1
BOSTON PIZZA
BOSTON PIZZA
ROYALTIES INCOME FUND
ANNUAL REPORT 2022
PROFILE
Founded in Alberta in 1964, Boston Pizza has grown to become
Canada’s #1 casual dining brand by continually improving
its menu offerings, guest experience and restaurant design.
Boston Pizza’s success has allowed the concept to grow and
prosper in new markets across Canada and served more than
50 million guests annually prior to COVID-19.
As at January 1, 2023 there were 377 Boston Pizza locations
in Canada, stretching from Victoria to St. John’s, with all but
three of the restaurants owned and operated by independent
franchisees.
In every Boston Pizza location, guests enjoy a comfortable
atmosphere, professional service and an appealing and diverse
menu. Whether it’s a business lunch, family dinner or watching
the game with friends, Boston Pizza provides its guests the
opportunity to enjoy great food in a relaxed and inviting setting.
It is this combination of key ingredients that has enabled Boston
Pizza to serve more guests in more locations than any other full-
service restaurant brand in Canada.
BOSTON PIZZA
BOSTON PIZZA
ROYALTIES INCOME FUND
ANNUAL REPORT 2022
TABLE OF CONTENTS
2022 HIGHLIGHTS 1
Message from the Chairman of Boston Pizza
Royalties Income Fund 3
Message from the President of Boston Pizza International Inc. 4
BOSTON PIZZA ROYALTIES INCOME FUND 7
Management’s Discussion & Analysis 8
Consolidated Financial Statements 51
BOSTON PIZZA INTERNATIONAL INC. 79
Management’s Discussion & Analysis 80
Consolidated Financial Statements 113
1
2022 HIGHLIGHTS
• COVID-19 continued to impact the business of Boston Pizza International Inc. (“BPI”). However on an annual basis, 2022 total Franchise
Sales* (see page 13) returned to pre-pandemic levels despite the challenges faced in the first half of the Year.
• System-Wide Gross Sales* (see page 80) of $1.1 billion, representing an increase of 32.3% compared to one year ago.
• Franchise Sales of $855.0 million for the Year representing an increase of 29.5% versus the same period one year ago.
• Same Restaurant Sales* (see page 10) of 30.4% for the Year. As COVID-19 began to adversely affect sales in Boston Pizza restaurants in
March of 2020, the Fund believes that it is also useful to calculate and report SRS comparing 2022 Franchise Sales to 2019 Franchise Sales.
If SRS were calculated comparing Franchise Sales in the Year to Franchise Sales in the same period in 2019, SRS would be 3.2%.
• Cash flows generated from operating activities of $34.4 million for the Year representing an increase of 12.7% versus the same period one
year ago.
• Distributable Cash* (see page 9) increased 25.2% for the Year, and Distributable Cash per Unit* (see page 9) increased 25.2% for the Year.
• Payout Ratio* (see page 9) of 99.4% for the Year. Cash balance at the end of the Year was $5.2 million.
• The Fund increased its monthly distribution rate twice during the Year, first with the July 2022 distribution rate from $0.085 to $0.100
per unit of the Fund (“Unit”), and then with the November 2022 distribution rate from $0.100 to $0.102 per Unit.
• The Fund declared and paid a special cash distribution to unitholders of the Fund (“Unitholders”) of $0.085 per Unit in December 2022.
* Non-GAAP Financial Measure, Non-GAAP Ratio or Supplementary Financial Measure under National Instrument 52-112. See page reference for details.
0.0
0.3
0.6
0.9
1.2
1.5
1.8
$1.189
$1.182
$1.336
$1.380
$1.317
$1.380
$0.756
$0.516
$0.950
$1.040
2018
2019
2020
2021 2022
99.4%
103.3%
104.8%
68.2%
++
109.5%
++
++
60.0%
80.0%
100.0%
120.0%
0
20.0%
40.0%
Distributable Cash per Unit Distributions Paid per Unit Payout Ratio (%)
Cash per Unit ($)
Payout Ratio (%)
A special distribution of $0.20 per unit was declared in December 2020 and paid in January 2021. The Payout Ratio is calculated by dividing the amount of distributions paid during the applicable
period by the Distributable Cash
for that period. Accordingly, the Payout Ratio for 2020 does not factor in the special distribution that was paid on January 29, 2021 even though the cash generated
to fund the special distribution was generated during 2020 as a result of monthly distributions on Units being temporarily suspended in respect of March through August of 2020. If the special
distribution was included in the calculation of Payout Ratio in the year it was declared, the Payout Ratio would be 94.6% for 2020 and 88.4% for 2021.
DISTRIBUTIONS PER UNIT AND PAYOUT RATIO
42
BOSTON PIZZA ROYALTIES INCOME FUND
Message from the Chairman of Boston Pizza Royalties Income Fund 3
BOSTON PIZZA INTERNATIONAL INC
Message from the President of Boston Pizza International Inc. 4
3
CHAIRMAN’S MESSAGE
On behalf of the trustees, I am pleased to present the 2022 annual report for Boston Pizza Royalties Income
Fund (the “Fund”).
Despite the challenges posed by COVID-19 during 2022, we are pleased to report a successful year for the
Fund. At the beginning of 2022, all regions in Canada were significantly impacted by the omicron variant of
COVID-19 and the subsequent fifth wave of the pandemic, resulting in capacity restrictions and closures of
dining rooms. By the end of the first quarter in 2022, case counts improved and government restrictions were
relaxed. Since then, government restrictions have largely been eliminated, and sales levels of Boston Pizza
restaurants have returned to more normal levels when compared to times prior to the pandemic.
The improvement in Boston Pizza’s restaurant operations during the second half of 2022 reflected positively on
the royalty and distribution payments to the Fund. This, in turn, enabled the trustees to distribute more funds to
unitholders. The following is a summary of some changes regarding distributions declared by the trustees on
units of the Fund (“Units”) during the year:
1. On August 4, 2022, the trustees increased the monthly distribution to $0.100 per Unit for July 2022 from
the previous monthly rate of $0.085 per Unit, being an increase of $0.015 per Unit or 17.6%;
2. On December 8, 2022, the trustees increased the monthly distribution to $0.102 per Unit for
November 2022 from the previous monthly rate of $0.100 per Unit, being an increase of $0.002 per Unit
or 2.0%; and
3. On December 8, 2022, the trustees declared the special distribution of $0.085 per Unit which was paid
on December 30, 2022 to unitholders of record at the close of business on December 21, 2022.
The solid financial performance of Boston Pizza International Inc. (“BPI”) and the Fund, along with the Fund’s
growing cash balance, enabled the trustees of the Fund to increase the monthly distribution rate payable to
unitholders twice during 2022 and issue a special cash distribution. The current monthly distribution rate per
unit is now equal to the level it was immediately prior to the start of COVID-19. However, the trustees of the
Fund remain cautious and will continue to closely monitor the Fund’s available cash balances and distribution
levels, based on our goal of stable and sustainable distribution flow to unitholders.
On behalf of the trustees, I would like to thank unitholders for their support during these unprecedented times
and express appreciation to BPI, Boston Pizza franchisees and their respective employees for their hard work
and commitment.
Marc Guay
Chairman, Boston Pizza Royalties Income Fund
MESSAGE FROM THE CHAIRMAN OF
BOSTON PIZZA ROYALTIES INCOME FUND
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MESSAGE FROM THE PRESIDENT OF
BOSTON PIZZA INTERNATIONAL INC.
On behalf of Boston Pizza International Inc. (“BPI”), its board of directors, management team and
employees, I am pleased to present our 2022 Annual Report. This report covers the fiscal year-ended
December 31, 2022 (the “Year”).
HIGHLIGHTS
• Annual System-Wide Gross Sales of $1.1 billion for the Year, representing an increase of 32.3%,
versus the same period one year ago.
• Same Restaurant Sales of 30.4% for the Year and 3.2% when compared to 2019.
• COVID-19 continued to impact the business of BPI in the first half of 2022. However, on an annual
basis, 2022 total Franchise Sales returned to pre-pandemic levels despite the challenges faced in the
first half of the Year.
• Raised just over $1.5 million in 2022 for Boston Pizza Foundation, bringing the aggregate total to over
$35.0 million raised and donated since the inception of the Boston Pizza Foundation in 1990.
Readers are cautioned that they should refer to the annual audited consolidated financial statements and
Management’s Discussion and Analysis of BPI for the fiscal year-ended December 31, 2022, available on
SEDAR at www.sedar.com and on the Boston Pizza Royalties Income Fund’s website at
www.bpincomefund.com, for a full description of BPI’s financial results.
OPERATIONAL HIGHLIGHTS
During the first half of 2022, Boston Pizza restaurants across Canada continued to be impacted by
government restrictions arising from COVID-19. Since then, COVID-19 case counts have improved,
government restrictions related to COVID-19 have largely been eliminated, and sales levels of Boston Pizza
restaurants have returned to more normal levels when compared to times prior to COVID-19. Throughout
2022, Boston Pizza remained focused on the safety of guests and staff in our restaurants, and serving our
communities as permitted by government health authorities. We continued to enhance our digital ordering
systems and work with our delivery service partners to achieve year-over-year increases in the off-premise
segment of our business. We also met challenges in 2022 as Boston Pizza successfully managed through
supply chain disruptions and labour shortage challenges experienced in Canada and around the world.
Our team worked hard to maintain a stable supply chain and mitigate cost increases for our franchisees.
We also provided systems and tools to help our franchisees attract and retain staff. On the restaurant
development front, COVID-19 was a contributing factor in the six Boston Pizza restaurants that permanently
closed in 2022. As the economy continues to recover in 2023, we will continue to work diligently on new
and existing restaurant development opportunities that were delayed due to the pandemic.
With the easing of dining restrictions near the end of the first quarter, we saw an increase in guest traffic to
restaurants and were excited to welcome our guests while ensuring we continue to safely operate the dining
rooms, sports bars and patios of Boston Pizza restaurants across Canada. The first quarter of 2022 began
with a NFL Playoff Meal Deal campaign and a new winter feature menu. These promotions paired perfectly
with the lineup of sporting events during the first quarter. February saw Boston Pizza’s popular Valentine’s
Day promotion where $1 from each heart-shaped pizza and mint chocolate cake sold went to help local
charities. This campaign resulted in the Boston Pizza Foundation raising over $300,000 to help local
charities in communities across Canada. The first quarter concluded with a strong Kids Eat Free for the
month of March campaign, which saw positive increases to guest traffic and sales.
As we entered the second quarter of 2022, COVID-19 case counts continued to improve and government
restrictions were further relaxed. During the second quarter, we launched two successful promotions. The
first was our specially priced burger and beer promotion featuring a pint and burger for $17.99, and the
second was our summer patio campaign that introduced new food and drink innovations. Both promotions
MESSAGE FROM THE PRESIDENT OF
BOSTON PIZZA INTERNATIONAL INC.
5
were exceptionally well-received by our guests. We finished the quarter strongly with total second quarter
sales exceeding pre-pandemic sales.
Sales performance continued to improve in the third quarter of 2022 generating the strongest sales results
since the start of COVID-19. We were pleased to see guests continuing to return to Boston Pizza
restaurants and sales performance exceed pre-pandemic levels. During the third quarter, Boston Pizza
continued to drive improved performance and guest traffic. We also extended our summer patio campaign
into the period which highlighted new food and drink innovations. We ended the third quarter by introducing
a fall feature menu which featured two new pizzas and other food and beverage creations. Boston Pizza’s
Kids Cards promotion started towards the end of the third quarter where, for a $5 donation, a guest received
a card for five free kids’ meals. The Kids Cards promotion raised over $850,000 for the Boston Pizza
Foundation.
The strong sales momentum from the third quarter of 2022 continued into the fourth quarter. We began
the fourth quarter with our Hockey Night in Canada partnership which was supported by significant TV,
digital, and social media channels along with in-restaurant promotions at participating Boston Pizza
restaurants across Canada. In addition to this, we launched a 2022 holiday menu which featured a selection
of innovative food and beverage items along with a promotion card bonus offer. Guests also received a
free Ferrero Rocher 3-pack with the purchase of any qualifying holiday menu item. Also, we had the highest
gift card sales in 2022 compared to any previous year, helped by a successful year-end Holiday Gift Card
promotion.
We continue to be extremely pleased with the efforts of our team and Franchisees during the current
recovery phase. The easing and elimination of government-imposed restrictions in Canada related to
COVID-19 has enabled Boston Pizza to continue to drive improved performance and guest traffic.
However, with supply chain challenges, rising interest rates, increasing input costs and labour shortages
impacting most of the restaurant industry, BPI’s management remains cautious. BPI’s management
continues to adapt the business to mitigate these challenges and capitalize on the recent sales momentum
resulting from the elimination of COVID restrictions in the restaurant industry.
Boston Pizza has been a gathering place for communities across Canada for almost 60 years, providing
our guests with much-needed opportunities to share food, share life and connect. We believe that providing
genuine hospitality occasions will be even more essential to the lives of Canadians than it was pre-
pandemic. At Boston Pizza, we are excited and prepared to serve our guests from coast-to-coast this year.
I want to close by conveying my deep appreciation to our employees, Franchisees, and business partners
for their hard work and support. I am extremely proud of our accomplishments and look forward to what
we can achieve together in the future.
On behalf of Boston Pizza International Inc.,
Jordan Holm,
President, Boston Pizza International Inc.
Forward Looking Information
Certain information in this message constitutes “forward-looking information” that involves known and unknown risks, uncertainties, future expectations
and other factors which may cause the actual results, performance or achievements of Boston Pizza Royalties Income Fund (the “Fund”), Boston Pizza
Holdings Trust, Boston Pizza Royalties Limited Partnership, Boston Pizza Holdings Limited Partnership, Boston Pizza Holdings GP Inc., Boston Pizza
GP Inc., BPI, Boston Pizza Canada Limited Partnership (“BP Canada LP”), Boston Pizza Canada Holdings Inc., Boston Pizza Canada Holdings
Partnership, Boston Pizza restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or
6
MESSAGE FROM THE PRESIDENT OF
BOSTON PIZZA INTERNATIONAL INC.
implied by such forward-looking information. All statements, other than statements of historical facts, included in this message that address activities,
events or developments that BPI and BP Canada LP expects or anticipates will or may occur in the future, including such thing
s as, continuing to work
diligently on new
and existing restaurant development opportunities that were delayed due to the pandemic, BPI’s management remaining cautious with
supply chain challenges, rising interest rates, increasing input costs and labour shortages impacting most of the restaurant
industry, BPI’s management
continuing to adapt the business to mitigate these challenges and capitalize on the recent sales momentum resulting from the
elimination of COVID
restrictions in the restaurant industry,
BPI believing that providing genuine hospitality occasions will be even more essential to the lives of Canadians
than it was pre
-pandemic, and other such matters are forward-looking information. When used in this message, forward-looking information may include
words such as “anticipate”, “estimat
e”, “may”, “will”, “expect”, “believe”, “plan”, “should”, “continue” and other similar terminology. The material factors
and assumptions used to develop the forward
-looking information contained in this message include the following: expectations related to future general
economic conditions, Boston Pizza restaurants maintaining operational excellence, and supply chain challenges, rising interes
t rates, and increasing
input costs and labour shortages may continue to negatively impact the restaurant industr
y. Risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any future results, performance or achievement expressed
or implied by the forward-
looking information contained herein, r
elate to (among others): competition, demographic trends, consumer preferences and discretionary spending
patterns, business and economic conditions, legislation and regulation, reliance on operating revenues, accounting policies a
nd practices, the results of
operations and financial condition of BPI and BP Canada LP, as well as those factors discussed under the heading “Risks and U
ncertainties” in the most
recent Annual Information Form of the Fund.
This information reflects current expectations regarding future events and operating performance and
speaks only as of the date of this
message. Except as required by law, neither BPI, BP Canada LP nor the Fund assumes any obligation to update
previously disclosed forward
-looking information. For a complete list of the risks associated with forward-looking information and BPI’s and BP Canada
LP’s business, please refer to the “Risks and Uncertainties” and “Note Regarding Forward
-Looking Information” sections included in the most recent
Annual Information Form
of the Fund and BPI’s Management’s Discussion and Analysis for the year ended December 31, 2022 available at
www.sedar.com
and www.bpincomefund.com.
7
BOSTON PIZZA ROYALTIES INCOME FUND TITLE PAGE GOES HERE
BOSTON PIZZA ROYALTIES INCOME FUND
Management’s Discussion & Analysis 8
Management’s Statement of Responsibilities 45
Independent Auditor’s Report 46
Consolidated Financial Statements 51
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 1 -
FINANCIAL HIGHLIGHTS
The tables below set out selected information from the audited annual consolidated financial statements of Boston
Pizza Royalties Income Fund (the “Fund”), which includes the accounts of the Fund, its wholly-owned subsidiaries
Boston Pizza Holdings Trust (the “Trust”), Boston Pizza Holdings GP Inc. (“Holdings GP”) and Boston Pizza
Holdings Limited Partnership (“Holdings LP”), its 80% owned subsidiary Boston Pizza GP Inc. (“Royalties GP”),
and Boston Pizza Royalties Limited Partnership (“Royalties LP”), together with other information and should be
read in conjunction with the audited annual consolidated financial statements of the Fund for the years ended
December 31, 2022 and December 31, 2021. The financial information in the tables included in this
Management’s Discussion and Analysis (“MD&A”) are reported in accordance with International Financial
Reporting Standards (“IFRS”) except as otherwise noted and are stated in Canadian dollars. Capitalized terms
used in the tables and notes below are defined elsewhere in this MD&A.
For the years ended December 31
2022
2021
2020
(in thousands of dollars – except restaurants, SRS, Payout Ratio and per Unit items)
Number of restaurants in Royalty Pool
383
387
395
Franchise Sales reported by restaurants in the Royalty Pool
854,997
660,051
613,199
Royalty income
34,200
26,402
24,528
Distribution Income
11,273
8,752
8,114
Total revenue
45,473
35,154
32,642
Administrative expenses
(1,390)
(1,299)
(1,439)
Interest expense on debt and financing fees
(3,614)
(3,879)
(3,360)
Interest expense on Class B Unit liability
(3,690)
(2,506)
(2,085)
Interest income
107
94
144
Profit before fair value gain (loss) and income taxes
36,886
27,564
25,902
Fair value (loss) gain on investment in BP Canada LP
(2,019)
25,206
(14,349)
Fair value gain (loss) on Class B Unit liability
899
(11,229)
6,382
Fair value gain (loss) on Swaps
3,891
2,303
(2,064)
Current and deferred income tax expense
(9,074)
(6,437)
(6,301)
Net and comprehensive income
30,583
37,407
9,570
Basic earnings per Unit
1.42
1.74
0.44
Diluted earnings per Unit
1.31
1.74
0.17
Distributable Cash
1
/ Distributions / Payout Ratio
2
Cash flows generated from operating activities
34,355
30,475
22,866
BPI Class B Unit entitlement
3
(3,679)
(2,770)
(2,450)
Interest paid on long-term debt
(3,576)
(3,692)
(3,157)
Principal repayments on long-term debt
(1,500)
(3,787)
(690)
Current income tax expense
(8,914)
(6,307)
(6,141)
Current income tax paid
8,904
6,520
5,871
Distributable Cash
1
25,590
20,439
16,299
Distributions paid
25,438
22,382
11,120
Payout Ratio
2
99.4%
109.5%
68.2%
Distributable Cash per Unit
4
1.189
0.950
0.756
Distributions paid per Unit
1.182
1.040
0.516
Other
Same Restaurant Sales
5
30.4%
8.5%
(27.6%)
Number of restaurants opened
0
0
2
Number of restaurants closed
6
4
11
As at December 31
2022
2021
2020
Total assets
413,701
411,313
390,804
Total liabilities
133,123
135,514
133,904
8 9
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 2 -
Notes – Non-GAAP and Specified Financial Measures
1
“Distributable Cash” is a non-GAAP financial measure under National Instrument 52-112 Non-GAAP and Other
Financial Measures Disclosure (“NI 52-112”). Distributable Cash is not a standardized financial measure under
IFRS and may not be comparable to similar financial measures disclosed by other issuers. The Fund defines
Distributable Cash to be, in respect of any particular period, the Fund’s cash flows generated from operating
activities for that period (being the most comparable financial measure in the Fund’s primary financial statements)
minus (a) BPI’s entitlement in respect of its Class B Units in respect of the period (see note 3 below), minus
(b) interest paid on long-term debt during the period, minus (c) principal repayments on long-term debt that are
contractually required to be made during the period, minus (d) the current income tax expense in respect of the
period, plus (e) current income tax paid during the period (the sum of (d) and (e) being “SIFT Tax on Units”).
Management believes that Distributable Cash provides investors with useful information about the amount of
cash the Fund has generated and has available for distribution on the Units in respect of any period. The tables
in the “Financial Highlights” section of this MD&A provide a reconciliation from this non-GAAP financial measure
to cash flows generated from operating activities, which is the most directly comparable IFRS measure. Current
income tax expense in respect of any period is prepared using reasonable and supportable assumptions
(including that the base rate of SIFT Tax will not increase throughout the calendar year and that certain expenses
of the Fund will continue to be deductible for income tax purposes), all of which reflect the Fund’s planned courses
of action given management’s judgment about the most probable set of economic conditions. There is a risk that
the federal government of Canada could increase the base rate of SIFT Tax or that applicable taxation authorities
could assess the Fund on the basis that certain expenses of the Fund are not deductible. Investors are cautioned
that if either of these possibilities occurs, then the actual results for this component of Distributable Cash may
vary, perhaps materially, from the amounts used in the reconciliation.
2
“Payout Ratio” is a non-GAAP ratio under NI 52-112. Payout Ratio is not a standardized financial measure
under IFRS and may not be comparable to similar financial measures disclosed by other issuers. The Fund
defines Payout Ratio for any period as the aggregate distributions paid by the Fund during that period divided by
the Distributable Cash generated in that period. Management believes that Payout Ratio provides investors with
useful information regarding the extent to which the Fund distributes cash generated on Units. Since Payout
Ratio is calculated by dividing the amount of distributions paid during the applicable period by the Distributable
Cash for that period, the Payout Ratio for 2020 does not factor in the 2020 Special Distribution (defined below)
that was paid on January 29, 2021 even though the cash generated to fund the 2020 Special Distribution was
generated during 2020 as a result of monthly distributions on Units being temporarily suspended in respect of
March through August of 2020. If the 2020 Special Distribution was included in the calculation of Payout Ratio
for 2020, it would be 94.6%. Similarly, if the 2020 Special Distribution was excluded in the calculation of Payout
Ratio for 2021, it would be 88.4%.
3
“BPI Class B Unit entitlement” is a supplementary financial measure under NI 52-112 and therefore may not
be comparable to similar measures presented by other issuers. The BPI Class B Unit entitlement is the interest
expense on Class B Units in respect of a period plus management’s estimate of how much cash BPI would be
entitled to receive pursuant to the limited partnership agreement governing Royalties LP (a copy of which is
available on www.sedar.com) on its Class B Units if Royalties LP fully distributed any residual cash generated in
respect of that period after the Fund pays interest on long-term debt, principal repayments on long-term debt and
SIFT Tax on Units in respect of that period. Management believes that the BPI Class B Unit entitlement is an
important component in calculating Distributable Cash since it represents the amount of residual cash generated
that BPI would be entitled to receive and therefore would not be available for distribution to Unitholders.
Management prepares such estimate using reasonable and supportable assumptions that reflect the Fund’s
planned courses of action given management’s judgment about the most probable set of economic conditions.
4
“Distributable Cash per Unit” is a non-GAAP ratio under NI 52-112. Distributable Cash per Unit is not a
standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed
by other issuers. The Fund defines Distributable Cash per Unit for any period as the Distributable Cash generated
in that period divided by the weighted average number of Units outstanding during that period. Management
believes that Distributable Cash per Unit provides investors with useful information regarding the amount of cash
per Unit that the Fund has generated and has available for distribution in respect of any period.
10
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 3 -
5
“Same Restaurant Sales” or “SRS” is a supplementary financial measure under NI 52-112 and therefore may
not be comparable to similar measures presented by other issuers. Prior to the fourth quarter of 2021, the Fund
defined SRS as the change in gross revenues of Boston Pizza Restaurants as compared to the gross revenues
for the same period in the previous year (where restaurants were open for a minimum of 24 months).
Commencing with the fourth quarter of 2021, the Fund defines SRS as the change in Franchise Sales of Boston
Pizza Restaurants as compared to the Franchise Sales for the same period in the previous year (where
restaurants were open for a minimum of 24 months). The Fund believes that the current method of calculating
SRS provides Unitholders more meaningful information regarding the performance of Boston Pizza Restaurants
since Royalty and Distribution Income are payable to the Fund by BPI and BP Canada LP on Franchise Sales
and not gross revenues of Boston Pizza Restaurants. All historical SRS figures contained in this MD&A have
been restated to conform to the current method of calculating SRS.
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 4 -
SUMMARY OF QUARTERLY RESULTS
Q4 2022
Q3 2022
Q2 2022
Q1 2022
(in thousands of dollars – except restaurants, SRS, Payout Ratio and per Unit items)
Number of restaurants in Royalty Pool
383
383
383
383
Franchise Sales reported by restaurants in the Royalty Pool
227,163
229,848
219,384
178,602
Royalty income
9,087
9,194
8,775
7,144
Distribution Income
2,988
3,027
2,895
2,363
Total revenue
12,075
12,221
11,670
9,507
Administrative expenses
(369)
(334)
(349)
(338)
Interest expense on debt and financing fees
(812)
(886)
(977)
(939)
Interest expense on Class B Unit liability
(1,557)
(835)
(733)
(565)
Interest income
61
31
10
5
Profit before fair value (loss) gain and income taxes
9,398
10,197
9,621
7,670
Fair value (loss) gain on investment in BP Canada LP
(1,146)
2,183
(14,622)
11,566
Fair value gain (loss) on Class B Unit liability
510
(972)
6,515
(5,154)
Fair value gain on Swaps
106
572
1,337
1,876
Current and deferred income tax expense
(2,462)
(2,478)
(1,075)
(3,059)
Net and comprehensive income
6,406
9,502
1,776
12,899
Basic earnings per Unit
0.30
0.44
0.08
0.60
Diluted earnings (loss) per Unit
0.26
0.41
(0.20)
0.60
Distributable Cash / Distributions / Payout Ratio
Cash flows generated from operating activities
8,919
9,667
9,118
6,651
BPI Class B Unit entitlement
(1,044)
(1,083)
(888)
(664)
Interest paid on long-term debt
(799)
(939)
(954)
(884)
Principal repayments on long-term debt
-
-
(1,000)
(500)
Current income tax expense
(2,422)
(2,438)
(2,285)
(1,769)
Current income tax paid
2,585
2,270
2,185
1,864
Distributable Cash
7,239
7,477
6,176
4,698
Distributions paid
8,329
6,133
5,488
5,488
Payout Ratio
115.1%
82.0%
88.9%
116.8%
Distributable Cash per Unit
0.336
0.347
0.287
0.218
Distributions paid per Unit
0.387
0.285
0.255
0.255
Other
Same Restaurant Sales
24.5%
8.4%
64.9%
39.1%
Number of restaurants opened
0
0
0
0
Number of restaurants closed
3
1
0
2
12
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 5 -
SUMMARY OF QUARTERLY RESULTS (continued)
Q4 2021
Q3 2021
Q2 2021
Q1 2021
(in thousands of dollars – except restaurants, SRS, Payout Ratio and per Unit items)
Number of restaurants in Royalty Pool
387
387
387
387
Franchise Sales reported by restaurants in the Royalty Pool
183,177
213,038
134,839
128,997
Royalty income
7,327
8,522
5,393
5,160
Distribution Income
2,423
2,815
1,797
1,717
Total revenue
9,750
11,337
7,190
6,877
Administrative expenses
(327)
(317)
(309)
(346)
Interest expense on debt and financing fees
(939)
(1,000)
(999)
(941)
Interest expense on Class B Unit liability
(1,037)
(450)
(605)
(414)
Interest income
7
18
29
40
Profit before fair value gain (loss) and income taxes
7,454
9,588
5,306
5,216
Fair value gain (loss) on investment in BP Canada LP
11,294
(3,928)
6,274
11,566
Fair value (loss) gain on Class B Unit liability
(5,032)
1,751
(2,796)
(5,152)
Fair value gain on Swaps
730
262
193
1,118
Current and deferred income tax expense
(1,804)
(2,230)
(1,235)
(1,168)
Net and comprehensive income
12,642
5,443
7,742
11,580
Basic earnings per Unit
0.59
0.25
0.36
0.54
Diluted earnings per Unit
0.59
0.13
0.36
0.54
Distributable Cash / Distributions / Payout Ratio
Cash flows generated from operating activities
8,524
9,586
6,448
5,917
BPI Class B Unit entitlement
(858)
(923)
(523)
(466)
Interest paid on long-term debt
(892)
(991)
(929)
(880)
Principal repayments on long-term debt
(679)
(1,036)
(1,036)
(1,036)
Current income tax expense
(1,814)
(2,190)
(1,185)
(1,118)
Current income tax paid
1,790
2,230
1,250
1,250
Distributable Cash
6,071
6,676
4,025
3,667
Distributions paid
5,488
4,196
4,197
8,501
Payout Ratio
90.4%
62.9%
104.3%
231.8%
Distributable Cash per Unit
0.282
0.310
0.187
0.170
Distributions paid per Unit
0.255
0.195
0.195
0.395
Other
Same Restaurant Sales
25.5%
15.1%
27.0%
(24.9%)
Number of restaurants opened
0
0
0
0
Number of restaurants closed
2
0
1
1
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 6 -
OVERVIEW
This MD&A covers the three-month period from October 1, 2022 to December 31, 2022 (the “Period”) and the
twelve-month period from January 1, 2022 to December 31, 2022 (the “Year”) and is dated February 8, 2023. It
provides additional analysis of the operations, financial position and financial performance of the Fund and should
be read in conjunction with the Fund’s applicable audited annual consolidated financial statements and
accompanying notes. The audited annual consolidated financial statements of the Fund are in Canadian dollars
and have been prepared in accordance with IFRS except as otherwise noted.
Purpose of the Fund / Sources of Revenue
The Fund is a limited purpose open-ended trust established in July 2002, and the units of the Fund (the “Units”)
trade on the Toronto Stock Exchange under the symbol BPF.UN. The Fund was originally created to acquire,
indirectly through Royalties LP, the Canadian trademarks owned by Boston Pizza International Inc. (“BPI”, and
where applicable also includes its wholly-owned subsidiaries) (collectively, the “BP Rights”
6
) used in connection
with the operation of Boston Pizza restaurants in Canada (“Boston Pizza Restaurants”) and the business of
BPI, its affiliated entities and franchisees (herein referred to as “Boston Pizza”). In May 2015, the Fund, indirectly
through Holdings LP, completed an investment in Boston Pizza Canada Limited Partnership (“BP Canada LP”)
to effectively increase the Fund’s interest in Franchise Sales (as defined below) of Boston Pizza Restaurants in
the Royalty Pool (as defined below) by 1.5%, from 4.0% to 5.5% less the pro rata portion payable to BPI in respect
of its retained interest in the Fund. BP Canada LP is a limited partnership controlled and operated by BPI and is
the exclusive franchisor of Boston Pizza Restaurants.
The Fund has the following principal sources of revenue:
Royalty Income
Royalties LP licenses the BP Rights to BPI in return for BPI paying Royalties LP a royalty equal to 4.0% (the
“Royalty”) of Franchise Sales of those Boston Pizza Restaurants included in the Royalty Pool, as defined in the
license and royalty agreement dated July 17, 2002, as amended on May 9, 2005 between Royalties LP and BPI
(the “License and Royalty Agreement”). As of December 31, 2022, there were 383 Boston Pizza Restaurants
in the Royalty Pool.
“Franchise Sales” means the gross revenue: (i) of the corporate Boston Pizza Restaurants owned by BPI that
are in the Royalty Pool; and (ii) reported to BP Canada LP by franchised Boston Pizza Restaurants that are in
the Royalty Pool, without audit or other form of independent assurance, and in the case of both (i) and (ii), after
deducting revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved national
promotions and discounts and excluding applicable sales and similar taxes. Nevertheless, BP Canada LP
periodically conducts audits of the Franchise Sales reported to it by its franchisees, and the Franchise Sales
reported herein include results from sales audits of earlier periods.
Distribution Income
Holdings LP holds Class 1 limited partnership units (“Class 1 LP Units”) and Class 2 limited partnership units
(“Class 2 LP Units”) of BP Canada LP, and BPI holds, indirectly through Boston Pizza Canada Holdings
Partnership (“BPCHP”), a general partnership owned and controlled by BPI, Class 2 general partnership units
(“Class 2 GP Units”) of BP Canada LP, which are exchangeable into Units. The Class 1 LP Units and Class 2
LP Units entitle Holdings LP to receive distributions from BP Canada LP equal, in aggregate, to 1.5% of Franchise
Sales, less the pro rata portion payable to BPI in respect of its retained interest in the Fund (“Distribution
Income”). Specifically, the Class 1 LP Units entitle Holdings LP to receive a priority distribution equal to the
6 BP Rights are the trademarks that as at July 17, 2002 were registered or the subject of pending applications for registration under the
Trademarks Act (Canada) and other trademarks and trade names which are confusingly similar to any of the registered or pending
trademarks. The BP Rights purchased do not include the rights outside of Canada to any trademarks or trade names used by BPI or
any affiliated entities in its business, and in particular do not include the rights outside of Canada to the trademarks registered or pending
registration under the Trademarks Act (Canada).
14
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 7 -
amount of interest that Holdings LP pays on amounts drawn on Facility D (as defined below) plus 0.05% of that
amount, with the balance of 1.5% of Franchise Sales being distributed pro rata to Holdings LP and BPI on the
Class 2 LP Units and Class 2 GP Units, respectively.
Top-Line Fund / Increases in Franchise Sales
The Fund effectively has the right to receive from BPI and BP Canada LP an amount equal to 5.5% of Franchise
Sales (4.0% of which is payable via the Royalty and 1.5% of which is payable as Distribution Income on the
Class 1 LP Units and Class 2 LP Units), less the pro rata portion payable to BPI in respect of its retained interest
in the Fund. A key attribute of the Fund’s structure is that it is a “top-line” fund. Both Royalty and Distribution
Income of the Fund are based on Franchise Sales of Boston Pizza Restaurants in the Royalty Pool and are not
determined by the profitability of BPI, BP Canada LP or Boston Pizza Restaurants in the Royalty Pool. The
Fund’s cash payments include administrative expenses, principal repayments and interest expenses on debt,
amounts paid by Royalties LP to BPI on the Class B general partner units (“Class B Units”) of Royalties LP, and
current income tax. Therefore, the Fund is not subject to the variability of earnings or expenses associated with
an operating business. Given this structure, the success of the Fund depends primarily on the ability of BPI and
BP Canada LP to maintain and increase Franchise Sales of Boston Pizza Restaurants in the Royalty Pool.
Increases in Franchise Sales are derived from both new Boston Pizza Restaurants added to the Royalty Pool
and SRS. The two principal factors that affect SRS are changes in guest traffic and changes in average guest
cheque. These factors are dependent upon existing Boston Pizza Restaurants maintaining operational
excellence, general market conditions, weather, pricing, and marketing programs undertaken by BPI and
BP Canada LP. One of BPI’s and BP Canada LP’s competitive strengths in increasing Franchise Sales of
existing restaurants is that the standard franchise agreement for Boston Pizza Restaurants requires that each
Boston Pizza Restaurant undergoes a complete restaurant renovation every seven years and completes
equipment upgrades as required by BP Canada LP. Restaurants typically close or partially close for two to three
weeks to complete the renovation, which incorporates updated design elements that result in a refreshed and
more appealing restaurant.
Franchise Sales are also affected by the permanent closures of Boston Pizza Restaurants. A Boston Pizza
Restaurant is closed when it ceases to be viable or when the franchise agreement applicable to that Boston Pizza
Restaurant has expired or been terminated.
Addition of New Restaurants to Royalty Pool
On January 1 of each year (each, an “Adjustment Date”), an adjustment is made to add to the Royalty Pool new
Boston Pizza Restaurants that opened (“New Restaurants”) and to remove any Boston Pizza Restaurants that
permanently closed since January 1 of the previous year (“Closed Restaurants”). In return for adding new
Royalty and Distribution Income from the New Restaurants after subtracting the Royalty and Distribution Income
that is lost from the Closed Restaurants
7
(such difference, “Net Royalty and Distribution Income”), BPI receives
the right to indirectly acquire additional Units (in respect of the Royalty, “Class B Additional Entitlements” and
in respect of Distribution Income, “Class 2 Additional Entitlements”, and collectively, “Additional
Entitlements”). The calculation of Additional Entitlements is designed to be accretive to unitholders of the Fund
(“Unitholders”) as the expected increase in Franchise Sales from the New Restaurants added to the Royalty
Pool less the decrease in Franchise Sales from the Closed Restaurants is valued at a 7.5% discount. The
Additional Entitlements are calculated at 92.5% of the estimated Royalty and Distribution Income expected to be
generated by the New Restaurants less the actual Royalty and Distribution Income lost from the Closed
Restaurants, multiplied by one minus the effective tax rate estimated to be paid by the Fund, divided by the yield
of the Fund, divided by the weighted average Unit price over a specified period. BPI receives 80% of the
Additional Entitlements initially, with the balance received when the actual full year performance of the New
Restaurants and the actual effective tax rate paid by the Fund are known with certainty (such balance of Units in
respect of the increased Royalty, the “Class B Holdback”, and in respect of the increased Distribution Income,
the “Class 2 Holdback”, and collectively, the “Holdback”). BPI receives 100% of the distributions on the
7 The Royalty and Distribution Income that is lost from the Closed Restaurants is calculated based upon the actual Franchise Sales
received from the Closed Restaurants during the 12-month period immediately following their addition to the Royalty Pool.
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 8 -
Additional Entitlements throughout the year. After the New Restaurants have been part of the Royalty Pool for a
full year, an audit of the Franchise Sales of these restaurants is performed, and the actual effective tax rate paid
by the Fund is determined. At such time, an adjustment is made to reconcile distributions paid to BPI and the
Additional Entitlements received by BPI.
It is possible that on an Adjustment Date, the Net Royalty and Distribution Income is negative as a result of the
estimated Royalty and Distribution Income expected to be generated by the New Restaurants being less than the
actual Royalty and Distribution Income that is lost from the Closed Restaurants (the amount by which it is less is
the “Deficiency”). In such case, BPI would not receive any Additional Entitlements, however, nor would BPI lose
any of the Additional Entitlements previously received by BPI. Rather, on future Adjustment Dates, BPI would be
required to make-up the Deficiency by first adding Net Royalty and Distribution Income in an amount equal to the
Deficiency before receiving any further Additional Entitlements (i.e., BPI only receives Additional Entitlements in
respect of the cumulative amount by which Royalty and Distribution Income from New Restaurants exceeds actual
Royalty and Distribution Income lost from Closed Restaurants).
Ongoing Effects of COVID-19
COVID-19 continued to impact the business of the Fund, BPI and BP Canada LP, and the operation of Boston
Pizza Restaurants during 2021 and the first half of 2022. Since then, COVID-19 case counts have improved,
government restrictions related to COVID-19 have largely been eliminated, and sales levels of Boston Pizza
Restaurants have returned to more normal levels when compared to times prior to COVID-19.
Economic Uncertainties
The success of BPI, BP Canada LP and Boston Pizza Restaurants, and the amount of Franchise Sales, Royalty,
Distribution Income and Distributable Cash available for distribution to Unitholders, are dependent upon many
economic factors, including impacts of inflation, increases in interest rates, unemployment rates, consumer
confidence, recession, supply chain disruption, labour availability and other globally disruptive events. However,
despite the current state of economic uncertainty, Boston Pizza Restaurants have been able to generate solid
Franchise Sales and offer affordable dining options, both on and off-premise, for guests in economically uncertain
times. As demonstrated during COVID-19, BPI, BP Canada LP and Boston Pizza Restaurants have the ability
to adapt to changes in operating environments and economic conditions. For additional information regarding
economic uncertainties, refer to the “Risks & Uncertainties – Risks Related to the Business of BPI and
BP Canada LP” section of this MD&A.
Seasonality
Boston Pizza Restaurants typically experience seasonal fluctuations in Franchise Sales, which are inherent in
the full-service restaurant industry in Canada. Seasonal factors, such as tourism and better weather generally
allow Boston Pizza Restaurants to open their patios and generally increase Franchise Sales in the second and
third quarters each year compared to the first and fourth quarters. Seasonality’s general effect on Franchise
Sales impacts the Fund’s Distributable Cash and Payout Ratio.
New Restaurant Openings, Closures and Renovations
During the Period, there were no New Restaurants and three Closed Restaurants. During the Year, there were
no New Restaurants and six Closed Restaurants. As well, eight Boston Pizza Restaurants were renovated during
the Period and 18 Boston Pizza Restaurants were renovated during the Year. Boston Pizza Restaurants typically
close or partially close for two to three weeks to complete the renovation, which incorporates updated design
elements that result in a refreshed and more appealing restaurant.
16
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 9 -
OPERATING RESULTS
Same Restaurant Sales and Franchise Sales
Period
SRS was 24.5% for the Period compared to 25.5% reported in the fourth quarter of 2021. As COVID-19 began
to adversely affect sales in Boston Pizza Restaurants in March of 2020, the Fund believes that it is also useful to
calculate and report SRS comparing 2022 Franchise Sales to 2019 Franchise Sales. If SRS were calculated
comparing Franchise Sales in the Period to Franchise Sales in the fourth quarter of 2019, SRS would be 10.8%.
The increase in SRS for the Period compared to the fourth quarter of 2021 was principally due to increases in
restaurant guest traffic mainly as a result of the elimination of dining restrictions and increased average guest
cheque.
Franchise Sales of Boston Pizza Restaurants in the Royalty Pool were $227.2 million for the Period compared to
$183.2 million for the fourth quarter of 2021. The $44.0 million increase in Franchise Sales for the Period was
primarily due to positive SRS.
Year
SRS was 30.4% for the Year compared to 8.5% reported in 2021. If SRS were calculated comparing Franchise
Sales for the Year to Franchise Sales in 2019, SRS would be 3.2%. The increase in SRS for the Year compared
to 2021 was principally due to increases in restaurant guest traffic as a result of the easing and elimination of
dining restrictions and increased average guest cheque.
Franchise Sales of Boston Pizza Restaurants in the Royalty Pool were $855.0 million for the Year compared to
$660.1 million in 2021. The $194.9 million increase in Franchise Sales for the Year was primarily due to positive
SRS.
Royalty Income and Distribution Income
Period
Royalty income and Distribution Income earned by the Fund was $9.1 million and $3.0 million for the Period,
respectively, compared to $7.3 million and $2.4 million, respectively, for the fourth quarter of 2021. Royalty
income and Distribution Income in respect of the Period was based on the Royalty Pool of 383 Boston Pizza
Restaurants reporting Franchise Sales of $227.2 million. In the fourth quarter of 2021, Royalty income and
Distribution Income was based on the Royalty Pool of 387 Boston Pizza Restaurants reporting Franchise Sales
of $183.2 million. The $1.8 million increase in Royalty income and the $0.6 million increase in Distribution Income
for the Period were primarily due to positive SRS.
Year
Royalty income and Distribution Income earned by the Fund was $34.2 million and $11.3 million for the Year,
respectively, compared to $26.4 million and $8.8 million, respectively, in 2021. Royalty income and Distribution
Income for the Year was based on the Royalty Pool of 383 Boston Pizza Restaurants reporting Franchise Sales
of $855.0 million. In 2021, Royalty income and Distribution Income were based on the Royalty Pool of 387 Boston
Pizza Restaurants reporting Franchise Sales of $660.1 million. The $7.8 million increase in Royalty income and
the $2.5 million increase in Distribution Income for the Year were primarily due to positive SRS.
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 10 -
Administrative Expenses
Period
Administrative expenses incurred by the Fund were $0.4 million for the Period, a nominal increase compared to
$0.3 million for the fourth quarter of 2021. Administrative expenses are comprised of professional fees, trustee
fees and expenses, the reimbursement charge payable to BPI and other general and administrative expenses.
Year
Administrative expenses incurred by the Fund were $1.4 million for the Year compared to $1.3 million in 2021.
Interest and Financing Expenses
Period
Interest and financing expenses incurred by the Fund totaled $2.4 million for the Period, comprised of interest on
long-term debt and financing fees of $0.8 million and interest on Class B Units of $1.6 million. Interest and
financing expenses incurred by the Fund totaled $2.0 million for the fourth quarter of 2021, comprised of interest
on long-term debt and financing fees of $1.0 million and interest on Class B Units of $1.0 million. The Class B
Units are classified as financial liabilities and therefore, amounts paid by Royalties LP to BPI in respect of the
Class B Units are classified as interest expense and not distributions. The increase in interest and financing
expenses for the Period was primarily due to the increase in interest expense on Class B Units of $0.6 million
due to higher monthly distribution rates compared to the same period in 2021 and the 2022 Special Distribution
(as defined below), partially offset by lower interest expense on long-term debt of $0.2 million due to lower interest
rates as part of the Second Supplemental Credit Agreement (as defined below).
Year
Interest and financing expenses incurred by the Fund totaled $7.3 million for the Year, comprised of interest on
long-term debt and financing fees of $3.6 million and interest on Class B Units of $3.7 million. Interest and
financing expenses incurred by the Fund totaled $6.4 million in 2021, comprised of interest on long-term debt and
financing fees of $3.9 million and interest on Class B Units of $2.5 million. The increase in interest and financing
expenses for the Year was primarily due to the increase in interest expense on Class B Units of $1.2 million due
to higher monthly distribution rates compared to the same period in 2021 and the 2022 Special Distribution,
partially offset by lower interest expense on long-term debt of $0.3 million due to lower interest rates as part of
the Second Supplemental Credit Agreement.
