ANNUAL REPORT 2018
OUR BANNERS
TM
®
MTYGROUP.COM
Dear fellow Shareholders,
The year that just ended has been a transformational year for MTY. First, we have completed five
transactions, investing $325 million and adding 702 locations to our network, bringing our system sales
to $2.8 billion for 2018 and easily surpassing last year’s record-breaking $2.3 billion. Second, our
founder and our COO of Canadian operations have announced they would concentrate on their board of
director duties while focusing on realizing additional acquisition opportunities for MTY. Last, in
November we put a solid leadership team in place that will help MTY achieve its goals. Their experience
and long list of past successes will all contribute to helping our franchisees prosper and accelerate MTY’s
growth.
Among the acquisitions realized during 2018, the acquisition of Imvescor Restaurant Group Inc. (“IRG”)
was the most significant in terms of total purchase consideration but also in terms of expanding MTY
into the casual dining segment of the restaurant industry. The expertise we gained when the IRG team
joined was invaluable and we hope they can help us grow further into a segment in which we had
previously been less present.
The strong performance of IRG and The Counter Custom Burgers/Built Custom Burgers since their
acquisition has largely driven the 36% growth in EBITDA realized during 2018. Our EBITDA surpassed the
$100 million mark for the first time this year and reached $127.7 million. The business continues to
provide a high conversion rate of our EBITDA into cash flows; our operating cash flows also reached a
record high this year, at $97.6 million.
During 2018, the consolidation of our industry accelerated and MTY participated unfruitfully in many
auction processes in which prices rose past our comfort zone. At certain times prices seem to become a
secondary factor for some optimistic participants. Our love for acquisitions does not supersede the rigor
we have imposed on ourselves since the beginning of MTY.
In this context, our commitment to financial discipline and patience were crucial, and our determination
to pay a fair price for acquisitions was more important than ever. The consolidation of the industry
continues at an accelerated pace as I write this message, and MTY is ready to expand its footprint
further but is also prepared to remain on the sidelines when prices exceed our comfort zone.
Despite all the changes during 2018, MTY’s DNA remains the same; we are an entrepreneurial and
disciplined company driven by our core values of Excellence, Dedication, Innovation. The
transformation we have initiated aims at ensuring our organization will continue to deliver solid cash
flows whether we acquire new businesses or not.
Over the years we have shifted from being predominantly in food courts to a more diversified store
base; in 2016, we entered the US market with a sizeable acquisition that makes our presence robust and
durable. In the past two years, we have approached the casual dining with increased intensity and have
further diversified our portfolio.
Adjustments have happened in increments, allowing us time to learn and master the new business
avenues we have been exploring. Our goal is to continue down that path in the future, with the hope
that our actions will result in great rewards in the long term.
In 2019, MTY is entering into its 40th year, and the restaurant industry in North America has never been
so competitive. Changes are happening faster than ever with the growth of delivery platforms, meal kits
delivered at home, etc. However, the industry also provides tremendous opportunities to flourish for
restaurants that provide the best food, stay ahead of food trends and offer the greatest value. As such,
our team’s focus is oriented towards improving every aspect of our customers’ experience and helping
our franchise partners succeed in a highly competitive environment.
Looking back at the year that just ended, I must say that I am very proud of the performance of MTY’s
team and of its franchise partners, they are truly the heart and soul of MTY, and I want to thank them
for the dedication to achieve the best possible performance.
We will continue to 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.
Eric Lefebvre
Chief Executive Officer
February 14, 2019
Management’s Discussion and Analysis
For the fiscal year ended November 30, 2018
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, 2018.
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,
2017.
This MD&A was prepared as of February 14, 2019. 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 2018. 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 as at
February 14, 2019 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 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 14, 2019. 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-
Page 1
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 information on contingent liabilities and contingent assets 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 14, 2019. The financial
impact of these transactions and non-recurring and other special items can be complex and depend 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.
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 store
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
Page 2
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
Acquisition of the limited liability interests in CB (Custom Burger) Franchise Systems LLC and Built Franchise
Systems LLC
On December 1, 2017, the Company announced that it had completed the acquisition of the limited liability company
interests in CB (Custom Burger) Franchise Systems LLC and Built Franchise Systems LLC. The purchase price was
$30.0 million (US$ 23.5 million) of which $28.3 million (US$ 22.2 million) was paid at closing. At closing 41 franchised
and 3 corporately owned restaurants were in operation.
Completion of combination agreement with Imvescor
On March 1, 2018, the Company, through the merger of a wholly owned subsidiary with Imvescor Restaurant Group Inc.
(“IRG”), acquired all the outstanding shares of IRG. The total consideration for the transaction was $250.8 million, of
which $53.1 million was settled in cash and the remaining in shares. At closing IRG operated 5 brands in Canada and
had 261 locations in operation.
Acquisition of the assets of Grabbagreen®
On March 15, 2018, one of the Company’s wholly owned subsidiaries acquired the assets of Grabbagreen®. The total
consideration amounted to $3.4 million (US$ 2.6 million), of which $3.1 million (US$ 2.4 million) was paid on closing. At
closing, there were 27 locations in operation in the United States.
Acquisition of the assets of Timothy’s World Coffee® and Mmmuffins®
On April 4, 2018, one of the Company’s wholly owned subsidiaries acquired the assets of Timothy’s World Coffee® and
Mmmuffins®. The total consideration amounted to $1.3 million, of which $1.2 million was paid on closing. At closing,
there were 39 locations in operation in Canada.
Acquisition of non-controlling interest in Madison’s
On September 7, 2018, the Company acquired the remaining 10% non-controlling interest of 8825726 Canada Inc.
(Madison’s) for a cash consideration of $1.1 million.
Acquisition of the SweetFrog Premium Frozen Yogurt Franchise
On September 25, 2018, the Company announced that it had completed the acquisition of substantially all of the assets
of SweetFrog Premium Frozen Yogurt for $41.5 million (US$ 32.1 million). Of this total, $37.4 million (US$ 28.9 million)
was paid on closing. At closing, there were 323 franchised/licensed locations in the US and 8 located internationally.
Core business
MTY franchises and operates quick service and casual dining restaurants under the following banners: Tiki-Ming,
Sukiyaki, La Crémière, Au Vieux Duluth Express, Panini Pizza Pasta, Villa Madina, Cultures, Thaï Express, Vanellis, Kim
Chi, “TCBY”, 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, Dagwoods Sandwiches and Salads,
The Counter Custom Burgers, Built Custom Burgers, Baton Rouge, Pizza Delight, Scores, Toujours Mikes, Ben &
Florentine, Grabbagreen, Timothy’s World Coffee, Mmmuffins and SweetFrog.
As at November 30, 2018, MTY had 5,984 locations in operation, of which 5,919 were franchised or under operator
agreements and the remaining 65 locations were operated by MTY.
Page 3
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, Baja Fresh Mexican Grill, The Counter Custom Burgers,
Built Custom Burgers, Baton Rouge, Scores, Pizza Delight, Toujours Mikes, Ben & Florentine and Grabbagreen. La
Crémière, “TCBY”, La Diperie and SweetFrog operate primarily from April to September and the other banners generally
operate year-round.
MTY has developed several quick service restaurant concepts: Tiki-Ming (Chinese cuisine), was its first banner, followed
by Sukiyaki (a Japanese delight), Franx Supreme (hot dog/hamburger), Panini Pizza Pasta, Chick’n’Chick, Caferama,
Carrefour Oriental, Villa Madina, Kim Chi, Vie & Nam, Tandori, O’Burger and Tosto.
Other banners added through acquisitions include:
Brand
Fontaine Santé/Veggirama
La Crémière
Croissant Plus
Cultures
Thaï Express
Mrs. Vanelli’s
TCBY – Canadian master franchise right
Yogen FrüzTM exclusive master franchise
rights in 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
Acquisition
year
1999
2001
2002
2003
May 2004
June 2004
September 2005
April 2006
September 2006
October 2006
September 2007
September 2008
October 2008
May 2009
September 2010
August 2011
November 2011
November 2011
September 2012
June 2013
September 2013
September 2013
March 2015
July 2014
September 2018
October 2014
%
ownership
100%
100%
100%
100%
100%
100%
100%
100%
# of franchised
locations
18
71
18
24
6
103
91
152
# of corporate
locations
—
3
2
—
—
—
—
—
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80% +
20%
90% +
10%
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
5
—
15
—
—
5
9
2
—
1
—
2
5
—
—
13
1
Page 4
November 2014
100%
1 The Yogen FrüzTM exclusive master franchise rights in Canada were disposed of on February 1st, 2017.
Brand
Manchu Wok, Wasabi Grill & Noodle and
SenseAsian
Big Smoke Burger
Kahala Brands Ltd
- Cold Stone
Creamery, Blimpie, Taco Time, 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 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
The Counter Custom Burgers
Built Custom Burgers
Imvescor Restaurant Group - Baton
Rouge, Pizza Delight, Scores, Toujours
Mikes, and Ben & Florentine
Grabbagreen
Timothy’s World Coffee and Mmmuffins -
perpetual franchising license
SweetFrog Premium Frozen Yogurt
Acquisition
year
December 2014
%
ownership
100%
# of franchised
locations
115
# of corporate
locations
17
September 2015
September 2016
July 2016
60% +
40%
100%
13
2,839
October 2016
100%
December 2016
May 2017
September 2018
June 2017
June 2017
September 2017
December 2017
December 2017
March 2018
60%
83.25% +
9.25%
100%
80%
100%
100%
100%
100%
March 2018
April 2018
100%
100%
September 2018
100%
167
5
15
23
12
20
36
5
253
26
32
331
4
40
16
—
—
4
—
2
3
—
8
1
7
—
MTY also has an exclusive area development agreement with Restaurant Au Vieux Duluth to develop and sub-franchise Au
Vieux Duluth Express quick-service restaurants in the Provinces of Ontario and Quebec.
Revenues from franchise locations are generated from royalty fees, franchise fees, sales of turnkey projects, rent, sign
rental, supplier contributions, gift card breakage and program fees and sales of other goods and services, including those
generated by products sold at various retailers and by the distribution centre that serves the Valentine 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 turnkey projects, rent, supplies,
finished products and equipment sold.
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.
Page 5
Description of recent acquisitions
On September 25, 2018, the Company announced that it had completed the acquisition of substantially all of the assets
of SweetFrog Premium Frozen Yogurt for $41.5 million (US$ 32.1 million). Of this total, $37.4 million (US$ 28.9 million)
was paid on closing. At closing, there were 323 franchised/licensed locations in the US and 8 located internationally.
On September 7, 2018, the Company acquired the remaining 10% non-controlling interest of 8825726 Canada Inc.
(Madison’s) for a cash consideration of $1.1 million.
On April 4, 2018, one of the Company’s wholly owned subsidiaries acquired the assets of Timothy’s World Coffee® and
Mmmuffins®. The total consideration amounted to $1.3 million, of which $1.2 million was paid on closing. At closing,
there were 39 locations in operation in Canada.
On March 15, 2018, one of the Company’s wholly owned subsidiaries acquired the assets of Grabbagreen®. The total
consideration amounted to $3.4 million (US$ 2.6 million), of which $3.1 million (US$2.4 million) was paid on closing. At
closing, there were 27 locations in operation in the United States.
On March 1, 2018, the Company, through the merger of a wholly owned subsidiary with Imvescor Restaurant Group Inc.
(“IRG”), acquired all the outstanding shares of IRG. The total consideration for the transaction was $250.8 million, of
which $53.1 million was settled in cash and the remaining in shares. At closing IRG operated 5 brands in Canada and
had 261 locations in operation.
On December 1, 2017, the Company announced that it had completed the acquisition of the limited liability company
interests in CB Franchise Systems LLC and Built Franchise Systems LLC. The purchase price was $30.0 million (US$
23.5 million) of which $28.3 million (US$ 22.2 million) was settled in cash. At closing 41 franchised and 3 corporately
owned restaurants were in operation. The network has locations in the United States of America, Canada, Ghana,
Ireland, Japan, Mexico, Saudi Arabia and the United Kingdom.
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
9 Houston and 3 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, 6 Giorgio
Ristorante and 9 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.
Page 6
Selected annual information
(in thousands $, except EPS, dividend per
common share and number of common
shares)
Year ended
November 30, 2018
Year ended
November 30, 2017
As adjusted (1)
Year ended
November 30, 2016
Total assets
Total long-term liabilities
Operating revenue
EBITDA(2)
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
1,230,307
388,369
353,303
127,743
82,900
88,431
98,580
112,308
4.07
4.06
14,530
$0.60
855,013
342,444
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
24,228,206
21,374,497
19,908,827
Weighted average number of diluted
common shares
(1) Total assets and total liabilities have been adjusted to reflect a change to the Houston Bar & Grill and Industria Pizzeria + Bar
preliminary purchase price calculation. The purchase price calculation has now been finalized. For more information, see
note 6 IX to the November 30, 2018 consolidated financial statements
21,374,497
24,272,650
19,908,827
(2) 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.
Page 7
Summary of quarterly financial information
(in thousands $,
except EPS)
February
2017
May
2017
August
2017
November
2017
February
2018
May
2018
August
2018
November
2018
Revenue
$64,016
$69,962
$72,372
$69,733
$63,715
$89,829
$91,236
$108,523
Quarters ended
EBITDA(1)
$16,336
$24,595
$25,576
$27,219
$19,912
$35,506
$39,578
$32,747
Net income
attributable to
owners
Total
comprehensive
income (loss)
attributable to
owners
Earnings per
share
Earnings per
diluted share
$2,015
$16,033
$12,035
$19,424
$45,332
$18,040
$22,275
$12,933
($1,192)
$20,145
($14,344)
$29,138
$43,852
$22,260
$25,547
$20,649
$0.09
$0.75
$0.56
$0.91
$2.12
$0.72
$0.89
$0.09
$0.75
$0.56
$0.91
$2.12
$0.72
$0.88
$0.34
$0.34
(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.
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/ International. The Company and its chief operating decision maker assess
the performance of each operating segment based on its segment profitability.
Results of operations for the fiscal year ended November 30, 2018
Revenue
During the 2018 fiscal year, the Company’s total revenue increased to $353.3 million, from $276.1 million a year earlier.
