derivatives Association, Inc. (“ISDA”)
enforceable agreement for an amount of US$200 million convertible at an exchange rate of 1.281. The
agreement end date was July 25, 2016. At the end date, a gain of $8.0 million was realized as a result of
favourable foreign exchange variances.
As at November 30, 2017, the Company has the following financial instruments denominated in foreign
currencies:
(In thousands $)
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable
Portion of holdback
included in income taxes
payable
Revolving credit facility
Long-term debt
Net Financial Assets
(Liabilities)
November 30, 2017
CAD
USD
$
$
November 30, 2016
CAD
USD
$
$
38,389
10,842
49,476
13,974
20,310
13,526
27,277
18,166
14,917
19,225
69,383
93,184
8,994
—
7,690
11,592
—
9,911
8,994
53,800
12,533
12,079
72,255
16,832
17,630
22,722
(110,874)
(148,907)
Foreign exchange risk is the Company’s exposure to decreases or increases in financial instrument values
caused by fluctuations in exchange rates. The Company’s exposure to foreign exchange risk mainly comes
from sales denominated in foreign currencies. The Company’s USA and foreign operations use the U.S.
dollar (USD) as functional currency. The Company’s exposure to foreign exchange risk stems mainly from
cash, accounts receivable, long-term debt denominated in U.S. dollars, other working capital items and
financial obligations from its USA operations.
Fluctuations in USD exchange rate are deemed to have minimal risk as they are mostly offset by the stand-
alone operations of the Company’s US entities.
Interest rate risk
Interest rate risk is the Company’s exposure to increases and decreases in financial instrument values caused
by the fluctuation in interest rates. The Company is exposed to cash flow risk due to the interest rate
fluctuation in its floating-rate interest-bearing financial obligations.
Furthermore, upon refinancing of a borrowing, depending on the availability of funds in the market and lender
perception of the Company’s risk, the margin that is added to the reference rate, such as LIBOR or prime
rates, could vary and thereby directly influence the interest rate payable by the Company.
Long-term debt stems mainly from acquisitions of long-term assets and business combinations. The
Company is exposed to interest rate risk with its revolving credit facility which is used to finance the
Company’s acquisitions. Both facilities bear interest at a variable rate and as such the interest burden could
Page 32
change materially. $210.5 million (2016 - $237.3 million) of the credit facilities were used as at November
30, 2017. A 100 basis points increase in the bank’s prime rate would result in additional interest of $2.1
million per annum (2016 - $2.4 million) on the outstanding credit facility.
Liquidity risk
Liquidity risk refers to the possibility of the Company not being able to meet its financial obligations when
they become due. The Company has contractual and fiscal obligations as well as financial liabilities and is
therefore exposed to liquidity risk. Such risk can result, for example, from a market disruption or a lack of
liquidity. The Company actively maintains credit facilities to ensure it has sufficient available funds to meet
current and foreseeable financial requirements at a reasonable cost.
As at November 30, 2017, the Company had an authorized revolving credit facility for which the available
amount may not exceed $305 million to ensure that sufficient funds are available to meet its financial
requirements. The terms and conditions related to this revolving credit facility is described in note 17
consolidated financial statement as at November 30, 2017.
The following are the contractual maturities of financial liabilities as at November 30, 2017:
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
thereafter
$
Accounts payable
and accrued
liabilities
Long-term debt
Interest on long-term
debt (1)
57,555
227,202
n/a
284,757
57,555
232,210
25,049
314,814
57,555
1,055
3,416
62,026
—
4,148
3,416
7,564
—
7,974
—
219,033
6,831
14,805
11,386
230,419
(1) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the
end of the reporting period.
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 producing 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 the integration of the recently acquired brands. Following the closing of
those acquisitions, MTY is well-positioned to expand in Canada and in the United States, including growing
its existing Canadian brands into the United States.
The restaurant industry will remain challenging in the future, and management believes that the focus on the
food offering, innovation, 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.
Page 33
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 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, 2017 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.
As of August 31, 2017, Chief Executive Officer and the Chief Financial Officer along with management
concluded that the Company’s internal controls over financial reporting were not effective due to a material
weakness identified surrounding internal controls over accounting for non-routine and complex transactions,
including the accounting for purchase price allocations following acquisitions of businesses. The Company’s
review process allowed errors in the calculation of the fair value of the gift card liability to go undetected,
resulting in a material misstatement of certain revenue and expense items subsequent to the acquisition of
Kahala in 2016. Furthermore, the integration of business acquisitions, from an internal control perspective,
were not completed as of November 30, 2017. Consequently, internal controls were not fully effective in
identifying, assessing and addressing risks that significantly impact the financial statements or the
effectiveness of the internal controls over financial reporting.
Management has commenced its remediation plan to address these material weaknesses identified in the
internal controls over financial reporting. Management intends to add resources and tools in the internal audit
department to test and assess the control environment in the existing and newly acquired businesses and will
seek external help for the review of certain areas of the control environment in order to develop an adequate
action plan focusing on the deficiencies that have the highest likelihood of causing material misstatements.
Management has taken certain actions to begin remediating these material weaknesses including the
implementation of new controls with regards to the review procedures surrounding complex transactions and
evaluations by third party specialists. Material weaknesses however, cannot be considered remediated until
the remedial controls operate for a sufficient period of time and management has concluded through testing,
that these controls are operating effectively.
Page 34
Notwithstanding the outstanding assessment regarding the remediation actions as described above, the Chief
Executive Officer and the Chief Financial Officer, together with Management have concluded the financial
statements included in this report present in all material respects its financial position, results of operations,
capital position and cash flows for the periods presented in accordance with IFRS
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, 2017, 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, La Diperie (acquired December 9,
2016), Steak Frites St-Paul and Giorgio Ristorante (acquired May 8, 2017), The Works Gourmet Burger
Bistro (acquired June 9, 2017) and Houston Avenue Bar & Grill and Industria Pizzeria + Bar (acquired June
16, 2017), Dagwoods (acquired September 29,2017). The period has ended as at February 15, 2018 for La
Diperie,
Page 35
Percentage of
MTY Food
Group Inc.
Company’s
assets
Current assets
Non-current
assets
Current
Liabilities
Long-term
liabilities
Revenues
Net earnings
Dagwoods
La Diperie
Steak Frites St-
Paul and
Giorgio
Ristorante
The Works
Gourmet
Burger Bistro
Houston
Avenue Bar &
Grill and
Industria
Pizzeria + Bar
0%
0%
0%
0%
0%
0%
0%
2%
1%
3%
0%
0%
0%
1%
2%
0%
3%
0%
0%
0%
1%
1%
1%
1%
4%
0%
2%
1%
2%
1%
3%
1%
2%
1%
2%
The Company’s management, with the participation of its President and Chief Executive Officer and Chief
Financial Officer, has limited the scope of the design of the Company’s disclosure controls and procedures
and internal controls over financial reporting to exclude controls, policies and procedures and internal
controls over financial reporting of certain special purpose entities (“SPEs”) on which the Company has the
ability to exercise de facto control and which have as a result been consolidated in the Company’s
consolidated financial statements. For the period ended November 30, 2017, 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, 2% of the Company’s revenues and 0% of the Company’s net earnings.
__________________________
Stanley , Chief Executive Officer
__________________________
Eric Lefebvre, CPA, CA, MBA Chief Financial Officer
Page 36
Consolidated financial statements of
MTY Food Group Inc.
November 30, 2017 and 2016
Deloitte LLP
La Tour Deloitte
1190 Avenue des
Canadiens-de-Montréal
Suite 500
Montréal 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, 2017 and
November 30, 2016, 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, 2017 and November 30, 2016, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
February 15, 2018
_________________
1 CPA auditor, CA, public accountancy permit No. A110972
Member of Deloitte Touche Tohmatsu Limited
MTY Food Group Inc.
Consolidated statements of income
Years ended November 30, 2017 and November 30, 2016
(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)
Unrealized and realized foreign exchange gain
Interest income
Loss on revaluation of financial liabilities recorded at fair
value through profit and loss
Other income
Impairment charge on intangible assets
Gain on disposal of property, plant and equipment and
intangible assets
Income before taxes
Income tax expense (recovery)
Current
Deferred
Net income
Net income attributable to:
Owners
Non-controlling interests
Earnings per share
Basic and diluted
Notes
23 and
30
24 and
30
11
12
21
25
12
29
20
2017
$
2016
$
276,083
191,275
182,357
2,724
20,178
10,314
215,573
2,004
439
(409)
—
(1,000)
1,120
2,154
125,434
2,065
10,779
3,855
142,133
3,198
287
—
13,959
—
2,100
19,544
62,664
68,686
9,685
3,125
12,810
49,854
13,930
(111)
13,819
54,867
49,507
347
49,854
54,421
446
54,867
2.32
2.73
The accompanying notes are an integral part of the consolidated financial statements.
Page 2
MTY Food Group Inc.
Consolidated statements of comprehensive income
Years ended November 30, 2017 and November 30, 2016
(In thousands of Canadian dollars, except per share amounts)
Notes
2017
$
2016
$
Net income
49,854
54,867
Items that may be reclassified subsequently to profit or
loss
Unrealized (loss) gain on translation of foreign
operations
Deferred income tax recovery on foreign
currency translation adjustments
Other comprehensive (loss) income
Total comprehensive income
Total comprehensive income attributable to:
Owners
Non-controlling interest
(17,307)
2,726
1,547
(15,760)
34,094
—
2,726
57,593
33,747
347
34,094
57,147
446
57,593
The accompanying notes are an integral part of the consolidated financial statements.
Page 3
MTY Food Group Inc.