Profit before Fair Value Gain (Loss) and Income Taxes
Period
The Fund’s profit before fair value gain (loss) and income taxes was $9.4 million for the Period compared to
$7.5 million for the fourth quarter of 2021. The $1.9 million increase in profit before fair value gain (loss) and
income taxes for the Period was primarily due to higher Royalty and Distribution Income of $2.3 million and lower
interest expense on long-term debt of $0.2 million, partially offset by an increase in interest on Class B Units of
$0.6 million.
Year
The Fund’s profit before fair value gain (loss) and income taxes was $36.9 million for the Year compared to
$27.6 million for 2021. The $9.3 million increase in profit before fair value gain (loss) and income taxes for the
Year was primarily due to higher Royalty and Distribution Income of $10.3 million and lower interest expense on
long-term debt of $0.3 million, partially offset by an increase in interest on Class B Units of $1.2 million.
18
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 11 -
Fair Value Gain (Loss)
The Fund classifies the investment in Class 1 LP Units and Class 2 LP Units as financial assets at fair value
through profit or loss, the Class B Unit liability as a financial liability at fair value through profit or loss, and Swaps
(as defined below) as derivative instruments. As such, fair value adjustments are recognized in the Fund’s
statements of comprehensive income in accordance with IFRS. For additional information regarding Swaps, refer
to the “Liquidity & Capital Resources – Interest Rate Swaps” section of this MD&A. For additional information
regarding financial liabilities and assets at fair value, refer to the “Critical Accounting Estimates” section of this
MD&A.
Period
During the Period, the Fund recognized a fair value loss of $0.5 million compared to a fair value gain of $7.0 million
for the same period in 2021. The change in fair value was principally due to the change in the price of Units,
which is used to estimate the value of the Class 2 LP Units and upon which the Class B Unit liability is measured.
Changes in interest rates, upon which the Swaps are measured, also impact the change in fair value.
The Fund indirectly acquired the Class 1 LP Units on May 6, 2015 for $33.3 million. The Class 1 LP Units are
entitled to distributions determined with respect to the interest cost payable on Facility D. The Fund estimates
the fair value of the Class 1 LP Units using a market-corroborated input, being the interest rate applicable on
Facility D. Consequently, the Fund estimated the fair value of Class 1 LP Units as at December 31, 2022 to be
$33.3 million (September 30, 2022 – $33.3 million), resulting in no fair value adjustment for the Period.
The Fund estimates the fair value of the Class 2 LP Units by multiplying the number of Class 2 LP Units indirectly
held by the Fund at the end of the Period by the closing price of the Units on the last business day of the Period.
Based on the Fund’s closing price of $15.08 per Unit at December 31, 2022 (September 30, 2022 – $15.29 per
Unit) and the 5,455,762 Class 2 LP Units held by the Fund (September 30, 2022 – 5,455,762), the fair value of
the Class 2 LP Units was estimated to be $82.3 million (September 30, 2022 – $83.4 million), resulting in a fair
value loss of $1.1 million for the Period. In general, the fair value of the Class 2 LP Units will increase as the
market price of Units increases and vice versa.
The Fund estimates the fair value of the Class B Unit liability by multiplying the number of Units that BPI would
be entitled to receive if it exchanged all of the Class B Units (including the Class B Holdback) held by BPI at the
end of the Period by the closing price of the Units on the last business day of the Period. Based on the Fund’s
closing price of $15.08 per Unit at December 31, 2022 (September 30, 2022 – $15.29 per Unit) and the 2,430,823
Units BPI would be entitled to receive if it exchanged all of the Class B Units (including the Class B Holdback)
held by BPI (September 30, 2022 – 2,430,823), the Class B Unit liability (on a fully-diluted basis) was valued at
$36.7 million (September 30, 2022 – $37.2 million), resulting in a fair value gain of $0.5 million. In general, the
Fund’s Class B Unit liability will increase as the market price of Units increases and vice versa. In addition, the
Fund’s Class B Unit liability increases as the number of Units BPI would be entitled to receive if it exchanged all
of its Class B Units (including the Class B Holdback) increases and vice versa.
The Fund recognized a fair value gain of $0.1 million in the Period as a result of the increase in the fair value of
the Swaps from September 30, 2022 to December 31, 2022 due to changes in interest rates during the Period.
For the same period in 2021, the Fund recognized a fair value gain of $0.7 million as a result of the increase in
the fair value of the Swaps from September 30, 2021 to December 31, 2021 due to changes in interest rates.
Year
During the Year, the Fund recognized a fair value gain of $2.8 million compared to $16.3 million for 2021. The
change in fair value was principally due to the change in the price of Units, which is used to estimate the value of
the Class 2 LP Units and upon which the Class B Unit liability is measured. Changes in interest rates, upon which
the Swaps are measured, also impact the change in fair value.
19
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 12 -
The Fund indirectly acquired the Class 1 LP Units on May 6, 2015 for $33.3 million. As discussed above, the
Fund estimated the fair value of Class 1 LP Units as at December 31, 2022 to be $33.3 million
(December 31, 2021 – $33.3 million), resulting in no fair value adjustment for the Year.
As at December 31, 2021, the Fund indirectly held 5,455,762 Class 2 LP Units and the Fund’s closing price was
$15.45. Consequently, the Fund estimated the fair value of the Class 2 LP Units as at December 31, 2021 to be
$84.3 million. As discussed above, the Fund estimated the fair value of the Class 2 LP Units as at December 31,
2022 to be $82.3 million, resulting in a fair value loss of $2.0 million for the Year. In general, the fair value of the
Class 2 LP Units will increase as the market price of Units increases and vice versa.
As at December 31, 2021, the number of Units BPI would be entitled to receive if it exchanged all of the Class B
Units (including the Class B Holdback) held by BPI was 2,430,823 and the Fund’s closing price was $15.45 per
Unit. The Class B Unit liability (on a fully-diluted basis) as at December 31, 2021 was valued at $37.6 million. As
discussed above, the Class B Unit liability at the end of the Period was valued at $36.7 million, resulting in a fair
value gain of $0.9 million.
The Fund recorded a $3.9 million fair value gain for the Year as a result of the increase in the fair value of the
Swaps from December 31, 2021 to December 31, 2022 due to changes in interest rates for the Year. In 2021,
the Fund recorded a $2.3 million fair value gain as a result of the increase in the fair value of the Swaps from
December 31, 2020 to December 31, 2021 due to changes in interest rates.
Income Taxes
The Fund is subject to specified investment flow-through tax (“SIFT Tax”), which is the Fund’s only current income
tax expense.
Period
The Fund’s income tax expense for the Period was $2.5 million, comprised of $2.4 million in current income tax
expense and nominal non-cash deferred income tax expense. The Fund’s income tax expense for the fourth
quarter of 2021 was $1.8 million, comprised primarily of current income tax expense and nominal non-cash
deferred income tax recovery. The $0.6 million increase in current income tax expense is attributable to higher
profit before fair value gain (loss) and income taxes.
Year
The Fund’s income tax expense for the Year was $9.1 million, comprised of $8.9 million in current income tax
expense and $0.2 million in non-cash deferred income tax expense. The Fund’s income tax expense in 2021
was $6.4 million, comprised of $6.3 million in current income tax expense and $0.1 million in non-cash deferred
income tax expense. The $2.6 million increase in current income tax expense is attributable to higher profit before
fair value gain (loss) and income taxes. The $0.1 million increase in non-cash deferred income tax expense is
due to changes in the temporary differences between the accounting and tax base of: (i) the BP Rights owned by
Royalties LP generated since the inception of the Fund; and (ii) the Fund’s indirect investment in BP Canada LP.
Net and Comprehensive Income / Basic and Diluted Earnings
Period
The Fund’s net and comprehensive income was $6.4 million for the Period compared to $12.6 million for the
fourth quarter of 2021. The Fund’s basic earnings per Unit was $0.30 for the Period compared to $0.59 for the
fourth quarter of 2021. The Fund’s diluted earnings per Unit was $0.26 for the Period compared to $0.59 for the
fourth quarter of 2021. The $6.2 million decrease in the Fund’s net and comprehensive income for the Period
compared to the fourth quarter of 2021 was primarily due to a $7.5 million increase in fair value loss and an
increase in income tax expense of $0.7 million, partially offset by a $1.9 million increase in profit before fair value
gain (loss) and income taxes.
20
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 13 -
Year
The Fund’s net and comprehensive income was $30.6 million for the Year compared to $37.4 million in 2021.
The Fund’s basic earnings per Unit was $1.42 for the Year compared to $1.74 in 2021. The Fund’s diluted
earnings per Unit was $1.31 for the Year compared to $1.74 in 2021. The $6.8 million decrease in the Fund’s
net and comprehensive income for the Year compared to 2021 was primarily due to a $13.5 million decrease in
fair value gain and an increase in income tax expense of $2.6 million, partially offset by a $9.3 million increase in
profit before fair value gain (loss) and income taxes.
Distributions
Period
During the Period, the Fund declared distributions on the Units in the aggregate amount of $10.5 million or
$0.489 per Unit. During the fourth quarter of 2021, the Fund declared distributions on the Units in the aggregate
amount of $7.3 million or $0.340 per Unit. During the Period, the Fund paid distributions on the Units in the
aggregate amount of $8.3 million or $0.387 per Unit. During the fourth quarter of 2021, the Fund paid distributions
on the Units in the aggregate amount of $5.5 million or $0.255 per Unit. The amount of distributions declared
during the Period increased by $3.2 million or $0.149 per Unit due to the monthly distribution rate increasing from
$0.085 per Unit to $0.100 per Unit commencing with the July 2022 distribution, and increasing again from
$0.100 per Unit to $0.102 per Unit commencing with the November 2022 distribution (collectively, the “2022
Distribution Increases”) and the special cash distribution to Unitholders of $0.085 per Unit, which was declared
on December 8, 2022 and was paid on December 30, 2022 to Unitholders of record at the close of business on
December 21, 2022 (the “2022 Special Distribution”). Distributions paid during the Period increased by $2.8
million or $0.132 per Unit due to the 2022 Distribution Increases and the 2022 Special Distribution.
Year
During the Year, the Fund declared distributions on the Units in the aggregate amount of $25.8 million or
$1.199 per Unit. During 2021, the Fund declared distributions on the Units in the aggregate amount of $18.5
million or $0.860 per Unit. During the Year, the Fund paid distributions on the Units in the aggregate amount of
$25.4 million or $1.182 per Unit. During 2021, the Fund paid distributions on the Units in the aggregate amount
of $22.4 million or $1.040 per Unit. The amount of distributions declared during the Year increased by $7.3 million
or $0.339 per Unit due to the monthly distribution rate increasing from $0.065 per Unit to $0.085 per Unit
commencing with the September 2021 distribution, the 2022 Distribution Increases and the 2022 Special
Distribution. The amount of distributions paid during the Year increased by $3.0 million or $0.142 per Unit due to
the monthly distribution rate increasing from $0.065 per Unit to $0.085 per Unit commencing with the September
2021 distribution, the 2022 Distribution Increases and the 2022 Special Distribution, which was partially offset by
the special distribution of $0.200 per Unit that was declared on December 16, 2020 and paid on January 29, 2021
to Unitholders of record at the close of business on December 31, 2020 (the “2020 Special Distribution”).
The Fund pays distributions on the Units in respect of any calendar month not later than the last business day of
the immediately subsequent month. Consequently, monthly distributions payable by the Fund on the Units in
respect of the Period were the October 2022 distribution (which was paid on November 30, 2022), the
November 2022 distribution (which was paid on December 30, 2022) and the December 2022 distribution (which
was paid on January 31, 2023). Similarly, the distributions payable by the Fund on the Units in respect of any
other period are paid in the immediately subsequent month of such period.
On February 8, 2023, the trustees of the Fund declared a distribution for the period of January 1, 2023 to
January 31, 2023 of $0.102 per Unit, which will be payable on February 28, 2023 to Unitholders of record on
February 21, 2023. Including the January 2023 distribution, which will be paid on February 28, 2023, the Fund
will have paid out total distributions of $397.7 million or $24.85 per Unit which includes 241 monthly distributions,
the 2022 Special Distribution and the 2020 Special Distribution.
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 14 -
Distributions related to the Year were as follows:
PERIOD PAYMENT DATE AMOUNT/UNIT
December 1 – 31, 2021 January 31, 2022 8.5¢
January 1 – 31, 2022 February 28, 2022 8.5¢
February 1 – 28, 2022 March 31, 2022 8.5¢
March 1 – 31, 2022 April 29, 2022 8.5¢
April 1 – 30, 2022 May 31, 2022 8.5¢
May 1 – 31, 2022 June 30, 2022 8.5¢
June 1 – 30, 2022 July 29, 2022 8.5¢
July 1 – 31, 2022 August 31, 2022 10.0¢
August 1 – 30, 2022 September 30, 2022 10.0¢
September 1 – 30, 2022 October 31, 2022 10.0¢
October 1 – 31, 2022 November 30, 2022 10.0¢
November 1 – 30, 2022 December 30, 2022 10.2¢
2022 Special Distribution December 30, 2022 8.5¢
December 1 – 31, 2022* January 31, 2023* 10.2¢
* Paid subsequent to the Period and the Year.
Distributions for the Period and the Year were funded entirely by cash flows generated from operating activities.
No debt was incurred at any point during the Period or the Year to fund distributions.
Cash Flows from Operating Activities
Period
Cash generated from operating activities for the Period was $8.9 million compared to $8.5 million in the fourth
quarter of 2021. The increase of $0.4 million was due to an increase of Royalty and Distribution Income of
$2.3 million, partially offset by a decrease in changes in working capital of $1.1 million and an increase in income
taxes paid of $0.8 million.
Year
Cash generated from operating activities for the Year was $34.4 million compared to $30.5 million for 2021. The
increase of $3.9 million was due to an increase of Royalty and Distribution Income of $10.3 million, partially offset
by a decrease in changes in working capital of $4.0 million and an increase in income taxes paid of $2.4 million.
22
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 15 -
Cash Flow used in Financing Activities
Period
During the Period, the Fund used $10.4 million in cash for financing activities compared to $7.8 million in the
fourth quarter of 2021. The increase of $2.6 million was due to higher distributions paid to Unitholders of
$2.8 million and higher interest paid on Class B Units of $0.5 million partially offset by a decrease in repayments
of long-term debt of $0.7 million.
Year
During the Year, the Fund used $34.3 million in cash for financing activities compared to $33.0 million in
2021. The increase of $1.3 million was due to higher distributions paid to Unitholders of $3.0 million, higher
interest paid on Class B Units of $0.5 million and higher deferred financing fees paid of $0.1 million, partially offset
by a decrease in repayments of long-term debt of $2.3 million.
Distributable Cash / Distributable Cash per Unit
Period
The Fund generated Distributable Cash of $7.2 million for the Period compared to $6.1 million for the fourth
quarter of 2021. The increase in Distributable Cash of $1.2 million or 19.2% was primarily due to lower
repayments of long-term debt of $0.7 million, an increase of cash flows generated from operating activities of
$0.4 million and SIFT Tax on Units adjustment of $0.2 million, partially offset by increased BPI Class B Unit
entitlement of $0.2 million.
The Fund generated Distributable Cash per Unit of $0.336 for the Period compared to $0.282 per Unit for the
fourth quarter of 2021. The increase in Distributable Cash per Unit of $0.054 or 19.1% was primarily attributable
to the increase in Distributable Cash outlined above.
Year
The Fund generated Distributable Cash of $25.6 million for the Year compared to $20.4 million in 2021. The
increase in Distributable Cash of $5.2 million or 25.2% was primarily due to an increase in cash flow generated
from operating activities of $3.9 million and a decrease in repayments of long-term debt of $2.3 million, partially
offset by increased BPI Class B Unit entitlement of $0.9 million and SIFT Tax on Units adjustment of $0.2 million.
The Fund generated Distributable Cash per Unit of $1.189 for the Year compared to $0.950 per Unit in 2021.
The increase in Distributable Cash per Unit of $0.239 or 25.2% was primarily attributable to the increase in
Distributable Cash outlined above.
The Fund’s Distributable Cash and Distributable Cash per Unit since January 1, 2020, generated in each financial
quarter, are as follows:
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 16 -
Distributable Cash
Distributable Cash per Unit
Payout Ratio
Period
The Fund’s Payout Ratio for the Period was 115.1% compared to 90.4% in the fourth quarter of 2021. The
increase in the Fund’s Payout Ratio for the Period was due to distributions paid increasing by $2.8 million or
51.8%, partially offset by Distributable Cash increasing by $1.2 million or 19.2%.
Year
The Fund’s Payout Ratio for the Year was 99.4% compared to 109.5% in 2021. The decrease in the Fund’s
Payout Ratio for the Year was due to Distributable Cash increasing by $5.2 million or 25.2%, partially offset by
distributions paid increasing by $3.0 million or 13.7%. As discussed above, Payout Ratio is calculated by dividing
the amount of distributions paid during the applicable period by the Distributable Cash for that period. Accordingly,
the Payout Ratio for 2021 factors in the 2020 Special Distribution that was paid on January 29, 2021, even though
the cash generated to fund the 2020 Special Distribution was generated during 2020. If the 2020 Special
Distribution was excluded in the calculation of Payout Ratio for 2021, the Payout Ratio would be 88.4%.
The Fund’s quarterly and annual Payout Ratios with respect to each financial quarter since January 1, 2020 are
as follows:
The Fund’s Payout Ratio is typically higher in the first and fourth quarters compared to the second and third
quarters since Boston Pizza Restaurants generally experience higher Franchise Sales levels during the summer
months when restaurants open their patios and benefit from increased tourist traffic.
New Restaurants Added to the Royalty Pool
Boston Pizza Restaurants Added to Royalty Pool on January 1, 2022
On January 1, 2022, the Royalty Pool was adjusted to remove four Closed Restaurants that closed between
January 1, 2021 and December 31, 2021 resulting in the number of Boston Pizza Restaurants in the Royalty Pool
decreasing from 387 to 383. The actual Franchise Sales received from the four Closed Restaurants during the
(in millions of dollars )
Q1 Q2 Q3 Q4 Annual
2022 4.7$ 6.2$ 7.5$ 7.2$ 25.6$
2021 3.7$ 4.0$ 6.7$ 6.1$ 20.4$
2020 7.7$ (2.2)$ 5.5$ 5.4$ 16.3$
Q1 Q2 Q3 Q4 Annual
2022 0.218$ 0.287$ 0.347$ 0.336$ 1.189$
2021 0.170$ 0.187$ 0.310$ 0.282$ 0.950$
2020 0.355$ (0.104)$ 0.253$ 0.250$ 0.756$
Q1 Q2 Q3 Q4 Annual
2022 116.8% 88.9% 82.0% 115.1% 99.4%
2021 231.8% 104.3% 62.9% 90.4% 109.5%
2020 90.0% 0.0% 0.0% 77.9% 68.2%
24
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 17 -
first 12-month period immediately following their addition to the Royalty Pool was $6.2 million. Since no New
Restaurants opened during the Year, the resulting estimated annual net Franchise Sales for the four Closed
Restaurants that closed in 2021 was negative $6.2 million. Consequently, this resulted in the Net Royalty and
Distribution Income having a Deficiency for 2021 of $0.3 million (being 5.5% of negative $6.2 million Franchise
Sales). Since there was a Deficiency for 2021 of $0.3 million, BPI did not receive any Additional Entitlements on
January 1, 2022. However, BPI did not lose any of the Additional Entitlements it received in respect of previous
years. Instead, BPI will be required to make-up the cumulative Deficiency for both 2020 and 2021 on future
Adjustment Dates by first adding Net Royalty and Distribution Income in an amount equal to the cumulative
Deficiency before receiving any further Additional Entitlements.
Audit of Boston Pizza Restaurants Added to Royalty Pool on January 1, 2021
In February 2022, an audit of the Franchise Sales of the two New Restaurants that were added to the Royalty
Pool on January 1, 2021 was performed and the actual effective tax rate paid by the Fund for the 2021 calendar
year was determined. The purpose of this was to compare the actual Franchise Sales from these two New
Restaurants to the estimated amount of Franchise Sales expected to be generated by these two New Restaurants
during 2021 and to compare the actual effective tax rate paid by the Fund for 2021 to the estimated effective tax
rate the Fund expected to pay for 2021. The original Franchise Sales expected to be generated from these two
New Restaurants less the Franchise Sales from the 11 Boston Pizza Restaurants that closed in 2021 was
negative $15.2 million. The actual Franchise Sales generated from these two New Restaurants after subtracting
the Franchise Sales from the 11 Boston Pizza Restaurants that closed in 2021 was $0.2 million less. The original
effective tax rate the Fund expected to pay for 2021 was 26.0% and the actual effective tax rate paid by the Fund
for 2021 was 26.2%. As a result, the Deficiency in respect of 2020 was adjusted to be $0.8 million. The
cumulative Deficiency for 2020 and 2021 is $1.2 million, comprised of the adjusted Deficiency for 2020 of
$0.8 million and the Deficiency for 2021 of $0.3 million.
Subsequent Events
Boston Pizza Restaurants Added to Royalty Pool on January 1, 2023
On January 1, 2023, the Royalty Pool was adjusted to remove six Closed Restaurants for the Year resulting in
the number of Boston Pizza Restaurants in the Royalty Pool decreasing from 383 to 377. The actual Franchise
Sales received from the six Closed Restaurants during the first 12-month period immediately following their
addition to the Royalty Pool was $6.8 million. Since no New Restaurants opened during the Year, the resulting
annual net Franchise Sales for the six Closed Restaurants that closed in 2022 was negative $6.8 million.
Consequently, this resulted in the Net Royalty and Distribution Income having a Deficiency for 2022 of $0.4 million
(being 5.5% of negative $6.8 million Franchise Sales). Since there was a Deficiency for 2022 of $0.4 million, BPI
did not receive any Additional Entitlements on January 1, 2023. However, BPI did not lose any of the Additional
Entitlements it received in respect of previous years. Instead, BPI will be required to make-up the cumulative
Deficiency for 2020, 2021 and 2022 on future Adjustment Dates by first adding Net Royalty and Distribution
Income in an amount equal to the cumulative Deficiency before receiving any further Additional Entitlements. The
following is a summary of the cumulative Deficiency that exists:
Adjustment
Date
Actual Franchise Sales
of New Restaurants for
Adjustment Date
(in millions)*
Actual Franchise Sales
of Closed Restaurants
for Adjustment Date
(in millions)*
Net Franchise Sales for
Adjustment Date
(in millions)*
Deficiency, being 5.5% of
Net Franchise Sales
(in millions)*
January 1, 2021
$3.1⸶
$18.5 ($15.4) ($0.8)
January 1, 2022 -- $6.2 ($6.2) ($0.3)
January 1, 2023 -- $6.8 ($6.8) ($0.4)
Cumulative $3.1 $31.5 ($28.4) ($1.6)
*Figures are rounded to one decimal place. ⸶ Determined in February 2022 after an audit of Franchise Sales for 2021 was performed on the
New Restaurants.
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 18 -
Audit of Boston Pizza Restaurants Added to Royalty Pool on January 1, 2022
Since no New Restaurants were opened during 2021 nor were added to the Royalty Pool on January 1, 2022,
there was no need to conduct an audit to compare the actual Franchise Sales from New Restaurants that were
opened in 2021 to the estimated amount of Franchise Sales expected to be generated by these New Restaurants
during 2022 nor to compare the actual effective tax rate paid by the Fund for 2022 to the estimated effective tax
rate the Fund expected to pay for 2022.
Units Outstanding
The following table sets forth a summary of the outstanding Units. BPI owns 100% of the Class B Units and 1%
of the ordinary general partner units of Royalties LP. BPI also owns 100% of the Class 2 GP Units, and 100% of
the Class 3, Class 4, Class 5 and Class 6 general partnership units of BP Canada LP. The Class B Units and
Class 2 GP Units are exchangeable for Units. References to “Class B Additional Entitlements” and “Class 2
Additional Entitlements” in the table below refer to the number of Units into which the Class B Units and Class 2
GP Units, respectively, are exchangeable as of the dates indicated.
Summary of Boston Pizza Royalties Income Fund Units
Dec. 31, 2022
Excluding
Holdback
Dec. 31, 2022
Including
Holdback
Feb. 8, 2023
Excluding
Holdback
Feb. 8, 2023
Including
Holdback
Units Outstanding
Total Issued and Outstanding Fund Units 21,521,463 21,521,463 21,521,463 21,521,463
Class B Additional Entitlements Outstanding
Class B Additional Entitlements (Excluding Jan. 1, 2023
Adjustment Date)
2,430,823 2,430,823 2,430,823 2,430,823
Class B Holdback (Excluding Jan. 1, 2023 Adjustment
Date)
N/A -- N/A N/A
(1)
Class B Additional Entitlements – Issued Jan. 1, 2023 N/A N/A -- --
Class B Holdback – Created Jan. 1, 2023 N/A N/A N/A --
(2)
Total Class B Additional Entitlements 2,430,823 2,430,823 2,430,823 2,430,823
Class 2 Additional Entitlements Outstanding
Class 2 Additional Entitlements (Excluding Jan. 1, 2023
Adjustment Date)
831,354 831,354 831,354 831,354
Class 2 Holdback (Excluding Jan. 1, 2023 Adjustment
Date)
N/A -- N/A N/A
(1)
Class 2 Additional Entitlements – Issued Jan. 1, 2023 N/A N/A -- --
Class 2 Holdback – Created Jan. 1, 2023 N/A N/A N/A --
(2)
Total Class 2 Additional Entitlements 831,354 831,354 831,354 831,354
Summary
Total Issued and Outstanding Fund Units 21,521,463 21,521,463 21,521,463 21,521,463
Total Additional Entitlements 3,262,177 3,262,177 3,262,177 3,262,177
Total Diluted Units 24,783,640 24,783,640 24,783,640 24,783,640
BPI’s Total Percentage Ownership 13.2% 13.2% 13.2% 13.2%
1) There is no Holdback for the adjustment to the Royalty Pool that occurred on January 1, 2022 since BPI did not receive any Additional
Entitlements in respect thereof due to a Deficiency existing.
2) There is no Holdback for the adjustment to the Royalty Pool that occurred on January 1, 2023 since BPI did not receive any Additional
Entitlements in respect thereof due to a Deficiency existing.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 19 -
BPI directly and indirectly holds 100% of the special voting units (the “Special Voting Units”) of the Fund, which
entitle BPI to one vote in respect of matters to be voted upon by Unitholders for each Unit that BPI would be
entitled to receive if it exchanged all of its Class B Units and Class 2 GP Units for Units. As of February 8, 2023,
BPI was entitled to 3,262,177 votes, representing 13.2% of the aggregate votes held by holders of Units and
Special Voting Units. The number of Units that BPI is entitled to receive upon the exchange of its Class B Units
and Class 2 GP Units and the number of votes that BPI is entitled to in respect of its Special Voting Units is
adjusted periodically to reflect any additional Boston Pizza Restaurants that were added to the Royalty Pool.
TAX TREATMENT OF DISTRIBUTIONS
Of the $1.199 in distributions declared per Unit during the Year, 93.4% or $1.120 per Unit are taxable eligible
dividends and 6.6% or $0.079 per Unit represents a tax-deferred return of capital.
LIQUIDITY & CAPITAL RESOURCES
The Fund’s long-term distribution policy is to distribute the total amount of cash received by the Fund from the
Trust on the units of the Trust and notes of the Trust less the sum of: (a) administrative expenses and other
obligations of the Fund; (b) amounts which may be paid by the Fund in connection with any cash redemptions of
Units; (c) any interest expense incurred by the Fund; (d) any contractually required repayments of principal of the
Fund’s indebtedness; and (e) reasonable reserves established by the trustees of the Fund in their sole discretion,
including, without limitation, reserves to pay SIFT Tax, in order to maximize returns to Unitholders. In light of
seasonal variations that are inherent to the restaurant industry, the Fund’s policy is to make equal distribution
payments to Unitholders on a monthly basis in order to smooth out these fluctuations. Any further change in
distributions will be implemented in such a manner so that the continuity of uniform monthly distributions is
maintained, while making provisions for working capital due to seasonal variations of Boston Pizza Restaurant
sales. It is expected that future distributions will continue to be funded entirely by cash flows from operations.
The Fund believes its current sources of liquidity are sufficient to cover its currently known short and long-term
obligations.
Indebtedness
Original Credit Facilities
Prior to June 28, 2022, Holdings LP and Royalties LP had credit facilities with a Canadian chartered bank (the
“Bank”) in the amount of up to $91.0 million (originally $97.0 million) that were scheduled to expire on
December 31, 2022 (the “Original Credit Facilities”). The Original Credit Facilities were comprised of a:
(a) $2.0 million committed operating facility issued to Royalties LP (“Facility A”); (b) $55.7 million (originally
$61.7 million) committed non-revolving credit facility issued to Royalties LP for the purpose of refinancing
Royalties LP’s previous credit facilities, to facilitate the Fund repurchasing and cancelling Units under normal
course issuer bids or substantial issuer bids, to finance the cash component of any exchange of exchangeable
units of BP Canada LP and to repay reimbursement charges owing by Royalties LP to BPI for performing
administrative services to the Fund (“Facility B”); and (c) $33.3 million committed non-revolving credit facility
issued to Holdings LP for the purpose of subscribing for Class 1 LP Units of BP Canada LP (“Facility D”). The
amount available under Facility B permanently reduces whenever Royalties LP repays principal on Facility B.
The Original Credit Facilities bore interest at variable interest rates comprised of either or a combination of the
Bank’s bankers’ acceptance rates or Canadian dollar offered rates plus between 2.00% and 3.00%, or the Bank’s
prime rate plus between 0.75% and 1.75%, depending upon the Fund’s total funded net debt to EBITDA ratio.
The principal amounts drawn on Facility A, Facility B and Facility D are due and payable upon maturity. In
addition, Royalties LP made principal payments of $0.7 million on December 31, 2020, $1.0 million on each of
March 31, 2021, June 30, 2021 and September 30, 2021, $0.7 million on December 31, 2021, $0.5 million on
March 31, 2022 and $1.0 million on June 27, 2022.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 20 -
Amendments and Extension to the Original Credit Facilities
On June 28, 2022, Holdings LP and Royalties LP entered into a second supplemental credit agreement (the
“Second Supplemental Credit Agreement”) with the Bank to amend and extend the Original Credit Facilities
(the Original Credit Facilities, as amended and extended by the Second Supplemental Credit Agreement, being
the “Credit Facilities”)
8
. The material modifications to the Original Credit Facilities are as follows:
1. The maturity date was extended from December 31, 2022 to July 1, 2026;
2. The total amount of credit available was decreased by approximately $8.4 million, from the original
$97.0 million to $88.6 million by decreasing the size of Facility B from the original $61.7 million to
approximately $53.3 million to reflect approximately $6.0 million of repayments of principal previously
made by the Fund and a reduction of available credit of approximately $2.4 million;
3. The interest rates (or margins, as applicable) applicable to the Original Credit Facilities decreased
substantially depending upon the Fund’s total funded net debt to EBITDA ratio and the availment option
selected. In the case of Canadian prime rate loans, the interest rate is now equal to the Bank’s prime
rate plus between 0.00% and 0.65% (depending on the total funded net debt to EBITDA ratio) and, in the
case of bankers’ acceptances and Canadian dollar offered rate loans, the interest rate is equal to a
variable interest rate based on the Bank’s bankers’ acceptance rates or Canadian dollar offered rates
plus between 1.25% and 1.85% (depending on the total funded net debt to EBITDA ratio);
4. The requirement of the Fund to make subsequent quarterly repayments of principal on Facility B was
eliminated;
5. The financial covenant that the Fund’s total funded net debt to EBITDA must not exceed 3.00:1 from and
after September 30, 2021 was modified to require it to not exceed 2.50:1 on closing until December 30,
2024 and to not exceed 2.25:1 thereafter;
6. Certain other covenants and provisions were modified; and
7. The guarantees and security supporting the Credit Facilities remain unchanged from those existing
immediately prior to the Second Supplemental Credit Agreement.
The Credit Facilities now have a maturity date of July 1, 2026 and are comprised of: (i) Facility A, being a
$2.0 million committed revolving operating facility issued to Royalties LP; (ii) Facility B, being an approximately
$53.3 million committed non-revolving credit facility issued to Royalties LP for the purpose of refinancing previous
credit facilities, facilitating the Fund’s repurchasing and canceling of units of the Fund under normal course issuer
bids or substantial issuer bid arrangements, and financing the cash component of any exchange of general
partnership units of BP Canada LP; and (iii) Facility D, being an approximately $33.3 million committed revolving
credit facility issued to Holding LP for the purpose of subscribing for Class 1 LP Units and Class 2 LP Units of
BP Canada LP.
The Credit Facilities continue to be secured by a first charge on the assets of Holdings LP and Royalties LP. The
Credit Facilities continue to be guaranteed by the Fund and all of its subsidiaries, each of whom granted security
over all its assets in favour of the Bank in support of such guarantees. Neither BPI nor any of its subsidiaries has
guaranteed or provided any security in respect of the Fund’s Credit Facilities.
The principal financial covenants of the Credit Facilities are that: (a) the Fund and its subsidiaries (including
Holdings LP and Royalties LP), taken as a whole, shall maintain a total funded net debt to EBITDA ratio of not
greater than 2.50:1 upon closing and until December 30, 2024 and not greater than 2.25:1 thereafter (tested
quarterly); and (b) the total amount of certain permitted distributions of the Fund (including distributions to
8 On June 28, 2022, BPI also entered into a Second Supplemental Credit Agreement with the Bank to amend and extend BPI’s credit
facilities. See BPI’s MD&A for the three and six month period ended June 30, 2022, a copy of which is available on www.sedar.com, for
details.
28
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 21 -
Unitholders) must not exceed the sum of the Fund’s Distributable Cash (as Distributable Cash is defined in the
First Amended and Restated Credit Agreement dated January 24, 2020) and cash on hand by greater than
$2.0 million (tested quarterly on a trailing 12-month basis). In addition, the agreements governing the Credit
Facilities contain certain covenants and restrictions, including the requirement to meet the financial ratios
described above. A failure of the Fund or its subsidiaries to comply with these covenants and restrictions could
entitle the Bank to demand repayment of the outstanding balance drawn on the Credit Facilities prior to maturity.
Royalties LP and Holdings LP were in compliance with all of their financial covenants and financial condition tests
as at the end of the Period. Full particulars of the Credit Facilities, including applicable interest rates, security,
guarantees and other terms and conditions are contained within the following agreements between the Fund and
the Bank, a copy of each of which is available on www.sedar.com: (i) the First Amended and Restated Credit
Agreement dated January 24, 2020; (ii) the First Supplemental Credit Agreement dated June 22, 2020; and (iii)
the Second Supplemental Credit Agreement.
No changes to the Swaps were made as part of the Second Supplemental Credit Agreement.
As of December 31, 2022, working capital of the Fund totaled positive $8.2 million compared to negative
$82.1 million on December 31, 2021. The Fund has no requirement to maintain a certain amount of working
capital. As of December 31, 2022, no amounts were drawn on Facility A, $53.3 million was drawn on Facility B
and $33.3 million was drawn on Facility D.
The following table provides a summary of the Fund’s contractual obligations and commitments (including
expected interest payments) as at December 31, 2022:
Note:
1) The Credit Facilities and Swaps include expected interest payments based on the Fund's blended rate of 3.88% to the scheduled maturity
date of the Credit Facilities of July 1, 2026 and exclude deferred financing costs of $0.2 million.
Interest Rate Swaps
Royalties LP and Holdings LP, as applicable, previously entered into the following interest rate swaps under their
respective International Swap Dealers Association Master Agreements with the Bank
9
:
(a) Royalties LP entered into a swap to fix the interest rate at 2.40% plus between 1.25% and 1.85% per
annum (depending upon funded debt to EBITDA ratios) for a term that ended on January 1, 2023 for
$15.0 million of the $53.3 million drawn on Facility B;
(b) Royalties LP entered into a swap to fix the interest rate at 2.27% plus between 1.25% and 1.85% per
annum (depending upon debt to EBITDA ratios) for a term ending on April 1, 2024 for $15.0 million of
the $53.3 million drawn on Facility B;
(c) Royalties LP entered into a swap to fix the interest rate at 2.28% plus between 1.25% and 1.85% per
annum (depending upon debt to EBITDA ratios) for a term ending on February 1, 2027 for $15.0 million
of the $53.3 million drawn on Facility B;
9 The rate premium of between 1.25% and 1.85% per annum (depending upon debt to EBITDA ratios) was between 2.00% and 3.00%
prior to the start of the Period as these were the rate premiums applicable prior to the amendment and extension of the Original Credit
Facilities.
(in thousands of dollars) < 1 year 1 - 5 years Total
Book Value
Accounts payable and accrued liabilities
544 – 544 544
Current income tax payable 34 – 34 34
Credit Facilities and Swaps
1
3,357 96,473 99,830 82,417
3,935 96,473 100,408 82,995
29
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 22 -
(d) Holdings LP entered into a swap to fix the interest rate at 1.02% plus between 1.25% and 1.85% per
annum (depending upon debt to EBITDA ratios) for a term ending on August 14, 2025 for $17.0 million
of the $33.3 million drawn on Facility D; and
(e) Holdings LP entered into a swap to fix the interest rate at 1.09% plus between 1.25% and 1.85% per
annum (depending upon debt to EBITDA ratios) for a term ending on March 1, 2026 for $15.0 million of
the $33.3 million drawn on Facility D.
As of December 31, 2022, $8.3 million drawn on Facility B and $1.3 million drawn on Facility D bore interest at
variable interest rates applicable to the Credit Facilities discussed above. The effective interest rate for all
amounts borrowed by the Fund was 3.88% at December 31, 2022 (December 31, 2021 – 3.98%).
In addition, on December 19, 2022, Royalties LP entered into a swap that commenced on January 3, 2023 to fix
the interest rate at 3.48% plus between 1.25% and 1.85% per annum (depending upon debt to EBITDA ratios)
for a term ending on January 4, 2028 for $15.0 million of the $53.3 million drawn on Facility B to replace the swap
described in item (a) above that ended on January 1, 2023 (this swap, together with the previously describe
swaps, the “Swaps”).
The Fund uses the Swaps to mitigate its exposure to interest rate risk related to the Credit Facilities (and the
Original Credit Facilities, as applicable). The Fund accounts for the Swaps as derivative instruments in
accordance with IFRS. The fair market value of the Swaps is determined using valuation techniques at each
reporting date and any change in the fair value of the Swaps is included in the Fund’s comprehensive income or
loss. The Fund recognized a $0.1 million fair value gain on the Swaps for the Period in its consolidated statements
of comprehensive income (loss) compared to $0.7 million for the fourth quarter of 2021. During the Year, the
Fund recorded a $3.9 million fair value gain on the Swaps in the consolidated statements of comprehensive
income (loss) compared to $2.3 million in 2021.
Amendments to General Security Agreements granted by BPI and its subsidiaries in favour of the Fund
Concurrently with the Fund and BPI amending and extending their respective credit facilities with the Bank on
June 28, 2022, the Fund, its subsidiaries, BPI and its subsidiaries entered into an amending agreement, a copy
of which is available on www.sedar.com, to modify certain covenants in the general security agreements granted
by BPI and its subsidiaries to secure payments of Royalty and Distribution Income to the Fund. These
modifications included the following:
1. Removing the requirement that BPI dispose of certain assets and use the net proceeds therefrom to
reduce BPI’s indebtedness owing to the Bank;
2. Removing the requirement that BPI’s trailing 12-month EBITDA must not be less than certain specified
values;
3. Removing the requirement that BPI and BP Canada LP pay the Fund each fiscal quarter a minimum
amount of Royalty and Distribution Income, commencing the fiscal year for 2023;
4. Requiring that BPI’s permitted debt ratio, being the ratio of the aggregate debt of BPI and its subsidiaries
to EBITDA (tested quarterly on a trailing 12-month basis) shall not exceed 3.00:1; and
5. Incorporating the financial covenants and other monitoring and testing covenants granted by BPI and its
subsidiaries to the Bank in connection with BPI’s credit facilities and deeming them to be covenants of
BPI and its subsidiaries to Royalties LP.
The Fund and the Bank share priority over security granted to them by BPI and its subsidiaries pursuant to the
Second Amended and Restated Priority Agreement dated April 11, 2018 among the Bank and Royalties LP, a
copy of which is available on www.sedar.com. No modification to that priority agreement was made as part of
amending and extending the Credit Facilities or BPI’s credit facilities with the Bank.
30
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 23 -
Related Party Transactions
BPI and BP Canada LP are considered to be related parties of the Fund by virtue of the common officers and
directors of BPI and Royalties GP. The Fund’s related party transactions at the end of the Period were as follows:
• The Fund has engaged Royalties LP, its administrator, to provide certain administrative services on
behalf of the Fund (“Administrative Services”). In turn, certain of the Administrative Services are
performed by BPI as a general partner of Royalties LP. Under the terms of the partnership agreement
governing Royalties LP, BPI is entitled to be reimbursed for certain out-of-pocket expenses incurred in
performing the Administrative Services. BPI and Royalties LP agreed to limit the annual amount of out-
of-pocket expenses for which BPI is entitled to be reimbursed to not more than $0.4 million for 2020,
2021 and 2022, with such limit thereafter increasing by not more than the percentage change in the
Canadian Consumer Price Index (as calculated by Statistics Canada) in the calendar year prior.
• The total amount charged by BPI in respect of the Administrative Services for the Period and the Year
was $0.1 million and $0.4 million, respectively (Q4 2021 – $0.1 million, 2021 - $0.4 million). The total
amount paid to BPI in respect of these services for the Period and the Year was $0.1 million and $0.4
million, respectively (Q4 2021 – $0.1 million, 2021 - $0.4 million).
• As at December 31, 2022, interest payable by the Fund to BPI in respect of the Class B Units was $0.3
million (December 31, 2021 – $0.3 million).
• As at December 31, 2022, the Royalty receivable from BPI was $3.3 million (December 31, 2021 –
$2.6 million), and the Distribution Income receivable from BP Canada LP was $1.0 million (December 31,
2021 – $0.8 million). See the “Distributions” section of this MD&A for more details.
Other related party transactions and balances are referred to elsewhere in this MD&A.
DISCLOSURE CONTROLS AND PROCEDURES
AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The President (“President”) and the Chief Financial Officer (“CFO”) of Royalties GP, managing general partner
of Royalties LP, administrator of the Fund, have designed or caused to be designed under their supervision
disclosure controls and procedures to provide reasonable assurance that all material information regarding the
Fund is gathered and reported to senior management, including the President and CFO, on a timely basis,
particularly during the period in which the annual and interim filings are being prepared, so that appropriate
decisions can be made regarding public disclosure.
An evaluation of the effectiveness of the Fund’s disclosure controls and procedures, as defined in National
Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, was carried out under the
supervision of, and with the participation of management, including the President and CFO. Based on that
evaluation, the President and CFO have concluded that the design and operation of these disclosure controls
and procedures were effective in providing reasonable assurance that: (a) information required to be disclosed
by the Fund in its annual filings, interim filings or other reports filed and submitted by it under applicable securities
legislation is recorded, processed, summarized and reported within the prescribed time periods specified in
securities legislation, and (b) material information regarding the Fund is accumulated and communicated to the
Fund’s administrator, Royalties LP, as well as the President and CFO in a timely manner, particularly during the
period in which the annual and interim filings are being prepared.
During the Period, there was no change in the Fund’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting. The Fund
complies with the Committee of Sponsoring Organizations of the Treadway Commission Internal Control –
Integrated Framework: 2013.
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 24 -
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Fund’s audited annual consolidated financial statements in accordance with IFRS requires
management to make judgments, estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these
estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised. Significant areas requiring the use of
management judgment and estimates relate to the determination of the following:
Judgment – Consolidation
Applying the criteria outlined in IFRS 10, judgment is required in determining whether the Fund controls
Royalties LP. Making this judgment involves taking into consideration the concepts of power over Royalties LP,
exposure and rights to variable returns, and the ability to use power to direct the relevant activities of Royalties LP
so as to generate economic returns. Using these criteria, management has determined that the Fund ultimately
controls Royalties LP through its 80% ownership of the managing general partner, Royalties GP.
Estimates - Intangible Assets – the BP Rights
The Fund carries the BP Rights at historical cost comprising the amount of consideration paid for the BP Rights
in 2002, as well as the value of additional Boston Pizza Restaurants added to the Royalty Pool to date. The value
of additional Boston Pizza Restaurants added to the Royalty Pool is determined on a formula basis that is
designed to estimate the present value of the cash flows that would ultimately be payable to the Fund as a result
of the new Boston Pizza Restaurants being added to the Royalty Pool. The calculation is dependent on a number
of different variables including the estimated sales of the new Boston Pizza Restaurants for the calendar year in
which they are add to the Royalty Pool and the tax rate. The value assigned to the new Boston Pizza Restaurants,
and as a result, the value assigned to the BP Rights, could differ from actual results.
The impairment test requires that the Fund use a valuation technique to determine if impairment exists. The
valuation of the intangibles is based on a value in use approach and depends on certain estimates, including
projected Franchise Sales for Boston Pizza Restaurants that are in the Royalty Pool and the discount rate. This
valuation technique may not represent the actual recoverable amount that the Fund expects the BP Rights to
generate. The Fund concluded that the recoverable amount exceeds the carrying amount of the BP Rights,
therefore no impairment was recorded for the Year.
Estimate – Class B Units, Class 1 LP Units and Class 2 LP Units Fair Value Adjustments
The Fund must classify fair value measurements according to a hierarchy that reflects the significance of the
inputs used in performing such measurements. The Fund’s fair value hierarchy comprises the following levels:
• Level 1 – quoted prices are available in active markets for identical assets or liabilities as of the reporting
date. Active markets are those in which transactions occur in sufficient frequency and volume to provide
pricing information on an ongoing basis.
• Level 2 – pricing inputs are other than quoted in active markets included in Level 1. Prices in Level 2 are
either directly or indirectly observable as of the reporting date.
• Level 3 – valuations in this level are those with inputs for the asset or liability that are not based on
observable data.
The fair values of the Class B Unit liability, Class 1 LP Units and Class 2 LP Units are all determined using Level 2
inputs and are measured on a recurring basis.