Revenues for the two segments of business are broken down as follows:
Segment
Canada
Total Canada
Subdivision
Franchise operation
Corporate stores
Food processing
Intercompany transactions
USA &
International
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total operating revenues
November 30, 2018
($ millions)
169.1
34.8
15.6
(4.2)
215.3
113.4
24.9
(0.3)
138.0
353.3
November 30, 2017
($ millions)
107.9
23.4
14.7
(4.1)
141.9
107.7
26.8
(0.3)
134.2
276.1
Variation
57%
49%
6%
N/A
52%
5%
(7%)
N/A
3%
28%
Page 8
Canada revenue analysis:
As is shown in the table above, revenue from franchise locations in Canada increased by 57%. Several factors
contributed to the variation, as listed below:
Revenues, 2017 fiscal year
Increase in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease in turnkey, sales of material to franchisees and rent revenues
Increase due to the acquisitions
2017 one-time contract termination settlement
Other non-material variations
Revenues, 2018 fiscal year
$ millions
107.9
6.7
0.1
(2.0)
58.1
(1.9)
0.2
169.1
Revenue from corporate-owned locations increased by 49% to $34.8 million during the period. The increase is mainly
due to sales from the four corporate The Works Gourmet Burger Bistro locations acquired in the second quarter of 2017
and the 8 corporate Imvescor Restaurant Group restaurants acquired at the beginning of the second quarter.
Food processing revenues increased by 6% during 2018, mainly due to increased volumes of certain existing products
as well as to the continuous addition of new product lines.
USA/International revenue analysis:
As is shown in the table in the previous page, revenue from franchise locations in the US increased by 5%. Several
factors contributed to the variation, as listed below:
Revenues, 2017 fiscal year
Decrease in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease due to the sale of material and services to franchisees
Decrease due to gift card breakage income
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material differences
Revenues, 2018 fiscal year
$ millions
107.7
(0.8)
0.8
(0.9)
(0.4)
7.4
0.1
(0.5)
113.4
Revenue from corporate-owned locations decreased by 7%, to $24.9 million during the year due to a decrease in the
number of corporate locations.
Page 9
Cost of sales and other operating expenses
During the 2018 fiscal year operating expenses increased by 24% to $225.6 million, up from $182.4 million a year ago.
Operating expenses for the two business segments were incurred as follows:
Segment
Canada
Total Canada
USA &
International
Subdivision
Franchise operation
Corporate stores
Food processing
Intercompany transactions
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total cost of sales and other operating
expenses
November 30, 2018
($ millions)
88.1
35.4
14.1
(2.9)
134.7
63.4
29.1
(1.6)
90.9
225.6
November 30, 2017
($ millions)
53.0
23.2
Variation
66%
53%
13.3
(2.9)
86.6
66.3
31.0
(1.5)
95.8
182.4
6%
N/A
55%
(4%)
(6%)
N/A
(5%)
24%
Canada cost of sales and other operating expenses analysis:
Expenses from franchise operations increased by $35.1 million or 66% when compared to fiscal year 2017. Excluding the
impact from the acquisition of Imvescor Group, expenses from franchise operations decreased slightly compared to 2017. A
decrease in lease termination costs and rent and a decrease in the number of turnkey projects which fluctuated in line with
the associated revenues were partially offset by an increase in the wages and benefits resulting from acquisitions realized in
2017 and 2018 and in professional fees. During the year, the Company incurred approximately $1.7 million in non-recurring
incremental costs related to the acquisition of Imvescor Restaurant Group Inc., which closed on March 1, 2018.
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 2018 fiscal year, the Company’s expenses from US franchise operations decreased by $2.9 million or 4%
when compared to the same period last year. The decrease predominantly results from a decrease in professional fees,
rent and resale material expenses. The decrease was partially offset by an increase in wages and benefits.
Corporate stores costs decreased 6% for the year compared to the same period last year. The variation of expenses from the
corporate stores was correlated to the related revenues.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Fiscal year ended November 30, 2018
Canada
USA & International
Total
(In millions $)
215.3
134.7
80.6
37%
138.0
90.9
47.1
34%
353.3
225.6
127.7
36%
Page 10
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Fiscal year ended November 30, 2017
(In millions $)
Canada
USA & International
Total
141.9
86.6
55.3
39%
134.2
95.8
38.4
29%
276.1
182.4
93.7
34%
(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.
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, 2018
Franchise
Corporate
Processing
282.5
151.5
131.0
46%
59.7
64.5
(4.8)
N/A
15.6
14.1
1.5
10%
Intercompany
transactions
Total
(4.5)
(4.5)
—
N/A
353.3
225.6
127.7
36%
(In millions $)
Revenues
Expenses
EBITDA1
EBITDA as a % of
Revenue
Fiscal year ended November 30, 2017
Franchise
Corporate
Processing
215.6
119.3
96.3
45%
50.2
54.2
(4.0)
N/A
14.7
13.3
1.4
10%
Intercompany
transactions
Total
(4.4)
(4.4)
—
N/A
276.1
182.4
93.7
34%
(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.
Total EBITDA for the year ended November 30, 2018 was $127.7 million, an increase of 36% compared to the same
period last year. Canada contributed 63% of total EBITDA and 74% of the total increase in EBITDA, mainly owing to the
acquisitions realized in 2017 and 2018. The acquisition of Imvescor Restaurant Group, which contributed $20.1 million
since the closing of the transaction on March 1st, 2018, was the largest contributor.
The USA & International EBITDA grew by 23% mainly as a result of the acquisitions during the year. Foreign exchange
fluctuations had minimal impact year over year.
Net income
For the year ended November 30, 2018, net income attributable to owners increased to $98.6 million or $4.07 per share
($4.06 per diluted share) compared to $49.5 million or $2.32 per share ($2.32 per diluted share) for the same period last
year.
The results were impacted favorably by an adjustment in the prospective income tax rate for the United States used to
calculate the deferred income taxes. Excluding the impact of this non-recurring adjustment, net income attributable to
owners would have been $63.1 million, or $2.60 per share ($2.60 per diluted share).
Page 11
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands $)
Year ended
November 30, 2018
Year ended
November 30, 2017
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Impairment on property, plant and equipment and intangible
assets
Unrealized and realized foreign exchange gain
Interest income
Gain on disposal of property, plant and equipment and
intangible assets
Loss on revaluation of financial liabilities recorded at fair value
through profit and loss
EBITDA
82,900
2,755
24,749
11,717
5,531
(11)
(649)
(710)
1,461
127,743
62,664
2,724
20,178
10,314
1,000
(2,004)
(439)
(1,120)
409
93,726
Other income and charges
Amortization of intangible assets increased as a result of the 2018 acquisitions and the intangibles added as part of the
purchase price.
Unrealized and realized foreign exchange gains decreased compared to prior year as 2017 saw higher fluctuations in
foreign exchange rates when compared to 2018. 2018 stayed relatively constant year over year with only 1% average
decrease in the rate.
During the year, as the result of a decline in their financial performance, the Company carried out a review of the
recoverable amounts of the capital assets related to certain corporate stores and of intangibles related to multiple
concepts. The review led to the recognition of a non-cash impairment loss of $5.5 million composed of $2.0 million in
leasehold improvements and equipment and $5.8 million in franchise rights and trademarks offset by an impairment
reversal of $2.3 million. The reversal of $2.3 million relates to a 2014 impairment taken on Country Style which has
shown favourable performance in the last few years as a result of increases in the number of non-traditional locations
opened.
Results of operations for the three-month period ended November 30, 2018
Revenue
During the fourth quarter of the 2018 fiscal year, the Company’s total revenue increased by 56% to reach $108.5 million.
Revenues for the two segments of business are broken down as follows:
Segment
Canada
Total Canada
USA &
International
Subdivision
Franchise operation
Corporate stores
Food processing
Intercompany transactions
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total operating revenues
November 30, 2018
($ millions)
65.1
9.5
November 30, 2017
($ millions)
31.3
6.2
Variation
108%
52%
4.4
(2.3)
76.7
27.6
4.3
(0.1)
31.8
108.5
4.2
(2.1)
39.6
25.3
4.9
(0.1)
30.1
69.7
3%
N/A
93%
9%
(12%)
N/A
6%
56%
Page 12
Canada revenue analysis:
As is shown in the table on the previous page, revenue from franchise locations in Canada increased by 108%
compared to prior year. Several factors contributed to the variation, as listed below:
Revenues, fourth quarter of 2017
Increase in recurring revenue steams
Increase in sales of material to franchisees and rent revenues
Increase due to the acquisitions
2017 one-time contract termination settlement
Other non-material variations
Revenues, fourth quarter of 2018
$ millions
31.3
0.5
0.3
35.1
(1.9)
(0.2)
65.1
Revenue from corporate-owned locations increased by 52%, to $9.5 million during the three-month period. The increase
is mainly due to sales from the 8 corporate Imvescor Restaurant Group restaurants acquired at the beginning of the
second quarter of 2018.
USA/International revenue analysis:
As is shown in the table on the previous page, revenue from franchise locations in the US increased by 9%. Several
factors contributed to the variation, as listed below:
Revenues, fourth quarter of 2017
Increase in recurring revenue streams
Increase in initial franchise fees, renewal fees and transfer fees
Decrease in sales of material and services to franchisees
Decrease due to gift card breakage income
Increase due to acquisitions
Impact of variation in foreign exchange rates
Other non-material differences
Revenues, fourth quarter of 2018
$ millions
25.3
0.5
2.3
(0.9)
(3.5)
2.4
1.9
(0.4)
27.6
Revenue from corporate-owned locations decreased by 12%, to $4.3 million, mainly due to a decrease in the number of
corporate restaurants.
Cost of sales and other operating expenses
During the fourth quarter of 2018, operating expenses increased by 79%. Operating expenses for the two business
segments were incurred as follows:
Segment
Canada
Total Canada
USA &
International
Subdivision
Franchise operation
Corporate stores
Food processing
Intercompany transactions
Franchise operation
Corporate stores
Intercompany transactions
Total USA/International
Total cost of sales and other operating
expenses
November 30, 2018
($ millions)
40.7
9.9
November 30, 2017
($ millions)
12.4
5.8
Variation
227%
70%
4.0
(0.8)
53.8
18.3
5.3
(1.6)
22.0
75.8
3.6
(0.6)
21.2
17.0
5.9
(1.6)
21.3
42.5
9%
N/A
153%
8%
(10%)
N/A
4%
79%
Page 13
Canada cost of sales and other operating expenses analysis:
Expenses from franchise operations increased by $28.3 million or 227% when compared to the same period in 2017.
Excluding the impact from the acquisition of Imvescor Restaurant Group, expenses from franchise operations would have
increased by $2.1 million. An increase in rent and lease termination costs as well as wages and benefits was offset by a
decrease in consulting and professional fees.
Expenses from corporate stores and 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 fourth quarter, the Company’s expenses from US franchise operations increased by $1.3 million or 8%.
Expenses were impacted unfavourably by variations in foreign exchange rates between the two periods.
Corporate stores costs decrease by 10% for the fourth quarter when compared to the same period last year. The variation of
expenses from the corporate stores was correlated to the related revenues.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Three months ended November 30, 2018
(In millions $)
Canada
USA & International
76.7
53.8
22.9
30%
31.8
22.0
9.8
31%
Total
108.5
75.8
32.7
30%
Three months ended November 30, 2017
(In millions $)
Canada
USA & International
39.6
21.2
18.4
46%
30.1
21.3
8.8
29%
Below is a summary of performance segmented by product/service:
(In millions $)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Three months ended November 30, 2018
Franchise
92.7
59.0
33.7
Corporate
13.8
15.2
(1.4)
Processing
4.4
4.0
0.4
Intercompany
transactions
(2.4)
(2.4)
—
36%
N/A
9%
N/A
Total
69.7
42.5
27.2
39%
Total
108.5
75.8
32.7
30%
Page 14
(In millions $)
Revenues
Expenses
EBITDA(1)
EBITDA as a % of Revenue
Three months ended November 30, 2017
Franchise
56.6
29.4
27.2
Corporate
11.1
11.7
(0.6)
Processing
4.2
3.6
0.6
Intercompany
transactions
(2.2)
(2.2)
—
48%
N/A
14%
N/A
Total
69.7
42.5
27.2
39%
(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
Total EBITDA for the three-month period ended November 30, 2018 was $32.7 million, an increase of $5.5 million
compared to the same period last year. Canadian operations contributed to 82% while USA operations contributed to the
remaining 18% increase.
In Canada, EBITDA for the fourth quarter of 2018 increased by $4.5 million compared to the same period last year mostly
due to the acquisitions in the second half of 2017 and during 2018. The main contributor was the acquisition of Imvescor
Restaurant Group at the beginning of the second quarter, which generated $6.5 million in EBITDA. Excluding Imvescor
Restaurant Group, Canadian EBITDA decreased due to a one-time contract termination settlement in 2017 as well as an
increase in 2018 wages.
Net income
For the three-month period ended November 30, 2018, net income attributable to owners decreased by $6.5 million, to
$12.9 million or $0.34 per share ($0.34 per diluted share) compared to $19.4 million or $0.91 per share ($0.91 per diluted
share) for the same period last year. The decrease is due to an impairment charge increase of $3.0 million pre-tax ($2.3
million after tax) compared to the same period last year, a $3.4 million pre-tax ($2.6 million after tax) 2017 gift card
revenue catch-up adjustment as well as a $1.9 million pre-tax ($1.4 million after tax) one-time 2017 contract termination
settlement offset by the increase in EBITDA from the 2018 acquisitions.
Calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands of dollars)
Period ended
November 30, 2018
Period ended
November 30, 2017
Income before taxes
Depreciation – property, plant and equipment
Amortization – intangible assets
Interest on long-term debt
Impairment charge on property, plant and equipment and
intangible assets
Unrealized and realized foreign exchange loss
Interest income
Gain on disposal of property, plant and equipment and
intangible assets
Loss on revaluation of financial liabilities recorded at fair value
EBITDA
18,596
699
6,601
2,955
4,016
16
(156)
(212)
232
32,747
19,132
576
3,386
2,470
1,000
360
(66)
(48)
409
27,219
Other income and charges
Interest on long-term debt increased to $3.0 million from $2.5 million during the three-month period as a result of the
interest on the credit facilities, from which the company has drawn additional funds since the fourth quarter of 2017.
