BOYD GROUP INCOME FUND
2018 Annual Report
BOYD GROUP INCOME FUND
2018 Annual Report
Table of Contents
Report to Unitholders……..…………………………………………….……..….
3
Chairman’s Message………………..………………………………….……..….
5
Management’s Discussion & Analysis……………………………..…………
Certification of Annual Filings …………..……………………………..…………
Consolidated Financial Statements
Management’s Responsibility for Financial Reporting…………...……
Independent Auditor’s Report………………………………………….…
Consolidated Statements of Financial Position………………………...
Consolidated Statements of Changes in Equity….………...………….
Consolidated Statements of Earnings……….………………………….
Consolidated Statements of Comprehensive Earnings………....…….
Consolidated Statements of Cash Flows…………………………….…
Notes to Consolidated Financial Statements………..………………....
Board of Trustees………………………………………………………………….
Corporate Directory……………………………………………………….……….
Unitholder Information……………………………………………………………..
6-43
44-47
49
50-52
53
54
55
55
56
57-90
91-92
93
94
2
BOYD GROUP INCOME FUND
2018 REPORT TO UNITHOLDERS
To our Unitholders,
In 2018, the Fund was able to achieve record revenue of $1.9 billion and Adjusted EBITDA1 of $173.4 million. In addition,
growth during this year and over the past three years remains on track to reach our long-term goal of doubling the size of the
business based on revenues on a constant currency basis during the five-year period ending in 2020. The Fund once again
successfully delivered meaningful increases in revenue, Adjusted EBITDA1 and Adjusted net earnings1.
As the industry continues to evolve and the shortage of technicians continues, we are investing in our business and our
people. During 2018, we completed our investment and training for company-wide diagnostic repair scanning technology,
which allows us to ensure that all damage is identified and enables us to complete high quality repairs. We also rolled out
an enhanced benefit program for our U.S. employees, funded by a portion of the tax savings from U.S. tax reform. In
addition, we continue to invest in the technology, equipment and training programs for our employees to ensure they are
equipped for continued operational execution.
During 2018, we added 81 locations, including eight intake centers, and entered into the states of Alabama, Missouri, Texas
and Wisconsin. Subsequent to year-end, we entered into the states of New York and South Carolina. This new location
growth, including entry into new markets, is in line with our strategy of doubling the size of our business by 2020. Our
corporate development team continues to have a healthy pipeline of targets and we remain confident that we will achieve
our long-term growth goal.
Total sales in 2018 were $1.9 billion, an 18.8% increase over the $1.6 billion achieved in 2017. The increase in sales was
largely the result of contributions from new locations, along with same-store sales growth of 4.8%. After adjusting for one
additional selling/production day, same-store sales increased 4.4% on a per day basis.
Adjusted EBITDA1 grew to $173.4 million, or 9.3% of sales, compared with $145.6 million, or 9.3% of sales in 2017.
Contributions from new locations and same-store sales growth contributed to the 19.1% increase. Boyd’s investment in
enhanced benefit programs continues to have a near-term impact on EBITDA margins.
Boyd had net earnings of $77.6 million in 2018, compared to $58.4 million in 2017. Impacting net earnings were fair value
adjustments to financial instruments as a result of unit price increases during the year as well as acquisition and transaction
costs (net of tax). In 2017, these same adjustments occurred, along with an adjustment for the accelerated amortization of
the discount on convertible debt (net of tax) and an adjustment related to income tax expense as a result of U.S. tax reform.
After adjusting for these items, Adjusted net earnings1 for 2018 was $85.6 million or 4.6% of sales. This compares to
adjusted net earnings1 of $58.8 million or 3.7% of sales in 2017. This translated to adjusted net earnings1 of $4.35 per unit,
compared to $3.18 in 2017. Lower taxes due to the U.S. tax rate decrease from approximately 39% to 26% and lower
finance costs due to the redemption of convertible debentures in 2017 were major factors in higher earnings.
In 2018, we generated adjusted distributable cash1 of $154.8 million and paid distributions and dividends of $10.5 million,
resulting in a payout ratio based on adjusted distributable cash1 of 6.8%. This compares with adjusted distributable cash1 of
1 EBITDA, Adjusted EBITDA, distributable cash, adjusted distributable cash, adjusted net earnings and adjusted net earnings per unit are not
recognized measures under International Financial Reporting Standards (“IFRS”). Management believes that in addition to revenue, net earnings
and cash flows, the supplemental measures of distributable cash, adjusted distributable cash, adjusted net earnings, adjusted net earnings per unit,
EBITDA and Adjusted EBITDA are useful as they provide investors with an
indication of earnings from operations and cash available for
distribution, both before and after debt management, productive capacity maintenance and non-recurring and other adjustments. Investors should be
cautioned, however, that EBITDA, Adjusted EBITDA, distributable cash, adjusted distributable cash, adjusted net earnings and adjusted net earnings
per unit should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of the Fund's performance.
Boyd's method of calculating these measures may differ from other public issuers and, accordingly, may not be comparable to similar measures
used by other issuers. For a detailed explanation of how the Fund’s non-GAAP measures are calculated, please refer to the Fund’s MD&A filing for the
period ended December 31, 2018, which can be accessed via the SEDAR Web site (www.sedar.com).
3
$94.5 million and distributions and dividends paid of $9.6 million, resulting in a payout ratio of 10.2% a year ago.
Maintaining a conservative payout ratio continues to be a priority to ensure that we have the resources to take advantage of
the significant consolidation opportunities in our industry. Nothwithstanding our conservative distribution and payout ratio
strategy, we again increased distributions in November 2018, our 11th consecutive year of distribution increases. Unitholders
now receive an annualized payment of $0.54, a 2.3% increase over the annualized distribution set in November 2017 of
$0.528.
With respect to the balance sheet at December 31, 2018, the Fund held total debt, net of cash, of $232.1 million, compared
to $219.1 million at December 31, 2017. Cash flow from operations, before considering working capital changes, was
$146.5 million for the year ended December 31, 2018 compared with $116.6 million for 2017. The increase reflects higher
Adjusted EBITDA. Management believes that the Fund’s capital resources are sufficient to meet growth, working capital,
capital expenditure and distribution requirements.
We remain confident in our ability to achieve our long-term goal of doubling our business by 2020, compared to 2015 on a
constant currency basis. We are well-positioned to take advantage of the industry trends of consolidation and have ample
“dry powder” with over $300 million in cash and availability in our credit facility to act on opportunities. As well, the
WOW Operating Way continues to be an important and successful component of our operating model that represents our
key to continuous improvement and sustainable operating performance.
On behalf of the Trustees of the Boyd Group Income Fund and Boyd Group employees, thank you for your continued
support.
Sincerely,
(signed)
Brock Bulbuck
Chief Executive Officer
4
BOYD GROUP INCOME FUND
2018 CHAIRMAN’S MESSAGE
To our Unitholders,
The Fund continues to focus on value creation for unitholders through a commitment to innovation and continuous
improvement, customer service and respect for customers and employees alike. These focus areas remain critical to
continued success for the Fund, especially as it faces rapid change in vehicle technologies. The Board remains confident in
Management’s ability to face these challenges and continue to execute the long-term growth strategy, including doubling the
size of the business by 2020. The Fund’s track record is strong, as demonstrated by the fact the Fund has now achieved the
best or second best 10-year performance on the TSX for the fourth year in a row.
The Board of Trustees is committed to effective oversight of the Fund in the context of a changing world. To this end,
during the past year the Board has worked to develop and formalize a number of additional good governance practices. For
example, the Board of Trustees developed and approved a Board Composition, Diversity and Renewal Policy, which
recognizes the many benefits of having a diverse board with fresh perspectives. This policy will only enhance the focus the
Board of Trustees has had on building a board with diverse experiences and backgrounds over the last several years.
The Board also continues to support management progress in the evolving area of environmental, social and governance
reporting and monitoring. This resulted in a number of governance and social policies being made publicly available during
2018 on the Fund’s website. It also has resulted in more robust internal reporting on various metrics in the areas of
environmental and social matters.
The Board of Trustees, through the Compensation Committee, has advanced compensation practices for executives of the
Fund, to increase alignment between unitholders and management. Compensation practices are now further aligned with the
strategic objectives of the Fund through adoption of short-term and long-term incentive plans, which are linked to specific
performance targets for the Fund. In addition, the Fund’s compensation programs now include elements such as share-based
bonuses, cliff vesting and clawback provisions in order to keep pace with compensation best practices. For greater
accountability in the area of compensation, the Fund’s unitholders will this year be asked to vote on an advisory basis,
whether they support the compensation practices as outlined in the Fund’s information circular.
On behalf of the Trustees of the Boyd Group Income Fund, I would like to thank the management team and all employees
for their continued commitment and hard work, and to our stakeholders for their continued support. We look forward to
another good year in 2019.
Sincerely,
(signed)
Allan Davis
Chairman
5
Management’s Discussion & Analysis
OVERVIEW
Boyd Group Income Fund (the “Fund”), through its operating company, The Boyd Group Inc. and its subsidiaries (“Boyd”
or the “Company”), is one of the largest operators of non-franchised collision repair centers in North America in terms of
number of locations and sales. The Company currently operates locations in five Canadian provinces under the trade name
Boyd Autobody & Glass and Assured Automotive, as well as in 27 U.S. states under the trade name Gerber Collision &
Glass. The Company uses newly acquired brand names during a transition period until acquired locations have been
rebranded. The Company is also a major retail auto glass operator in the U.S. with locations across 34 U.S. states under the
trade names Gerber Collision & Glass, Glass America, Auto Glass Service, Auto Glass Authority and Autoglassonly.com.
The Company also operates a third party administrator, Gerber National Claims Services (“GNCS”), that offers glass,
emergency roadside and first notice of loss services. GNCS has approximately 5,500 affiliated glass provider locations and
4,600 affiliated emergency roadside services providers throughout the U.S. The following is a geographic breakdown of the
collision repair locations, including intake centers, and trade names.
48
locations
Alberta
Manitoba
British Columbia
Saskatchewan
15
15
14
4
81
locations
Ontario
81
482
locations
Maryland
Oregon
T ennessee
Pennsylvania
Missouri
Oklahoma
Utah
Nevada
Alabama
Idaho
Kansas
Kentucky
South Carolina
10
10
9
7
5
5
5
4
2
1
1
1
1
Florida
Illinois
Michigan
North Carolina
Georgia
Ohio
Washington
Indiana
Arizona
Colorado
New York
Wisconsin
Louisiana
T exas
62
61
58
29
28
28
28
27
22
19
18
17
12
12
The ab o ve numb ers includ e 3 5 int ake lo catio ns
The ab o ve numb ers includ e 11 intake lo cat io ns
Two fleet lo cat io ns p revio us ly o mitt ed f ro m the ab o ve t o tals have no w b een
includ ed . Thes e are co -lo cat ed wit h co llis io n rep air cent ers .
Boyd provides collision repair services to insurance companies, individual vehicle owners, as well as fleet and lease
customers, with a high percentage of the Company’s revenue being derived from insurance-paid collision repair services. In
Canada, government-owned insurers operating in Manitoba, Saskatchewan and British Columbia dominate the insurance-
paid collision repair markets in which they operate. In the U.S. and Canadian markets other than Manitoba and
Saskatchewan, private insurance carriers compete for consumer policyholders, and in many cases significantly influence the
choice of collision repairer through Direct Repair Programs (“DRP’s”).
The Fund’s units trade on the Toronto Stock Exchange under the symbol TSX: BYD.UN.
The following review of the Fund’s operating and financial results for the year ended December 31, 2018, including material
transactions and events up to and including March 20, 2019, as well as management’s expectations for the year ahead,
should be read in conjunction with the annual audited consolidated financial statements of Boyd Group Income Fund for the
year ended December 31, 2018, included on pages 48 to 91 of this report, and as filed on SEDAR at www.sedar.com.
6
SIGNIFICANT EVENTS
On January 2, 2018, the Fund completed the settlement of the unit options issued on January 2, 2008. As a result of the
settlement, 150,000 units were issued at an exercise price of $2.70. The fair value of the unit options at settlement was
$14.7 million.
On September 15, 2018, certain key executives provided irrevocable notice that the unit options issued to executives on
January 2, 2009 would be exercised, which resulted in the issuance of 150,000 units at an exercise price of $3.14 on
November 26, 2018. The fair value of the unit options at settlement was $15.4 million.
On January 31, 2019, the call option transaction to acquire the 30% non-controlling interest in Glass America LLC held by
GAJV Holdings Inc. was completed, and Gerber Glass LLC acquired the 30% non-controlling interest in Glass America
LLC.
The Fund added 115 new collision locations since January 1, 2018 as follows:
7
Location
Lawrenceville, GA
Collier County, FL (2 locations)
Sudbury, ON (4 locations)
Falcon, CO
Date
January 12, 2018
January 19, 2018
January 31, 2018
February 20, 2018
February 23, 2018 Dallas, TX (3 locations)
Seattle, WA (3 locations)
April 17, 2018
Schaumburg, IL
May 1, 2018
Merrillville, IN
May 8, 2018
Alexandria, LA
May 18, 2018
Atlanta, GA (2 locations)
May 25, 2018
Bradford, ON
May 28, 2018
Orland Park, IL
June 1, 2018
Chicago, IL
June 8, 2018
Elk Grove Village, IL
June 27, 2018
Aurora, ON
July 3, 2018
Brunswick, OH
July 6, 2018
Nanaimo, BC
July 9, 2018
Elkhart, IN
July 10, 2018
Bessemer & Birmingham, AL
August 3, 2018
Kenosha, WI
August 3, 2018
September 21, 2018 Dundas, ON
September 27, 2018 Lafayette, LA
Kennewick, WA
October 10, 2018
Springfield, IL
October 10, 2018
Jacksonville, FL
October 10, 2018
Saskatoon, SK (2 locations)
October 12, 2018
Turtle Creek, PA
October 15, 2018
Brownsburg & Greenwood, IN
October 15, 2018
November 1, 2018 Kansas City, MO (5 locations)
November 1, 2018 Verona, PA
November 5, 2018 LaGrange, GA
November 14, 2018 Palatka, FL
November 30, 2018 West Hawksbury, ON
November 30, 2018
Wisconsin & Northern Illinois
(18 locations including 2 intake centers)
Previously operated as
n/a start-up
Autocraft Enterprises and Autocraft Naples
Regent Autobody
Falcon Collision Center
Earth Collision Center
Professional Collision Group
n/a intake center
n/a intake center
Kyle's Collision Center
Cherokee Collision Center
Chico's Collision
n/a intake center
Brown's Auto Construction
Owner's Choice Collision
GaryRay Collision
Shade's Auto Body
Stone Bros. Auto Body and Auto Wrecking
Duncan RV Repair
C&M Collision Center
Jay-Bee Collision Repair Center
Terry's Autobody
n/a start-up
SonShine Collision Services
Dick Taylor Collision Services
n/a intake center
Nutana Collision
Johnny Mock's Auto Body Shop
Golden Chassis
A&B Body Shop, Inc.
n/a start-up
n/a start-up
n/a intake center
Marchildon Autobody
Gates Collision Centers
n/a start-up
December 1, 2018 Winnipeg, MB
n/a intake center
December 3, 2018 McDonough, GA
December 11, 2018 Albany, OR
Pacific Auto Body & Paint
December 14, 2018 Central & Western Regions, TX (9 locations) Paceline Collision Centers
December 19, 2018 Jacksonville, NC
December 28, 2018 Lake Havasu City, AZ
January 1, 2019
January 9, 2019
January 11, 2019
February 28, 2019 New York (18 locations)
Michigan (11 locations)
March 8, 2019
Guelph, ON
March 15, 2019
Richland, WA
March 18, 2019
Stevenson Toyota Collision
n/a start-up
n/a intake center
Bob Johnson's Body Shop
Lake Pleasant Collision Center
Carubba Collision
Dusty's, Whitney's and Wright Brothers Collision
Majestic Collision
Atomic Auto Body and Detail
Union City, GA
Cayce, SC
Peoria, AZ
8
OUTLOOK
Boyd continues to execute on its growth strategy. During 2018, the Company added 81 locations, while at the same time
achieving organic growth through same-store sales increases of 4.8%.
Looking forward, the Company will continue to pursue accretive growth through a combination of organic growth (same-
store sales growth) as well as acquisitions and new store development. Acquisitions will include both single location
acquisitions as well as multi-location acquisitions. Combined, this strategy is expected to double the size of the business and
revenues (on a constant currency basis) during the five-year period ending in 2020, implying an average annual growth rate
of 15%. With prudent financial management and its strong balance sheet, Boyd is also well-positioned to take advantage of
large acquisition opportunities, should they arise, which could accelerate the time frame to double its size. It is expected that
this growth can be achieved while continuing to be disciplined and selective in the identification and assessment of all
acquisition opportunities.
As performance based DRP programs with insurance companies continue to develop and evolve, it is becoming increasingly
important that top performing collision repairers, including Boyd, continue to drive towards higher levels of operating
performance as measured primarily by customer satisfaction ratings, repair cycle times and average cost of repair. To this
end, Boyd will continue to make investments to enhance its processes and operational performance.
The enhanced benefit program, which was funded by a portion of the tax savings realized from U.S. Tax Reform, along with
other people initiatives put in place are having some impact. Ongoing investments in technology, equipment and training
are contributing to continued operational execution. However, technician shortage remains a constraint.
With respect to the trade dispute which began in 2018, based on currently available information and tariffs announced to
date, there should be minimal impact, if any, on Boyd’s business, although this remains subject to change depending on the
outcome of further global tariff discussions.
On January 1, 2019, Boyd will adopt IFRS 16, Leases, which will bring most leases onto the statement of financial position
through recognition of right-of-use assets and lease liabilities. The adoption of this standard will have a significant impact
on Boyd’s consolidated statement of financial position, as well as a decrease in operating expenses and an increase in
depreciation expense and finance costs as a result of the depreciation of the right-of-use assets and accretion expenses on the
lease liability. The implementation of this standard will not have any impact on net cash flows.
