Consolidated Financial Statements of
BOSTON PIZZA INTERNATIONAL INC.
Years ended December 31, 2022 and 2021
KPMG LLP
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KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
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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.
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
.
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.
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
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
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.
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)
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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).
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.
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.
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.
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
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.
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).
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).
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.
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
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
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.