32
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 25 -
(i) Class B Units
The Fund records its Class B Unit liabilities at fair value, which may result in changes to the fair value adjustment
on the Class B Unit liability line on the statements of financial position, the fair value gain (loss) on the Class B
Unit liability line on the statements of comprehensive income (loss), and the corresponding non-cash adjustment
line on the statements of cash flows. This requires that the Fund use a valuation technique to determine the
value of the Class B Unit liability at each reporting date. The Fund estimates the fair value of the Class B Unit
liability using a market approach by multiplying the number of Units BPI would be entitled to receive if it exchanged
all Class B Units (including the Class B Holdback) held by BPI at the end of the Period by the closing price of the
Units on the last business day of the Period. This valuation technique may not represent the actual value of the
financial liability should such Class B Units be extinguished. Changes in the distribution rate on the Class B Units
and the yield of the Fund’s Units could materially impact the Fund’s financial position and net income.
(ii) Class 1 Units and Class 2 LP Units
The Fund records the Class 1 LP Units and Class 2 LP Units held by Holdings LP at fair value, which may result
in a fair value adjustment on the investment in BP Canada LP financial asset line on the statements of financial
position, and fair value gain (loss) line on the statements of comprehensive income (loss), and a corresponding
non-cash adjustment line on the statements of cash flows.
The Class 1 LP Units are entitled to distributions determined with respect to the interest cost payable on Facility D.
The Fund estimates the fair value of the Class 1 LP Units using a market-corroborated input, being the interest
rate applicable on Facility D. Consequently, the Fund estimated the fair value of Class 1 LP Units at carrying
value adjusted for interest rate risk.
The fair value of the Class 2 LP Units is determined using a market approach, which involves using observable
market prices for similar instruments. The Class 2 LP Units have similar cash distribution entitlements to the
Class 2 GP Units, which are exchangeable into Units. Consequently, the Fund estimates the fair value of the
Class 2 LP Units by multiplying the issued and outstanding number of Class 2 LP Units indirectly held by the
Fund at the end of the applicable period by the closing price of the Units at the end of that period (or previous
business day, if such day is not a business day).
These valuation techniques may not represent the actual value of the Class 1 LP Units and Class 2 LP Units
should such units be sold. Changes in the distribution rates on the Class 1 LP Units and Class 2 LP Units and
the yield of the Fund’s Units could materially impact the Fund’s financial position and net income.
CHANGES IN ACCOUNTING POLICIES
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
On February 12, 2021, the International Accounting Standards Board (the “IASB”) issued Disclosure of
Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). The amendments are effective for
annual periods beginning on or after January 1, 2023 with earlier adoption permitted. The amendments require
the disclosure of material accounting policies rather than significant accounting policies. The Fund has done an
initial assessment of these amendments and does not anticipate an impact to the Fund’s business, financial
statements or disclosure. The Fund intends to adopt these amendments in its consolidated financial statements
for the annual period beginning on January 1, 2023.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued Presentation of Financial Statements (Amendments to IAS 1) and on
October 31, 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1). The
amendments are effective for annual periods beginning on or after January 1, 2024. These amendments clarify
the classification of liabilities as current or non-current and improve the information a company provides about
long-term debt with covenants. For the purposes of non-current classification, the amendments removed the
requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional.
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 26 -
Instead, such a right must exist at the end of the reporting period and have substance. In addition, covenants
with which a company must comply after the reporting date do not affect the liability’s classification at the reporting
date. The Fund has done an initial assessment of these amendments and does not anticipate an impact on the
Fund’s business, financial statements or disclosure. The Fund intends to adopt these amendments in its
consolidated financial statements for the annual period beginning on January 1, 2024.
SHORT-TERM OUTLOOK
The information contained in this “Short-Term Outlook” section is forward-looking information. Please see the
“Note Regarding Forward-Looking Information” and “Risks & Uncertainties” sections of this MD&A for a discussion
of the risks and uncertainties in connection with forward-looking information.
The two principal factors that affect SRS are changes in guest traffic and changes in average guest cheque.
BPI’s and BP Canada LP’s strategies to drive higher guest traffic include attracting a wide variety of guests into
the restaurant, sports bar and take-out and delivery parts of each location, offering a compelling value proposition
to guests and leveraging a larger marketing budget versus the previous year along with a revised calendar of
national and local store promotions. Increased average cheque levels are expected to be achieved through a
combination of culinary innovation and annual menu re-pricing.
The actions taken by BPI and BP Canada LP to strengthen its business during COVID-19 have allowed BPI and
BP Canada LP to be in a good position to address any on-going COVID-19 related challenges or other future
challenges in the restaurant industry. The easing and elimination of government-imposed restrictions in Canada
related to COVID-19 has enabled Boston Pizza to continue to drive improved performance and guest traffic.
However, with supply chain challenges, rising interest rates, increasing input costs and labour shortages
impacting most of the restaurant industry, BPI’s management remains cautious. The focus of BPI’s management
is to adapt the business to mitigate these challenges and capitalize on the recent sales momentum resulting from
the elimination of COVID restrictions in the restaurant industry.
The trustees of the Fund will continue to closely monitor the Fund’s available cash balances given the volatile
economic outlook.
RISKS & UNCERTAINTIES
Risks Related to the Business of BPI and BP Canada LP
Economic Uncertainties
The success of BPI, BP Canada LP and Boston Pizza Restaurants, and the amount of Franchise Sales, Royalty,
Distribution Income and Distributable Cash available for distribution to Unitholders, are dependent upon many
economic factors, including impacts of inflation, increases in interest rates, unemployment rates, consumer
confidence, recession, supply chain disruption, labour availability and other globally disruptive events. Inflation
and increases in interest rates increase the difficulty for Boston Pizza Restaurants to operate profitability due to
increased input and debt service costs while balancing the need to maintain competitive menu pricing. Increases
in interest rates also make it more difficult for Boston Pizza Restaurants to invest in new equipment and
technology due to increased debt service costs. Rising unemployment rates, decreasing consumer confidence
and recession may lead to decreased demand for dining out, resulting in reduced guest traffic and Franchise
Sales. While global supply chains have somewhat normalized since COVID-19 and Boston Pizza’s supply chain
is stable, it remains possible that economic uncertainty may result in commodity unavailability or increased
commodity costs for Boston Pizza Restaurants. The continued labour shortage in the restaurant industry may
impede Boston Pizza Restaurants’ ability to attract and retain sufficient numbers of qualified staff. In addition,
global disruptions, such as geopolitical events, public health or pandemic outbreaks (including COVID-19), war
or hostilities in countries in which Boston Pizza suppliers are located, terrorist or military activities, or natural
disasters such as hurricanes, tornadoes, floods, earthquakes and others, could lead to disruptions in the supply
chain and increased economic uncertainty. All of these factors can contribute to a challenging environment for
Boston Pizza Restaurants, which may: (i) limit their ability to generate Franchise Sales, thereby decreasing the
resulting Royalty, Distribution Income and Distributable Cash available for distribution to Unitholders; and/or
34
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 27 -
(ii) decrease their profitability, thereby increasing the risks of Boston Pizza Restaurants closing.
COVID-19 Risk
Beginning in March of 2020, the COVID-19 pandemic had sudden, unexpected and unprecedented impacts on
the general economy and the restaurant industry, and caused significant disruption to the business and revenues
of the Fund and BPI. The COVID-19 pandemic resulted in material declines to Franchise Sales and SRS when
compared to periods prior to COVID-19. The declines in Franchise Sales and SRS resulted in significant declines
to Royalty and Distribution Income payable by BPI and BP Canada LP to the Fund when compared to periods
prior to COVID-19, and significant declines in the amount of Distributable Cash available for distribution to
Unitholders when compared to periods prior to COVID-19. While COVID-19 case counts have improved,
government restrictions related to COVID-19 have largely been eliminated, and sales levels of Boston Pizza
Restaurants have returned to more normal levels when compared to periods prior to COVID-19, it is unknown
whether there may be additional COVID-19 outbreaks, including outbreaks caused by variants of the COVID-19
virus, that may result in reduced service levels or temporary closures at Boston Pizza Restaurants. Any reduced
service levels or temporary closures of Boston Pizza Restaurants will result in declines to Franchise Sales, SRS,
Royalty, Distribution Income and the amount of Distributable Cash available for distribution to Unitholders.
The COVID-19 pandemic and the reactions to it, including the possibility that it may result in a prolonged global
recession, may also have the effect of exacerbating the potential impact of the other risks disclosed in this Risk
& Uncertainties section.
The Restaurant Industry and its Competitive Nature
The performance of the Fund is directly dependent upon the Royalty received from BPI and Distribution Income
received from BP Canada LP. The amount of the Royalty and Distribution Income received by Royalties LP and
Holdings LP from BPI and BP Canada LP, respectively, is dependent on various factors that may affect the casual
dining sector of the restaurant industry. The restaurant industry generally, and in particular the casual dining
sector, is intensely competitive with respect to price, service, location and food quality. Competitors include
national and regional chains, as well as independently owned restaurants. If BPI, BP Canada LP and the Boston
Pizza franchisees are unable to successfully compete in the casual dining sector, Franchise Sales may be
adversely affected; the amount of the Royalty and Distribution Income may be reduced, and the ability of BPI to
pay the Royalty, and the ability of BP Canada LP to pay Distribution Income, may be impaired. The restaurant
industry is also affected by adverse weather conditions, changes in demographic trends, traffic patterns, general
economic conditions and the type, number, and location of competing restaurants. In addition, factors such as
government regulations, smoking bylaws, inflation, public health or pandemic outbreaks (including COVID-19),
publicity from any food borne illnesses, increased food, labour and benefits costs, continuing operations of key
suppliers and the availability of experienced management and hourly employees may adversely affect the
restaurant industry in general and therefore potentially affect Franchise Sales. BPI’s and BP Canada LP’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 guest traffic or impose practical limits on pricing, either of which could reduce revenue and operating
income, which could adversely affect Franchise Sales, the Royalty, Distribution Income and the ability of BPI to
pay the Royalty to Royalties LP, and the ability of BP Canada LP to pay Distribution Income to Holdings LP.
Growth of the Royalty and Distribution Income
The growth of the Royalty payable by BPI to Royalties LP under the License and Royalty Agreement, and the
growth of Distribution Income payable by BP Canada LP to Holdings LP, are dependent upon the ability of BPI
and BP Canada LP to (i) maintain and grow their franchised restaurants, (ii) locate new restaurant sites in prime
locations, and (iii) obtain qualified operators to become Boston Pizza franchisees. BPI and BP Canada LP face
competition for restaurant locations and franchisees from their competitors and from franchisors of other
businesses. BPI’s and BP Canada LP’s inability to successfully obtain qualified franchisees could adversely
affect their business development. The opening and success of a Boston Pizza Restaurant is dependent on a
number of factors, including: availability of suitable sites; negotiations of acceptable lease or purchase terms for
new locations; availability, training and retention of management and other employees necessary to staff new
35
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 28 -
Boston Pizza Restaurants; adequately supervising construction; securing suitable financing; and other factors,
some of which are beyond the control of BPI and BP Canada LP. Boston Pizza franchisees may not have all the
business abilities or access to financial resources necessary to open a Boston Pizza Restaurant or to successfully
develop or operate a Boston Pizza Restaurant in their franchise areas in a manner consistent with BPI’s and
BP Canada LP’s standards. BPI and BP Canada LP provide training and support to Boston Pizza franchisees,
but the quality of franchised operations may be diminished by any number of factors beyond BPI’s and
BP Canada LP’s control. Consequently, Boston Pizza franchisees may not successfully operate restaurants in a
manner consistent with BPI’s and BP Canada LP’s standards and requirements, or may not hire and train
qualified managers and other restaurant personnel. If they do not, the image and reputation of BPI and
BP Canada LP may suffer, and gross revenue and results of operations of the Boston Pizza Restaurants could
decline.
The Closure of Boston Pizza Restaurants May Affect the Amount of Royalty and Distribution Income
The amount of the Royalty payable to Royalty LP by BPI, and the amount of Distribution Income payable by
BP Canada LP to Holdings LP, are dependent upon the Franchise Sales, which is dependent on the number of
Boston Pizza Restaurants that are included in the Royalty Pool and the Franchise Sales of those Boston Pizza
Restaurants. Each year, a number of Boston Pizza Restaurants may close and there is no assurance that BPI
and BP Canada LP will be able to open sufficient new Boston Pizza Restaurants to replace the Franchise Sales
of the Boston Pizza Restaurants that have closed.
BPI and BP Canada LP Revenue
The ability of BPI to pay the Royalty and the ability of BP Canada LP to pay Distribution Income are dependent
on (i) Boston Pizza franchisees’ ability to generate revenue and to pay royalties to BP Canada LP,
(ii) BP Canada LP’s ability to enter into arrangements with suppliers and distributors to generate competitive
pricing for franchisees and revenue for BP Canada LP, and (iii) BP Canada LP’s receipt of amounts for other
franchise fees (including initial and renewal franchise fees). Failure of BP Canada LP to achieve adequate levels
of collection from Boston Pizza franchisees or the loss of revenues from arrangements with suppliers and
distributors could have a serious effect on the ability of BP Canada LP to pay Distribution Income and of BPI to
pay the Royalty.
Intellectual Property
The ability of BPI and BP Canada LP to maintain or increase Franchise Sales will depend on their ability to
maintain “brand equity” through the use of the BP Rights licensed from Royalties LP. If Royalties LP fails to
enforce or maintain any of its intellectual property rights, BPI and BP Canada LP may be unable to capitalize on
their efforts to establish brand equity. All registered trademarks in Canada can be challenged pursuant to
provisions of the Trademarks Act (Canada) and if any BP Rights are ever successfully challenged, this may have
an adverse impact on Franchise Sales, and therefore on the Royalty and Distribution Income. Royalties LP owns
the BP Rights in Canada. However, it does not own identical or similar trademarks owned by parties not related
to BPI or Royalties LP in other jurisdictions. Third parties may use such trademarks in jurisdictions other than
Canada in a manner that diminishes the value of such trademarks. If this occurs, the value of the BP Rights may
suffer and gross revenue by Boston Pizza Restaurants could decline. Similarly, negative publicity or events
associated with such trademarks in jurisdictions outside of Canada may negatively affect the image and reputation
of Boston Pizza Restaurants in Canada, resulting in a decline in gross revenue by Boston Pizza Restaurants.
Government Regulation
BPI and BP Canada LP are subject to various federal, provincial and local laws affecting their business. Each
Boston Pizza Restaurant is subject to licensing and regulation by a number of governmental authorities, which
may include alcoholic beverage control, smoking laws, health and safety and fire agencies. Difficulties in
obtaining or failures to obtain the required licenses or approvals could delay or prevent the development of a new
Boston Pizza Restaurant in a particular area or restrict the operations of an existing Boston Pizza Restaurant.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 29 -
Regulations Governing Food Service and Alcoholic Beverages
Boston Pizza Restaurants are subject to various federal, provincial and local government regulations, including
those relating to the sale of food and alcoholic beverages. Such regulations are subject to change from time to
time. The failure to obtain and maintain these licenses, permits and approvals could adversely affect the
operations of a Boston Pizza Restaurant. Typically, licenses must be renewed annually and may be revoked,
suspended or denied renewal for cause at any time if governmental authorities determine that the Boston Pizza
Restaurant’s conduct violates applicable regulations. Difficulties or failures to maintain or obtain the required
licenses and approvals could adversely affect existing Boston Pizza Restaurants and delay or result in a decision
to cancel the opening of new Boston Pizza Restaurants, which would adversely affect BPI’s and BP Canada LP’s
business.
In addition, the ability of Boston Pizza Restaurants to serve alcoholic beverages is an important factor in attracting
customers. Alcoholic beverage control regulations require each Boston Pizza Restaurant to apply to provincial
or municipal authorities for a license or permit to sell alcoholic beverages on the premises and, in certain locations,
to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may
be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous
aspects of daily operations of Boston Pizza Restaurants, including minimum age of patrons and employees, hours
of operation, advertising, wholesale purchasing, inventory control, and handling, storage and dispensing of
alcoholic beverages. The failure of BPI, BP Canada LP or a Boston Pizza franchisee to retain a license to serve
liquor for a Boston Pizza Restaurant would adversely affect that restaurant’s operations. BPI, BP Canada LP or
a Boston Pizza franchisee may be subject to legislation in certain provinces, which may provide a person injured
by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. BPI and BP Canada LP carry host liquor liability coverage as part of their
existing comprehensive general liability insurance. There is no assurance that such insurance coverage will be
adequate.
Laws Concerning Employees
The operations of Boston Pizza Restaurants are also subject to minimum wage laws governing matters such as
working conditions, overtime and tip credits, as well as rules and regulations regarding the employment of
temporary foreign workers. Significant numbers of Boston Pizza Restaurants’ food service and preparation
personnel are paid at rates related to the minimum wage and, accordingly, further increases in the minimum wage
could increase Boston Pizza Restaurants’ labour costs. In some regions of Canada, Boston Pizza Restaurants
employ temporary foreign workers – the supply of labour in such regions could be reduced by regulations
concerning the employment of temporary foreign workers.
Sales Tax Regulations
While there are variations in studies about the extent to which sales taxes impact retail sales, the increase in the
after-tax price of goods and services has a negative effect on the customer’s perception of spending on restaurant
dining. Such negative perception can potentially reduce the frequency of guest visits to restaurants, the total
amount that guests spend per restaurant visit, or both. Price elasticity appears to have less impact on densely-
populated and market-dominant areas such as urban or downtown restaurants. However, as customer perception
of disposable spending is adversely affected by increased after-tax prices, Franchise Sales are at risk of declining
if retail sales taxes increase.
Franchise Regulation Risk
The complete failure to provide a disclosure document as required by the franchise disclosure laws and
regulations of the provinces of British Columbia, Alberta, Manitoba, Ontario, New Brunswick and Prince Edward
Island (or the provision of a disclosure document that is materially non-compliant) provides a franchisee with a
two-year absolute right of rescission. If a disclosure document is not provided within the time required by
applicable provincial legislation, a franchisee is provided with sixty days from receipt of the disclosure document
in which to rescind the franchise agreement. The statutory right of rescission gives a franchisee the right to
receive back all monies paid, and to recover for its losses, if any. Franchise legislation also provides a franchisee
37
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 30 -
with a statutory right of action to sue if a franchisee suffers a loss because of a misrepresentation contained in
the disclosure document, or as a result of the franchisor’s failure to comply with its disclosure obligations. These
rights are in addition to any rights that might exist at common law. Claims arising from any non-compliance with
franchise disclosure laws may adversely affect the ability of BP Canada LP to pay Distribution Income to
Holdings LP, and of BPI to pay the Royalty to Royalties LP.
Potential Litigation and Other Complaints
BPI, BP Canada LP and Boston Pizza franchisees may be the subject of complaints or litigation from guests
alleging food related illness, injuries suffered on the premises or other food quality, health or operational concerns.
Adverse publicity resulting from such allegations may materially affect the sales by Boston Pizza Restaurants,
regardless of whether such allegations are true or whether BPI, BP Canada LP or a Boston Pizza franchisee is
ultimately held liable.
Insurance
BPI and BP Canada LP maintain insurance coverage to protect them from liabilities they incur in the course of
their business. There is no assurance that such insurance coverage will respond to, or be adequate to protect
them from, such liabilities. Additionally, in the future, BPI’s and BP Canada LP’s insurance premiums may
increase and they may not be able to obtain similar levels of insurance on reasonable terms or at all. Any
substantial inadequacy of, or inability to obtain insurance coverage could materially adversely affect BPI’s and
BP Canada LP’s business, financial condition and results of operations. Furthermore, there are types of losses
BPI or BP Canada LP may incur that cannot be insured against or that are not economically reasonable to insure.
Such losses could have a material adverse effect on BPI’s and BP Canada LP’s business and results of
operations.
Dependence on Key Personnel
The success of the Fund depends upon the personal efforts of senior management of BPI, including their ability
to retain and attract appropriate franchisee candidates. The loss of the services of such key personnel or the
failure to attract such franchisees could have a material adverse effect on the performance of the Fund.
Security of Confidential Guest Information and Personal Information
BPI, BP Canada LP and Boston Pizza franchisees collect and/or use confidential guest information related to the
electronic processing of credit and debit card transactions, personal information of guests in connection with
Boston Pizza’s “MyBP” loyalty platform and personal information of their respective employees. If any of BPI,
BP Canada LP or Boston Pizza franchisees experiences a security breach in which any of this type of information
is stolen or disclosed, BPI, BP Canada LP or Boston Pizza franchisees may incur unanticipated costs, become
subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit
card information, and/or become subject to lawsuits or other proceedings relating to these types of incidents. In
addition, most provinces have enacted legislation requiring notification of security breaches involving personal
information, including credit and debit card information. Any such claims or proceedings could cause BPI or
BP Canada LP to incur significant unplanned expenses, which could have an adverse impact on their financial
condition and results of operations. Furthermore, adverse publicity resulting from these allegations may have a
material adverse effect on Franchise Sales, Royalty, Distribution Income and the ability of BP Canada LP to pay
Distribution Income to Holdings LP, or BPI to pay the Royalty to Royalties LP.
Reliance on Technology
BPI, BP Canada LP and Boston Pizza franchisees rely heavily upon information systems, including point-of-sale
processing in Boston Pizza Restaurants, for management of their supply chain, payment of obligations, collection
of cash, credit and debit card transactions and other processes and procedures, including the taking and sending
of orders to Boston Pizza Restaurants. BPI’s and BP Canada LP’s ability to efficiently and effectively manage
their business depends significantly on the reliability and capacity of these systems. BPI’s and BP Canada LP’s
operations depend upon their ability to protect their computer equipment and systems against damage from
38
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 31 -
physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal
and external security breaches, viruses and other disruptive problems. The failure of these systems to operate
effectively, maintenance problems, upgrading or transitioning to new platforms, expanding BPI’s and
BP Canada LP’s systems as they grow or a breach in security of these systems could result in delays in customer
service and reduced efficiency in BPI’s and BP Canada LP’s operations. Remediation of such problems could
result in significant, unplanned capital investments.
Risks Related to the Structure of the Fund
Investment Eligibility
There can be no assurance that the Units will continue to be qualified investments for registered retirement
savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings
plans, registered disability savings plans or tax-free savings accounts under the Income Tax Act (Canada) (the
“Tax Act”). In addition, a Unit may be a prohibited investment in respect of a registered disability savings plan,
registered education savings plan, registered retirement savings plan, registered retirement income fund or tax-
free savings account where, in general terms, the holder, subscriber or annuitant (as the case may be) does not
deal at arm’s length with the Fund or has a “significant interest” (as defined in the Tax Act) in the Fund. The Tax
Act imposes penalties for the acquisition or holding of non-qualified or prohibited investments.
Dependence of the Fund on the Trust, Holdings LP, BPI and BP Canada LP
The cash distributions to the Unitholders are entirely dependent on the ability of the Trust to pay its interest
obligations, if any, under the Series 1 Trust Notes, Series 2 Trust Notes and Series 3 Trust Notes (collectively,
the “Trust Notes”), and to make distributions on the units of the Trust (the “Trust Units”). The ability of the Trust
to pay its interest obligations or make distributions on Trust Units held by the Fund is entirely dependent upon the
ability of Holdings LP to make distributions on the limited partner units of Holdings LP held by the Trust. The
ability of Holdings LP to make distributions on limited partner units held by the Trust is entirely dependent upon
the ability of Royalties LP to make distributions on the limited partner units of Royalties LP held by Holdings LP
and upon BP Canada LP’s ability to pay Distribution Income on the limited partner units of BP Canada LP held
by Holdings LP.
The only sources of revenue of the Fund are: (i) the Royalty payable by BPI to Royalties LP; and (ii) Distribution
Income payable by BP Canada LP to Holdings LP. BP Canada LP collects franchise fees and other amounts
from Boston Pizza franchisees and BPI generates revenues from its corporate restaurants. In the conduct of the
business, BPI pays expenses and incurs debt and obligations to third parties. These expenses, debts and
obligations could impact the ability of BPI to pay the Royalty to Royalties LP, or of BP Canada LP to pay
Distribution Income to Holdings LP.
Royalties LP, Holdings LP and the Fund are each entirely dependent upon the operations and assets of BPI and
BP Canada LP to pay the Royalty to Royalties LP and Distribution Income to Holdings LP, and each is subject to
the risks encountered by BPI and BP Canada LP in the operation of their business, including the risks relating to
the casual dining restaurant industry referred to above and the results of operations and financial condition of BPI
and BP Canada LP.
Leverage Risks
Refinancing Risk – Royalties LP and Holdings LP have third-party debt service obligations under the Credit
Facilities. The degree to which Royalties LP and Holdings LP are leveraged could have important consequences
to Unitholders, including: (i) a portion of Royalties LP’s and Holdings LP’s cash flow from operations could be
dedicated to the payment of the principal of and interest on their indebtedness, thereby reducing funds available
for distribution to the Fund; and (ii) certain of Royalties LP’s and Holdings LP’s borrowings are at variable rates
of interest, which exposes them to the risk of increased interest rates. The Credit Facilities are due on July 1,
2026, at which time Royalties LP and Holdings LP will need to refinance such loans. There can be no assurance
that refinancing of this indebtedness will be available to Royalties LP or Holdings LP, or available to Royalties LP
or Holdings LP on acceptable terms. If Royalties LP and Holdings LP cannot refinance this indebtedness on
39
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 32 -
acceptable terms upon maturity, it will negatively impact the ability of Royalties LP and Holdings LP to make
distributions on their partnership securities, which in turn will negatively impact Distributable Cash and the Fund’s
ability to make distributions on the Units. Royalties LP’s and Holdings LP’s ability to make scheduled payments
of principal or interest on, or to refinance, their indebtedness depends on future cash flows, which is dependent
on Distribution Income Holdings LP receives from BP Canada LP, Royalty payments Royalties LP receives from
BPI, prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other
factors, many of which are beyond its control.
Restrictive Covenants – The Credit Facilities contain numerous restrictive covenants that limit the discretion of
Royalties LP’s and Holdings LP’s management with respect to certain business matters. These covenants place
restrictions on, among other things, the ability of Royalties LP and Holdings LP to incur additional indebtedness,
to create liens or other encumbrances, to pay distributions or make certain other payments, investments, loans
and guarantees, to sell or otherwise dispose of assets, to allow a change of control, to change the terms of their
limited partnership agreements and to merge or consolidate with another entity. A failure to comply with the
obligations in the Credit Facilities could result in an event of default which, if not cured or waived, could result in
the acceleration of the relevant indebtedness. If the indebtedness under the Credit Facilities were to be
accelerated, there can be no assurance that Royalties LP’s, Holdings LP’s and the Trust’s assets would be
sufficient to repay that indebtedness.
Interest Rate Risks – Interest rate risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. The Fund is exposed to interest rate risk primarily
through its long-term borrowings. Variations in interest rates could result in significant changes in the amount
required by the Fund to be applied to debt service that could negatively impact Distributable Cash and the Fund’s
ability to make distributions on the Units. The Fund manages exposure to interest rate risk primarily through fixing
a significant portion of the Fund’s interest rate debt and by evenly staggering interest rate swap expiry dates over
a longer period of time. See the “Liquidity & Capital Resources” section of this MD&A for more details on the
Fund’s long-term debt.
Risks Related to Debt of BPI
• BPI has third-party debt service obligations under its credit facilities with the Bank (the “BPI Credit
Facilities”) and with the Business Development Bank of Canada. The degree to which BPI is leveraged
could have important consequences to Unitholders, including: (i) a portion of BPI’s cash flow from
operations could be dedicated to the payment of the principal of and interest on BPI’s indebtedness,
thereby reducing funds available for payment of the Royalty; and (ii) certain of BPI’s borrowings are at
variable rates of interest. The BPI Credit Facilities are due on July 1, 2026, at which time BPI will need
to refinance such loans. There can be no assurance that refinancing of this indebtedness will be available
to BPI, or available to BPI on acceptable terms. If BPI cannot refinance this indebtedness on acceptable
terms upon maturity, it may negatively impact the ability of BPI to pay the Royalty. Given the Fund’s
dependence upon BPI, this may negatively impact Distributable Cash and the Fund’s ability to make
distributions on the Units. BPI’s ability to make scheduled payments of principal or interest on, or to
refinance, its indebtedness depends on future cash flows, which is dependent on the success of Boston
Pizza Restaurants, prevailing economic conditions, prevailing interest rate levels, and financial,
competitive, business and other factors, many of which are beyond its control.
• The BPI Credit Facilities contain numerous restrictive covenants that limit the discretion of BPI’s
management with respect to certain business matters. These covenants place restrictions on, among
other things, the ability of BPI to incur additional indebtedness, to create liens or other encumbrances, to
pay distributions or make certain other payments, investments, loans and guarantees, to sell or otherwise
dispose of assets, to allow a change of control, and to merge or consolidate with another entity. A failure
by BPI to comply with the obligations in the BPI Credit Facilities could result in an event of default which,
if not cured or waived, could result in the acceleration of the relevant indebtedness. If the indebtedness
under the BPI Credit Facilities were to be accelerated, there can be no assurance that BPI’s assets would
be sufficient to repay that indebtedness. If BPI were unable to repay that indebtedness, it would adversely
affect BPI’s ability to pay the Royalty, thereby negatively impacting Distributable Cash and the Fund’s
ability to make distributions on the Units.
40
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 33 -
• BPI is exposed to interest rate risk primarily through its long-term borrowings. Variations in interest rates
could result in significant changes in the amount required by BPI to be applied to debt service that could
negatively impact BPI’s ability to pay the Royalty. BPI monitors its exposure to interest rate risk by
monitoring the fluctuation in the bankers’ acceptance rates, prime interest rate and evaluates interest rate
swaps when necessary.
Risks Related to Debt of Franchisees – Numerous franchisees of BP Canada LP have third-party debt service
obligations under various credit arrangements with their lenders. The degree to which franchisees of
BP Canada LP are leveraged and the extent to which such franchisees are exposed to interest rate risk could
impact the amount of cash such franchisees are required to spend on debt service. In turn, this could negatively
impact the ability of such franchisees to pay BP Canada LP royalty and advertising fees and may increase the
probability of Boston Pizza Restaurants closing. As well, any failure of franchisees of BP Canada LP to either
comply with the agreements governing their third-party debt service obligations or to repay or refinance such debt
upon maturity could negatively impact the ability of such franchisees to pay BP Canada LP royalty and advertising
fees and may increase the probability of Boston Pizza Restaurants closing.
Cash Distributions are Not Guaranteed and Will Fluctuate with Royalties LP’s and Holdings LP’s Performance
Although the Fund’s policy is to distribute the total amount of cash received by the Fund from the Trust on the
Trust Units and the Trust Notes less the sum of: (a) administrative expenses and other obligations of the Fund;
(b) amounts which may be paid by the Fund in connection with any cash redemptions of Units; (c) any interest
expense incurred by the Fund; (d) any contractually required repayments of principal of the Fund’s indebtedness;
and (e) reasonable reserves established by the trustees of the Fund in their sole discretion, including, without
limitation, reserves established to pay SIFT Tax, in order to maximize returns to Unitholders, there can be no
assurance regarding the amounts of income to be generated by the Fund, Royalties LP or Holdings LP. The
actual amount distributed in respect of the Units will depend upon numerous factors, including amount of and
payment of Distribution Income by BP Canada LP, and the Royalty by BPI.
Restrictions on Certain Unitholders and Liquidity of Units
The Declaration of Trust imposes various restrictions on Unitholders. Unitholders that are non-residents of
Canada for the purposes of the Tax Act (“Non-residents”) and partnerships that are not Canadian partnerships
for purposes of the Tax Act are prohibited from beneficially owning more than 50% of the Units (on a non-diluted
and a fully-diluted basis). These restrictions may limit (or inhibit the exercise of) the rights of certain Unitholders,
including Non-residents, to acquire Units, to exercise their rights as Unitholders and to initiate and complete take-
over bids in respect of the Units. As a result, these restrictions may limit the demand for Units from certain
Unitholders and thereby adversely affect the liquidity and market value of the Units held by the public.
Fund not a Corporation
Investors are cautioned that the Fund is not generally regulated by established corporate law and Unitholders’
rights are governed primarily by the specific provisions of the Declaration of Trust of the Fund, which address
such items as the nature of the Units, the entitlement of Unitholders to cash distributions, restrictions respecting
non-resident holdings, meetings of Unitholders, delegation of authority, administration, Fund governance and
liabilities and duties of the trustees to Unitholders. As well, in the event of an insolvency or restructuring of the
Fund under Canadian insolvency legislation, the rights of Unitholders may be different from those of shareholders
of an insolvent or restructuring corporation.
Nature of Units
Securities such as the Units are hybrids in that they share certain attributes common to both equity securities and
debt instruments. The Units do not represent a direct investment in the Trust, Royalties LP or Holdings LP and
should not be viewed by investors as units in the Trust, Royalties LP or Holdings LP. Unitholders will not have
the statutory rights normally associated with ownership of shares of a corporation including, for example, the right
to bring “oppression” or “derivative” actions. The Units represent a fractional interest in the Fund. The Fund’s
41
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 34 -
only assets are Series 1 Trust Notes, Trust Units, common shares of Royalties GP and common shares of
Holdings GP. The price per Unit is typically a function of the anticipated amount of distributions.
Possible Unitholder Liability
The Declaration of Trust of the Fund provides that no Unitholder will be subject to any liability whatsoever to any
person in connection with the holding of Units. However, there remains a risk, which is considered by the Fund
to be remote in the circumstances, that a Unitholder could be personally liable despite such statement in the
Declaration of Trust for the obligations of the Fund to the extent that claims are not satisfied out of the assets of
the Fund. It is intended that the affairs of the Fund will be conducted to seek to minimize such risk wherever
possible. There is legislation under the laws of British Columbia (discussed below) and certain other provinces
which is intended to provide protection for beneficial owners of trusts.
On March 30, 2006, the Income Trust Liability Act (British Columbia) came into force. This legislation creates a
statutory limitation on the liability of beneficiaries of British Columbia income trusts such as the Fund. The
legislation provides that a unitholder of a trust will not be, as a beneficiary, liable for any act, default, obligation or
liability of the trustees. However, this legislation has not been judicially considered and it is possible that reliance
on the legislation by a Unitholder could be successfully challenged on jurisdictional or other grounds.
Distribution of Securities on Redemption of Units or Termination of the Fund
Upon a redemption of Units or termination of the Fund, the trustees may distribute Series 2 Trust Notes and
Series 3 Trust Notes directly to the Unitholders, subject to obtaining all required regulatory approvals. There is
currently no market for Series 2 Trust Notes or Series 3 Trust Notes. In addition, the Series 2 Trust Notes and
Series 3 Trust Notes are not freely tradable and are not currently listed on any stock exchange. Securities of the
Trust so distributed may not be qualified investments for trusts governed by registered retirement savings plans,
registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered
disability savings plans or tax free savings accounts and may be prohibited investments for registered disability
savings plans, registered education savings plans, registered retirement savings plans, registered retirement
income funds and tax free savings accounts, depending upon the circumstances at the time.
The Fund May Issue Additional Units Diluting Existing Unitholders’ Interests
The Declaration of Trust authorizes the Fund to issue an unlimited number of Units and Special Voting Units for
such consideration and on such terms and conditions as will be established by the trustees of the Fund without
the approval of any Unitholders. Additional Units will be issued by the Fund upon the exchange of the Class B
Units or Class 2 GP Units held by BPI or any related party.
Income Tax Matters
There can be no assurance that Canadian federal income tax laws will not be changed in a manner that adversely
affects the Fund and the Unitholders. If the Fund ceases to qualify as a “mutual fund trust” under the Tax Act,
the income tax treatment afforded to Unitholders would be materially and adversely different in certain respects.
Distributions on the Trust Units accrue at the Fund level for income tax purposes whether or not actually paid.
Similarly, the Royalty may accrue at the Royalties LP level, and Distribution Income may accrue at the
Holdings LP level, for income tax purposes whether or not actually paid. As a result, the income of Royalties LP
or Holdings LP allocated to the Fund (through the Trust and Holdings LP), in respect of a particular fiscal year
may exceed the cash distributed by Royalties LP or Holdings LP to the Fund (through the Trust and Holdings LP)
in such year. The Declaration of Trust provides that the trustees of the Fund may declare distributions to
Unitholders in such amounts as the trustees may determine from time to time. Where, in a particular year, the
Fund does not have sufficient available cash to distribute the amounts so declared to Unitholders (for instance,
where distributions on the Trust Units are due but not paid in whole or in part), the Declaration of Trust provides
that additional Units may be distributed to Unitholders in lieu of cash distributions. Unitholders will generally be
required to include an amount equal to the fair market value of those distributed Units in their taxable income.
42
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 35 -
The Fund is liable to pay the SIFT Tax. The payment of the SIFT Tax reduces the amount of cash available for
distributions to Unitholders.
Internal Control Over Financial Reporting
All internal control systems contain inherent limitations, no matter how well designed. As a result, management
acknowledges that its internal controls over financial reporting will not prevent or detect all misstatements due to
error or fraud. In addition, management's evaluation of internal controls can provide only reasonable, not absolute,
assurance that all internal control issues that may result in material misstatements, if any, have been detected.
ADDITIONAL INFORMATION
Additional information relating to the Fund, Royalties LP, Royalties GP, BPCHP, the Trust, Holdings LP, Holdings
GP, BPI and BP Canada LP, including the Fund’s Annual Information Form dated February 8, 2023, is available
on SEDAR at www.sedar.com and on the Fund’s website at www.bpincomefund.com.
NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain information in this MD&A constitutes “forward-looking information” that involves known and unknown
risks, uncertainties, future expectations and other factors which may cause the actual results, performance or
achievements of BPI, the Fund, the Trust, Royalties LP, Holdings LP, Holdings GP, Royalties GP, BPCHP, BP
Canada LP, Boston Pizza Restaurants, or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking information. When used in this
MD&A, forward-looking information may include words such as “estimate”, “may”, “will”, “expect”, “believe”, “plan”,
“should” and other similar terminology. This information reflects current expectations regarding future events and
operating performance and speaks only as of the date of this MD&A.
Forward-looking information in this MD&A includes, but is not limited to, such things as:
• future distributions and dates distributions are to be paid or payable;
• adjustments to Additional Entitlements that are to occur in the future and when such adjustments will
occur;
• how changes in distributions will be implemented;
• how distributions will be funded;
• BPI management modifying operations and procedures of Boston Pizza Restaurants to ensure the safety
of guests and employees of BP Canada LP’s franchisees and to mitigate challenges related to supply
chain, rising interest rates, increasing input costs and labour shortages;
• debt of franchisees of BP Canada LP, including degree of debt leverage and interest rate risk;
• the trustees of the Fund will continue to closely monitor the Fund’s available cash balances given the
volatile economic outlook
;
• continued improved performance and guest traffic due to the easing and elimination of government-
imposed COVID-19 restrictions in the Canadian restaurant industry;
• BPI and BP Canada LP’s ability to implement strategies driving higher guest traffic and increased average
cheque levels;
• the Fund’s expectation that future distributions will continue to be funded entirely by cash flows from
operations;
• the Fund’s current sources of liquidity being sufficient to cover its currently known short and long-term
obligations;
• impact of seasonality on Franchise Sales and Payout Ratio; and
• estimated effective tax rate.
The forward-looking information disclosed herein is based on a number of assumptions including, among other
things:
• the Fund maintaining the same distribution policy;
43
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 36 -
• absence of amendments to material contracts;
• no strategic changes of direction occurring;
• absence of changes in law;
• protection of BP Rights;
• pace of commercial real estate development;
• franchisees’ access to financing;
• franchisees duly paying franchise fees and other amounts;
• no closures of Boston Pizza Restaurants that materially affect the amount of Royalty or Distribution
Income paid by BPI and BP Canada LP, respectively, to the Fund;
• future results being similar to historical results;
• expectations related to future general economic conditions;
• management of BPI and BP Canada LP maintaining current strategies to drive higher guest traffic and
higher average guest cheques;
• Boston Pizza Restaurants maintaining operational excellence;
• culinary innovation and menu re-pricing;
• continuing operations of key suppliers;
• availability of experienced management and hourly employees;
• the absence of significant supply chain interruptions;
• ability to mitigate rising interest rates and input costs;
• ability to obtain qualified franchisees;
• ability to open sufficient New Restaurants to replace Franchise Sales of Closed Restaurants;
• ability to comply with disclosure obligations under franchise laws and regulations;
• ability to obtain adequate insurance coverage;
• ability to invest in new equipment and technology;
• ability to enter into arrangements with suppliers and distributors to generate competitive pricing for
franchisees and revenue for BP Canada LP;
• ability to adapt to changes in operating environments and economic condition;
• no additional increases in SIFT Tax and sales tax rates;
• COVID-19 may continue to negatively impact Boston Pizza dining rooms and sports bars across Canada;
and
• COVID-19 and its related restrictions will continue to dissipate.
This forward-looking information involves a number of risks, uncertainties and future expectations including, but
not limited to:
• competition;
• consumer spending habits;
• consumer confidence in the retail sector;
• household debt;
• weather;
• pricing;
• changes in demographic trends;
• changes in consumer preferences and discretionary spending patterns;
• changes in national and local business and economic conditions;
• legislation and government regulation;
• cash distributions are not guaranteed;
• accounting policies and practices;
• the results of operations and financial conditions of BPI and the Fund;
• inflation;
• rising interest rates;
• publicity from any food borne illness;
• increase in food, labour or benefits costs;
• Boston Pizza Restaurant closures;
44
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA ROYALTIES INCOME FUND
For the Period and Year ended December 31, 2022
- 37 -
• successful challenge of the BP Rights;
• inadequacy of insurance coverage;
• increases in the rate of SIFT Tax and sales tax;
• litigation against franchisees;
• inability to attract and retain key personnel;
• data security breaches and technological failures;
• global disruptions including geopolitical events, war or hostilities, terrorist or military activities, or natural
disasters; and
• pandemics and national health crises, in particular COVID-19.
The foregoing list of factors is not exhaustive and should be considered in conjunction with the risks and
uncertainties set out in this MD&A.
This MD&A discusses some of the factors that could cause actual results to differ materially from those expressed
in or underlying such forward-looking information. Forward-looking information is provided as of the date hereof
and, except as required by law, the Fund assumes no obligation to update or revise forward-looking information
to reflect new events or circumstances.
45
MANAGEMENT’S STATEMENT OF RESPONSIBILITIES
The accompanying consolidated financial statements are the responsibility of management and have been
reviewed and approved by the Trustees of Boston Pizza Royalties Income Fund (the “Fund”). The
consolidated financial statements have been prepared by management in accordance with International
Financial Reporting Standards and, where appropriate, reflect management’s best estimates and
judgments.
Management maintains appropriate policies, procedures and systems of internal control which provide
reasonable assurance that the Fund’s assets are safeguarded and the financial records are relevant,
reliable, and provide a proper basis for the preparation of the consolidated financial statements and other
financial information.
The Board of Directors of Boston Pizza GP Inc. and the Trustees of the Fund ensure that management
fulfills its responsibilities for financial reporting and internal control through the Audit Committee. The Audit
Committee meets with management and meets independently with the external auditors to satisfy itself that
management’s responsibilities are properly discharged. The Audit Committee also reviews the consolidated
financial statements and reports to the Trustees of the Fund. The Fund’s external auditors have full and
direct access to the Audit Committee.
The consolidated financial statements have been independently audited by KPMG LLP in accordance with
Canadian generally accepted auditing standards. Their report follows and expresses their opinion on the
Fund’s consolidated financial statements.
Marc Guay
Chairman, Boston Pizza Royalties Income Fund
on behalf of the Trustees
February 8, 2023
46
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
KPMG Canada provides services to KPMG LLP.
INDEPENDENT AUDITOR’S REPORT
To Unitholders of Boston Pizza Royalties Income Fund
Opinion
We have audited the consolidated financial statements of Boston Pizza Royalties Income
Fund (the “Fund”) which comprise:
•
the consolidated statements of financial position as at December 31, 2022 and
December 31, 2021
•
the consolidated statements of comprehensive income for the years then ended
•
the consolidated statements of changes in Unitholders’ equity for the years then
ended
•
the consolidated statements of cash flows for the years then ended
•
and notes to the consolidated financial statements, including a summary of significant
accounting policies
(hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material
respects, the consolidated financial position of the Fund as at December 31, 2022 and
December 31, 2021, and its consolidated financial performance and its consolidated cash
flows for the years then ended in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in the
“Auditor’s Responsibilities for the Audit of the Financial Statements” section of our
auditor’s report.
We are independent of the Fund in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Canada and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
47
Boston Pizza Royalties Income Fund
Page 2
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements for the year ended December 31,
2022. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be
communicated in our auditor’s report.
Assessment of the recoverable amount of Intangible assets – BP Rights
Description of the matter
We draw attention to Notes 2(c), 3(i) and 6 to the financial statements. The Intangible
assets – BP Rights are measured at historical cost and have a carrying value of $284,188
thousand. The Fund performs an impairment test over the Intangible assets - BP Rights
annually or when events or changes in circumstances indicate that the carrying value
exceeds its recoverable amount. The recoverable amount is the higher of fair value less
costs to sell and value in use. In determining the recoverable amount of the Intangible
assets - BP Rights, the Fund’s significant assumptions include projected franchise sales
by restaurants that are in the Royalty Pool and pre-tax discount rate.
Why the matter is a key audit matter
We identified the assessment of the recoverable amount of Intangible assets – BP Rights
as a key audit matter. This matter represented an area of significant risk of misstatement
given the high degree of estimation uncertainty in determining the recoverable amount.
Minor changes in projected franchise sales by restaurants that are in the Royalty Pool
and pre-tax discount rate had a significant effect on the recoverable amount. These
factors indicated a significant risk of material misstatement. As a result, specialized skills
and knowledge and significant auditor judgment were required in evaluating the results
of our audit procedures.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter:
We evaluated the appropriateness of the Fund’s projected franchise sales by restaurants
that are in the Royalty Pool by comparing the projected franchise sales to historical
franchise sales and external industry reports. When performing this assessment, we
considered specific conditions and events affecting the franchise sales.