Depreciation and amortization both increased significantly due to recent acquisitions, most notably that of Imvescor
Restaurant Group which resulted in an increase in capital assets and amortizable franchise rights.
During the fourth quarter, as the result of a decline in their financial performance, the Company carried out a review of
the recoverable amounts of the capital assets related to certain corporate stores and of intangibles related to multiple
concepts. The review led to the recognition of a non-cash impairment loss of $4.0 million composed of $0.5 million in
leasehold improvements and equipment and $3.5 million in franchise rights and trademarks.
Page 15
Income taxes
The provision for income taxes as a percentage of income before taxes has increased significantly during the quarter
compared to the same period last year. The increase mainly stems from a change in deferred income tax rates and
adjustments made in 2017.
Contractual obligations and long-term debt
The obligations pertaining to the long-term debt and the minimum rentals for the leases that are not subleased are as
follows:
For the period ending
(In thousands $)
Long-term debt(1)
12 months ending November 2019
12 months ending November 2020
12 months ending November 2021
12 months ending November 2022
12 months ending November 2023
Balance of commitments due after 2023
8,893
4,326
260,453
4,781
8
22
278,483
Net lease
commitments
10,379
9,472
8,708
8,001
5,922
21,501
63,983
Total contractual
obligations
19,272
13,798
269,161
12,782
5,930
21,523
342,466
(1) Amounts shown represent the total amount payable at maturity and are therefore undiscounted. For total commitments,
please refer to the November 30, 2018 consolidated financial statements.
Long-term debt includes interest-bearing loans related to acquisitions, promissory notes, minority put options, non-
interest-bearing holdbacks on acquisitions and non-interest-bearing contract cancellation fees.
Liquidity and capital resources
As of November 30, 2018, the amount held in cash totaled $32.3 million, a decrease of $24.2 million since the end of the
2017 fiscal period. The decrease is primarily explained by considerations paid for acquisitions from cash on hand, as well
as debt repayments.
During the 2018 fiscal year, the Company paid $14.5 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.
During the year, cash flows generated by operating activities were $97.6 million, compared to $93.5 million in 2017.
Excluding the variation in non-cash working capital items, income taxes and interest paid, operations generated $129.0
million in cash flows, compared to $96.6 million in 2017, which represents an increase of 34% year over year. The
increase is mostly due to the increase in EBITDA detailed above.
The revolving credit facility has an authorized amount of $500,000 (November 30, 2017 - $305,000), of which $256,143
was drawn at November 30, 2018 (November 30, 2017 - $210,522).
The facility has the following financial covenants:
The Debt to EBITDA ratio must be less than 3.00:1.00.
The interest and rent coverage ratio must be at 2.00:1.00 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 quarter end, the Company was in compliance with the covenants of the credit agreement.
Financial position
Accounts receivable at the end of the year were $49.2 million, compared to $34.2 million at the end of the 2017 fiscal
period. The increase is entirely attributable to the acquisition of IRG.
Page 16
Intangible assets grew by $226.7 million. The increase is due to the acquisition of The Counter and Built Custom Burgers,
Imvescor Restaurant Group, Grabbagreen and Timothy’s World Coffee and Mmmuffins during the year. The increase
was also caused by the impact of foreign exchange variations. This was offset by the amortization expense recorded
during the year.
Accounts payable and accrued liabilities increased to $68.7 million as at November 30, 2018, from $57.6 million as at
November 30, 2017. The full amount of the $11.1 million increase is due to the acquisition of Imvescor and was partially
offset by a decrease in the other entities due to the timing of cash payments from suppliers.
Provisions, which are composed of litigation and dispute, closed store and gift card provisions, increased to $90.0 million
as at November 30, 2018 from $75.3 million as at November 30, 2017. The increase is mainly due to the gift card liability
from the acquisition of Imvescor Restaurant Group and an increase in the gift card liability.
Long-term debt increased by $47.8 million. The increase is attributable to the additional funds required for the acquisition
of Imvescor Restaurant Group Inc. and SweetFrog and to the holdbacks payable in relation to the acquisitions of The
Counter and Built Custom Burgers, Grabbagreen, Timothy’s World Coffee and Mmmuffins and SweetFrog.
Deferred income tax balances were remeasured during the first quarter of 2018 using the new U.S statutory federal
income tax rate, which decreased from 35% to 21%. This resulted in a decrease of the Company’s net liability by $35.5
million. This net tax benefit is estimated based on the initial analysis of the “U.S. Tax Cuts and Job Act”, and given the
complexity of this act, this estimate is subject to adjustment when further guidance becomes available.
Further details on the above statement of financial position items can be found in the notes to the November 30, 2018
consolidated financial statements.
Capital stock
During the 2018 fiscal year the Company issued 3,795,281 shares in connection with the acquisition of Imvescor
Restaurant Group. The Company did not redeem any shares. As at February 14, 2019, the Company had 25,169,778
shares outstanding.
Location information
MTY’s locations can be found in: i) food courts and shopping malls; ii) street front; and iii) non-traditional format within
petroleum retailers, convenience stores, cinemas, amusement parks, 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.
Number of locations
November 30,
2018
November 30,
2017
Franchises, beginning of the period
Corporate owned, beginning of period
Canada
United States
Total, beginning of the period
Opened during the period
Closed during the period
Acquired during the period
Reduction due to sale of Yogen Früz
Total, end of the period
Franchises, end of the period
Corporate owned, end of the period
Canada
United States
Total, end of the period
5,402
29
38
5,469
269
(456)
702
—
5,984
5,919
42
23
5,984
5,599
31
51
5,681
260
(454)
81
(99)
5,469
5,402
29
38
5,469
Page 17
During 2018, the Company completed the following acquisitions:
Concept
The Counter and Built Custom Burger
Imvescor Restaurant Group
Grabbagreen
Timothy’s and Mmmuffins
SweetFrog
Total number of restaurants acquired
Number of restaurants as at
the date of the acquisition
44
261
27
39
331
702
Excluding the acquisitions mentioned above, the Company’s network opened 269 locations (119 in Canada, 98 in the
United States and 52 International) and closed 425 location (185 in Canada, 200 in the United States and 40
International) during 2018.
The net reduction of 187 (91 in the first quarter, 15 in the second quarter, 44 in the third quarter and 37 in the fourth
quarter) results from a multitude of factors, which include landlords redeveloping their properties, competitive
pressures, leases expiring, and closure of underperforming stores.
The Frozen Treats and Sandwiches and Coffee categories contributed the largest part of the decline on a year-to-date
basis; during the fourth quarter, the Sandwiches and Coffee category remained the most challenging with a net
reduction of 34 while the Frozen Treats category had a negative 5 locations.
The chart below provides the breakdown of MTY’s locations and system sales by type:
Location type
Shopping mall & office tower food
courts
Street front
Non-traditional format
% of location count
% of system sales
year ended
November 30
November 30
2018
2017
2018
2017
21%
56%
23%
23%
48%
29%
22%
63%
15%
27%
57%
16%
The geographical breakdown of MTY’s locations and system sales consists of:
Geographical location
% of location count
% of system sales
year ended
November 30
2018 2017
November 30
2018 2017
Ontario
Quebec & Eastern Canada
Western Canada
California
Rest of the United States
International
15%
19%
10%
8%
17%
17%
10%
8%
39% 39%
9%
9%
14%
28%
9%
12%
14%
19%
11%
11%
31% 37%
8%
6%
In the United States, only the state of California exceeds 10% of the total system sales. Florida is the second largest
contributor to the network’s sales with 3%.
The West Coast of the United States contributes 21% of the Company’s system sales (49% of the sales realized in the
United States), while the states bordering the Atlantic represent 12% of the Company’s system sales (27% of the sales
realized in the United States).
During the 2018 fiscal year, casual dining concepts generated approximately 21% of system sales (up from 4% in 2017);
this proportion has gone up following several acquisitions in the Casual Dining segment in the last two years. Quick
Service locations currently represent two thirds of the network’s sales, down from 80% in 2017, and fast casual locations
represent the balance.
Page 18
System wide sales
During the 2018 fiscal year, MTY’s network generated $2,782.5 million in sales, an increase of 21% compared to sales
generated in the prior year. The increase is distributed as follows:
(millions of $)
Three months
Twelve months
Sales
Reported sales – comparative period of 2017 fiscal year
Net increase in sales generated by concepts acquired during the last 24
months
Net decrease resulting from the sale of the Yogen Früz network
Net increase (decrease) resulting from stores opened or closed in the last
24 months
Impact of same store sales growth
Cumulative impact of foreign exchange variation
Other non-material variations
Reported sales – 2018 fiscal year
544.2
153.4
—
7.2
(6.8)
11.7
(2.3)
707.4
2,301.8
516.6
(2.2)
(13.0)
(4.3)
(11.8)
(4.6)
2,782.5
During the 2018 fiscal year, system sales totaled $2,782.5 million, compared to $2,301.8 million during 2017. The
acquisitions realized during 2017 and 2018 were the main drivers for the growth in system sales. The relative strength
of the Canadian dollar during the 2018 fiscal year resulted in an unfavorable variation of $11.8 million in reported sales,
while the net impact of stores opened and closed in the past 24 months was a $13.0 million decrease in system sales.
Cold Stone Creamery is the only concept that currently represents more than 10% of system sales, generating
approximately 21% of the total sales of MTY’s network during the year. Thai Express, Taco Time and Baja Fresh Mexican
Grill are the second, third and fourth largest concepts in terms of system sales, generating less than 10% 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 year ended November 30, 2018, same store sales decreased by 0.2% over the same period last year.
Same store sales growth was broken down as follows in MTY’s main regions:
Region
Canada
United States
International
Total
Quarter ended
November 30, 2018
Year ended
November 30, 2018
+0.0%
-1.9%
-8.9%
-1.3%
+1.0%
-0.9%
-4.9%
-0.2%
During the fourth quarter, same store sales for Canadian locations increased slightly and has now been positive for the
last five quarters. Ontario continues to show positive same store sales growth following the price increases resulting from
the change in minimum wage regulation. British Columbia also continues on the momentum gained last year and posted
positive results. Alberta had a third consecutive positive same store sales quarter, while Saskatchewan remains under
significant pressure following the introduction of the meal tax in the second quarter of 2017.
In the United States, there were no abrupt movements in same store sales during the quarter; California continued to be
slightly negative during the quarter, as were Arizona, Maryland and Oregon, which are important markets for the
Company. California was negatively impacted by the extreme weather, including major forest fires which disrupted
operations for a large part of the state. Given the weight of California on the US portion of MTY’s network, the negative
results of the quarter have translated into a negative performance for the United States as a whole.
Page 19
During the fourth quarter, the concepts acquired in the Imvescor transaction have posted a positive same store sales
growth of 1.9%, led by Ben & Florentine, Mikes and Scores which all posted strong performances. Those figures are
excluded from the information presented above as MTY has not owned those networks for more than 12 months yet.
For 2019, management expects competition in both the Canadian and US markets to intensify further from a price,
product, experience and delivery to end customer points of view. Restaurants are facing more and more competition for
food dollars coming from various sources including retail stores “grab and go” and “meal kit deliveries” types of offering.
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. The Company continues to monitor the situation
and assess the impact of price increases on customer traffic in the impacted regions.
Unusual weather patterns in North America have been affecting the Company and continue to affect it in unpredictable
ways; the months of March, April and November have proven especially challenging in that regard in certain areas of the
United States, causing sharp declines in sales and resulting in negative same store sales for that period. Similarly, sales
from ribs and steak casual dining restaurants experienced a decline during the third quarter due to the unusually hot and
dry summer in Eastern Canada which drove customers to enjoy more outdoor BBQ’s. MTY’s network has become more
sensitive to the weather variations following the acquisition of Kahala; that sensitivity has been more noticeable recently
as weather has been more volatile than in the past two years since we acquired Kahala.
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.
Stock options
During the period, no options were granted. As at November 30, 2018 there were 200,000 options outstanding and none that
are exercisable.
Subsequent Events
Acquisition of Casa Grecque
On December 11, 2018, the Company completed its acquisition of substantially most of the assets of Casa Grecque for
a total consideration of $22.4 million, of which $20.8 million was financed from MTY’s cash on hand and existing credit
facilities, while $0.3 million in net liabilities was assumed and $1.3 million was held back. As at February 14, 2019, a
preliminary purchase price allocation has not yet been completed.
Acquisition of South St. Burger
On December 11, 2018, the Company announced that one of its wholly owned subsidiaries had signed an agreement to
acquire the assets of South St. Burger, a chain of gourmet burger restaurants. The acquisition is expected to be
completed within 90 days of the announcement.
Dividends
On January 21, 2019, the Company approved a quarterly dividend of $0.165 per common share to be paid out February
15, 2019.
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. 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 holiday shopping period.
Page 20
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 of the consolidated financial statements as at November 30, 2018. The
timing of the outflows, if any, is out of the control of the Company and is as a result undetermined at the moment.
Guarantee
The Company has provided a guarantee on certain leases for which it is not the lessee, for a cumulative amount of
$9,330 (November 30, 2017 - $1,398).
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.
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
2018
$
2,051
659
64
2,774
2017
$
1,406
401
49
1,856
Page 21
Key management personnel is composed of the Company’s CEO, COO’s, CFO. The remuneration of directors and key
executives is determined by the Board of Directors having regard to the performance of individuals and market trends.
Given its widely held share base, the Company does not have an ultimate controlling party; its most important shareholder
is its Chair of the Board of Directors, who controls 19% 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
Share based payment
Consulting services
Total remuneration of individuals related to key
management personnel
2018
$
452
20
13
485
2017
$
660
30
—
690
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, 2018 and have not
been applied in preparing the consolidated financial statements.
The following standards may have a material impact on the consolidated financial statements of the Company:
Standard
Issue date
Effective date for
the Company
Impact
October 2018
IFRS 3 Business Combinations
IFRS 9 Financial Instruments
July 2014
IFRS 15 Revenue from contracts with customers May 2014
IFRS 16 Leases
IFRIC 22 Foreign Currency Transactions
and advance Consideration
IFRIC 23 uncertainty over income tax treatments June 2017
December 1, 2020
December 1, 2018
December 1, 2018
January 2016
December 1, 2019
December 2016 December 1, 2018
In assessment
In assessment
In assessment
In assessment
In assessment
December 1 2019
In assessment
In October 2018, the International Accounting Standards Board issued amendments to the definition of a business in
IFRS 3 Business Combinations. The amendments are intended to assist entities to determine whether a transaction
should be accounted for as a business combination or as an asset acquisition. The amendments to IFRS 3 are effective
for annual reporting periods beginning on or after 1 January 2020 and apply prospectively. Earlier application is permitted.