Management remains confident in its business model and its ability to increase market share by expanding its presence in
North America through strategic acquisitions alongside organic growth from Boyd’s existing operations. Accretive growth
remains the Company’s focus whether it is through organic growth or acquisitions. The North American collision repair
industry remains highly fragmented and offers attractive opportunities for industry leaders to build value through focused
consolidation and economies of scale. As a growth company, Boyd’s objective continues to be to maintain a conservative
distribution policy that will provide the financial flexibility necessary to support growth initiatives while gradually
increasing distributions over time. The Company remains confident in its management team, systems and experience. This,
along with a strong statement of financial position and financing options, positions Boyd well for success into the future.
BUSINESS ENVIRONMENT & STRATEGY
The collision repair industry in North America is estimated by Boyd to represent approximately $30 to $40 billion U.S. in
annual revenue. The industry is highly fragmented, consisting primarily of small independent family owned businesses
operating in local markets. It is estimated that car dealerships have approximately 19% of the total market. It is believed
that multi-unit collision repair operators with greater than $20 million in annual revenues (including multi-unit car
dealerships), now have approximately 27% of the total market. In late 2018, two of the four largest multi-location collision
repairers announced a merger, making the combined entity more than twice the current size of Boyd in terms of revenue.
Customer relationship dynamics in the Company’s principal markets differ from region to region. In three of the Canadian
provinces where Boyd operates, government-owned insurance companies have, by legislation, either exclusive or semi-
exclusive rights to provide insurance to automobile owners. Although Boyd’s services in these markets are predominantly
paid for by government-owned insurance companies, these insurers do not typically refer insured automobile owners to
specific collision repair centers. In these markets Boyd focuses its marketing to attract business from individual vehicle
owners primarily through consumer based advertising. Boyd manages relationships in the government-owned insurance
markets through active participation in industry associations.
9
In Alberta, British Columbia, Ontario and in the United States, where private insurers operate, a greater emphasis is placed
on establishing and maintaining DRP’s and other referral arrangements with insurance, fleet and lease companies. DRP’s
are established between insurance companies and collision repair shops to better manage automobile repair claims and
increase levels of customer satisfaction. Insurance, fleet and lease companies select collision repair operators to participate
in their programs based on integrity, convenience and physical appearance of the facility, quality of work, customer service,
cost of repair, cycle time and other key performance metrics. There is a continuing trend among major insurers in both the
public and private insurance markets towards using performance-based criteria for selecting collision repair partners and for
referring work to them. Local and regional DRP’s, and more recently national and self-managed DRP relationships,
represent an opportunity for Boyd to increase its business. Insurers have also moved to consolidate DRP repair volumes
with a fewer number of repair shops. There is some preference among some insurance carriers to do business with multi-
location collision repairers in order to reduce the number and complexity of contacts necessary to manage their networks of
collision repair providers and to achieve a higher level of consistent performance. Boyd continues to develop and strengthen
its DRP relationships with insurance carriers in both Canada and the United States and believes it is well positioned to take
advantage of these trends.
In addition, Boyd has used consumer based advertising in some of its markets to complement and supplement its DRP
growth strategies. The Company believes this strategy is effective in increasing its brand awareness and overall sales. Boyd
plans to continue this strategy and may expand it into other Canadian and U.S. markets, as it achieves sufficient critical mass
in these other markets to do so.
As described further under “Business Risks and Uncertainties”, operating results are expected to be subject to fluctuations
due to a variety of factors including changes in customer purchasing patterns, pricing by insurance companies, general
operating effectiveness, automobile technologies, availability of qualified employees, general and regional economic
downturns, unemployment rates and weather conditions. A negative economic climate has the potential to affect results
negatively. The Fund has worked to mitigate this risk by continuing to focus on meeting insurance companies’ performance
requirements, and in doing so, grow market share.
Boyd’s primary strategy is to continue to focus on maximizing its opportunities through a commitment to:
Use of best practices, economies of scale and infrastructure and systems to enhance profitability and achieve
operational excellence;
Expense management through a focus on cost containment and efficiency improvements;
Optimizing returns from existing operations by achieving same-store sales growth; and
Growing the business through single location and multi-location acquisitions, along with new location
development.
Through these strategies, Boyd expects to generate growth sufficient to double the size of its business (measured against its
2015 revenue on a constant currency basis) over a five-year period, implying an average annual growth rate of 15%.
10
BUSINESS STRATEGY
Operational
excellence
Expense
management
New location and
acquisition growth
Operational Excellence
Same-store sales
growth and optimize
returns from existing
operations
Operational excellence has been a key component of Boyd’s past success and has contributed to the Company being viewed
as an industry leading service provider. Delivering on our customers’ expectations related to cost of repair, time to repair,
quality and customer service are critical to being successful and being rewarded with same-store sales growth. The
Company’s commitment to operational excellence is embodied in its mission and goal, which is condensed into a top of
mind cheer for its employees which is ‘Wow every customer, be the best’. In 2015, Boyd rolled out and implemented its
Wow Operating Way process improvement initiative which is now in place at all of its locations, except newly acquired
locations, where it will be implemented as part of acquisition integration. The Wow Operating Way is a repair planning and
execution methodology that drives excellence in customer satisfaction, repair cycle times and operational metrics.
Boyd also conducts extensive customer satisfaction polling at all operating locations to assist in keeping customer
satisfaction at the forefront of its mandate.
Boyd will also continue to invest in its infrastructure, process improvement initiatives and IT systems to contribute to high
quality service to its customers and improved operational performance.
11
Expense Management
Boyd continues to manage its operating expenses as a percentage of sales. By working continuously to identify cost savings
and to achieve same-store sales growth, Boyd will continue to manage this expense ratio. Operating expenses have a high
fixed component and therefore same-store sales growth contributes to a lower percentage of operating expenses to sales.
Same-Store Sales / Optimize Returns
Increasing same-store sales and running shops at or near capacity has a positive impact on financial performance. Boyd
continues to seek opportunities to help grow same-store sales.
New Location and Acquisition Growth
In line with stated growth strategies, Boyd was successful in opening 81 new locations in 2018. Boyd will continue to
pursue accretive growth through a combination of organic growth (same-store sales growth) as well as acquisitions and new
store development. Acquisitions will include both single-location acquisitions as well as multi-location acquisitions.
Combined, Boyd expects this strategy to generate growth sufficient to double the size of its business (measured against its
2015 revenue on a constant currency basis) over the five year period from 2015-2020, implying an average annual growth
rate of 15%.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
Statements made in this annual report, other than those concerning historical financial information, may be forward-looking
and therefore subject to various risks and uncertainties. Some forward-looking statements may be identified by words like
“may”, “will”, “anticipate”, “estimate”, “expect”, “intend”, or “continue” or the negative thereof or similar variations.
Readers are cautioned not to place undue reliance on such statements, as actual results may differ materially from those
expressed or implied in such statements.
The following table outlines forward-looking information included in this MD&A:
Forward-looking Information
The stated objective of generating
growth sufficient to double the size of
the business over the five-year period
ending in 2020
Key Assumptions
Acquisition opportunities continue to be
available and are at acceptable and
accretive prices
Financing options continue to be
available at reasonable rates and on
acceptable terms and conditions
New and existing customer relationships
are expected to provide acceptable levels
of revenue opportunities
Most Relevant Risk Factors
Acquisition market conditions change and repair shop owner
demographic trends change
Credit and refinancing conditions prevent or restrict the ability
of the Company to continue growth strategies
Changes in market conditions and operating environment
Significant declines in the number of insurance claims
Integration of new stores is not accomplished as planned
Anticipated operating results would be
accretive to overall Company results
Increased competition which prevents achievement of
acquisition and revenue goals
Growth is defined as revenue on a
constant currency basis
12
to
Forward-looking Information Key Assumptions
Boyd remains confident in its business
model
increase market share by
expanding its presence in North America
through
accretive
acquisitions alongside organic growth
from Boyd’s existing operations
strategic
and
Continued stability in economic
conditions and employment rates
Pricing in the industry remains stable
The Company’s customer and supplier
relationships provide it with competitive
advantages to increase sales over time
Market share growth will more than
offset systemic changes in the industry
and environment
Anticipated operating results would be
accretive to overall Company results
Stated objective to gradually increase
distributions over time
Growing profitability of the Company
and its subsidiaries
In 2019, the Company expects to make
capital expenditures (excluding
those
related to acquisition and development of
new locations) within the range of 1.5%
to 1.7% of sales
The continued and increasing ability of
the Company to generate cash available
for distribution
Balance sheet strength and flexibility is
maintained and the distribution level is
manageable taking into consideration
bank covenants, growth requirements
and maintaining a distribution level that
is supportable over time
No change in the Fund’s structure
The actual cost for these capital
expenditures agrees with the original
estimate
The purchase, delivery and installation of
the capital items is consistent with the
estimated timeline
No other new capital requirements are
identified or required during the period
All identified capital requirements are
required during the period
Most Relevant Risk Factors
Economic conditions deteriorate
Loss of one or more key customers or loss of significant volume
from any customer
Decline in the number of insurance claims
Inability of the Company to pass cost increases to customers
over time
Increased competition which may prevent achievement of
revenue goals
Changes in market conditions and operating environment
Changes in weather conditions
The Fund is dependent upon the operating results of the
Company and its ability to pay interest and dividends to the
Fund
Economic conditions deteriorate
Changes in weather conditions
Decline in the number of insurance claims
Loss of one or more key customers or loss of significant volume
from any customer
Changes in government regulation
Expected actual expenditures could be above or below 1.5%
to 1.7% of sales
The timing of the expenditures could occur on a different
timeline
The Fund may identify additional capital expenditure needs that
were not originally anticipated
The Fund may identify capital expenditure needs that were
originally anticipated; however, are no longer required or
required on a different timeline
We caution that the foregoing table contains what the Fund believes are the material forward-looking statements and is not
exhaustive. Therefore when relying on forward-looking statements, investors and others should refer to the “Risk Factors”
section of the Fund’s Annual Information Form, the “Business Risks and Uncertainties” and other sections of our
Management’s Discussion and Analysis and our other periodic filings with Canadian securities regulatory authorities. All
forward-looking statements presented herein should be considered in conjunction with such filings.
13
SELECTED ANNUAL INFORMATION
The following table summarizes selected financial information for the Fund over the prior three years:
For the years ended December 31,
(thousands of Canadian dollars, except per unit amounts)
Sales
Net earnings
Adjusted net earnings
Basic earnings per unit
Diluted earnings per unit
Adjusted net earnings per unit
Cash distributions per unit declared:
Trust unit distributions
As at December 31,
(thousands of Canadian dollars)
2018
2017
2016
$
1,864,613
$
1,569,448
$
1,387,119
$
77,639
$
58,435
$
30,365
$
85,607
$
58,833
$
52,646
$
$
3.944
3.785
$
$
3.160
2.808
$
$
1.684
1.420
$
4.349
$
3.182
$
2.920
$
0.530
$
0.518
$
0.506
2018
2017
2016
Total assets
$
1,233,483
$
1,011,393
$
737,496
Total long-term financial liabilities
$
319,720
$
329,756
$
252,531
Acquisitions and new single location growth had the largest impact on growing sales from 2016 to present. The primary
driver in sales growth in 2016 was the addition of 58 locations through a combination of single locations and regional
chains. Same-store sales growth in excess of 5% also contributed to higher sales in 2016. In 2017, sales growth was driven
primarily by the addition of 105 locations, including 68 locations added as part of the Assured acquisition. In 2018, sales
growth was driven primarily by the addition of 81 locations, as well as same-store sales growth of 4.8%.
The net earnings reported were impacted by fair value adjustments related to financial instruments that mainly arise as the
Fund’s unit price increases. Excluding these adjustments, net earnings would have increased each year as a result of the
increase in sales and gross profit.
The change in total assets and total long-term financial liabilities was significantly impacted by acquisitions. In addition to
these changes, fluctuations in total assets have primarily related to increases in property, plant and equipment, intangible
assets and goodwill as a result of new location growth. Long-term financial liabilities have primarily been impacted by
financing of acquisitions. The recognition of exchangeable Class A common shares, unit based payment obligations,
convertible debenture conversion features and the non-controlling interest put options and call liability as financial liabilities
under IFRS has also contributed to the growth in long-term financial liabilities. The increase in long-term financial
liabilities in 2017 was primarily due to draws on the revolving credit facility to finance acquisitions, partially offset by the
conversion and redemption of the 2014 Debentures into units in November 2017. The decrease in long-term financial
liabilities in 2018 was primarily the result of the settlement of unit options and the reclassification of the non-controlling
interest call liability, partially offset by draws on the revolving credit facility to finance acquisitions.
Since the end of 2007, the Fund has increased monthly distributions to unitholders and Boyd Group Holdings Inc. has
increased dividends to its Class A shareholders annually such that as of March 20, 2019 the distribution/dividend rate is
$0.045 per month or $0.540 on an annualized basis.
14
BOYD GROUP INCOME FUND
Boyd Group Income Fund (the “Fund”), is an unincorporated, open-ended mutual fund trust. The Fund owns 100% of the
Class I common shares and 55% of the subordinated notes issued by a U.S. subsidiary of the Company, The Boyd Group
(U.S.) Inc. (the “Notes”). The remaining 45% of the Notes are owned by the Company. Distributions to unitholders, when
paid by the Fund, were funded from a combination of interest income earned on the Notes and from dividends on the Class I
common share investment or as a return of capital on Notes. There was no return of capital in 2017 and 2018. The Class I
common shares held by the Fund currently, through March 20, 2019, represent 90.6% of the total common shares of the
Company.
Boyd Group Holdings Inc. (“BGHI”) owns 100% of the Class II common shares issued by the Company. The Class II
common shares currently, through March 20, 2019, represent 9.4% of the common shares of the Company. The share
structure of BGHI at March 20, 2019, consists of 100 million Voting shares, 216,041 Class A common shares and 1,846,822
Class B common shares. The Fund, through the ownership of 70 million or 70% of the Voting shares, has voting control of
BGHI. The remaining 30% is held directly or indirectly by a senior officer of the Fund. Of the 216,041 Class A common
shares, 107,329 are also held directly or indirectly by a senior officer of the Fund with the remaining shares being held by
external third parties. The Class B common shares are all held by Boyd and are issued only upon exchange of Class A
common shares for units of the Fund. Although the Fund has voting control, it did not and continues not to have any
significant economic interest in the activities of BGHI. All dividends received by BGHI from Boyd on the Class II common
shares are passed on as dividends to Class A and B common shareholders of BGHI.
The Fund also holds 162,230 Class IV non-voting, redeemable, retractable preferred shares of the Company issued as a
result of an internal restructuring in 2007, the bought deal public equity offerings completed in 2014, 2013 and 2011, the
convertible debenture offering completed in 2012, the subsequent conversion and redemption of 2012 Debentures into units,
the convertible debenture offering completed in 2014 and the subsequent conversion and redemption of 2014 Debentures
into units.
The consolidated financial statements of the Fund, BGHI and their subsidiaries have been prepared in accordance with
International Financial Reporting Standards and contain the consolidated financial position, results of operations and cash
flows of the Fund, BGHI and the Company and the Company’s subsidiary companies for the year ended December 31,
2018.
NON-GAAP FINANCIAL MEASURES
EBITDA AND ADJUSTED EBITDA
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a calculation defined in International
Financial Reporting Standards (“IFRS”). EBITDA should not be considered an alternative to net earnings in measuring the
performance of the Fund, nor should it be used as an exclusive measure of cash flow. The Fund reports EBITDA and
Adjusted EBITDA because it is a key measure that management uses to evaluate performance of the business and to reward
its employees. EBITDA is also a concept utilized in measuring compliance with debt covenants. EBITDA and Adjusted
EBITDA are measures commonly reported and widely used by investors and lending institutions as an indicator of a
company’s operating performance and ability to incur and service debt, and as a valuation metric. While EBITDA is used to
assist in evaluating the operating performance and debt servicing ability of the Fund, investors are cautioned that EBITDA
and Adjusted EBITDA as reported by the Fund may not be comparable in all instances to EBITDA as reported by other
companies.
The CPA’s Canadian Performance Reporting Board defined standardized EBITDA to foster comparability of the measure
between entities. Standardized EBITDA represents an indication of an entity’s capacity to generate income from operations
before taking into account management’s financing decisions and costs of consuming tangible and intangible capital assets,
which vary according to their vintage, technological age and management’s estimate of their useful life. Accordingly,
standardized EBITDA comprises sales less operating expenses before finance costs, capital asset amortization and
impairment charges, and income taxes. Adjusted EBITDA is calculated to exclude items of an unusual nature that do not
reflect normal or ongoing operations of the Fund and which should not be considered in a valuation metric or should not be
included in assessment of ability to service or incur debt. Included in this category of adjustments are the fair value
adjustments to exchangeable Class A common shares, the fair value adjustments to unit based payment obligations, the fair
value adjustments to convertible debenture conversion features and the fair value adjustments to the non-controlling interest
15
put options and call liability. These items are adjustments that did not have any cash impact on the Fund. Also included as
an adjustment to EBITDA are acquisition and transaction costs which do not relate to the current operating performance of
the business units but are typically costs incurred to expand operations. From time to time, the Fund may make other
adjustments to its Adjusted EBITDA for items that are not expected to recur.