Consolidated statements of changes in shareholders’ equity
Years ended November 30, 2017 and November 30, 2016
(In thousands of Canadian dollars, except per share amounts)
Reserves
Balance as at November 30, 2015
Net income for the year ended November 30, 2016
Other comprehensive income
Acquisition of non-controlling interest in 9410198 Canada
Inc. (note 5)
Dividends
Issuance of capital (note 18)
Balance as at November 30, 2016
Net income for the year ended November 30, 2017
Other comprehensive income (loss)
Acquisition of La Diperie (note 7)
Acquisition of non-controlling interest in 7687567 Canada
Inc (note 5)
Acquisition of Steak Frites and Giorgio (note 7)
Acquisition of Houston and Industria (note 7)
Dividends
Option granted to minority interest 9974644 Canada Inc.
(note 17)
Stock options (note 19)
Balance as at November 30, 2017
The following dividends were declared and paid by the Company:
Capital
stock
$
19,792
—
—
—
—
94,753
114,545
—
—
—
—
—
—
—
Other
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
114,545
(850 )
—
(850 )
Contributed
surplus
$
481
—
—
—
—
—
481
—
—
—
—
—
—
—
—
401
882
$0.46 per common share (2016 - $0.46 per common share)
The accompanying notes are an integral part of the consolidated financial statements.
Foreign
currency
translation
$
Total
reserves
$
Retained
earnings
$
Equity
attributable
to non-
controlling
interest
$
Total
$
Total
$
(111 )
—
2,726
370 146,492 166,654
—
54,421
2,726
2,726
54,421
—
2,555 169,209
54,867
2,726
446
—
—
—
—
2,615
—
(15,760 )
—
—
—
—
—
—
—
(13,145 )
—
—
—
944
944
(9,314 )
(9,314 )
—
94,753
3,096 192,543 310,184
49,507
(15,760 )
49,507
—
—
(15,760)
—
—
—
—
—
—
(26 )
—
—
(26 )
—
—
(9,832 )
—
(9,832 )
(850)
401
(850 )
401
(13,113) 232,192 333,624
—
—
(2,194 )
(125 )
—
682
347
—
(1,250 )
(9,439 )
94,753
310,866
49,854
(15,760 )
615
615
(4 )
16
63
(17 )
(30 )
16
63
(9,849 )
—
—
(850 )
401
1,702 335,326
2017
$
9,832
2016
$
9,314
Page 4
MTY Food Group Inc.
Consolidated statements of financial position
As at November 30, 2017 and November 30, 2016
(In thousands of Canadian dollars, except per share amounts)
Assets
Current assets
Cash
Accounts receivable
Inventories
Loans receivable
Income taxes receivable
Other assets
Prepaid expenses and deposits
Loans receivable
Deferred income tax
Property, plant and equipment
Intangible assets
Goodwill
Liabilities and Shareholders’ equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Provisions
Income taxes payable
Deferred revenue and deposits
Current portion of long-term debt
Long-term debt
Deferred revenue and deposits
Deferred income taxes
Notes
2017
$
2016
$
8
9
10
10
11
12
13
15
16
17
17
16
29
56,453
34,151
3,281
2,817
1,408
1,163
5,461
104,734
3,109
351
13,081
506,134
226,936
854,345
57,555
75,331
19,273
20,844
4,240
177 243
222,962
1,946
116,868
519,019
36,260
36,106
3,298
3,138
—
—
7,900
86,702
4,866
—
14,087
526,067
220,928
852,650
48,808
79,550
20,793
18,080
15,041
182,272
237,636
2,481
119,395
541,784
Page 5
MTY Food Group Inc.
Consolidated statements of financial position (continued)
As at November 30, 2017 and November 30, 2016
(In thousands of Canadian dollars, except per share amounts)
Shareholders’ equity
Equity attributable to owners
Capital stock
Reserves
Retained earnings
Equity attributable to non-controlling interest
Notes
2017
$
2016
$
18
114,545
(13,113 )
232,192
333,624
1,702
335,326
854,345
114,545
3,096
192,543
310,184
682
310,866
852,650
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the Board on February 15, 2018
____________________________________________ , Director
____________________________________________ , Director
Page 6
MTY Food Group Inc.
Consolidated statements of cash flows
Years ended November 30, 2017 and November 30, 2016
(In thousands of Canadian dollars, except per share amounts)
Operating activities
Net income
Adjusting items:
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 charge on intangible assets
Loss on revaluation of financial liabilities recorded
at fair value through profit and loss
Unrealized foreign exchange gain
Realized gain on forward contracts
Realized gain on settlement of holdbacks
Realized gain on Taco Time contract termination
upon acquisition of Kahala Brands Ltd.
Income tax expense
Deferred revenue and deposits
Share based payments
Income tax refunds received
Income taxes paid
Interest paid
Changes in non-cash operating activities
Other
Cash flows provided by operating activities
Investing activities
Net cash outflow on acquisitions
Additions to property, plant and equipment
Additions to intangible assets
Acquisition of the non-controlling interest in 7687567
Canada Inc.
Acquisition of the non-controlling interest in 9410198
Canada Inc.
Realized gain on forward contracts
Proceeds on disposal of property, plant and
equipment and intangible assets
Cash flows used in investing activities
Notes
2017
$
2016
$
49,854
54,867
10,314
2,724
20,178
(1,120)
1,000
409
(960)
—
—
—
12,810
1,644
401
97,254
3,855
2,065
10,779
(2,100)
—
—
(4,675)
(7,980)
(2,335)
(3,644)
13,819
(118)
—
64,533
—
(10,385)
(7,646)
10,027
242
89,492
88
(11,164)
(2,775)
1,048
—
51,730
(23,939)
(2,815)
(453)
(247,763)
(2,789)
(692)
(30)
—
—
—
(1,250)
7,980
3,758
(23,479)
3,971
(240,543)
12
21 and 25
25
25
31
31
7
11
12
5
5
Page 7
MTY Food Group Inc.
Consolidated statements of cash flows (continued)
Years ended November 30, 2017 and November 30, 2016
(In thousands of Canadian dollars, except per share amounts)
Notes
2017
$
2016
$
Financing activities
Issuance of banker’s acceptance
Repayment of banker’s acceptance
Issuance of long-term debt
Repayment of long-term debt
Capitalized financing costs
Dividends paid to non-controlling
shareholders of subsidiaries
Dividends paid
Cash flows (used in) provided by financing activities
Net increase (decrease) in cash
Cash, beginning of period
Cash acquired
Cash, end of period
7
—
—
13,000
(48,452)
(519)
(17)
(9,832)
(45,820)
20,193
36,260
—
56,453
21,200
(27,500)
245,808
(55,965)
(2,674)
(125)
(9,314)
171,430
(17,383)
33,417
20,226
36,260
The accompanying notes are an integral part of the consolidated financial statements.
Page 8
MTY Food Group Inc.
Table of contents
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Description of the business
Basis of preparation
Accounting policies
Critical accounting judgments and key sources of estimation uncertainty
Consolidation
Future accounting changes
Business acquisitions
Accounts receivable
Inventories
Loans receivable
Property, plant and equipment
Intangible assets
13. Goodwill
14. Credit facilities
15.
Provisions
16. Deferred revenue and deposits
17.
Long-term debt
18. Capital stock
19.
20.
21.
Stock options
Earnings per share
Financial instruments
22. Capital disclosures
23. Revenues
24. Operating expenses
25. Other income
26. Operating lease arrangements
27. Guarantee
28. Contingent liabilities
29.
30.
31.
Income taxes
Segmented information
Statement of cash flows
32. Related party transactions
33.
Subsequent Events
10
10
11
27
30
31
33
41
42
42
43
45
49
49
50
51
52
53
53
54
54
60
61
61
62
62
63
63
64
66
68
68
69
Page 9
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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 (“financial statements”) have been prepared on the historical
cost basis except for certain 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”).
These consolidated financial statements were authorized for issue by the Board of Directors on
February 15, 2018.
Page 10
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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
Percentage of equity interest
MTY Tiki Ming Enterprises Inc.
MTY Franchising USA, Inc.
BF Acquisition Holdings, LLC
Kahala Brands Ltd.
8825726 Canada Inc.
154338 Canada Inc.
9974644 Canada Inc.
10179612 Canada Inc.
10220396 Canada Inc.
%
100
100
100
100
90
50
60
83.25
80
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
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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, which are recognized and measured in
accordance with IAS 12 Income Taxes.
Page 12
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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.
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.
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.
Page 13
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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 franchise and transfer fees (note 23).
Renewal and transfer fees are recognized when substantially all applicable services required by
the Company under the franchise agreement have been performed. This generally occurs when
the agreement is signed. This revenue is recorded in franchise and transfer fees (note 23).
Page 14
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Revenue recognition (continued)
i) Revenue from franchise locations (continued)
Revenue from equipment sale is recognized when the risk and rewards of ownership and title
pass to buyer, generally upon the shipment of the equipment. This revenue is recorded in sale
of goods, including construction revenues (note 23).
Depending on the gift card program, the Company recognizes breakage income either on a pro-
rated recognition basis, which is based on the historical redemption pattern of the gift cards or
based on the remote likelihood of a gift card being redeemed. The Company also charges various
program fees to its franchisees as gift cards are redeemed. Notably, this does not apply to gift
card liabilities assumed upon a business acquisition, which are accounted for at fair value.
The Company earns rent revenue on certain leases it holds and sign rental revenue; the
Company’s policy is described below.
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
23).
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.
ii) 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.
iii) 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.
Page 15
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
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.
The assets and liabilities of a foreign operation with a functional currency different from that of the
Company are translated into the presentation currency using the exchange rate in effect on the
reporting date. Revenue and expenses are translated into the presentation currency using the average
exchange rate for the period. Exchange differences arising from the translation of a foreign operation
are recognized reserves. 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).
Foreign currencies
At the end of each reporting period, the Company’s 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 (loss).
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. In addition, deferred tax liabilities are not recognised if the
temporary difference arises from the initial recognition of goodwill.
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
Page 16
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Deferred tax (continued)
temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible temporary differences associated
with such investments and interests are only recognized to the extent that it is probable that there
will be sufficient taxable profits against which to utilise the benefits of the temporary differences
and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period. The measurement
of deferred tax liabilities and assets reflects the tax consequences that would follow from the
manner in which the Company expects, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are
recognized in other comprehensive income or directly in equity, in which case, the current and
deferred tax are also recognized in other comprehensive income or directly in equity respectively.