The Company is still in the process of assessing the impact.
IFRS 9 introduces a revised approach for the classification of financial assets based on how an entity manages financial
assets and the characteristics of the contractual cash flows of the financial assets replacing the multiple rules in IAS 39.
Most of the requirements in IAS 39 for classification and measurement of financial liabilities have been carried forward
in IFRS 9. IFRS 9 also introduces a new hedge accounting model that is more closely aligned with risk-management
activities and a new expected credit loss model for calculating impairment on financial assets replacing the incurred loss
model in IAS 39.
The Company will adopt IFRS 9 in its financial statements for the annual period beginning on December 1, 2018 and will
apply the exemption from the requirement to restate comparative information.
The Company is still in the process of assessing the impact of the new standard. The Company does not expect that the
adoption of this standard will have a significant impact on its consolidated financial statements.
Page 22
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. The Company will adopt IFRS 15 in its financial statements for the annual period beginning on December 1,
2018. The standard allows for either a full retrospective or modified retrospective transition method. Management has
elected to apply the modified retrospective transition method.
The Company has performed an assessment of the impact of the new standard and it has identified changes that will
impact its consolidated financial statements.
The Company has determined that the new standard will change the way the Company recognizes initial franchise fees,
master franchise fees, transfer fees and renewal fees. Under the current guidance the Company recognizes these fees
when we have performed all material obligations and services. Under the new guidance the Company will defer these
fees and recognize them over the term of the related franchise agreement. This will have no impact on the amount or
timing of cash flows.
Moreover, under the current guidance the Company does not reflect promotional funds collected from franchisees and
the related promotional expenditures in the consolidated statements of income. Upon adoption of the new standard, the
promotional funds collected, and the related expenditures will be reported on a gross basis in the consolidated statements
of income. To the extent that promotional funds received exceed the related promotional expenditures, the excess
contributions will be recorded in accounts payable and accrued liabilities. We do not expect that there will be a material
net income impact for this change.
Additionally, under the new guidance, incremental costs to obtain a contract must be deferred if they are expected to be
recoverable. Accordingly, the Company will recognize those costs as an asset when incurred and will amortize this asset
over the term of the related franchise agreement.
There will also be a change to the accounting for gift cards breakage for some of the gift card programs which were being
accounted for based on the remote likelihood of a gift card being redeemed. Following the adoption of the new standard,
all of the gift card programs will record breakage income on a prorated recognition basis.
Lastly, restaurant construction and renovation revenue were previously recognized by reference to the stage of
completion of the contract activity; under the new standard, the criteria for recognizing revenue over time are not met
and therefore, the Company will now recognize revenue for these services at a point in time, when the construction and
renovation is completed.
As a result of the adoption of the new standard, the Company expects to record a pre-tax cumulative reduction adjustment
of approximately $27.0 million to retained earnings as at December 1, 2018 primarily related to franchise, transfer and
renewal fees. We do not expect a material adjustment to retained earnings related to the change in method for the
restaurant construction and renovation.
We do not expect that there will be a change in the other categories of revenues, although the Company is still evaluating
the impact of adopting this standard, which may result in additional changes to be identified to accounting policies upon
adoption.
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. The Company anticipates a
material change in the presentation of both the consolidated statement of financial position and the consolidated
statement of income. As a result of IFRS 16, both assets and liabilities will significantly increase and there will be material
changes to the presentation of expenses associated with the new lease standard.
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
Page 23
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.
On 7 June 2017, the IFRS Interpretations Committee issued IFRIC 23, which clarifies how the recognition and
measurement requirements of IAS 12 Income taxes are applied where there is uncertainty over income tax treatments.
This standard is effective for annual reporting periods beginning on or after January 1, 2019.
The Company continues to assess 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 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.
The classification, carrying value and fair value of financial instruments are as follows:
Financial assets
Loans receivable
Financial liabilities
Long-term debt(1)
Carrying
amount
$
2018
Fair
value Carrying amount
$
$
8,104
8,104
5,926
2017
Fair
value
$
5,926
266,087
268,954
219,739
221,889
(¹) Excludes promissory notes and obligations to repurchase non-controlling interests
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. It is established based on market
information available at the date of the consolidated statement of financial position. In the absence of an active market
for a financial instrument, the Company uses the valuation methods described below to determine the fair value of the
instrument. To make the assumptions required by certain valuation models, the Company relies mainly on external,
readily observable market inputs. Assumptions or inputs that are not based on observable market data are used in the
absence of external data. These assumptions or factors represent management’s best estimates of the assumptions or
factors that would be used by market participants for these instruments. The credit risk of the counterparty and the
Company’s own credit risk have been taken into account in estimating the fair value of all financial assets and financial
liabilities, including derivatives.
The following methods and assumptions were used to estimate the fair values of each class of financial instruments:
Loans receivable – The loans receivable generally bear interest at market rates and therefore it is management’s
opinion that the carrying value approximates the fair value.
Page 24
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 October
2019 and June 2022. These promissory notes have been recorded at fair value and are remeasured on a recurring basis.
Of the $7.0 million promissory note, $4.5 million is subject to an earn-out provision.
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 $0.1 million on the fair value, as at November 30, 2018 (November 30, 2017 - $0.3 million).
A fair value re-measurement loss of $1.0 million was recorded for these promissory notes for the period ended November
30, 2018 (November 30, 2017 - $0.2 million).
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 remeasured at each reporting period.
A fair value remeasurement gain of $nil (2017- loss of $0.2 million) 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
and is remeasured 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 $0.1 million on the carrying amount as at November 30, 2018 (November
30, 2017 - $0.1 million).
A fair value re-measurement loss of $0.4 million (2017 - $0.1 million) was recorded for this non-controlling interest
obligation.
Fair value hierarchy
(In thousands $)
Financial liabilities
Promissory notes related to the acquisition of Houston Avenue Bar & Grill
and Industria Pizzeria + Bar
Non-controlling interest options
Financial Liabilities
Level 3
2018
7,034
2,495
9,529
2017
6,041
2,027
8,068
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, 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, 2018 and November 30, 2017. 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.
Page 25
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, 2018.
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 the loans receivable is similar to that of accounts receivable.
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$56.4 million, (2017 - C$18.9 million). A 5% change to foreign exchange would
represent a gain or loss to the Company of C$2.8 million (2017 - C$0.9 million).
As at November 30, 2018, the Company has the following financial instruments denominated in foreign currencies:
November 30, 2018
November 30, 2017
USD
$
980
330
CAD
$
1,304
439
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable and deposits
Long-term debt
(32 )
(14,000 )
(43 )
(18,621 )
Net Financial (Liabilities) Assets
(12,722 )
(16,921 )
USD
$
CAD
$
160
313
(24 )
—
449
206
403
(31 )
—
578
All other factors being equal, a reasonable possible 5% rise in foreign currency exchange rates per Canadian dollar
would result in a loss of C$0.8 million (November 30, 2017 - C$nil) change on the consolidated statements of income
and comprehensive income.
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.
Page 26
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. $256.1 million (2017 -
$210.5 million) of the credit facilities were used as at November 30, 2018. A 100 basis points increase in the bank’s prime
rate would result in additional interest of $2.6 million per annum (2017 - $2.1 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, 2018, the Company had an authorized revolving credit facility for which the available amount may
not exceed $500,000 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 14 of the consolidated financial statements as at
November 30, 2018.
The following are the contractual maturities of financial liabilities as at November 30, 2018
(In thousands $)
Accounts payable
and accrued
liabilities
Long-term debt
Interest on long-term
debt (1)
Carrying
amount
$
Contractual
cash flows
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
Thereafter
$
68,700
275,616
68,700
278,483
68,700
1,449
—
7,444
—
4,326
—
265,264
n/a
24,581
344,316
371,764
4,609
74,758
4,609
9,218
12,053
13,544
6,145
271,409
(1) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the end
of the reporting period.
Outlook
In the very short term, management’s primary focus will be on continuing to produce positive same store sales while
alleviating some of the financial pressure on its franchise partners by optimizing processes and sourcing products at
prices that are stable and competitive. Innovation, quality of food and of customer service in each of our outlets and
maximizing the value offered to our customers are going to be main areas of focus for the coming year.
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.
Management will maintain its focus on maximizing shareholder value by adding new locations of some of its existing
concepts and remains committed to seek potential acquisitions to increase its market share.
Page 27
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, 2018 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 are designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS.
Over the course of 2018, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s
internal controls over financial reporting were not effective due to the identification of a material weakness related to
controls over the accounting for non-routine and complex transactions, including accounting for purchase price
allocations in respect of business acquisitions. The Company’s review process did not sufficiently prevent or detect errors
in the data inputs used or in the calculation of fair value. This control weakness lead to the correction of a preliminary
purchase price. In the third quarter of 2018, the board of directors, Chief Executive Officer, and Chief Financial Officer
implemented processes that significant purchase price allocations will be reviewed by a third-party expert to ensure the
accuracy of the fair value of assets acquired and liabilities assumed in a business acquisition.
Since these changes, no such acquisitions have occurred that would require a purchase price allocation to be completed
which would allow the Company to test the control. Management has added resources and tools in the internal audit
department to test and assess the control environment in the existing and newly acquired businesses. Material
weaknesses 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.
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 fairly 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, 2018, other than the material
weakness mentioned above, 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 reality 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
is also 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.
Page 28
Consolidated financial statements of
MTY Food Group Inc.
November 30, 2018 and 2017
February 14, 2019
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. and its
subsidiaries, which comprise the consolidated statement of financial position as at November 30, 2018
and the consolidated statement of income, consolidated statement of comprehensive income, consolidated
statement of changes in shareholders’ equity and consolidated statement of cash flows for the year then
ended, and the related notes, which comprise 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 audit.
We conducted our audit 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 is sufficient and appropriate to provide a basis for our
audit opinion.
PricewaterhouseCoopers LLP
1250, René-Lévesque blvd W, office 2500, Montreal, Quebec, Canada H3B 4Y1
T: +1 514 205 5000, F: +1 514 876 1502, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
performance and their cash flows for the year then ended in accordance with International Financial
Reporting Standards.
Other Matter
The consolidated financial statements of MTY Food Group Inc. and its subsidiaries for the year ended
November 30, 2017 were audited by another auditor who expressed an unmodified opinion on those
statements on February 15, 2018.
Montreal, Canada
1 FCPA auditor, FCA, public accountancy permit No. A116853
2
MTY Food Group Inc.
Consolidated statements of income
Years ended November 30, 2018 and November 30, 2017
(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
Impairment charge on property, plant and equipment and
intangible assets
Other income (charges)
Unrealized and realized foreign exchange gain
Interest income
Gain on disposal of property, plant and equipment and intangible
assets
Loss on revaluation of financial liabilities recorded at fair value
through profit and loss
Income before taxes
Income tax (recovery) expense
Current
Deferred
Net income
Net income attributable to:
Owners
Non-controlling interests
Income per share
Basic
Diluted
Notes
2018
$
2017
$
23 & 29
353,303
276,083
24 & 29
11
12
11 & 12
21
28
20
225,560
2,755
24,749
11,717
5,531
270,312
11
649
710
(1,461)
(91)
182,357
2,724
20,178
10,314
1,000
216,573
2,004
439
1,120
(409)
3,154
82,900
62,664
18,721
(34,812)
(16,091)
98,991
98,580
411
98,991
4.07
4.06
9,685
3,125
12,810
49,854
49,507
347
49,854
2.32
2.32
The accompanying notes are an integral part of the consolidated financial statements.
Page 3
MTY Food Group Inc.
Consolidated statements of comprehensive income
Years ended November 30, 2018 and November 30, 2017
(In thousands of Canadian dollars, except per share amounts)
Notes
2018
$
2017
$
Net income
98,991
49,854
Items that may be reclassified subsequently to net income:
Unrealized gain (loss) on translation of foreign operations
14,748
(17,307)
Deferred income tax (expense) recovery on foreign currency
translation adjustments
Other comprehensive income (loss)
Total comprehensive income
Total comprehensive income attributable to:
Owners
Non-controlling interest
(1,020)
13,728
112,719
1,547
(15,760)
34,094
112,308
411
112,719
33,747
347
34,094
The accompanying notes are an integral part of the consolidated financial statements.
Page 4
MTY Food Group Inc.
Consolidated statements of changes in shareholders’ equity
Years ended November 30, 2018 and November 30, 2017
(In thousands of Canadian dollars, except per share amounts)
Reserves
Capital
stock
$
Other
$
Contributed
surplus
$
Balance as at November 30, 2016
Net income for the year ended November 30, 2017
Other comprehensive income
Total comprehensive income
Acquisition of La Diperie (note 6)
Acquisition of non-controlling interest in 7687567 Canada
Inc (note 7)
Acquisition of Steak Frites and Giorgio (note 6)
Acquisition of Houston and Industria (note 6)
Dividends
Option granted to minority interest 9974644 Canada Inc.
Stock options (note 19)
Balance as at November 30, 2017
Net income for the year ended November 30, 2018
Other comprehensive income
Total comprehensive income
Acquisition of non-controlling interest in 8825726 Canada
Inc (note 7)
Issuance of shares on acquisition of Imvescor Restaurant
Group (note 6)
Dividends
Stock options (note 19)
Balance as at November 30, 2018
114,545
—
—
—
—
—
—
—
—
—
114,545
—
—
—
—
—
—
—
—
—
—
(850)
—
(850)
—
—
—
—
197,616
—
—
312,161
—
—
—
(850)
The accompanying notes are an integral part of the consolidated financial statements.