The following is a reconciliation of the Fund’s net earnings to EBITDA and Adjusted EBITDA:
ADJUSTED EBITDA
(thousands of Canadian dollars)
Net earnings
Add:
For the three months ended
December 31,
For the years ended
December 31,
2018
2017
2018
2017
$
29,904
$
23,167
$
77,639
$
58,435
Finance costs
Income tax expense (recovery)
Depreciation of property, plant and equipment
Amortization of intangible assets
2,911
6,771
9,274
4,750
2,792
(4,416)
8,426
3,678
10,283
24,635
34,067
17,674
16,505
18,714
28,057
13,608
Standardized EBITDA
$
53,610
$
33,647
$
164,298
$
135,319
Add:
Fair value adjustments
Acquisition and transaction costs
(8,673)
2,626
7,300
863
4,787
4,298
8,167
2,149
Adjusted EBITDA
$
47,563
$
41,810
$
173,383
$
145,635
ADJUSTED NET EARNINGS
In addition to EBITDA and Adjusted EBITDA, the Fund believes that certain users of financial statements are interested in
understanding net earnings excluding certain fair value adjustments and other unusual or infrequent adjustments. This can
assist these users in comparing current results to historical results that did not include such items. The following is a
reconciliation of the Fund’s net earnings to adjusted net earnings:
(thousands of Canadian dollars, except unit and per unit
amounts)
Net earnings
Add:
Accelerated amortization of discount on
convertible debt (net of tax)
Changes in deferred tax assets and liabilities
resulting from changes in U.S.
substantively enacted tax rates
Fair value adjustments (non-taxable)
Acquisition and transaction costs (net of tax)
For the three months ended
December 31,
For the years ended
December 31,
2018
2017
2018
2017
$
29,904
$
23,167
$
77,639
$
58,435
-
-
-
4,491
-
(8,673)
1,943
(13,571)
7,300
526
-
4,787
3,181
(13,571)
8,167
1,311
Adjusted net earnings
$
23,174
$
17,422
$
85,607
$
58,833
Weighted average number of units
19,732,171
19,216,060
19,684,337
18,489,781
Adjusted net earnings per unit
$
1.174
$
0.907
$
4.349
$
3.182
16
Distributions and Distributable Cash
The Fund and BGHI make monthly distributions, in accordance with their distribution policies, to unitholders of the Fund
and dividends to Class A common shareholders of BGHI of record on the last day of each month, payable on or about the
last business day of the following month. The amount of cash distributed by the Fund is equal to the pro rata share of interest
or principal repayments received on the Notes and distributions received on or in respect of the Class I common shares of
the Company held by the Fund, after deducting expenses of the Fund and any cash redemptions of the Fund during the
period. The amount of cash distributed by BGHI is equal to the pro rata share of dividends received on or in respect of the
Class II common shares of the Company held by BGHI, after deducting expenses of BGHI. All dividends paid or allocated
to unitholders of the Fund or Class A shareholders of BGHI are considered to be eligible dividends for Canadian income tax
purposes.
During 2018, the Fund paid distributions totaling $10.4 million (2017 - $9.5 million) while BGHI paid dividends to Class A
common shareholders during this same period of $117 thousand (2017 - $118 thousand).
Distributable cash is a non-GAAP measure that provides an indication of the Fund’s ability to sustain distributions while
maintaining productive capacity. Distributable cash can be compared to cash flow provided by operating activities, which is
its nearest GAAP measure. In addition, a comparison can also be made to earnings.
The Fund’s distribution level is currently well below cash flow provided by operating activities and adjusted distributable
cash. Excess funds have been retained to grow the business and strengthen the statement of financial position. A
continuation of this trend would permit the Fund to continue to increase distributions over time while maintaining a strong
statement of financial position and executing its growth strategy.
Distributions to unitholders and dividends to the BGHI shareholders were declared and paid as follows:
(thousands of Canadian dollars, except per unit and per share amounts) Distribution per Unit / Distribution Dividend
amount
Record date
Dividend per Share
Payment date
amount
January 31, 2018
February 28, 2018
March 31, 2018
April 30, 2018
May 31, 2018
June 30, 2018
July 31, 2018
August 31, 2018
September 30, 2018
October 31, 2018
November 30, 2018
December 31, 2018
February 26, 2018
March 27, 2018
April 26, 2018
May 29, 2018
June 27, 2018
July 27, 2018
August 29, 2018
September 26, 2018
October 29, 2018
November 28, 2018
December 21, 2018
January 29, 2018
$
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0450
0.0450
$
865
865
866
865
865
866
865
866
866
865
892
892
$
10
10
9
10
10
9
10
10
9
9
10
10
$
0.5300
$
10,438
$
116
17
(thousands of Canadian dollars, except per unit and per share amounts) Distribution per Unit / Distribution Dividend
amount
Record date
Dividend per Share
Payment date
amount
January 31, 2017
February 28, 2017
March 31, 2017
April 30, 2017
May 31, 2017
June 30, 2017
July 31, 2017
August 31, 2017
September 30, 2017
October 31, 2017
November 30, 2017
December 31, 2017
February 24, 2017
March 29, 2017
April 26, 2017
May 29, 2017
June 28, 2017
July 27, 2017
August 29, 2017
September 27, 2017
October 27, 2017
November 28, 2017
December 20, 2017
January 29, 2018
Maintaining Productive Capacity
$
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0440
0.0440
$
776
777
777
777
777
777
800
801
801
801
859
859
$
10
10
10
10
10
10
10
10
10
10
10
10
$
0.5180
$
9,582
$
120
Maintaining productive capacity is defined by Boyd as the maintenance of the Company’s facilities, equipment, signage,
vehicles, systems, brand names and infrastructure. Although most of Boyd’s repair facilities are leased, funds are required
to ensure facilities are properly repaired and maintained to ensure the Company’s physical appearance communicates
Boyd’s standard of professional service and quality. The Company’s need to maintain its facilities and upgrade or replace
equipment, signage, systems and vehicles forms part of the annual cash requirements of the business. The Company
manages these expenditures by annually reviewing and determining its capital budget needs and then authorizing major
expenditures throughout the year based upon individual business cases.
For 2019, the Company expects to make cash capital expenditures (excluding those related to acquisition and development
of new locations) within the range of 1.5% and 1.7% of sales. Emerging vehicle technologies requiring new, specialized
repair equipment, as well as image and property upgrades will contribute to this higher level of budgeted spend for 2019.
Lower than expected capital expenditures during 2018 will result in some of these expenditures being incurred in 2019.
In many circumstances, large equipment expenditures including automobiles, shop equipment and computers can be
financed using either operating or finance leases. Cash spent on maintenance capital expenditures plus the repayment of
operating and finance leases, including the interest thereon, form part of the distributable cash calculations.
Non-recurring and Other Adjustments
Non-recurring and other adjustments may include, but are not limited to, post closure environmental liabilities, restructuring
costs and acquisition and transaction costs. Management is not currently aware of any environmental remediation
requirements. Acquisition and transaction costs are added back to distributable cash as they occur.
Debt Management
In addition to finance lease obligations arranged to finance growth and maintenance expenditures on property and
equipment, the Company has historically utilized long-term debt to finance the expansion of its business, usually through the
acquisition and start-up of collision and glass repair and replacement businesses. Repayments of this debt do not form part
of distributable cash calculations. Boyd’s bank facilities include restrictive covenants, which could limit the Fund’s ability
to distribute cash. These covenants, based upon current financial results, would not prevent the Fund from paying future
distributions at conservative and sustainable levels. These covenants will continue to be monitored in conjunction with any
future anticipated distributions.
18
The following is a standardized and adjusted distributable cash calculation for 2018 and 2017:
Standardized and Adjusted Distributable Cash
(1)
(thousands of Canadian dollars, except per unit and
per share amounts)
December 31,
December 31,
2018
2017
2018
2017
For the three months ended
For the years ended
Cash flow from operating activities before
changes in non-cash working capital items
Changes in non-cash working capital items
Cash flows from operating activities
Less adjustment for:
Sustaining expenditures on plant, software
and equipment (2)
Standardized distributable cash
Standardized distributable cash per average unit
and Class A common share
$
44,506
22,581
67,087
$
38,698
10,375
49,073
$
146,492
34,023
180,515
$
116,606
3,066
119,672
(9,344)
57,743
$
(8,532)
40,541
$
(26,651)
153,864
$
(23,549)
96,123
$
Per average unit and Class A common share
Per diluted unit and Class A common share (5)
$
$
2.895
2.852
$
$
2.085
2.061
$
$
7.730
7.664
$
$
5.135
5.075
Standardized distributable cash from above
Add (deduct) adjustments for:
Acquisition and transaction costs (3)
Proceeds on sale of equipment and software
Principal repayments of finance leases (4)
Payment to non-controlling interest (6)
Adjusted distributable cash
Adjusted distributable cash per average unit and
Class A common share
$
57,743
$
40,541
$
153,864
$
96,123
2,626
62
863
387
4,298
565
2,149
750
(928)
-
59,503
$
(889)
-
40,902
$
(3,906)
-
154,821
$
(4,349)
(221)
94,452
$
Per average unit and Class A common share
Per diluted unit and Class A common share (5)
$
$
2.983
2.939
$
$
2.104
2.080
$
$
7.778
7.712
$
$
5.046
4.986
Distributions and dividends paid
Unitholders
Class A common shareholders
Total distributions and dividends paid
Distributions and dividends paid
Per unit
Per Class A common share
Payout ratio based on standardized
distributable cash
$
$
$
$
2,623
29
2,652
2,461
30
2,491
10,405
117
10,522
$
$
$
$
9,500
118
9,618
$
$
0.133
0.133
$
$
0.130
0.130
$
$
0.529
0.529
$
$
0.517
0.517
4.6%
4.5%
6.1%
6.1%
6.8%
6.8%
10.0%
10.2%
Payout ratio based on adjusted distributable cash
(1) As defined in the non-GAAP financial measures section of the MD&A.
(2)
(3)
Includes sustaining expenditures on plant and equipment, information technology hardware and computer software but excludes capital expenditures
associated with acquisition and development activities including rebranding of acquired locations. In addition to the maintenance capital expenditures
paid with cash, during 2018 the Company acquired a further $2.8 million (2017 - $2.0 million) in capital assets which were financed through finance
leases and did not affect cash flows in the current period.
The Company has added back to distributable cash the costs related to acquisitions.
19
(4) Repayments of these leases represent additional cash requirements to support the productive capacity of the Company and therefore have been
deducted when calculating adjusted distributed cash.
(5)
(6)
Per diluted unit and Class A common share amounts have been calculated in accordance with definitions of dilution and anitdilution contained in IAS
33, Earnings per Share. Diluted distributable cash amounts will differ from average distributable cash amounts on a per unit basis if earnings per unit
calculations show a dilutive impact.
The transfer of cash during the period to the external partners of Glass America, associated with the taxable income and tax liabilities being allocated to
them.
RESULTS OF OPERATIONS
Results of Operations
(thousands of Canadian dollars, except per unit amounts)
For the three months ended
December 31,
% change
2018
2017
For the years ended
December 31,
% change
2017
2018
Sales - Total
Same-store sales - Total (excluding foreign exchange)
495,131
434,621
19.4
6.8
414,619
406,862
1,864,613
1,506,889
18.8
4.8
1,569,448
1,437,900
Gross margin %
Operating expense %
Adjusted EBITDA (1)
Acquisition and transaction costs
Depreciation and amortization
Fair value adjustments
Finance costs
Income tax expense (recovery)
Adjusted net earnings (1)
Adjusted net earnings per unit (1)
Net earnings
Basic earnings per unit
Diluted earnings per unit
Standardized distributable cash (1)
Adjusted distributable cash (1)
44.3
34.7
(2.4)
(1.7)
45.4
35.3
45.2
35.9
47,563
2,626
14,024
(8,673)
2,911
6,771
23,174
1.174
29,904
1.516
1.190
57,743
59,503
13.8
204.3
15.9
N/A
4.3
(253.3)
33.0
29.4
29.1
25.7
0.4
42.4
45.5
41,810
863
12,104
7,300
2,792
(4,416)
17,422
0.907
23,167
1.206
1.185
40,541
40,902
173,383
4,298
51,741
4,787
10,283
24,635
85,607
4.349
77,639
3.944
3.785
153,864
154,821
Distributions and dividends paid
2,652
6.5
2,491
10,522
(1) As defined in the non-GAAP financial measures section of the MD&A.
Sales
(1.3)
(1.6)
19.1
100.0
24.2
N/A
(37.7)
31.6
45.5
36.7
32.9
24.8
34.8
60.1
63.9
9.4
45.8
36.5
145,635
2,149
41,665
8,167
16,505
18,714
58,833
3.182
58,435
3.160
2.808
96,123
94,452
9,618
Sales totaled $1.865 billion for the year ended December 31, 2018, an increase of $295.2 million or 18.8% when compared
to 2017. The increase in sales was the result of the following:
$234.9 million of incremental sales were generated from 174 new locations that were not in operation for the full
comparative period
Same-store sales excluding foreign exchange increased $69.0 million or 4.8% and decreased $2.3 million due to the
translation of same-store sales at a lower U.S. dollar exchange rate. After adjusting for one additional
selling/production day, same-store sales increased 4.4% on a per day basis.
Sales were affected by the closure of under-performing facilities which decreased sales by $6.4 million
20
Same-store sales are calculated by including sales for locations and businesses that have been in operation for the full
comparative period.
Gross Profit
Gross Profit was $842.5 million or 45.2% of sales for the year ended December 31, 2018 compared to $718.4 million or
45.8% of sales for the same period in 2017. Gross profit increased primarily as a result of higher sales due to acquisition
and same-store sales growth compared to the prior period. The gross margin percentage is primarily impacted by a higher
mix of parts sales in relation to labour as well as incremental sales in the Assured business at a lower gross margin.
Assured, which was acquired in July 2017, has lower gross margins due to some higher sales sourcing costs, which are more
than offset by their higher capacity utilization and, in turn, their higher operating leverage. Labour margins declined slightly
due to both the higher direct labour costs associated with new location integration and ramp-up as well as the competitive
labour market. Improved parts margins partially offset these negative impacts.
Operating Expenses
Operating Expenses for the year ended December 31, 2018 increased $96.4 million to $669.1 million from $572.7 million
for the same period of 2017, primarily due to the acquisition of new locations. Excluding the impact of foreign currency
translation which decreased operating expenses by $1.0 million, expenses increased $100.3 million from 2017 primarily as a
result of new locations. Closed locations lowered operating expenses by a combined $2.9 million.
Operating expenses as a percentage of sales were 35.9% for the year ended December 31, 2018, which compared to 36.5%
for the same period in 2017. The decrease as a percentage of sales was primarily due to the impact of higher same-store sales
levels leveraging the fixed component of operating expenses, partially offset by the 0.3%, or 30 basis point impact of the
enhanced benefits for U.S. employees and a 0.1%, or 10 basis point impact of increased training costs in 2018. The lower
operating expense ratios associated with the Assured business as a result of their higher capacity utilization also positively
impacted operating expenses as a percentage of sales.
Acquisition and Transaction Costs
Acquisition and Transaction Costs for the year ended December 31, 2018 were $4.3 million compared to $2.1 million
recorded for the same period of 2017. The costs relate to various acquisitions, including acquisitions from prior periods, as
well as other completed or potential acquisitions. For the year ended December 31, 2018, $1.9 million in acquisition and
transaction costs related to the costs incurred to complete the Glass America call option transaction.
Adjusted EBITDA
Earnings before interest, income taxes, depreciation and amortization, adjusted for the fair value adjustments related to the
exchangeable share liability and unit option liability and non-controlling interest put option and call liability, as well as
acquisition and transaction costs (“Adjusted EBITDA”)1 for the year ended December 31, 2018 totaled $173.4 million or
9.3% of sales compared to Adjusted EBITDA of $145.6 million or 9.3% of sales in the prior year. The $27.8 million
increase was primarily the result of incremental EBITDA contribution from new location and same-store sales growth, as
well as changes in U.S. dollar exchange rates in 2018, which increased Adjusted EBITDA by $0.5 million.
Depreciation and Amortization
Depreciation related to property, plant and equipment totaled $34.1 million or 1.8% of sales for the year ended December
31, 2018, an increase of $6.0 million when compared to the $28.1 million or 1.8% of sales recorded in the same period of
the prior year. The increase was primarily due to acquisition growth as well as investments in capital equipment.
1 As defined in the non-GAAP financial measures section of the MD&A.
21
Amortization of intangible assets for the year ended December 31, 2018 totaled $17.7 million, or 0.9% of sales, an increase
of $4.1 million when compared to the $13.6 million, or 0.9% of sales, expensed for the same period in the prior year. The
increase is primarily the result of the addition of new intangible assets from recent acquisitions.
Fair Value Adjustments
Fair Value Adjustment to Exchangeable Class A Common Shares liability resulted in a non-cash expense of $2.4 million
during 2018 compared to a non-cash expense of $3.1 million in the prior year. The Class A exchangeable shares of BGHI
are exchangeable into units of the Fund. This exchangeable feature results in the shares being presented as financial
liabilities of the Fund. The liability represents the value of the Fund attributable to these shareholders. Exchangeable Class
A shares are measured at the market price of the units of the Fund as of the statement of financial position date. The fair
value adjustment, which increased the liability and resulted in the recording of the related expense, is the result of the
increase in the value of the Fund’s units.
Fair Value Adjustment to Unit Based Payment Obligation liability resulted in a non-cash expense of $4.9 million for 2018
compared to a non-cash expense of $9.8 million in the prior year. Similar to the exchangeable share liability, the unit option
liability is impacted by changes in the value of the Fund’s units. The cost of cash-settled unit-based transactions is measured
at fair value using a Black-Scholes model and expensed over the vesting period with the recognition of a corresponding
liability. The decrease in the liability is primarily the result of the settlement of 150,000 unit options on January 2, 2018 and
the settlement of an additional 150,000 unit options on November 26, 2018, partially offset by the non-cash expenses on the
remaining options, which are primarily the result of the increase in the value of the Fund’s units.
Fair Value Adjustment to Non-controlling Interest Put Option and Call Liability resulted in a non-cash recovery of $2.5
million for 2018 compared to a $5.9 million non-cash recovery in the prior year. The value of the non-controlling interest
call liability has been determined based on completion of the call option transaction on January 31, 2019, resulting in a non-
cash recovery of $1.7 million. The non-controlling interest put option has been calculated based on the Gerber Glass
Company Agreement. Revisions to the EBITDA amount on which the calculation is based resulted in a non-cash recovery
of $0.8 million in 2018.
Finance Costs
Finance Costs of $10.3 million or 0.6% of sales for the year ended December 31, 2018 decreased from $16.5 million or
1.1% of sales for the prior year. During the third quarter of 2017, the Fund provided notice that it would be redeeming the
convertible debentures due October 31, 2021 on November 2, 2017, resulting in a shortened period to maturity, which
increased finance costs by $4.9 million. Finance costs decreased in 2018 due to the conversion and redemption of the 2014
convertible debentures in November 2017, partially offset by draws on the revolving credit facility to fund acquisitions.