Where current tax or deferred tax arises from the initial accounting for a business combination, the
tax effect is included in the accounting for the business combination.
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
Equipment
Leasehold improvements
Rolling stock
Computer hardware
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
25 to 50 years
3 to 10 years
Term of the lease
5 to 7 years
3 to 7 years
Page 17
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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 long-lived assets
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 of impairment. 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
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Impairment of goodwill (continued)
A cash-generating unit to which goodwill has been allocated is tested for impairment annually as at
August 31, or more frequently when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss
is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment
loss for goodwill is recognized directly in profit or loss in the consolidated statement of income. An
impairment loss recognized for goodwill is not reversed in subsequent periods.
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. As at November 30, 2017, cash
and cash equivalents included $285 in restricted cash (2016 - $297).
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 24) 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
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
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.
The Company’s various franchised and corporate owned locations, in addition to third party
companies, sell gift cards to be redeemed at the Company’s corporate and franchised locations for
food and beverages only. Proceeds from the sale of gift cards are included in gift card liability until
redeemed by the gift cardholder as a method of payment for good and beverage purchases.
Effective September 1, 2017, the Company refined its method to determine breakage income
recognized for Cold Stone Creamery gift cards that were not acquired as part of the business
acquisition. Previously, the Company would recognize breakage revenue in its consolidated
statements of income based on historical redemption patterns, when it was established that these
gift cards had a remote likelihood of being redeemed.
Under the refined method, the Company recognizes breakage on the Cold Stone Creamery gift
cards in it is consolidated statements of income based on historical load and redemption
patterns. The redemption rate was established following an analysis performed over 10 years of
the redemption patterns as well as expected future trends. The expected breakage is then
recognized into income on a pro rata basis as gift cards are redeemed.
The Company has determined that this accounting change represents a change in accounting
estimate the refined method resulted in a cumulative adjustment to increase previously recorded
breakage income by $3,403. This adjustment has been recorded in the consolidated statements
of income for the year ended November 30, 2017. This change in estimate was accounted for
prospectively.
For all other gift card programs, the Company estimates based on historical redemption patterns,
the portion of gift cards that have a remote likelihood of being redeemed and recognizes the amount
Page 21
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Provisions (continued)
Gift card and loyalty program liabilities (continued)
in its consolidated statements of income, except for those gift cards liabilities assumed upon a
business acquisition
Due to the inherent nature of gift cards, it is not possible for the Company to determine what portion
of the gift card liability will be redeemed in the next 12 months and, therefore, the entire
unredeemed gift card liability is considered to be a current liability.
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 22
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
Classification
Cash
Accounts receivable
Deposits
Loans receivable
Accounts payable and accrued liabilities
Non-interest-bearing contract cancellation fees and
holdbacks
Revolving Credit Facility
Promissory notes related to the acquisition of Houston
Avenue Bar & Grill and Industria Pizzeria + Bar
Non-controlling interest buyback obligation
Non-controlling interest option
FVTPL
FVTPL
FVTPL
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Financial assets
Financial assets are classified into the following specified categories: financial assets ‘at fair value
through profit or loss’ (“FVTPL”), ‘held-to-maturity’ investments and ‘loans and receivables’. The
classification depends on the nature and purpose of the financial assets and is determined at the time
of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument
and of allocating interest income over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts (including all fees and points paid or received that
form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period,
to the net carrying amount on initial recognition.
Income is recognized on an effective interest basis for debt instruments other than those financial
assets classified as at FVTPL.
Page 23
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
Financial assets (continued)
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.
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
Page 24
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
Financial assets (continued)
does not exceed what the amortized cost would have been had the impairment not been recognized.
Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity. On derecognition of a financial asset in its entirety, the
difference between the asset’s carrying amount and the sum of the consideration received and
receivable and the cumulative gain or loss that had been recognized in other comprehensive income
and accumulated in equity is recognized in profit or loss.
Financial liabilities
Classification as debt or equity
Debt and equity instruments issued by an entity are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the
proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.
Other financial liabilities
Financial instruments included in this category are initially recognized at fair value less transaction
costs and are subsequently measured at amortized cost using the effective interest method.
FVTPL
Financial instruments included in this category are initially recognized at fair value and are
subsequently remeasured to their fair value at the end of each reporting period. The resulting gain
or loss is immediately recognized in the consolidated statements of income.
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.
Page 25
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
Derivative financial instruments
The Company, from time to time, uses derivative financial instruments in the form of foreign
exchange swap contracts to manage its current and anticipated exposure to fluctuations in foreign
exchange rates. The Company does not enter into derivative financial instruments for trading or
speculative purposes.
Derivative financial instruments not designated within an effective hedging relationship are
measured at fair value with changes in fair value recorded in other income on the consolidated
statements of income.
Derivative financial instruments that are designated within an effective hedging relationship are
formally identified and the relationship between hedging instruments and hedged items are
documented by the Company. Derivative financial instruments designated as cash flow hedges are
measured at fair value with changes in fair value recorded in other comprehensive income.
Effectiveness tests are performed to evaluate hedge effectiveness at inception and on a quarterly
basis. If and when a derivative instrument is no longer expected to be effective, hedge accounting
is discontinued, the derivative is held, sold or expired and the cumulative gain or loss previously
recognized in accumulated other comprehensive income is transferred to the consolidated
statements of income in the same period that the hedge item affects net income.
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 consolidated 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
$8,836 (November 30, 2016 – $6,415). These amounts are included in accounts payable and accrued
liabilities.
Share-based payment arrangements
The Company measures stock options granted to employees that vest in specified installments over
the service period based on the fair value of each tranche on the grant date by using the Black-Scholes
pricing model. Based on the Company’s estimate of equity instruments that will eventually vest, a
compensation expense is recognized over the vesting period applicable to the tranche with a
corresponding increase to contributed surplus. Details regarding the determination of the fair value of
equity-settled share based transactions are set out in note 19.
At the end of each reporting period, the Company revises its estimate of the number of equity
instruments expected to vest. The impact of the revision of the original estimates, if any, is
recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a
corresponding adjustment in contributed surplus. When the stock options are exercised, share capital
is credited by the sum of the consideration paid and the related portion previously recorded in
contributed surplus.
Page 26
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Operating Segments
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 the Chief
Operating Officers to make decisions on resources to be allocated to the segment and to assess its
performance.
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.
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 long-lived assets
The Company assesses whether there are any indicators of impairment for all long-lived assets at
each reporting period date. In addition, management is required to use judgement in determining
the grouping of assets to identify 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.
Page 27
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Critical accounting judgments and key sources of estimation uncertainty (continued)
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.
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 trademarks
The Company performs an annual impairment test of its Trademarks. The recoverable amounts of
the Company’s assets are 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.
In the current year, 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 9.0% discount rate on the corporate
stores, the trademarks and franchise rights. Discount rates are based on pre-tax rates that reflect
the current market assessments, taking the time value of money and the risks specific to the CGU
into account.
During the year, the Company recognized an impairment on three of its trademarks and on the
franchise rights of two of its brands following a decline in the performance of the related brands.
The total impairment of $1,000 represents a write down of the carrying value to the fair value of the
trademarks and franchise rights. The fair value was determined using significant unobservable
inputs such as discount rates and projected revenues and EBITDA. The fair value is classified as
level 3 in the fair value hierarchy.
Page 28
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Critical accounting judgments and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
The cumulative impairment on property, plant and equipment of $158 (2016 - $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.
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 and in 2016, no impairment charge
on goodwill was required.
The Company used a 9.0% discount rate for its assessment of goodwill. A growth of 1% 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, 2017 and 2016, 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.
Gift card liabilities
Management is required to make certain assumptions in both the prorated recognition based on
redemption pattern and remoteness recognition of gift card breakage. The significate estimates are
breakage rate and the redemption patterns.
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.
Page 29
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
4.
Critical accounting judgments and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
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.
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
a) Subsidiaries
An entity is considered as a subsidiary when it is controlled by the Company or indirectly through its
subsidiaries. A Company controls an entity if and only if it has all of the following:
- Holds power over the entity;
- Is exposed or has rights to variable returns from its involvement with the entity; and
- Has the ability to use its power over the entity to affect the amount of returns it obtains.
Management must make significant judgments when it assesses these various elements and all
related facts and circumstances as a whole to determine whether control exists.
The Company reassesses whether it controls an entity if facts and circumstances indicate that one or
more of the above-listed points have changed. The consolidated financial statements include the
Company’s accounts and the accounts of its subsidiaries. Subsidiaries are consolidated from the date
the Company obtains control until the date the Company ceases to have control. All intercompany
balances, revenues and expenses and cash flows are fully eliminated upon consolidation. When
necessary, adjustments are made to the financial statements of the subsidiaries in order to align their
accounting policies with those of the Company.
b) Non-controlling interests
Non-controlling interests are recognized in equity separately from the equity attributable to the
Company’s shareholders. Changes in the Company’s ownership interests in a subsidiary that do not
result in loss of control over that subsidiary are recognized in equity. The carrying amounts of equity
attributable to the Company’s shareholders and of non-controlling interests are adjusted to reflect the
changes in their relative interests in the subsidiaries.
Changes in non-controlling interests
In April 2017 the Company acquired the remaining 1% non-controlling interest of 7687567 Canada
Inc. (Lucky 8 Foods), for a cash consideration of $30. Following the transaction, 7687567 Canada
Inc. has become a wholly-owned subsidiary.
Page 30
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
5. Consolidation (continued)
In September 2016, the Company acquired the remaining 40% non-controlling interest of 9410198
Canada Inc. (Big Smoke Burger Canada), for $1,250. Following the transaction, 9410198 Canada
Inc. has become a wholly-owned subsidiary.