481
—
—
—
—
—
—
—
—
401
882
—
—
—
—
—
630
1,512
Foreign
currency
translation
$
2,615
—
(15,760)
Total
reserves
$
Retained
earnings
$
Total
$
3,096 192,543
— 49,507
(15,760)
310,184
49,507
— (15,760)
33,747
Equity
attributable
to non-
controlling
interest
$
Total
$
682
347
310,866
49,854
— (15,760)
34,094
—
—
—
—
615
615
—
—
—
—
—
—
(13,145)
—
13,728
—
—
—
—
583
(26)
—
—
—
—
—
— (9,832)
—
—
(13,113) 232,192
— 98,580
(850)
401
(26)
—
—
(9,832)
(850)
401
333,624
98,580
— 13,728
112,308
13,728
(4)
16
63
(17)
—
—
1,702
411
—
(30)
16
63
(9,849)
(850)
401
335,326
98,991
13,728
112,719
—
(257)
(257)
(802)
(1,059)
—
— (14,530)
—
315,985
— 197,616
(14,530)
630
629,391
630
1,245
— 197,616
(14,560)
(30)
630
—
630,672
1,281
Page 5
MTY Food Group Inc.
Consolidated statements of financial position
As at November 30, 2018 and November 30, 2017
(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
2018
$
8
9
10
10
11
12
13
15
16
17
17
16
28
32,304
49,168
3,574
2,134
—
692
7,291
95,163
5,970
114
18,753
733,660
376,647
1,230,307
68,700
90,039
24,989
20,122
7,416
211,266
268,200
705
119,464
599,635
The accompanying notes are an integral part of the consolidated financial statements.
2017
$
(Adjusted,
note 6 IX)
56,453
34,151
3,281
2,817
1,408
1,163
5,461
104,734
3,109
351
13,081
506,970
226,768
855,013
57,555
75,331
19,273
20,844
4,240
177 243
223,567
1,946
116,931
519,687
Page 6
Page 7
MTY Food Group Inc.
Consolidated statements of cash flows
Years ended November 30, 2018 and November 30, 2017
(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 property, plant and equipment
and intangible assets
Loss on revaluation of financial liabilities recorded at
fair value through profit and loss
Income tax (recovery) expense
Share based payments
Income tax refunds received
Income taxes paid
Interest paid
Changes in non-cash working capital items
Other
Cash flows provided by operating activities
Investing activities
Net cash outflow on acquisitions
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of property, plant and equipment
and intangible assets
Cash flows used in investing activities
Notes
2018
$
2017
$
98,991
49,854
11,717
2,755
24,749
10,314
2,724
20,178
(710)
(1,120)
11 & 12
5,531
1,461
(16,091)
630
129,033
1,189
(13,865)
(9,448)
(7,648)
(1,631)
97,630
(123,243)
(6,544)
(1,286)
2,548
(128,525)
30
6
11
12
1,000
409
12,810
401
96,570
—
(10,385)
(7,646)
12,993
1,999
93,531
(23,939)
(2,815)
(453)
3,758
(23,449)
Page 8
MTY Food Group Inc.
Consolidated statements of cash flows (continued)
Years ended November 30, 2018 and November 30, 2017
(In thousands of Canadian dollars, except per share amounts)
Financing activities
Issuance of long-term debt
Repayment of long-term debt
Cash acquired
Capitalized financing costs
Acquisition of the non-controlling interest
Dividends paid to non-controlling shareholders of
subsidiaries
Dividends paid
Cash flows provided by (used in) financing activities
Net increase (decrease) in cash
Effect of foreign exchange rate changes on cash
Cash, beginning of period
Cash, end of period
Notes
2018
$
2017
$
6
7
134,805
(117,180)
4,652
(455)
(1,059)
(30)
(14,530)
6,203
(24,692)
543
56,453
32,304
13,000
(48,452)
—
(519)
(30)
(17)
(9,832)
(45,850)
24,232
(4,039)
36,260
56,453
The accompanying notes are an integral part of the consolidated financial statements.
Page 9
MTY Food Group Inc.
Table of contents
Independent Auditor’s Report
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
Description of the business
Basis of preparation
Accounting policies
Critical accounting judgments and key sources of estimation uncertainty
Future accounting changes
Business acquisition
Acquisition of non-controlling interest
Accounts receivable
Inventories
Loans receivable
Property, plant and equipment
Intangible assets
Goodwill
Credit facilities
Provisions
Deferred revenue and deposits
Long-term debt
Capital Stock
Stock options
Income per share
Financial instruments
Capital disclosures
Revenue
Operating expenses
Operating lease arrangements
Guarantee
Contingent liabilities
Income taxes
Segmented information
Statement of cash flows
Related party transactions
Subsequent Events
2
11
11
12
25
27
29
39
40
41
41
42
44
47
47
48
49
49
50
50
51
51
55
56
56
57
57
57
58
60
62
63
64
Page 10
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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 and casual dining food industry. Its activities
consist of franchising and operating corporate-owned locations as well as the sale of retail products 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 8210, Autoroute Transcanadienne, 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”) as issued by the International Accounting Standard Board.
These consolidated financial statements were authorized for issue by the Board of Directors on February 14, 2019.
Page 11
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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 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.
Imvescor Restaurant Group Inc.
8825726 Canada Inc.
9974644 Canada Inc.
10179612 Canada Inc.
10220396 Canada Inc.
%
100
100
100
100
100
100
60
92.5
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.
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. For the purposes of consolidating Imvescor Restaurant Group Inc.,
a period end date of November 25, 2018 was used as per their original reporting setup prior to acquisition. It was
deemed not practical or material to change the year-end reporting date for this entity.
Page 12
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Basis of consolidation (continued)
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.
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.
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.
Page 13
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Business combinations (continued)
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 at 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.
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.
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.
Page 14
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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)
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).
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 and retail 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. These revenues are recorded in sale of goods (note 23).
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.
Page 15
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Leasing (continued)
The Company as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased
asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period
in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a
liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis,
except where another systematic basis is more representative of the time pattern in which economic benefits from
the leased asset are consumed.
Functional and presentation currency
These consolidated financial statements are presented using the Company’s functional currency, which is the
Canadian dollar. Each entity of the Company determines its own functional currency, and the financial statement items
of each entity are measured using that functional currency. Functional currency is the currency of the primary
economic environment in which the entity operates.
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 in 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 currency transactions
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 and adjustments to prior year provisions. 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.
Page 16
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Deferred tax (continued)
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and interests are only recognized to the extent that it is
probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences
and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to
be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in
other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized
in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the
initial accounting for a business combination, the tax effect is included in the accounting for the business
combination.
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, 2018 and 2017
(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
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.
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.
Leases
Leases, which represent the value associated with preferential terms or locations, are amortized on a straight-line
basis over the term of the leases.
Other
Included in other intangible assets are primarily purchased software, which are being amortized over their expected
useful life on a straight-line basis.
Page 18
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Intangible assets (continued)
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 of disposal 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 of disposal 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.
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 of disposal 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
Cash item includes cash on hand and short-term investments, if any, with maturities upon acquisition of generally
three months or less or that are redeemable at any time at full value and for which the risk of a change in value is not
significant.
Page 19
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Inventories
Inventories are measured at the lower of cost and net realizable value. Costs of inventories are determined on a first-
in-first-out basis and include acquisition costs, conversion costs and other costs incurred to bring inventories to their
present location and condition. The cost of finished goods includes a pro-rata share of production overhead based on
normal production capacity.
In the normal course of business, the Company enters into contracts for the construction and sale of franchise
locations. The related work in progress inventory includes all direct costs relating to the construction of these locations,
and is recorded at the lower of cost and net realizable value.
Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and
costs necessary to make the sale.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past
event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of
the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation
at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. 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.
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.
The Company recognizes breakage on all material gift card programs in its consolidated statements of income
based on historical load and redemption patterns. The redemption rate is 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.
For all other non-material 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 in its consolidated
statements of income, except for those gift cards liabilities assumed upon a business acquisition.
Page 20
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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)
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.
Deferred revenue and deposits
The Company has deferred revenue and deposits for amounts received for which the service or sale of goods
associated with these revenues have not yet been rendered. These are comprised mainly of franchise fee deposits,
unearned rent, and supplier contributions. Revenues on these are recorded once the service or contract terms have
been met and the services or goods have been delivered.
Financial instruments
Financial assets and financial liabilities are recognized when an entity becomes a party to the contractual provisions
of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets
or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
The subsequent measurement of financial assets and financial liabilities is dependent on their classification as
described below. Their classification depends on the purpose for which the financial instruments were acquired or
issued, their characteristics and the Company’s designation of such instruments.
Classification
Cash
Accounts receivable
Deposits
Loans receivable
Accounts payable and accrued liabilities
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
Page 21
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
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.
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 reorganization; 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.
Page 22
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
3.
Accounting policies (continued)
Financial instruments (continued)
Financial assets (continued)
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized,
the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount
of the investment at the date the impairment is reversed does not exceed what the amortized cost would have
been had the impairment not been recognized.
Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset
to another entity. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been
recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.
Financial liabilities
Classification as debt or equity
Debt and equity instruments issued by an entity are classified as either financial liabilities or as equity in accordance
with the substance of the contractual arrangements and the definitions of a financial liability and an equity
instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all
of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct
issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.
Other financial liabilities
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 23
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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 recorded in 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 $11,652 (November 30, 2017 – $8,836). 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.
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 29). 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.
Page 24
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
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 assets 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.
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
accounting 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 plant, property and equipment, franchise rights and 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 of disposal, except for certain corporate store assets for
which fair value less cost of disposal was higher than their value in use. The fair value less cost of disposal of
corporate stores is generally determined by estimating the liquidation value of the restaurant equipment.
Page 25
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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)
Impairment of plant, property and equipment, franchise rights and trademarks (continued)
In the current year, the value in use of CGUs tested was higher or equal to the carrying value of the assets.
Impairment assessments were established using discount rates of 7.7% in Canada and 8.3% in the United States
of America (US) 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. In the US, a change in the discount rate applied of 1% would result in an additional impairment of
approximately $1,500. This total additional impairment would be related to 5 different US brands. A change in the
discount rate applied of 1% in Canada would not result in any additional impairment.
During the year, the Company recognized an impairment on four of its trademarks and on the franchise rights of
three of its brands following a decline in the performance of the related brands. The total impairment of $5,827
(2017 - $1,000) represents a write down of the carrying value to the fair value of the trademarks and franchise
rights. This was offset by a reversal of impairment of $2,356. 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.
During the year, the Company also recognized an impairment on property, plant and equipment for two of its
brands. The cumulative impairment on property, plant and equipment of $2,060 (2017 - $158) represents a write
down of the carrying value of the leasehold improvements and equipment to their fair value less cost of disposal,
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 CGUs 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 recoverable amount 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 or in prior year, no impairment charge on goodwill was required.
The Company used discount rates of 7.7% in Canada and 8.3% in the US for its assessment of goodwill. A growth
of 1% was applied to the cash flows used to estimate the terminal value. A change in the discount rate applied of
1% would not result in an additional impairment.
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, 2018 and 2017, 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 significant estimates are breakage rate and the redemption
patterns.
Page 26
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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)
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.
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.
Supplier contributions
The Company recognizes certain revenues based on estimated considerations to be received from suppliers.
These estimates are based on historical patterns of purchase and earned revenues.
5.
Future accounting changes
A number of new standards, interpretations and amendments to existing standards were issued by the International
Accounting Standard Board (“IASB”) that are not yet effective for the period ended November 30, 2018, 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
October 2018
IFRS 3 Business Combinations
IFRS 9 Financial Instruments
July 2014
IFRS 15 Revenue from contracts with customers May 2014
IFRS 16 Leases
IFRIC 22 Foreign Currency Transactions
and advance Consideration
IFRIC 23 uncertainty over income tax treatments
January 2016
December 2016
June 2017
December 1, 2020
December 1, 2018
December 1, 2018
December 1, 2019
December 1, 2018
December 1 2019
In assessment
Impact
In assessment
In assessment
In assessment
In assessment
In assessment
In October 2018, the International Accounting Standards Board issued amendments to the definition of a business in
IFRS 3 Business Combinations. The amendments are intended to assist entities to determine whether a transaction
should be accounted for as a business combination or as an asset acquisition. The amendments to IFRS 3 are effective
for annual reporting periods beginning on or after 1 January 2020 and apply prospectively. Earlier application is
permitted. The Company is still in the process of assessing the impact.
IFRS 9 introduces a revised approach for the classification of financial assets based on how an entity manages
financial assets and the characteristics of the contractual cash flows of the financial assets replacing the multiple rules
in IAS 39. Most of the requirements in IAS 39 for classification and measurement of financial liabilities have been
carried forward in IFRS 9. IFRS 9 also introduces a new hedge accounting model that is more closely aligned with
risk-management activities and a new expected credit loss model for calculating impairment on financial assets
replacing the incurred loss model in IAS 39.
Page 27
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
5.
Future accounting changes (continued)
The Company will adopt IFRS 9 in its financial statements for the annual period beginning on December 1, 2018 and
will apply the exemption from the requirement to restate comparative information.
The Company is still in the process of assessing the impact of the new standard. The Company does not expect that
the adoption of this standard will have a significant impact on its consolidated financial statements.
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. The Company will adopt IFRS 15 in its financial statements for the annual period
beginning on December 1, 2018. The standard allows for either a full retrospective or modified retrospective transition
method. Management has elected to apply the modified retrospective transition method.
The Company has performed an assessment of the impact of the new standard and it has identified changes that will
impact its consolidated financial statements.
The Company has determined that the new standard will change the way the Company recognizes initial franchise
fees, master franchise fees, transfer fees and renewal fees. Under the current guidance, the Company recognizes
these fees when we have performed all material obligations and services. Under the new guidance, the Company will
defer these fees and recognize them over the term of the related franchise agreement. This will have no impact on
the amount or timing of cash flows.
Moreover, under the current guidance the Company does not reflect promotional funds collected from franchisees and
the related promotional expenditures in the consolidated statements of income. Upon adoption of the new standard,
the promotional funds collected, and the related expenditures will be reported on a gross basis in the consolidated
statements of income. To the extent that promotional funds received exceed the related promotional expenditures, the
excess contributions will be recorded in accounts payable and accrued liabilities. We do not expect that there will be
a material net income impact for this change.
Additionally, under the new guidance, incremental costs to obtain a contract must be deferred if they are expected to
be recoverable. Accordingly, the Company will recognize those costs as an asset when incurred and will amortize this
asset over the term of the related franchise agreement.