Income Taxes
Current and Deferred Income Tax Expense of $24.6 million for the year ended December 31, 2018 compares to an expense
of $18.7 million for 2017. Income tax expense has been impacted by U.S. tax reform, which in 2018 reduced the estimated
blended U.S. federal and state tax rate from 39% to 26% in the U.S., effective January 1, 2018. Income tax expense in 2017
was impacted by a one-time income tax recovery of approximately $13.6 million related to the revaluation of deferred tax
liabilities in the U.S. Income tax expense continues to be impacted by permanent differences such as mark-to-market
adjustments which impacts the tax computed on accounting income.
Net Earnings and Earnings Per Unit
Net Earnings for the year ended December 31, 2018 was $77.6 million or 4.2% of sales compared to $58.4 million or 3.7%
of sales in the prior year. The net earnings amount in 2018 was negatively impacted by fair value adjustments to financial
instruments of $4.8 million, which were primarily due to the increase in unit price during the period, and acquisition and
transaction costs of $3.2 million (net of tax). After adjusting for fair value and other unusual items, Adjusted net earnings1
for 2018 was $85.6 million, or 4.6% of sales. This compares to Adjusted net earnings of $58.8 million or 3.7% of sales in
2017. The increase in the Adjusted net earnings for the year is primarily the result of decreased income tax expense as a
1 As defined in the non-GAAP financial measures section of the MD&A.
22
result of U.S. tax reform, reduced finance costs due to the conversion and redemption of outstanding debentures in November
2017 and the contribution of new location and same-store sales growth, partially offset by increased expenses related to the
enhanced benefits for U.S. employees previously announced.
Basic Earnings Per Unit was $3.944 per unit for the year ended December 31, 2018 compared to $3.160 in 2017. The
increase in basic earnings per unit is primarily attributed to contributions of new location and same-store sales growth and
decreased income tax expense. Diluted earnings per unit was $3.785 for the year ended December 31, 2018 compared to
$2.808 in 2017. Adjusted net earnings per unit1 was $4.349 compared to $3.182 in 2017.
S ummary of Quarterly Results
(in thousands of Canadian
dollars, except per unit am ounts)
2018 Q4
2018 Q3
2018 Q2
2018 Q1
2017 Q4
2017 Q3
2017 Q2
2017 Q1
Sales
$
495,131
$
459,564
$
456,627
$
453,291
$
414,619
$
391,933
$
383,981
$
378,915
Adjusted EBITDA (1)
$
47,563
$
41,203
$
42,494
$
42,123
$
41,810
$
35,561
$
35,478
$
32,786
Net earnings
Basic earnings per unit
Diluted earnings (loss) per unit
$
$
$
29,904
1.516
1.190
$
$
$
16,571
0.842
0.752
$
$
$
12,828
0.652
0.652
$
$
$
18,336
0.932
0.928
$
$
$
23,167
1.206
1.185
$
$
$
19,835
1.067
0.396
$
$
$
421
0.023
(0.078)
$
$
$
15,012
0.831
0.699
Adjusted net earnings (1)
Adjusted net earnings per unit (1)
$
$
23,174
1.174
$
$
20,403
1.037
$
$
21,141
1.075
$
$
20,888
1.062
$
$
17,422
0.907
$
$
12,473
0.671
$
$
15,010
0.831
$
$
13,927
0.771
(1) As defined in the non-GAAP financial measures section of the MD&A.
Sales and adjusted EBITDA have increased in recent quarters due to the acquisition of Assured and other new locations as
well as same-store sales increases.
STATUS AS A SPECIFIED INVESTMENT FLOW-THROUGH AND TAXATION
Under the previous taxation regime for income trusts, the Fund had been exempt from tax on its income to the extent that its
income was distributed to unitholders. This exemption did not apply to the Company or its subsidiaries, which are
corporations that are subject to income tax. Under the tax regime effective for 2010 and years thereafter for trusts, certain
distributions from a “specified investment flow-through” trust or partnership (“SIFT”) are no longer deductible in computing
a SIFT’s taxable income, and a SIFT is subject to tax on such distributions at a rate that is substantially equivalent to the
general tax rate applicable to a Canadian corporation. Foreign investment income from non-portfolio investments is not
subject to the SIFT tax.
The Fund has and will continue to evaluate its structure from time to time. In 2009, the Fund investigated and evaluated its
structuring alternatives in connection with the SIFT rules with a view of preserving and maximizing unitholder value. Based
upon its investigation, analysis and due diligence and given its size and circumstances, the Fund determined at that time, that
a change to a share corporation structure would not be advantageous to the Fund or its unitholders. This determination was
based on several reasons. First, the Fund did not believe it would achieve any net tax savings by converting. Second, the
Fund believed that the cost of conversion was not a prudent use of cash and was not justified by any perceived benefits from
conversion for a fund of Boyd’s size. Third, to the extent that the Fund paid SIFT tax, it believed that its taxable unitholders
would benefit from the lower tax rate on distributions received, as it expected to be able to maintain distributions, despite
any trust tax that the Fund would incur. Lastly, the Fund’s distribution level to unitholders was being funded almost entirely
by its U.S. operations and since distributions that are sourced from U.S. business earnings are not subject to the SIFT tax,
the Fund benefited from a tax deduction at the U.S. corporate entity level for interest paid to the Fund which was distributed
to unitholders.
The Fund is required to record income tax expense at its effective tax rate. The Fund’s effective tax rate varies due to the
fixed level of interest that is deducted from the U.S. operations and paid to the trust unitholders as distributions. This
amount of interest was approximately $10.4 million for the year ended December 31, 2018 (2017 - $9.6 million). The Fund
estimates that its basic Canadian provincial and federal tax rate is approximately 26% and its U.S. federal and state tax rate
23
is approximately 26% for the year ending December 31, 2018 and 39% for the year ending December 31, 2017. In
forecasting future tax obligations, the Fund deducts the interest amount above from the U.S. taxable income to estimate the
U.S. tax expense. As a result of the fixed nature of the interest deduction and the potential for change in the U.S. – Canada
mix of income, it is not possible to provide a reliable estimate of the future effective tax rate for the Fund.
The following illustration is only intended to demonstrate the differences in the effective tax rate depending on the level of
net income and a fixed interest deduction in the U.S. It is not a forecast of the expected effective tax rate of the Fund.
Effective tax rate (illustration only)
Net income level (1)
U.S. interest deduction re: distribution
$
75,000
(10,000)
$
100,000
(10,000)
$
125,000
(10,000)
$
65,000
$
90,000
$
115,000
Example blended tax rate (U.S. and Canada)
26.00%
26.00%
26.00%
Effective tax rate - % of total
22.53%
23.40%
23.92%
(1) Net income level is before tax and excludes other non-taxable adjustments such as fair value and put option adjustments.
$
16,900
$
23,400
$
29,900
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, together with cash on hand and unutilized credit available on existing credit facilities are
expected to be sufficient to meet operating requirements, capital expenditures and distributions. At December 31, 2018, the
Fund had cash, net of outstanding deposits and cheques, held on deposit in bank accounts totaling $64.5 million (December
31, 2017 - $47.8 million). The net working capital ratio (current assets divided by current liabilities) was 0.81:1 at
December 31, 2018 (December 31, 2017 – 0.98:1).
At December 31, 2018, the Fund had total debt outstanding, net of cash, of $232.1 compared to $182.2 million at September
30, 2018, $174.9 million at June 30, 2018, $214.9 million at March 31, 2018 and $219.1 million at December 31, 2017.
Debt, net of cash, increased when compared to December 31, 2017 as a result of increased draws on the revolving credit
facility and increased seller notes used to fund acquisitions.
Total debt, net of cash
(thousands of Canadian dollars)
Revolving credit facility
(net of financing costs)
Seller notes (1)
Obligations under finance leases
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
$
222,039
$
173,322
$
185,266
$
210,240
$
200,222
66,120
8,407
51,559
8,674
54,673
8,167
55,373
8,459
57,754
8,921
Total debt
Cash
$
296,566
$
233,555
$
248,106
$
274,072
$
266,897
64,476
51,348
73,246
59,215
47,831
Total debt, net of cash
$
232,090
$
182,207
$
174,860
$
214,857
$
219,066
(1) Seller notes are loans granted to the Company by the sellers of businesses related to the acquisition of those businesses.
24
The following table summarizes the contractual obligations at December 31, 2018 and required payments over the next five
years:
Contractual Obligations
(thousands of Canadian dollars)
Total
Within 1
year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
After 5
years
Bank indebtedness
Accounts payable and accrued
liabilities
Long-term debt
Obligations under finance leases
Operating lease obligation
Purchase obligations (1)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
267,991
288,159
8,407
535,533
267,991
16,390
3,846
93,820
-
13,672
2,080
85,726
-
10,828
2,379
75,882
-
5,446
13
63,278
-
226,728
13
47,137
-
15,095
76
169,690
-
unknown unknown unknown unknown unknown unknown
$
1,100,090
$
382,047
$
101,478
$
89,089
$
68,737
$
273,878
$
184,861
(1) S ubje c t to fulfilling c e rta in c o nditio ns s uc h a s m e e ting c o ntra c tua l purc ha s e o bliga tio ns a nd no c ha nge in c o ntro l the re pa ym e nt a m o unt wo uld be nil.
Operating Activities
Cash flow generated from operations, before considering working capital changes, was $146.5 million for the year ended
December 31, 2018 compared to $116.6 million in 2017. The increase was due to increased adjusted EBITDA in 2018,
resulting from new location and same-store sales growth.
In 2018, changes in working capital items provided net cash of $34.0 million compared with providing net cash of $3.1
million in 2017. Increases and decreases in accounts receivable, inventory, prepaid expenses, income taxes, accounts
payable and accrued liabilities are significantly influenced by timing of collections and expenditures. The decrease in tax
payments due to U.S. tax reform impacted changes in working capital in 2018 when compared to 2017.
Financing Activities
Cash used by financing activities totaled $11.9 million for the year ended December 31, 2018 compared to cash provided by
financing activities of $140.6 million during the prior year. During 2018, cash was provided by draws of the revolving
credit facility in the amount of $67.8 million, offset by cash used to repay draws as well as long-term debt associated with
seller notes in the amount of $66.1 million. Cash was also used to repay finance leases in the amount of $3.9 million and to
pay distributions to unitholders and dividends to Class A common shareholders totaling $10.5 million. During 2017, cash
was provided by draws on the revolving credit facility in the amount of $209.1 million, offset by cash used to repay draws as
well as long-term debt associated with seller notes in the amount of $53.2 million. In 2017, cash was also used to repay
finance leases in the amount of $4.3 million, to pay distributions to unitholders and dividends to Class A common
shareholders totaling $9.6 million and to make payments to non-controlling interests totaling $0.2 million.
Debt Financing
On May 26, 2017, the Company entered into a second amended and restated credit agreement for a term of five years,
increasing the revolving credit facility to $300 million U.S. with an accordion feature which can increase the facility to a
maximum of $450 million U.S. The facility is with a syndicate of Canadian and U.S. banks and is secured by the shares and
assets of the Company as well as by guarantees of the Fund and BGHI. The interest rate is based on a pricing grid of the
Fund’s ratio of total funded debt to EBITDA as determined under the credit agreement. The Company can draw the facility in
either the U.S. or in Canada, in either U.S. or Canadian dollars. The Company can make draws in tranches as required.
Tranches bear interest only and are not repayable until the maturity date but can be voluntarily repaid at any time. The
Company has the ability to choose the base interest rate between Prime, Bankers Acceptances (“BA”) or London Inter Bank
Offer Rate (“LIBOR”). The total syndicated facility includes a swing line up to a maximum of $5.0 million U.S. in Canada
and $20.0 million U.S. in the U.S. At December 31, 2018, the Company has drawn $61.3 million U.S. (December 31, 2017 -
$40.0 million U.S.) and $139.0 million Canadian (December 31, 2017 - $150.8 million) on the revolving credit facility.
25
Under the revolving facility, Boyd is subject to certain financial covenants which must be maintained to avoid acceleration
of the termination of the credit agreement. The financial covenants require the Fund to maintain a total debt to EBITDA
ratio of less than 4.25; a senior debt to EBITDA ratio of less than 3.25; and a fixed charge coverage ratio of greater than
1.03. For three quarters following a material acquisition, the total debt to EBITDA ratio may be increased to less than 4.75,
the senior debt to EBITDA ratio may be increased to less than 3.75.
The Company supplements its debt financing by negotiating with sellers in certain acquisitions to provide financing to the
Company in the form of term notes. The notes payable to sellers are typically at favourable interest rates and for terms of
five to 15 years. This source of financing is another means of supporting the Fund’s growth, at a relatively low cost. During
2018, the Fund entered into 19 new seller notes for an aggregate amount of $20.1 million. The Company repaid seller notes
in 2018 totaling approximately $14.7 million (2017 - $12.9 million).
The Fund has traditionally used capital leases to finance a portion of both its maintenance and expansion capital
expenditures. The Fund expects to continue to use this source of financing where available at competitive interest rates and
terms, although this financing also impacts the total leverage capacity covenants under its debt facility. During 2018, $2.8
million (2017 - $2.0 million) of expenditures for new equipment, technology infrastructure and vehicles were financed
through capital leases.
Unitholders’ Capital
On November 26, 2018, the Fund completed the settlement of the unit options issued on January 2, 2009. As a result of the
settlement, 150,000 units were issued at an exercise price of $3.14. The fair value of the unit options at settlement was
$15.4 million.
On January 2, 2018, the Fund completed the settlement of the unit options issued on January 2, 2008. As a result of the
settlement, 150,000 units were issued at an exercise price of $2.70. The fair value of the unit options at settlement was
$14.7 million.
On November 2, 2017, the Fund completed the early redemption and cancellation of its 5.25% Convertible Unsecured
Subordinated Debentures due October 31, 2021. Subsequent to the initial announcement of the early redemption, $52.4
million principal amount of the Debentures were converted into 853,027 units of the Fund using a conversion price of
$61.40 per trust unit as stated in the Trust Indenture dated as of September 29, 2014. Debentures not converted were
redeemed in accordance with the provisions of the Trust Indenture dated as of September 29, 2014. On November 2, 2017,
the remaining $2.5 million in Debentures were redeemed through the issuance of 28,995 units of the Fund.
During 2017, prior to the notice of early redemption, at the request of the holders, the Fund converted $1.5 million principal
amount of the 2014 Debentures into 25,112 units of the Fund.
On July 4, 2017, the Company acquired the assets and business of Assured. Funding for the Assured transaction included
the issuance of 537,872 units of the Fund to the sellers at a unit price of $96.15.
A unitholder is entitled to request the redemption of units at any time, and the Fund is obligated to redeem those units,
subject to a cash redemption maximum of $25,000 for any one month. The redemption price is determined as the lower of
90% of the market price during the 10 trading day period commencing immediately after the date of the redemption or 100%
of the closing market price on the date of redemption. No amounts were redeemed in either 2018 or 2017.
A Class A common shareholder of BGHI can exchange Class A common shares for units of the Fund upon request. The
retraction of Class A common shares is achieved by BGHI issuing Class B common shares to the Fund in exchange for units
of the Fund, and the units so received being delivered to the Class A shareholder requesting the retraction. For the year
ended December 31, 2018, BGHI received requests and retracted 9,611 (2017 – 3,798) Class A common shares, issued
9,611 (2017 – 3,798) Class B common shares to the Fund and received 9,611 (2017 – 3,798) units of the Fund as
consideration, which were delivered to the Class A shareholders in respect of the retractions.
The Fund sells the Class B shares to the Company in exchange for Notes and Class I shares to fund future distributions on
the Trust units. The exchange value is equivalent to the unit value provided to the Class A common shareholder. The Fund
anticipates that it will continue to sell any Class B shares of BGHI that it receives as a result of these retractions, to the
Company.
26
The holders of the Class A common shares receive cash dividends on a monthly basis at a rate equivalent to the monthly
cash distribution paid to unitholders of the Fund.
The following chart discloses outstanding unit data of the Fund, including information on all outstanding securities of the
Fund and its subsidiaries that are convertible or exchangeable for units of the Fund as of March 20, 2019.
Convertible or exchangeable units of the Fund
As of March 20, 2019
Units outstanding
Class A common shares of BGHI (1)
Unit options:
Date Granted - November 8, 2007 (2)
# or $ amount
of securities
outstanding
# of units to be issued in
conversion or exchange by
holder
Maximum # of
units to be
issued
19,869,020
190,610
19,869,020
19,869,020
190,610
190,610
150,000
150,000
150,000
20,209,630
20,209,630
(1) The Fund is obligated to issue units to BGHI, in exchange for Class B shares of BGHI, upon a request for retraction by the holders of the Class A shares of
BGHI on a 1:1 basis.
(2) On November 8, 2007, the Fund granted options to certain key employees allowing them to exercise the right to purchase, in the aggregate, up to 450,000
units of the Fund, such options to purchase up to 150,000 units issued on each of January 2, 2008, 2009 and 2010. Effective March 20, 2019, the units may
be purchased, to the extent validly exercised, on a date, at the grantee’s election, between nine years and 258 days after the grant date up to and including the
10th anniversary of the grant date (September 15 to January 2 of the applicable period). The purchase price per unit under the options issued on each issue
date is the greater of the closing price for units on the Toronto Stock Exchange on the option grant date (being $2.70 per unit) and the weighted average
trading price of the units on the Toronto Stock Exchange for the first 15 trading days in the month of January of the year in which each issue date falls, being
$2.70, $3.14 and $5.41, respectively. The cost of the options is being recognized over the term between the date when unitholder approval is obtained and the
date the options become exercisable. On November 26, 2018, the Fund completed the settlement of the unit options issued on January 2, 2009. As a result of
the settlement, 150,000 units were issued at an exercise price of $3.14. On January 2, 2018, the Fund completed the settlement of the unit options issued on
January 2, 2008. As a result of the settlement, 150,000 units were issued at an exercise price of $2.70.
Investing Activities
Cash used in investing activities totaled $156.0 million for the year ended December 31, 2018, compared to $263.0 million
used in the prior year. The investing activity in both periods related primarily to new location growth that occurred during
these periods.