6. Future accounting changes
A number of new standards, interpretations and amendments to existing standards were issued by
the International Accounting Standard Board (“IASB”) that are not yet effective for the period ended
November 30, 2017, 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:
Standard
Issue date
Effective date for
the Company
Impact
IFRS 9 Financial Instruments
July 2014
IFRS 15 Revenue from contracts with customers May 2014
IFRS 16 Leases
IAS 12 Income taxes
IAS 7 Statement of cash flows
IFRIC 22 Foreign Currency Transactions
and advance Consideration
IFRIC 23 uncertainty over income tax treatments June 2017
December 1, 2018
December 1, 2018
December 1, 2019
January 2016
December 1, 2017
January 2016
January 2016
December 1, 2017
December 2016 December 1, 2018
December 1 2019
In assessment
In assessment
In assessment
In assessment
In assessment
In assessment
In assessment
IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement and
IFRIC 9 Reassessment of Embedded Derivatives. 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. IFRS 9 does
not replace the requirement for portfolio fair value hedge accounting for interest risk since this phase
of the project was separated from IFRS project due to the longer-term nature of the macro hedging
project which is currently at the discussion paper phase of the due process. Consequently, the
exception in IAS 39 for fair value hedge of an interest rate exposure of a portfolio of financial assets
or financial liabilities continues to apply.
IFRS 15 replaces the following standards: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18
Transfers of Assets from Customers and SIC-31 Revenue – Barter Transactions Involving Advertising
Services. This new standard sets out the requirements for recognizing and disclosing revenue that
apply to all contracts with customers. The core principle of IFRS 15 is that an entity recognizes revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods and services.
IFRS 15 also includes a cohesive set of disclosure requirements that would result in an entity providing
comprehensive information about the nature, amount, timing and uncertainty of revenue and cash
flows arising from the entity’s contracts with customers.
Page 31
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
6. Future accounting changes (continued)
On April 12, 2016, the IASB issued Clarifications to IFRS 15, Revenue from Contracts with Customers.
The standard contains a single model that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model features a contract-based five-step
analysis of transactions to determine whether, how much and when revenue is recognized. New
estimates and judgmental thresholds have been introduced, which may affect the amount and/or
timing of revenue recognized. The clarifications to IFRS 15 provide additional guidance with respect
to the five-step analysis, transition, and the application of the Standard to licenses of intellectual
property.
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 12 provides further clarification with regards to the recognition of deferred tax assets for unrealized
losses.
The IASB amended IAS 7 as part of its initiative regarding the disclosure requirements on financing
activities in the statement of cash flows. The Company does not foresee any material impact on the
disclosure currently presented as a result of this amendment.
In December 2016, the IASB issued IFRIC 22 which provides an interpretation on how to determine
the date of the transaction when applying the standard on foreign currency transactions, IAS 21. The
interpretation applies where an entity pays or receives consideration in advance for foreign currency-
denominated contracts. The date of the transaction determines the exchange rate to be used on initial
recognition of the related asset, expense or income. This Interpretation provides guidance for when a
single payment or receipt is made, as well as for situations where multiple payments or receipts are
made and aims to reduce diversity in practice. This standard is effective for annual reporting periods
beginning on or after January 1, 2018.
IFRIC 23 clarifies the accounting for uncertainties in income taxes.
The Company is in the process of assessing the impact of these standards on its consolidated financial
statements. Although the extent of the impact has not yet been determined, the Company expects
that the adoption of IFRS 15 and IFRS 16 will result in material changes to its consolidated statement
of income and consolidated statement of financial position.
Page 32
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7. Business acquisitions
I) Acquisition of Dagwoods Sandwiches and Salads (2017)
On September 29, 2017, the Company announced it had completed through its 100% owned
subsidiary MTY Tiki Ming Entreprises Inc., the acquisition of the assets of Dagwoods Sandwiches and
Salads for a consideration of $3,000, subject to post-closing working capital adjustments. 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
Discount on non-interest-bearing holdback
Working capital and assumed obligations
Net purchase price
Holdback (note 17)
Net consideration paid and cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Franchise rights
Trademark
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Net purchase price
(1) Goodwill is deductible for tax purposes
2017
$
3,000
(20)
(64)
2,916
(330)
2,586
2017
$
640
1,271
1,070
2,981
11
54
65
2,916
Total expenses incurred related to acquisition costs amounted to $nil. The purchase price allocation
is still preliminary as post-closing adjustments have not been finalized.
Page 33
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7. Business acquisitions (continued)
II) Acquisition of Houston Avenue Bar & Grill and Industria Pizzeria + Bar (2017)
On June 16, 2017, the Company announced it had completed through its 80% controlling interest in
10220396 Canada Inc., the acquisition of the assets of Houston Avenue Bar & Grill and Industria
Pizzeria + Bar. The Company’s share of the purchase consideration amounted to $16,778 and subject
to post-closing working capital adjustments. 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
Undiscounted promissory notes
Contingent consideration in the form of promissory
notes(note 21)
Working capital
Non-controlling interest buyback obligation (note 17)
Non-controlling interest(1)
Net purchase price
Promissory notes and non-controlling interest buyback
obligation (note 17, note 21)
Net cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Franchise rights
Trademark
Goodwill (2)
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Deferred income tax liability
Net purchase price
2017
$
20,972
(7,910)
5,248
(304)
957
63
19,026
(6,268)
12,758
2017
$
5,833
5,667
7,975
19,475
4
300
304
145
19,026
(1)
Non-controlling interest was measured at fair value which includes the use of discounted cash flow model
which is subject to significant unobservable inputs such as discount rate and projected EBITDA. EBITDA is
defined as earnings before interest, taxes, depreciation and amortization.
(2) Goodwill is deductible for tax purposes
Total expenses incurred related to acquisition costs amounted to $nil. The purchase price allocation
is still preliminary as post-closing adjustments have not been finalized.
Page 34
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7. Business acquisitions (continued)
III) Acquisition of The Works Gourmet Burger Bistro (2017)
On June 9, 2017, the Company announced it had completed through its 100% owned subsidiary MTY
Tiki Ming Entreprises Inc., the acquisition of the assets of The Works Gourmet Burger Bistro. The
acquisition remains subject to post-closing working capital adjustments. 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
Discount on non-interest-bearing holdback
Working capital and assumed obligations
Net purchase price
Holdback (note 17)
Net consideration paid and net cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Inventory
Prepaid expenses
Property, plant and equipment
Franchise rights
Trademark
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities and unredeemed gift
card liability
Deferred revenue
Net purchase price
(1) Goodwill is deductible for tax purposes
2017
$
8,200
(43)
(273)
7,884
(747)
7,137
2017
$
75
49
124
1,398
1,363
3,481
1,844
8,210
95
231
326
7,884
Page 35
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7. Business acquisitions (continued)
III) Acquisition of The Works Gourmet Burger Bistro (2017) (continued)
Total expenses incurred related to acquisition costs amounted to $79. The expenses are presented
in operating expenses in consolidated statements of income.
The purchase price allocation is still preliminary as post-closing adjustments have not been finalized.
IV) Acquisition of Steak Frites St-Paul and Giorgio Ristorante (2017)
On May 8, 2017, the Company announced it had completed through its 83.25% controlling interest in
10179612 Canada Inc., the acquisition of the assets of Steak Frites St-Paul and Giorgio Ristorante.
The total consideration for the transaction was $467 of which $347 was settled in cash. The transaction
resulted in an increase of $253 and $214 to goodwill and trademarks, respectively.
The purchase price allocation is still preliminary.
V) Acquisition of La Diperie (2017)
On December 9, 2016, the Company announced it had completed through its 60% interest in 9974644
Canada Inc. the acquisition of the assets of La Diperie. The Company’s share of the purchase
consideration amounted to $917. 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
Discount on non-interest-bearing holdback
Net purchase price
Holdback (note 17)
Net consideration paid
Less: Issuance of shares to non-controlling interest
Net cash outflow
(1) Non-controlling interest was measured at fair value.
2017
$
1,529
(13)
1,516
(87)
1,429
(615)
814
Page 36
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7. Business acquisitions (continued)
V) Acquisition of La Diperie (2017) (continued)
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Inventory
Franchise rights
Goodwill (1)
Deferred income tax Liability
Net purchase price
2017
$
12
12
63
1,444
1,507
3
1,516
(1) Goodwill is deductible for tax purposes
Total expenses incurred related to acquisition costs amounted to $nil.
VI) Acquisition of BF Acquisition Holdings, LLC (2016)
On October 5, 2016, the Company acquired the units of BF Acquisition Holdings, LLC, for a total
consideration of $35,402. The purpose of the transaction was to further solidify the Company’s
presence in the United States.
Consideration paid:
Purchase price
Working capital adjustment
Net cash outflow (1)
(1) Includes $3,540 in holdbacks paid to escrow.
2016
$
35,340
62
35,402
Page 37
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
VI) Acquisition of BF Acquisition Holdings, LLC (2016) (continued)
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventories
Loans receivable
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademarks
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability
Deferred revenue
Long-term debt
Net purchase price
(1) Goodwill is deductible for tax purposes
Total expenses incurred related to acquisition costs amounted to $nil.
2016
$
1,428
1,264
172
1,691
473
5,028
2,310
3,148
21,586
8,297
40,369
1,965
2,072
896
4,933
34
35,402
Page 38
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
VII) Acquisition of Kahala Brands Ltd. (2016)
On July 26, 2016, MTY announced it had completed the acquisition of Kahala Brands Ltd. The purpose
of the transaction was to solidify its presence in the United States as this is expected to become one
of the growth platforms.
During 2017 the total purchase consideration was adjusted to $393,435 in order to reflect a net
decrease in consideration of $759 due to the receipt of final working capital adjustments and an
amendment to the repayment terms of the holdback payable.
The holdback payable amendment affected only a portion of the holdback; originally $33,022 of the
holdback was to be repaid in equal installments over a three-year period commencing July 2017. This
holdback will now be repaid over four installments amounting to $8,124 repayable in both July 2017
and 2018 and $8,190 in July 2019 and $8,584 in August of 2020. The first installment was paid in July
2017.The adjustment below reflects the change in the discounted amounted for the changed
repayment terms. The discount rate remains unchanged.