There will also be a change to the accounting for gift cards breakage for some of the gift card programs which were
being accounted for based on the remote likelihood of a gift card being redeemed. Following the adoption of the new
standard, all of the gift card programs will record breakage income on a prorated recognition basis.
Lastly, restaurant construction and renovation revenues were previously recognized by reference to the stage of
completion of the contract activity; under the new standard, the criteria for recognizing revenue over time are not met
and therefore, the Company will now recognize revenue for these services at a point in time, when the construction
and renovations are completed.
As a result of the adoption of the new standard, the Company expects to record a pre-tax cumulative reduction
adjustment of approximately $27,000 to retained earnings as at December 1, 2018 primarily related to franchise,
transfer and renewal fees. We do not expect a material adjustment to retained earnings related to the change in
method for the restaurant construction and renovation.
We do not expect that there will be a change in the other categories of revenues, although the Company is still
evaluating the impact of adopting this standard, which may result in additional changes to be identified to accounting
policies upon adoption.
Page 28
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
5.
Future accounting changes (continued)
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. The
Company anticipates a material change in the presentation of both the consolidated statement of financial position
and the consolidated statement of income. As a result of IFRS 16, both assets and liabilities will significantly increase
and there will be material changes to the presentation of expenses associated with the new lease standard.
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.
On 7 June 2017, the IFRS Interpretations Committee issued IFRIC 23, which clarifies how the recognition and
measurement requirements of IAS 12 Income taxes are applied where there is uncertainty over income tax treatments.
This standard is effective for annual reporting periods beginning on or after January 1, 2019.
The Company continues to assess the impact of these standards on its consolidated financial statements.
6. Business acquisition
I) Acquisition of the Counter Custom Burgers and Built Custom Burgers
On December 1, 2017, the Company’s US operations completed the acquisition of all the limited liability company
interests in CB Franchise Systems, LLC and Built Franchise Systems, LLC. The total consideration for the transaction
was $29,971 (US$23,545). The purpose of the transaction was to diversify the Company’s range of offering as well
as to complement existing MTY brands.
As previously
reported Adjustment
Adjusted
Final
Consideration
Consideration paid:
Purchase price
Repayment of external debt
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Less cash acquired
Net consideration paid/cash outflow
28,893
1,261
1,141
(334)
30,961
(2,625)
(34)
28,302
—
—
(990)
—
(990)
990
—
—
$
28,893
1,261
151
(334)
29,971
(1,635)
(34)
28,302
Page 29
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
I) Acquisition of the Counter Custom Burgers and Built Custom Burgers (continued)
The purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Inventory
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 revenues
Deferred income tax
Net purchase price
(1) Goodwill is deductible for tax purposes.
As previously
reported
Adjustment
Adjusted
Purchase
price
allocation
34
426
71
87
618
633
9,165
16,802
5,146 (i)
32,364
956
291
104
52
1,403
30,961
$
34
426
71
87
618
633
9,165
16,802
4,156
31,374
956
291
104
52
1,403
29,971
—
—
—
—
—
—
—
—
(990)
(990)
—
—
—
—
—
(990)
(i) The Company has recorded an adjustment to its previously reported preliminary purchase price allocation during
the period relating to working capital items.
Total expenses incurred related to acquisition costs amounted to $77.
The purchase price allocation is final.
Page 30
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
II) Acquisition of Imvescor Restaurant Group Inc.
On March 1, 2018, the Company’s Canadian operations, through the merger of a wholly owned subsidiary with
Imvescor Restaurant Group Inc. (“IRG”), acquired all the outstanding shares of IRG. The purpose of the transaction
was to diversify the Company’s range of offering with a highly scalable portfolio of recognized restaurant brands and
concepts.
Since the original preliminary purchase price allocation disclosure in the second quarter, the total consideration was
adjusted to $250,814, to reflect an adjustment to the accounting treatment of certain stock options that were settled
on acquisition and had previously been expensed as well as the additional issuance of shares to a shareholder.
As previously
reported
Adjustment
Adjusted
Consideration
$
52,373
197,144 (i)
249,517
(4,702)
244,815
825
472
1,297
87
1,384
53,198
197,616
250,814
(4,615)
246,199
Consideration paid:
Cash and amount paid for early settlement of options
Shares issued
Total consideration
Less cash acquired
Total consideration
(i) Additional issuance of 9,285 shares to a shareholder.
Page 31
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
II) Acquisition of Imvescor Restaurant Group Inc. (continued)
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Accounts receivable
Notes receivable
Inventory
Prepaid expenses and deposits
Notes receivable
Projects under construction
Property, plant and equipment
Other intangible assets
Franchise rights
Trademarks
Goodwill (1)
Current liabilities
As previously
reported
$
Adjustment
$
4,702
(i)
11,121 (i & ii)
(ii)
—
(i)
(i)
(i)
(iii)
(ii)
214
387
16,424
915
567
6,248
—
70,200
125,700
104,403
324,457
Adjusted
Purchase price
allocation
$
4,615
9,788
367
214
204
15,188
1,134
1,242
4,945
347
70,200
140,600
93,029
326,685
14,610
5,157
539
175
20,481
20,000
138
35,252
75,871
250,814
(87)
(1,333)
367
—
(183)
(1,236)
219
675
(1,303)
347
—
14,900
(11,374)
2,228
643
357
(10)
(215)
775
—
138
18
931
1,297
Accounts payable and accrued liabilities
13,967
(i)
Unredeemed gift card liability and loyalty points
Deferred revenues
Income tax payable
Credit facility
Deferred revenues
Deferred income tax
Net purchase price
(iv)
(i)
(i)
(ii)
(iii)
4,800
549
390
19,706
20,000
—
35,234
74,940
249,517
(1) Goodwill is not deductible for tax purposes.
The Company has recorded adjustments to its previously reported preliminary purchase price allocation reported in
prior quarters. The adjustments are as follows:
(i)
(ii)
(iii)
(iv)
Adjustment for working capital items.
Reclass of presentation.
Adjustment of fair value for certain items of property, plant and equipment and intangibles
To record loyalty points assumed.
Page 32
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
II) Acquisition of Imvescor Restaurant Group Inc. (continued)
Total expenses incurred related to acquisition costs amounted to approximately $1,720 and are recorded as an
operating expense on the consolidated statements of income.
The purchase price allocation is still preliminary and may be subject to revision.
III) Acquisition of Grabbagreen
On March 15, 2018, the Company’s US operations completed its acquisition of the assets of Grabbagreen franchise
system. The total consideration for the transaction was $3,409 (US$2,633). The purpose of the transaction was to
diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Net obligations assumed
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Net consideration paid/cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Trademarks
Goodwill (1)
Current liabilities
Unredeemed gift card liability
Net purchase price
(1) Goodwill is deductible for tax purposes
2018
$
3,463
(29)
(25)
3,409
(322)
3,087
As previously
reported
Adjustment
Adjusted
Purchase price
allocation
(i)
(i)
(i)
17
73
377
2,070
918
3,455
46
3,409
—
(58)
—
(130)
188
—
—
—
$
17
15
377
1,940
1,106
3,455
46
3,409
(i) The Company has recorded an adjustment to the fair value for certain items of property, plant and equipment
and trademark from its previously reported preliminary purchase price allocation during the period.
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, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
IV) Acquisition of Timothy’s World Coffee and Mmmuffins
On April 4, 2018, the Company’s Canadian operations completed its acquisition of the assets of Timothy’s World
Coffee and Mmmuffins. The total consideration for the transaction was $1,321. The purpose of the transaction was
to diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Net obligations assumed
Working capital
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Less cash acquired
Net consideration paid/cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Cash
Inventory
Prepaid expenses and deposits
Property, plant and equipment
Franchise rights
Perpetual license
Goodwill (1)
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability
As previously
reported
Adjustment
Adjusted
Consideration
1,675
(130)
—
(16)
1,529
(301)
(3)
1,225
—
(208)
—
(208)
208
—
—
$
1,675
(130)
(208)
(16)
1,321
(93)
(3)
1,225
As previously
reported
Adjustment
Adjusted
Purchase price
allocation
3
64
43
110
100
417
232
846 (i)
1,705
101
75 (i)
176
—
—
—
—
—
—
—
120
120
—
328
328
$
3
64
43
110
100
417
232
966
1,825
101
403
504
Net purchase price
1,529
(208)
1,321
(1) Goodwill is deductible for tax purposes
(i) The Company has recorded an adjustment to its previously reported preliminary purchase price allocation during
the period relating to working capital items.
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, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
V) Acquisition of SweetFrog
On September 25, 2018, the Company’s US operations completed its acquisition of the assets of SweetFrog Premium
Frozen Yogurt (“SweetFrog”). The total consideration for the transaction was $41,507 (US$32,064). The purpose of
the transaction was to diversify the Company’s range of offering as well as to complement existing MTY brands.
Consideration paid:
Purchase price
Net obligations assumed
Discount on non-interest-bearing holdback
Net purchase price
Holdback
Net consideration paid/cash outflow
The preliminary purchase price allocation is as follows:
Net assets acquired:
Current assets
Inventory
Prepaid expenses
Goodwill (1 & 2)
Current liabilities
Accounts payable and accrued liabilities
Unredeemed gift card liability
Deferred revenue
Net purchase price
(1) Goodwill is deductible for tax purposes
2018
$
45,307
(3,383)
(417)
41,507
(4,113)
37,394
2018
$
254
30
284
44,155
44,439
146
2,757
29
2,932
41,507
(2) Given the size of the transaction, the Company has not yet completed its fair value assessment of the
intangibles assets and goodwill acquired. Consequently, part of the fair value adjustments, mainly relating to
franchise rights and trademark, related to this acquisition are included in goodwill in the preliminary fair value
assessment of the assets acquired.
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 and as such
material adjustments will be made.
Page 35
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
VI) 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.
The price allocation is as follows:
Net assets acquired:
Current assets
Inventory
Franchise rights
Goodwill (1)
Deferred income tax Liability
Net purchase price
(1) Goodwill is deductible for tax purposes
2017
$
1,529
(13)
1,516
(87)
1,429
(615)
814
2017
$
12
12
63
1,444
1,507
3
1,516
Total expenses incurred related to acquisition costs amounted to $nil. The purchase price has been finalized and no
adjustments were recorded to the preliminary purchase price calculation.
VII) 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 has been finalized and no adjustments were recorded
to the preliminary purchase price calculation.
Page 36
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
VIII) Acquisition of The Works Gourmet Burger Bistro (2017)
On June 9, 2017, the Company’s Canadian operations 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
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
Net consideration paid and net cash outflow
The final 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
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 has been finalized and no adjustments were recorded to the preliminary purchase price calculation.
Page 37
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
IX) Acquisition of Houston Avenue Bar & Grill and Industria Pizzeria + Bar (2017)
On June 16, 2017, the Company’s Canadian operations 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 $19,631. The purpose of the transaction
was to diversify the Company’s range of offering as well as to complement existing MTY brands.
The purchase price has been finalized and adjustments to the preliminary purchase price calculation are as follows:
As previously
reported
Adjustment
Final
Consideration
Consideration paid:
Purchase price
Undiscounted promissory notes
Contingent consideration in the form of promissory
notes
Working capital
Non-controlling interest buyback obligation
Non-controlling interest (1)
Net purchase price
Promissory notes and non-controlling interest buyback
obligation
Net cash outflow
$
20,972
(7,910)
5,248
(304)
957
63
19,026
(6,268)
12,758
$
—
—
605
—
—
—
605
(605)
—
The final purchase price allocation is as follows:
As previously
reported
Adjustment
Net assets acquired:
Franchise rights
Trademark
Goodwill (2)
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Deferred income tax liability
Net purchase price
$
5,833
5,667
7,975
19,475
4
300
304
145
19,026
$
369
467
(168)
668
—
—
—
63
605
$
20,972
(7,910)
5,853
(304)
957
63
19,631
(6,873)
12,758
Final
$
6,202
6,134
7,807
20,143
4
300
304
208
19,631
(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.
Page 38
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
6.
Business acquisitions (continued)
X) 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 $2,916.
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
Net consideration paid and cash outflow
The final 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 has been finalized and no
adjustments were recorded to the preliminary purchase price calculation.
7. Acquisition of non-controlling interest
In September 2018, the Company acquired the remaining 10% non-controlling interest of 8825726 Canada Inc.
(Madison’s) for a cash consideration of $1,059. Following the transaction, 8825726 Canada Inc. has become a wholly
owned subsidiary.
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 39
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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
2018
$
58,488
9,320
49,168
40,521
1,559
2,168
4,920
49,168
2018
$
9,611
315
379
208
(1,193)
9,320
2017
$
43,762
9,611
34,151
25,885
1,568
1,483
5,215
34,151
2017
$
8,007
2,566
13
402
(1,377)
9,611
The Company has recognized an allowance for doubtful accounts based on past experience, outlet-specific situation,
counterparty’s current financial situation and age of the receivables.
Trade receivables disclosed above include amounts that are past due at the end of the reporting period and for which
the Company has not recognized an allowance for doubtful accounts because there was no significant change in the
credit quality of the counterparty and the amounts are therefore considered recoverable. The Company does not hold
any collateral or other credit enhancements over these balances nor does it have the legal right of offset against any
amounts owed by the Company to the counterparty.
The concentration of credit risk is limited due to the fact that the customer base is large and unrelated.
Page 40
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
9.
Inventories
Raw materials
Finished goods
Total inventories
2018
$
1,709
1,865
3,574
2017
$
1,966
1,315
3,281
Inventories are presented net of a $46 allowance for obsolescence ($17 as at November 30, 2017). All of the
inventories are expected to be sold within the next twelve months.
Inventories expensed during the year ended November 30, 2018 were $65,289 (2017 - $43,047).
10.
Loans receivable
Loans receivable generally result from the sales of franchises and of various advances to certain franchisees and
consist of the following:
2018
$
2017
$
8,104
8,104
(2,134)
5,970
5,926
5,926
(2,817)
3,109
Loans receivable bearing interest between nil to 9% per annum, receivable in
monthly installments of $342 in aggregate, including principal and interest,
ending in 2030
Current portion
The capital repayments in subsequent years will be:
2019
2020
2021
2022
2023
Thereafter
$
2,134
833
2,718
1,667
202
550
8,104
There is currently an allowance for doubtful accounts offset against the loans receivable balance of $2,928 (2017 -
$1,182).