Acquisitions and Development of Businesses
Since the beginning of 2018, the Company has added 115 collision locations as follows:
27
Location
Lawrenceville, GA
Collier County, FL (2 locations)
Sudbury, ON (4 locations)
Falcon, CO
Date
January 12, 2018
January 19, 2018
January 31, 2018
February 20, 2018
February 23, 2018 Dallas, TX (3 locations)
Seattle, WA (3 locations)
April 17, 2018
Schaumburg, IL
May 1, 2018
Merrillville, IN
May 8, 2018
Alexandria, LA
May 18, 2018
Atlanta, GA (2 locations)
May 25, 2018
Bradford, ON
May 28, 2018
Orland Park, IL
June 1, 2018
Chicago, IL
June 8, 2018
Elk Grove Village, IL
June 27, 2018
Aurora, ON
July 3, 2018
Brunswick, OH
July 6, 2018
Nanaimo, BC
July 9, 2018
Elkhart, IN
July 10, 2018
Bessemer & Birmingham, AL
August 3, 2018
Kenosha, WI
August 3, 2018
September 21, 2018 Dundas, ON
September 27, 2018 Lafayette, LA
Kennewick, WA
October 10, 2018
Springfield, IL
October 10, 2018
Jacksonville, FL
October 10, 2018
Saskatoon, SK (2 locations)
October 12, 2018
Turtle Creek, PA
October 15, 2018
Brownsburg & Greenwood, IN
October 15, 2018
November 1, 2018 Kansas City, MO (5 locations)
November 1, 2018 Verona, PA
November 5, 2018 LaGrange, GA
November 14, 2018 Palatka, FL
November 30, 2018 West Hawksbury, ON
November 30, 2018
Wisconsin & Northern Illinois
(18 locations including 2 intake centers)
Previously operated as
n/a start-up
Autocraft Enterprises and Autocraft Naples
Regent Autobody
Falcon Collision Center
Earth Collision Center
Professional Collision Group
n/a intake center
n/a intake center
Kyle's Collision Center
Cherokee Collision Center
Chico's Collision
n/a intake center
Brown's Auto Construction
Owner's Choice Collision
GaryRay Collision
Shade's Auto Body
Stone Bros. Auto Body and Auto Wrecking
Duncan RV Repair
C&M Collision Center
Jay-Bee Collision Repair Center
Terry's Autobody
n/a start-up
SonShine Collision Services
Dick Taylor Collision Services
n/a intake center
Nutana Collision
Johnny Mock's Auto Body Shop
Golden Chassis
A&B Body Shop, Inc.
n/a start-up
n/a start-up
n/a intake center
Marchildon Autobody
Gates Collision Centers
n/a start-up
December 1, 2018 Winnipeg, MB
n/a intake center
December 3, 2018 McDonough, GA
December 11, 2018 Albany, OR
Pacific Auto Body & Paint
December 14, 2018 Central & Western Regions, TX (9 locations) Paceline Collision Centers
December 19, 2018 Jacksonville, NC
December 28, 2018 Lake Havasu City, AZ
January 1, 2019
January 9, 2019
January 11, 2019
February 28, 2019 New York (18 locations)
Michigan (11 locations)
March 8, 2019
Guelph, ON
March 15, 2019
Richland, WA
March 18, 2019
Stevenson Toyota Collision
n/a start-up
n/a intake center
Bob Johnson's Body Shop
Lake Pleasant Collision Center
Carubba Collision
Dusty's, Whitney's and Wright Brothers Collision
Majestic Collision
Atomic Auto Body and Detail
Union City, GA
Cayce, SC
Peoria, AZ
The Company completed the acquisition or start-up of 105 locations during 2017.
28
Start-ups
In 2018, the Company commenced operations in six new start-up collision repair facilities. The total combined investment
in leaseholds and equipment for these facilities was approximately $2.7 million, financed through a combination of cash and
finance leases. The Company commenced operations in three new start-up collision repair facilities in 2017 with a
combined investment of approximately $2.4 million. The Company anticipates it will use similar start-up strategies as part
of its continued growth in the future.
Capital Expenditures
Although most of Boyd’s repair facilities are leased, funds are required to ensure facilities are properly repaired and
maintained to ensure the Company’s physical appearance communicates Boyd’s standard of professional service and
quality. The Company’s need to maintain its facilities and upgrade or replace equipment, signage, computers, software and
vehicles forms part of the annual cash requirements of the business. The Company manages these expenditures by annually
reviewing and determining its capital budget needs and then authorizing major expenditures throughout the year based upon
individual business cases. Excluding expenditures related to acquisition and development and those funded through finance
leases, the Company spent approximately $26.7 million or 1.4% of sales on capital expenditures during 2018, compared to
$23.5 million or 1.5% of sales during 2017. Lower than expected capital expenditures during 2018 will result in some of
these expenditures being incurred in 2019.
LEGAL PROCEEDINGS
Neither the Fund, Boyd nor any of its subsidiaries are involved in any legal proceedings which are material in any respect.
RELATED PARTY TRANSACTIONS
To broaden and deepen management ownership in the Fund, the Company established the Senior Managers Unit Loan
Program (“Unit Loan Program”) in December 2012, which facilitated the one-time purchase of 121,607 of trust units held
by Brock Bulbuck, President and Chief Executive Officer, and Tim O’Day, President and Chief Operating Officer US
Operations, by existing Boyd trustees and senior managers. Only senior managers were eligible to receive loan support, and
only up to 75% of each senior manager’s purchase. The loans bear interest at a fixed rate of 3% per annum with interest
payable monthly. For the first five years of the loan, ending December 2017, 2% of the original loan amount was forgiven
and applied as a reduction of the loan principal. Participants are required to make monthly payments equal to .25% of the
original principal amount. Beginning March 31, 2013, participants are required to make additional minimum repayments of
principal equal to the lesser of 12.5% of their annual pre-tax bonus or 12.5% of the original loan amount. Participants are
required to repay the loan in full on the earlier of termination of employment, the sale of the units, or ten years from the date
of loan issuance. The loan can be repaid at any time without penalty; however, the 2% future annual forgiveness would be
forfeited. Units purchased are held by the Company as security for repayment of the loan. Pursuant to the conditions of the
senior manager unit loan program, loan repayments by senior managers amounted to $0.1 million for 2018 (2017 - $0.2
million). At December 31, 2018, the carrying value of loans made under the Unit Loan Program was $0.1 million (2017 -
$0.1 million). Subsequent to year-end, all loans made under the Unit Loan Program were fully repaid.
In certain circumstances the Company has entered into property lease arrangements where an employee of the Company is
the landlord. In most cases, the Company assumes these property lease arrangements initially in connection with an
acquisition. The property leases for these locations do not contain any significant non-standard terms and conditions that
would not normally exist in an arm’s length relationship, and the Fund has determined that the terms and conditions of the
leases are representative of fair market rent values.
29
The following are the lease expense amounts for facilities under lease with related parties (in thousands of Canadian
dollars):
Landlord
Affiliated Person(s)
Location
Lease December 31, December 31,
Expires
2017
2018
Kard Properties Ltd.
Desmond D'Silva
Richmond Hill, ON 2035
$
188
$
92
Kard Properties Ltd.
Desmond D'Silva
Ottawa, ON
Kard Properties Ltd.
Desmond D'Silva
Ajax, ON
Kard Properties Ltd.
Desmond D'Silva
Mississauga, ON
Kard Properties Ltd.
Desmond D'Silva
Oakville, ON
D'Silva Real Estate
Holdings Inc.
Desmond D'Silva
Barrie, ON
2035
2036
2032
2035
2032
Gerber Building No. 1
Ptnrp
Eddie Cheskis,
& Tim O'Day
South Elgin, IL
2023
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Hamilton,ON
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Scarborough, ON
Kard Properties Ltd.
Desmond D'Silva
Toronto, ON
Kard Properties Ltd.
Desmond D'Silva
Brampton, ON
Kard Properties Ltd.
Desmond D'Silva
Hamilton, ON
Kard Properties Ltd.
Desmond D'Silva
Woodstock, ON
Kard Properties Ltd.
Desmond D'Silva
Etobicoke, ON
Kard Properties Ltd.
Desmond D'Silva
Milton, ON
Kard Properties Ltd.
Desmond D'Silva
Brantford, ON
Kard Properties Ltd.
Desmond D'Silva
Ottawa, ON
2035
2036
2035
2035
2036
2036
2023
2036
2035
2037
2037
2035
2020
2036
257
87
50
188
420
122
105
62
50
309
100
87
50
100
103
67
213
113
83
212
127
42
25
92
180
120
52
31
24
153
50
44
25
49
51
33
105
56
-
104
The Fund’s subsidiary, The Boyd Group Inc., has declared dividends totaling $57 thousand (2017 – $56 thousand), through
BGHI to 4612094 Manitoba Inc., an entity controlled by a senior officer of the Fund. At December 31, 2018, 4612094
Manitoba Inc. owned 107,329 (2017 – 107,329) Class A common shares and 30,000,000 (2017 – 30,000,000) voting
common shares of BGHI, representing approximately 30% of the total voting shares of BGHI.
On September 29, 2017, Gerber Glass LLC, a subsidiary of the Fund, exercised its’ call option, as provided for in the GA
Company Agreement, to acquire the 30% non-controlling interest in Glass America LLC held by GAJV Holdings Inc. The
exercise price had been calculated in accordance with the terms of the GA Company Agreement. GAJV Holdings Inc. did
not agree with the calculation of the exercise price, including certain material changes, and the matter was submitted to
binding arbitration in accordance with the terms of the GA Company Agreement. On January 31, 2019, the call option
transaction was completed, and Gerber Glass LLC acquired the 30% non-controlling interest in Glass America LLC.
On November 26, 2018, the Fund completed the settlement of the unit options issued on January 2, 2009. As a result of the
settlement 150,000 units were issued at an exercise price of $3.14. The fair value of the unit options at settlement was $15.4
million.
30
On January 2, 2018, the Fund completed the settlement of the unit options issued on January 2, 2008. As a result of the
settlement 150,000 units were issued at an exercise price of $2.70. The fair value of the unit options at settlement was $14.7
million.
FOURTH QUARTER
Sales for the three months ended December 31, 2018 totaled $495.1 million, an increase of $80.5 million or 19.4%
compared to the same period in 2017. Overall same-store sales excluding foreign exchange increased $27.8 million, or
6.8% in the fourth quarter of 2018 when compared to the fourth quarter of 2017 and increased a further $14.3 million due to
the translation of same-store sales at a higher U.S. dollar exchange rate. After adjusting for one additional
selling/production day, same-store sales increased 5.2% on a per day basis. Sales growth of $40.0 million was attributable
to incremental sales generated from 86 new locations. The closure of under-performing facilities accounted for a decrease in
sales of $1.6 million.
Gross Profit for the fourth quarter decreased to 44.3% from 45.4% in the same period in 2017. The gross margin percentage
decrease is due to a combination of a higher mix of parts sales in relation to labor as well as some lower DRP pricing this
quarter. Improved parts margins partially offset these negative impacts. The lower DRP pricing this quarter is the result of
certain DRP performance pricing arrangements changing in a way that is currently resulting in slightly greater variability
quarter to quarter.
Adjusted EBITDA for the fourth quarter of 2018 totaled $47.6 million or 9.6% of sales compared to Adjusted EBITDA of
$41.8 million or 10.1% of sales in the same period of the prior year. The $5.8 million increase was primarily the result of
incremental EBITDA contribution from new locations and same-store sales growth along with a lower operating expense
ratio. The lower operating expense ratio is primarily the result of some expense accrual reductions as certain expense
estimates changed or were firmed up at amounts that were lower than previously estimated and accrued. These expense
reductions included workers compensation and advertising costs.
Current and Deferred Income Tax Expense of $6.8 million in 2018 compared to a recovery of $4.4 million in 2017. Income
tax expense in the fourth quarter of 2017 was impacted by a one-time income tax recovery of approximately $13.6 million
related to the revaluation of deferred tax liabilities in the U.S. based on tax reform. Income tax expense decreased in 2018
due to U.S. tax reform, which lowered the effective tax rate in the U.S. by approximately 13%.
Net Earnings for the fourth quarter was $29.9 million or $1.190 per fully diluted unit compared to net earnings of $23.2
million or $1.185 per fully diluted unit for the same period in the prior year. The net earnings in the fourth quarter of 2017
were impacted by the changes in deferred tax assets and liabilities resulting from changes in U.S. tax rates, resulting in a
one-time tax recovery of $13.6 million. Also impacting net earnings in both the current and prior period was the recording
of fair value adjustments for exchangeable shares, unit options and non-controlling interest put option and call liability
adjustments, as well as the recording of acquisition and transaction costs. Excluding these impacts, adjusted net earnings for
the fourth quarter was $23.2 million or $1.174 per unit compared to adjusted net earnings of $17.4 million or $0.907 per unit
for the same period in the prior year. The increase in adjusted net earnings of $5.8 million is the result of the contribution of
new location growth as well as lower operating expense ratios.
Standardized Distributable Cash for the fourth quarter increased to $57.7 million from $40.5 million for the same period in
2017. Adjusted distributable cash for the fourth quarter increased to $59.5 million from $40.9 million for the same period a
year ago, representing a payout ratio of 4.5% for 2018 compared to 6.1% for the same period last year. The increase in
distributable cash is primarily the result of higher Adjusted EBITDA levels.
FINANCIAL INSTRUMENTS
In order to limit the variability of earnings due to the foreign exchange translation exposure on the income and expenses of
the U.S. operations, the Company may at times enter into foreign exchange contracts. These contracts are marked to market
monthly with unrealized gains and losses included in earnings. The Company did not have any such contract in place during
2018 or 2017.
Transactional foreign currency risk also exists in limited circumstances where U.S. denominated cash is received in Canada.
The Company monitors U.S. denominated cash flows to be received in Canada and evaluates whether to use forward foreign
exchange contracts. No such foreign exchange contracts were used during 2018 or 2017.
31
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements that present fairly the financial position, financial condition and results of operations
requires that the Fund make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenues and expenses during
the reporting period. Actual results could differ materially from these estimates. The following is a summary of critical
accounting estimates and assumptions that the Fund believes could materially impact its financial position, financial
condition or results of operations:
Impairment of Goodwill and Intangible Assets
When testing goodwill and intangibles for impairment, the Fund uses the recorded historical cash flows of the cash
generating unit (“CGU”) or group of CGU’s to which the asset relate for the most recent two years, and an estimate or
forecast of cash flows for the next year to establish an estimate of the Fund’s future cash flows. An estimate of the
recoverable amount is then calculated as 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 or CGU). An impairment loss is recognized for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The methods used to value intangible assets
and goodwill require critical estimates to be made regarding the future cash flows and useful lives of the intangible assets.
Goodwill and intangible asset impairments, when recognized, are recorded as a separate charge to earnings, and could
materially impact the operating results of the Fund for any particular accounting period.
Impairment of Other Long-lived Assets
The Fund assesses the recoverability of its long-lived assets, other than goodwill and intangibles, after considering the
potential impairment indicated by such factors as business and market trends, the Fund’s ability to transfer the assets, future
prospects, current market value and other economic factors. In performing its review of recoverability, management
estimates the future cash flows expected to result from the use of the assets and their potential disposition. If the discounted
sum of the expected future cash flows is less than the carrying value of the assets generating those cash flows, an impairment
loss would be recognized based on the excess of the carrying amounts of the assets over their estimated recoverable value.
The underlying estimates for cash flows include estimates for future sales, gross margin rates and operating expenses.
Changes which may impact these estimates include, but are not limited to, business risks and uncertainties and economic
conditions. To the extent that management’s estimates are not realized, future assessments could result in impairment
charges that may have a material impact on the Fund’s consolidated financial statements.
Fair Value of Financial Instruments
The Fund has applied discounted cash flow methods to establish the fair value of certain financial liabilities recorded on the
statement of financial position, as well as disclosed in the notes to the financial statements. The Fund also establishes mark-
to-market valuations for derivative instruments, which are assumed to represent the current fair value of these instruments.
These valuations rely on assumptions regarding future interest and exchange rates as well as other economic indicators,
which at the time of establishing the fair value for disclosure, have a high degree of uncertainty. Unrealized gains or losses
on these derivative financial instruments may not be realized as markets change.
Income Taxes
The Fund is subject to income tax in several jurisdictions and estimates are used to determine the provision for income taxes.
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is
uncertain. As a result, the Fund recognizes tax liabilities based on estimates of whether additional taxes and interest will be
due. Uncertain tax liabilities may be recognized when, despite the Fund’s belief that its tax return positions are supportable,
the Fund believes that certain positions are likely to be challenged and may not be fully sustained upon review by tax
authorities. The Fund believes that its accruals for tax liabilities are adequate for all open audit years based on its
assessment of many factors including past experience and interpretations of tax law. To the extent that the final tax outcome
is different than the amounts recorded, such differences will impact income tax expense in the period in which such
determination is made.
32
CHANGES IN ACCOUNTING POLICIES
The Fund has adopted IFRS 15 Revenue from Contracts with Customers on January 1, 2018 using the modified retrospective
approach, which recognizes the cumulative effect of initial application as an adjustment to the opening balance of retained
earnings (deficit) at January 1, 2018 without restatement of comparatives. Beginning January 1, 2018, the Fund recognizes
revenue upon completion and delivery of the repair to the customer, which has been determined to be the performance
obligation that is distinct and the point at which control of the asset passes to the customer. Revenue is measured at the fair
value of the consideration received. Previously, revenue was recognized to the extent that it was probable that the economic
benefits would flow to the Fund, the sales price was fixed or determinable and collectability was reasonably assured. As a
result, revenue that met the revenue recognition criteria under the prevailing IAS 18 was recognized in the year ended
December 31, 2017. The same revenue, however, would not have met the recognition criteria under IFRS 15. As such, the
impact on the consolidated financial statements as at January 1, 2018 is a decrease to opening retained earnings (deficit) of
$6.7 million.
The Fund has adopted IFRS 9 Financial Instruments on January 1, 2018 using the modified retrospective approach. The
adoption of IFRS 9 did not have a material impact on the Fund’s consolidated financial statements.
The Fund has adopted the narrow-scope amendments to IFRS 2, Share-based Payment on January 1, 2018. The adoption
of IFRS 2 did not have a material impact on the Fund’s consolidated financial statements.