The resulting adjustments in total purchase consideration are highlighted below:
Consideration paid:
Total cash consideration
Less: Indebtedness
Less: Working capital adjustments
Less: Holdbacks (note 17)
Total cash disbursed
Shares issued
Holdback payable
Less: discount on holdbacks
Settlement of Taco Time contract
Total cash and equity consideration
Assumed financial liabilities
Total purchase consideration
Preliminary
Consideration
$
Adjustments
$
Final
Consideration
$
317,016
(51,338)
(13,690)
251,988
(39,627)
212,361
94,753
39,627
—
—
297
297
—
297
—
—
317,016
(51,338)
(13,393)
252,285
(39,627)
212,658
94,753
39,627
(4,397)
(1,056)
(5,453)
5,144
347,488
46,706
394,194
—
(759)
—
(759)
5,144
346,729
46,706
393,435
Page 39
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
7.
Business acquisitions (continued)
VII) Acquisition of Kahala Brands Ltd. (2016)(continued)
The final purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventory
Notes receivable
Prepaid expenses and deposits
Notes receivable
Property, plant and equipment
Franchise rights
Trademarks
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Notes payable
Income tax liability
Unredeemed gift card liability
Deferred revenue
Deferred revenue
Deferred income taxes
Preliminary
Purchase Price
Allocation
$
Final
Purchase Price
Allocation
$
Adjustments
$
18,798
11,859
378
1,874
3,721
36,630
3,044
2,270
171,399
229,973
152,026
595,342
13,188
34,827
3,762
68,531
11,255
131,563
2,868
113,423
247,854
—
(314)
—
(182)
—
(496)
—
—
—
—
2,041
1,545
4,223
—
—
—
—
4,223
—
(1,919)
2,304
18,798
11,545
378
1,692
3,721
36,134
3,044
2,270
171,399
229,973
154,067
596,887
17,411
34,827
3,762
68,531
11,255
135,786
2,868
111,504
250,158
Net purchase price
347,488
(759)
346,729
(1) Part of the goodwill is deductible for tax purposes
Total expenses incurred related to acquisition and financing costs amounted to approximately $3,716.
Of this amount, $2,674 was capitalized into long-term debt and the remaining balance is presented
within operating expenses.
Page 40
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
8. Accounts receivable
The following table provides details on trade accounts receivable not past due, past due and the
related allowance for doubtful accounts:
Total accounts receivable
Less : Allowance for doubtful accounts
Total accounts receivable, net
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
Additions through acquisition
Reversals
Write-off
Allowance for doubtful accounts, end of year
2017
$
2016
$
43,762
9,611
34,151
44,113
8,007
36,106
25,885
1,568
1,483
5,215
34,151
2017
$
8,007
2,566
13
402
(1,377)
9,611
28,647
1,564
1,178
4,717
36,106
2016
$
5,388
2,214
1,881
—
(1,476)
8,007
Page 41
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
8.
Accounts receivable (continued)
The Company has recognized an allowance for doubtful accounts based on past experience, outlet-
specific situation, counterparty’s current financial situation and age of the receivables.
Trade receivables disclosed above include amounts that are past due at the end of the reporting period
and for which the Company has not recognized an allowance for doubtful accounts because there
was no significant change in the credit quality of the counterparty and the amounts are therefore
considered recoverable. The Company does not hold any collateral or other credit enhancements over
these balances nor does it have the legal right of offset against any amounts owed by the Company
to the counterparty.
The concentration of credit risk is limited due to the fact that the customer base is large and unrelated.
9.
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
2017
$
1,966
—
1,315
3,281
2016
$
2,092
44
1,162
3,298
Inventories are presented net of a $17 allowance for obsolescence ($22 as at November 30, 2016).
All of the inventories are expected to be sold within the next twelve months.
Inventories expensed during the year ended November 30, 2017 were $43,047 (2016 - $29,991).
10. Loans receivable
Loans receivable generally result from the sales of franchises and of various advances to certain
franchisees and consist of the following:
Loans receivable bearing interest between nil and 11% per annum,
receivable in monthly instalments of $273 in aggregate, including
principal and interest, ending in 2024
Current portion
2017
$
2016
$
5,926
5,926
(2,817 )
3,109
8,004
8,004
(3,138 )
4,866
Page 42
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
10. Loans receivable (continued)
The capital repayments in subsequent years will be:
2018
2019
2020
2021
2022
Thereafter
$
2,817
697
674
383
306
1,049
5,926
11. Property, plant and equipment
Cost
Land Buildings
ments Equipment
Leasehold
improve-
Computer
hardware
Rolling
stock
$
$
$
$
$
$
Total
$
Balance at
November 30, 2015
Additions
Disposals
Foreign exchange
Additions through
business combinations
Balance at
November 30, 2016
Additions
Disposals
Foreign exchange
Additions through
1,236
—
—
—
3,298
485
(5 )
—
4,433
1,113
(1,143 )
47
5,667
935
(1,420 )
89
490
223
—
2
72
33
(42 )
2
15,196
2,789
(2,610 )
140
—
—
1,045
3,297
154
84
4,580
1,236
—
—
—
3,778
223
(12 )
—
5,495
873
(1,921 )
1
8,568
1,522
(2,026 )
(89 )
869
191
(28 )
(8 )
149
6
(14 )
(3 )
20,095
2,815
(4,001 )
(99 )
business combinations
—
—
831
567
—
—
1,398
Balance at
November 30, 2017
1,236
3,989
5,279
8,542
1,024
138
20,208
Page 43
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
11. Property, plant and equipment (continued)
Accumulated
depreciation
Land Buildings
Leasehold
improve-
ments
Equipment
Computer
hardware
Rolling
stock
$
$
$
$
$
$
Total
$
Balance at
November 30,
2015
Eliminated on
disposal of
assets
Foreign exchange
Depreciation
expense
Balance at
November 30,
2016
Eliminated on
disposal of
assets
Foreign exchange
Depreciation
expense
Balance at
November 30,
2017
—
655
1,725
2,017
257
36
4,690
—
—
—
(4 )
—
(455 )
1
(281 )
8
—
—
(16 )
—
(756 )
9
153
663
1,108
129
12
2,065
—
804
1,934
2,852
386
32
6,008
—
—
—
(7 )
—
(836 )
3
(720 )
(17 )
(12 )
(2 )
(14 )
—
(1,589 )
(16 )
175
733
1,615
176
25
2,724
—
972
1,834
3,730
548
43
7,127
Carrying amounts
Land Buildings
Leasehold
improve-
ments
Equipment
Computer
hardware
Rolling
stock
$
$
$
$
$
$
Total
$
November 30, 2016
November 30, 2017
1,236
1,236
2,974
3,017
3,561
3,445
5,716
4,812
483
476
117
95
14,087
13,081
Page 44
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
12.
Intangible assets
Franchise
and master
franchise
Cost
rights Trademarks
Step-in
rights
$
$
$
Leases Other(1)
$
$
Total
$
Balance at
November 30,
2015
Additions
Foreign exchange
Acquisition through
business
combinations
Deemed settlement of
master franchise
agreement upon
business
combination
Balance at
November 30,
2016
Additions
Disposals
Acquisition through
business
combinations
Foreign exchange
Impairment
Balance at
November 30,
2017
69,002
—
3,006
66,999
5
4,698
1,199
—
—
908
—
—
607
687
—
138,715
692
7,704
174,547
251,559
—
—
—
426,106
(1,500 )
—
—
—
—
(1,500 )
245,055
97
(3,050 )
323,261
5
(24 )
1,199
—
—
908
—
(170 )
1,294
351
—
571,717
453
(3,244 )
7,899
(7,229 )
(309 )
10,633
(10,421 )
(731 )
—
—
—
—
—
—
—
—
—
18,532
(17,650 )
(1,040 )
242,463
322,723
1,199
738
1,645
568,768
Page 45
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
12.
Intangible assets (continued)
Accumulated
amortization
Balance at
November 30,
2015
Foreign exchange
Amortization
Balance at
November 30,
2016
Disposals
Foreign exchange
Amortization
Impairment
Balance at
November 30,
2017
Franchise
and master
franchise
rights Trademarks
Step-in
rights
Leases
$
$
$
$
Other(1)
$
Total
$
33,553
81
10,504
44,138
(2,584 )
(400 )
19,792
(40 )
—
—
—
—
—
—
—
—
260
—
120
380
—
—
120
—
885
—
20
905
(170 )
—
3
—
92
—
135
227
—
—
263
—
34,790
81
10,779
45,650
(2,754 )
(400 )
20,178
(40 )
60,906
—
500
738
490
62,634
Franchise
and master
franchise
Carrying amounts
rights Trademarks
Step-in
rights
Leases
$
$
$
November 30, 2016
November 30, 2017
200,917
181,557
323,261
322,723
819
699
$
3
—
Other(1)
$
Total
$
1,067
1,155
526,067
506,134
(1) Other items include $347 ($347 as at November 30, 2016) of unamortizable licenses with an
indefinite term.
Page 46
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
12.
Intangible assets (continued)
Indefinite life intangibles, which consist of trademarks and perpetual licenses have been allocated for
impairment testing purposes to the following cash generating units:
La Crémière
Cultures
Thai Express
Mrs Vanelli’s
Sushi Shop
Tutti Frutti
Koya
Country Style
Valentine
Jugo Juice
Mr. Sub
Koryo
Mr. Souvlaki
Extreme Pita
Mucho Burrito
ThaïZone
Madisons New York Grill & Bar
Café Dépôt
Muffin Plus
Sushi-Man
Van Houtte
Manchu Wok (1)
Big Smoke Burger(1)
America’s Taco Shop
Blimpie (1)
Cereality
Cold Stone Creamery(1)
Frullati (1)
Great Steak (1)
Kahala Coffee Traders (1)
Maui Wowi (1)
Nrgize(1)
Pinkberry (1)
2017
$
9
500
145
2,700
1,600
1,100
1,253
1,740
3,338
5,425
11,320
1,135
300
3,179
9,816
7,417
3,410
2,959
371
434
347
5,772
3,305
324
5,922
—
150,840
953
3,657
206
1,592
2,341
8,650
2016
$
9
500
145
2,700
1,600
1,100
1,253
1,740
3,338
5,425
11,320
1,135
300
3,198
9,816
7,417
3,410
2,959
371
434
347
5,850
3,305
960
6,171
17
157,187
993
3,811
214
1,659
2,440
9,014
Page 47
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
12.