Page 41
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
11. Property, plant and equipment
Cost
Land
Buildings
Leasehold
improve-
ments
Equipment
Computer
hardware
$
$
$
$
$
Balance at
November 30, 2016
Additions
Disposals
Foreign exchange
Additions through
business combinations
Balance at
November 30, 2017
Additions
Disposals
Impairment (1)
Foreign exchange
Additions through
1,236
—
—
—
—
1,236
—
—
—
—
3,778
223
(12)
—
5,495
873
(1,921)
1
8,568
1,522
(2,026)
(89)
—
831
567
3,989
1,077
—
—
—
5,279
1,855
(1,053)
(867)
2
8,542
3,130
(1,149)
(1,193)
(53)
869
191
(28)
(8)
—
1,024
419
—
—
6
business combinations
—
—
3,695
1,270
461
Balance at
November 30, 2018
1,236
5,066
8,911
10,547
1,910
Rolling
stock
$
Total
$
149
6
(14)
(3)
20,095
2,815
(4,001)
(99)
—
1,398
138
63
—
—
3
267
471
20,208
6,544
(2,202)
(2,060)
(42)
5,693
28,141
(1) During the year, as the result of a decline in the financial performance, the Company carried out a review of the
recoverable amounts of the capital assets related to certain corporate stores. The review led to the recognition
of a non-cash impairment loss of $2,060 composed of leasehold improvements and equipment. Of this amount,
$1,515 was related to Canadian operations while $545 was related to the US operations.
Page 42
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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,
2016
Eliminated on
disposal of
assets
Foreign exchange
Depreciation
expense
Balance at
November 30,
2017
Eliminated on
disposal of
assets
Foreign exchange
Depreciation
expense
Balance at
November 30,
2018
$
—
—
—
—
—
—
—
—
—
804
1,934
2,852
386
32
6,008
(7)
—
(836)
3
(720)
(17)
175
733
1,615
(12)
(2)
176
972
1,834
3,730
548
—
—
189
(120)
—
(393)
15
834
1,347
—
3
332
1,161
2,548
4,699
883
(14)
—
25
43
—
1
53
97
Carrying amounts
Land
Buildings
Leasehold
improve-
ments
Equipment
Computer
hardware Rolling stock
$
$
$
$
$
November 30, 2017
November 30, 2018
1,236
1,236
3,017
3,905
3,445
6,363
4,812
5,848
476
1,027
$
95
374
(1,589)
(16)
2,724
7,127
(513)
19
2,755
9,388
Total
$
13,081
18,753
Page 43
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
12.
Intangible assets
Cost
Balance at
November 30,
2016
Additions
Disposals
Acquisition through
business
combinations
(Adjusted, see note 6
IX)
Foreign exchange
Impairment
Balance at
November 30,
2017 (Adjusted, see
note 6 IX)
Additions
Disposals
Acquisition through
business
combinations
Foreign exchange
Impairment net of
reversal
Balance at
November 30,
2018
Franchise
and master
franchise
rights
Trademarks Step-in rights
Leases
Other(1)
$
$
$
$
$
Total
$
245,055
97
(3,050)
323,261
5
(24)
1,199
—
—
908
—
(170 )
1,294
351
—
571,717
453
(3,244)
8,268
(7,229)
(309)
11,100
(10,421)
(731)
242,832
—
—
323,190
—
—
80,159
5,910
159,342
8,680
(1,248)
(2,223 )
—
—
—
1,199
—
—
—
—
—
—
—
—
738
—
—
—
—
—
—
—
—
19,368
(17,650)
(1,040)
1,645
1,286
(2)
579
16
—
569,604
1,286
(2)
240,080
14,606
(3,471)
327,653
488,989
1,199
738
3,524
822,103
Page 44
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
12.
Intangible assets (continued)
Accumulated
amortization
Balance at
November 30,
2016
Disposals
Foreign exchange
Amortization
Impairment
Balance at
November 30,
2017
Foreign exchange
Amortization
Balance at
November 30,
2018
Franchise
and master
franchise
rights
$
44,138
(2,584)
(400)
19,792
(40)
60,906
1,060
24,187
86,153
Trademarks Step-in rights
Leases
$
—
—
—
—
—
—
—
—
—
$
380
—
—
120
—
500
—
120
620
$
905
(170)
—
3
—
738
—
—
738
Carrying amounts
Franchise
and master
franchise
rights
Trademarks Step-in rights
Leases
$
$
November 30, 2017
(Adjusted, see note 6 IX)
November 30, 2018
181,926
241,500
323,190
488,989
$
699
579
$
—
—
Other(1)
$
227
—
—
263
—
490
—
442
Total
$
45,650
(2,754)
(400)
20,178
(40)
62,634
1,060
24,749
932
88,443
Other(1)
$
Total
$
1,155
2,592
506,970
733,660
(1) Other items include $579 ($347 as at November 30, 2017) of unamortizable licenses with an indefinite term.
Page 45
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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:
Valentine
Jugo Juice
Mr. Sub
Extreme Pita
Mucho Burrito
ThaïZone
Madisons New York Grill & Bar
Manchu Wok (1)
Big Smoke Burger
Blimpie (1)
Cold Stone Creamery(1)
Great Steak (1)
Pinkberry (1)
Planet Smoothie(1)
Surf City Squeeze
Taco Time(1)
Baja Fresh (1)
The Works Gourmet Burger Bistro
Houston Avenue Bar & Grill
The Counter Custom Burger (2)
Built Custom Burger
Pizza Delight
Mikes
Scores
Baton Rouge
Ben & Florentine
Retail
Other
2018
$
3,338
5,425
11,320
3,179
9,816
7,417
3,410
5,831
3,305
6,112
155,674
3,774
8,928
9,521
3,041
35,068
20,162
3,481
3,963
12,503
5,054
16,000
33,300
29,400
32,000
15,000
14,900
28,646
489,568
2017
$
(Adjusted,
note 6 IX)
3,338
5,425
11,320
3,179
9,816
7,417
3,410
5,772
3,305
5,922
150,840
3,657
8,650
9,226
2,946
33,979
19,536
3,481
3,963
—
—
—
—
—
—
—
—
28,355
323,537
(1) Variance from prior year due to foreign exchange conversion.
(2) Amount impacted by foreign exchange conversion since the acquisition date.
During the year, as the result of a decline in the financial performance of certain brands, the Company carried out a
review of the recoverable amounts of the intangible assets. The review led to the recognition of a non-cash impairment
loss of $1,248 in franchise rights and $4,579 in trademarks for the US segment, which have been recognized in the
consolidated statement of income. This was offset by a $2,356 reversal of the Country Style impairment loss taken
in 2014 in the Canadian segment. The reversal was the result of favourable performance in the last few years by the
brand as a result of increases in the number of non-traditional locations opened.
Page 46
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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 6)
Houston Avenue Bar & Grill and Industria Pizzeria + Bar purchase price
adjustment
Foreign Exchange
Balance, end of year
2018
$
2017
$
(Adjusted,
note 6 IX)
226,768
220,928
143,412
—
6,467
376,647
12,586
(168)
(6,578)
226,768
Goodwill was allocated to two CGU’s in 2018, these two CGUs being Canada and the US & International. 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. As at November 30,
2018, goodwill for Canada and the US represent $163,327 and $213,320 respectively (November 30, 2017 - $69,286
and $157,482 respectively).
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 $500,000 (November
30, 2017 - $305,000). Transaction costs of $652 were incurred and will be deferred and amortized over the remaining
3 years of the life of the revolving credit facility. As at November 30, 2018, $256,143 was drawn from the revolving
credit facility (November 30, 2017 - $210,522).
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, 5.75% as at
November 30, 2018 (4.75% as at November 30, 2017), plus a margin not exceeding 2.00%, or based on LIBOR plus
a margin not exceeding 2.50% (November 30, 2017 – 2.00% and 3.00% respectively). For amounts drawn in
Canadian dollars, the Company has the option to pay interest based on the Canada Prime rate, 3.95% as at November
30, 2018 (4.20% as at November 30, 2017), 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 EBITDA
ratio and interest and rent coverage ratio. As at November 30, 2018, the Company was in compliance with those
financial covenants.
Page 47
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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
2018
$
2,390
1,250
3,640
86,399
90,039
2017
$
3,168
1,413
4,581
70,750
75,331
The provision for litigation and disputes represents management’s best estimate of the outcome of litigations and
disputes that are ongoing 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 provisions also varied in part due to foreign exchange fluctuations related to the US subsidiaries.
Provision for litigation and disputes and closed stores,
beginning balance
Reversals
Amounts used
Additions
Impact of foreign exchange
2018
$
4,581
(1,897)
(2,810)
3,710
56
2017
$
2,641
(637)
(1,475)
4,134
(82)
Provision for litigation and disputes and closed stores, ending balance
3,640
4,581
The gift card and loyalty programs liabilities are the estimated balance in gift cards and points outstanding at the date of
the consolidated statement of financial position. The timing of the reversal of this provision is dependent on customer
behaviour and therefore outside of the Company’s control.
Page 48
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
16. Deferred revenue and deposits
Franchise fee deposits
Unearned rent
Supplier contributions and other allowances
Current portion
17.
Long-term debt
Non-interest bearing contract cancellation fees and holdbacks on
acquisitions
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 6 and note 21)
Fair value non-controlling interest buyback obligation in 10220396 Canada
Inc (note 6 and note 21)(1)
Fair value non-controlling interest option in La Diperie (note 21)(2)
Revolving credit facility payable to a syndicate of lenders (note 14)(3)
Credit facility financing costs
Current portion
2018
$
8,682
3,415
8,730
20,827
2017
$
9,105
3,377
10,308
22,790
(20,122)
705
(20,844)
1,946
2018
$
2017
$
(Adjusted,
note 6 IX)
11,898
11,367
7,034
6,041
1,501
994
256,143
(1,954)
275,616
(7,416)
268,200
1,026
1,001
210,522
(2,150)
227,807
(4,240)
223,567
(1) Payable at the earlier of 3 years from the date option is exercised or June 2022.
(2) Payable on demand.
(3) 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, 2018,
the Company had drawn C$237,522 and US$14,000 (C$18,621), (2017-US$ nil and C$210,522) and had elected
to pay interest based on LIBOR and bankers’ acceptances plus the applicable margins.
Page 49
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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
2018
Amount
$
Number
Balance beginning of period
Shares issued as part of
acquisition (note 6)
Balance end of year
21,374,497
114,545
21,374,497
3,795,281
25,169,778
197,616
312,161
—
21,374,497
2017
Amount
$
114,545
—
114,545
19. Stock options
The Company offered for the benefit of the CEO 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, 2018 (2017- 300,000).
Under the Stock Option Plan of the Company, the following options were granted and are outstanding as at November
30:
2018
Weighted
average
exercise price
Number of
Options
Outstanding beginning of period
Granted
Outstanding end of year
Vested end of period
200,000
—
200,000
—
$
48.36
—
48.36
—
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 a service period of 10 years. 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 determining share-based payment
expense using the Black-Scholes option pricing model.
Page 50
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
19.
Stock options (continued)
The following assumptions were used:
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 $630 was recorded for period ended November 30, 2018 (2017-$401). The expense is
presented in wages and benefits that is included in operating expenses in the consolidated statements of income.
20.
Income per share
The following table provides the weighted average number of common shares used in the calculation of basic income
per share and that used for the purpose of diluted income per share:
Weighted daily average number of common shares - basic
Assumed exercise of stock options (1)
Weighted daily average number of common shares - diluted
2018
2017
24,228,206
44,444
24,272,650
21,374,497
—
21,374,497
(1) The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future
compensation cost of dilutive options. The number of excluded options was 155,556 (November 30, 2017 –
200,000).
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 51
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(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 October 2019 and June 2022. These promissory notes have been recorded at fair value and are
remeasured on a recurring basis. Of the $7,034 promissory note, $4,487 is subject to an earn-out provision.
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 $145 on the fair value, as at November 30, 2018 (November 30,
2017 - $254).
A fair value re-measurement loss of $993 was recorded for these promissory notes for the period ended November
30, 2018 (November 30, 2017 - $188).
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 any time after December 9, 2017. The consideration is based on a multiplier
of EBITDA, as prescribed by the terms of the shareholder agreement. The Company records a liability at fair value
(note 17) which is remeasured at each reporting period.
A fair value remeasurement gain of $7 (2017- loss of $152) 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. The Company recorded a liability at fair value (note
17) which is remeasured 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 a 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, 2018 (November
30, 2017 - $52).
A fair value re-measurement loss of $475 (2017 - $69) was recorded for this non-controlling interest obligation.
Fair value hierarchy
Financial liabilities
Promissory notes related to the acquisition of Houston Avenue Bar & Grill
and Industria Pizzeria + Bar
Non-controlling interest buyback options
Financial Liabilities
Level 3
2018
7,034
2,495
9,529
2017
6,041
2,027
8,068
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, 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, 2018 and November 30, 2017. 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.
Page 52
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
21.
Financial instruments (continued)
Fair value of recognized financial instruments (continued)
Financial assets
Loans receivable
Financial liabilities
Long-term debt(1)
Carrying
amount
$
8,104
2018
Fair
value
$
8,104
Carrying amount
$
5,926
2017
Fair
value
$
5,926
266,087
268,954
219,739
221,889
(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, 2018.
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 the loans receivable is similar to that of accounts receivable.
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.
Page 53
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
21.
Financial instruments (continued)
Foreign exchange risk (continued)
Total US net income for the period was C$56,424 (2017 - C$18,855). A 5% change to foreign exchange would
represent a gain or loss to the Company of C$2,821 (2017 - C$942).
As at November 30, 2018, the Company has the following financial instruments denominated in foreign currencies:
November 30, 2018
November 30, 2017
USD
$
980
330
CAD
$
1,304
439
Financial assets
Cash
Accounts receivable
Financial liabilities
Accounts payable and deposits
Long-term debt
(32 )
(14,000 )
(43)
(18,621)
Net Financial (Liabilities) Assets
(12,722 )
(16,921)
USD
$
CAD
$
160
313
(24)
—
449
206
403
(31)
—
578
All other factors being equal, a reasonable possible 5% rise in foreign currency exchange rates per Canadian dollar
would result in a loss of C$846 (November 30, 2017 - C$29 gain) change on the consolidated statements of income
and comprehensive income.