FUTURE ACCOUNTING STANDARDS
The following is an overview of accounting standard changes that the Fund will be required to adopt in future years:
IFRS 16, Leases, was issued by the IASB on January 13, 2016 and will replace the current guidance found in IAS 17,
Leases and related interpretations. The new standard will bring most leases onto the statement of financial position
through recognition of right-of-use assets and lease liabilities. IFRS 16 establishes principles for recognition,
measurement, presentation and disclosure of leases.
The Fund is continuing to evaluate the impact of adopting IFRS 16 on its financial statements, but expects this
standard will have a significant impact on its consolidated statement of financial position, through recognition of right-
of-use assets and lease liabilities, estimated at approximately $450 million and $490 million respectively. During
2019, the Fund will recognize a decrease in operating expenses, as well as increases in depreciation expense and finance
costs as a result of the depreciation of the right-of-use assets and accretion expense on the lease liability.
The Fund will apply the standard effective January 1, 2019 and plans to transition using the modified retrospective approach
without restatement of prior reporting periods. The Fund expects to apply the recognition exemption for short-term leases.
Other practical expedients available under the guidance are still being evaluated.
Since many of the Fund’s leases are denominated in U.S. dollars, there will be additional volatility in foreign exchange
amounts recognized due to the revaluation to the rate of exchange in effect at the date of the statement of financial position.
CERTIFICATION OF DISCLOSURE CONTROLS
Management’s responsibility for financial information contained in this Annual Report is described on page 49. In addition,
the Fund’s Audit Committee of the Board of Trustees has reviewed this Annual Report, and the Board of Trustees has
reviewed and approved this Annual Report prior to its release. The Fund is committed to providing timely, accurate and
balanced disclosure of all material information about the Fund and to providing fair and equal access to such information.
As of December 31, 2018, the Fund’s management evaluated the effectiveness of the design and operation of its disclosure
controls and procedures, as defined under the rules adopted by the Canadian securities regulatory authorities. Disclosure
controls are procedures designed to ensure that information required to be disclosed in reports filed with securities
regulatory authorities is recorded, processed, summarized and reported on a timely basis, and is accumulated and
communicated to the Fund’s management, including the CEO and the CFO, as appropriate, to allow timely decisions
regarding required disclosure.
The Fund’s management, including the CEO and the CFO, does not expect that the Fund’s disclosure controls will prevent
or detect all misstatements due to error or fraud. Because of the inherent limitations in all control systems, an evaluation of
33
controls can provide only reasonable, not absolute assurance, that all control issues and instances of fraud or error, if any,
within the Fund have been detected. The Fund is continually evolving and enhancing its systems of controls and procedures.
Based on the evaluation of disclosure controls, the CEO and the CFO have concluded that, subject to the inherent limitations
noted above, the Fund’s disclosure controls are effective in ensuring that material information relating to the Fund is made
known to management on a timely basis, and is fairly presented in all material respects in this Annual Report.
CERTIFICATION ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for the design and effectiveness of internal control over financial reporting in order to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with Canadian generally accepted accounting principles which incorporates International Financial
Reporting Standards for publicly accountable enterprises. The Fund’s management, including the CEO and the CFO, does
not expect that the Fund’s internal control over financial reporting will prevent or detect all misstatements due to error or
fraud. Because of the inherent limitations in all control systems, an evaluation of controls can provide only reasonable, not
absolute assurance, that all control issues and instances of fraud or error, if any, within the Fund have been detected. The
Fund is continually evolving and enhancing its systems of internal controls over financial reporting. The CEO and CFO of
the Fund have evaluated the design and effectiveness of the Fund’s internal control over financial reporting as at the end of
the period covered by the annual filings and have concluded that, subject to the inherent limitations noted above, the controls
are sufficient to provide reasonable assurance.
In addition, during the fourth quarter of 2018, there have been no changes in the Fund’s internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial
reporting.
BUSINESS RISKS AND UNCERTAINTIES
The following information is a summary of certain risk factors relating to the business of the Fund and Boyd, and is
qualified in its entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere
in this Annual Report and the documents incorporated by reference herein.
The Fund and the Company are subject to certain risks inherent in the operation of the business. The Fund manages risk and
risk exposures through a combination of management oversight, insurance, its system of internal controls and disclosures
and sound operating policies and practices.
The Board of Trustees has the responsibility to identify the principal risks of the Fund’s business and ensure that appropriate
systems are in place to manage these risks. The Audit Committee has the responsibility to discuss with management the
Fund's major financial risk exposures and the steps management has taken to monitor and control such exposures, including
the Fund's risk assessment and risk management policies. In order to support these responsibilities, management has a risk
and sustainability management committee which meets on an ongoing basis to evaluate and assess the Fund’s risks.
The process being followed by the risk and sustainability management committee is a systematic one which includes
identifying risks; analyzing the likelihood and consequence of risks; and then evaluating risks as to risk tolerance and
control effectiveness. This approach stratifies risks into four risk categories as follows:
Extreme Risks:
Immediate/ongoing action is required – involvement of senior management is required. Avoidance of
the item may be necessary if risk reduction techniques are insufficient to address the risk.
High Risks:
Risk item is significant and management responsibility should be specified and appropriate action
taken.
Moderate Risks:
Managed by specific monitoring or response procedures. Additional risk mitigation techniques could
be considered if benefits exceed the cost.
Low Risks:
Managed by routine procedures. No further action is required at this time.
Risks can be reduced by limiting the likelihood or the consequence of a particular risk. This can be achieved by adjusting
the Company’s activities, implementing additional control/monitoring processes, or insuring/hedging against certain
34
outcomes. Residual risk remains after mitigation and control techniques are applied to an identified risk. Awareness of the
residual risk that the Fund ultimately accepts is a key benefit of the risk management process.
The following describes the risks that are most material to the Fund’s business; however, this is not a complete list of the
potential risks the Fund faces. There may be other risks that the Fund is not aware of, or risks that are not material today
that could become material in the future.
Dependence on The Boyd Group Inc. and its Subsidiaries
The Fund is an unincorporated open-ended, limited purpose mutual fund trust which is entirely dependent upon the
operations and assets of the Company through the Fund’s ownership of the Notes, Class I and Class IV shares of the
Company. Accordingly, the Fund’s ability to make cash distributions to the unitholders will be dependent upon the ability
of the Company and its subsidiaries to pay its interest and principle obligations under the Notes and to declare dividends,
return capital, or make other distributions.
Operational Performance
In order to compete in the market place, the Company must consistently meet the operational performance metrics expected
by its insurance company clients and its customers. Failing to deliver on metrics such as cycle time, quality of repair,
customer satisfaction and cost of repair can, over time, result in reductions to pricing, repair volumes, or both. The
Company has implemented processes as well as measuring and monitoring systems to assist it in delivering on these key
metrics. However, there can be no assurance that the Company will be able to continue to deliver on these metrics or that
the metrics themselves will not change in the future.
Acquisition Risk
The Company plans to continue to increase revenues and earnings through the acquisition of additional collision repair
facilities and other businesses. The Company follows a detailed process of due diligence and approvals to limit the
possibility of acquiring a non-performing location or business. However, there can be no assurance that the Company will
be able to find suitable acquisition targets at acceptable pricing levels without incurring cost overruns, or that the locations
acquired will achieve sales and profitability levels to justify the Company’s investment.
Boyd views the United States and Canada as having significant potential for further expansion of its business. There can be
no assurance that any market for the Company’s services and products will develop either at the local, regional or national
level. Economic instability, laws and regulations, increasing acquisition valuations and the presence of competition in all or
certain jurisdictions may limit the Company’s ability to successfully expand operations.
The Company has grown rapidly since 2009, through multi-location acquisitions as well as single location growth
opportunities. Rapid growth can put a strain on managerial, operational, financial, human and other resources. Risks related
to rapid growth include administrative and operational challenges such as the management of an expanded number of
locations, the assimilation of financial reporting systems, technology and other systems of acquired companies, increased
pressure on senior management and increased demand on systems and internal controls. The ability of the Company to
manage its operations and expansion effectively depends on the continued development and implementation of plans,
systems and controls that meet its operational, financial and management needs. If Boyd is unable to continue to develop
and implement these plans, systems or controls or otherwise manage its operations and growth effectively, the Company will
be unable to maintain or increase margins or achieve sustained profitability, and the business could be harmed.
A key element of the Company’s strategy is to successfully integrate acquired businesses in order to sustain and enhance
profitability. There can be no assurance that the Company will be able to profitably integrate and manage additional repair
facilities. Successful integration can depend upon a number of factors, including the ability to maintain and grow DRP
relationships, the ability to retain and motivate certain key management and staff, retaining and leveraging client and
supplier relationships and implementing standardized procedures and best practices. In the event that any significant
acquisition cannot be successfully integrated into Boyd’s operations or performs below expectations, the business could be
materially and adversely affected.
To the extent that the prior owners of businesses acquired by Boyd failed to comply with or otherwise violated applicable
laws, the Company, as the successor owner, may be financially responsible for these violations and any associated
undisclosed liability. The Company seeks, through systematic investigation and due diligence, and through indemnification
35
by former owners, to minimize the risk of material undisclosed liabilities associated with acquisitions. The discovery of any
material liabilities, including but not limited to tax, legal and environmental liabilities, could have a material adverse effect
on the Company’s business, financial condition and future prospects.
Employee Relations and Staffing
Boyd currently employs approximately 8,568 people, of which 1,479 are in Canada and 7,089 are in the U.S. The current
work force is not unionized, except for approximately 51 employees located in the U.S. who are subject to collective
bargaining agreements. The automobile collision repair industry typically experiences high employee turnover rates. A
shortage of qualified employees can impact the volume and pace at which collision repair shops can fix damaged vehicles.
Although the Company believes that it is on good terms with its employees, there are no assurances that a disruption in
service would not occur as a result of employee unrest or employee turnover. The collision repair industry is experiencing
significant competition for talent, and, in particular, a limited pool of qualified technicians. There is no guarantee that a
significant work disruption or the inability to maintain, replace or grow staff levels would not have a material effect on the
Company.
Attracting, training, developing and retaining employees at all levels of the organization is required to effectively manage
Boyd’s operations. The Company has rolled out various retention and recruitment initiatives to mitigate this risk. Failure to
attract, train, develop and retain employees at all levels of the organization could lead to a lack of knowledge, skills and
experience required to effectively manage the business and could have a material adverse effect on the Company’s business,
financial condition and future performance.
Brand Management and Reputation
The Company’s success is impacted by its ability to protect, maintain and enhance the value of its brands and reputation.
Brand value and reputation can be damaged by isolated incidents, particularly if the incident receives considerable publicity
or if it draws litigation. Incidents may occur as a result of events beyond the Company’s control or may be isolated to
actions that occur in one particular location. Demand for the Company’s services could diminish significantly if an incident
or other matter damages its brand or erodes the confidence of its insurance company clients or directly with the vehicle
owners themselves. With the advent of the Internet and the evolution of social media there is an increased ability for
individuals to adversely affect the brand and reputation of the Company. There can be no assurance that past or future
incidents will not negatively affect the Company’s brand or reputation.
Market Environment Change
The collision repair industry is subject to continual change in terms of regulations, repair processes and equipment,
technology and changes in the strategic direction of clients, suppliers and competitors. The Company endeavors to stay
abreast of developments and preferences in the industry and make strategic decisions to manage through these changes and
potential disruptions to the traditional business model. In certain situations, the Company is involved in leading change by
anticipating or developing new methods to address changing market needs. The Company however, may not be able to
correctly anticipate the need for change, may not effectively implement changes, or may be required to increase spending on
capital equipment to maintain or improve its relative position with competitors. There can be no assurance that market
environment changes will not occur that could negatively affect the financial performance of the Company.
Reliance on Technology
As is the case with most businesses in today’s environment, there is a risk associated with Boyd’s reliance on computerized
operational and reporting systems. Boyd makes reasonable efforts to ensure that back-up systems and redundancies are in
place and functioning appropriately. Boyd has disaster recovery programs to protect against significant system failures.
Although a computer system failure would not be expected to critically damage the Company in the long term, there can be
no assurance that a computer system crash or like event would not have a material impact on its financial results. Reliance
on technology in order to gain or maintain competitive advantage is becoming more significant and therefore the Company
is faced with determining the appropriate level of investment in new technology in order to be competitive. There can be no
assurance that the Company will correctly identify or successfully implement the appropriate technologies for its operations.
Increased reliance on computerized operational and reporting systems also results in increased cyber security risk, including
potential unauthorized access to customer, supplier and employee sensitive information, corruption or loss of data and
release of sensitive or confidential information. Disruptions due to cyber security incidents could aversely affect the
36
business, results of operations and financial condition. Cyber security incidents could result in operational delays, disruption
to work flow and reputational harm. There can be no assurance that Boyd will be able to anticipate, prevent or mitigate
rapidly evolving types of cyber-attacks.
Foreign Currency Risk
In the past, the Company has financed acquisitions of U.S. businesses in part by making U.S. denominated loans available
under its credit facilities that could then be serviced and repaid from anticipated future U.S. earnings streams. Although this
natural hedging strategy is partially effective in mitigating future foreign currency risks, a substantial portion of Boyd’s
revenue and cash flow are now, and are expected to continue to be, generated in U.S. dollars. Fluctuations in exchange rates
between the Canadian dollar and the U.S. currency may have a material adverse effect on the Company’s reported earnings
and cash flows and its ability to make future Canadian dollar cash distributions. Fluctuations in the exchange rates between
the Canadian dollar and the U.S. currency may also have a material adverse effect on the Fund’s unit price.
There can be no assurance that fluctuations in the U.S dollar relative to the Canadian dollar can be hedged effectively for
long periods of time and there can be no assurances given that any currency hedges or partial hedges in place would remain
effective in the future.
Loss of Key Customers
A high percentage of the Company’s revenues are derived from insurance companies. Over the past 25+ years, many
private insurance companies have implemented DRP’s with collision repair operators who have been recognized as
consistent high quality, performance based repairers in the industry. The Company’s ability to continue to grow its business,
as well as maintain existing business volume and pricing, is largely reliant on its ability to maintain these DRP relationships.
The Company continues to develop and monitor these relationships through ongoing measurement of the success factors
considered critical by insurance clients. The loss of any existing material DRP relationship, or a material component of a
significant DRP relationship, could have a material adverse effect on Boyd’s operations and business prospects. Of the top
five non-government owned insurance companies that the Company deals with, which in aggregate account for
approximately 40% (2017 – 44%) of total sales, one insurance company represents approximately 13% (2017 – 14%) of the
Company’s total sales, while a second insurance company represents approximately 11% (2017 – 13%).
DRP relationships are governed by agreements that are usually cancellable upon short notice. These relationships can
change quickly, both in terms of pricing and volumes, depending upon collision repair shop performance, cycle time, cost of
repair, customer satisfaction, competition, insurance company management, program changes and general economic
activity. To mitigate this risk, management fosters close working relationships with its insurance company clients and
customers and the Company continually seeks to diversify and grow its client base both in Canada and the U.S. There can
be no assurance given that relationships with insurance company clients will not change in the future, which could impair
Boyd’s revenues and result in a material adverse effect on the Company’s business.
Decline in Number of Insurance Claims
The automobile collision repair industry is dependent on the number of accidents which occur and, for the most part,
become repairable insurance claims. The volume of accidents and related insurance claims can be significantly impacted by
technological disruption and changes in technology such as ride sharing, collision avoidance systems, driverless vehicles and
other safety improvements made to vehicles. Other changes which have and can continue to affect insurance claim volumes
include, but are not limited to, weather, general economic conditions, unemployment rates, changing demographics, vehicle
miles driven, new vehicle production, insurance policy deductibles, auto insurance premiums, photo radar and graduated
licensing. In addition, repairable claims volumes have been and can continue to be impacted by an increased number of
non-repairable claims or “write-offs”. There can be no assurance that a significant decline in insurance claims will not
occur, which could impair Boyd’s revenues and result in a material adverse effect on the Company’s business.
Margin Pressure and Sales Mix Changes
The Company’s costs to repair vehicles, including the cost of parts, materials and labour are market driven and can fluctuate
either suddenly or over time. Increasing vehicle complexity due to advances in technology may also increase the cost
associated with vehicle repair. The Company is not always able to pass these cost increases on to end users in the form of
higher selling prices to its customers and/or its insurance company clients. As a result, there can be no assurance that
increases in the costs to repair vehicles will ultimately be recoverable from its insurance company clients and customers.
37
While negotiations with insurance companies and other influencing factors over time can result in selling price increases, the
timing and extent of such increases is not determinable. In addition, some DRP relationships contain performance based
pricing, which can impact margins. There can be no assurance that increases in the costs to repair vehicles will ultimately be
recoverable from the Company’s clients or customers.
The Company’s margin is also impacted by the mix of collision repair, retail glass and glass network sales as well as the mix
of parts, labour and materials within each business area. There can be no assurance that changes to sales mix will not occur
that could negatively impact the financial performance of the Company.
The Company currently makes its own part sourcing decisions for parts used in the provision of vehicle repair services. The
Company’s clients could, in the future, decide to source products directly, impose the use of certain parts suppliers on the
Company or otherwise change the parts sourcing process. Such a decision could have an adverse effect on the Company’s
margin.
Weather Conditions
The effect of weather conditions on collision repair volume represents an element of risk to the Company’s ability to
maintain sales. Historically, extremely mild winters and dry weather conditions have had a negative impact on collision
repair sales volumes. Natural disasters resulting in business interruption could also negatively impact the Company’s
operations. Climate change has increased the frequency and severity of natural disasters and extreme weather condition
events. Even with market share gains, weather-related decline in market size can result in sales declines which could have a
material impact on the Company’s business. Business interruption due to natural disasters and extreme weather condition
events may result in store closures, which could have a material adverse effect on the Company’s business.
Competition
The collision repair industry in North America, estimated at approximately $30 to $40 billion U.S. is very competitive. The
main competitive factors are price, service, quality, customer satisfaction and adherence to various insurance company
processes and performance requirements. There can be no assurance that Boyd’s competitors will not achieve greater
market acceptance due to pricing or other factors.