We compared the Fund’s historical franchise sales growth rate expectations to actual
results to assess the Entity’s ability to accurately predict franchise sales growth.
We involved valuation professionals with specialized skills and knowledge, who assisted
in the evaluation of the pre-tax discount rate used in the determination of the recoverable
amount. The valuation professionals evaluated the pre-tax discount rate by comparing it
against a pre-tax discount rate range that was independently developed using publicly
available market data for comparable entities. The valuation professionals considered
features and risks specific to the Intangible assets – BP Rights.
48
Boston Pizza Royalties Income Fund
Page 3
Other Information
Management is responsible for the other information. Other information comprises:
•
the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions.
•
the information, other than the financial statements and the auditor’s report thereon,
included in a document likely to be entitled “Glossy Annual Report”.
Our opinion on the financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge
obtained in the audit and remain alert for indications that the other information appears
to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed
with the relevant Canadian Securities Commissions as at the date of this auditor’s report.
If, based on the work we have performed on this other information, we conclude that there
is a material misstatement of this other information, we are required to report that fact in
the auditor’s report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor’s report thereon,
included in a document likely to be entitled “Glossy Annual Report” is expected to be
made available to us after the date of this auditor’s report. If, based on the work we will
perform on this other information, we conclude that there is a material misstatement of
this other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with
Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), and for such internal
control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the
Fund’s ability to continue as a going concern, disclosing as applicable, matters related
to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Fund or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Fund’s financial
reporting process.
49
Boston Pizza Royalties Income Fund
Page 4
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally auditing standards, we
exercise professional judgment and maintain professional skepticism throughout the
audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
•
Obtain an understanding of internal control relevant to the audit 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 Fund’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by management.
•
Conclude on the appropriateness of management's use of the going concern basis
of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt on
the Fund’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause
the Fund to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
•
Communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
50
Boston Pizza Royalties Income Fund
Page 5
•
Provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them
all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
•
Determine, from the matters communicated with those charged with governance,
those matters that were of most significance in the audit of the financial statements
of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our auditor’s report because the adverse
consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditor’s report is
Michael J. Kennedy.
Vancouver, Canada
February 8, 2023
51
1
BOSTON PIZZA ROYALTIES INCOME FUND
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
December 31,
2022
December 31,
2021
Assets
Current assets
Cash and cash equivalents
$
5,213
$
5,162
Royalty receivable from Boston Pizza International Inc. (note 14)
3,330
2,602
Distributions receivable from Boston Pizza Canada Limited
Partnership (note 14)
1,042
820
Prepaid expenses
121
105
Interest rate swaps (note 7)
1,592
215
11,298
8,904
Interest rate swaps (note 7)
2,628
615
Investment in Units of Boston Pizza Canada Limited Partnership (note 5)
115,587
117,606
Intangible assets – BP Rights (note 6)
284,188
284,188
Total assets
$
413,701
$
411,313
Liabilities and Unitholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
$
544
$
586
Distributions payable to Fund unitholders (note 11(c))
2,195
1,829
Interest payable on Class B Units (note 14)
303
265
Current income tax payable (note 4)
34
24
Interest rate swaps (note 7)
-
360
Credit Facilities (note 7)
-
87,963
3,076
91,027
Interest rate swaps (note 7)
-
141
Credit Facilities (note 7)
86,440
-
Deferred income taxes (note 4)
6,950
6,790
Class B Unit Liability (note 8)
36,657
37,556
Total liabilities
133,123
135,514
Unitholders’ equity
Fund Units (note 11)
325,048
325,048
Accumulated deficit (note 12)
(44,470)
(49,249)
280,578
275,799
Total liabilities and unitholders’ equity
$
413,701
$
411,313
Subsequent events (note 17)
The accompanying notes are an integral part of these consolidated financial statements.
___________________
Marc Guay
___ ________________
David Merrell
52
2
BOSTON PIZZA ROYALTIES INCOME FUND
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2022 and 2021
(Expressed in thousands of Canadian dollars, except per Fund Unit data)
2022
2021
Revenue
Royalty income (note 13)
$
34,200
$
26,402
Distribution income (note 13)
11,273
8,752
Total revenue
45,473
35,154
Administration charge from Boston Pizza International Inc.
400
400
Professional fees
231
247
Other administrative expenses
493
458
Trustee fees and expenses
266
194
Total administrative expenses
1,390
1,299
Earnings before interest, fair value (gain) loss on financial instruments and
income taxes
44,083
33,855
Interest expense on debt and financing fees
3,614
3,879
Interest expense on Class B Unit Liability (note 8)
3,690
2,506
Interest income
(107)
(94)
Net interest expense
7,197
6,291
Profit before fair value (gain) loss and income taxes
36,886
27,564
Fair value loss (gain) on investment in Boston Pizza Canada Limited Partnership
(note 5)
2,019
(25,206)
Fair value (gain) loss on Class B Unit Liability (note 8)
(899)
11,229
Fair value gain on interest rate swaps (note 7)
(3,891)
(2,303)
Total fair value gain
(2,771)
(16,280)
Earnings before income taxes
39,657
43,844
Current income tax expense (note 4)
8,914
6,307
Deferred income tax expense (note 4)
160
130
Total tax expense
9,074
6,437
Net and comprehensive income for the period
$
30,583
$
37,407
Net earnings per Fund Unit
Basic (note 3(f))
$
1.42
$
1.74
Diluted (note 3(f))
$
1.31
$
1.74
Weighted average Fund Units outstanding
21,521,463
21,521,463
Weighted average fully diluted Fund Units outstanding
24,783,640
24,783,640
The accompanying notes are an integral part of these consolidated financial statements.
53
3
BOSTON PIZZA ROYALTIES INCOME FUND
Consolidated Statements of Changes in Unitholders’ Equity
(Expressed in thousands of Canadian dollars)
Fund Units
Accumulated
deficit
Total
unitholders’
equity
Balance – January 1, 2022
$
325,048
$
(49,249)
$
275,799
Net and comprehensive income for the period
-
30,583
30,583
Distributions declared (note 11(c))
-
(25,804)
(25,804)
Balance – December 31, 2022
$
325,048
$
(44,470)
$
280,578
Balance – January 1, 2021
$
325,048
$
(68,148)
$
256,900
Net and comprehensive income for the period
-
37,407
37,407
Distributions declared (note 11(c))
-
(18,508)
(18,508)
Balance – December 31, 2021
$
325,048
$
(49,249)
$
275,799
The accompanying notes are an integral part of these consolidated financial statements.
54
4
BOSTON PIZZA ROYALTIES INCOME FUND
Consolidated Statements of Cash Flows
For the years ended December 31, 2022 and 2021
(Expressed in thousands of Canadian dollars)
2022
2021
Operating activities
Net and comprehensive income for the period
$
30,583
$
37,407
Adjustments for:
Fair value loss (gain) on investment in Boston Pizza Canada Limited
Partnership
2,019
(25,206)
Fair value (gain) loss on Class B Unit Liability
(899)
11,229
Fair value gain on interest rate swaps
(3,891)
(2,303)
Interest expense on Class B Unit Liability
3,690
2,506
Deferred income tax expense
160
130
Current income tax expense
8,914
6,307
Interest expense on debt and financing fees
3,614
3,879
Interest income
(107)
(94)
Changes in non-cash working capital
(931)
3,046
Current income tax paid
(8,904)
(6,520)
Interest received
107
94
Net cash generated from operating activities
34,355
30,475
Financing activities
Distributions paid to Fund unitholders
(25,438)
(22,382)
Interest paid on Class B Unit Liability
(3,652)
(3,152)
Interest paid on long-term debt
(3,576)
(3,692)
Repayment of long-term debt
(1,500)
(3,787)
Payment of deferred financing fees
(138)
-
Net cash used in financing activities
(34,304)
(33,013)
Increase (decrease) in cash and cash equivalents
51
(2,538)
Cash and cash equivalents – beginning of year
5,162
7,700
Cash and cash equivalents – end of year
$
5,213
$
5,162
Supplemental cash flow information (note 16)
The accompanying notes are an integral part of these consolidated financial statements.
55
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
5
1. General Information:
(a) Organization:
Boston Pizza Royalties Income Fund together with its subsidiaries (note 3(b)) (the “Fund”) is an
unincorporated open-ended limited purpose trust established under the laws of the Province of
British Columbia, Canada, and is governed by the Declaration of Trust signed June 10, 2002, and
as amended and restated on July 17, 2002, September 22, 2008, and December 7, 2010. The
Fund’s principal business office is located at 13571 Commerce Parkway, Richmond, BC.
The Fund was established to indirectly, through Royalties LP (note 3 (b)), acquire the trademarks
and trade names owned by Boston Pizza International Inc. (Boston Pizza International Inc.
together with its wholly-owned subsidiaries, “BPI”) (note 3(b)) including “Boston Pizza” and other
similar related items, logos and designs (collectively, the “BP Rights”) used in connection with the
operation of Boston Pizza restaurants in Canada (“Boston Pizza Restaurants”). The BP Rights
do not include the rights outside of Canada to any trademarks or trade names used by BPI or any
affiliated entities in its business, and in particular do not include the rights outside of Canada to
the trademarks registered or pending registration under the Trademarks Act (Canada). The Fund
also holds an investment indirectly, through Holdings LP (note 3(b)), in Boston Pizza Canada
Limited Partnership (“BP Canada LP”). BP Canada LP is a limited partnership controlled and
operated by BPI and is the exclusive franchisor of Boston Pizza Restaurants in Canada. The rights
to operations outside of Canada are owned by an affiliated company.
(b) Nature of operations:
The Fund, as indirect owner of the BP Rights, has granted BPI exclusive license to the use of the
BP Rights for a term of 99 years beginning in July 2002 (the “License and Royalty Agreement”).
In return, BPI pays the Fund a royalty of 4.0% (the “Royalty”) of franchise sales (“Franchise
Sales”) of Boston Pizza Restaurants in the Royalty Pool (the “Royalty Pool”) as defined in the
License and Royalty Agreement. The Fund, through its indirect investment in BP Canada LP is
entitled to receive a distribution equal to 1.5% of Franchise Sales of Boston Pizza Restaurants in
the Royalty Pool less the pro rata portion payable to BPI in respect of its retained interest in the
Fund (the “Distribution”). There are 383 Boston Pizza Restaurants in the Royalty Pool as at
December 31, 2022 (December 31, 2021 – 387).
Substantially all of the Fund’s revenues are earned from certain operations of BPI and BP Canada
LP, accordingly, the revenues of the Fund and its ability to pay distributions to Fund unitholders
are dependent on the ongoing ability of BPI and BP Canada LP to generate and pay Royalty and
Distribution to the Fund.
COVID-19 continued to impact the business of the Fund, BPI and BP Canada LP, and the
operation of Boston Pizza Restaurants during 2021 and the first half of 2022. Since then, COVID-
19 case counts have improved, government restrictions related to COVID-19 have largely been
eliminated, and sales levels of Boston Pizza Restaurants have returned to more normal levels
when compared to times prior to COVID-19.
56
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
6
2. Basis of preparation:
(a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”).
These consolidated financial statements were authorized for issue by the Trustees of the Fund on
February 8, 2023.
(b) Functional and presentation currency:
These consolidated financial statements are presented in Canadian dollars, which is the Fund’s
functional currency.
(c) Use of estimates and judgments:
The preparation of these consolidated financial statements in accordance with IFRS requires
management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income, and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised.
Judgment
• Consolidation
Applying the criteria outlined in IFRS 10, judgment is required in determining whether the
Fund controls Royalties LP. Making this judgement involves taking into consideration the
concepts of power over Royalties LP, exposure and rights to variable returns, and the
ability to use power to direct the relevant activities of Royalties LP so as to generate
economic returns. Using this criteria management has determined that the Fund
ultimately controls Royalties LP through its 80% ownership of the managing general
partner, Boston Pizza GP Inc.
Estimates
• Intangible Assets – the BP Rights (note 6)
The Fund carries the BP Rights at historical cost comprising the amount of consideration
paid for the BP Rights in 2002, as well as the value of additional Boston Pizza Restaurants
rolled into the Royalty Pool to date. The value of additional Boston Pizza Restaurants
added to the Royalty Pool is determined on a formula basis that is designed to estimate
the present value of the cash flows that would ultimately be payable to the Fund as a result
of the new Boston Pizza Restaurants being added to the Royalty Pool. The calculation is
dependent on a number of different variables including the estimated sales of the new
Boston Pizza Restaurants for the calendar year in which they are rolled into the Royalty
Pool and the tax rate. The value assigned to the new Boston Pizza Restaurants, and as
a result, the value assigned to the BP Rights, could differ from actual results.
57
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
7
2. Basis of preparation (continued):
(c) Use of estimates and judgments (continued):
The impairment test requires that the Fund use a valuation technique to determine if
impairment exists (refer to note 3(i)). The valuation of the intangibles is based on a value
in use approach, and depends on certain significant assumptions including projected
Franchise Sales by restaurants that are in the Royalty Pool and the pre-tax discount rate.
This valuation technique may not represent the actual recoverable amount that the Fund
expects the BP Rights to generate. The Fund concluded that the recoverable amount
exceeds the carrying amount of the BP Rights therefore, no impairment was recorded for
the year ended December 31, 2022.
• Investment in Boston Pizza Canada Limited Partnership Fair Value Adjustment (note 5)
The Fund records its investment in BP Canada LP at fair value. The investment consists
of Class 1 limited partnership units (“Class 1 LP Units”) and Class 2 limited partnership
units (“Class 2 LP Units”). This requires that the Fund use a valuation technique to
determine the value of the investment in BP Canada LP at each reporting date (refer to
note 9).
This valuation technique may not represent the actual value of the financial asset and
could materially impact the Fund’s financial position and net and comprehensive income.
• Class B Unit Fair Value Adjustment (note 8)
The Fund records a liability in respect of Class B general partner units (“Class B Units”)
of Royalties LP (the “Class B Unit Liability”) at fair value. This requires that the Fund
use a valuation technique to determine the value of the Class B Unit Liability at each
reporting date (refer to note 9).
This valuation technique may not represent the actual value of the financial liability should
such units be extinguished and changes in the distribution rate on the Class B Units and
the yield of the units of the Fund (“Fund Units”) could materially impact the Fund’s
financial position and net and comprehensive income.
3. Significant accounting policies:
The significant accounting policies used in the preparation of these consolidated financial statements
are described below.
(a) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis except for
the following material items in the statements of financial position:
• The investment in BP Canada LP (Class 1 LP Units and Class 2 LP Units) is measured at fair
value through the statement of comprehensive income.
• Class B Unit Liability is measured at fair value through the statement of comprehensive
income.
58
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
8
3. Significant accounting policies (continued):
(a) Basis of measurement (continued):
• The Fund holds derivative financial instruments to manage its interest rate exposure. Financial
derivatives not using hedge accounting are recognized initially at fair value;
attributable transaction costs are recognized in profit and loss as incurred. Subsequent to
initial recognition, financial derivatives are recognized at fair value and changes therein are
accounted for through the consolidated statement of comprehensive income.
(b) Consolidation:
These consolidated financial statements include the accounts of Boston Pizza Royalties Income
Fund, its wholly-owned subsidiaries Boston Pizza Holdings Trust (the “Trust”), Boston Pizza
Holdings GP Inc. and Boston Pizza Holdings Limited Partnership (“Holdings LP”), its 80%-owned
subsidiary Boston Pizza GP Inc. (“BPGP”) and its interest in Boston Pizza Royalties Limited
Partnership (“Royalties LP”). BPGP is the managing general partner of Royalties LP. The 20%
residual ownership of BPGP is owned by BPI directly or indirectly. BPI is a general partner of
Royalties LP.
Subsidiaries are those entities which the Fund controls by having the power to govern the financial
and operating policies of such entities to obtain economic benefits from their relevant activities.
The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Fund directs the activities of another entity.
(c) Cash and cash equivalents:
Cash and cash equivalents consist of cash on hand and balances on deposit with banks.
(d) Revenue:
Royalty, Distribution, and interest income are recognized on the accrual basis and is accrued for
when earned. Royalty from BPI to the Fund are 4%, and Distribution from BPI to the Fund are
1.5% less the pro rata portion payable to BPI in respect of its retained interest in the Fund, of
Franchise Sales for such period reported by BPI for Boston Pizza Restaurants in the Royalty Pool.
Refer to note 1(b) for further information.
(e) Distributions on Fund Units:
Declarations of distributions from the Fund are at the discretion of the Trustees of the Fund. The
amount of cash available to be distributed to Fund unitholders is determined with reference to the
Fund’s cash flow from operations adjusted for items such as BPI’s entitlements in respect of its
Class B Units, interest paid on long-term debt, contractually required debt repayments, specified
investment flow-through (“SIFT”) tax expense and SIFT tax paid.
Distributions are recorded when declared and are subject to the Fund retaining such reasonable
working capital reserves as may be considered appropriate by the Trustees of the Fund.
59
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
9
3.
Significant accounting policies (continued):
(f) Basic and diluted earnings per Fund Unit:
Basic earnings per Fund Unit is based on the weighted average number of Fund Units outstanding
during the period. Diluted earnings per Fund Unit is based on the weighted average number of
Fund Units, including BPI’s Class B Units (note 8) and Class 2 general partnership units of
BP Canada LP (“Class 2 GP Units”) (note 5) outstanding during the period.
Diluted earnings per Fund Unit includes the Class B Units and Class 2 GP Units and is calculated
by adjusting the weighted average number of Fund Units outstanding to assume conversion of all
Class B Units and Class 2 GP Units.
For the year ended December 31, 2022, the basic and diluted earnings per Fund Unit are $1.42
and $1.31 respectively. For December 31, 2021, the basic and diluted earnings per Fund Unit
was $1.74. When diluted earnings are anti-dilutive, diluted earnings per Fund Unit is considered
equal to basic earnings per Fund Unit.
The following reconciles the basic earnings to the diluted earnings:
(in thousands, except per Fund Unit data)
2022
2021
Net income for the period
$
30,583
$
37,407
Increase in Distribution income to the Fund
1,552
1,149
Decrease in interest expense on Class B Unit Liability
3,690
2,506
Fair value (gain) loss on Class B Unit Liability
(899)
11,229
Increase in Fund’s current and deferred income taxes
(2,523)
(2,127)
Fund’s diluted earnings
32,403
50,164
Weighted average fully diluted Fund Units outstanding
24,783,640
24,783,640
Diluted earnings per Fund Unit
$
1.31
$
2.02
(Dilutive)
(Anti-Dilutive)
(g) Financial instruments:
(i) Recognition, classification and measurement:
Financial assets are classified and measured based on the business model in which they are
held and the characteristics of their contractual cash flows.
All financial assets are initially recorded at fair value and subsequently classified as measured
at amortized cost, fair value through other comprehensive income (“FVOCI”), or fair value
through profit and loss (“FVTPL”).
A financial asset is measured at amortized cost if it meets both of the following conditions and
is not designated as FVTPL:
• the asset is held within a business model whose objective is to hold the asset to collect
contractual cash flows; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
60
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
10
3.
Significant accounting policies (continued):
(g) Financial instruments (continued):
A debt security is measured at FVOCI only if it meets both of the following conditions and is
not designated as FVTPL:
• the asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity instrument that is not held for trading, the Fund may
irrevocably elect to present subsequent changes in fair value in OCI. This election is made on
an investment-by-investment basis. All other financial assets are classified as measured at
FVTPL.
All financial liabilities are initially recorded at fair value and subsequently classified as
measured at amortized cost or FVTPL. On initial recognition, the Fund may irrevocably
designate a financial liability at FVTPL when doing so results in more relevant information,
because either:
• the designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise from measuring assets or liabilities or
recognizing the gains and losses on them on different bases; or
• a group of financial liabilities or financial assets and financial liabilities is managed with its
performance evaluated on a fair value basis, in accordance with a documented risk
management or investment strategy, and information about the group is provided
internally on that basis to key management personnel.
For financial assets classified as measured at FVTPL or designated at FVTPL, changes in fair
value are recognized in the consolidated statement of comprehensive income. For financial
assets classified as measured at FVOCI or an irrevocable election has been made, changes
in fair value are recognized in the consolidated statement of comprehensive income. For
financial assets and other financial liabilities measured at amortized cost, interest income and
interest expense are calculated using the effective interest method and is recognized in the
consolidated statement of comprehensive income.
(ii) Business model assessment:
The Fund makes an assessment of the objective of a business model in which an asset is
held at a portfolio level because this best reflects the way the asset is managed and
information is provided to management. The information considered includes:
• how the performance of the portfolio is evaluated and reported to management;
• how managers of the business are compensated;
• whether the assets are held for trading purposes;
61
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
11
3.
Significant accounting policies (continued):
(g) Financial instruments (continued):
• the risks that affect the performance of the financial assets held within the business model
and how those risks are managed; and
• the frequency, volume and timing of sales in prior periods, the reasons for such sales and
its expectations about future sale activity.
(iii) Contractual cash flow characteristics assessment:
In assessing whether the contractual cash flows are solely payments of principal and interest,
‘principal’ is defined as the fair value of the financial asset on initial recognition and ‘interest’
is defined as consideration for the time value of money and for the credit risk associated with
the principal amount outstanding during a particular period of time and for other basic lending
risks and costs, as well as a profit margin.
The Fund considers the contractual terms of the financial asset and whether the asset
contains contractual terms that could change the timing or amount of cash flows such that it
would not meet the condition of principal and interest. Contractual terms considered in this
assessment include contingent events that would change the amount and timing of cash flows,
leverage features, prepayment and extension terms, terms that limit the claim to cash flows
from specified assets, and features that modify the consideration from time value of money.
(h) Impairment of financial assets:
Credit-impaired financial assets
At each reporting date, the Fund assesses whether financial assets carried at amortized cost are
credit impaired. A financial asset is ‘credit impaired’ when one or more events that have a
detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or being more than 90 days past due;
• the restructuring of a loan or advance by the Fund on terms that the Fund would not
consider otherwise;
• it is probable that the borrower will enter bankruptcy or other financial reorganization; or
• the disappearance of an active market for a security because of financial difficulties.
Loss allowances for financial assets measured at amortized cost are deducted from the gross
carrying amounts of the assets.
Financial instruments and contract assets
The Fund recognizes loss allowances for expected credit losses (“ECL”) on:
• financial assets measured at amortized cost;
• debt investments measured at fair value through other comprehensive income; and
• contracted assets.
62
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
12
3. Significant accounting policies (continued):
(h) Impairment of financial assets (continued):
The Fund measures loss allowances at an amount equal to lifetime ECLs, except for the following,
which are measured at 12-month ECLs:
• debt securities that are determined to have low credit risk at the reporting date; and
• other debt securities and bank balances for which the credit risk has not increased significantly
since initial recognition.
Loss allowances for trade receivables are measured at an amount equal to lifetime ECLs. Lifetime
ECLs are the ECL that result from all possible default events over the expected life of a financial
instrument. ECLs are probability-weighted estimate of credit losses, and credit losses are
measured as the present value of cash shortfalls from a financial asset.
The Fund determines whether the credit risk of a financial asset has increased significantly since
initial recognition and when estimating lifetime ECLs, by considering reasonably available
quantitative and qualitative information based on the Fund’s credit risk experience, forward looking
information, and other reasonable estimates.
(i) Impairment of non-financial assets:
Long-lived assets are tested for impairment when events or changes in circumstances indicate
that the carrying amount may not be recoverable. Long-lived assets that are not amortized, such
as the BP Rights, are also subject to an annual impairment test (note 6). For the purpose of
measuring recoverable amounts, assets are grouped at the lowest levels for which there are
separately identifiable cash flows. The recoverable amount is the higher of an asset’s fair value
less costs to sell and value in use (being the present value of the expected future cash flows of
the relevant asset). An impairment loss is recognized for the amount by which the asset’s carrying
amount exceeds its recoverable amount. Impairment losses may be reversed if the fair value of
the asset is determined to be greater than its carrying amount.
The Fund tested the BP Rights for impairment at December 31, 2022 and determined no
impairment exists (note 6).
(j) Identifiable long-lived assets:
Long-lived assets consist of the BP Rights (note 6). The long-lived assets are indefinite life assets
and are not amortized but tested for impairment on an annual basis and when indicators of
impairment exist.
(k) Accounting standards and amendments issued but not yet adopted:
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
On February 12, 2021, the IASB issued Disclosure of Accounting Policies (Amendments to IAS 1
and IFRS Practice Statement 2). The amendments are effective for annual periods beginning on
or after January 1, 2023 with earlier adoption permitted. The amendments require the disclosure
of material accounting policies rather than significant accounting policies. The Fund has done an
63
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
13
3. Significant accounting policies (continued):
(k) Accounting standards and amendments issued but not yet adopted (continued):
initial assessment of these amendments and does not anticipate an impact to the Fund’s business,
financial statements or disclosure. The Fund intends to adopt these amendments in its
consolidated financial statements for the annual period beginning on January 1, 2023.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued Presentation of Financial Statements (Amendments to IAS
1) and on October 31, 2022, the IASB issued Non-current Liabilities with Covenants (Amendments
to IAS 1). The amendments are effective for annual periods beginning on or after January 1, 2024.
These amendments clarify the classification of liabilities as current or non-current and improve the
information a company provides about long-term debt with covenants. For the purposes of non-
current classification, the amendments removed the requirement for a right to defer settlement or
roll over of a liability for at least twelve months to be unconditional. Instead, such a right must exist
at the end of the reporting period and have substance. In addition, covenants with which a
company must comply after the reporting date do not affect the liability’s classification at the
reporting date. The Fund has done an initial assessment of these amendments and does not
anticipate an impact on the Fund’s business, financial statements or disclosure. The Fund intends
to adopt these amendments in its consolidated financial statements for the annual period
beginning on January 1, 2024.
4. Income taxes:
The Fund has recorded current income tax expense of $8.9 million for the year ended December 31,
2022 (December 31, 2021 – $6.3 million). The current income tax position (receivable or payable) is
the cumulative result of the Fund’s SIFT tax installments above the Fund’s SIFT tax expense.
The reconciliation to statutory tax rate is as follows:
(in thousands, except tax rate)
2022
2021
Earnings before income taxes
$
39,657
$
43,844
Combined Canadian federal and provincial rate
27.0%
27.0%
Computed expected tax expense
10,707
11,838
Current year’s earnings not taxable
(2,040)
(1,812)
Current year’s earnings that are taxable
407
(3,589)
Total tax expense per statement of income
$
9,074
$
6,437
The Fund has recorded a deferred income tax expense of $0.2 million for the year ended December
31, 2022 (December 31, 2021 – $0.1 million). The total balance of $7.0 million in deferred income tax
liability (December 31, 2021 – $6.8 million) arises as a result of the Fund recognizing, in the current
period, its cumulative share of the temporary differences between the accounting and tax bases of the
BP Rights owned by the Royalties LP generated since the inception of the Fund. This expense had
no impact on the Fund’s cash flow for the period.
As at December 31, 2022, there is an unrecognized deductible temporary difference associated with
the Fund’s investments in BP Canada LP of $2.1 million (2021 – $3.1 million) as it is not probable that
taxable profit will be available against which the deductible temporary difference can be utilized.
64
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
14
5. Investment in Units of Boston Pizza Canada Limited Partnership:
Limited partnership units
The investment in BP Canada LP is comprised of Class 1 LP Units and Class 2 LP Units. The Class 1
LP Units and Class 2 LP Units are held indirectly by the Fund and entitle the Fund to a cash distribution
equal to 1.5% of Franchise Sales of Boston Pizza Restaurants in the Fund’s Royalty Pool, less the
pro rata portion payable to BPI in respect of its retained interest in the Fund. Refer to note 9 for the
fair value calculation of the investment in BP Canada LP.
(in thousands, except per unit data)
Issued and
outstanding LP
Units
Investment in
BP Canada LP
Class 1 LP Units
Class 1 LP Units at December 31, 2022 and 2021
1,000
$
33,314
Class 2 LP Units
Class 2 LP Units at December 31, 2021
5,455,762
$
114,113
Fair value loss on Class 2 LP Units - cumulative
(29,821)
Balance at December 31, 2021
5,455,762
$
84,292
Fair value loss on Class 2 LP Units
(2,019)
Class 2 LP Units Balance at December 31, 2022
5,455,762
82,273
Total LP Units Balance at December 31, 2022
$
115,587
General partnership units
BPI receives its proportionate share of the 1.5% of Franchise Sales of Boston Pizza Restaurants in
the Royalty Pool through distributions on Class 2 GP Units of BP Canada LP that are exchangeable
for Fund Units. BPI continues to pay the Fund the balance of the Fund’s interest in Franchise Sales
of Royalty Pool restaurants (“Franchise Sales Participation”) in the form of royalty fees.
The number of Fund Units that BPI is entitled to receive in exchange for its Class 2 GP Units is
adjusted on January 1 of each year (each, an “Adjustment Date”) to reflect the addition of new Boston
Pizza Restaurants to the Royalty Pool (the number of Fund Units BPI is indirectly entitled to receive
in connection therewith is the “Class 2 Additional Entitlements”, with 80% of the Class 2 Additional
Entitlements being received on the Adjustment Date with the balance (the “Class 2 Holdback”) being
received once the performance of the new stores and the actual effective tax rate paid by the Fund
are known for certain), all in a manner similar to adjustments to the Class B Units that BPI holds (refer
to note 8).
It is possible that on an Adjustment Date, the net additional Royalty and Distribution is negative as a
result of the estimated Royalty and Distribution expected to be generated by new Boston Pizza
Restaurants being less than the Royalty and Distribution that is lost from permanently closed Boston
Pizza Restaurants (the amount by which it is less is the “Deficiency”). In such case, BPI would not
65
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
15
5. Investment in Units of Boston Pizza Canada Limited Partnership (continued):
receive any Class 2 Additional Entitlements, however, nor would BPI lose any of the Class 2 Additional
Entitlements previously received by BPI. Rather, on future Adjustment Dates, BPI would be required
to make-up the Deficiency by first adding Royalty and Distribution in an amount equal to the Deficiency
before receiving any further Class 2 Additional Entitlements.
BPI also has the right to further increase the Fund’s Franchise Sales Participation by up to an
additional 1.5% of Franchise Sales (in 0.5% increments) upon meeting certain financial thresholds
designed to ensure that the additional Franchise Sales Participation is accretive to the Fund and that
BPI retains the financial capacity to satisfy its obligations to the Fund.
BPI has the right to receive Fund Units when it exercises its rights to exchange Class 2 GP Units into
Fund Units. Should an exchange occur, BP Canada LP would issue additional Class 2 LP Units to
the Fund, the Fund would issue additional Fund Units to BPI, resulting in an increase in the Fund’s
investment in BP Canada LP recognizing its entitlement to a larger portion of distributions.
As at December 31, 2022, BPI’s Class 2 GP Units were exchangeable for 831,354 Fund Units
(December 31, 2021 – 831,354).
Issued and
outstanding
Class 2 GP
Additional
Entitlements
Issued and
outstanding
Class 2 GP
Additional
Entitlements
including Class 2
GP Holdback
Balance at December 31, 2020
828,753
831,188
Class 2 Additional Entitlements granted January 1, 2021
(1)
-
-
Adjustment to prior year Class 2 Additional Entitlements
(2)
2,601
166
Balance at December 31, 2021
831,354
831,354
Class 2 Additional Entitlements granted January 1, 2022
(3)
-
-
Balance at December 31, 2022
831,354
831,354
(1)
On January 1, 2021, two new Boston Pizza Restaurants that opened during the period from January 1, 2020 to December
31, 2020 were added to the Royalty Pool while 11 restaurants that closed during 2020 were removed. The Franchise Sales
from restaurants added to the Royalty Pool on January 1, 2021, net of closures was negative $15.4 million. This resulted
in a Deficiency of $0.8 million related to lost Royalty income and Distribution income. As a result of the Deficiency, BPI
did not receive any Class 2 Additional Entitlements on January 1, 2021. BPI will be required to make-up the Deficiency
on future adjustment dates by first adding Royalty and Distribution in an amount equal to the Deficiency before receiving
any future Class 2 Additional Entitlements.
(2)
Adjusted for actual performance of five new Boston Pizza Restaurants added to the Royalty Pool on January 1, 2020 and
the six Boston Pizza Restaurant that permanently closed and were removed from the Royalty Pool on January 1, 2020, the
actual effective tax rate paid by the Fund in 2020 and the adjustment for the seasonal Boston Pizza Restaurant that re-
opened in 2020.
(3)
On January 1, 2022, four Boston Pizza Restaurants that closed during the period from January 1, 2021 to December 31,
2021 were removed from the Royalty Pool. The Franchise Sales from restaurants removed from the Royalty Pool on
January 1, 2022 was negative $6.2 million. This resulted in a Deficiency of $0.3 million related to lost Royalty income and
Distribution income. As a result of the Deficiency, BPI did not receive any Class 2 Additional Entitlements on January 1,
2022. BPI will be required to make-up the Deficiency on future adjustment dates by first adding Royalty and Distribution
in an amount equal to the Deficiency before receiving any future Class 2 Additional Entitlements.
66
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
16
6. Intangible assets – BP Rights:
Royalties LP and BPI entered into the License and Royalty Agreement to allow BPI the use of the BP
Rights for a term of 99 years beginning in July 2002, for which BPI pays the Royalty. Since the
trademarks may remain in force indefinitely, the BP Rights have an indefinite life, are recognized at
cost and are not amortized but are tested for indicators of impairment at each reporting date and tested
for impairment annually on December 31.
In January of each year, new Boston Pizza Restaurants are added to the Royalty Pool. In exchange
for adding new Boston Pizza Restaurants into the Royalty Pool, BPI is granted the Class B Additional
Entitlements (note 8), the fair value of which are determined using the expected annual Franchise
Sales of the new Boston Pizza Restaurants discounted by the yield of the Fund Units.
The value of the Class B Additional Entitlements is adjusted in the following year once the annual
Franchise Sales of the new Boston Pizza Restaurants and the actual effective tax rate of the Fund are
known for certain. The fair values of the Class B Additional Entitlements are recognized as an
intangible asset and are added to the carrying value of the BP Rights.
Each year on December 31, the Fund tests the carrying value of the BP Rights for impairment.
Impairment exists if the carrying value of the BP Rights exceeds the recoverable amount. The
recoverable amount is determined as the higher of its fair value less cost to sell or its value in use.
The Fund determined the recoverable amount of the BP Rights based on a value in use model.
Management calculates the value in use by discounting the expected royalty payment to be received
by the Fund based on projected Franchise Sales by restaurants that are in the Royalty Pool to their
present value using a pre-tax discount rate that reflects current markets assessments of the time value
of money and risks specific to the BP Rights. The pre-tax discount rate was determined to be 10.5%
(December 31, 2021 – 9.5%).
As at December 31, 2022, the Fund has tested the BP Rights for impairment in the manner described
above and has determined that the recoverable amount exceeds the carrying value by approximately
$61 million (December 31, 2021 - $118 million). The Fund has determined that no impairment exists.
The Fund performed a sensitivity analysis on the significant assumptions in the value in use
calculation, which are the projected Franchise Sales by restaurants in the Royalty Pool and the pre-
tax discount rate. If actual Franchise Sales were 17% lower or the pre-tax discount rate was 2% higher,
the recoverable amount would approximate carrying value.
67
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
17
6. Intangible assets – BP Rights (continued):
(in thousands)
Balance – December 31, 2020
284,182
Class B Additional Entitlements granted January 1, 2021
(1)
-
Adjustment to prior year Class B Additional Entitlements
(2)
6
Balance – December 31, 2021
284,188
Class B Additional Entitlements granted January 1, 2022
(3)
-
Balance – December 31, 2022
$
284,188
(1)
On January 1, 2021 two new Boston Pizza Restaurants opened during the period from January 1, 2020 to December 31,
2020 were added to the Royalty Pool while 11 restaurants that closed during 2020 were removed. As a result of the
Deficiency (see note 8), BPI did not receive any Class B Additional Entitlements on January 1, 2021.
(2)
Adjusted for actual performance of five new Boston Pizza Restaurants added to the Royalty Pool on January 1, 2020 and
the six Boston Pizza Restaurants that permanently closed and were removed from the Royalty Pool on January 1,
2020, the actual effective tax rate paid by the Fund in 2020 and the adjustment for the seasonal Boston Pizza Restaurant
that re-opened in 2020.
(3)
On January 1, 2022 four Boston Pizza Restaurants that closed during the period from January 1, 2021 to December 31,
2021 were removed from the Royalty Pool. As a result of the Deficiency (see note 8), BPI did not receive any Class B
Additional Entitlements on January 1, 2022.
68
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
18
7. Credit facilities:
The following table summarizes the Fund’s long-term debt and its fixed and variable rate swap terms
as of December 31, 2022 under Facility B and Facility D (both defined below).
(in thousands)
December 31,
2022
December 31,
2021
Credit facility managed by interest rate swaps:
Facility B bearing interest at 1.51% plus between 2.00% and 3.00% per
annum, with a swap maturity date of February 1, 2022 (note 7(c)(i)) $ - $
13,900
Facility B bearing interest at 2.40% plus between 1.25% and 1.85% per
annum, with a swap maturity date of January 1, 2023 (note 7(c)(ii))
15,000 15,000
Facility B bearing interest at 2.27% plus between 1.25% and 1.85% per
annum, with a swap maturity date of April 1, 2024 15,000 15,000
Facility D bearing interest at 1.02% plus between 1.25% and 1.85% per
annum, with a swap maturity date of August 14, 2025
17,000
17,000
Facility D bearing interest at 1.09% plus between 1.25% and 1.85% per
annum, with a swap maturity date of March 1, 2026
15,000
15,000
Facility B bearing interest at 2.28% plus between 1.25% and 1.85% per
annum, with a swap maturity date of February 1, 2027 (note 7(c)(i))
15,000 -
Credit Facility at variable interest rates:
Facility B bearing interest at short-term Canadian dollar offered loan
rates (4.48% plus 1.60% per annum at December 31, 2022 and
0.44% plus 2.50% per annum at December 31, 2021)
8,323
10,923
Facility D bearing interest at short-term Canadian dollar offered loan
rates (4.63% plus 1.60% per annum at December 31, 2022 and
0.44% plus 2.50% per annum at December 31, 2021) 1,314 1,314
Deferred financing fees
(197)
(174)
$
86,440
$
87,963
Current portion of long-term debt
-
88,137
Current portion of deferred financing fees
-
(174)
$
86,440
$
-
Prior to June 28, 2022, Holdings LP and Royalties LP had credit facilities with a Canadian chartered
bank (the “Bank”) in the amount of up to $91.0 million (originally $97.0 million) expiring on December
31, 2022 (the “Original Credit Facilities”). On June 28, 2022, Holdings LP and Royalties LP entered
into a second supplemental credit agreement (the “Second Supplemental Credit Agreement”) with
the Bank to amend and extend the Original Credit Facilities (the Original Credit Facilities, as amended
and extended by the Second Supplemental Credit Agreement, the “Credit Facilities”).
(a) Original Credit Facilities
The Original Credit Facilities were comprised of (a) $2.0 million committed operating facility issued
to Royalties LP (“Facility A”); (b) $55.7 million (originally $61.7 million) committed non-revolving
credit facility issued to Royalties LP for the purpose of refinancing Royalties LP’s previous credit
facilities, to facilitate the Fund repurchasing and cancelling Units under normal course issuer bids
or substantial issuer bids, to finance the cash component of any exchange of exchangeable units
of BP Canada LP and to repay reimbursement charges owing by Royalties LP to BPI for
69
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
19
7. Credit facilities (continued):
(a) Original Credit Facilities (continued):
performing administrative services to the Fund (“Facility B”); and (c) $33.3 million committed non-
revolving credit facility issued to Holdings LP for the purpose of subscribing for Class 1 LP Units
of BP Canada LP (“Facility D”). The amount available under Facility B permanently reduces
whenever Royalties LP repays principal on Facility B.
The Original Credit Facilities bore interest at variable interest rates comprised of either or a
combination of the Bank’s bankers’ acceptance rates or Canadian dollar offered rates plus
between 2.00% and 3.00%, or the Bank’s prime rate plus between 0.75% and 1.75%, depending
upon the Fund’s total funded net debt to EBITDA ratio. The principal amounts drawn on Facility A,
Facility B and Facility D are due and payable upon maturity.
The Original Credit Facilities were secured by a first charge on the assets of Holdings LP and
Royalties LP. The Original Credit Facilities were guaranteed by the Fund, the Trust, Boston Pizza
Holdings GP Inc., Holdings LP, Royalties LP and BPGP, all of whom have granted security for
their obligations under those guarantees. No guarantee or security was given by BPI or
BP Canada LP with respect to the Original Credit Facilities.
(b) Second Supplemental Credit Agreement
The Second Supplemental Credit Agreement amended and extended the Original Credit Facilities
as follows:
(i) The maturity date was extended from December 31, 2022 to July 1, 2026;
(ii) The total amount of credit available was decreased by $8.4 million, from the original $97.0
million to $88.6 million by decreasing the size of Facility B from the original $61.7 million to
$53.3 million to reflect $6.0 million of repayments of principal previously made by the Fund
and a reduction of available credit of $2.4 million;
(iii) The interest rates decreased to variable interest rates comprised of either or a combination of
the Bank’s bankers’ acceptance rates or Canadian dollar offered rates plus between 1.25%
and 1.85%, or the Bank’s prime rate plus between 0.00% and 0.65%, depending upon the
Fund’s total funded net debt to EBITDA ratio;
(iv) The requirement to make subsequent quarterly repayments of principal on Facility B was
eliminated;
(v) The financial covenant that the Fund’s total funded net debt to EBITDA must not exceed 3.00:1
from September 30, 2021 was modified to require it to not exceed 2.50:1 on closing until
December 30, 2024 and not exceed 2.25:1 thereafter;
(vi) A financial covenant was added that requires the total amount of certain permitted distributions
of the Fund (including distribution to Unitholders) to not exceed the sum of the Fund’s
distributable cash and cash on hand by greater than $2.0 million (tested quarterly on a trailing
12-month basis); and
(vii) The guarantees and security supporting the Credit Facilities remain unchanged from those
existing immediately prior to the Second Supplemental Credit Agreement.
70
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
20
7. Credit facilities (continued):
(b) Second Supplemental Credit Agreement (continued):
During the year ended December 31, 2022, the Fund made principal repayment of $1.5 million
(December 31, 2021 – $3.8 million) on Facility B.
As of December 31, 2022, no amount was drawn on Facility A, $53.3 million was drawn on
Facility B and $33.3 million was drawn on Facility D.
The Fund is subject to certain financial covenants and reporting requirements arising from the
Credit Facilities which are described in note 10. Royalties LP and Holdings LP were in compliance
with all of their financial covenants and financial condition tests as of December 31, 2022.
(c) Other
Certain interest rate swap agreements were expired and the Fund entered into new agreements
as follows:
(i) On January 27, 2022, the Fund entered into a swap that commenced on February 1, 2022 to
fix the interest rate at 2.28% plus the applicable margin for a term ending on February 1, 2027
for $15.0 million of the $53.3 million drawn on Facility B. This replaced and increased the
$13.9 million interest rate swap on Facility B that expired on February 1, 2022.
(ii) On December 19, 2022, the Fund entered into a swap that commences on January 3, 2023
to fix the interest rate at 3.48% plus the applicable margin for a term ending on January 4,
2028 for $15.0 million of the $53.3 million drawn on Facility B. This will replace the $15.0
million interest rate swap on Facility B that expires on January 1, 2023.
The Fund recorded a net financial derivative asset based on the fair value of the interest rate swaps
at December 31, 2022 of $4.2 million (December 31, 2021 – net asset of $0.3 million) in accordance
with accounting for derivatives under IFRS. The Fund intends to hold the outstanding interest rate
swaps to maturity.
8. Royalties LP unit liabilities:
Class B Units:
The Class B Units are presented in the Fund’s consolidated financial statements as a result of the
Fund consolidating the accounts of Royalties LP under IFRS. The Class B Units are classified as a
financial liability and are initially and subsequently recorded at fair value. The determination of the
fair value of the Class B Unit Liability is described in note 9.
BPI has the right to exchange Class B Units for a number of Fund Units based, at any time, on a
defined calculation which is based in part on the net Franchise Sales from Boston Pizza Restaurants
added to the Royalty Pool. On each Adjustment Date, an adjustment is made to add to the Royalty
Pool new Boston Pizza Restaurants that opened and to remove any Boston Pizza Restaurants that
permanently closed since the previous Adjustment Date. In return for adding net additional Royalty
revenue, BPI receives the right to indirectly acquire additional Fund Units (the “Class B Additional
Entitlements” and together with Class 2 Additional Entitlements, the “Additional Entitlements”).
BPI receives 80% of the Class B Additional Entitlements on the Adjustment Date with the balance
71
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
21
8. Royalties LP unit liabilities (continued):
(the “Class B Holdback”, and together with Class 2 Holdback, the “Holdback”) received once the
performance of the new Boston Pizza Restaurants and the actual effective tax rate paid by the Fund
are known for certain. BPI receives 100% of the distributions from the Class B Additional Entitlements
throughout the year. Once the new Boston Pizza Restaurants have been in the Royalty Pool for a full
year, an audit of the Franchise Sales of the new Boston Pizza Restaurants is performed and the actual
effective tax rate paid by the Fund is determined. At such time, an adjustment is made to reconcile
the number of Class B Additional Entitlements and associated distributions to the actual performance
of the new Boston Pizza Restaurants and the actual effective tax rate of the Fund.
It is possible for a Deficiency to exist on an Adjustment Date (refer to note 5). In such case, BPI would
not receive any Additional Entitlements, however, nor would BPI lose any of the Additional
Entitlements previously received by BPI. Rather, on future Adjustment Dates, BPI would be required
to make-up the Deficiency by first adding Royalty and Distribution in an amount equal to the Deficiency
before receiving any further Additional Entitlements. BPI is entitled to vote in an equivalent number of
Fund Units into which the Class B Units are exchangeable at any time.
The Fund has no obligation to settle this financial liability in cash. If BPI were to exchange all of its
Class B Units for Fund Units on December 31, 2022, the Fund would issue the equivalent number of
Fund Units and the Class B Unit Liability would be extinguished.