Intangible assets (continued)
Planet Smoothie(1)
Ranch 1(1)
Rollerz
Samurai Sam’s (1)
Surf City Squeeze (1)
Taco Time(1)
Tasti D-Lite (1)
Baja Fresh (1)
La Salsa (1)
Steak Frites St-Paul
Giorgio Ristorante
The Works Gourmet Burger Bistro
Houston Avenue Bar & Grill
Industria Pizzeria + Bar
Dagwoods
2017
$
9,226
163
—
1,712
2,946
33,979
1,134
19,536
1,681
202
12
3,481
3,495
2,172
1,271
323,070
2016
$
9,614
169
130
1,785
3,070
35,409
1,182
20,358
1,753
—
—
—
—
—
—
323,608
(1) Variance from prior year due to foreign exchange conversion.
During the year, as the result of a decline in the financial performance of the America’s Taco Shop,
Rollerz and Cereality 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 a non-
cash impairment loss of $269 in franchise rights and $731 in trademarks, which have been
recognized in the consolidated statement of income.
The fair value was determined using significant unobservable inputs such as discount rates and
projected revenues and EBITDA. The fair value is classified as level 3 in the fair value hierarchy.
Page 48
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
13. Goodwill
The changes in the carrying amount of goodwill are as follows:
Balance, beginning of year
Additional amounts recognized from business acquisitions
(note 7)
Foreign Exchange
Balance, end of year
2017
$
2016
$
220,928
55,520
12,586
(6,578)
226,936
162,364
3,044
220,928
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. For the purpose of impairment testing, goodwill is
allocated to the group of CGUs that are considered to represent the lowest level within the group at
which the goodwill is monitored for internal management purposes.
14. Credit facilities
During the year the Company modified its existing credit facilities payable to a syndicate of lenders.
The modification resulted in an increase to the revolving credit facility which now has an authorized
amount of $305,000, (November 30, 2016 - $150,000) and the cancellation of the existing term loan
of $154,716 (November 30, 2016 $165,000). Transaction costs of $519 were incurred and will be
deferred and amortized over the remaining 4 years of the life of the revolving credit facility. As at
November 30, 2017, $210,522 was drawn from the revolving credit facility.
Interest rates are variable and are based on various financing instruments that have maturities from 1
to 180 days. Interest rates also depend on the Company’s debt-to-equity ratio, where a lower
indebtedness results in more favorable terms.
For amounts drawn in US dollars, the Company has the option to pay interest based on US base rates
4.75% as at November 30, 2017 (3.25% as at November 30, 2016), plus a margin not exceeding
2.00%, or based on LIBOR plus a margin not exceeding 3.00%. For amounts drawn in Canadian
dollars, the Company has the option to pay interest based on the Canada Prime rate, 4.20% as at
November 30, 2017 (2.70% as at November 30, 2016), as determined by the Toronto-Dominion Bank
of Canada, plus a margin not exceeding 2.00% or based on Banker’s Acceptances, plus a margin not
exceeding 3.00%.
Under this facility, the Company is required to comply with certain financial covenants, including a
debt to earnings before interest, taxes and amortization ratio and a fixed charges coverage ratio. As
at November 30, 2017, the Company was in compliance with those financial covenants.
Page 49
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
15. Provisions
Included in provisions are the following amounts:
Litigations and disputes
Closed stores
Gift card liabilities/loyalty programs liabilities
Total
2017
$
3,168
1,413
4,581
70,750
75,331
2016
$
1,768
873
2,641
76,909
79,550
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.
The litigation and disputes and closed store provisions also varied in part due to foreign exchange
fluctuations related to the US subsidiaries.
Page 50
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
15. Provisions (continued)
Provision for litigation and disputes and closed stores,
beginning balance
Reversals
Amounts used
Additions
Impact of foreign exchange
Provision for litigation and disputes and closed stores, ending
balance
November 30,
2017
November 30,
2016
$
$
2,641
(637)
(1,475)
4,134
(82)
2,133
(407)
(1,690)
2,605
—
4,581
2,641
The gift card and loyalty programs liabilities are the estimated balance 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.
16. Deferred revenue and deposits
Franchise fee deposits
Unearned rent
Supplier contributions and other allowances
Current portion
2017
$
9,105
3,377
10,308
22,790
2016
$
5,953
3,431
11,177
20,561
(20,844 )
1,946
(18,080 )
2,481
Page 51
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
17. Long-term debt
Non-interest bearing contract cancellation fees, payable in US
dollars based on the performance of certain stores.
Non-interest bearing holdbacks on acquisition of Manchu Wok,
repayable December 2016.
Non-interest bearing holdbacks on acquisition of La Diperie,
repayable December 2018(note 7)
Non-interest bearing holdbacks on acquisition of Big Smoke
Burger, repayable September 2018. (note 7)
Non-interest bearing holdbacks on acquisition of Kahala Brands
Ltd., repayable July 2018, July 2019 and August 2020,
discounted at a rate of 7.25%.(note 7)
Non-interest bearing holdbacks on acquisition of The Works,
repayable June 2019 (note 7)
Non-interest bearing holdbacks on acquisition of Dagwoods
Sandwiches and Salads repayable September 2019 (note 7)
Non-interest bearing loans payable during 2017.
Fair value of promissory notes related to the acquisition of
Houston Avenue Bar & Grill and Industria Pizzeria + Bar,
repayable October 2019 and June 2022 (note 7 and note 21)
Fair value non-controlling interest buyback obligation in 10220396
Canada Inc (note 7 & and note 21)(1)
Fair value non-controlling interest option in 9974644 Canada Inc.
(note 21)(4)
Revolving credit facility payable to a syndicate of lenders(2)
Term loan payable to a syndicate of lenders(3)
Revolving credit facility and term loan financing costs, amortized
2017
$
68
—
92
282
2016
$
72
620
—
276
9,913
16,680
680
332
—
5,436
1,026
1,001
210,522
—
—
—
171
—
—
—
72,255
165,000
Current portion
using the effective interest method
(2,150 )
227,202
(4,240 )
222,962
(1) Payable at the earlier of 3 years from the date option is exercised or June 2022.
(2) Under the revolving credit facility, the Company has the option to draw funds in Canadian or in US
dollars, at its discretion. The facility’s maturity is July 21, 2021 and must be repaid in full at that time.
As at November 30, 2017, the Company had drawn US$-Nil and C$210,522, (2016-US$53,800
(C$72,255)) and had elected to pay interest based on LIBOR and bankers’ acceptances plus the
applicable margins.
(3) The Term loan facility was converted into the revolving credit facility in August 2017.
(4) Payable on demand
(2,397 )
252,677
(15,041 )
237,636
Page 52
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
18. Capital stock
Authorized, unlimited number of common shares without nominal or par value
Number
2017
Amount
$
Number
2016
Amount
$
Balance at beginning
and end of year
21,374,497
114,545
21,374,497
114,545
On July 26, 2016, the Company issued 2,253,930 shares valued at $94,753 (note 7) as part of the
acquisition of Kahala Brands Ltd.
19. Stock options
The Company offers for the benefit of their directors, employees, officers or consultants a share option
plan. In accordance with the terms of the plan the Company may grant stock options on the common
shares at the discretion of the Board of Directors. 300,000 shares are available for issuance under
the share option plan as of November 30, 2017 (2016- 500,000).
Under the Stock Option Plan of the Company, the following options were granted and are outstanding
at November 30, 2017:
Outstanding at November 30, 2016
Granted
Forfeited /Cancelled/Expired
Exercised
Outstanding at November 30, 2017
Exercisable at November 30, 2017
2017
Weighted
average exercise
price
$
—
48.36
—
—
48.36
—
Number of
Options
—
200,000
—
—
200,000
—
Options granted during the period ended November 30, 2017 have a service condition in order to vest
and excluding the first year, will vest pro-rata over the service period. The options will expire on April
11, 2027.
The fair value of the stock options granted for the period ended November 30, 2017 was $14.69 per
option. The fair value of the options granted was estimated at the grant date for purposes of
Page 53
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
19. Stock options (continued)
Determining share-based payment expense using the Black-Scholes option pricing model based on
the following assumptions:
Acquisition date share price
Exercise price
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
2017
$48.36
$48.36
1.0%
24.9%
1.8%
10 years
A compensation expense of $401 was recorded for period ended November 30, 2017 (2016-$nil). The
expense is presented in wages and benefits that is included in operating expenses in the consolidated
statements of income.
20. Earnings per share
The following table provides the weighted average number of common shares used in the calculation
of basic earnings per share and that used for the purpose of diluted earnings per share:
2017
2016
Weighted daily average number of
common shares(1)
21,374,497
19,908,827
(1) The stock options granted did not have a dilutive effect period ending November 30, 2017.
21. Financial instruments
In the normal course of business, the Company uses various financial instruments which by their
nature involve risk, including market risk and the credit risk of non-performance by counterparties.
These financial instruments are subject to normal credit standards, financial controls, risk
management as well as monitoring procedures.
Page 54
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
21. Financial instruments (continued)
Fair value of recognized financial instruments
Promissory notes
The Company issued as part of its consideration for the acquisition of Houston Avenue Bar & Grill and
Industria Pizzeria + Bar promissory notes to the vendors and the minority shareholders of 10220396
Canada Inc. These promissory notes are subject to earn out provisions, which are based on future
earnings. These promissory notes are repayable in June 2019 and June 2022. These promissory
notes have been recorded at fair value and are remeasured on a recurring basis.