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. The
facility bears interest at a variable rate and as such the interest burden could change materially. $256,143 (2017 -
$210,522) of the credit facility was used as at November 30, 2018. A 100 basis points increase in the bank’s prime
rate would result in additional interest of $2,561 per annum (2017 - $2,105) 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 its credit facility to ensure it has sufficient available funds to meet current and foreseeable financial
requirements at a reasonable cost.
Page 54
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
21.
Financial instruments (continued)
Liquidity risk (continued)
As at November 30, 2018, the Company had an authorized revolving credit facility for which the available amount may
not exceed $500,000 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 14.
The following are the contractual maturities of financial liabilities as at November 30, 2018
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)
68,700
275,616
n/a
344,316
68,700
278,483
24,581
371,764
68,700
1,449
4,609
74,758
—
7,444
4,609
12,053
—
4,326
9,218
13,544
—
265,264
6,145
271,409
(1) When future interest cash flows are variable, they are calculated using the interest rates prevailing at the end of
the reporting period.
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.
Page 55
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
22.
Capital disclosures (continued)
The Company monitors capital on the basis of the debt-to-equity ratio. The debt-to-equity ratios at November 30, 2018
and November 30, 2017 were as follows:
Debt
Equity
Debt-to-equity ratio
2018
$
480,171
630,672
0.76
2017
$
402,756
335,326
1.20
The decrease in debt-to-equity ratio is due to the increase in common shares outstanding as a result of the acquisition
of Imvescor Restaurant Group. 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 maintain a low ratio by
continuously using the expected cash flows from the newly acquired business in both the US and Canada to reduce
the level of long-term debt.
The Company’s credit facilities impose a maximum debt-to-EBITDA ratio of 3:1 until the maturity date of July 21, 2021.
23. Revenue
Royalties
Franchise and transfer fees
Rent
Sale of goods, including construction revenues
Gift card breakage income
Other franchising revenue
Other
24. Operating expenses
Cost of goods sold, retail costs and rent
Wages and benefits
Consulting and professional fees
Gift cards related costs
Royalties
Other (1)
2018
$
141,040
13,208
1,820
130,620
6,815
55,529
4,271
353,303
2018
$
89,814
78,692
11,685
7,452
7,082
30,835
2017
$
118,655
11,090
2,317
90,438
6,528
40,873
6,182
276,083
2017
$
61,788
67,648
12,310
8,132
7,109
25,370
(1) Other operating expenses are comprised mainly of travel and promotional costs, bad debt expense and other
office administration expenses.
225,560
182,357
Page 56
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
25. 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:
2019
2020
2021
2022
2023
Thereafter
Lease
commitments
$
Sub-leases
$
134,272
119,617
107,035
91,606
74,538
207,773
734,841
123,893
110,145
98,327
83,605
68,616
186,272
670,858
Net
commitments
$
10,379
9,472
8,708
8,001
5,922
21,501
63,983
Payments recognized as a net expense during the year ended November 30, 2018 amount to $18,331 (2017 -
$21,608).
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 $1,820 (2017 - $2,317).
The Company has recognized a liability of $1,250 (November 30, 2017 - $1,413) for the leases of premises in which
it no longer has operations but retains the obligations contained in the lease agreement (note 15).
26. Guarantee
The Company has provided a guarantee on certain leases for which it is not the lessee, for a cumulative amount of
$9,330 (November 30, 2017 - $1,398).
27. 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 57
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
28.
Income taxes
On December 22, 2017, the United States enacted the “U.S. Tax Cuts and Job Act”, commonly referred to as U.S. tax
reform, which resulted in the U.S statutory federal income tax rate to be reduced to 21.0% from the previous rate of
35.0%, effective January 1, 2018.
Consequently, for its fiscal year ending on November 30, 2018, the Company estimated that its effective U.S. federal
tax rate will be 22.19%. The Company recorded a net tax benefit of $35,491 during the year, which is primarily derived
from the re measurement of the Company’s deferred income tax balances. The benefit is estimated based on our
initial analysis of the “U.S. Tax Cuts and Job Act”, and given the complexity of this act, this estimate is subject to
adjustment when further guidance becomes available.
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:
$
2018
%
$
2017
%
22,134
26.7
16,794
26.8
Combined income tax rate in Canada
Add effect of:
Difference between Canadian and
foreign statutory rate
Non-taxable portion of
capital gains
Permanent differences
Recognition of previously
(4,033)
8
1,356
unrecognized deferred tax assets
(758)
Losses in subsidiaries for which no
deferred income tax assets is
recognized
Rate variation on deferred income tax
Adjustment to prior
year provisions
Other – net
Provision for income taxes
132
(35,491)
649
(88)
(16,091)
(4.9)
0.0
1.6
(0.9)
0.2
(42.8)
0.8
(0.1)
(19.4)
(2,895)
(268)
794
(327)
982
(1,595)
(586)
(89)
12,810
(4.6)
(0.4)
1.3
(0.5)
1.5
(2.6)
(1.0)
(0.1)
20.4
Page 58
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
28.
Income taxes (continued)
The variation in deferred income taxes during the year were as follows:
November
30, 2017
Recognized in
profit or loss
Recognized in
other
comprehen-
sive income Acquisition
Foreign
exchange
November
30, 2018
Net deferred tax
assets (liabilities)
in relation to:
Property, plant and
equipment
Accounts receivable
Provisions
Long-term debt
Non-capital losses
$
Adjusted,
note 6 IX
801
1,929
18,814
(336)
461
Intangible assets
(145,625)
Accrued expenses
Deferred revenue
5,352
2,024
(116,580)
$
$
$
$
$
46
(932)
(4,811)
766
(194)
42,835
(2,149)
(749)
34,812
—
—
—
(1,020)
—
—
—
—
438
—
591
(54)
22
24
40
473
(2)
—
1,309
1,037
15,067
(646)
289
(36,439)
(1,937)
(141,166)
138
—
102
42
3,443
1,317
(1,020)
(35,304)
(1,258)
(119,350)
November
30, 2016
Recognized in
profit or loss
$
$
Net deferred tax
assets (liabilities)
in relation to:
Property, plant and
equipment
Accounts receivable
Provisions
Long-term debt
Non-capital losses
625
1,500
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)
Recognized in
other
comprehen-
sive income Acquisition
$
—
—
—
$
Adjusted,
note 6 IX
141
—
—
1,547
(377)
—
—
—
—
—
25
—
—
Foreign
exchange
November
30, 2017
$
$
(27)
(68)
801
1,929
(873 )
18,814
(2)
—
(336)
461
5,862
(145,625)
(198)
(90)
5,352
2,024
1,547
(211)
4,604
(116,580)
Page 59
MTY Food Group Inc.
Notes to the consolidated financial statements
For the periods ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts and stock options)
28.
Income taxes (continued)
As at November 30, 2018 there were approximately $311 (2017 – $275) 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, 2018, there were approximately $1,026 (2017 - $677) in non-capital losses accumulated in one
of the Company’s subsidiaries for which no deferred income tax asset was recognized. These capital losses will expire
between 2035 to 2038.
The deductible temporary difference in relation to foreign exchange on intercompany loans for which a deferred tax
asset has not been recognized amounts to $15 (2017 - $3,048).
No deferred income tax liability is recognized on unremitted earnings of $52,000 related to the investments in
subsidiaries. Such unremitted earnings are reinvested in the subsidiaries and will not be repatriated in the foreseeable
future.
29. Segmented information
Management monitors and evaluates results of the Company based on geographical segments; these two segments
being Canada and US & International. 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.
Page 60
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts)
29.
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
Impairment charge on property, plant and
equipment and intangible assets
Other income (expense)
Unrealized foreign exchange gain (loss)
Interest income
Gain on disposal of property, plant
and equipment and intangible assets
Loss on revaluation on financial liabilities
recorded at fair value
Income before taxes
Current income taxes
Deferred income taxes
Net income
Total assets
Total liabilities
US &
International
$
Total
Consolidated
2018
$
138,010
90,931
353,303
225,560
Canada
$
141,867
86,615
US &
International
$
Total
Consolidated
2017
$
134,216
95,742
276,083
182,357
47,079
127,743
55,252
38,474
93,726
402
14,722
1,567
6,372
(11)
285
190
—
24,480
4,319
(36,263)
56,424
416,953
224,519
2,755
24,749
11,717
5,531
11
649
710
(1,461)
82,900
18,721
(34,812)
98,991
1,230,307
599,635
1,645
5,926
8,448
—
2,013
101
584
(409)
41,522
9,088
1,435
30,999
473,190
269,612
1,079
14,252
1,866
1,000
(9)
338
536
—
21,142
597
1,690
18,855
381,155
249,407
2,724
20,178
10,314
1,000
2,004
439
1,120
(409)
62,664
9,685
3,125
49,854
854,345
519,019
Canada
$
215,293
134,629
80,664
2,353
10,027
10,150
(841)
22
364
520
(1,461)
58,420
14,402
1,451
42,567
813,354
375,116
Page 61
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. Statement of cash flows
Changes in liabilities and assets arising from financing and investing activities:
Revolving credit
facility
Line of
credit
Loan financing
costs
Non-interest-
bearing
contracts and
holdback
Non -controlling
interest
buyback
obligation
Promissory
notes
Non-controlling
interest option
$
(2,150)
$
11,367
$
6,041
$
1,026
$
1,001
$
210,522
—
—
134,805
—
(89,512)
—
—
(20,000)
—
—
—
—
—
328
—
—
—
—
Balance as at November 30, 2017
Changes arising from financing
activities:
Increase in term revolving credit
facility
Repayment in term revolving credit
facility
Repayment of holdback
Payment of upfront fees
Changes from non-cash
transactions:
Amortization of transaction costs
directly attributable to a financing
arrangement
Accretion of interest on non-interest-
bearing holdbacks
Revaluation of financial liabilities
recorded at fair value through
profit and loss (note 10)
Foreign exchange
Changes arising from investing
activities:
Issuance of holdback
Business acquisition (note 6)
Balance as at November 30, 2018
—
—
(7,668)
—
—
1,618
—
417
—
—
—
(455)
651
—
—
—
—
—
—
—
—
—
—
993
—
—
—
—
—
—
—
475
—
—
—
1,501
—
—
256,143
—
20,000
—
—
—
(1,954)
6,164
—
11,898
—
—
7,034
Total
$
227,807
134,805
(109,512)
(7,668)
(455)
651
1,618
1,461
745
—
—
—
—
—
—
(7)
—
—
—
994
6,164
20,000
275,616
Page 62
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts)
30.
Statement of cash flows (continued)
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
Deferred revenue & deposits
2018
$
(4,349)
1,569
1,050
(1,274)
326
(5,366)
3,578
(3,182)
(7,648)
2017
$
1,249
79
32
2,245
(1,165)
9,741
(1,437)
2,249
12,993
Other includes changes in non-cash proceeds from dispositions of capital assets amounting to $145 (2017-
$242).
31. 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
2018
$
2,051
659
64
2,774
2017
$
1,406
401
49
1,856
Key management personnel is composed of the Company’s CEO, COO’s, CFO. The remuneration of directors
and key executives is determined by the Board of Directors having regard to the performance of individuals and
market trends.
Given its widely held share base, the Company does not have an ultimate controlling party; its most important
shareholder is its Chair of the Board of Directors, who controls 19% of the outstanding shares.
Page 63
MTY Food Group Inc.
Notes to the consolidated financial statements
Years ended November 30, 2018 and 2017
(In thousands of Canadian dollars, except per share amounts)
31.
Related party transactions (continued)
The Company also pays employment benefits to individuals related to members of the key management
personnel described above. Their total remuneration was as follows:
Short-term benefits
Share based payment
Consulting services
Total remuneration of individuals related to key
management personnel
32. Subsequent Events
2018
$
452
20
13
485
2017
$
660
30
—
690
Acquisition of Casa Grecque
On December 11, 2018, the Company completed its acquisition of substantially most of the assets of Casa
Grecque for a total consideration of $22,352, of which $20,806 was financed from MTY’s cash on hand and
existing credit facilities, while $296 in net liabilities was assumed and $1,250 was held back. As at February
14, 2019, a preliminary purchase price allocation has not yet been completed.
Acquisition of South St. Burger
On December 11, 2018, the Company announced that one of its wholly owned subsidiaries had signed an
agreement to acquire the assets of South St. Burger, a chain of gourmet burger restaurants operating 26
franchised and 14 corporate restaurants. The acquisition is expected to be completed within 90 days of the
announcement.
Dividends
On January 21, 2019, the Company approved a quarterly dividend of $0.165 per common share to be paid out
February 15, 2019.
Page 64
CORPORATE INFORMATION
HEAD OFFICE >
8150 Transcanada Highway
suite 200, Saint-Laurent
QC H4S 1M5 Canada
T. : 514 336-8885
F. : 514 336-9222
www.mtygroup.com
TRANSFER AGENT
& REGISTRAR >
Computershare Trust
Company of Canada
100 University Ave.,
9th Floor, Toronto
ON M5J 2Y1 Canada
T. : 1.800 564-6253
service@computershare.com
AUDITORS >
PricewaterhouseCoopers
LLP/s.r.l./s.e.n.c.r.l.
1250, René-Lévesque Blvd W.,
suite 2500
Montreal
QC Canada H3B 4Y1
T. : 514 205-5000
F. : 514 876-1502
SOLICITORS >
Fasken Martineau DuMoulin LLP
800, rue du Square-Victoria,
suite 3700
Montreal
QC Canada H4Z 1E9
T. : 514 397-7400
1 800 361-6266
F. : 514 397-7600
DIRECTORS >
Stanley Ma
Claude St-Pierre
Eric Lefebvre
Dickie Orr*
David Wong*
Murat Armutlu*
Garry O’Connor*
*Audit Committee
INVESTORS
RELATIONS >
Eric Lefebvre
T. : 514 336-8885
F. : 514 336-9222
ir@mtygroup.com
MTY Food Group Inc.
Groupe d’alimentation MTY Inc.
8150 Transcanada Highway, Suite 200
Saint-Laurent QC H4S 1M5, Canada
T. : 514 336-8885 | F. : 514 336-9222
TSX “MTY”
MTYGROUP.COM