The following chart summarizes the Class B Additional Entitlements and Class B Unit Liability:
Issued and
outstanding
Additional
Entitlements
Issued and
outstanding
Additional
Entitlements
including
Holdback
Class B
Unit
Liability
Balance at December 31, 2020
2,423,886
2,430,381
$
26,321
Class B Additional Entitlements granted January 1, 2021
(1)
-
-
-
Adjustment to prior year Class B Additional Entitlements
(2)
6,937
442
6
Fair value loss
-
-
11,229
Balance at December 31, 2021
2,430,823
2,430,823
$
37,556
Class B Additional Entitlements granted January 1, 2022
(3)
-
-
-
Fair value gain
-
-
(899)
Balance at December 31, 2022
2,430,823
2,430,823
$
36,657
(1)
On January 1, 2021, two new Boston Pizza Restaurants that opened across Canada between January 1, 2020 and
December 31, 2020 were added to the Royalty Pool and the eleven restaurants that permanently closed during 2020 were
removed. The net Franchise Sales from the two new Boston Pizza Restaurants less the eleven Boston Pizza Restaurants
that permanently closed was negative $15.4 million. This resulted in a Deficiency of $0.8 million related to lost Royalty and
Distribution income. As a result of the Deficiency, BPI did not receive any Class B Additional Entitlements on January 1,
2021.
(2)
Adjusted for actual performance of five new Boston Pizza Restaurants added to the Royalty Pool on January 1, 2020 and
the six Boston Pizza Restaurants that permanently closed and were removed from the Royalty Pool on January 1, 2020,
the actual effective tax rate paid by the Fund in 2020 and the adjustment for the seasonal Boston Pizza Restaurant that
re-opened in 2020.
(3)
On January 1, 2022, four Boston Pizza Restaurants that closed during the period from January 1, 2021 to December 31,
2021 were removed from the Royalty Pool. The Franchise Sales from restaurants removed from the Royalty Pool on
January 1, 2022 was negative $6.2 million. This resulted in a Deficiency of $0.3 million related to lost Royalty and
Distribution income. As a result of the Deficiency, BPI did not receive any Class B Additional Entitlements on January 1,
2022.
72
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
22
9. Financial Instruments:
Financial Assets and Liabilities by Categories and Fair Value Information
The following table shows the carrying values of assets and liabilities for each financial instrument
category (note 3(g)) at December 31, 2022 and December 31, 2021. Unless otherwise noted, the fair
values on the instruments approximate their carrying amount. The Fund must classify fair value
measurements according to a hierarchy that reflects the significance of the inputs used in performing
such measurements.
The Fund’s fair value hierarchy comprises the following levels:
• Level 1 – quoted prices are available in active markets for identical assets or liabilities as of the
reporting date. Active markets are those in which transactions occur in sufficient frequency and
volume to provide pricing information on an ongoing basis.
• Level 2 – pricing inputs are other than quoted in active markets included in Level 1. Prices in Level
2 are either directly or indirectly observable as of the reporting date.
• Level 3 – valuations in this level are those with inputs for the asset or liability that are not based
on observable data.
December 31,
2022
December 31,
2021
Fair value through profit and loss
Class 1 Limited Partnership Units of BP Canada LP
(i)
Level 2
$
33,314
$
33,314
Class 2 Limited Partnership Units of BP Canada LP
(ii)
Level 2
82,273
84,292
Fair value of interest rate swaps
(iii)
Level 2
4,220
329
Class B Unit Liability
(iv)
Level 2
(36,657)
(37,556)
Amortized cost
Cash and cash equivalents
$
5,213
$
5,162
Royalty receivable from BPI
3,330
2,602
Distributions receivable from BP Canada LP
1,042
820
Accounts payable and accrued liabilities
(544)
(586)
Distributions payable to Fund unitholders
(2,195)
(1,829)
Interest payable on Class B Units
(303)
(265)
Credit facilities
(86,440)
(87,963)
(i) The Class 1 LP Units are entitled to distributions determined with respect to the interest cost
incurred on Facility D (note 7). The fair value of the Class 1 LP Units is estimated using a
market-corroborated input (interest rate on the credit facility).
(ii) The Class 2 LP Units have similar cash distribution entitlements and provisions to the Class 2
GP Units held by BPI, which are exchangeable for an equivalent number of Fund Units. The fair
value of the Class 2 LP Units is determined by multiplying the issued and outstanding Class 2
LP Units indirectly held by the Fund at the end of the period by the closing price of a Fund Unit
on the last business day of the period. As at December 31, 2022, the closing price of a Fund
Unit was $15.08 (December 31, 2021 – $15.45) while the number of issued and outstanding
73
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
23
9. Financial Instruments (continued):
Class 2 LP Units held by the Fund was 5,455,762 (December 31, 2021 – 5,455,762) resulting
in a Class 2 LP Units fair value of $82.3 million (December 31, 2021 - $84.3 million). The fair
value loss of the investment in BP Canada LP for the year ending December 31, 2022 was $2.0
million (December 31, 2021 - gain of $25.2 million).
(iii) The Credit Facilities are carried at amortized cost. Royalties LP and Holdings LP use interest
rate swaps to manage risks from fluctuations in interest rates on $77.0 million (December 31,
2021 – $75.9 million) of this balance, and any changes in the fair value of the interest rate swaps
are recorded in the consolidated statement of comprehensive income in the period in which they
arise. Without factoring in the interest rate swaps, the fair value of the $77.0 million of the Credit
Facilities approximates its carrying amount since the debt has variable interest rates at terms
that the Fund believes are reflective of currently available terms. The fair value of the remaining
Credit Facilities, before deferred financing fees, approximates its carrying value of $9.6 million
(December 31, 2021 – $12.2 million) since the debt has variable interest rates at terms that the
Fund believes are reflective of currently available terms. The Credit Facilities are presented net
of deferred financing fees which were $0.2 million at December 31, 2022 (December 31, 2021
– $0.2 million).
(iv) The Class B Units are exchangeable for an equivalent number of Fund Units, and therefore the
fair value of a Class B Unit is estimated to be equivalent to that of a Fund Unit. The Fund
estimates the fair value of the Class B Units Liability by multiplying the issued and outstanding
Class B Additional Entitlements (including Class B Holdback) held by BPI at the end of the period
by the closing price of the Fund Units on the last business day of the period. As at December
31, 2022, the closing price of a Fund Unit was $15.08 (December 31, 2021 – $15.45) while the
number of Fund Units BPI would be entitled to receive if it exchanged all of its Class B Units
(including Class B Holdback) was 2,430,823 (December 31, 2021 – 2,430,823) resulting in a
Class B Unit Liability fair value of $36.7 million (December 31, 2021 – $37.6 million). For the
year ended December 31, 2022, the decrease of $0.9 million is due to $0.9 million in fair value
gain (December 31, 2021 – fair value loss of $11.2 million and a nominal amount in Class B
Additional Entitlements). This valuation technique may not represent the actual value of the
financial asset should such Class B Units be exchanged.
Financial Instruments and Related Risks
The Fund is primarily exposed to credit risk, liquidity risk and interest rate risk as they relate to the
identified financial instruments.
Credit risk
Credit risk is defined as an unexpected loss in cash and earnings if another party is unable to pay its
obligations in due time. The Fund’s exposure to credit risk arises from its Royalty receivable from BPI
and Distribution receivable from BP Canada LP. The outstanding balances in these accounts
represent the Fund’s maximum credit exposure. The Fund monitors this risk through its regular review
of operating and financing activities of BPI and BP Canada LP.
The performance of the Fund is directly dependent upon the Royalty and Distribution payments
received from BPI and BP Canada LP. The amount of Royalty and Distribution received is dependent
74
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
24
9. Financial Instruments (continued):
on various factors that may affect the casual dining sector of the restaurant industry including
competition and general economic conditions. In general, the restaurant industry, and in particular
the casual dining sector, is intensely competitive with respect to price, service, location, and food
quality. If BPI and BP Canada LP and its franchisees are unable to successfully compete in the casual
dining sector or the economy is weak for an extended period of time, Franchise Sales, the basis on
which Royalty and Distribution are paid, may be adversely affected. The reduction of royalties from
Franchise Sales may impact BPI and BP Canada LP’s ability to pay Royalty or Distribution due to the
Fund.
The Fund has reviewed its Royalty receivable from BPI and Distribution receivable from BP Canada
LP. Based on the BPI cash balance and working capital requirements, the Fund has determined that
the collection risk on the Royalty receivable and Distribution receivable is minimal and no indicators
of impairment exist. As at December 31, 2022, the Fund had no provision for credit risk recorded in its
financial statements (December 31, 2021 – nil).
Liquidity risk
Liquidity risk results from the Fund’s potential inability to meet its financial obligations. Beyond
effective net working capital and cash management, the Fund constantly monitors its operations and
cash flows to ensure that current and future distributions to Fund unitholders will be met. The Fund’s
capital resources are comprised of its cash and cash equivalents, Royalty receivable from BPI,
Distribution receivable from BP Canada LP and its undrawn Facility A (note 7).
(in thousands)
December 31,
2022
Cash and cash equivalents
$
5,213
Royalty receivable from Boston Pizza International Inc.
3,330
Distribution receivable from Boston Pizza Canada Limited Partnership
1,042
Undrawn Facility A
2,000
$
11,585
The Fund’s obligations under the Credit Facilities, as detailed in note 7, are secured by a first charge
over the assets of the Fund, mature at dates specified in note 7 and have scheduled repayment terms
according to dates specified in note 7.
The Fund is subject to certain guarantor covenants and reporting requirements arising from the Credit
Facilities that are further described in note 10.
The Fund’s capital resources are comprised of cash and cash flow from operating activities. The
maturities of the Fund’s financial liabilities are as follows:
(in thousands)
Value
Maturity
Accounts payable and accrued liabilities
544
< 1 year
Distributions payable to Fund unitholders
2,195
< 1 year
Interest payable on Class B Units
303
< 1 year
Credit Facilities (note 7)
86,440
> 1 year
75
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
25
9. Financial Instruments (continued):
Interest rate risk
The Fund’s exposure to interest rate risk is mainly through the Credit Facilities. The Fund has entered
into interest rate swaps under the International Swap Dealers Association Master Agreements to
manage interest rate risk on $77.0 million of its Credit Facilities and these interest rate swaps are
detailed in note 7. Therefore, the Fund’s interest rate risk is mainly related to its $9.6 million floating
rate debt. A 1.0% change in short-term interest rates would result in a minimal change in interest
expense based on the Fund’s floating rate debt at December 31, 2022.
10. Capital Disclosures:
The Fund’s objective when managing capital is to safeguard its ability to continue as a going concern
so that it can continue to provide distributions to Fund unitholders and benefits for other stakeholders.
The Fund includes its Credit Facilities and unitholders’ equity, in its definition of capital.
The Fund seeks to maintain a balance between the higher returns that might be possible with the
leverage afforded by higher borrowing levels and the security afforded by a sound capital structure. It
does this by maintaining appropriate debt levels in relation to its cash flows, working capital and other
assets in order to provide the maximum distributions to Fund unitholders commensurate with the level
of risk. Also, the Fund utilizes its debt capabilities to buy back Fund Units, when appropriate, in order
to maximize cash distribution rates for remaining Fund unitholders.
The Fund manages its capital structure and adjusts to respond to changes in economic conditions,
the underlying risks inherent in its operations, and capital requirements to maintain and grow its
operations. In order to maintain or adjust its capital structure, the Fund may adjust the amount of
distributions paid to Fund unitholders, purchase Fund Units in the market, or issue new Fund Units.
The Fund’s policy is to distribute all available cash from operations to Fund unitholders after provisions
for cash required for working capital and other reserves considered advisable by the Fund’s Trustees.
The Fund has historically eliminated the impact of seasonal fluctuations by equalizing monthly
distributions. The Fund had debt, net of deferred financing fees, of $86.4 million at December 31, 2022
(December 31, 2021 – $88.0 million). In addition, the Fund’s banking covenants require (a) the Fund’s
total funded net debt to EBITDA ratio to not exceed 3.00:1 from and after September 30, 2021, was
modified to require it to not exceed 2.50:1 as of June 28, 2022 until December 30, 2024 and to not
exceed 2.25:1 thereafter and (b) the total amount of certain permitted distributions of the Fund
(including distribution to Unitholders) to not exceed the sum of the Fund’s distributable cash and cash
on hand by greater than $2.0 million (tested quarterly on a trailing 12-month basis). The Fund is in
compliance with its covenants as at December 31, 2022.
The Fund is not subject to any other statutory capital requirements and has no commitments to sell or
otherwise issue Fund Units, other than the commitment to exchange Class B Units and Class 2 GP
Units held by BPI for Fund Units, as described in notes 5, 8 and 11.
76
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
26
11. Fund Units:
(a) The Fund’s Declaration of Trust provides that an unlimited number of Fund Units may be issued.
Each Fund Unit is transferable and represents an equal undivided beneficial interest in any
distributions of the Fund and in the net assets of the Fund. All Fund Units have equal rights and
privileges. Each Fund Unit entitles the holder thereof to participate equally in the allocations and
distributions and to one vote at all meetings of Fund unitholders for each Fund Unit held. The Fund
Units issued are not subject to future calls or assessments.
Pursuant to the Declaration of Trust, the holders, other than the Fund or its subsidiaries, of the
Class A general partner units of Royalties LP (“Class A Units”), Class B Units, and Class 2 GP
Units are entitled to vote in all votes of Fund unitholders as if they were holders of the number of
Fund Units they would receive if Class A Units, Class B Units, and Class 2 GP Units were
exchanged into Fund Units at the record date of such votes, and will be treated in all respects as
Fund unitholders for the purpose of any such votes.
Fund Units are redeemable at any time at the option of the Fund unitholder at a price based on
market value as defined in the Declaration of Trust, subject to a maximum of $50,000 in cash
redemptions in any one month. The limitation may be waived at the discretion of the Trustees of
the Fund. Redemptions in excess of these amounts, assuming no waiving of the limitation, shall
be paid by way of distribution in specie of a pro rata number of securities of the Trust held by the
Fund.
(b) Fund Units outstanding:
(in thousands, except unit data)
Number of
Fund Units
Fund Units
as equity
Balance at January 1, 2022 and December 31, 2022
21,521,463
$
325,048
As at December 31, 2022, the Class B Units held by BPI were exchangeable into 2,430,823 Fund
Units and the Class 2 GP Units held by BPI were exchangeable into 831,354 Fund Units, for a
total of 13.2% of the issued and outstanding Fund Units on a fully diluted basis.
(c) Distributions declared to and paid to Fund unitholders were as follows:
Declared
Paid
(in thousands, except per unit data)
2022
2021
2022
2021
Monthly Distributions
$
23,975
$
18,508
$
23,609
18,078
Special Distribution
1,829
-
1,829
4,304
Total Distributions
$
25,804
$
18,508
$
25,438
22,382
Monthly Distributions per Fund Unit
$
1.11
$
0.86
$
1.09
0.84
Special Distribution per Fund Unit
0.09
-
0.09
0.20
Total Distributions per Fund Unit
$
1.20
$
0.86
$
1.18
1.04
77
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
27
12. Accumulated deficit:
The Fund’s accumulated deficit includes fair value adjustments and deferred income tax expense,
which are non-cash items. Excluding the cumulative effect of fair value adjustments and deferred
income tax expense, the Fund would have an accumulated surplus of $10.7 million at December 31,
2022 ($8.6 million at December 31, 2021).
13. Operations:
(in thousands, except number of Restaurants in the Royalty Pool)
2022
2021
Restaurants in the Royalty Pool
383
387
Franchise Sales reported by Restaurants in the Royalty Pool
$
854,997
$
660,051
Royalty income – 4% of Franchise Sales
34,200
26,402
Distribution income – 1.5% of Franchise Sales (less BPI retained
interest)
11,273
8,752
Boston Pizza Restaurants experience seasonal fluctuations in Franchise Sales, which are inherent in
the full service restaurant industry in Canada. Seasonal factors such as tourism and better weather
allow Boston Pizza Restaurants to open their patios and generally increase Franchise Sales in the
second and third quarters compared to the first and fourth quarters.
14. Related party transactions:
BPI and BP Canada LP are considered to be related parties of the Fund by virtue of common officers
and directors in BPGP, BPI, and BP Canada LP. The Fund has engaged Royalties LP, its
administrator, to provide certain administrative services on behalf of the Fund. In turn, certain of the
administrative services are performed by BPI as a general partner of Royalties LP.
The total amount
charged from BPI in respect of these out-of-pocket expenses for the year ended December 31, 2022
was $0.4 million (December 31, 2021 – $0.4 million). The total amount payable to BPI in respect of
these services for the year ended December 31, 2022 was nominal (December 31, 2021 – nominal).
As at December 31, 2022, interest payable to BPI on Class B Units was $0.3 million (December 31,
2021 – $0.3 million), Royalty receivable from BPI was $3.3 million (December 31, 2021 – $2.6 million),
and Distribution receivable from BP Canada LP was $1.0 million (December 31, 2021 – $0.8 million).
15. Compensation of key management:
Key management personnel who receive direct remuneration from the Fund are the Trustees of the
Fund. Aggregate details of their remuneration are set out in the table below with further information
about the remuneration of individual Trustees provided in the Fund’s Annual Information Form. Other
key management personnel are compensated indirectly by the Fund through the administration
charge.
(in thousands)
2022
2021
Remuneration paid to Trustees
$
240
$
207
78
BOSTON PIZZA ROYALTIES INCOME FUND
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
28
16. Supplemental cash flow information:
(a) Non-cash transactions
(in thousands)
2022
2021
Amortization of deferred financing fees
$
115
$
174
Roll-in of new stores – January 1, net
-
6
(b) Reconciliation of changes in non-cash working capital:
(in thousands)
2022
2021
Change in:
Royalty receivable from BPI
$
(728)
$
2,268
Distribution receivable from BP Canada LP
(222)
723
Prepaid expenses
(16)
4
Accounts payable and accrued liabilities
(42)
64
Adjusted for:
Interest expense
(3,499)
(3,705)
Interest paid on long-term debt
3,576
3,692
Changes in non-cash working capital
$
(931)
$
3,046
17. Subsequent events:
(a) On January 1, 2023, the six restaurants that permanently closed during 2022 were removed from
the Royalty Pool. Accordingly, the total number of restaurants in the Royalty Pool decreased to
377 from 383. The net Franchise Sales from the six Boston Pizza Restaurants that permanently
closed is negative $6.8 million. This resulted in negative Royalty and Distribution to the Fund of
$0.4 million. As a result of the Deficiency, BPI did not receive any Additional Entitlements on
January 1, 2023. However, BPI did not lose any of the Additional Entitlements it received in
respect of previous years. Instead, BPI will be required to make-up the cumulative Deficiency for
2020 through 2022 (total of $1.6 million) on future Adjustment Dates by first adding Royalty and
Distribution in an amount equal to the Deficiency before receiving any further Additional
Entitlements.
(b) In the first quarter of 2023, no adjustments were made to the Deficiency related to 2021 since no
new restaurants were opened during 2021 nor were added to the Royalty Pool on January 1,
2022.
(c) On February 8, 2023, the Trustees of the Fund declared a distribution for January 2022 of
$0.102 per unit, which will be payable on February 28, 2023 to unitholders of record on
February 21, 2023.
79
BOSTON PIZZA INTERNATIONAL INC.
Management’s Discussion & Analysis 80
Independent Auditor’s Report 109
Consolidated Financial Statements 113
80
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 1 -
FINANCIAL HIGHLIGHTS
The tables below set out selected information from the audited annual consolidated financial statements of Boston
Pizza International Inc. (“BPI” and where applicable also includes its wholly-owned subsidiaries), and the accounts
of Boston Pizza Canada Limited Partnership (“BP Canada LP”), together with other data, and should be read in
conjunction with the audited annual consolidated financial statements of BPI for the years ended December 31,
2022 and December 31, 2021. The financial information reported in the tables included in this Management’s
Discussion and Analysis (“MD&A”) are reported in accordance with International Financial Reporting Standards
(“IFRS”) except as otherwise noted and are stated in Canadian dollars. Capitalized terms used in the tables and
notes below are defined elsewhere in this MD&A.
Notes – Non-GAAP, Specified Financial Measures and Other Information
1 “System-Wide Gross Sales” is a supplementary financial measure under National Instrument 52-112 Non-
GAAP and Other Financial Measures Disclosure (“NI 52-112”) and therefore may not be comparable to similar
measures presented by other issuers. System-Wide Gross Sales means the gross revenue: (i) of the corporate
Boston Pizza Restaurants in Canada owned by BPI; and (ii) reported to BP Canada LP by franchised Boston
Pizza Restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i)
and (ii), including revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved
national promotions and discounts, but excluding applicable sales and similar taxes. BPI believes that System-
Wide Gross Sales provides useful information to investors regarding the overall performance of the Boston
Pizza System.
For the Year ended December 31
2022 2021 2020
(in thousands of dollars - except number of restaurants and per share items)
System-Wide Gross Sales
1
1,075,093 812,856 773,533
Number of Boston Pizza Restaurants
2
377 383 387
Franchise Sales reported by Boston Pizza Restaurants
3
854,997 660,051 615,094
Same Restaurant Sales
4
Income Statement Data
Total revenues 116,363 90,320 86,075
Royalty expense (34,200) (26,402) (24,528)
Distribution expense (11,273) (8,752) (8,114)
Operating expenses excluding Royalty expense and Distribution expense (57,778) (43,534) (50,888)
Earnings before interest and fair value gain (loss) 13,112 11,632 2,545
Net interest income (expense) 1,821 115 (386)
Fair value gain (loss) 1,120 (13,977) 7,967
Earnings (loss) before income taxes 16,053 (2,230) 10,126
Current and deferred income tax expense (4,131) (3,055) (2,314)
Net and comprehensive income (loss) 11,922 (5,285) 7,812
Basic and diluted income (loss) per share 121.55 (53.88) 79.64
Balance Sheet Data
Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Total assets 152,009 154,799 147,829
Total liabilities 400,588 415,300 403,045
30.4%
8.5%
(27.6%)
81
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 2 -
2 Number of Boston Pizza Restaurants is reported as at the end of the applicable period.
3 “Franchise Sales” when disclosed on a monthly basis herein, is a supplementary financial measure under
NI 52-112 and therefore may not be comparable to similar measures presented by other issuers. Franchise
Sales means the gross revenue: (i) of the corporate Boston Pizza Restaurants in Canada owned by BPI; and
(ii) reported to BP Canada LP by franchised Boston Pizza Restaurants in Canada, without audit or other form
of independent assurance, and in the case of both (i) and (ii), after deducting revenue from the sale of liquor,
beer, wine and revenue from BP Canada LP approved national promotions and discounts, and excluding
applicable sales and similar taxes. Nevertheless, BP Canada LP periodically conducts audits of the Franchise
Sales reported to it by its franchisees, and the Franchise Sales reported herein include results from sales audits
of earlier periods. Franchise Sales is the basis upon which franchisees of BP Canada LP pay royalty and
contributions into the Advertising Fund to BP Canada LP. BPI believes that Franchise Sales provides useful
information to investors regarding the performance of the Boston Pizza System with respect to sales upon which
BP Canada LP earns royalty and contributions into the Advertising Fund.
4 “Same Restaurant Sales” or “SRS” is a supplementary financial measure under NI 52-112 and therefore may
not be comparable to similar measures presented by other issuers. Prior to the fourth quarter of 2021, BPI
defined SRS as the change in gross revenues of Boston Pizza Restaurants as compared to the gross revenues
for the same period in the previous year (where restaurants were open for a minimum of 24 months).
Commencing with the fourth quarter of 2021, BPI defines SRS as the change in Franchise Sales of Boston
Pizza Restaurants as compared to the Franchise Sales for the same period in the previous year (where
restaurants were open for a minimum of 24 months). BPI believes that the current method of calculating SRS
provides investors more meaningful information regarding the performance of Boston Pizza Restaurants since
Royalty and Distributions are payable to the Fund by BPI and BP Canada LP on Franchise Sales of Boston
Pizza Restaurants in the Royalty Pool (as defined below) and not gross revenues of Boston Pizza Restaurants
in the Royalty Pool. All historical SRS figures contained in this MD&A have been restated to conform to the
current method of calculating SRS.
82
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 3 -
SUMMARY OF QUARTERLY RESULTS
Q4 2022
Q3 2022 Q2 2022 Q1 2022
(in thousands of dollars - except number of restaurants and per share items)
System-Wide Gross Sales
1
285,435 287,813 278,067 223,778
Number of Boston Pizza Restaurants
2
377 380 381
381
Franchise Sales reported by Boston Pizza Restaurants
3
227,163 229,848
219,384 178,602
Same Restaurant Sales
4
Income Statement Data
Total revenues 31,762
31,178 29,504 23,919
Royalty expense
(9,087) (9,194) (8,775) (7,144)
Distribution expense
(2,988) (3,027) (2,895) (2,363)
Operating expenses excluding Royalty expense and Distribution expense
(16,559) (13,986) (15,623) (11,610)
Earnings before interest and fair value gain (loss)
3,128 4,971 2,211 2,802
Net interest income 1,132 426 184
79
Fair value gain (loss)
636 (1,211) 8,107 (6,412)
Earnings (loss) before income taxes
4,896 4,186 10,502 (3,531)
Current and deferred income tax expense (952) (1,534) (14) (1,631)
Net and comprehensive income (loss) 3,944 2,652 10,488 (5,162)
Basic and diluted income (loss) per share 40.21 27.04 106.93
(52.63)
Q4 2021 Q3 2021 Q2 2021 Q1 2021
(in thousands of dollars - except number of restaurants and per share items)
System-Wide Gross Sales
1
226,821 266,363 162,931
156,741
Number of Boston Pizza Restaurants
2
383 385 385 386
Franchise Sales reported by Boston Pizza Restaurants
3
183,177 213,038 134,839 128,997
Same Restaurant Sales
4
Income Statement Data
Total revenues 26,299 28,426 18,296 17,299
Royalty expense (7,327) (8,522) (5,393) (5,160)
Distribution expense (2,423) (2,815) (1,797) (1,717)
Operating expenses excluding Royalty expense and Distribution expense (14,138) (10,349) (9,961) (9,086)
Earnings before interest and fair value (loss) gain 2,411 6,740 1,145 1,336
Net interest income (expense) 482 (142) (42) (183)
Fair value (loss) gain (6,262) 2,177 (3,478) (6,414)
(Loss) earnings before income taxes (3,369) 8,775 (2,375) (5,261)
Current and deferred income tax expense (743) (1,925) (49) (338)
Net and comprehensive (loss) income (4,112) 6,850 (2,424) (5,599)
Basic and diluted (loss) income per share (41.92) 69.84 (24.71) (57.08)
(24.9%)
24.5%
8.4%
64.9%
27.0%
39.1%
15.1%
25.5%
83
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 4 -
OVERVIEW
This MD&A covers the three-month period from October 1, 2022 to December 31, 2022 (the “Period”) and the
twelve-month period from January 1, 2022 to December 31, 2022 (the “Year”) and is dated February 8, 2023. It
provides additional analysis of the operations, financial position and financial performance of BPI and should be
read in conjunction with BPI’s applicable audited annual consolidated financial statements and the accompanying
notes. The audited annual consolidated financial statements of BPI are in Canadian dollars and have been
prepared in accordance with IFRS except as otherwise noted.
General
BPI is a privately controlled company and prior to April 6, 2015, was the exclusive franchisor of the Boston Pizza
(as defined below) concept in Canada. On April 6, 2015, BP Canada LP, a British Columbia limited partnership
controlled and operated by BPI, became the exclusive franchisor of the Boston Pizza concept in Canada. On
May 6, 2015, Boston Pizza Royalties Income Fund (the “Fund”) completed an indirect investment in BP Canada LP
to effectively increase the Fund’s indirect interest in Franchise Sales of Boston Pizza Restaurants (as defined below)
in the Royalty Pool (as defined below) by 1.5%, from 4.0% to 5.5% less the pro rata portion payable to BPI in
respect of its retained interest in the Fund (the “2015 Transaction”).
BPI and BP Canada LP compete in the casual dining sector of the restaurant industry and Boston Pizza is the
number one casual dining brand in Canada. With 377 restaurants stretching from Victoria to St. John’s, Boston
Pizza has more restaurants and serves more customers annually than any other casual dining restaurant chain in
Canada.
Royalty
BP Canada LP charges a 7.0% royalty fee on Franchise Sales for full-service Boston Pizza restaurants open in
Canada (the “Boston Pizza Restaurants”). BPI pays Boston Pizza Royalties Limited Partnership (“Royalties LP”),
an entity controlled by the Fund, a 4.0% royalty fee (the “Royalty”) on Franchise Sales from the Boston Pizza
Restaurants in the royalty pool (the “Royalty Pool”) for the use of the Boston Pizza trademarks in Canada (the “BP
Rights”
5
). As at December 31, 2022, there were 383 Boston Pizza Restaurants in the Royalty Pool.
Distributions from BP Canada LP
Boston Pizza Holdings Limited Partnership (“Holdings LP”), an entity controlled by the Fund, holds Class 1 limited
partnership units (“Class 1 LP Units”) and Class 2 limited partnership units (“Class 2 LP Units”) of BP Canada LP,
and BPI holds, indirectly through Boston Pizza Canada Holdings Partnership (“BPCHP”), Class 2 general
partnership units of BP Canada LP (“Class 2 GP Units”), which are exchangeable for units of the Fund (“Fund
Units”). The Class 1 LP Units and Class 2 LP Units provide Holdings LP with the right to receive distributions from
BP Canada LP equal, in aggregate, to 1.5% of Franchise Sales, less the pro rata portion payable to BPI in respect
of its Class 2 GP Units (the “Distributions”). Specifically, the Class 1 LP Units entitle Holdings LP to receive a
priority distribution equal to the amount of interest that Holdings LP pays on certain indebtedness of Holdings LP
plus 0.05% of that amount, with the balance of 1.5% of Franchise Sales being distributed pro rata to Holdings LP
and BPI on the Class 2 LP Units and Class 2 GP Units, respectively. After BP Canada LP pays distributions on the
Class 1 LP Units, Class 2 LP Units and Class 2 GP Units, BPI is entitled to all residual distributions from
BP Canada LP on the Class 3 general partnership units, Class 4 general partnership units, Class 5 general
partnership units and Class 6 general partnership units of BP Canada LP that BPI holds.
5 BP Rights are the trademarks that as at July 17, 2002 were registered or the subject of pending applications for registration under the
Trademarks Act (Canada), and other trademarks and trade names which are confusing with the registered or pending trademarks. The
BP Rights purchased do not include the rights outside of Canada to any trademarks or trade names used by BPI or any affiliated entities
in its business, and in particular do not include the rights outside of Canada to the trademarks registered or pending registration under the
Trademarks Act (Canada).
84
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 5 -
Addition of New Restaurants to Royalty Pool
On January 1 of each year (each, an “Adjustment Date”), an adjustment is made to add to the Royalty Pool new
Boston Pizza Restaurants that opened (“New Restaurants”) and to remove any Boston Pizza Restaurants that
permanently closed since January 1 of the previous year (“Closed Restaurants”). In return for adding new Royalty
and Distributions from the New Restaurants and after subtracting the Royalty and Distributions that are lost from
the Closed Restaurants
6
(such difference, “Net Royalty and Distributions”), BPI receives the right to indirectly
acquire additional Fund Units (in respect of the Royalty, “Class B Additional Entitlements” and in respect of
Distributions, “Class 2 Additional Entitlements”, and collectively, “Additional Entitlements”). The calculation of
Additional Entitlements is designed to be accretive to holders of Fund Units (“Unitholders”) as the expected
increase in Franchise Sales from the New Restaurants added to the Royalty Pool less the decrease in Franchise
Sales from the Closed Restaurants is valued at a 7.5% discount. The Additional Entitlements are calculated at
92.5% of the estimated Royalty and Distributions expected to be generated by the New Restaurants less the actual
Royalty and Distributions lost from the Closed Restaurants, multiplied by one minus the effective tax rate estimated
to be paid by the Fund, divided by the yield of the Fund, divided by the weighted average Fund Unit price over a
specified period. BPI receives 80% of the Additional Entitlements initially, with the balance received when the actual
full year performance of the New Restaurants and the actual effective tax rate paid by the Fund are known with
certainty (such balance of Fund Units in respect of the increased Royalty, the “Class B Holdback”, and in respect
of the increased Distributions, the “Class 2 Holdback”, and collectively, the “Holdback”). BPI receives 100% of
the distributions on the Additional Entitlements throughout the year. After the New Restaurants have been part of
the Royalty Pool for a full year, an audit of the Franchise Sales of these restaurants is performed, and the actual
effective tax rate paid by the Fund is determined. At such time, an adjustment is made to reconcile distributions
paid to BPI and the Additional Entitlements received by BPI.
It is possible that on an Adjustment Date, the Net Royalty and Distributions is negative as a result of the estimated
Royalty and Distributions expected to be generated by the New Restaurants being less than the actual Royalty and
Distributions that is lost from the Closed Restaurants (the amount by which it is less is the “Deficiency”). In such
case, BPI would not receive any Additional Entitlements, however, nor would BPI lose any of the Additional
Entitlements previously received by BPI. Rather, on future Adjustment Dates, BPI would be required to make-up
the Deficiency by first adding Net Royalty and Distributions in an amount equal to the Deficiency before receiving
any further Additional Entitlements (i.e. BPI only receives Additional Entitlements in respect of the cumulative
amount by which Royalty and Distributions from New Restaurants exceeds actual Royalty and Distributions lost
from Closed Restaurants).
Business Strategy
The success of the business of BPI, BP Canada LP, their affiliated entities and franchisees (“Boston Pizza”) can
be attributed to four simple underlying principles that are the foundation for all strategic decision-making – the “Four
Pillars” strategy.
• Building the brand
• Continually improving the guest experience
• A commitment to Franchisee profitability
• On-going engagement in local communities
BPI and BP Canada LP realize that franchisees have to be profitable to succeed. To enhance profitability and to
facilitate the growth of Boston Pizza, BPI and BP Canada LP aggressively enhance and promote the Boston Pizza
brand through television, radio, digital, social media, and national and local promotions. The costs associated with
national marketing of Boston Pizza are paid for by the Boston Pizza advertising fund (the “Advertising Fund”).
Franchisees pay 3.0% of Franchise Sales to the Advertising Fund; 76.0% of these funds are used to purchase
6 The Royalty and Distributions that are lost from the Closed Restaurants is calculated based upon the actual Franchise Sales received from
the Closed Restaurants during the first 12-month period immediately following their addition to the Royalty Pool.
85
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 6 -
television, radio, digital and social media advertising, and the remaining 24.0% is used for production of materials
and administration. Both Boston Pizza franchisees and the corporate support staff continuously find new ways to
improve the guests’ experience so that guests will return to Boston Pizza again and again. Boston Pizza and its
franchisees connect with their communities by hosting events, engaging with local organizations, and supporting
philanthropic causes. Management is confident that this “Four Pillars” strategy will continue to focus BPI’s and
BP Canada LP’s efforts, develop new markets and strengthen Boston Pizza’s position as Canada’s number one
casual dining brand.
Ongoing Effects of COVID-19
COVID-19 continue to impact the business of the Fund, BPI and BP Canada LP, and the operation of Boston Pizza
Restaurants during 2021 and the first half of 2022. Since then, COVID-19 case counts have improved, government
restrictions related to COVID-19 have largely been eliminated, and sales levels of Boston Pizza Restaurants have
returned to more normal levels when compared to times prior to COVID-19.
Economic Uncertainties
The success of BPI, BP Canada LP and Boston Pizza Restaurants, and the amount of Franchise Sales, Royalty,
Distributions and the Fund’s available cash for distribution to Unitholders, are dependent upon many economic
factors, including impacts of inflation, increases in interest rates, unemployment rates, consumer confidence,
recession, supply chain disruption, labour availability and other globally disruptive events. However, despite the
current state of economic uncertainty, Boston Pizza Restaurants have been able to generate solid Franchise Sales
and offer affordable dining options, both on and off-premise, for guests in economically uncertain times. As
demonstrated during COVID-19, BPI, BP Canada LP and Boston Pizza Restaurants have the ability to adapt to
changes in operating environments and economic conditions. For additional information regarding economic
uncertainties, refer to the “Risks & Uncertainties – Risks Related to the Business of BPI and BP Canada LP” section
of this MD&A.
Seasonality
Boston Pizza Restaurants typically experience seasonal fluctuations in Franchise Sales, which are inherent in the
full-service restaurant industry in Canada. Seasonal factors, such as tourism and better weather, generally allow
Boston Pizza Restaurants to open their patios and generally increase Franchise Sales in the second and third
quarters each year compared to the first and fourth quarters.
New Restaurant Openings, Closures and Renovations
During the Period, there were no New Restaurants and three Closed Restaurants. During the Year, there were no
New Restaurants and six Closed Restaurants. As well, eight Boston Pizza Restaurants were renovated during the
Period and 18 Boston Pizza Restaurants were renovated during the Year. Boston Pizza Restaurants typically close
or partially close for two to three weeks to complete the renovation, which incorporates updated design elements
that result in a refreshed and more appealing restaurant.
OPERATING RESULTS
Same Restaurant Sales
Period
SRS was 24.5% for the Period compared to 25.5% reported in the fourth quarter of 2021. As COVID-19 began to
adversely affect sales in Boston Pizza Restaurants in March of 2020, BPI believes that it is also useful to calculate
and report SRS comparing 2022 Franchise Sales to 2019 Franchise Sales. If SRS were calculated comparing
Franchise Sales in the Period to Franchise Sales in the fourth quarter of 2019, SRS would be 10.8%. The increase
in SRS for the Period compared to the fourth quarter of 2021 was principally due to increases in restaurant guest
traffic mainly as a result of the elimination of dining restrictions and increased average guest cheque.
86
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 7 -
Year
SRS was 30.4% for the Year compared to 8.5% reported in 2021. If SRS were calculated comparing Franchise
Sales for the Year to Franchise Sales in 2019, SRS would be 3.2%. The increase in SRS for the Year compared
to 2021 was principally due to increases in restaurant guest traffic as a result of the easing and elimination of dining
restrictions and increased average guest cheque.
Revenues
Period
BPI’s total revenue was $31.8 million for the Period compared to $26.3 million for the fourth quarter of 2021. BPI’s
revenue was principally derived from royalty revenue and Advertising Fund contributions received by
BP Canada LP from franchised Boston Pizza Restaurants, supplier contributions, sales from corporately owned
restaurants and franchise renewal fees. The $5.5 million increase in revenue for the Period was primarily due to
higher royalty revenues, supplier contributions, Advertising Fund revenue and revenues from corporately owned
restaurants resulting from positive SRS.
Year
BPI’s total revenue was $116.4 million for the Year compared to $90.3 million in 2021. The $26.1 million increase
in revenue for the Year was primarily due to higher royalty revenues, supplier contributions, Advertising Fund
revenue and revenues from corporately owned restaurants resulting from positive SRS.
Royalty Expense and Distribution Expense
Period
BPI’s Royalty expense to Royalties LP (being 4.0% of Franchise Sales from Boston Pizza Restaurants in the
Royalty Pool) was $9.1 million and Distribution expense (being 1.5% of Franchise Sales from Boston Pizza
Restaurants in the Royalty Pool, less BPI’s retained interest) was $3.0 million for the Period, compared to
$7.3 million and $2.4 million, respectively, for the fourth quarter of 2021. The $1.8 million increase in Royalty
expense and $0.6 million increase in Distribution expense for the Period were primarily due to positive SRS.
Year
BPI’s Royalty expense to Royalties LP was $34.2 million and Distribution expense was $11.3 million for the Year
compared to $26.4 million and $8.8 million, respectively, in 2021. The $7.8 million increase in Royalty expense and
$2.5 million increase in Distribution expense for the Year were primarily due to positive SRS.
Operating Expenses Excluding Royalty Expense and Distribution Expense
Period
BPI’s operating expenses, excluding Royalty expense and Distribution expense, were $16.6 million for the Period,
which included Advertising Fund expenses of $7.7 million, compensation expense of $4.1 million, operational costs
of corporately owned restaurants of $2.4 million, depreciation and amortization of $1.5 million, other expense
associated with services provided to franchised Boston Pizza Restaurants of $1.1 million, and management fees
for services rendered by companies under common control of $0.5 million. These expenses were partially offset
by the amortization of deferred gain on the sale of BP Rights to Royalties LP of $0.7 million. In the fourth quarter
of 2021, BPI’s operating expenses, excluding Royalty expense and Distribution expense, were $14.1 million, which
included Advertising Fund expenses of $7.4 million, compensation expense of $3.3 million, operational costs of
corporately owned restaurants of $2.1 million, depreciation and amortization of $1.3 million and other expense
associated with services provided to franchised Boston Pizza Restaurants of $0.7 million. These expenses were
partially offset by the amortization of deferred gain on the sale of BP Rights to Royalties LP of $0.7 million.
87
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 8 -
The increase in operating expenses, excluding Royalty expense and Distribution expense, of $2.5 million for the
Period was due to an increase in compensation expense, an increase in management fees for services rendered
by companies under common control, an increase in other expenses associated with services provided to
franchised Boston Pizza Restaurants, an increase in Advertising Fund expenses due to increased advertising
activity, an increase in operational costs of corporately owned Boston Pizza Restaurants due to lower government
financial assistance (as discussed below) and increased Boston Pizza Restaurant activity, and increased
depreciation and amortization.
The deferred gain on the sale of BP Rights to Royalties LP is amortized over 99 years, beginning in 2002 for the
term of the License and Royalty Agreement dated July 17, 2002, as amended on May 9, 2005, between
Royalties LP and BPI. The net deferred gain at December 31, 2022 was $222.0 million compared to $224.8 million
at December 31, 2021.
Year
BPI’s operating expenses, excluding Royalty expense and Distribution expense, were $57.8 million for the Year,
which included Advertising Fund expenses of $24.1 million, compensation expense of $18.4 million, operational
costs of corporately owned restaurants of $8.5 million, depreciation and amortization of $4.6 million, other expense
associated with services provided to franchised Boston Pizza Restaurants of $4.5 million, and management fees
for services rendered by companies under common control of $0.5 million. These expenses were partially offset
by the amortization of deferred gain on the sale of BP Rights to Royalties LP of $2.8 million. In 2021, BPI’s operating
expenses, excluding Royalty expense and Distribution expense, were $43.5 million, which included Advertising
Fund expenses of $18.1 million, compensation expense of $14.7 million, depreciation and amortization of
$5.0 million, operational costs of corporately owned restaurants of $4.6 million and other expenses associated with
services provided to franchised Boston Pizza Restaurants of $4.0 million. These expenses were partially offset by
the amortization of deferred gain on the sale of BP Rights to Royalties LP of $2.8 million.
The increase in operating expenses, excluding Royalty expense and Distribution expense, of $14.3 million for the
Year was due to an increase in Advertising Fund expenses due to increased advertising activity, an increase in
operational costs of corporately owned Boston Pizza Restaurants due to lower government financial assistance (as
discussed below) and increased Boston Pizza Restaurant activity, an increase in compensation expense due to
lower government financial assistance (as discussed below), an increase in other expenses associated with
services provided to franchised Boston Pizza Restaurants, and an increase in management fees for services
rendered by companies under common control partially offset by a decrease in depreciation and amortization.
In 2022, BPI received government financial assistance under the Tourism and Hospitality Recovery Program
(“THRP”) and the Canada Recovery Hiring Program (“CRHP”), which provided wage and rent financial assistance
for qualified businesses. BPI did not recognize any government assistance during the Period, compared to a
nominal amount recognized in the fourth quarter of 2021, for assistance provided from the Canada Emergency
Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs. BPI recognized $0.7 million
for the Year in assistance provided from the THRP and CRHP, compared to $3.7 million recognized under the
CEWS and CERS programs in 2021.
Earnings before Interest and Fair Value Gain (Loss)
Period
BPI’s earnings before interest and fair value gain (loss) was $3.1 million for the Period compared to $2.4 million for
the fourth quarter of 2021. The $0.7 million increase in earnings before interest and fair value gain (loss) for the
Period was principally due to an increase in revenues, partially offset by increases in operating, Royalty and
Distribution expenses.
88
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 9 -
Year
BPI’s earnings before interest and fair value gain (loss) was $13.1 million for the Year compared to $11.6 million in
2021. The $1.5 million increase in earnings before interest and fair value gain (loss) for the Year was principally
due to an increase in revenues, partially offset by increases in operating, Royalty and Distribution expenses.
Net Interest Income
Period
BPI’s net interest income during the Period was $1.1 million, comprised of $1.6 million of interest income received
by BPI on its Class B general partner units of Royalties LP (“Class B Units”), partially offset by $0.4 million of
interest expense on debt and financing costs and $0.1 million of interest expense on lease obligations. BPI’s net
interest income for the fourth quarter of 2021 was $0.5 million, comprised mainly of $1.0 million of interest income
received by BPI on its Class B Units, partially offset by $0.5 million of interest expense on debt and financing costs,
$0.1 million of interest expense on lease obligations and nominal interest expense on payables owed to the Fund.
The $0.6 million increase in net interest income for the Period was due to an increase in interest income on Class B
Units attributable to the Fund’s higher monthly distribution rates compared to the same period in 2021 along with a
special distribution declared in December 2022, and a decrease in interest expense on debt and financing costs.
Year
BPI’s net interest income for the Year was $1.8 million, comprised of $3.7 million of interest income received by BPI
on its Class B Units, partially offset by $1.6 million of interest expense on debt and financing costs and $0.3 million
of interest expense on lease obligations. BPI’s net interest income for 2021 was $0.1 million, comprised mainly of
$2.5 million of interest income received by BPI on its Class B Units, partially offset by $2.0 million of interest expense
on debt and financing costs, $0.3 million of interest expense on lease obligations and $0.1 million of interest
expense on payables owed to the Fund. The $1.7 million increase in net interest income for the Year was primarily
due to an increase in interest income on Class B Units attributable to the Fund’s higher monthly distribution rates
compared to 2021 along with a special distribution declared in December 2022, and a decrease in interest expense
on debt and financing costs.