Although competition exists mainly on a regional basis, Boyd competes with a small number of other multi-location
collision repair operators in multiple markets in which it operates.
Given these industry characteristics, existing or new competitors, including other automotive-related businesses, may
become significantly larger and have greater financial and marketing resources than Boyd. The recent merger of two of the
four largest multi-location collision repair operators has resulted in a combined entity that is twice the current size of Boyd
in terms of revenues. Competitors may compete with Boyd in rendering services in the markets in which Boyd currently
operates and also in seeking existing facilities to acquire, or new locations to open, in markets in which Boyd desires to
expand. There can be no assurance that the Company will be able to maintain or achieve its desired market share.
Access to Capital
The Company grows, in part, through future acquisitions or start-up of collision and glass repair and replacement businesses.
There can be no assurance that Boyd will have sufficient capital resources available to implement its growth strategy.
Inability to raise new capital, in the form of debt or equity, could limit Boyd’s future growth through acquisition or start-up.
The Company will endeavour, through a variety of strategies, to ensure in advance that it has sufficient capital for growth.
Potential sources of capital that the Company has been successful at accessing in the past include public and private equity
placements, convertible debt offerings, using equity securities to directly pay for a portion of acquisitions, capital available
through strategic alliances with trading partners, capital lease financing, seller financing and both senior and subordinate
debt facilities or by deferring possible future purchase price payments using contingent consideration and call or put options.
There can be no assurance that the Company will be successful in accessing these or other sources of capital in the future.
The Company and its subsidiaries use financial leverage through the use of debt, which have debt service obligations. The
Company’s ability to refinance or to make scheduled payments of interest or principal on its indebtedness will depend on its
38
future operating performance and cash flow, which are subject to prevailing economic conditions, prevailing interest rates,
and financial, competitive, business and other factors, many of which are beyond its control.
The Company’s revolving credit facilities contain restrictive covenants that limit the discretion of the Company’s
management and the ability of the Company to incur additional indebtedness, to make acquisitions of collision repair
businesses, to create liens or other encumbrances, to pay dividends and fund distributions, to redeem any equity or debt, or
to make investments, capital expenditures, loans or guarantees and to sell or otherwise dispose of assets and merge or
consolidate with another entity. In addition, the revolving credit facilities contain a number of financial covenants that
require the Fund and its subsidiaries to meet certain financial ratios and financial condition tests. A failure to comply with
the obligations under these credit facilities could result in an event of default, which, if not cured or waived, could permit
acceleration of the relevant indebtedness. If the indebtedness were to be accelerated, there can be no assurance that the
assets of the Company and its subsidiaries would be sufficient to repay the indebtedness in full. There can also be no
assurance that the Company will be able to refinance the credit facilities as and when they mature. The revolving credit
facility is secured by the assets of the Company.
Dependence on Key Personnel
The success of the Company is dependent on the services of a number of members of management. The experience and
talent of these individuals is a significant factor in Boyd’s continued success and growth. The loss of one or more of these
individuals could have a material adverse effect on the Company’s business operations and prospects. The Company has
entered into management agreements with key members of management in order to mitigate this risk.
Tax Position Risk
The Fund and its subsidiaries account for income tax positions in accordance with accounting standards for income taxes,
which require that the Company recognize in the financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on examination by taxation authorities, based on the technical merits of the position.
Inherent risks and uncertainties can arise over tax positions taken, or expected to be taken, with respect to matters including
but not limited to acquisitions, transfer pricing, inter-company charges and allocations, financing charges, fees, related party
transactions, tax credits, tax based incentives and stock based transactions. Management uses tax experts to assist the Fund
in correctly applying and accounting for the tax rules, however there can be no assurance that a position taken will not be
challenged by the taxation authorities that could result in an unexpected material financial obligation.
Expenses incurred by the Fund are only deductible to the extent they are reasonable. There can be no assurance that the
taxation authorities will not challenge the reasonableness of certain expenses. If such a challenge were successful against the
Fund, it may materially and adversely affect the distributable cash flow of the Fund. Management of the Fund believes the
expenses inherent in the structure of the Fund are supportable and reasonable in the circumstances.
The Units will cease to be qualified investments for a Registered Plan under the Tax Act unless the Units are listed on a
“designated stock exchange” (as defined in the Tax Act) or the Company qualifies as a “mutual fund trust” (as defined in the
Tax Act).
Securities received from the Company as a result of a redemption of Units may not be qualified investments for a Registered
Plan, which may result in adverse tax consequences for the Registered Plan and the annuitant under, or the holder of, the
Registered Plan.
There can be no assurance that additional changes to the taxation of income trust or corporations or changes to other
government laws, rules and regulations, either in Canada or the U.S., will not be undertaken which could have a material
adverse effect on the Fund’s unit price and business. There can be no assurance the Fund will benefit from these rules, that
the rules will not change in the future or that the Fund will avail itself of them.
Quality of Corporate Governance
Securities law imposes statutory civil liability for misrepresentations in continuous disclosure documents including failure to
make timely disclosure. Investors have a right of action if they are harmed by a misrepresentation in an issuer’s disclosure
document or in a public oral statement relating to an issuer, or the failure of an issuer to make timely disclosure of a material
change. Potentially liable parties include the issuer, each officer or Trustee of the issuer who authorizes, permits or
39
acquiesces in the release of the document containing a misrepresentation, the making of the public statement containing a
misrepresentation or in the failure to make a timely disclosure.
Under the Ontario Securities Act, section 138.4(6), a due diligence defense is available. The due diligence defense requires
the following items to be addressed:
the issuer must have a system designed to ensure the issuer is meeting its disclosure obligations;
the defendant must have conducted a reasonable investigation to support reliance on the system; and
defendants must have no reasonable grounds to believe that the document or a public oral statement contained a
misrepresentation or that the failure to make the required disclosure would occur.
The Fund is keenly aware of the significance of these laws and the interrelationships between civil liability, disclosure
controls and good governance. The Fund has adopted policies, practices and processes to reduce the risk of a governance or
control breakdown. A statement of the Fund’s governance practices is included in the Fund’s most recent information
circular which can be found at www.sedar.com. Although the Fund believes it follows good corporate governance practices,
there can be no assurance that these practices will eliminate or mitigate the impact of a material lawsuit in this area.
The area of governance is growing to encompass not only traditional governance matters, but also environmental and social
matters. This area is often referred to as Environmental, Social and Governance, or “ESG”. Increased awareness and
attention by investors to ESG matters means that the Company needs to become more transparent in developing and
reporting on ESG initiatives and increase or add ESG initiatives where there are significant gaps. The Fund is developing
and enhancing ESG reporting and initiatives and during 2018 has adopted policies on reporting and anti-retaliation,
occupational health and safety, non-discrimination, human rights, diversity and anti-corruption, which are available on the
Boyd website at www.boydgroup.com.
Economic Downturn
Historically the auto collision repair industry has proven to be resilient to economic downturns along with the accompanying
unemployment, and while the Company works to mitigate the effect of economic downturn on its operations, economic
conditions, which are beyond the Company’s control, could lead to a decrease in accident repair claims volumes due to
fewer miles driven or due to vehicle owners being less inclined to have their vehicles repaired. It is difficult to predict the
severity and the duration of any decrease in claims volumes resulting from an economic downturn and the accompanying
unemployment and what affect it may have on the auto collision repair industry, in general, and the financial performance of
the Company in particular. There can be no assurance that an economic downturn would not negatively affect the financial
performance of the Company.
Increased Government Regulation and Tax Risk
The Fund, the Company and its subsidiaries are subject to various federal, provincial, state and local laws, regulations and
taxation authorities. Various federal, provincial, state and local agencies as well as other governmental departments
administer such laws, regulations and their related rules and policies. New laws governing the Fund or its business could be
enacted or changes or amendments to existing laws and regulations could be enacted which could have a significant impact
on Boyd. For example, privacy legislation continues to evolve rapidly and tariff changes are being introduced with greater
frequency. The Fund utilizes the services of professional advisors in the areas of taxation, environmental, health and safety,
labour and general business law to mitigate the risk of non-compliance. Failure by the Fund to comply with the applicable
laws, regulations or tax changes may subject it to civil or regulatory proceedings and no assurance can be given that this will
not have a material impact on the Fund or its financial results.
Canada, Maryland, Delaware and urban centers in Utah and California have regulations to limit emissions pollutants used in
a number of consumer and commercial products including automotive paint and coatings. As a result, the automobile
collision repair industry in those regions has adapted their refinish processes and equipment to waterborne basecoat
technology. The Company also converts all new U.S. operations to waterborne basecoat technology and has converted all
new locations since August 2009. Although to date, there have been no negative consequences to this conversion there can
be no assurance that conversion to this new technology or compliance with legislation will not have a material adverse affect
on the Fund’s business or financial results.
From time to time, the Fund has, and will continue to evaluate structuring alternatives. In 2009, the Fund investigated and
40
evaluated its structuring alternatives in connection with the SIFT rules with a view of preserving and maximizing unitholder
value. Based upon its investigation, analysis and due diligence and given its size and circumstances, the Fund determined at
that time, that a change to a share corporation structure would not be advantageous to the Fund or its unitholders. This
determination was made based on several reasons. First, the Fund did not believe it would achieve any net tax savings by
converting. Second, the Fund believed that the cost of conversion was not a prudent use of cash and was not justified by any
perceived benefits from conversion for a fund of its size. Third, to the extent that the Fund paid SIFT tax, it believed that its
taxable unitholders would benefit from the lower tax rate on distributions received, as it was expected to be able to maintain
distributions, despite any trust tax that the Fund would incur. Lastly, the Fund’s distributions to unitholders were funded
almost entirely by U.S. operations. Fund distributions that are sourced from U.S. business earnings are not subject to the
SIFT tax. There can be no assurance that additional changes to the taxation of income trusts or corporations or changes to
other government laws, rules and regulations, either in Canada or the U.S., will not be undertaken which could have a
material adverse effect on the Fund’s unit price and business. There can be no assurance that the Fund will benefit from
these rules, that the rules will not change in the future or that the Fund will avail itself of them.
Environmental, Health and Safety Risk
The nature of the collision repair business means that hazardous substances must be used, which could cause damage to the
environment or individuals if not handled properly. The Company’s environmental protection policy requires environmental
site assessments to be performed on all business locations prior to acquisition, start-up or relocation so that any existing or
potential environmental situations can be remedied or otherwise appropriately addressed. It is also Boyd’s practice to secure
environmental indemnification from landlords and former owners of acquired collision repair businesses, where such
indemnification is available. Boyd also engages a private environmental consulting firm to perform regular compliance
reviews to ensure that the Company’s environmental and health and safety policies are followed.
To date, the Company has not encountered any environmental protection requirements or issues which would be expected to
have a material financial or operational effect on its current business and it is not aware of any material environmental issues
that could have a material impact on future results or prospects. No assurance can be given, however, that the prior activities
of Boyd, or its predecessors, or the activities of a prior owner or lessee, have not created a material environmental problem
or that future uses or evolving regulations will not result in the imposition of material environmental, health or safety
liability upon Boyd.
Fluctuations in Operating Results and Seasonality
The Company’s operating results have been and are expected to continue to be subject to quarterly fluctuations due to a
variety of factors including changes in customer purchasing patterns, pricing paid to insurance companies, general operating
effectiveness, automobile technologies, general and regional economic downturns, unemployment rates and weather
conditions. These factors can affect Boyd’s ability to fund ongoing operations and finance future activities.
Risk of Litigation
The Fund and its subsidiaries could become involved in various legal actions in the ordinary course of business. Litigation
loss accruals may be established if it becomes probable that the Fund will incur an expense and the amount can be
reasonably estimated. The Fund’s management and internal and external experts are involved in assessing the probability
and in estimating any amounts involved. Changes in these assessments may lead to changes in recorded loss accruals.
Claims are reviewed on a case by case basis, taking into consideration all information available to the Fund.
The actual costs of resolving claims could be substantially higher or lower than the amounts accrued. In certain cases, legal
claims may be covered under the Fund’s various insurance policies.
Execution on New Strategies
New initiatives are introduced from time to time in order to grow Boyd’s business. Initiatives such as entering new markets,
introducing and improving related products and services, or identifying new strategies to capture additional market share
have the potential to be accretive to the Company’s business when the opportunity is accurately identified and executed.
There can be no assurance that the Company identifies new strategies that are accretive to the business or that it is successful
in implementing such initiatives.
41
Insurance Risk
The Fund insures its property, plant and equipment, including vehicles through insurance policies with insurance carriers
located in Canada and the U.S. Included within these policies is insurance protection against property loss and general
liability. The Fund also insures its directors and officers against liabilities arising from errors, omissions and wrongful acts.
Management uses its knowledge, as well as the knowledge of experienced brokers, to ensure that insurable risks are insured
appropriately under terms and conditions that would protect the Fund and its subsidiaries from losses. There can be no
assurance that all perils would be fully covered or that a material loss would be recoverable under such insurance policies.
Cash Distributions Not Guaranteed
The Fund and BGHI receive cash in the form of interest payments on the Notes and dividends from the Company or its
subsidiaries. The Fund and BGHI distribute the cash they receive, net of expenses and amounts reserved, to unitholders and
Class A common shareholders respectively. The actual amount of cash received and ultimately distributed by the Fund and
BGHI in the future will depend upon numerous factors, including profitability, fluctuations in working capital, sustainability
of margins, required capital expenditures, the need to maintain productive capacity, required funding of long-term
contractual obligations, required funding to meet growth targets, repurchases of units, restrictions on distributions arising
from compliance with financial debt covenants, taxation on income or on distributions and debt repayments expected to be
funded by cash flows generated from operations. There can be no assurance regarding the amount of distributable cash
generated by the Company or its subsidiaries, and therefore no assurance as to the amount of cash which may be distributed
by the Fund or BGHI in the future.
Unitholder Limited Liability is Subject to Contractual and Statutory Assurances That May Have Some Enforcement
Risks
The Declaration of Trust provides that no Unitholder will be subject to any liability in connection with the Fund or its
obligations and affairs and, in the event that a court determines Unitholders are subject to any such liabilities, the liabilities
will be enforceable only against, and will be satisfied only out of, the Fund’s assets.
However, there remains a risk, which is considered by the Fund to be remote in the circumstances, that a Unitholder could
be held personally liable, despite such statement in the Declaration of Trust, for the obligations of the Fund to the extent that
claims are not satisfied out of the assets of the Fund.
Real Estate Management
The Fund has various operating lease commitments, primarily in respect of leased premises for the majority of repair
locations. Beginning January 1, 2019, the Fund will be required to bring most leases on-balance sheet through recognition
of related assets and liabilities. This will have a significant impact on both the reported financial condition and results of
operations of the Fund.
Interest Rates
The Company occasionally fixes the interest rate on its debt using interest rate swap contracts or other provisions available
in its debt facilities. There can be no guarantee that interest rate swaps or other contract terms that effectively turn variable
rate debt into fixed rates will be an effective hedge against long-term interest rate fluctuations.
The Company has not fixed interest rates within its revolving credit facility. There can be no assurance that interest rates
either in Canada or the U.S. will not increase in the future, which could result in a material adverse effect on the Company’s
business.
U.S. Health Care Costs and Workers Compensation Claims
The Fund accrues for the estimated amount of U.S. health care claims and workers compensation claims that may have
occurred but were not reported at the end of the reporting period under its health care and workers compensation plans. The
accruals are based upon the Company’s knowledge of current claims as well as third party estimates derived from past
experience. Significant claim occurrences which remain unreported for a number of months could materially impact this
accrual. In addition, as U.S health care costs increase, there can be no assurance given that the Company can continue to
offer health care insurance to its employees at a reasonable cost.
42
Low Capture Rates
Sales growth can be enhanced if the Company is effective at booking repair orders for all sales opportunities that are
identified. The Company is exposed to missed jobs to the extent employees are ineffective at capturing all sales
opportunities. Measurement of capture rates, management support and training are methods that are employed to enhance
capture rates. However, it is possible that the Company may not be able to capture sales effectively enough to maximize
sales.
Energy Costs
The Company is exposed to fluctuations in the price of energy. These costs not only impact the costs associated with
occupying and operating collision repair facilities but may also affect costs of parts and materials used in the repair process
as well as miles driven by automobile owners. There can be no assurance that escalating costs which cannot be offset by
energy conservation practices, price increases to clients and customers or productivity gains, would not result in materially
lower operating margins. As well, there can be no assurance that escalating energy costs will not materially reduce
automobile miles driven and in turn reduce the number of collisions.
Capital Expenditures
The business of the Company requires ongoing capital maintenance. Moreover, opportunities may arise for capital upgrades
providing returns or cost savings that may not be realized in the immediate future but, rather, over several years. As vehicle
technology advances and market needs change, the capital intensity of the industry is changing, requiring expenditures in
excess of historical capital maintenance levels. To the extent that capital expenditures are in excess of amounts budgeted, the
amounts of cash available for distribution may decrease.
ADDITIONAL INFORMATION
The Fund’s units trade on the Toronto Stock Exchange under the symbols TSX: BYD.UN. Additional information relating
to
the Company website
the Boyd Group
(www.boydgroup.com).
is available on SEDAR
(www.sedar.com) and
Income Fund
43
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Brock Bulbuck, Chief Executive Officer, Boyd Group Income Fund, certify the following:
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater
certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual
filings”) of Boyd Group Income Fund (the “issuer”) for the financial year ended December 31, 2018.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not
contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is
necessary to make a statement not misleading in light of the circumstances under which it was made, for the period
covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements
together with the other financial information included in the annual filings fairly present in all material respects the
financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods
presented in the annual filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are
defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the
issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying
officer(s) and I have, as at the financial year end
(a)
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)
(ii)
material information relating to the issuer is made known to us by others, particularly during the
period in which the annual filings are being prepared; and
information required to be disclosed by the issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s
ICFR is the Internal Control – Integrated Framework (COSO 2013 Framework), published by The Committee of
Sponsoring Organizations of the Treadway Commission.