A discounted cash flow method was used to capture the present value of the expected future economic
benefits that will flow out of the Company, with respect to these promissory notes. These notes are
subject to significant unobservable inputs such as discount rates and projected revenues and EBITDA.
An increase or decrease by 1% in the discount rates used would have an impact of $254 on the fair
value, as at November 30, 2017.
A fair value re-measurement of $188 was recorded for these promissory notes for the period ended
November 30, 2017.
Obligations to repurchase non-controlling interests
The Company has entered into an agreement to purchase the shares of a minority interest shareholder
of 9974644 Canada Inc. at the option of the holder at anytime after December 9,2017. The
consideration is based on a multiplier of EBITDA, as prescribed by the terms of the shareholder
agreement. As a result, the Company recorded a liability at fair value (note 17) re-measured at each
reporting period.
A fair value re-measurement of $152 (2016-$ nil) was recorded for this non-controlling interest
obligation.
The Company, in conjunction with the acquisition of Houston Avenue Bar & Grill and Industria Pizzeria
+ Bar, entered into an agreement to acquire the non-controlling interest in 10220396 Canada Inc., in
June 2022. The consideration to be paid for this acquisition will be based on future earnings. As a
result, the Company recorded a liability at fair value (note 17) and is re-measured at each reporting
period.
A discounted cash flow method was used to capture the present value of the expected future economic
benefits that will flow out of the Company with respect to this obligation. The non-controlling interest
buyback obligation is subject to significant unobservable inputs such as discount rate and projected
EBITDA. An increase or decrease by 1% in the discount rates used would have an impact of $52 on
the carrying amount as at November 30, 2017.
A fair value re-measurement of $257 (2016-$ nil) was recorded for this non-controlling interest
obligation.
Page 55
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
21. Financial instruments (continued)
Fair value of recognized financial instruments (continued)
Fair value hierarchy as at November 30, 2017
Financial liabilities
Promissory notes related to the acquisition of
Houston Avenue Bar & Grill and Industria
Pizzeria + Bar
Non-controlling interest options
Financial Liabilities
Level 1
Level 2
Level 3
—
—
—
—
—
—
5,436
2,027
7,463
The Company has determined that the fair value of its financial assets and financial liabilities with
short-term maturities approximates their carrying value. These financial instruments include cash and,
accounts receivables, accounts payable and accrued liabilities and deposits. The table below shows
the fair value and the carrying value of other financial instruments as at November 30, 2017 and
November 30, 2016. Since estimates are used to determine fair value, they must not be interpreted
as being realizable in the event of a settlement of the instruments.
Carrying
amount
$
5,926
2017
Fair
value
$
5,926
Carrying
amount
$
2016
Fair
value
$
8,004
8,004
219,739
221,889
252,677
252,677
Financial assets
Loans receivable
Financial liabilities
Long-term debt1
1. Excludes promissory notes and obligations to repurchase non-controlling interests
Determination of fair value
The following methods and assumptions were used to estimate the fair values of each class of 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.
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, 2017.
Page 56
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
21. Financial instruments (continued
Credit risk
The Company’s credit risk is primarily attributable to its trade receivables. The amounts disclosed in
the consolidated statement of financial position are net of allowances for bad debts, estimated by the
Company’s management based on past experience and counterparty specific circumstances. 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 and USA, 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 $1,182 (2016 - $906).
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’s exposure to foreign exchange risk
mainly comes from sales denominated in foreign currencies. The Company’s USA and foreign
operations use the U.S. dollar (USD) as functional currency. The Company’s exposure to foreign
exchange risk stems mainly from cash, accounts receivable, long-term debt denominated in U.S.
dollars, other working capital items and financial obligations from its USA operations.
Fluctuations in USD exchange rate are deemed to have minimal risk as they are mostly offset by the
stand-alone operations of the Company’s US entities.
Total US net income for the period was C$18,855, (2016 - C$9,495). A 5% change to foreign exchange
would represent a gain or loss to the Company of C$942 (2016 - C$475).
On June 22, 2016, the Company entered into forward contract for an amount of US$200,000
convertible at an exchange rate of 1.281 which matured on July 25, 2016 and a gain of $7,980 was
realized as a result of favourable foreign exchange variances.
Page 57
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
21. Financial instruments (continued)
Foreign exchange risk (continued)
As at November 30, 2017, the Company has the following financial instruments denominated in foreign
currencies:
November 30, 2017
November 30, 2016
USD
$
CAD
$
USD
$
CAD
$
38,389
10,842
49,476
13,974
20,310
13,526
27,277
18,166
14,917
19,225
69,383
93,184
8,994
—
7,690
11,592
—
9,911
8,994
53,800
12,533
12,079
72,255
16,832
17,630
22,722
(110,874)
(148,907)
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable and
deposits
Portion of holdback included
in income taxes payable
Revolving credit facility
Long-term debt
Net Financial Assets
(Liabilities)
All other factors being equal, a reasonable possible 5% rise in foreign currency exchange rates per
Canadian dollar would result in a C$1,133 (November 30, 2016 - C$7,445) change on the consolidated
statements of income and comprehensive income.
Page 58
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
21. Financial instruments (continued)
Interest rate risk
Interest rate risk is the Company’s exposure to increases and decreases in financial instrument values
caused by the fluctuation in interest rates. The Company is exposed to cash flow risk due to the
interest rate fluctuation in its floating-rate interest-bearing financial obligations.
Furthermore, upon refinancing of a borrowing, depending on the availability of funds in the market and
lender perception of the Company’s risk, the margin that is added to the reference rate, such as LIBOR
or prime rates, could vary and thereby directly influence the interest rate payable by the Company.
Long-term debt stems mainly from acquisitions of long-term assets and business combinations. The
Company is exposed to interest rate risk with its revolving credit facility which is used to finance the
Company’s acquisitions. Both facilities bear interest at a variable rate and as such the interest burden
could change materially. $210,522 (2016 - $237,255) of the credit facilities were used as at November
30, 2017. A 100 basis points increase in the bank’s prime rate would result in additional interest of
$2,105 per annum (2016 - $2,373) on the outstanding credit facility.
Liquidity risk
Liquidity risk refers to the possibility of the Company not being able to meet its financial obligations
when they become due. The Company has contractual and fiscal obligations as well as financial
liabilities and is therefore exposed to liquidity risk. Such risk can result, for example, from a market
disruption or a lack of liquidity. The Company actively maintains credit facilities to ensure it has
sufficient available funds to meet current and foreseeable financial requirements at a reasonable cost.
As at November 30, 2017, the Company had an authorized revolving credit facility for which the
available amount may not exceed $305,000 to ensure that sufficient funds are available to meet its
financial requirements. The terms and conditions related to this revolving credit facility is described in
note 17
The following are the contractual maturities of financial liabilities as at November 30, 2017
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
thereafter
$
Accounts payable
and accrued
liabilities
Long-term debt
Interest on long-term
debt (1)
57,555
227,202
57,555
232,210
57,555
1,055
—
4,148
—
7,974
—
219,033
314,814
(1) When future interest cash flows are variable, they are calculated using the interest rates
284,757
14,805
n/a
25,049
3,416
62,026
3,416
7,564
6,831
11,386
230,419
prevailing at the end of the reporting period.
Page 59
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
22. 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, 2017 and November 30, 2016 were as follows:
Debt
Equity
Debt-to-equity ratio
2017
$
2016
$
519,019
541,784
335,326
1.55
310,866
1.74
The decrease in debt-to-equity ratio is due to the amended financing structure established for the acquisition
of Kahala Brands Ltd. and the decrease of the amount of debt outstanding. Maintaining a low debt to equity
ratio is a priority in order to preserve the Company’s ability to secure financing at a reasonable cost for future
acquisitions. MTY expects to repay the outstanding credit facility in a relatively short period of time using the
expected cash flows from the newly acquired US operations and the existing cash flows in Canada.
The Company’s credit facilities impose a maximum debt-to-EBITDA ratio of 3.5:1 until July 20, 2018. This
maximum debt-to-EBITDA ratio decreases afterwards.
Page 60
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
23. Revenues
The Company’s revenues include:
Royalties
Franchise and transfer fees
Rent
Sale of goods, including construction revenues
Gift card breakage income
Other franchising revenue
Other
24. Operating expenses
Operating expenses are broken down as follows:
Cost of goods sold and rent
Wages and benefits
Consulting and professional fees
Gift cards related costs
Royalties
Other (1)
2017
$
2016
$
118,655
11,090
2,317
90,438
6,528
40,873
6,182
276,083
75,466
8,234
3,178
71,738
2,004
26,769
3,886
191,275
2017
$
2016
$
61,788
67,648
12,310
8,132
7,109
25,370
182,357
53,507
45,282
9,343
3,091
768
13,443
125,434
(1) Other operating expenses are comprised mainly of travel and promotional costs, bad debt expense and
other office administration expenses.
Page 61
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
25. Other income
Other income is comprised of the following:
Realized gain on foreign exchange derivative
Realized gain on Taco Time contract termination upon
acquisition of Kahala Brands Ltd.
Realized gain on Extreme Brands holdback settlement
Realized gain on Madisons holdback settlement
2017
$
—
—
—
—
—
2016
$
7,980
3,644
2,210
125
13,959
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
$
146,506
136,572
122,496
109,639
91,922
240,613
847,748
135,297
126,201
112,573
100,245
84,130
221,770
780,216
11,209
10,371
9,923
9,394
7,792
18,843
67,532
2018
2019
2020
2021
2022
Thereafter
Payments recognized as a net expense during the year ended November 30, 2017 amount to $21,608
(2016 - $14,097).
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, the Company earned rental revenue of $2,317 (2016 - $3,178).
Page 62
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
26. Operating lease arrangements (continued)
The Company has recognized a liability of $1,413 (November 30, 2016 - $873) for the leases of
premises in which it no longer has operations but retains the obligations contained in the lease
agreement (note 15).