Fair Value Gain (Loss)
Period
During the Period, BPI recognized a fair value gain of $0.6 million compared to a fair value loss of $6.3 million for
the fourth quarter of 2021. The change in fair value was principally due to the change in the price of Fund Units
into which the Class B Units are exchangeable and upon which the Class 2 LP Units liability is measured.
BPI estimates the fair value of the Class B Units by multiplying the number of Fund Units that BPI would be entitled
to receive if it exchanged all of the Class B Units (including the Class B Holdback) held by BPI at the end of the
Period by the closing price of a Fund Unit on the last business day of the Period. As at December 31, 2022, the
Fund’s closing price was $15.08 per Fund Unit (September 30, 2022 – $15.29 per Fund Unit) and the number of
Fund Units BPI would be entitled to receive if it exchanged all of the Class B Units (including the Class B Holdback)
held by BPI was 2,430,823 (September 30, 2022 – 2,430,823). Consequently, the Class B Units were valued at
$36.7 million (September 30, 2022 – $37.2 million), resulting in a fair value loss of $0.5 million. In general, the value
of the Class B Units will increase as the market price of Fund Units increases and vice versa. In addition, the value
of the Class B Units increases as the number of Fund Units BPI would be entitled to receive if it exchanged all of
the Class B Units (including the Class B Holdback) increases and vice versa.
The Class 1 LP Units are entitled to distributions determined with respect to the interest cost paid by the Fund on
the credit facility of the Fund drawn on at the time of the 2015 Transaction to pay for the Fund’s indirect investment
in Class 1 LP Units of BP Canada LP. BPI estimates the fair value of the Class 1 LP Units liability using a market-
corroborated input, being the interest rate on the applicable credit facility. Consequently, BPI estimated the fair
89
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 10 -
value of Class 1 LP Units liability as at December 31, 2022 to be $33.3 million (September 30, 2022 – $33.3 million),
resulting in no fair value adjustment for the Period.
BPI estimates the fair value of the Class 2 LP Units liability by multiplying the number of Class 2 LP Units indirectly
held by the Fund at the end of the Period by the closing price of a Fund Unit on the last business day of the Period.
As at December 31, 2022, the Fund indirectly held 5,455,762 Class 2 LP Units (September 30, 2022 – 5,455,762)
and the Fund’s closing price was $15.08 per Fund Unit (September 30, 2022 – $15.29 per Fund Unit).
Consequently, BPI estimated the fair value of the Class 2 LP Units liability as at December 31, 2022 to be
$82.3 million (September 30, 2022 – $83.4 million), resulting in a fair value gain of $1.1 million for the Period. In
general, the fair value of the Class 2 LP Units liability will increase as the market price of Fund Units increases and
vice versa.
Year
During the Year, BPI recognized a fair value gain of $1.1 million compared to a fair value loss of $14.0 million in
2021. The change in fair value was principally due to the change in the price of Fund Units into which the Class B
Units are exchangeable and upon which the Class 2 LP Units liability is measured.
As at December 31, 2021, the Fund’s closing price was $15.45 per Fund Unit and the number of Fund Units BPI
would be entitled to receive if it exchanged all of the Class B Units (including the Class B Holdback) held by BPI
was 2,430,823. The Class B Units were valued at $37.6 million as at December 31, 2021. As discussed above,
the Class B Units at the end of the Period were valued at $36.7 million, resulting in a fair value loss of $0.9 million.
As discussed above, BPI estimated the fair value of Class 1 LP Units liability as at December 31, 2022 to be
$33.3 million (December 31, 2021 – $33.3 million), resulting in no fair value adjustment for the Year.
As at December 31, 2021, the Fund indirectly held 5,455,762 Class 2 LP Units and the Fund’s closing price was
$15.45 per Fund Unit. Consequently, BPI estimated the fair value of the Class 2 LP Units liability as at
December 31, 2021 to be $84.3 million. As discussed above, BPI estimated the fair value of the Class 2 LP Units
liability as at December 31, 2022 to be $82.3 million, resulting in a fair value gain of $2.0 million for the Year.
Earnings (Loss) before Income Taxes
Period
Given the combined effects of the above-noted factors, BPI had earnings before income taxes of $4.9 million for
the Period compared to a loss before income taxes of $3.4 million for the fourth quarter of 2021. The $8.3 million
increase in earnings before income taxes was primarily due to an increase in fair value gain, an increase in earnings
before interest and fair value gain (loss) and an increase in net interest income.
Year
Given the combined effects of the above-noted factors, BPI had earnings before income taxes of $16.1 million for
the Year compared to a loss before income taxes of $2.2 million for in 2021. The $18.3 million increase in earnings
before income taxes was primarily due to an increase in fair value gain, an increase in net interest income and an
increase in earnings before interest and fair value gain (loss).
Income Tax Expense
Period
BPI recognized a nominal current income tax expense for the Period compared to a current income tax expense of
$0.5 million for the fourth quarter of 2021. The $0.5 million decrease in current income tax expense for the Period
is mainly due to lower taxable earnings primarily from the usage of non-capital loss carry-forwards.
90
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 11 -
BPI recognized $0.9 million deferred income tax expense for the Period compared to $0.2 million for the fourth
quarter of 2021. The $0.7 million increase in deferred income tax expense is primarily due to the usage of non-
capital loss carry-forwards and the timing of other temporary differences.
Year
BPI recognized $1.9 million current income tax expense for the Year compared to $2.3 million in 2021. The $0.4
million decrease in current income tax expense for the Year is mainly due to lower taxable earnings primarily from
the usage of non-capital loss carry-forwards.
BPI recognized $2.3 million deferred income tax expense for the Year compared to $0.7 million in 2021. The
$1.6 million increase in deferred income tax expense is primarily due to the usage of non-capital loss carry-forwards
and the timing of other temporary differences.
Net and Comprehensive Income (Loss)
Period
BPI’s net and comprehensive income for the Period was $3.9 million compared to a net and comprehensive loss of
$4.1 million for the fourth quarter of 2021. The increase in income of $8.0 million is primarily due to the increase in
earnings before income taxes, partially offset by the increase in income tax expense.
Year
BPI’s net and comprehensive income for the Year was $11.9 million compared to net and comprehensive loss of
$5.3 million in 2021. The increase in income of $17.2 million is primarily due to the increase in earnings before
income taxes, partially offset by the increase in income tax expense.
New Restaurants Added to the Royalty Pool
Boston Pizza Restaurants Added to Royalty Pool on January 1, 2022
On January 1, 2022, the Royalty Pool was adjusted to remove four Closed Restaurants that closed between
January 1, 2021 and December 31, 2021 resulting in the number of Boston Pizza Restaurants in the Royalty Pool
decreasing from 387 to 383. The actual Franchise Sales received from the four Closed Restaurants during the first
12-month period immediately following their addition to the Royalty Pool was $6.2 million. Since no New
Restaurants opened during the Year, the resulting estimated annual net Franchise Sales for the four Closed
Restaurants that closed in 2021 was negative $6.2 million. Consequently, this resulted in the Net Royalty and
Distributions having a Deficiency for 2021 of $0.3 million (being 5.5% of negative $6.2 million Franchise Sales).
Since there was a Deficiency for 2021 of $0.3 million, BPI did not receive any Additional Entitlements on January 1,
2022. However, BPI did not lose any of the Additional Entitlements it received in respect of previous years. Instead,
BPI will be required to make-up the cumulative Deficiency for both 2020 and 2021 on future Adjustment Dates by
first adding Net Royalty and Distributions in an amount equal to the cumulative Deficiency before receiving any
further Additional Entitlements.
Audit of Boston Pizza Restaurants Added to Royalty Pool on January 1, 2021
In February 2022, an audit of the Franchise Sales of the two New Restaurants that were added to the Royalty Pool
on January 1, 2021 was performed and the actual effective tax rate paid by the Fund for the 2021 calendar year
was determined. The purpose of this was to compare the actual Franchise Sales from these two New Restaurants
to the estimated amount of Franchise Sales expected to be generated by these two New Restaurants during 2021
and to compare the actual effective tax rate paid by the Fund for 2021 to the estimated effective tax rate the Fund
expected to pay for 2021. The original Franchise Sales expected to be generated from these two New Restaurants
less the Franchise Sales from the 11 Boston Pizza Restaurants that closed in 2021 was negative $15.2 million.
The actual Franchise Sales generated from these two New Restaurants after subtracting the Franchise Sales from
the 11 Boston Pizza Restaurants that closed in 2021 was $0.2 million less. The original effective tax rate the Fund
91
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 12 -
expected to pay for 2021 was 26.0% and the actual effective tax rate paid by the Fund for 2021 was 26.2%. As a
result, the Deficiency in respect of 2020 was adjusted to be $0.8 million. The cumulative Deficiency for 2020 and
2021 is $1.2 million, comprised of the adjusted Deficiency for 2020 of $0.8 million and the Deficiency for 2021 of
$0.3 million.
Subsequent Events
Boston Pizza Restaurants Added to Royalty Pool on January 1, 2023
On January 1, 2023, the Royalty Pool was adjusted to remove six Closed Restaurants for the Year resulting in the
number of Boston Pizza Restaurants in the Royalty Pool decreasing from 383 to 377. The actual Franchise Sales
received from the six Closed Restaurants during the first 12-month period immediately following their addition to
the Royalty Pool was $6.8 million. Since no New Restaurants opened during the Year, the resulting annual net
Franchise Sales for the six Closed Restaurants that closed in 2022 was negative $6.8 million. Consequently, this
resulted in the Net Royalty and Distributions having a Deficiency for 2022 of $0.4 million (being 5.5% of negative
$6.8 million Franchise Sales). Since there was a Deficiency for 2022 of $0.4 million, BPI did not receive any
Additional Entitlements on January 1, 2023. However, BPI did not lose any of the Additional Entitlements it received
in respect of previous years. Instead, BPI will be required to make-up the cumulative Deficiency for 2020, 2021
and 2022 on future Adjustment Dates by first adding Net Royalty and Distributions in an amount equal to the
cumulative Deficiency before receiving any further Additional Entitlements. The following is a summary of the
cumulative Deficiency that exists:
Adjustment
Date
Actual Franchise Sales
of New Restaurants for
Adjustment Date
(in millions)*
Actual Franchise Sales
of Closed Restaurants
for Adjustment Date
(in millions)*
Net Franchise Sales for
Adjustment Date
(in millions)*
Deficiency, being 5.5% of
Net Franchise Sales
(in millions)*
January 1, 2021
$3.1⸶
$18.5 ($15.4) ($0.8)
January 1, 2022 -- $6.2 ($6.2) ($0.3)
January 1, 2023 -- $6.8 ($6.8) ($0.4)
Cumulative $3.1 $31.5 ($28.4) ($1.6)
*Figures are rounded to one decimal place. ⸶ Determined in February 2022 after an audit of Franchise Sales for 2021 was performed on the
New Restaurants.
Audit of Boston Pizza Restaurants Added to Royalty Pool on January 1, 2022
Since no New Restaurants were opened during 2021 nor were added to the Royalty Pool on January 1, 2022, there
was no need to conduct an audit to compare the actual Franchise Sales from New Restaurants that were opened
in 2021 to the estimated amount of Franchise Sales expected to be generated by these New Restaurants during
2022 nor to compare the actual effective tax rate paid by the Fund for 2022 to the estimated effective tax rate the
Fund expected to pay for 2022.
Fund Units Outstanding
The following table sets forth a summary of the outstanding Fund Units. BPI owns 100% of the Class B Units and
1% of the ordinary general partner units of Royalties LP. BPI also owns 100% of the Class 2 GP Units, and 100%
of the Class 3, Class 4, Class 5 and Class 6 general partnership units of BP Canada LP. The Class B Units and
Class 2 GP Units are exchangeable for Fund Units. References to “Class B Additional Entitlements” and “Class 2
Additional Entitlements” in the table below refer to the number of Fund Units into which the Class B Units and
Class 2 GP Units, respectively, are exchangeable as of the dates indicated.
92
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 13 -
Summary of Boston Pizza Royalties Income Fund Units
Dec. 31, 2022
Excluding
Holdback
Dec. 31, 2022
Including
Holdback
Feb. 8, 2023
Excluding
Holdback
Feb. 8, 2023
Including
Holdback
Units Outstanding
Total Issued and Outstanding Fund Units 21,521,463 21,521,463 21,521,463 21,521,463
Class B Additional Entitlements Outstanding
Class B Additional Entitlements (Excluding Jan. 1, 2023
Adjustment Date)
2,430,823 2,430,823 2,430,823 2,430,823
Class B Holdback (Excluding Jan. 1, 2023 Adjustment
Date)
N/A -- N/A N/A
(1)
Class B Additional Entitlements – Issued Jan. 1, 2023 N/A N/A -- --
Class B Holdback – Created Jan. 1, 2023 N/A N/A N/A --
(2)
Total Class B Additional Entitlements 2,430,823 2,430,823 2,430,823 2,430,823
Class 2 Additional Entitlements Outstanding
Class 2 Additional Entitlements (Excluding Jan. 1, 2023
Adjustment Date)
831,354 831,354 831,354 831,354
Class 2 Holdback (Excluding Jan. 1, 2023 Adjustment
Date)
N/A -- N/A N/A
(1)
Class 2 Additional Entitlements – Issued Jan. 1, 2023 N/A N/A -- --
Class 2 Holdback – Created Jan. 1, 2023 N/A N/A N/A --
(2)
Total Class 2 Additional Entitlements 831,354 831,354 831,354 831,354
Summary
Total Issued and Outstanding Fund Units 21,521,463 21,521,463 21,521,463 21,521,463
Total Additional Entitlements 3,262,177 3,262,177 3,262,177 3,262,177
Total Diluted Fund Units 24,783,640 24,783,640 24,783,640 24,783,640
BPI’s Total Percentage Ownership 13.2% 13.2% 13.2% 13.2%
(1) There is no Holdback for the adjustment to the Royalty Pool that occurred on January 1, 2022 since BPI did not receive any Additional
Entitlements in respect thereof due to a Deficiency existing.
(2) There is no Holdback for the adjustment to the Royalty Pool that occurred on January 1, 2023 since BPI did not receive any Additional
Entitlements in respect thereof due to a Deficiency existing.
BPI directly and indirectly holds 100% of the special voting units (the “Special Voting Units”) of the Fund, which
entitle BPI to one vote in respect of matters to be voted upon by Unitholders for each Fund Unit that BPI would be
entitled to receive if it exchanged all of its Class B Units and Class 2 GP Units for Fund Units. As of February 8,
2023, BPI was entitled to 3,262,177 votes, representing 13.2% of the aggregate votes held by holders of Fund Units
and Special Voting Units. The number of Fund Units that BPI is entitled to receive upon the exchange of its Class B
Units and Class 2 GP Units and the number of votes that BPI is entitled to in respect of its Special Voting Units is
adjusted periodically to reflect any additional Boston Pizza Restaurants that were added to the Royalty Pool.
LIQUIDITY & CAPITAL RESOURCES
BPI is an entirely franchised business except for three corporate Boston Pizza Restaurants that it currently owns.
For 2023, BPI has forecasted capital requirements of approximately $4.5 million, which consist mainly of the
development of software applications and digital platforms, computer equipment, and leasehold improvements. BPI
believes it has sufficient cash and capital resources to cover forecasted expenditures, capital requirements,
commitments and repayments for 2023. BPI constantly monitors its operations and cash flows to ensure that
current and future obligations will be met. BPI believes its current sources of liquidity are sufficient to cover its
93
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 14 -
currently known short and long-term obligations. BPI manages its working capital with the Operating Line (as
defined below) and the BDC Facilities (as defined below).
Indebtedness
Original Credit Facilities
Prior to June 28, 2022, BPI had credit facilities with a Canadian chartered bank (the “Bank”) in the amount of up to
$34.0 million
7
(originally $43.3 million) that were scheduled to expire on December 31, 2022 (the “Original Credit
Facilities”). The Original Credit Facilities were comprised of: (i) a $10.0 million committed revolving facility to cover
BPI’s day-to-day operating requirements if needed (the “Operating Line”); and (ii) a $24.0 million (originally
$33.3 million) committed non-revolving term facility that was used to finance the reorganization of BPI and its
shareholders that completed on September 30, 2017 (the “Term Loan”). The Original Credit Facilities bore interest
at variable rates, as selected by BPI. In the case of Canadian prime rate loans, the interest rate was equal to the
Bank’s prime rate plus between 1.50% and 2.50% (depending on the Total Funded Net Debt (as defined below) to
EBITDA ratio) and, in the case of bankers’ acceptances and Canadian dollar offered rate loans, the interest rate
was equal to a variable interest rate based on the Bank’s bankers’ acceptance rates or Canadian dollar offered
rates plus between 2.75% and 3.75% (depending on the Total Funded Net Debt to EBITDA ratio). The Term Loan
and the principal amount drawn on the Operating Line are due and payable upon maturity. The principal amount
drawn on the Term Loan must be reduced by quarterly payments, which permanently reduce the amount available
under the Term Loan. BPI repaid $0.3 million of principal outstanding on the Term Loan on June 28, 2022.
Amendments and Extension to the Original Credit Facilities
On June 28, 2022, BPI entered into a second supplemental credit agreement (the “Second Supplemental Credit
Agreement”) with the Bank to amend and extend the Original Credit Facilities (the Original Credit Facilities, as
amended by the Second Supplemental Credit Agreement, being the “Credit Facilities”)
8
. The material
modifications to the Original Credit Facilities are as follows:
1. The maturity date was extended from December 31, 2022 to July 1, 2026;
2. The total amount of credit available was decreased by $9.3 million, from the original $43.3 million to
$34.0 million
7
by decreasing the size of the Term Loan from the original $33.3 million to $24.0 million to
reflect repayments of principal previously made by BPI;
3. The interest rates (or margins, as applicable) applicable to the Original Credit Facilities decreased
substantially depending on BPI’s Total Funded Net Debt to EBITDA ratio and the availment option selected.
In the case of Canadian prime rate loans, the interest rate is now equal to the Bank’s prime rate plus
between 0.00% and 0.90% (depending on the Total Funded Net Debt to EBITDA ratio) and, in the case of
bankers’ acceptances and Canadian dollar offered rate loans, the interest rate is equal to a variable interest
rate based on the Bank’s bankers’ acceptance rates or Canadian dollar offered rates plus between 1.25%
and 2.10% (depending on the Total Funded Net Debt to EBITDA ratio);
4. The amount of principal on the Term Loan that BPI is required to repay each quarter was reduced from
$0.7 million to $0.4 million;
5. Certain financial covenants that were waived by the Bank from June 2020 until December 31, 2022 were
reinstated and, in the case of (b) and (c) below, modified, including: (a) the covenant that the market value
the Class B Units and Class 2 GP Units
9
exceeds the amount of indebtedness owed by BPI to the Bank;
7 These amounts exclude the BCAP Loan discussed below.
8 On June 28, 2022, Royalties LP and Holdings LP also entered into a Second Supplemental Credit Agreement with the Bank to amend
and extend the Fund’s credit facilities. See the Fund’s MD&A for the three and six month period ended June 30, 2022, a copy of which is
available on www.sedar.com, for details.
9 BPI indirectly holds Class B Units and Class 2 GP Units that are currently exchangeable for approximately 3.3 million Fund Units.
94
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 15 -
(b) the covenant that BPI’s Net Total Funded Debt to EBITDA be less than specified ratios; and (c) the
covenant that BPI maintain a minimum ratio of cash flow available for debt service to total debt service;
6. Certain covenants agreed to in June 2020 were eliminated, including: (i) the covenant that required BPI’s
trailing 12-month EBITDA to not be less than certain specified values; and (ii) the covenant that required
BPI to dispose of certain assets and use the net proceeds therefrom to reduce BPI’s indebtedness to the
Bank;
7. Certain other covenants and provisions were modified; and
8. The guarantees and security supporting the Credit Facilities remain unchanged from those existing
immediately prior to the Second Supplemental Credit Agreement.
The Credit Facilities now have a maturity date of July 1, 2026. As at June 28, 2022 the Credit Facilities were
comprised of: (i) the Operating Line, being a $10.0 million committed revolving facility; and (ii) the Term Loan, being
a $24.0 million (which is permanently reduced by the amounts of repayments) committed non-revolving term facility.
The Credit Facilities bear interest at variable interest rates comprised of either, or a combination of, the Bank’s
bankers’ acceptance rates or Canadian dollar offered rates plus between 1.25% and 2.10%, or the Bank’s prime
rate plus between 0.00% and 0.90%, depending upon the Total Funded Net Debt to EBITDA ratio, and interest is
payable monthly in arrears. The Term Loan and the principal amount drawn on the Operating Line are due and
payable upon maturity. The principal amount drawn on the Term Loan must be reduced by quarterly payments of
$0.4 million each.
The Credit Facilities continue to be guaranteed by all of BPI’s subsidiaries except BP Canada LP, and BPI and
each of those subsidiaries have granted general security over their assets to secure their obligations under the
Credit Facilities and such guarantees. No security has been given by BP Canada LP in respect of the Credit
Facilities. Neither the Fund nor any of its subsidiaries has guaranteed or provided any security in respect of the
Credit Facilities. BPI and each of BPI’s subsidiaries (including BP Canada LP) have also granted Royalties LP
security over their assets to secure BPI’s and BP Canada LP’s obligations to pay Royalty and Distributions. See
“Liquidity & Capital Resources – Amendments to General Security Agreements granted by BPI and its subsidiaries
in favour of the Fund” below for additional details.
The principal financial covenants of the Credit Facilities are that: (a) BPI and its subsidiaries, taken as a whole, shall
maintain a Total Funded Net Debt to EBITDA ratio of not greater than 3.00:1 (tested quarterly on a trailing 12-month
basis); (b) BPI and its subsidiaries, taken as a whole, shall not permit its: (i) pre-distribution debt service coverage
ratio to be less than 1.10:1 on closing and until December 31, 2023 and less than 1.25:1 thereafter (tested quarterly
on a trailing 12-month basis); and (ii) post-distribution debt service coverage ratio to be less than 1.00:1 (tested
quarterly on a trailing 12-month basis); and (c) the Class B Units and Class 2 GP Units that a subsidiary of BPI has
pledged to the Bank and which are exchangeable for Fund Units must have a value, at any time, equal to at least
100% of the outstanding advances under the credit facilities advanced pursuant to the Credit Facilities. “Total
Funded Net Debt” is defined as all indebtedness excluding accounts payable, short-term non-interest bearing
unsecured debt, deferred income taxes and certain related party debt net of cash on the balance sheet, generated
from operations and held in accounts at the Bank. In addition, the first amended and restated credit agreement
dated January 24, 2020 between BPI and the Bank, as amended by the first supplemental credit agreement dated
June 22, 2020 and the Second Supplemental Credit Agreement, governing the Credit Facilities contain certain
covenants and restrictions, including the requirement to meet the financial ratios described above. A failure of BPI
to comply with these covenants and restrictions could entitle the Bank to demand repayment of the outstanding
balance drawn on the Credit Facilities prior to maturity. BPI was in compliance with all of its financial covenants
and financial condition tests as at the end of the Period. On December 28, 2022, BPI made a voluntary repayment
of $5.0 million on the Term Loan, in addition to the required quarterly payment of $0.4 million. As of December 31,
2022, no amount was drawn on the Operating Line and $18.2 million was drawn on the Term Loan.
BCAP Loan
On June 22, 2020, the Bank loaned BPI $6.25 million under Export Development Canada’s business credit
availability program (the “BCAP Loan”). The BCAP Loan could be used to provide additional liquidity to finance
95
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 16 -
operations, and could not be used (i) to repay or refinance existing debt obligations, (ii) to make distributions; or
(iii) to pay any bonuses or increases to executive compensation. The BCAP Loan had a term of one year, which
could be extended annually at the request of BPI for up to five years subject to compliance with certain requirements.
On June 22, 2021, BPI extended the BCAP Loan for one year. The BCAP Loan required interest only payments
for the first year and was repayable in monthly blended payments of principal and interest amortized over four years
commencing after the first year of the term, with any remaining balance outstanding being due upon expiry of the
term. The BCAP Loan bore interest at the Bank’s prime rate plus 2.5% and is subject to an annual fee equal to
1.8% of the total amount of credit available (i.e. $6.25 million). The BCAP Loan was guaranteed by all of BPI’s
subsidiaries except BP Canada LP, and was secured by the same security that secures the Credit Facilities to the
Bank. That security shares priority with the general security agreements granted by BPI and its subsidiaries to the
Bank under the Credit Facilities. BPI repaid the BCAP Loan in full on June 22, 2022, and as such, the BCAP Loan
was extinguished.
BDC Facilities
On July 7, 2020, Business Development Bank of Canada (“BDC”) loaned BPI $2.0 million under the federal
government’s COVID-19 relief programs (the “BDC Facilities”). The BDC Facilities may be used for working capital
purposes, have a term of three years and are repayable in a combination of monthly payments commencing after
the first year of the term and a balloon payment upon maturity. The BDC Facilities bear interest at Business
Development Bank of Canada’s floating base rate (currently 8.55% per annum) less 1.75% (i.e. currently 6.80%).
The BDC Facilities are secured by a subordinate charge over all of BPI’s assets and are guaranteed by all of BPI’s
subsidiaries except BP Canada LP. All of BPI’s subsidiaries other than BP Canada LP have granted BDC a
subordinate charge over all of their assets to support such guarantees. The security held by BDC is subordinate to
the security held by the Bank to secure the Credit Facilities with the Bank and the security held by the Fund to
secure BPI’s obligation to pay Royalty and Distributions. As of December 31, 2022, $1.3 million was drawn on the
BDC Facilities.
Contractual Obligations and Commercial Commitments
A summary of the estimated amount and estimated timing of cash flows related to BPI’s contractual obligations and
commercial commitments as at December 31, 2022 is as follows:
Note:
1) Includes estimated interest on long-term debt and excludes deferred financing costs of $0.2 million.
2) Represents minimum annual rental payments under lease contracts for office space, restaurants space and equipment.
Amendments to General Security Agreements granted by BPI and its subsidiaries in favour of the Fund
As noted above, BPI and each of BPI’s subsidiaries (including BP Canada LP) have also granted Royalties LP
security over their assets to secure BPI’s and BP Canada LP’s obligations to pay Royalty and Distributions.
Concurrently with BPI and the Fund amending and extending their respective credit facilities with the Bank on
June 28, 2022, BPI, BPI’s subsidiaries, the Fund and the Fund’s subsidiaries entered into an amending agreement,
a copy of which is available on www.sedar.com, to modify certain covenants in the general security agreements
granted by BPI and its subsidiaries to secure payments of Royalty and Distributions to the Fund. These
modifications included the following:
1. Removing the requirement that BPI dispose of certain assets and use the net proceeds therefrom to reduce
BPI’s indebtedness owing to the Bank;
(in thousands of dollars) Within 1 year 2 - 3 years 4 - 5 years Over 5 years Total Book Value
Accounts payable and accrued liabilities 9,583 - - - 9,583
9,583
Royalty and distributions payable to the Fund
4,372 - - - 4,372 4,372
Debt
1
3,988 4,975 13,784 - 22,747 19,533
Other long-term liabilities - 1,229 - - 1,229 1,229
Lease commitments
2
(127) 2,186 1,767 2,791 6,617 5,187
17,816 8,390 15,551 2,791 44,548 39,904
96
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 17 -
2. Removing the requirement that BPI’s trailing 12-month EBITDA must not be less than certain specified
values;
3. Removing the requirement that BPI and BP Canada LP pay the Fund each fiscal quarter a minimum amount
of Royalty and Distributions, commencing the fiscal year for 2023;
4. Requiring that BPI’s permitted debt ratio, being the ratio of the aggregate debt of BPI and its subsidiaries
to EBITDA (tested quarterly on a trailing 12-month basis) shall not exceed 3.00:1; and
5. Incorporating the financial covenants and other monitoring and testing covenants granted by BPI and its
subsidiaries to the Bank in connection with the Credit Facilities and deeming them to be covenants of BPI
and its subsidiaries to Royalties LP.
The Fund and the Bank share priority over security granted to them by BPI and its subsidiaries pursuant to the
Second Amended and Restated Priority Agreement dated April 11, 2018 among the Bank and Royalties LP, a copy
of which is available on www.sedar.com. No modification to that priority agreement was made as part of amending
and extending the Credit Facilities or the Fund’s credit facilities with the Bank.
Cash Flows
Cash Flow from Operating Activities
Period
During the Period, operating activities generated $3.1 million of cash compared to $3.3 million during the fourth
quarter of 2021. The decrease in cash generated of $0.2 million was primarily due to a decrease in changes in
working capital partially offset by a decrease in income taxes paid.
Year
During the Year, operating activities generated $10.0 million of cash compared to $12.3 million in 2021. The
decrease in cash generated of $2.3 million was primarily due to a decrease in net income after adjustments for non-
cash items, a decrease in changes in working capital, and an increase in income taxes paid.
Cash Flow from Financing Activities
Period
During the Period, financing activities used $6.6 million of cash compared to $2.0 million during the fourth quarter
of 2021. The increase in cash used of $4.6 million was primarily due to a voluntary repayment of debt of $5.0 million
during the Period, partially offset by a decrease in required repayments on the Credit Facilities.
Year
During the Year, financing activities used $18.0 million of cash compared to $8.0 million in 2021. The increase in
cash used of $10.0 million was primarily due to higher repayments of debt including higher debt repayment on the
Credit Facilities (as explained above) and payments of the full outstanding debt of the BCAP Loan and other credit
facilities, partially offset by lower lease obligations and interest paid.
Cash Flow from Investing Activities
Period
During the Period, investing activities generated $0.7 million of cash compared to $0.4 million during the fourth
quarter of 2021. Cash generated from investing activities typically represents distributions received by BPI on the
Class B Units. Cash used from investing activities typically represents purchases of property and equipment as well
97
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 18 -
as intangible assets. The increase in cash generated of $0.3 million during the Period was primarily due to an
increase in distributions received on Class B Units, partially offset by an increase in purchases of intangible assets
and property and equipment.
Year
During the Year, investing activities generated $1.8 million of cash compared to $1.9 million in 2021. The decrease
in cash generated of $0.1 million for the Year was primarily due to an increase in purchases of property and
equipment, partially offset by an increase in distributions received on Class B Units.
Related Party Transactions
BPI’s related party balances owing at the end of the period and related party transactions for the Period were as
follows:
(1) The Fund is considered to be a related party of BPI by virtue of common officers and directors of BPI and
Boston Pizza GP Inc., the managing general partner of Royalties LP. The Fund has engaged Royalties LP,
its administrator, to provide certain administrative services on behalf of the Fund (“Administrative
Services”). In turn, certain of the Administrative Services are performed by BPI as a general partner of
Royalties LP. Under the terms of the partnership agreement governing Royalties LP, BPI is entitled to be
reimbursed for certain out-of-pocket expenses incurred in performing the Administrative Services. The total
amount paid to BPI in respect of these services for the Period was $0.1 million (Q4 2021 – $0.1 million). BPI
and Royalties LP agreed to limit the annual amount of out-of-pocket expenses for which BPI is entitled to be
reimbursed to not more than $0.4 million for each of 2020, 2021 and 2022, with such limit increasing by not
more than the percentage change in the Canadian Consumer Price Index (as calculated by Statistics Canada)
in the calendar year prior thereafter.
Other related party transactions and balances are referred to elsewhere in this MD&A.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the Period, there was no change in BPI’s internal control over financial reporting that materially affected, or
is reasonably likely to materially affect, BPI’s internal controls over financial reporting. BPI complies with the
Committee of Sponsoring Organizations of the Treadway Commission Internal Control – Integrated
Framework: 2013.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of BPI’s audited annual consolidated financial statements in accordance with IFRS requires
estimates and judgments to be made that affect the reported amounts of assets and liabilities, earnings and
(in thousands of dollars)
December 31,
2022
December 31,
2021
Accounts receivables due from associated companies
$
19 $ 231
Accounts payable due to associated companies 93 39
Royalty payable to Royalties LP
3,330
2,602
Distributions payable to Holdings LP
1,042 820
(in thousands of dollars)
Q4 2022 Q4 2021 2022 2021
Revenues from a company under common control
$ - $ - $ - $ 503
Fees charged to the Fund in respect of administrative services
(1)
100
100 400 400
Royalty expense to the Fund
9,087 7,327 34,200
26,402
Distribution expense to the Fund
2,988 2,423 11,273 8,752
Management fees paid for services rendered to companies
under common control 500 - 500 -
98
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 19 -
expenses, and related disclosures. These estimates are based on historical experience and knowledge of
economics, market factors and the restaurant industry along with various other assumptions that are believed to be
reasonable under the circumstances.
BPI believes that the following selected accounting policies are critical to understanding the estimates, assumptions
and uncertainties that affect the amounts reported and disclosed in BPI’s consolidated financial statements and
related notes:
Estimate – Investment in Royalties LP
BPI’s investment in Royalties LP is principally comprised of the Class B Units. The value of New Restaurants rolled
into the Royalty Pool is also recognized within BPI’s investment in Royalties LP through BPI’s right to receive
Class B Additional Entitlements. The value of the Class B Additional Entitlements that BPI will be entitled to as a
result of adding New Restaurants to the Royalty Pool is determined on a formula basis that is designed to estimate
the present value of the cash flows due to the Fund as a result of the New Restaurants being added to the Royalty
Pool. As such, the calculation is dependent on a number of variables including the estimated long-term sales of
the New Restaurants and a discount rate. The value of the Class B Additional Entitlements that BPI will be entitled
to as a result of adding New Restaurants to the Royalty Pool could differ from actual results and may impact the
investment in Royalties LP and deferred gains line items.
Estimate – Accounts Receivable
BPI provides an allowance for uncollectable trade receivables based on a customer-by-customer basis using
estimates for past and current performance, aging, arrears status, the level of allowance already in place, and
management’s interpretation of economic conditions specific to BPI’s customer base. If certain judgments or
estimates prove to be inaccurate, BPI’s results of operations and financial position may be impacted.
Estimate – Class B Units, Class 1 LP Units, and Class 2 LP Units
BPI must classify fair value measurements according to a hierarchy that reflects the significance of the inputs used
in performing such measurements. BPI’s fair value hierarchy comprises the following levels:
• Level 1 – quoted prices are available in active markets for identical assets or liabilities as of the reporting
date. Active markets are those in which transactions occur in sufficient frequency and volume to provide
pricing information on an ongoing basis.
• Level 2 – pricing inputs are other than quoted in active markets included in Level 1. Prices in Level 2 are
either directly (i.e. as prices) or indirectly (i.e. derived from prices) observable as of the reporting date.
• Level 3 – valuations in this level are those with inputs for the asset or liability that are not based on
observable data.
The fair values of the Class B Units, Class 1 LP Units liability and Class 2 LP Units liability are all determined using
Level 2 inputs and are measured on a recurring basis.
(i) Class B Units
BPI has elected under IFRS to measure the Class B Units as a financial asset at fair value through profit and
loss. This requires that BPI use a valuation technique to determine the value of BPI’s investment in BP Royalties
LP at each reporting date. The Class B Units are exchangeable for Fund Units, and thus, it is estimated that the
value of the Class B Units approximates the number of Fund Units into which they are exchangeable. The Fund
estimates the fair value of the Class B Units liability by multiplying the number of Fund Units BPI would be entitled
to receive if it exchanged all of the Class B Units (including Class B Holdback) held by BPI at the end of the period
by the closing price of the Fund Units on the last business day of the period.
99
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 20 -
This valuation technique may not represent the actual value of the financial asset should such units be extinguished
and changes in the distribution rate on the Class B Units and the yield of the Fund Units could materially impact
BPI’s financial position and net and comprehensive income.
(ii) Class 1 LP Units Liability and Class 2 LP Units Liability
The Class 1 LP Units liability and Class 2 LP Units liability are classified as financial liabilities measured at fair value
through profit or loss because the entitlements to distributions are considered embedded derivatives to the limited
partnership units. BPI measures the Class 1 LP Units liability and Class 2 LP Units liability at fair value using
Level 2 inputs, which may result in a fair value adjustment on the BP Canada LP units liability line on the statements
of financial position, and the fair value loss (gain) line on the statements of comprehensive income and a
corresponding non-cash adjustment line on the statements of cash flows.
The fair value of the Class 1 LP Units liability for BPI mirrors the fair value of the investment in Class 1 LP Units
asset recognized by the Fund for any particular period. The Class 1 LP Units are entitled to distributions with
respect to the interest payable by the Fund on the credit facility to pay for the Fund’s indirect investment in Class 1
LP Units of BP Canada LP. BPI estimates the fair value of Class 1 LP Units liability using a market-corroborated
input, being the interest rate on the applicable credit facility. Consequently, BPI estimates the fair value of Class 1
LP Units liability at carrying value adjusted for interest rate risk.
The fair value of the Class 2 LP Units liability for BPI mirrors the fair value of the investment in Class 2 LP Units
asset recognized by the Fund for any particular period. The Class 2 LP Units have similar cash distribution
entitlements and provisions to the Class 2 GP Units held by BPI, which are exchangeable for Fund Units. The fair
value of the Class 2 LP Units is determined using a market approach, which involves using observable market
prices for similar instruments. The fair value of the Class 2 LP Units is determined by multiplying the issued and
outstanding Class 2 LP Units indirectly held by the Fund at the end of the period by the closing price of a Fund Unit
on the last business day of the period.
These valuation techniques may not represent the actual value of the Class 1 LP Units liability and Class 2 LP Units
liability should such liabilities be extinguished. Changes in the distribution rates on the Class 1 LP Units and Class 2
LP Units and the yield of Fund Units could materially impact BPI’s financial position and net income.
Judgment – Consolidation
Applying the criteria outlined in IFRS 10, judgment is required in determining whether BPI controls Royalties LP
and BP Canada LP. Making this judgment involves taking into consideration the concepts of power over
Royalties LP and BP Canada LP, exposure and rights to variable returns, and the ability to use power to direct the
relevant activities of Royalties LP and BP Canada LP so as to generate economic returns. With respect to Royalties
LP, using these criteria, management has determined that BPI does not ultimately control Royalties LP. With
respect to BP Canada LP, using these criteria, management has determined that BPI ultimately controls BP Canada
LP through its ability to direct relevant activities to generate economic returns from BP Canada LP and its
governance as managing general partner of BP Canada LP.
CHANGES IN ACCOUNTING POLICIES
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
On February 12, 2021, the International Accounting Standards Board (the “IASB”) issued Disclosure of Accounting
Policies (Amendments to IAS 1 and IFRS Practice Statement 2). The amendments are effective for annual periods
beginning on or after January 1, 2023 with earlier adoption permitted. The amendments require the disclosure of
material accounting policies rather than significant accounting policies. BPI has done an initial assessment of these
amendments and does not anticipate an impact to BPI’s business, financial statements or disclosure. BPI intends
to adopt these amendments in its consolidated financial statements for the annual period beginning on January 1,
2023.
100
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 21 -
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued Presentation of Financial Statements (Amendments to IAS 1) and on
October 31, 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1). The
amendments are effective for annual periods beginning on or after January 1, 2024. These amendments clarify the
classification of liabilities as current or non-current and improve the information a company provides about long-
term debt with covenants. For the purposes of non-current classification, the amendments removed the requirement
for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such
a right must exist at the end of the reporting period and have substance. In addition, covenants with which a
company must comply after the reporting date do not affect the liability’s classification at the reporting date. BPI
has done an initial assessment of these amendments and does not anticipate an impact on BPI’s business, financial
statements or disclosure. BPI intends to adopt these amendments in its consolidated financial statements for the
annual period beginning on January 1, 2024.
SHORT-TERM OUTLOOK
The information contained in this “Short-Term Outlook” section is forward-looking information. Please see the “Note
Regarding Forward-Looking Information” and “Risks & Uncertainties” sections of this MD&A for a discussion of the
risks and uncertainties in connection with forward-looking information.
The two principal factors that affect SRS are changes in guest traffic and changes in average guest cheque. BPI’s
and BP Canada LP’s strategies to drive higher guest traffic include attracting a wide variety of guests into the
restaurant, sports bar and take-out and delivery parts of each location, offering a compelling value proposition to
guests and leveraging a larger marketing budget versus the previous year along with a revised calendar of national
and local store promotions. Increased average cheque levels are expected to be achieved through a combination
of culinary innovation and annual menu re-pricing.
The actions taken by BPI and BP Canada LP to strengthen its business during COVID-19 have allowed BPI and
BP Canada LP to be in a good position to address any on-going COVID-19 related challenges or other future
challenges in the restaurant industry. The easing and elimination of government-imposed restrictions in Canada
related to COVID-19 has enabled Boston Pizza to continue to drive improved performance and guest traffic.
However, with supply chain challenges, rising interest rates, increasing input costs and labour shortages impacting
most of the restaurant industry, BPI’s management remains cautious. The focus of BPI’s management is to adapt
the business to mitigate these challenges and capitalize on the recent sales momentum resulting from the
elimination of COVID restrictions in the restaurant industry.
RISKS & UNCERTAINTIES
Risks Related to the Business of BPI and BP Canada LP
Economic Uncertainties
The success of BPI, BP Canada LP and Boston Pizza Restaurants, and the amount of Franchise Sales, Royalty,
Distributions and the Fund’s cash available for distribution to Unitholders, are dependent upon many economic
factors, including impacts of inflation, increases in interest rates, unemployment rates, consumer confidence,
recession, supply chain disruption, labour availability and other globally disruptive events. Inflation and increases
in interest rates increase the difficulty for Boston Pizza Restaurants to operate profitability due to increased input
and debt service costs while balancing the need to maintain competitive menu pricing. Increases in interest rates
also make it more difficult for Boston Pizza Restaurants to invest in new equipment and technology due to increased
debt service costs. Rising unemployment rates, decreasing consumer confidence and recession may lead to
decreased demand for dining out, resulting in reduced guest traffic and Franchise Sales. While global supply chains
have somewhat normalized since COVID-19 and Boston Pizza’s supply chain is stable, it remains possible that
economic uncertainty may result in commodity unavailability or increased commodity costs for Boston Pizza
Restaurants. The continued labour shortage in the restaurant industry may impede Boston Pizza Restaurants’
ability to attract and retain sufficient numbers of qualified staff. In addition, global disruptions, such as geopolitical
events, public health or pandemic outbreaks (including COVID-19), war or hostilities in countries in which Boston
101
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 22 -
Pizza suppliers are located, terrorist or military activities, or natural disasters such as hurricanes, tornadoes, floods,
earthquakes and others, could lead to disruptions in the supply chain and increased economic uncertainty. All of
these factors can contribute to a challenging environment for Boston Pizza Restaurants, which may: (i) limit their
ability to generate Franchise Sales, thereby decreasing the resulting Royalty, Distributions and the Fund’s cash
available for distribution to Unitholders; and/or (ii) decrease their profitability, thereby increasing the risks of Boston
Pizza Restaurants closing.
COVID-19 Risk
Beginning in March of 2020, the COVID-19 pandemic had sudden, unexpected and unprecedented impacts on the
general economy and the restaurant industry, and caused significant disruption to the business and revenues of
the Fund and BPI. The COVID-19 pandemic resulted in material declines to Franchise Sales and SRS when
compared to periods prior to COVID-19. The declines in Franchise Sales and SRS resulted in significant declines
to Royalty and Distributions payable by BPI and BP Canada LP to the Fund when compared to periods prior to
COVID-19, and significant declines in the amount of the Fund’s cash available for distribution to Unitholders when
compared to periods prior to COVID-19. While COVID-19 case counts have improved, government restrictions
related to COVID-19 have largely been eliminated and sales levels of Boston Pizza Restaurants have returned to
more normal levels, when compared to periods prior to COVID-19, it is unknown whether there may be additional
COVID-19 outbreaks, including outbreaks caused by variants of the COVID-19 virus, that may result in reduced
service levels or temporary closures at Boston Pizza Restaurants. Any reduced service levels or temporary
closures of Boston Pizza Restaurants will result in declines to Franchise Sales, SRS, Royalty, Distributions and the
amount of the Fund’s cash available for distribution to Unitholders.
The COVID-19 pandemic and the reactions to it, including the possibility that it may result in a prolonged global
recession, may also have the effect of exacerbating the potential impact of the other risks disclosed in this Risk &
Uncertainties section.
The Restaurant Industry and its Competitive Nature
The performance of the Fund is directly dependent upon the Royalty received from BPI and Distributions received
from BP Canada LP. The amount of the Royalty and Distributions received by Royalties LP and Holdings LP from
BPI and BP Canada LP, respectively, is dependent on various factors that may affect the casual dining sector of
the restaurant industry. The restaurant industry generally, and in particular the casual dining sector, is intensely
competitive with respect to price, service, location and food quality. Competitors include national and regional
chains, as well as independently owned restaurants. If BPI, BP Canada LP and the Boston Pizza franchisees are
unable to successfully compete in the casual dining sector, Franchise Sales may be adversely affected; the amount
of the Royalty and Distributions may be reduced and the ability of BPI to pay the Royalty, and the ability of
BP Canada LP to pay Distributions, may be impaired. The restaurant industry is also affected by adverse weather
conditions, changes in demographic trends, traffic patterns, general economic conditions and the type, number,
and location of competing restaurants. In addition, factors such as government regulations, smoking bylaws,
inflation, public health or pandemic outbreaks (including COVID-19), publicity from any food borne illnesses,
increased food, labour and benefits costs, continuing operations of key suppliers and the availability of experienced
management and hourly employees may adversely affect the restaurant industry in general and therefore potentially
affect Franchise Sales. BPI’s and BP Canada LP’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 guest traffic or impose practical limits on pricing, either
of which could reduce revenue and operating income, which could adversely affect Franchise Sales, the Royalty,
Distributions and the ability of BPI to pay the Royalty to Royalties LP, and the ability of BP Canada LP to pay
Distributions to Holdings LP.
Growth of the Royalty and Distributions
The growth of the Royalty payable by BPI to Royalties LP under the License and Royalty Agreement between
Royalties LP and BPI (for the license to use the BP Rights in Canada for 99 years, commencing on July 17, 2002),
and the growth of Distributions payable by BP Canada LP to Holdings LP, are dependent upon the ability of BPI
and BP Canada LP to (i) maintain and grow their franchised restaurants, (ii) locate new restaurant sites in prime
102
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 23 -
locations, and (iii) obtain qualified operators to become Boston Pizza franchisees. BPI and BP Canada LP face
competition for restaurant locations and franchisees from their competitors and from franchisors of other
businesses. BPI’s and BP Canada LP’s inability to successfully obtain qualified franchisees could adversely affect
their business development. The opening and success of a Boston Pizza Restaurant is dependent on a number of
factors, including: availability of suitable sites; negotiations of acceptable lease or purchase terms for new locations;
availability, training and retention of management and other employees necessary to staff new Boston Pizza
Restaurants; adequately supervising construction; securing suitable financing; and other factors, some of which are
beyond the control of BPI and BP Canada LP. Boston Pizza franchisees may not have all the business abilities or
access to financial resources necessary to open a Boston Pizza Restaurant or to successfully develop or operate
a Boston Pizza Restaurant in their franchise areas in a manner consistent with BPI’s and BP Canada LP’s
standards. BPI and BP Canada LP provide training and support to Boston Pizza franchisees, but the quality of
franchised operations may be diminished by any number of factors beyond BPI’s and BP Canada LP’s control.
Consequently, Boston Pizza franchisees may not successfully operate restaurants in a manner consistent with
BPI’s and BP Canada LP’s standards and requirements, or may not hire and train qualified managers and other
restaurant personnel. If they do not, the image and reputation of BPI and BP Canada LP may suffer, and gross
revenue and results of operations of the Boston Pizza Restaurants could decline.
The Closure of Boston Pizza Restaurants May Affect the Amount of Royalty and Distributions
The amount of the Royalty payable to Royalty LP by BPI, and the amount of Distributions payable by BP Canada LP
to Holdings LP, are dependent upon the Franchise Sales, which is dependent on the number of Boston Pizza
Restaurants that are included in the Royalty Pool and the Franchise Sales of those Boston Pizza Restaurants.
Each year, a number of Boston Pizza Restaurants may close and there is no assurance that BPI and BP Canada LP
will be able to open sufficient new Boston Pizza Restaurants to replace the Franchise Sales of the Boston Pizza
Restaurants that have closed.
BPI and BP Canada LP Revenue
The ability of BPI to pay the Royalty and the ability of BP Canada LP to pay Distributions are dependent on
(i) Boston Pizza franchisees’ ability to generate revenue and to pay royalties to BP Canada LP, (ii) BP Canada LP’s
ability to enter into arrangements with suppliers and distributors to generate competitive pricing for franchisees and
revenue for BP Canada LP, and (iii) BP Canada LP’s receipt of amounts for other franchise fees (including initial
and renewal franchise fees). Failure of BP Canada LP to achieve adequate levels of collection from Boston Pizza
franchisees or the loss of revenues from arrangements with suppliers and distributors could have a serious effect
on the ability of BP Canada LP to pay Distributions and of BPI to pay the Royalty.
Intellectual Property
The ability of BPI and BP Canada LP to maintain or increase Franchise Sales will depend on their ability to maintain
“brand equity” through the use of the BP Rights licensed from Royalties LP. If Royalties LP fails to enforce or
maintain any of its intellectual property rights, BPI and BP Canada LP may be unable to capitalize on their efforts
to establish brand equity. All registered trademarks in Canada can be challenged pursuant to provisions of the
Trademarks Act (Canada) and if any BP Rights are ever successfully challenged, this may have an adverse impact
on Franchise Sales, and therefore on the Royalty and Distributions. Royalties LP owns the BP Rights in Canada.
However, it does not own identical or similar trademarks owned by parties not related to BPI or Royalties LP in
other jurisdictions. Third parties may use such trademarks in jurisdictions other than Canada in a manner that
diminishes the value of such trademarks. If this occurs, the value of the BP Rights may suffer and gross revenue
by Boston Pizza Restaurants could decline. Similarly, negative publicity or events associated with such trademarks
in jurisdictions outside of Canada may negatively affect the image and reputation of Boston Pizza Restaurants in
Canada, resulting in a decline in gross revenue by Boston Pizza Restaurants.
Government Regulation
BPI and BP Canada LP are subject to various federal, provincial and local laws affecting their business. Each
Boston Pizza Restaurant is subject to licensing and regulation by a number of governmental authorities, which may
include alcoholic beverage control, smoking laws, health and safety and fire agencies. Difficulties in obtaining or
103
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 24 -
failures to obtain the required licenses or approvals could delay or prevent the development of a new Boston Pizza
Restaurant in a particular area or restrict the operations of an existing Boston Pizza Restaurant.
Regulations Governing Food Service and Alcoholic Beverages
Boston Pizza Restaurants are subject to various federal, provincial and local government regulations, including
those relating to the sale of food and alcoholic beverages. Such regulations are subject to change from time to
time. The failure to obtain and maintain these licenses, permits and approvals could adversely affect the operations
of a Boston Pizza Restaurant. Typically, licenses must be renewed annually and may be revoked, suspended or
denied renewal for cause at any time if governmental authorities determine that the Boston Pizza Restaurant’s
conduct violates applicable regulations. Difficulties or failures to maintain or obtain the required licenses and
approvals could adversely affect existing Boston Pizza Restaurants and delay or result in a decision to cancel the
opening of new Boston Pizza Restaurants, which would adversely affect BPI’s and BP Canada LP’s business.
In addition, the ability of Boston Pizza Restaurants to serve alcoholic beverages is an important factor in attracting
customers. Alcoholic beverage control regulations require each Boston Pizza Restaurant to apply to provincial or
municipal authorities for a license or permit to sell alcoholic beverages on the premises and, in certain locations, to
provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of
daily operations of Boston Pizza Restaurants, including minimum age of patrons and employees, hours of operation,
advertising, wholesale purchasing, inventory control, and handling, storage and dispensing of alcoholic beverages.
The failure of BPI, BP Canada LP or a Boston Pizza franchisee to retain a license to serve liquor for a Boston Pizza
Restaurant would adversely affect that restaurant’s operations. BPI, BP Canada LP or a Boston Pizza franchisee
may be subject to legislation in certain provinces, which may provide a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated
person. BPI and BP Canada LP carry host liquor liability coverage as part of their existing comprehensive general
liability insurance. There is no assurance that such insurance coverage will be adequate.
Laws Concerning Employees
The operations of Boston Pizza Restaurants are also subject to minimum wage laws governing matters such as
working conditions, overtime and tip credits, as well as rules and regulations regarding the employment of temporary
foreign workers. Significant numbers of Boston Pizza Restaurants’ food service and preparation personnel are paid
at rates related to the minimum wage and, accordingly, further increases in the minimum wage could increase
Boston Pizza Restaurants’ labour costs. In some regions of Canada, Boston Pizza Restaurants employ temporary
foreign workers – the supply of labour in such regions could be reduced by regulations concerning the employment
of temporary foreign workers.
Sales Tax Regulations
While there are variations in studies about the extent to which sales taxes impact retail sales, the increase in the
after-tax price of goods and services has a negative effect on the customer’s perception of spending on restaurant
dining. Such negative perception can potentially reduce the frequency of guest visits to restaurants, the total
amount that guests spend per restaurant visit, or both. Price elasticity appears to have less impact on densely-
populated and market-dominant areas such as urban or downtown restaurants. However, as customer perception
of disposable spending is adversely affected by increased after-tax prices, Franchise Sales are at risk of declining
if retail sales taxes increase.
Franchise Regulation Risk
The complete failure to provide a disclosure document as required by the franchise disclosure laws and regulations
of the provinces of British Columbia, Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island (or the
provision of a disclosure document that is materially non-compliant) provides a franchisee with a two-year absolute
right of rescission. If a disclosure document is not provided within the time required by applicable provincial
legislation, a franchisee is provided with sixty days from receipt of the disclosure document in which to rescind the
franchise agreement. The statutory right of rescission gives a franchisee the right to receive back all monies paid,
104
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 25 -
and to recover for its losses, if any. Franchise legislation also provides a franchisee with a statutory right of action
to sue if a franchisee suffers a loss because of a misrepresentation contained in the disclosure document, or as a
result of the franchisor’s failure to comply with its disclosure obligations. These rights are in addition to any rights
that might exist at common law. Claims arising from any non-compliance with franchise disclosure laws may
adversely affect the ability of BP Canada LP to pay Distributions to Holdings LP, and of BPI to pay the Royalty to
Royalties LP.
Potential Litigation and Other Complaints
BPI, BP Canada LP and Boston Pizza franchisees may be the subject of complaints or litigation from guests alleging
food related illness, injuries suffered on the premises or other food quality, health or operational concerns. Adverse
publicity resulting from such allegations may materially affect the sales by Boston Pizza Restaurants, regardless of
whether such allegations are true or whether BPI, BP Canada LP or a Boston Pizza franchisee is ultimately held
liable.
Insurance
BPI and BP Canada LP maintain insurance coverage to protect them from liabilities they incur in the course of their
business. There is no assurance that such insurance coverage will respond to, or be adequate to protect them
from, such liabilities. Additionally, in the future, BPI’s and BP Canada LP’s insurance premiums may increase and
they may not be able to obtain similar levels of insurance on reasonable terms or at all. Any substantial inadequacy
of, or inability to obtain insurance coverage could materially adversely affect BPI’s and BP Canada LP’s business,
financial condition and results of operations. Furthermore, there are types of losses BPI or BP Canada LP may
incur that cannot be insured against or that are not economically reasonable to insure. Such losses could have a
material adverse effect on BPI’s and BP Canada LP’s business and results of operations.
Dependence on Key Personnel
The success of the Fund depends upon the personal efforts of senior management of BPI, including their ability to
retain and attract appropriate franchisee candidates. The loss of the services of such key personnel or the failure
to attract such franchisees could have a material adverse effect on the performance of the Fund.
Security of Confidential Guest Information and Personal Information
BPI, BP Canada LP and Boston Pizza franchisees collect and/or use confidential guest information related to the
electronic processing of credit and debit card transactions, personal information of guests in connection with Boston
Pizza’s “MyBP” loyalty platform and personal information of their respective employees. If any of BPI,
BP Canada LP or Boston Pizza franchisees experiences a security breach in which any of this type of information
is stolen or disclosed, BPI, BP Canada LP or Boston Pizza franchisees may incur unanticipated costs, become
subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit
card information, and/or become subject to lawsuits or other proceedings relating to these types of incidents. In
addition, most provinces have enacted legislation requiring notification of security breaches involving personal
information, including credit and debit card information. Any such claims or proceedings could cause BPI or
BP Canada LP to incur significant unplanned expenses, which could have an adverse impact on their financial
condition and results of operations. Furthermore, adverse publicity resulting from these allegations may have a
material adverse effect on Franchise Sales, Royalty, Distributions and the ability of BP Canada LP to pay
Distributions to Holdings LP, or BPI to pay the Royalty to Royalties LP.
Reliance on Technology
BPI, BP Canada LP and Boston Pizza franchisees rely heavily upon information systems, including point-of-sale
processing in Boston Pizza Restaurants, for management of their supply chain, payment of obligations, collection
of cash, credit and debit card transactions and other processes and procedures, including the taking and sending
of orders to Boston Pizza Restaurants. BPI’s and BP Canada LP’s ability to efficiently and effectively manage their
business depends significantly on the reliability and capacity of these systems. BPI’s and BP Canada LP’s
operations depend upon their ability to protect their computer equipment and systems against damage from physical
105
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 26 -
theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external
security breaches, viruses and other disruptive problems. The failure of these systems to operate effectively,
maintenance problems, upgrading or transitioning to new platforms, expanding BPI’s and BP Canada LP’s systems
as they grow or a breach in security of these systems could result in delays in customer service and reduced
efficiency in BPI’s and BP Canada LP’s operations. Remediation of such problems could result in significant,
unplanned capital investments.
Leverage Risks
Refinancing Risk – BPI has third-party debt service obligations under the Credit Facilities and BDC Facilities. The
degree to which BPI is leveraged could have important consequences to Unitholders, including: (i) a portion of BPI’s
cash flow from operations could be dedicated to the payment of the principal of and interest on BPI’s indebtedness,
thereby reducing funds available for payment of the Royalty; and (ii) certain of BPI’s borrowings are at variable rates
of interest. The Credit Facilities are due on July 1, 2026, at which time BPI will need to refinance such loans. There
can be no assurance that refinancing of this indebtedness will be available to BPI, or available to BPI on acceptable
terms. If BPI cannot refinance this indebtedness on acceptable terms upon maturity, it may negatively impact the
ability of BPI to pay the Royalty. Given the Fund’s dependence upon BPI, this may negatively impact the Fund’s
distributable cash and the Fund’s ability to make distributions on Fund Units. BPI’s ability to make scheduled
payments of principal or interest on, or to refinance, its indebtedness depends on future cash flows, which is
dependent on the success of Boston Pizza Restaurants, prevailing economic conditions, prevailing interest rate
levels, and financial, competitive, business and other factors, many of which are beyond its control.
Restrictive Covenants – The Credit Facilities contain numerous restrictive covenants that limit the discretion of BPI’s
management with respect to certain business matters. These covenants place restrictions on, among other things,
the ability of BPI to incur additional indebtedness, to create liens or other encumbrances, to pay distributions or
make certain other payments, investments, loans and guarantees, to sell or otherwise dispose of assets, to allow a
change of control, and to merge or consolidate with another entity. A failure by BPI to comply with the obligations
in the Credit Facilities could result in an event of default which, if not cured or waived, could result in the acceleration
of the relevant indebtedness. If the indebtedness under the Credit Facilities were to be accelerated, there can be
no assurance that BPI’s assets would be sufficient to repay that indebtedness. If BPI were unable to repay that
indebtedness, it would adversely affect BPI’s ability to pay the Royalty, and thereby negatively impacting the Fund’s
distributable cash and the Fund’s ability to make distributions on Fund Units.
Interest Rate Risks – Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. BPI is exposed to interest rate risk primarily through its long-
term borrowings. Variations in interest rates could result in significant changes in the amount required by BPI to be
applied to debt service that could negatively impact BPI’s ability to pay Royalty. BPI monitors its exposure to interest
rate risk by monitoring the fluctuation in the bankers’ acceptance rates, prime interest rate and evaluates interest
rate swaps when necessary.
Risks Related to Debt of Franchisees – Numerous franchisees of BP Canada LP have third-party debt service
obligations under various credit arrangements with their lenders. The degree to which franchisees of BP Canada LP
are leveraged and the extent to which such franchisees are exposed to interest rate risk could impact the amount
of cash such franchisees are required to spend on debt service. In turn, this could negatively impact the ability of
such franchisees to pay BP Canada LP royalty and Advertising Fund contributions and may increase the probability
of Boston Pizza Restaurants closing. As well, any failure of franchisees of BP Canada LP to either comply with the
agreements governing their third-party debt service obligations or to repay or refinance such debt upon maturity
could negatively impact the ability of such franchisees to pay BP Canada LP royalty and Advertising Fund
contributions and may increase the probability of Boston Pizza Restaurants closing.
ADDITIONAL INFORMATION
Additional information relating to BPI, the Fund, Royalties LP, Boston Pizza GP Inc., BPCHP, Boston Pizza Holdings
Trust, Holdings LP, Boston Pizza Holdings GP Inc. and BP Canada LP, including the Fund’s Annual Information
Form dated February 8, 2023, is available on SEDAR at www.sedar.com and on the Fund’s website at
www.bpincomefund.com.
106
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 27 -
NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain information in this MD&A constitutes “forward-looking information” that involves known and unknown risks,
uncertainties, future expectations and other factors which may cause the actual results, performance or
achievements of BPI, the Fund, Boston Pizza Holdings Trust, Royalties LP, Holdings LP, Boston Pizza Holdings
GP Inc., Boston Pizza GP Inc., BPCHP, BP Canada LP, Boston Pizza Restaurants, or industry results, to be
materially different from any future results, performance or achievements expressed or implied by such forward-
looking information. When used in this MD&A, forward-looking information may include words such as “anticipate”,
“estimate”, “may”, “will”, “should”, “expect”, “believe”, “plan”, “forecast” and other similar terminology. This
information reflects current expectations regarding future events and operating performance and speaks only as of
the date of this MD&A.
Forward-looking information in this MD&A includes, but is not limited to, such things as all statements, other than
statements of historical facts, included herein that address events or developments that management of BPI expects
or anticipates will or may occur in the future are forward-looking information. Forward-looking information in this
MD&A includes, but is not limited to, such things as:
• future distributions and dates distributions are to be paid or payable;
• how changes in distributions will be implemented;
• how distributions will be funded;
• impact of seasonality on Franchise Sales;
• the “Four Pillars” strategy will continue to focus BPI’s and BP Canada LP’s efforts to develop new markets
and strengthen Boston Pizza’s position as Canada’s number one casual dining brand;
• continued improved performance and guest traffic due to the easing and elimination of government-
imposed COVID-19 restrictions in the Canadian restaurant industry;
• estimates relating to the amount and timing of cash flows related to BPI’s contractual obligations and
commercial commitments;
• adjustments to Additional Entitlements that are to occur in the future and when such adjustments will occur;
• that BPI has sufficient cash and capital resources for 2022, and that its current sources of liquidity are
sufficient to cover its currently known short and long-term obligations;
• debt of franchisees of BP Canada LP, including degree of debt leverage and interest rate risk;
• BPI constantly monitoring its operations and cash flows to ensure that current and future obligations will be
met;
• that BPI’s and BP Canada LP’s aggressive enhancement and promotion of the Boston Pizza brand
enhances profitability and facilitates growth of Boston Pizza;
• BPI and BP Canada LP’s ability to implement strategies driving higher guest traffic and increased average
cheque levels; and
• BPI management’s ability to adapt the business to mitigate challenges related to supply chain, rising interest
rates, increasing input costs and labour shortages.
The forward-looking information disclosed herein is based on a number of assumptions including, among other
things:
• absence of amendments to material contracts;
• no strategic changes of direction occurring;
• absence of changes in law;
• protection of BP Rights;
• pace of commercial real estate development;
• franchisees’ access to financing;
• franchisees duly paying franchise fees and other amounts;
• there will be no closures of Boston Pizza Restaurants that materially affect the amount of Royalty paid by
BPI to Royalties LP or the amount of Distributions paid by BP Canada LP to Holdings LP;
• future results being similar to historical results;
• expectations related to future general economic conditions;
• management of BPI and BP Canada LP maintaining current strategies to drive higher guest traffic and
107
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 28 -
higher average guest cheques;
• Boston Pizza Restaurants maintaining operational excellence;
• culinary innovation and menu re-pricing;
• continuing operations of key suppliers;
• availability of experienced management and hourly employees;
• the absence of significant supply chain interruptions;
• ability to mitigate rising interest rates and input costs;
• ability to obtain qualified franchisees;
• ability to open sufficient New Restaurants to replace Franchise Sales of Closed Restaurants;
• ability to comply with disclosure obligations under franchise laws and regulations;
• ability to obtain adequate insurance coverage;
• ability to invest in new equipment and technology;
• ability to enter into arrangements with suppliers and distributors to generate competitive pricing for
franchisees and revenue for BP Canada LP;
• ability to adapt to changes in operating environments and economic conditions;
• ability to cover forecasted expenditures, capital requirements, commitments and repayments for 2022;
• current sources of liquidity are sufficient to cover currently known short and long term obligations;
• COVID-19 may continue to negatively impact Boston Pizza dining rooms and sports bars across Canada;
• COVID-19 and its related restrictions will continue to dissipate;
• estimates and judgements used in accounting based on historical experiences, knowledge of economics,
market factors and restaurant industry; and
• franchisees’ ability to operate restaurants in a manner consistent with BPI’s standards.
This forward-looking information involves a number of risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any results, performance or achievements
expressed or implied by the forward-looking information contained herein including, but not limited to:
• competition;
• consumer spending habits;
• consumer confidence in the retail sector;
• household debt;
• weather;
• pricing;
• changes in demographic trends;
• changes in consumer preferences and discretionary spending patterns;
• changes in national and local business and economic conditions;
• legislation and government regulation;
• cash distributions are not guaranteed;
• accounting policies and practices;
• the results of operations and financial conditions of franchisees, BPI and the Fund;
• inflation and interest rates;
• publicity from any food borne illness;
• increase in food, labour or benefits costs;
• Boston Pizza Restaurant closures;
• successful challenge of the BP Rights;
• inadequacy of insurance coverage, increases to insurance premiums, and restrictive conditions of
insurance policies;
• increases in sales tax;
• litigation against franchisees;
• inability to attract and retain key personnel;
• data security breaches and technological failures;
• global disruptions, including geopolitical events, war or hostilities, terrorist or military activities, or natural
disasters; and
• pandemics and national health crises, in particular COVID-19.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the Period and Year ended December 31, 2022
- 29 -
The foregoing list of factors is not exhaustive and should be considered in conjunction with the risks and
uncertainties set out in this MD&A and the MD&A of the Fund for the period and year ended December 31, 2022.
This MD&A discusses some of the factors that could cause actual results to differ materially from those expressed
in or underlying such forward-looking information. Forward-looking information is provided as of the date hereof
and, except as required by law, BPI assumes no obligation to update or revise forward-looking information to reflect
new events or circumstances.
108 109
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
KPMG Canada provides services to KPMG LLP.
INDEPENDENT AUDITOR’S REPORT
To the Shareholder of Boston Pizza International Inc.
Opinion
We have audited the consolidated financial statements of Boston Pizza International Inc.
(“BPI”), which comprise:
• the consolidated statements of financial position as at December 31, 2022 and
December 31, 2021
• the consolidated statements of comprehensive income (loss) for the years then
ended
• the consolidated statements of changes in shareholder deficiency for the years then
ended
• the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary of significant
accounting policies
(hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material
respects, the consolidated financial position of BPI as at December 31, 2022 and
December 31, 2021, and its consolidated financial performance and its consolidated cash
flows for the years then ended in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in the
“Auditor’s Responsibilities for the Audit of the Financial Statements” section of our
auditor’s report.
We are independent of BPI in accordance with the ethical requirements that are relevant
to our audit of the financial statements in Canada and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
110
Boston Pizza International Inc.
Page 2
Other Information
Management is responsible for the other information. Other information comprises:
• the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions.
• the information, other than the financial statements and the auditor’s report thereon,
included in a document likely to be entitled “Glossy Annual Report”.
Our opinion on the financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the
audit and remain alert for indications that the other information appears to be materially
misstated.
We obtained the information included in Management’s Discussion and Analysis filed with
the relevant Canadian Securities Commissions as at the date of this auditor’s report. If,
based on the work we have performed on this other information, we conclude that there
is a material misstatement of this other information, we are required to report that fact in
the auditor’s report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor’s report thereon,
included in a document likely to be entitled “Glossy Annual Report” is expected to be made
available to us after the date of this auditor’s report. If, based on the work we will perform
on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with
Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), and for such internal
control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing BPI’s
ability to continue as a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless management either
intends to liquidate BPI or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing BPI’s financial reporting
process
.
111
Boston Pizza International Inc.
Page 3
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards,
we exercise professional judgment and maintain professional skepticism throughout the
audit.
We also:
• Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 BPI’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on BPI’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause BPI to cease to continue as
a going concern.
• Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
112
Boston Pizza International Inc.
Page 4
• Provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them
all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditor’s report is
Michael J. Kennedy.
Vancouver, Canada
February 8, 2023
113
1
BOSTON PIZZA INTERNATIONAL INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
December 31,
2022
December 31,
2021
Assets
Current assets
Cash and cash equivalents
$
12,679
$
18,827
Accounts receivable (note 4)
9,329
4,739
Prepaid expenses and other current assets
839
821
Income tax receivable (note 14)
284
-
Advertising fund restricted assets
14,459
12,428
Interest receivable from Boston Pizza Royalties Limited Partnership
303
265
37,893
37,080
Long-term receivables (note 4)
-
89
Investment in Boston Pizza Royalties Limited Partnership (note 5)
36,657
37,556
Property and equipment (note 6)
9,011
8,784
Intangible assets (note 7)
4,732
5,321
Deferred income taxes (note 14)
63,716
65,969
Total assets
$
152,009
$
154,799
Liabilities and Shareholder Deficiency
Current liabilities
Accounts payable and accrued liabilities
$
9,583
$
7,417
Income tax payable (note 14)
-
243
Royalty and distributions payable to the Fund
4,372
3,422
Deferred revenue
1,530
2,123
Debt (note 8)
2,877
29,137
Lease obligation (note 9)
474
879
Advertising fund restricted liabilities
13,577
11,276
32,413
54,497
Deferred revenue
2,737
3,716
Debt (note 8)
16,458
5,214
Lease obligation (note 9)
5,598
3,402
Advertising fund restricted liabilities
4,546
4,848
Other long-term liabilities
1,229
1,170
Boston Pizza Canada Limited Partnership units liability (note 10)
115,587
117,606
Deferred gain (note 11)
222,020
224,847
Total liabilities
400,588
415,300
Shareholder deficiency
Share capital
38,248
38,248
Accumulated deficit
(286,827)
(298,749)
(248,579)
(260,501)
Total liabilities and shareholder deficiency
$
152,009
$
154,799
Subsequent events (note 20)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Board:
____
___________________
James Treliving, Director
114
2
BOSTON PIZZA INTERNATIONAL INC.
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2022 and 2021
(Expressed in thousands of Canadian dollars, except per share data)
2022
2021
Revenue
Franchise, restaurant and other
$
92,250
$
70,346
Advertising fund revenue
24,113
19,974
116,363
90,320
Royalty expense (note 17)
34,200
26,402
Distribution expense (note 10 and 17)
11,273
8,752
Restaurant operating costs
8,540
4,625
Compensation expense (note 17)
18,423
14,672
Advertising fund expense
24,080
18,091
Other expenses (note 16)
4,512
3,965
Depreciation and amortization (note 6 and 7)
4,550
5,008
Management fee (note 17)
500
-
Amortization of deferred gain (note 11)
(2,827)
(2,827)
Operating expenses
103,251
78,688
Earnings before interest, fair value (gain) loss and taxes
13,112
11,632
Interest income from Boston Pizza Royalties Limited Partnership
(3,690)
(2,506)
Interest on debt and financing costs
1,613
1,996
Interest on lease obligations (note 9)
256
306
Interest on payables owed to the Fund
-
89
Net interest income
(1,821)
(115)
Fair value loss (gain) on investment in Boston Pizza Royalties
Limited Partnership (note 5)
899
(11,229)
Fair value (gain) loss on Boston Pizza Canada Limited Partnership
units liability (note 10)
(2,019)
25,206
Total fair value (gain) loss
(1,120)
13,977
Earnings (loss) before income taxes
16,053
(2,230)
Current income tax expense (note 14)
1,878
2,320
Deferred income tax expense (note 14)
2,253
735
Total tax expense
4,131
3,055
Net and comprehensive income (loss)
$
11,922
$
(5,285)
Basic and diluted earnings (loss) per share
$
121.55
$
(53.88)
The accompanying notes are an integral part of these consolidated financial statements.
115
3
BOSTON PIZZA INTERNATIONAL INC.
Consolidated Statements of Changes in Shareholder Deficiency
(Expressed in thousands of Canadian dollars)
Share Accumulated Total
Capital Deficit Deficiency
Balance – December 31, 2021 $ 38,248 $ (298,749) $ (260,501)
Net and comprehensive income for the period - 11,922 11,922
Balance – December 31, 2022 $ 38,248 $ (286,827) $ (248,579)
Balance – December 31, 2020 $ 38,248 $ (293,464) $ (255,216)
Net and comprehensive loss for the period - (5,285) (5,285)
Balance – December 31, 2021 $ 38,248 $ (298,749) $ (260,501)
116
4
BOSTON PIZZA INTERNATIONAL INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2022 and 2021
(Expressed in thousands of Canadian dollars)
2022
2021
Cash flows generated from (used in)
Operating activities
Net and comprehensive income (loss)
$
11,922
$
(5,285)
Adjustments for:
Depreciation and amortization (notes 6 and 7)
4,550
5,008
Current income tax expense (note 14)
1,878
2,320
Deferred income tax expense (note 14)
2,253
735
Amortization of deferred gain (note 11)
(2,827)
(2,827)
Bad debt expense (note 16)
(1,110)
450
Impairment of property and equipment and intangible assets (note 16)
-
718
Fair value loss (gain) on investment in Boston Pizza Royalties Limited
Partnership (note 5)
899
(11,229)
Fair value (gain) loss on Boston Pizza Canada Limited Partnership units
liability (note 10)
(2,019)
25,206
Interest income from Boston Pizza Royalties Limited Partnership
(3,690)
(2,506)
Interest on debt and financing costs
1,613
1,996
Interest on lease obligations
256
306
Interest on payables owed to the Fund
-
89
Change in non-cash operating items (note 18(a))
(1,283)
(473)
Income tax paid
(2,522)
(2,363)
Income tax received
117
114
Net cash generated from operating activities
10,037
12,259
Financing activities
Repayment of debt (note 8)
(15,155)
(4,160)
Interest paid on debt, revolving facility and leases
(1,636)
(2,105)
Payment of lease obligations (note 9)
(1,112)
(1,756)
Payment of debt financing costs
(79)
-
Net cash used in financing activities
(17,982)
(8,021)
Investing activities
Interest received from investment in Boston Pizza Royalties Limited
Partnership
3,652
3,152
Purchase of property and equipment, net (note 18(b))
(719)
(72)
Purchase of intangible assets, net (note 18(b))
(1,136)
(1,218)
Net cash generated from investing activities
1,797
1,862
(Decrease) Increase in cash and cash equivalents
(6,148)
6,100
Cash and cash equivalents – beginning of year
18,827
12,727
Cash and cash equivalents – end of year
$
12,679
$
18,827
Supplemental cash flow information (note 18)
The accompanying notes are an integral part of these consolidated financial statements.
117
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
5
1. General information:
(a) Organization:
Boston Pizza International Inc. was incorporated on May 26, 1982 under the laws of British Columbia
and continued under the Canada Business Corporations Act on August 26, 2002. The principal business
office is located at 13571 Commerce Parkway, Richmond, BC.
These consolidated financial statements include the accounts of Boston Pizza International Inc., its
wholly-owned subsidiaries Laval Corporate Training Centre Inc., Front & John Pizza Ltd., Stadium
District Pizza Ltd., Boston Pizza Canada Holdings Partnership (“BPCHP”) and Boston Pizza Canada
Holdings Inc. (“BPCHI”), and the accounts of Boston Pizza Canada Limited Partnership (“BP Canada
LP”), collectively the “Company” or “BPI”. James Treliving Holdings Ltd. (“JTHL”) is the sole
shareholder of the Company, owning 100% of BPI. BPI closed two corporately owned Boston Pizza
Restaurants in 2021 and previously sold one Boston Pizza Restaurant in 2018. These restaurants had
been operated by wholly owned subsidiaries Lansdowne Holdings Ltd. ("LHL”), Theatre District Pizza
Ltd. (“TDPL”) and Winston Churchill Pizza Ltd. (“WCPL”). In 2021, BPI voluntarily dissolved each of
LJL, TDPL and WCPL into BPI.
BPI pays Boston Pizza Royalties Income Fund (the “Fund”) a royalty of 4.0% of Franchise Sales (defined
below) of Boston Pizza Restaurants in the Royalty Pool (the “Royalty”). The Fund, through its indirect
investment in BP Canada LP is entitled to receive a distribution (the “Distribution”) equal to 1.5% of
Franchise Sales of Boston Pizza Restaurants in the Royalty Pool (the “Franchise Sales Participation”)
less the pro rata portion payable to BPI in respect of its retained interest in the Fund. BP Canada LP, a
British Columbia limited partnership controlled and operated by BPI, is the exclusive franchisor of the
Boston Pizza concept in Canada.
(b) Nature of operations:
The Company’s principal business activity is the operation and franchising of Boston Pizza restaurants
in Canada. As at December 31, 2022, 377 Boston Pizza restaurants were in operation (December 31,
2021 – 383).
COVID-19 continued to impact the business of the Fund, BPI and BP Canada LP, and the operation of
Boston Pizza Restaurants during 2021 and the first half of 2022. Since then, COVID-19 case counts
have improved, government restrictions related to COVID-19 have largely been eliminated, and sales
levels of Boston Pizza Restaurants have returned to more normal levels when compared to times prior
to COVID-19.
2. Basis of preparation:
(a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). These consolidated financial statements were approved by the Director for issue on
February 8, 2023.
118
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
6
2. Basis of preparation (continued):
(b) Functional and presentation currency:
These consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional currency.
(c) Use of estimates and judgments:
The preparation of the consolidated financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in future periods
affected. Significant areas requiring the use of management estimates and judgment are as follows:
Estimates:
• Investment in Boston Pizza Royalties Limited Partnership (“Royalties LP”)
The investment in Royalties LP is principally comprised of Class B general partner units (“Class B
Units”) and, prior to an internal reorganization of corporate structure in 2017 (the “Reorganization”),
Class C general partner units (“Class C Units”). The value of additional Boston Pizza restaurants
rolled into the Royalty Pool (defined below) is also recognized within the Company’s investment in
Royalties LP through the additional entitlement of Class B Units. Annually, on January 1 (each, an
“Adjustment Date”), the number of Boston Pizza restaurants in the Royalty Pool on which the
Company pays a royalty to the Fund are adjusted to include the sales subject to royalty fees
(“Franchise Sales”) from new Boston Pizza restaurants opened on or before December 31 of the
prior year, less Franchise Sales from any Boston Pizza restaurants that have permanently closed
during the year. In return for adding this net Franchise Sales to the Royalty Pool, Boston Pizza
receives the right to indirectly acquire additional units of the Fund (“Fund Units”) in respect of its
Class B Units (the “Class B Additional Entitlements”). BPI receives 80% of the estimated Class B
Additional Entitlements on the Adjustment Date with the balance (the “Class B Holdback”) received
once the performance of the new Boston Pizza restaurants and actual effective tax rate of the Fund
are known with certainty. As such, the calculation is dependent on a number of variables including
the estimated sales of the new Boston Pizza restaurants and a tax rate. The value of the Class B
Additional Entitlements as a result of adding new Boston Pizza restaurants to the Royalty Pool could
differ from actual results.
• Class B Unit Fair Value Adjustment
The Company has elected under IFRS to measure the Class B Units as a financial asset at fair value
through profit and loss. This requires that the Company use a valuation technique to determine the
value of the Investment in BP Royalties LP at each reporting date (refer to note 12).
This valuation technique may not represent the actual value of the financial asset should such units
be extinguished and changes in the distribution rate on the Class B Units and the yield of the Fund
Units could materially impact the Company’s financial position and net and comprehensive income.
119
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
7
2. Basis of preparation (continued):
(c) Use of estimates and judgments (continued):
Estimates (continued):
• BP Canada LP Units Liability and Fair Value Adjustment
The Company has elected under IFRS to measure the Class 1 limited partnership units (“Class 1
LP Units”) and Class 2 limited partnership units (“Class 2 LP Units”) of BP Canada LP as financial
liabilities at fair value through profit and loss because the entitlements to distributions are considered
embedded derivatives to the Class 1 LP Units and Class 2 LP Units. This requires that the Company
use a valuation technique to determine the value of the BP Canada LP Units Liability at each
reporting date (refer to note 12).
This valuation technique may not represent the actual value of the financial liability and could
materially impact the Company’s financial position and net and comprehensive income.
• Accounts Receivable
The Company provides an allowance for uncollectable trade receivables based on a customer-by-
customer basis using estimates for past and current performance, aging, arrears status, the level of
allowance already in place, and management’s interpretation of economic conditions specific to the
Company’s customer base. If certain estimates prove to be inaccurate, BPI’s results of operations
and financial position may be impacted.
Judgment:
• Consolidation
Applying the criteria outlined in IFRS 10, judgment is required in determining whether BPI controls
Royalties LP. Making this judgment involves taking into consideration the concepts of power over
Royalties LP, exposure and rights to variable returns, and the ability to use power to direct the
relevant activities of Royalties LP so as to generate economic returns. Using these criteria,
management has determined that BPI does not ultimately control Royalties LP.
Applying the criteria outlined in IFRS 10, judgment is required in determining whether BPI controls
BP Canada LP. Making this judgment involves taking into consideration the concepts of power over
BP Canada LP, exposure and rights to variable returns, and the ability to use power to direct the
relevant activities of BP Canada LP so as to generate economic returns. Using these criteria,
management has determined that BPI ultimately controls BP Canada LP through its ability to direct
relevant activities to generate economic returns from BP Canada LP and its governance as general
partner of BP Canada LP.
120
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
8
3. Significant accounting policies:
The significant accounting policies used in the preparation of these consolidated financial statements
are described below.
(a) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis except for
derivative financial instruments and financial instruments which are measured at fair value through
profit or loss. The Company has the following items measured at fair value:
• Investment in Boston Pizza Royalties Limited Partnership relating to the Class B Units (note 5)
• BP Canada LP units liability (note 10)
(b) Consolidation:
These consolidated financial statements include the accounts of the following operating entities:
Boston Pizza International Inc. and subsidiaries:
Laval Corporate Training Centre Inc. 100%
Front & John Pizza Ltd. 100%
Stadium District Pizza Ltd. 100%
Boston Pizza Canada Holdings Partnership 100%
Boston Pizza Canada Holdings Inc. 100%
Boston Pizza Canada Limited Partnership 100%
The parent company of BPI is JTHL.
All intercompany transactions, balances and unrealized gains and losses from intercompany
transactions are eliminated on consolidation.
Subsidiaries are those entities (including special purpose entities) which the Company controls by
having the power to govern the financial and operating policies of such entities so as to obtain
economic benefits from their activities. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Company controls
another entity.
(c) Cash and cash equivalents:
Cash and cash equivalents consist of cash on hand and balances with banks and short-term money
investments that are readily convertible to cash with original terms of three months or less.
(d) Advertising Fund:
The Company operates an Advertising Fund (the “Advertising Fund”) established to collect and
administer funds contributed for use in advertising and promotional programs designed to increase
sales and enhance the reputation of the Company and its franchisees. The Company collects 3% of
Franchise Sales from franchisees and Company-operated restaurants for contribution to the
Advertising Fund. These contributions are used for local, regional and national advertising and
research, menu development, promotional and loyalty programs, brand protection, administration of
the Gift Card Program, and other administration costs.
121
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
9
3. Significant accounting policies (continued):
(d) Advertising Fund (continued):
The Company reports contributions and expenditures on a gross basis on the Company’s statement
of comprehensive income. Advertising Fund contributions received may not equal advertising
expenditures for the period due to timing of promotions and this difference is recognized to earnings.
To the extent that cumulative advertising contributions temporarily exceed Advertising Fund
expenditures, the difference is recognized as an accrual owed by the Advertising Fund. The assets
and liabilities held by the Advertising Fund are considered restricted and are recognized as such on
the Company’s statement of financial position.
(e) Gift cards:
The Company operates a gift card program (the “Gift Card Program”) which allows customers to
prepay for future purchases at participating Boston Pizza restaurants by loading a dollar value onto
their gift card through cash or credit card, when and as needed.
The purpose of the Gift Card Program is to expand the Boston Pizza brand through increased
exposure, as well as to increase Franchise Sales. The restricted cash related to the gift cards
recognized in Advertising Fund (defined above) restricted assets represents the prepaid amounts
not yet redeemed by customers. These cash balances as well as the outstanding customer
obligations for these gift cards are recognized as Advertising Fund restricted assets and liabilities
on the consolidated statement of financial position.
When a customer uses a gift card to purchase product at a corporately owned and operated Boston
Pizza restaurant, the restaurant recognizes the revenue from the sale of the product.
When a customer uses a gift card at a franchised restaurant, the Company recognizes revenues, in
the form of franchise fees, arising from the sale of the product.
The Advertising Fund recognizes income on unredeemed gift cards (“Gift Card Breakage”) when it
can determine that the likelihood of the gift card being redeemed is remote and that there is no legal
obligation to remit the unredeemed gift card value to relevant jurisdictions. The Company determines
Gift Card Breakage based on historical redemption patterns. Based on historical information, the
likelihood of a gift card remaining unredeemed can be determined 24 months after the gift card is
issued. At that time, breakage income is recognized by the Advertising Fund.
(f) Property and equipment:
Property and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent
costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the
Company and the costs can be measured reliably. The carrying amount of a replaced asset is
derecognized when replaced. Repairs and maintenance costs are charged to the statement of
comprehensive income during the period in which they are incurred.
122
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
10
3. Significant accounting policies (continued):
(f) Property and equipment (continued):
The Company allocates the amount initially recognized in respect of property and equipment to its
significant parts and depreciates each such part. Residual values, methods of depreciation and
useful lives of the assets are reviewed annually and adjusted if appropriate.
Gains and losses on disposals of property and equipment are determined by comparing the
proceeds with the carrying amount of the asset and are included as other expense in the statement
of comprehensive income.
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other
amount substituted for cost, less its residual value.
The Company provides for depreciation of property and equipment over their estimated useful lives
as follows:
Assets Basis Rate
Office furniture and equipment Declining balance 20 – 30%
Right-of-use assets Straight-line term of lease
Leasehold improvements Straight-line shorter of term of
the lease or useful life
(g) Intangible assets:
Intangible assets include computer software costs which are amortized on a declining balance basis
at a rate of 30% per year and reacquired franchise rights which are amortized over the term of the
franchise agreement. Amortization of intangible assets is charged to depreciation and amortization
on the statement of comprehensive income.
(h) Income taxes:
Income tax comprises current and deferred taxes. Current tax is the expected tax payable on taxable
income for the period, using tax rates enacted, or substantively enacted, at the end of the reporting
period, and any adjustments in respect of previous periods.
In general, deferred tax is recognized in respect of temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is determined on a non-discounted basis using tax rates and laws that have
been enacted or substantively enacted at the balance sheet date and are expected to apply when
the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is
probable that the assets can be recovered.
Deferred income tax is primarily provided on temporary differences arising on the investment in
Royalties LP, the deferred gain, subsequent additional entitlements, unit sales and non-capital
losses.
123
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
11
3. Significant accounting policies (continued):
(h) Income taxes (continued):
Deferred income tax assets and liabilities are netted and presented as non-current.
In determining the amount of current and deferred tax the Company takes into account the impact
of uncertain tax positions and whether additional taxes and interest may be due. The Company
believes that its accruals for tax liabilities are adequate based on many factors, including
interpretations of tax law and prior experience. This assessment relies on estimates and
assumptions and may involve a series of judgments about future events. New information may
become available that causes the Company to change its judgment regarding the adequacy of
existing tax liabilities; such changes to tax liabilities would impact tax expenses in the period that
such a determination is made.
(i) Revenue recognition and deferred revenue:
(i) Franchise revenues:
Monthly franchise fee:
Monthly franchise fees are recognized as they are earned.
Franchise fee deposits:
Franchise fee deposits are deferred and recognized net of expenses incurred relating to the sale
of the franchise. When the franchise commences operations, the franchise deposits are
recognized as franchise revenue and the related costs are included as an expense.
Franchisee renewal fees:
Franchisee renewal fees related to the franchise agreement are deferred and recognized as
revenue over the period of the renewal term.
(ii) Advertising fund revenue:
Monthly advertising fees:
Monthly advertising fund contributions are recognized as they are earned.
Gift card breakage income:
Gift card breakage income is recognized when the likelihood of the gift card being redeemed is
remote.
(iii) Corporately owned restaurant revenues:
Corporately owned restaurant revenues are recognized at the time of sale.
(iv) Supplier contributions:
The Company receives supplier contributions from franchisee suppliers to be used for various
franchise activities. Supplier contributions are recognized as other revenue as they are earned.
124
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
12
3. Significant accounting policies (continued):
(j) Deferred gain:
The gain realized on the sale of the BP Rights is being deferred and amortized over the 99 year
term of the license and royalty agreement. Amortization of the gain on BP Rights is recorded as
amortization of deferred gain on the statement of comprehensive income. Annually, on January 1,
the number of Boston Pizza restaurants in the Royalty Pool on which the Company pays a Royalty
to the Fund are adjusted to include Franchise Sales from new Boston Pizza restaurants opened on
or before December 31 of the prior year, less Franchise Sales from any Boston Pizza restaurants
that have permanently closed during the year. In return for adding this net Franchise Sales to the
Royalty Pool, Boston Pizza receives Class B Additional Entitlements and Class 2 Additional
Entitlements (defined in note 10). The Class B Additional Entitlements are included in the deferred
gain.
(k) Financial instruments:
(i) Recognition, classification and measurement:
Financial assets are initially recognized at fair value and subsequently classified as measured at
amortized cost, fair value through other comprehensive income (“FVOCI”), or fair value through profit
and loss (“FVTPL”).
A financial asset is measured at amortized cost if it meets both of the following conditions and is not
designated as FVTPL:
• the asset is held within a business model whose objective is to hold the asset to collect
contractual cash flows; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
A debt security is measured at FVOCI only if it meets both of the following conditions and is not
designated as FVTPL:
• the asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity instrument that is not held for trading, the Company may
irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an
investment-by-investment basis. All other financial assets are classified as measured at FVTPL.
Financial liabilities are initially recognized at fair value and subsequently classified as measured at
amortized cost or FVTPL. On initial recognition, the Company may irrevocably designate a financial
liability at FVTPL when doing so results in more relevant information, because either:
• the designation eliminates or significantly reduces a measurement or recognition inconsistency
that would otherwise arise from measuring assets or liabilities or recognizing the gains and
losses on them on different bases; or
125
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
13
3. Significant accounting policies (continued):
(k) Financial instruments (continued):
(i) Recognition, classification and measurement (continued):
• a group of financial liabilities or financial assets and financial liabilities is managed with its
performance evaluated on a fair value basis, in accordance with a documented risk
management or investment strategy, and information about the group is provided internally on
that basis to key management personnel.
For financial assets classified as measured at FVTPL or designated at FVTPL, changes in fair value
are recognized in the consolidated statement of comprehensive income. For financial assets
classified as measured at FVOCI or an irrevocable election has been made, changes in fair value
are recognized in the consolidated statement of comprehensive income. For financial assets and
other financial liabilities measured at amortized cost, interest income and interest expense is
calculated using the effective interest method and is recognized in the consolidated statement of
comprehensive income.