27. Guarantee
The Company has provided a guarantee in form of a letter of credit for an amount of $nil (November
30, 2016 - $66).
The Company has provided a guarantee on certain leases for which it is not the lessee, for a
cumulative amount of $1,398 (November 30, 2016 - $1,780).
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 15. The timing of the outflows,
if any, is out of the control of the Company and is as a result undetermined at the moment.
Page 63
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
29.
Income taxes
Variations of income tax expense from the basic Canadian Federal and Provincial combined tax
rates applicable to income from operations before income taxes are as follows:
$
2017
%
$
2016
%
Combined income tax rate in
Canada
Add effect of:
Difference between Canadian
and foreign statutory rate
Non-taxable portion of
capital gains
Permanent differences
Utilization of capital and non-
capital losses for which no tax
assets had been recognized
Temporary differences in a
subsidiary for which no
deferred income tax asset was
recorded
Rate variation on deferred
income tax
Adjustment to prior
year provisions
Other – net
Provision for income taxes
16,794
26.8
18,477
26.9
(2,895 )
(268 )
794
(4.6 )
(0.4 )
1.3
(598 )
(1,570 )
(1,192 )
(0.9 )
(2.3 )
(1.7 )
(327 )
(0.5 )
(1,109 )
(1.6 )
982
(1,595 )
(586 )
(89 )
12,810
1.5
(2.6 )
(1.0 )
(0.1 )
20.4
224
65
(149 )
(329 )
13,819
0.3
0.1
(0.2 )
(0.5 )
20.1
Page 64
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
29.
Income taxes (continued)
The variation in deferred income taxes during the year were as follows:
November
30, 2016
Recognized
in profit or
loss
$
$
Recognized
in other
comprehen-
sive income Acquisition
$
$
Foreign
exchange
$
November
30, 2017
$
Net deferred tax
assets (liabilities)
in relation to:
Property, plant and
equipment
625
Accounts receivable
1,500
Provisions
Long-term debt
Non-capital losses
23,484
(285)
280
Intangible assets
(152,418)
Accrued expenses
Deferred revenue
4,850
2,569
(119,395)
62
497
(3,797 )
(1,219 )
181
906
700
(455 )
(3,125 )
—
—
—
1,547
—
—
—
—
141
—
—
(377 )
—
88
—
—
(27 )
(68 )
(873 )
(2 )
—
5,862
(198 )
(90 )
1,547
(148 )
4,604
801
1,929
18,814
(336)
461
(145,562)
5,352
2,024
(116,517)
Page 65
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts and stock options)
29.
Income taxes (continued)
November
30, 2015
Recognized
in profit or
loss Acquisition
Foreign
exchange
$
$
$
$
November
30, 2016
$
Net deferred tax
assets (liabilities)
in relation to:
Property, plant and
equipment
Accounts receivable
Provisions
Long-term debt
Non-capital losses
(411 )
—
449
(95 )
423
576
(533 )
1,264
(190 )
(143 )
453
2,001
21,414
—
—
Intangible assets
(6,465 )
(1,866 )
(141,700 )
Accrued expenses
Deferred revenue
—
—
(6,099 )
978
25
111
3,826
2,502
(111,504 )
7
32
357
—
—
(2,387 )
46
42
(1,903 )
625
1,500
23,484
(285)
280
(152,418)
4,850
2,569
(119,395)
As at November 30, 2017 there were approximately $275 (2016 – $nil) 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, 2017, there were approximately $677 (2016 - $1,378) 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 foreign exchange on intercompany loans for which
a deferred tax asset has not been recognized amounts to $3,048 (2016 - $Nil).
30. Segmented information
Management monitors and evaluates results of the Company based on geographical segments; these
two segments being Canada and United States of America. Each geographical area is managed by
their respective Chief Operating Officers (COO) whom brand leaders report to account for the results
of their operations. The Company and its chief operating decision maker assess the performance of
each operating segment based on its segment profit and loss which is equal to revenue less operating
expenses. The other income and expenses and income taxes, are reported by segment solely for
external reporting purposes.
Page 66
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts)
30. Segmented information (continued)
Below is a summary of each geographical segment’s performance during the period.
Revenues
Operating expenses
Segment profit
Other expenses
Depreciation – property, plant and
equipment
Amortization – intangible assets
Interest on long-term debt
Other income (expense)
Unrealized foreign exchange gain (loss)
Interest income
Other income
Loss on revaluation on financial liabilities
recorded at fair value
Impairment charge on intangible assets
Gain on disposal of property, plant
and equipment and intangible assets
Income before taxes
Current income taxes
Deferred income taxes
Net income
Total assets
Total liabilities
Canada
$
141,867
86,615
USA &
International
$
134,216
95,742
Total
Consolidated
2017
$
276,083
182,357
Canada
$
139,507
86,654
USA &
International
$
Total
Consolidated
2016
$
51,768
38,780
191,275
125,434
55,252
38,474
93,726
52,853
12,988
65,841
1,645
5,926
8,448
2,013
101
—
(409)
—
584
41,522
9,088
1,435
30,999
473,190
269,612
1,079
14,252
1,866
2,724
20,178
10,314
1,399
6,047
3,152
(9 )
338
—
—
(1,000 )
536
21,142
597
1,690
18,855
381,155
249,407
2,004
439
—
(409 )
(1,000 )
3,197
261
10,315
—
—
1,120
2,119
62,664
9,685
3,125
49,854
854,345
519,019
58,147
10,994
1,781
45,372
457,755
279,472
666
4,732
703
1
26
3,644
—
—
(19 )
10,539
2,936
(1,892 )
9,495
394,895
262,312
2,065
10,779
3,855
3,198
287
13,959
—
—
2,100
68,686
13,930
(111 )
54,867
852,650
541,784
Page 67
MTY Food Group Inc.
Restated Notes to the consolidated financial statements
Years ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts)
31. Statement of cash flows
Changes in non-cash operating activities are as follows:
Accounts receivable
Inventories
Loans receivable
Prepaid expenses and deposits
Other asset
Accounts payable and accrued liabilities
Provisions
2017
$
2016
$
1,955
104
2,078
2,490
(1,163)
8,873
(4,310)
10,027
(4,470)
(540)
(1,104)
(3,044)
—
2,655
7,551
1,048
Other includes changes in non-cash proceeds from dispositions of capital assets amounting to $242
(2016-$nil).
32. 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 periods was as follows:
Short-term benefits
Share based payment
Board member fees
Total remuneration of key management personnel
2017
$
1,406
401
49
1,856
2016
$
1,011
—
51
1,062
Key management personnel is composed of the Company’s CEO, COO, CFO as well as the COO
of the US operations. 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 23% of the outstanding shares.
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MTY Food Group Inc.
Restated Notes to the consolidated financial statements
Years ended November 30, 2017 and 2016
(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:
2017
$
2016
$
Short-term benefits
Total remuneration of individuals related to key
management personnel
690
690
598
598
33. Subsequent Events
Acquisition of the Counter and Built
On December 1, 2017, the Company completed its acquisition of all of the limited liability company
interests in CB Franchise Systems, LLC ("The Counter"), Built Franchise Systems, LLC ("Built”) for
a total consideration of $33,039 (US$ 24,600) of which $29,950 (US$ 22,300) was settled in cash
and the remainder retained as a holdback on the transaction.
Definitive combination agreement Imvescor
On December 12, 2017, the Company announced that it has entered into a definitive combination
agreement under which a wholly owned subsidiary would acquire all of the outstanding Imvescor
Restaurant Group Inc. ("Imvescor "), common shares for $4.10 per Imvescor share, representing a
total consideration of approximately $248,000. The consideration will be settled approximately 80%
in shares and the remaining in cash and is subject to customary closing conditions, including the
receipt of regulatory and Imvescor shareholder approvals.
US tax reform
On December 22, 2017, the United States proceeded to a tax reform through the enactment of the
“Tax Cuts and Jobs Act” (hereafter the “Act”). One of the significant changes included in the Act is
the reduction of the federal corporate tax rate from 35% to 21% effective January 1, 2018.
For the financial year ending November 30, 2018, the applicable federal corporate tax rate will
correspond to a blended rate of 22.19% based on the number of days in the taxation year before and
after the effective date.
Based on temporary differences as of November 30, 2017, the Company preliminarily estimates that
it will record a deferred tax benefit estimated at USD 29,1 million in its financial year ended November
30, 2018, by reducing its deferred tax liability recorded for its United States-based entities.
The Company made a preliminary analysis of the new Base Erosion Anti-avoidance Tax (hereafter
the “BEAT”) and changes to interest deduction limitation rules included in the Act and that will
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MTY Food Group Inc.
Restated Notes to the consolidated financial statements
Years ended November 30, 2017 and 2016
(In thousands of Canadian dollars, except per share amounts)
33. Subsequent Events (continued)
US tax reform (continued)
impact financial years November 30, 2019, and after. Based on available information as of financial
statement date, the Company expects to meet the de minimis exception and not be subject to BEAT
rules. Based on this preliminary analysis, the new interest deduction limitation might have an impact
in future years. However, any amount disallowed based on the new interest deduction rule could be
carried over indefinitely and used against future taxable profit. Therefore, the Company do not expect
this measure to have any permanent impact.
The new rules provided by the Act are complex and further guidance will be provided by the United
States authorities in upcoming months and they are currently reviewing whether or not they will adopt
the changes resulting from the US federal tax reform. Accordingly, the information presented herein
is subject to adjustments when new regulation will be available.
Dividends
On January 15, 2018, the Company approved a quarterly dividend of $0.15 per common share.
Dividends were paid on February 15, 2018 and amounted to $3,206.
Agreement to acquire the assets of Timothy’s and Mmmuffins
On February 15, 2018, the Company announced it has entered into agreement to acquire the assets
of Timothy’s World Coffee (“Timothy’s) and Mmmuffins, from Threecaf Brands, Canada, Inc., a
subsidiary of Le Duff America, for an estimated consideration of $1,675.
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