(ii) Business model assessment:
The Company makes an assessment of the objective of a business model in which an asset is held
at a portfolio level because this best reflects the way the asset is managed and information is
provided to management. The information considered includes:
• how the performance of the portfolio is evaluated and reported to management;
• how managers of the business are compensated;
• whether the assets are held for trading purposes;
• the risks that affect the performance of the financial assets held within the business model and
how those risks are managed; and
• the frequency, volume and timing of sales in prior periods, the reasons for such sales and its
expectations about future sale activity.
(iii) Contractual cash flow characteristics assessment:
In assessing whether the contractual cash flows are solely payments of principal and interest,
‘principal’ is defined as the fair value of the financial asset on initial recognition and ‘interest’ is
defined as consideration for the time value of money and for the credit risk associated with the
principal amount outstanding during a particular period of time and for other basic lending risks and
costs, as well as a profit margin.
The Company considers the contractual terms of the financial asset and whether the asset contains
contractual terms that could change the timing or amount of cash flows such that it would not meet
the condition of principal and interest. Contractual terms considered in this assessment include
contingent events that would change the amount and timing of cash flows, leverage features,
prepayment and extension terms, terms that limit the claim to cash flows from specified assets, and
features that modify the consideration from time value of money.
126
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
14
3. Significant accounting policies (continued):
(k) Financial instruments (continued):
(iii) Contractual cash flow characteristics assessment (continued):
The carrying value of current financial assets and liabilities approximate their fair value due to their
short-term nature. The carrying value of long-term receivables approximates fair value as there are
no significant changes in credit risk associated with the receivables since recognition. The long-
term debt approximates fair value based on prevailing market interest rates in effect.
(l) Impairment of financial assets:
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial assets carried at amortized cost
are credit impaired. A financial asset is ‘credit impaired’ when one or more events that have a
detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or being more than 90 days past due;
• the restructuring of a loan or advance by the Company on terms that the Company would not
consider otherwise;
• it is probable that the borrower will enter bankruptcy or other financial reorganization; or
• the disappearance of an active market for a security because of financial difficulties.
Loss allowances for financial assets measured at amortized cost are deducted from the gross
carrying amounts of the assets.
Financial instruments and contract assets
The Company recognizes loss allowances for expected credit losses (“ECL”) on:
• financial assets measured at amortized cost;
• debt investments measured at fair value through other comprehensive income; and
• contracted assets.
The Company measures loss allowances at an amount equal to lifetime ECLs, except for the
following, which are measured at 12-month ECLs:
• debt securities that are determined to have low credit risk at the reporting date; and
• other debt securities and bank balances for which the credit risk has not increased significantly
since initial recognition.
Loss allowances for trade receivables are measured at an amount equal to lifetime ECLs. Lifetime
ECLs are the ECLs that result from all possible default events over the expected life of a financial
instrument. ECLs are probability-weighted estimate of credit losses, and credit losses are measured
as the present value of cash shortfalls from a financial asset.
The Company determines whether the credit risk of a financial asset has increased significantly
since initial recognition and when estimating lifetime ECLs, by considering reasonably available
127
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
15
3. Significant accounting policies (continued):
(l) Impairment of financial assets (continued):
quantitative and qualitative information based on the Company’s credit risk experience, forward
looking information, and other reasonable estimates.
(m) Impairment of non-financial assets:
Property and equipment and intangible assets are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. Long-lived assets that are
not amortized are subject to an annual impairment test. For the purpose of measuring recoverable
amounts, assets are grouped at the lowest levels for which there are separately identifiable cash
flows. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in
use (being the present value of the expected future cash flows of the relevant asset). An impairment
loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The Company evaluates impairment losses for potential reversals when events or
circumstances warrant such consideration.
(n) Earnings per share:
The Company presents basic and diluted earnings per share (“EPS”) data for its common shares.
Basic EPS is calculated by dividing the profit or loss attributable to the common shareholder of the
Company by the weighted average number of common shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to the common shareholder and
the weighted average number of common shares outstanding for the effects of all dilutive potential
common shares. There are no dilutive factors affecting EPS for the Company.
128
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
16
3. Significant accounting policies (continued):
(o) Accounting standards and amendments issued but not yet adopted:
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
On February 12, 2021, the IASB issued Disclosure of Accounting Policies (Amendments to IAS 1
and IFRS Practice Statement 2). The amendments are effective for annual periods beginning on or
after January 1, 2023 with earlier adoption permitted. The amendments require the disclosure of
material accounting policies rather than significant accounting policies. The Company has done an
initial assessment of these amendments and does not anticipate an impact to the Company’s
business, financial statements or disclosure. The Company intends to adopt these amendments in
its consolidated financial statements for the annual period beginning on January 1, 2023.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued Presentation of Financial Statements (Amendments to IAS
1) and on October 31, 2022, the IASB issued Non-current Liabilities with Covenants (Amendments
to IAS 1). The amendments are effective for annual periods beginning on or after January 1, 2024.
These amendments clarify the classification of liabilities as current or non-current and improve the
information a company provides about long-term debt with covenants. For the purposes of non-
current classification, the amendments removed the requirement for a right to defer settlement or
roll over of a liability for at least twelve months to be unconditional. Instead, such a right must exist
at the end of the reporting period and have substance. In addition, covenants with which a company
must comply after the reporting date do not affect the liability’s classification at the reporting date.
The Company has done an initial assessment of these amendments and does not anticipate an
impact on the Company’s business, financial statements or disclosure. The Company intends to
adopt these amendments in its consolidated financial statements for the annual period beginning on
January 1, 2024.
129
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
17
4. Accounts receivables:
December 31, December 31,
2022 2021
Trade receivables and other (net of allowance) $ 8,425 $ 4,508
Tenant inducements receivable, net of lease obligations
(i)
885 -
Receivables due from associated companies 19 231
Total current receivables $ 9,329 $ 4,739
Long-term trade receivables and other (net of allowance) - 89
Total long-term receivables $ - $ 89
Trade receivables from franchisees are classified as long-term when payment is expected to take longer
than twelve months. The Company makes every effort to collect all long-term receivable balances,
including establishing payment plans with existing franchisees.
(i) The balance represents the net current portion of lease obligations for two new leases that the
Company entered into for two of its corporate offices during the year ended December 31, 2022.
The balance is in a net asset position because the current lease obligations include $1.1 million of
tenant inducements in relation to these leases that are expected to be received in the next 12
months. The balance also includes $0.2 million in current lease obligations (netted against the asset
balance) relating to these leases due within the next 12 months. Refer to note 9 Lease Obligations
for further details.
The aging of trade receivables and other at the reporting dates is as follows:
December 31, December 31,
2022 2021
Current $ 8,413 $ 4,153
Past due 1-30 days 294 193
Past due 31-60 days 368 290
Past due 61-90 days 208 151
Past due over 90 days 46 41
$ 9,329 $ 4,828
The allowance for doubtful accounts was $2.5 million as at December 31, 2022 (December 31, 2021 –
$4.2 million) with $1.6 million (December 31, 2021 – $2.5 million) applied against short-term trade
receivables and other and $0.9 million against long-term trade receivables and other (December 31,
2021 – $1.7 million). The Company’s collections policy is to first apply cash receipts against the oldest
outstanding invoices.
130
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
18
5. Investment in Boston Pizza Royalties Limited Partnership:
Royalties LP was established to hold the trademarks and trade names used in connection with the
operation of Boston Pizza restaurants in Canada (collectively, the “BP Rights”). Royalties LP and the
Company also entered into a license and royalty agreement to allow the Company the use of the BP
Rights for a term of 99 years commencing in 2002, for which the Company pays Royalties LP a Royalty
expense, being 4% of the Franchise Sales of certain restaurants located in Canada (the “Royalty Pool”).
The investment in Royalties LP is principally comprised of Class B Units. The value of additional Boston
Pizza restaurants rolled into the Royalty Pool (as defined in the License and Royalty Agreement between
Royalties LP and BPI (the “License and Royalty Agreement”)) is also recognized within the Company’s
investment in Royalties LP through the additional entitlement of Class B Units. Annually, on the
Adjustment Date, an adjustment is made to add to the Royalty Pool new Boston Pizza restaurants that
opened and to remove any Boston Pizza restaurants that permanently closed since the previous
Adjustment Date. In return for adding net additional Royalty (as defined in the License and Royalty
Agreement) revenue to the Fund, BPI receives Class B Additional Entitlements to indirectly acquire
additional units of Fund Units. BPI receives the Class B Holdback once the performance of the new
Boston Pizza restaurants and the actual effective tax rate paid by the Fund are known for certain.
It is possible that on an Adjustment Date, the net additional Royalty and Distribution is negative as a
result of the estimated Royalty and Distribution expected to be generated by new Boston Pizza
restaurants being less than the Royalty and Distribution that is lost from permanently closed Boston Pizza
restaurants (the amount by which it is less is the “Deficiency”). In such case, the Company would not
receive any additional Class B Additional Entitlements, however, nor would the Company lose any of the
Class B Additional Entitlements previously received. Rather, on future Adjustment Dates, the Company
would be required to make-up the Deficiency by first adding Royalty and Distribution in an amount equal
to the Deficiency before receiving any further Class B Additional Entitlements.
The investment in Royalties LP is considered an equity interest. The Fund controls the relevant activities
of Royalties LP and thus consolidates its financial results. The Class B Units are accounted for as a
financial asset which is measured each reporting date at fair value. The value of the investment has
exposure to variability as it relates to the Company’s ownership of the Class B Units measured at fair
value using the closing price of a Fund Unit. The determination of the fair value of the Investment in
Royalties LP is described in note 12. The statement of comprehensive income includes interest revenue
as earned, and the impact of the fair value adjustments on the Class B Units.
131
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
19
5. Investment in Boston Pizza Royalties Limited Partnership (continued):
The investment in Royalties LP is comprised of:
Issued and
outstanding
Additional
Entitlements
Issued and
outstanding
Additional
Entitlements
including
Holdback
Class B
Unit
Entitlement
Balance as at December 31, 2020
2,423,886
2,430,381
$
26,321
Class B Additional Entitlements granted January 1, 2021
(1)
-
-
-
Adjustment to prior year Class B Additional Entitlements
(2)
6,937
442
6
Fair value gain
-
-
11,229
Balance as at December 31, 2021
2,430,823
2,430,823
$
37,556
Class B Additional Entitlements granted January 1, 2022
(3)
-
-
-
Fair value loss
-
-
(899)
Balance as at December 31, 2022
2,430,823
2,430,823
$
36,657
(1)
On January 1, 2021, two new Boston Pizza Restaurants that opened across Canada between January 1, 2020 and December
31, 2020 were added to the Royalty Pool and the eleven restaurants that permanently closed during 2020 were removed.
The net Franchise Sales from the two new Boston Pizza Restaurants less the eleven Boston Pizza Restaurants that
permanently closed was negative $15.4 million. This resulted in a Deficiency of $0.8 million related to lost Royalty income
and Distribution income. As a result of the Deficiency, the Company did not receive any Class B Additional Entitlements on
January 1, 2021.
(2)
Adjusted for actual performance of five new Boston Pizza Restaurants added to the Royalty Pool on January 1, 2020 and
the six Boston Pizza Restaurants that permanently closed and were removed from the Royalty Pool on January 1, 2020, the
actual effective tax rate paid by the Fund in 2020 and the adjustment for the seasonal Boston Pizza Restaurant that re-
opened in 2020.
(3)
On January 1, 2022, four Boston Pizza restaurants that closed during the period from January 1, 2021 to December 31, 2021
were removed from the Royalty Pool. The Franchise Sales from the four Boston Pizza Restaurants that permanently closed
is negative $6.2 million. This resulted in a Deficiency of $0.3 million related to lost Royalty income and Distribution income.
As a result of the Deficiency, the Company did not receive any Class B Additional Entitlements on January 1, 2022.
132
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
20
6. Property and equipment:
Office
furniture and Right-of-use Leasehold
Cost equipment assets improvements Total
At January 1, 2021 $ 12,795 $ 11,642 $ 13,722 $ 38,159
Adjustments - (827) - (827)
Additions 47 - 46 93
Impairment expense (1,187) - (2,338) (3,525)
At December 31, 2021 11,655 10,815 11,430 33,900
Adjustments - 2,018 - 2,018
Additions 246 - 537 783
At December 31, 2022 $ 11,901 $ 12,833 $ 11,967 $ 36,701
Office
Accumulated furniture and Right-of-use Leasehold
Depreciation equipment assets improvements Total
At January 1, 2021 $ 10,786 $ 6,014 $ 8,561 $ 25,361
Depreciation 473 1,304 1,113 2,890
Impairment expense (1,056) - (2,079) (3,135)
At December 31, 2021 10,203 7,318 7,595 25,116
Depreciation 513 963 1,098 2,574
At December 31, 2022 $ 10,716 $ 8,281 $ 8,693 $ 27,690
Office
furniture and Right-of-use Leasehold
Net book Value equipment assets improvements Total
At December 31, 2021 $ 1,452 $ 3,497 $ 3,835 $ 8,784
At December 31, 2022 1,185 4,552 3,274 9,011
As at December 31, 2022, the right-of-use assets include a balance of nil (December 31, 2021 - $0.2
million) in lease incentives which is being amortized over the terms of the leases. In 2021, Lansdowne
Holdings Ltd. and Theatre District Pizza Ltd. closed its operations. Related to the closures, property
and equipment of $0.4 million were written off as these assets no longer provide any economic benefit
to BPI. No such expense was recorded in the year ended December 31, 2022.
133
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
21
7. Intangible assets:
Computer Reacquired
Software and Franchise
Cost other Rights Total
At January 1, 2021 $ 22,219 $ 2,647 $ 24,866
Additions 2,033 - 2,033
Impairment expense - (633) (633)
At December 31, 2021 24,252 2,014 26,266
Additions 1,387 - 1,387
At December 31, 2022 $ 25,639 $ 2,014 $ 27,653
Computer Reacquired
Software and Franchise
Accumulated Amortization other Rights Total
At January 1, 2021 $ 17,360 $ 1,773 $ 19,133
Amortization 1,855 263 2,118
Impairment expense - (306) (306)
At December 31, 2021 19,215 1,730 20,945
Amortization 1,874 102 1,976
At December 31, 2022 $ 21,089 $ 1,832 $ 22,921
Computer Reacquired
Net book value Software and Franchise
(in thousands) other Rights Total
At December 31, 2021 $ 5,037 $ 284 $ 5,321
At December 31, 2022 4,550 182 4,732
During the year ended December 31, 2021, the Company recognized impairment expense related to
intangible assets with carrying net book value of $0.3 million. The impairment was related to intangible
assets held by Theatre Pizza District Ltd. whose operations were closed in 2021. No such expense was
recorded in the year ended December 31, 2022.
134
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
22
8. Debt:
The Company’s debt consists of the following:
December 31, December 31,
2022 2021
Term Loan bearing variable interest at CDOR plus between
1.25% and 2.10% per annum and due in 2026
(a)(b)
$ 18,200 $ 24,999
Acquired Restaurant Credit Facility bearing variable interest
at prime plus 1.00% per annum and due in 2022
(c)
- 2,488
BCAP non-revolving facility bearing variable interest at prime - 5,469
plus 2.50% per annum and due in 2025
(d)
BDC non-revolving facility bearing variable interest rates 1,333 1,733
less 1.75% per annum (8.55% less 1.75% per annum
as at December 31, 2022), and due in 2023
(e)
Deferred financing fees (198) (338)
19,335 34,351
Current portion of debt 2,934 29,449
Current portion of deferred financing fees (57) (312)
$ 16,458 $ 5,214
Prior to June 28, 2022, BPI had credit facilities with a Canadian chartered bank (the “Bank”) in the
amount of up to $34.0 million (originally $43.3 million) expiring on December 31, 2022 (the “Original
Credit Facilities”). On June 28, 2022, BPI entered into a second supplemental credit agreement
(the “Second Supplemental Credit Agreement”) with the Bank to amend and extend the Original
Credit Facilities (the Original Credit Facilities, as amended and extended by the Second
Supplemental Credit Agreement, the “Credit Facilities”).
(a) The Original Credit Facilities were comprised of: (i) a $10 million committed revolving facility to cover
BPI’s day-to-day operating requirements if needed (the “Operating Line”); and (ii) a $24.0 million
(originally $33.3 million) committed non-revolving term facility that was used to finance the
reorganization of BPI and its shareholders that completed on September 30, 2017 (the “Term
Loan”). The Original Credit Facilities bore interest at variable rates, as selected by BPI, comprised
of either or a combination of the Bank’s bankers’ acceptance rates or Canadian dollar offered rates
plus between 2.75% and 3.75%, or the Bank’s prime rate plus between 1.50% and 2.50%,
depending upon BPI’s total funded net debt to EBITDA ratio. The Term Loan and the principal
amount drawn on the Operating Line were due and payable upon maturity. The principal amount
drawn on the Term Loan must be reduced by quarterly payments, which permanently reduced the
amount available under the Term Loan. BPI repaid $0.3 million of principal outstanding on the Term
Loan on June 28, 2022. The Credit Facilities are guaranteed by BPI’s wholly-owned subsidiaries,
all of whom have granted security for their obligations under those guarantees. No security has been
given by BP Canada LP in respect of the Credit Facilities.
135
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
23
8. Debt (continued):
(b) The Second Supplemental Credit Agreement amended and extended the Original Credit Facilities
as follows:
(i) The maturity date was extended from December 31, 2022 to July 1, 2026;
(ii) The total amount of credit available was decreased by $9.3 million, from the original
$43.3 million to $34.0 million by decreasing the size of the Term Loan from the original
$33.3 million to $24.0 million to reflect repayments of principal previously made by BPI;
(iii) The interest rates (or margins, as applicable) decreased to variable interest rates comprised of
either or a combination of the Bank’s bankers’ acceptance rates or Canadian dollar offered rates
plus between 1.25% and 2.10%, or the Bank’s prime rate plus between 0.00% and 0.90%,
depending upon BPI’s total funded net debt to EBITDA ratio;
(iv) The amount of principal on the Term Loan that BPI is required to repay each quarter was
reduced from $0.7 million to $0.4 million;
(v) Certain financial covenants that were waived by the Bank from June 2020 until December 31,
2022 were reinstated and, in the case of (b) and (c) following, modified, including: (a) the
covenant that the market value of the Class B Units and Class 2 GP Units exceeds the amount
of indebtedness owed by BPI to the Bank; (b) the covenant that BPI’s net total funded debt to
EBITDA be less than specified ratios; and (c) the covenant that BPI maintain a minimum ratio
of cash flow available for debt service to total debt service;
(vi) Certain covenants agreed to in June 2020 were eliminated, including: (i) the covenant that
required BPI’s trailing 12-month EBITDA to not be less than certain specified values; and (ii) the
covenant that required BPI to dispose of certain assets and use the net proceeds therefrom to
reduce BPI’s indebtedness to the Bank; and
(vii) The guarantees and security supporting the Credit Facilities remain unchanged from those
existing immediately prior to the Second Supplemental Credit Agreement.
On December 28, 2022, the Company made a voluntary payment of $5.0 million to the Term Loan,
in addition to the required quarterly payment of $0.4 million. As of December 31, 2022 and December
31, 2021, no amount was drawn on the Operating Line.
(c) In addition to the Credit Facilities, one of BPI’s wholly-owned subsidiaries has a $3.3 million
committed non-revolving term loan that was established to fund a 2016 restaurant purchase and
renovations (the “Acquired Restaurant Credit Facility”). Principal payments were required to be
made monthly on the facility until the maturity date. On February 14, 2022, the remaining balance
of $2.5 million on the Acquired Restaurant Credit Facility was paid in full.
(d) BPI had credit facilities with the Bank under the Export Development Canada’s business credit
availability program (the “BCAP Loan”) in the amount of $6.25 million. The BCAP Loan had a term
of one year, which could be extended annually at the request of BPI for up to five years subject to
compliance with certain requirements. The BCAP Loan bore interest at the Bank’s prime rate plus
2.50% and was subject to an annual fee equal 1.80% of the total amount of credit available (i.e.
$6.25 million).
136
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
24
8. Debt (continued):
The BCAP Loan was guaranteed by all of BPI’s subsidiaries except BP Canada LP, and was secured
by the same security that secures the Credit Facilities to the Bank. That security shared priority with
the general security agreements granted by BPI and its subsidiaries to the Bank under the Credit
Facilities.
On June 22, 2022, the remaining balance of $4.7 million on the BCAP Loan was paid in full.
(e) BPI has credit facilities with the Business Development Bank of Canada (“BDC”) in the amount of
$2.0 million (the “BDC Loan”) under the federal government’s COVID-19 relief programs. The BDC
Loan has a term of three years and bears interest at BDC’s floating base rate (currently 8.55% per
annum) less 1.75% (i.e. currently 6.80%). The security held by BDC is subordinate to the security
held by the Bank to secure the Credit Facilities with the Bank and the security held by the Fund to
secure BPI’s obligation to pay the Fund Royalty and Distributions.
(f) Principal repayments on long-term debt are as follows:
December 31,
2022
2023 $ 2,933
2024 1,600
2025 and thereafter 15,000
$ 19,533
The fair value of the Company’s debt was $19.5 million (December 31, 2021 – $34.7 million) based on
prevailing market rates that approximate the rate on the Company’s debt. The impact of a 1% increase
in the variable rate would result in a minimal impact on the fair market value and the statement of
comprehensive income.
BPI was in compliance with all of its financial covenants and financial condition tests as of December
31, 2022.
137
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
25
9. Lease obligations:
The Company’s lease obligations are initially measured at the present value of the lease payments that
are not paid at the commencement date using the Company’s incremental borrowing rate. After initial
recognition, the lease liabilities are measured at amortized cost using the effective interest method. The
Company’s lease obligations consist of:
December 31, December 31,
2022 2021
Balance, beginning of year $ 4,281 $ 6,864
Adjustments 2,903 (827)
Principal payments (1,112) (1,756)
Balance, end of year 6,072 4,281
Current portion of lease obligations 474 879
Long-term portion of lease obligations $ 5,598 $ 3,402
Total cash outflow for leases for the year ended December 31, 2022 was $1.4 million (2021 – $2.1
million) which includes $1.1 million of principal payments (2021 – $1.8 million) and $0.3 million in interest
for lease obligations (2021 – $0.3 million). Expenses for lease of low-dollar value items are not material.
All extension options have been included in the measurement of lease obligations where applicable.
The annual lease obligations for the next five years and thereafter are as follows:
December 31, December 31,
2022 2021
Within 1 year
(1)
$ (127) $ 1,175
2 to 3 years 2,186 1,474
4 to 5 years 1,767 1,426
Over 5 years 2,791 1,748
Total undiscounted lease obligations $ 6,617 $ 5,823
(1)
Included as an offset in the obligation balance is $ 1.1 million relating to tenant inducements expected to be received (note 4).
138
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
26
10. Boston Pizza Canada Limited Partnership units liability:
Limited partnership units
The Class 1 LP Units entitle the Fund to a cash distribution equal to the interest payable on the Fund’s
Credit Facility D plus 0.05% to a maximum amount of 1.5% of Franchise Sales. The Class 2 LP Units
entitle the Fund to a cash distribution equal to 1.5% of Franchise Sales less the Class 1 LP Units
distribution amount, less BPI’s proportionate share. Refer to note 12 for the fair value calculation of the
BP Canada LP Unit Liability.
The BP Canada LP units liability is comprised of:
Issued and
outstanding
LP Units
Investment in
BP Canada LP
Class 1 LP Units
Class 1 LP Units at December 31, 2022 and 2021
1,000
$
33,314
Class 2 LP Units
Class 2 LP Units at December 31, 2021
5,455,762
$
114,113
Fair value gain on Class 2 LP Units since inception
(29,821)
Balance at December 31, 2021
5,455,762
84,292
Fair value gain on Class 2 LP Units
(2,019)
Class 2 LP Units balance at December 31, 2022
5,455,762
$
82,273
Total LP Units balance at December 31, 2022
$
115,587
General partnership units
BPI receives its proportionate share of the 1.5% of Franchise Sales of Boston Pizza restaurants in the
Royalty Pool through distributions on Class 2 general partnership units (“Class 2 GP Units”) of
BP Canada LP that are exchangeable for Fund Units. These units are eliminated upon consolidation
with BP Canada LP. The Company continues to pay the Fund the balance of the Fund’s interest in
Franchise Sales of Royalty Pool restaurants in the form of Royalty.
139
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
27
10. Boston Pizza Canada Limited Partnership units liability (continued):
The number of Fund Units that the Company is entitled to receive in exchange for its Class 2 GP Units
is adjusted periodically to reflect the addition of new Boston Pizza Restaurants to the Royalty Pool (the
“Class 2 Additional Entitlements”, and together with the Class B Additional Entitlements, the
“Additional Entitlements”), with 80% of the estimated Class 2 Additional Entitlements being received
on the Adjustment Date with the balance (the “Class 2 Holdback”, and together with the Class B
Holdback, the “Holdback”) being received once the performance of the new restaurants and the actual
effective tax rate of the Fund are known for certain, similar to adjustments to the Class B Units that the
Company holds.
It is possible for a Deficiency to exist on an Adjustment Date (refer to note 5). In such case, the Company
would not receive any Additional Entitlements, however, nor would the Company lose any of the
Additional Entitlements previously received. Rather, on future Adjustments Dates, the Company would
be required to make-up the Deficiency by first adding Royalty and Distribution in an amount equal to the
Deficiency before receiving any further Additional Entitlements.
BPI also has the right to further increase the Fund’s Franchise Sales Participation by up to an additional
1.5% of Franchise Sales of Royalty Pool restaurants (in 0.5% increments) upon meeting certain financial
thresholds designed to ensure that the additional Franchise Sales Participation is accretive to the Fund
and that BPI retains the financial capacity to satisfy its obligations to the Fund.
As at December 31, 2022, the Company had the right to receive 831,354 (December 31, 2021 –
831,354) Fund Units when it exercises its rights to exchange its Class 2 GP Units into Fund Units.
Issued and
outstanding Class 2
GP Additional
Entitlements
Issued and
outstanding
Class 2 GP
Additional
Entitlements
including Class 2
GP Holdback
Balance at December 31, 2020
828,753
831,188
Class 2 Additional Entitlements granted January 1, 2021
(1)
-
-
Adjustment to prior year Class 2 Additional Entitlements
(2)
2,601
166
Balance at December 31, 2021
831,354
831,354
Class 2 Additional Entitlements granted January 1, 2022
(3)
-
-
Balance at December 31, 2022
831,354
831,354
(1)
On January 1, 2021, two new Boston Pizza Restaurants opened during the period from January 1, 2020 to December 31,
2020 were added to the Royalty Pool while 11 restaurants that closed during 2020 were removed. The Franchise Sales from
restaurants added to the Royalty Pool on January 1, 2021, net of closures was negative $15.4 million. This resulted in a
Deficiency of $0.8 million related to lost Royalty income and Distribution income. As a result of the Deficiency, the Company
did not receive any Class 2 GP Additional Entitlements on January 1, 2021.
(2)
Adjusted for actual performance of five new Boston Pizza Restaurants added to the Royalty Pool on January 1, 2020 and
the six Boston Pizza Restaurant that permanently closed and were removed from the Royalty Pool on January 1, 2020, the
actual effective tax rate paid by the Fund in 2020 and the adjustment for the seasonal Boston Pizza Restaurant that re-
opened in 2020.
(3)
On January 1, 2022, four Boston Pizza Restaurants that closed during the period from January 1, 2021 to December 31,
2021 were removed from the Royalty Pool. The Franchise Sales from restaurants removed from the Royalty Pool on January
1, 2022 was negative $6.2 million. This resulted in a Deficiency of $0.3 million related to lost Royalty income and Distribution
income. As a result of the Deficiency, the Company did not receive any Class 2 Additional Entitlements on January 1, 2022.
140
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
28
11. Deferred gain:
The gain realized on the sale of BP Rights is being deferred and amortized over the 99 years term of
the License and Royalty Agreement. In return for adding net Franchise Sales to the Royalty Pool, Boston
Pizza receives Class B Additional entitlements which are included in the deferred gain. The Class B
Additional Entitlements are calculated as 92.5% of the net Franchise Sales added to the Royalty Pool
from the net new Boston Pizza Restaurants, multiplied by 4% (being the Royalty that is payable on such
net Franchise Sales), multiplied by one minus the effective average tax rate to be paid by the Fund,
divided by the yield of the Fund, divided by the weighted average price of a Fund Unit over a specified
period. The Company receives 80% of the estimated Class B Additional Entitlements initially with the
balance received when the actual full year performance of the new restaurants and the actual effective
tax rate of the Fund is known with certainty. Monthly distributions from the Fund are based on full Class
B Additional Entitlements and are subject to adjustment early in the next fiscal year when full
performance of the restaurants and actual effective tax rate of the Fund is known with certainty. It is
possible for a Deficiency to exist where the Company would not receive any Additional entitlements
(refer to note 5) for the year. In the case of a Deficiency, there will be no amounts added to deferred
gain with respect to the year the Deficiency was generated.
December 31, December 31,
2022 2021
Balance, beginning of year $ 224,847 $ 227,668
Class B Additional Entitlements
(1)
- 6
Amortization of deferred gain (2,827) (2,827)
Balance, end of year $ 222,020 $ 224,847
(1)
No Class B Additional Entitlements were issued to BPI in 2022 since a Deficiency existed in respect of the January 1, 2022
adjustment date (see note 5).
The following table summarizes the number of Class B Additional Entitlements received by the Company
in return for the net Franchise Sales added to the Royalty Pool from the net new restaurants on January
1:
January 1,
2022
January 1,
2021
Restaurants in Royalty Pool
383
(1)
387
Estimated Franchise Sales from adjustments to Royalty Pool
$
(6,195)
$
(15,209)
Class B Units Additional Entitlement (including Holdbacks)
(1)
0 units
0 units
Class B Holdback (20% of total entitlement)
(2)
0 units
0 units
Adjustment to prior year Class B additional entitlement
(3)
0 units
6,937 units
(1)
On January 1, 2022, four Boston Pizza Restaurants that closed during the period from January 1, 2021 to December 31,
2021 were removed from the Royalty Pool. The Franchise Sales from restaurants removed from the Royalty Pool on January
1, 2022 was negative $6.2 million. This resulted in a Deficiency of $0.3 million of lost Royalty income and Distribution income.
As a result of the Deficiency, BPI did not receive any Class B Additional Entitlements on January 1, 2022.
(2)
Unissued and not eligible for exchange into Fund Units until January 1 of next year.
(3)
Adjusted for actual performance of new restaurants added to the Royalty Pool and actual effective tax rate of the Fund.
141
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
29
12. Financial Instruments
(a) Financial Assets and Liabilities by Categories and Fair Value Information
The following table shows the carrying values of assets and liabilities for each of these categories
at December 31, 2022 and 2021. Unless otherwise noted, the fair values on the instruments
approximate their carrying amount. The Company must classify fair value measurements according
to a hierarchy that reflects the significance of the inputs used in performing such measurements.
The fair values of the financial instruments carried at fair value have been measured by one of the
following valuation methods:
• Level 1 – quoted prices (unadjusted) are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which transactions occur in
sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – pricing inputs are other than quoted in active markets included in Level 1. Prices in
Level 2 are either directly (that is, as prices) or indirectly (that is, derived from prices) observable
as of the reporting date.
• Level 3 – valuations in this level are those with inputs for the asset or liability that are not based
on observable market data.
December 31,
2022
December 31,
2021
Fair value through profit and loss
Class B Units Investment in Boston Pizza Royalties
Limited Partnership
(i)
Level 2
36,657
37,556
Class 1 Boston Pizza Canada Limited Partnership units
liability
(ii)
Level 2
(33,314)
(33,314)
Class 2 Boston Pizza Canada Limited Partnership units
liability
(iii)
Level 2
(82,273)
(84,292)
Amortized cost
Cash
$
12,679
$
18,827
Accounts receivable
9,329
4,828
Interest receivable from Boston Pizza Royalties Limited
Partnership
303
265
Accounts payable and accrued liabilities
(9,583)
(7,417)
Royalty and distribution payable to the Fund
(4,372)
(3,422)
Debt
(19,335)
(34,351)
Lease obligations
(6,072)
(4,281)
Other long-term liabilities
(1,229)
(1,170)
(i) The Class B Units are exchangeable for an equivalent number of Fund Units, and thus, it is
estimated that the fair value of a Class B Unit approximates the fair value of a Fund Unit. The
Fund estimates the fair value of its Class B Units Liability by multiplying the issued and
outstanding Class B Additional Entitlements (including Class B Holdback) held by BPI at the end
of the period by the closing price of the Fund Units on the last business day of the period. As at
142
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
30
12. Financial Instruments (continued):
(a) Financial Assets and Liabilities by Categories and Fair Value Information (continued):
December 31, 2022, the closing price of a Fund Unit was $15.08 (December 31, 2021 – $15.45)
while the number of Fund Units BPI would be entitled to receive if it exchanged all of its Class B
Units (including Class B Holdback) was 2,430,823 (December 31, 2021 – 2,430,3823) resulting
in a valuation of Class B Units at a fair value of $36.7 million (2021 – $37.6 million). For the
year ended December 31, 2022, the decrease of $0.9 million is comprised of $0.9 million in fair
value loss (2021 - $11.2 million in fair value gain and a nominal amount in Additional
Entitlements). This valuation technique may not represent the actual value of the financial asset
should such Class B Units be exchanged.
(ii) The Class 1 LP Units are entitled to distributions with respect to the interest cost incurred on a
certain credit facility held by the Fund. Thus, the fair value of the Class 1 LP Units is estimated
using a market-corroborated input (interest rate on the credit facility). The Company estimates
the fair value of Class 1 LP Units at carrying value adjusted for interest rate risk.
(iii) The Class 2 LP Units have similar cash distribution entitlements and provisions to the Class 2
GP Units held by BPI, which are exchangeable for an equivalent number of Fund Units. The fair
value of the Class 2 LP Units is determined using a market approach, which involves using
observable market prices for similar instruments. The fair value of the Class 2 LP Units is
determined by multiplying the issued and outstanding Class 2 LP Units indirectly held by the
Fund at the end of the period by the closing price of a Fund Unit on the last business day of the
period. As at December 31, 2022, the closing price of a Fund Unit was $15.08 (December 31,
2021 – $15.45) while the number of issued and outstanding Class 2 LP Units held by the Fund
was 5,455,762 (December 31, 2021 – 5,455,762) resulting in a Class 2 LP Units fair value of
$82.3 million (December 31, 2021 – $84.3 million). The fair value gain on the Class 2 LP Units
Liability for the year ending December 31, 2022 was $2.0 million (2021 – $25.2 million fair value
loss).
(b) Financial Instruments and Related Risks
The Company primarily has exposure to interest rate risk, liquidity risk and credit risk as they relate
to the Company’s identified financial instruments.
Interest rate risk
Interest rate risk is the risk that the fair values and future cash flows of the Company’s financial
instrument will fluctuate because of changes in market interest rates. The Company is exposed to
interest rate cash flow risk primarily on its bank indebtedness, long-term debt subject to floating rates
of interest and lease obligations. The Company is exposed to interest rate fair value risk on its lease
obligations subject to fixed rate of interest. The Company monitors its exposure to interest rates by
monitoring the fluctuation in the bankers’ acceptance rates, prime interest rate and evaluates interest
rate swaps when necessary. The Company had $19.5 million (December 31, 2021 – $34.7 million)
in floating rate debt and $6.1 million in lease obligations (December 31, 2021 – $4.3 million) as at
December 31, 2022. The annual impact for every 1% increase in the variable rate would result in an
additional interest expense of $0.3 million.
143
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
31
12. Financial Instruments (continued):
(b) Financial Instruments and Related Risks (continued):
Liquidity risk
Liquidity risk results from the Company’s potential liability to meet its financial obligations. The
Company constantly monitors its operations and cash flows to ensure that its current and future
obligations will be met. The Company believes that its current sources of liquidity are sufficient to
cover its currently known short and long-term cash obligations.
The maturities of the Company’s financial liabilities are as follows:
December 31, December 31,
2022 Maturity 2021 Maturity
Accounts payable and accrued liabilities $ 9,583 < 1 year $ 7,417 < 1 year
Current portion of debt 2,877 < 1 year 29,137 < 1 year
Debt 16,458 2023-2026 5,214 2022-2025
Lease obligations 5,187 2023-2033 4,281 2022-2030
Other long-term liabilities 1,229 2023-2024 1,170 2022-2024
Credit risk
Credit risk is defined as the risk of financial loss to the Company if a counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Company’s cash,
trade accounts receivable and long-term receivables from companies under common control. The
Company’s maximum exposure to credit risk is the value of its current and non-current accounts
receivable of $10.9 million (December 31, 2021 – $9.0 million). The allowance for doubtful accounts
was $2.5 million at December 31, 2022 (December 31, 2021 – $4.2 million).
144
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
32
13. Capital disclosures:
The Company’s objectives in managing its liquidity and capital are:
• To safeguard the Company’s ability to continue as a going concern
• Provide financial capacity and flexibility to meet its strategic objectives
• To provide an adequate return to shareholders commensurate with the level of risk
• Return excess cash through dividends
The capital of the Company consists of items included in shareholder deficiency, deferred gain, and
debt, net of cash and cash equivalents as follows:
December 31, December 31,
2022 2021
Liquidity:
Cash $ 12,679 $ 18,827
Undrawn credit facilities (note 8) 10,000 10,000
Total liquidity $ 22,679 $ 28,827
Capitalization:
Debt $ 19,335 $ 34,351
Total debt $ 19,335 $ 34,351
Deferred gain $ 222,020 $ 224,847
Shareholder deficiency (248,579) (260,501)
$ (26,559) $ (35,654)
The Company manages its capital mainly through the periodic sales of Class B Units and Class 2 GP
Units, accumulated deficit, as well as through the use of short-term financing. The Company maintains
formal policies to manage capital. Liquidity and capital structure are managed by adjusting for changes
to economic conditions, understanding the underlying risks inherent in its operations and managing the
capital requirements to maintain and grow its operations.
The Company is not subject to any statutory capital requirements and has no commitments to sell or
otherwise issue common shares.
The Company’s credit facility includes a $10.0 million secured line of credit which is subject to certain
financial covenants.
The Company’s long-term debt includes credit facility agreements that are subject to certain financial
covenants (note 8).
145
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
33
14. Income taxes:
Income tax expense as reported differs from the amount that would be computed by applying the
combined Federal and Provincial statutory income tax rates to earnings before income taxes. The
reasons for the differences are as follows:
2022 2021
Earnings (loss) before income taxes $ 16,053 $ (2,230)
Combined Canadian federal and provincial tax rates 26.8% 26.8%
Computed expected tax expense 4,302 (598)
Increased (reduced) by:
Permanent differences 81 5
Fair value adjustment on BP Canada LP units liability (541) 6,753
Valuation allowance on investment in BP Royalties LP 281 (2,744)
Differences from changes in statutory rates and other 17 (168)
Other (9) (193)
Income tax expense $ 4,131 $ 3,055
BPI’s deferred income tax expense is primarily comprised of temporary differences related to the
following:
2022 2021
Temporary differences:
Deferred gain $ 751 $ 763
Deferred revenue 372 237
Non-capital loss carryforwards 489 (126)
Other 641 (139)
Deferred income tax expense $ 2,253 $ 735
The tax effects of temporary differences that give rise to significant portions of the deferred income tax
assets and liabilities are:
December 31, December 31,
2022 2021
Deferred income tax assets:
Deferred gain $ 59,492 $ 60,243
Deferred revenue 1,041 1,413
Non-capital loss carryforwards 1,394 1,883
Other 1,789 2,430
Deferred income tax asset $ 63,716 $ 65,969
The Company believes that it is probable that the results of future operations will generate sufficient
taxable income to realize the above noted deferred income tax assets. Deferred tax assets that have
not been recognized as part of the above was $0.7 million relating to the deductible temporary difference
relating to the fair value adjustment on BP Royalties LP.
146
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
34
15. Share capital:
The Company has an unlimited number of Common Shares without par value authorized of which 98,087
were issued and outstanding as at December 31, 2022 and 2021.
16. Other expenses:
The following are the components of other expenses:
December 31, December 31,
2022 2021
Bad debt (recovery)
expense
(1)
$ (1,110) $ 450
Office, rent and utilities
(2)
895 680
Impairment of property and equipment and intangible assets
(2)
- 718
Marketing and advertising 1,565 198
Professional fees 418 369
Travel 1,102 479
Research and development 654 318
Other 988 753
$ 4,512 $ 3,965
(1)
In 2022, bad debt expense recovery of $1.1 million was recorded in relation to trade accounts
receivables that were no longer deemed unrecoverable.
(2)
Lansdowne Holdings Ltd. and Theatre District Pizza Ltd. closed its operations in 2021. Related to
the closures, property and equipment of $0.4 million and intangible assets of $0.3 million were
written off in 2021 as these assets no longer provide any economic benefit to BPI (note 6 and note
7). In addition, $0.5 million in closure costs were recorded in Office, rent & utilities and Other
expenses in 2021.
17. Related party and subsidiary transactions:
The following are components of related party and subsidiary transactions:
December 31, December 31,
2022 2021
Accounts receivables due from associated companies $ 19 $ 231
Accounts payable due to associated companies 93 39
Royalty payable to Royalties LP 3,330 2,602
Distributions payable to Holdings LP 1,042 820
147
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
35
17. Related party and subsidiary transactions (continued):
18. Supplemental cash flow information:
(a) Change in non-cash operating items:
2022 2021
Accounts receivable
$
(2,505)
$
5,280
Prepaid expenses and other current assets
(18)
56
Advertising fund restricted assets
(2,031)
(1,419)
Accounts payable and accrued liabilities
1,894
(171)
Royalty and distributions payable to Fund
950
(2,991)
Advertising fund restricted liabilities
1,999
(466)
Deferred revenue
(1,572)
(762)
$
(1,283)
$
(473)
(b) Supplementary information:
2022 2021
Non-cash transactions:
Property & equipment additions included in accounts payable
$
(64)
$
(21)
Intangible asset additions included in accounts payable
(251)
(624)
Prepaids transferred to intangible assets as additions
-
191
Amortization of deferred financing fees, net against debt
(219)
(320)
Class B Additional Entitlements received from Royalties LP
-
6
Lease obligation non-cash adjustments
2,018
(827)
19. Seasonality:
Boston Pizza Restaurants experience seasonal fluctuations in Franchise Sales, which are inherent in
the full service restaurant industry in Canada. Seasonal factors such as tourism and better weather allow
Boston Pizza Restaurants to open their patios and generally increase Franchise Sales in the second
and third quarters compared to the first and fourth quarters.
2022
2021
Revenues from a company under common control
$
-
$
503
Management fees paid for services rendered by companies
under common control
500 -
Key management personnel compensation
4,485
4,215
Royalty expense to the Fund
34,200
26,402
Distribution expense to the Fund
11,273
8,752
148
BOSTON PIZZA INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except where noted)
36
20. Subsequent events:
(a) On January 1, 2023, the six Boston Pizza restaurants that permanently closed during 2022 were
removed from the Royalty Pool. Accordingly, the total number of restaurants in the Royalty Pool
decreased to 377 from 383. The net Franchise Sales from the six Boston Pizza Restaurants that
permanently closed is negative $6.8 million. This resulted in negative Royalty and Distribution to the
Fund of $0.4 million. As a result of the Deficiency, BPI did not receive any Additional Entitlements
on January 1, 2023. However, BPI did not lose any of the Additional Entitlements it received in
respect of previous years. Instead, BPI will be required to make-up the cumulative Deficiency for
2020 through 2022 (total of $1.6 million) on future Adjustment Dates by first adding Royalty and
Distribution in an amount equal to the Deficiency before receiving any further Additional
Entitlements.
(b) In the first quarter of 2023, no adjustments were made to the Deficiency related to 2021 since no
new restaurants were opened during 2021 nor were added to the Royalty Pool on January 1, 2022.
UNITHOLDER INFORMATION
BOSTON PIZZA ROYALTIES INCOME FUND
CORPORATE OFFICE
201 – 13571 Commerce Parkway
Richmond, BC, V6V 2R2
INVESTOR RELATIONS
201 – 13571 Commerce Parkway
Richmond, BC, V6V 2R2
Tel: 604-270-1108
Fax: 604-270-4168
Email: [email protected]
Web: www.bpincomefund.com
TRUSTEES OF THE FUND
Marc Guay
Trustee*, Chairman of the Fund
David L. Merrell
Trustee*
Paulina Hiebert
Trustee*
Shelley Williams
Trustee*
TRANSFER AGENT
Computershare Investor Services Inc.
STOCK EXCHANGE LISTING
Toronto Stock Exchange:
BPF.UN
AUDITORS
KPMG LLP
REGISTERED AND RECORDS OFFICE
Borden Ladner Gervais LLP
Registered and Records Office
#1200 – 200 Burrard Street
Vancouver, BC V7X 1T2
DIRECTORS OF BOSTON PIZZA GP INC. –
THE MANAGING GENERAL PARTNER OF BOSTON PIZZA
ROYALTIES LIMITED PARTNERSHIP
Marc Guay
Director*
David L. Merrell
Director*
Paulina Hiebert
Director*
Shelley Williams
Director*
Jordan Holm
Director
President
Michael Harbinson
Director
Chief Financial Officer
* Audit Committee and Governance, Nominating and Compensation Committee
® Boston Pizza Royalties Limited Partnership. All Boston Pizza registered Canadian trademarks and unregistered Canadian trademarks containing the words “Boston”, “BP”, and/or
“Pizza” are trademarks owned by the Boston Pizza Royalties Limited Partnership and licensed by the Boston Pizza Royalties Limited Partnership to Boston Pizza International Inc.
Boston Pizza Foundation and MyBP are registered trademarks of Boston Pizza Royalties Limited Partnership, used under license. Pasta Tuesday is a registered trademark of Boston
Pizza International Inc., used under license. © Boston Pizza International Inc. 2023.