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer’s other certifying officer(s) and I have
(a)
(b)
evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the
financial year end and the issuer has disclosed in its annual MD&A our conclusions about the
effectiveness of DC&P at the financial year end based on that evaluation; and
evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the
financial year end and the issuer has disclosed in its annual MD&A
(i)
our conclusions about the effectiveness of ICFR at the financial year end based on that
evaluation; and
44
(ii)
N/A
7. Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that
occurred during the period beginning on October 1, 2018 and ended on December 31, 2018 that has materially
affected, or is reasonably likely to materially affect, the issuer’s ICFR.
8. Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board
of directors or the audit committee of the board of directors any fraud that involves management or other
employees who have a significant role in the issuer’s ICFR.
Date: March 21, 2019
(signed)
Brock Bulbuck
Chief Executive Officer
45
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Narendra Pathipati, Chief Financial Officer, Boyd Group Income Fund, certify the following:
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater
certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual
filings”) of Boyd Group Income Fund (the “issuer”) for the financial year ended December 31, 2018.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not
contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is
necessary to make a statement not misleading in light of the circumstances under which it was made, for the period
covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements
together with the other financial information included in the annual filings fairly present in all material respects the
financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods
presented in the annual filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are
defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the
issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying
officer(s) and I have, as at the financial year end
(a)
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)
(ii)
material information relating to the issuer is made known to us by others, particularly during the
period in which the annual filings are being prepared; and
information required to be disclosed by the issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s
ICFR is the Internal Control – Integrated Framework (COSO 2013 Framework), published by The Committee of
Sponsoring Organizations of the Treadway Commission.
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer’s other certifying officer(s) and I have
(a)
(b)
evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the
financial year end and the issuer has disclosed in its annual MD&A our conclusions about the
effectiveness of DC&P at the financial year end based on that evaluation; and
evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the
financial year end and the issuer has disclosed in its annual MD&A
(i)
our conclusions about the effectiveness of ICFR at the financial year end based on that
evaluation; and
46
(ii)
N/A
7. Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that
occurred during the period beginning on October 1, 2018 and ended on December 31, 2018 that has materially
affected, or is reasonably likely to materially affect, the issuer’s ICFR.
8. Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board
of directors or the audit committee of the board of directors any fraud that involves management or other
employees who have a significant role in the issuer’s ICFR.
Date: March 21, 2019
(signed)
Narendra Pathipati
Executive Vice President & Chief Financial Officer
47
BOYD GROUP INCOME FUND
CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2018
48
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
These consolidated financial statements have been prepared by management in accordance with Canadian generally
accepted accounting principles. Management is responsible for their integrity, objectivity and reliability, and for the
maintenance of financial and operating systems, which include effective controls, to provide reasonable assurance that the
Fund’s assets are safeguarded and that reliable financial information is produced.
The Board of Trustees is responsible for ensuring that management fulfills its responsibilities for financial reporting,
disclosure control and internal control. The Board exercises these responsibilities through its Audit Committee, all members
of which are not involved in the daily activities of the Fund. The Audit Committee meets with management and, as
necessary, with the independent auditors, Deloitte LLP, to satisfy itself that management’s responsibilities are properly
discharged and to review and report to the Board on the consolidated financial statements.
In accordance with Canadian generally accepted auditing standards, the independent auditors conduct an examination each
year in order to express a professional opinion on the consolidated financial statements.
(signed)
Brock Bulbuck
Chief Executive Officer
Winnipeg, Manitoba
March 20, 2019
(signed)
Narendra Pathipati
Executive Vice President & Chief Financial Officer
49
Deloitte LLP
360 Main Street
Suite 2300
Winnipeg MB R3C 3Z3
Canada
Tel: 1-204-942-0051
Fax: 1-204-947-9390
www.deloitte.ca
Independent Auditor’s Report
To the Unitholders of Boyd Group Income Fund
Opinion
We have audited the consolidated financial statements of Boyd Group Income Fund and its subsidiaries
(the “Fund”), which comprise the consolidated statements of financial position as at December 31, 2018
and 2017, and the consolidated statements of earnings, comprehensive earnings, changes in equity and
cash flows for the years then ended, and notes to the consolidated financial statements, including a
summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Fund as at December 31, 2018 and 2017, and its financial performance and its cash flows
for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian
GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report. We are independent of the Fund in
accordance with the ethical requirements that are relevant to our audit of the financial statements in
Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Other Information
Management is responsible for the other information. The other information comprises:
● Management’s Discussion and Analysis
● The information, other than the financial statements and our auditor’s report thereon, in the Annual
Report.
Our opinion on the financial statements does not cover the other information and we do 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,
or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and the Annual Report prior to 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 this
auditor’s report. We have nothing to report in this regard.
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 IFRS, 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.
50
In preparing the financial statements, management is responsible for assessing the Fund’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Fund or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Fund’s financial reporting process.
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 GAAS 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 these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
● Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Fund’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Fund to cease to continue as a going
concern.
● Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Fund to express an opinion on the financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
51
We 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.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Michael Boucher.
Chartered Professional Accountants
Winnipeg, Manitoba
March 20, 2019
52
BOYD GROUP INCOME FUND
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31,
(thousands of Canadian dollars)
Assets
Current assets:
Cash
Accounts receivable
Income taxes recoverable
Inventory
Prepaid expenses
Property, plant and equipment
Deferred income tax asset
Intangible assets
Goodwill
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities
Distributions and dividends payable
Current portion of long-term debt
Current portion of obligations under finance leases
Non-controlling interest call liability
Long-term debt
Obligations under finance leases
Deferred income tax liability
Exchangeable Class A common shares
Unit based payment obligation
Non-controlling interest put option and call liability
Equity
Accumulated other comprehensive earnings
Retained earnings (deficit)
Unitholders' capital
Contributed surplus
2018
2017
Note
15
6
7
8
9
10
11
12
13
15
12
13
8
11, 15
16
15
19
20
21
$
64,476
105,088
3,064
41,804
30,292
$
47,831
104,545
6,662
27,011
25,294
244,724
253,103
-
295,789
439,867
211,343
196,099
106
251,902
351,943
$
1,233,483
$
1,011,393
$
267,991
902
16,390
3,846
13,651
$
195,837
869
15,134
3,652
-
302,780
271,769
4,561
39,882
21,549
14,936
6,905
662,382
77,637
14,038
475,424
4,002
215,492
242,842
5,269
26,302
20,218
40,185
21,242
571,550
38,810
(46,432)
443,463
4,002
571,101
1,233,483
$
439,843
1,011,393
$
The accompanying notes are an integral part of these consolidated financial statements
Approved by the Board:
BROCK BULBUCK
Trustee
ALLAN DAVIS
Trustee
53
BOYD GROUP INCOME FUND
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(thousands of Canadian dollars, except unit amounts)
Balances - January 1, 2017
18,065,060
$
306,261
$
4,002
$
65,560
$
(95,285)
$
280,538
Unitholders' Capital
Units
Amount
Contributed
Surplus
Accumulated Other
Comprehensive
Earnings
Retained
Earnings
(Deficit)
Total Equity
Note
Issue costs (net of tax of $nil)
Units issued in connection with acquisition
Retractions
Conversion and redemption of convertible debentures
Other comprehensive loss
Net earnings
Comprehensive earnings
Distributions to unitholders
Balances - December 31, 2017
Issue costs (net of tax of $nil)
Units issued from treasury in connection with options exercised
Retractions
Other comprehensive earnings
Net earnings
Comprehensive earnings
Adjustment on adoption of IFRS 15 (net of tax of $1,804)
Distributions to unitholders
15
11
16
15
2
11
537,872
3,798
907,134
(192)
51,716
355
85,323
(26,750)
(26,750)
58,435
58,435
(9,582)
(192)
51,716
355
85,323
(26,750)
58,435
31,685
(9,582)
19,513,864
$
443,463
$
4,002
$
38,810
$
(46,432)
$
439,843
300,000
9,611
(101)
31,020
1,042
38,827
38,827
77,639
77,639
(6,731)
(10,438)
(101)
31,020
1,042
38,827
77,639
116,466
(6,731)
(10,438)
Balances - December 31, 2018
19,823,475
$
475,424
$
4,002
$
77,637
$
14,038
$
571,101
The accom panying notes are an integral part of these consolidated financial statements
54
BOYD GROUP INCOME FUND
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31,
(thousands of Canadian dollars, except unit and per unit amounts)
Sales
Cost of sales
Gross profit
Operating expenses
Acquisition and transaction costs
Depreciation of property, plant and equipment
Amortization of intangible assets
Fair value adjustments
Finance costs
Earnings before income taxes
Income tax expense
Current
Deferred
Net earnings
The accompanying notes are an integral part of these consolidated financial statements
Basic earnings per unit
Diluted earnings per unit
Basic weighted average number of units outstanding
Diluted weighted average number of units outstanding
2018
2017
Note
24
$
1,864,613
1,022,162
$
1,569,448
851,075
842,451
669,068
4,298
34,067
17,674
4,787
10,283
740,177
102,274
12,143
12,492
24,635
718,373
572,738
2,149
28,057
13,608
8,167
16,505
641,224
77,149
16,130
2,584
18,714
$
77,639
$
58,435
$
$
3.944
3.785
$
$
3.160
2.808
19,684,337
19,856,163
18,489,781
18,714,443
7
9
14
8
8
29
29
29
29
BOYD GROUP INCOME FUND
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
For the years ended December 31,
(thousands of Canadian dollars)
Net earnings
Other comprehensive earnings (loss)
Items that may be reclassified subsequently to Consolidated Statements of
Earnings
Change in unrealized earnings on translating financial statements of
foreign operations
Other comprehensive earnings (loss)
Comprehensive earnings
The accompanying notes are an integral part of these consolidated financial statements
55
2018
2017
$
77,639
$
58,435
19
38,827
(26,750)
$
38,827
116,466
$
(26,750)
31,685
BOYD GROUP INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(thousands of Canadian dollars)
Cash flows from operating activities
Net earnings
Items not affecting cash
Fair value adjustments
Deferred income taxes
Amortization of discount on convertible debt
Amortization of intangible assets
Depreciation of property, plant and equipment
Other
Changes in non-cash working capital items
Cash flows (used in) from financing activities
Fund units issued from treasury
in connection with options exercised
Issue costs
Increase in obligations under long-term debt
Repayment of long-term debt
Repayment of obligations under finance leases
Dividends and distributions paid
Payment to non-controlling interests
Payment of financing costs
Cash flows used in investing activities
Proceeds on sale of equipment and software
Equipment purchases and facility improvements
Acquisition and development of businesses
(net of cash acquired)
Software purchases and licensing
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash position
Cash, beginning of year
Cash, end of year
Income taxes paid
Interest paid
The accompanying notes are an integral part of these consolidated financial statements
56
Note
14
9
7
30
16, 31
31
12, 31
12, 31
31
31
31
7
9
2018
2017
$
77,639
$
58,435
4,787
12,492
-
17,674
34,067
(167)
146,492
34,023
180,515
876
(101)
67,799
(66,079)
(3,906)
(10,522)
-
-
(11,933)
565
(25,742)
(129,948)
(909)
(156,034)
4,097
16,645
47,831
8,167
2,584
5,657
13,608
28,057
98
116,606
3,066
119,672
-
(192)
209,053
(53,212)
(4,349)
(9,618)
(221)
(859)
140,602
750
(23,133)
(240,155)
(416)
(262,954)
(3,004)
(5,684)
53,515
$
64,476
$
47,831
$
$
8,258
10,181
$
$
25,568
10,865
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
1. GENERAL INFORMATION
Boyd Group Income Fund (the “Fund” or “BGIF”) is an unincorporated, open-ended mutual fund trust established
under the laws of the Province of Manitoba, Canada on December 16, 2002. It was established for the purposes of
acquiring and holding a majority interest in The Boyd Group Inc. (the “Company”). The Company is partially owned
by Boyd Group Holdings Inc. (“BGHI”), which is controlled by the Fund. These financial statements reflect the
activities of the Fund, the Company and all its subsidiaries including BGHI.
The Company’s business consists of the ownership and operation of autobody/autoglass repair facilities and related
services. At the reporting date, the Company operated locations in five Canadian provinces under the trade name Boyd
Autobody & Glass and Assured Automotive, as well as in 25 U.S. states under the trade name Gerber Collision &
Glass. The Company uses newly acquired brand names during a transition period until acquired locations have been
rebranded. The Company is also a major retail auto glass operator in the U.S. with locations across 34 U.S. states under
the trade names Gerber Collision & Glass, Glass America, Auto Glass Service, Auto Glass Authority and
Autoglassonly.com. The Company also operates Gerber National Claim Services (“GNCS”), which offers glass,
emergency roadside and first notice of loss services with approximately 5,500 glass provider locations and 4,600
Emergency Roadside Services provider locations throughout the U.S.
The units of the Fund are listed on the Toronto Stock Exchange and trade under the symbol “BYD.UN”. The head
office and principal address of the Fund are located at 1745 Ellice Avenue, Winnipeg, Manitoba, Canada, R3H 1A6.
The consolidated financial statements for the year ended December 31, 2018 (including comparatives) were approved
and authorized for issue by the Board of Trustees on March 20, 2019.
2.
SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation
The consolidated financial statements of the Fund have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These
consolidated financial statements are presented in thousands of Canadian dollars, except unit, share and per unit/share
amounts.
b) Revenue recognition
The Fund has adopted IFRS 15 Revenue from Contracts with Customers on January 1, 2018 using the modified
retrospective approach, which recognizes the cumulative effect of initial application as an adjustment to the opening
balance of retained earnings (deficit) at January 1, 2018 without restatement of comparatives. Beginning January 1,
2018, the Fund recognizes revenue upon completion and delivery of the repair to the customer, which has been
determined to be the performance obligation that is distinct and the point at which control of the asset passes to the
customer. Revenue is measured at the fair value of the consideration received. Previously, revenue was recognized to
the extent that it was probable that the economic benefits would flow to the Fund, the sales price was fixed or
determinable and collectability was reasonably assured. As a result, revenue that met the revenue recognition
criteria under the prevailing IAS 18 was recognized in the year ended December 31, 2017. The same revenue;
however, would not have met the recognition criteria under IFRS 15. As such, the impact on the consolidated
financial statements as at January 1, 2018 is a decrease to opening retained earnings (deficit) of $6,731.
c) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.
Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling
expenses.
57
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
d) Property, plant and equipment
Property, plant and equipment assets are stated at cost less accumulated depreciation and accumulated impairment
losses. The cost of an item of property, plant and equipment consists of the purchase price, any costs directly
attributable to bringing the asset to the location and condition necessary for its intended use and an estimate of the costs
of dismantling and removing the item and restoring the site on which it is located.
Depreciation is calculated using the declining balance and straight line rates as disclosed in the property, plant and
equipment note. Leasehold improvements are amortized on the straight line basis over the period of estimated benefit.
An item of property, plant and equipment is reclassified as held for sale or derecognized upon disposal, or when no
future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal
of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is
recognized in the consolidated statement of earnings.
The Fund conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for
property, plant and equipment and any changes arising from the assessment are applied by the Fund prospectively.
e) Consolidation
The financial statements of the Fund consolidate the accounts of the Fund and its subsidiaries. All intercompany
transactions, balances and unrealized gains and losses from intercompany transactions are eliminated on
consolidation.
Subsidiaries are those entities which the Fund controls by having the power to govern the financial and operating
policies. The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Fund controls another entity. Subsidiaries are fully consolidated from the
date on which control is obtained by the Fund and are de-consolidated from the date that control ceases.
f) Business combinations, goodwill and other intangible assets
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method of accounting. The cost of
the acquisition is measured at the aggregate of the fair values (at the acquisition date) of assets transferred, liabilities
incurred or assumed, and equity instruments issued by the Fund in exchange for control of the acquired company.
Acquisition costs are expensed as incurred. The acquired company’s identifiable assets (including previously
unrecognized intangible assets), liabilities and contingent liabilities are recognized at their fair values at the acquisition
date.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Fund’s share of the net
identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is carried at cost less accumulated
impairment losses.
Intangible assets are recognized only when it is probable that the expected future economic benefits attributable to the
assets will accrue to the Fund and the cost can be reliably measured. Intangible assets acquired in a business
combination are recorded at fair value. Intangible assets that do not have indefinite lives are amortized over their useful
lives using an amortization method which reflects the economic benefit of the intangible asset. Customer relationships
are amortized on a straight-line basis over the expected period of benefit of 20 years. Contractual rights, which consist
of non-compete agreements, zoned property rights and favourable lease agreements, are amortized on a straight-line
basis over the term of the contract. Computer software is amortized on a straight-line basis over periods of three and
five years. Brand names which the Company continues to use in the conduct of its business are considered indefinite
life because their value is not expected to degrade over time. To the extent the Company decides to discontinue the use
of a certain brand, an estimate of the remaining useful life is made and the intangible asset is amortized over the
remaining period.
58
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
g)
Impairment of non-financial assets
Property, plant and equipment and definite life intangible assets are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. For the purpose of measuring recoverable
amounts, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash-
generating unit or “CGU”). 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 or CGU). An impairment loss
is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Goodwill and indefinite lived intangible assets are reviewed for impairment annually or at any time if an indicator of
impairment exists. As well, newly acquired goodwill is reviewed for impairment at the end of the year in which it
was acquired.
Goodwill acquired through a business combination is allocated to each CGU, or group of CGUs, that are expected to
benefit from the related business combination. A group of CGUs represents the lowest level within the entity at
which the goodwill is monitored for internal management purposes, which is not higher than an operating segment.
Impairment losses on goodwill are not reversed.
The Fund evaluates impairment losses, other than goodwill impairment, for potential reversals when events or
circumstances warrant such consideration.
h) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid
investments with original maturities of three months or less.
i) Income taxes
Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statement of earnings
except to the extent that it relates to items recognized directly in equity, in which case the income tax is recognized
directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively
enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.
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 statement of
financial position 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 provided on temporary differences arising on investments in subsidiaries except, in the case of
subsidiaries, where the timing of the reversal of the temporary difference is controlled by the Fund and it is probable
that the temporary difference will not reverse in the foreseeable future.
j) Unitholders’ capital
Under IAS 32, a financial instrument that gives the holder the right to put the instrument back to the issuer for cash
or another financial asset (a ‘puttable instrument’) is a financial liability, except for those instruments that meet the
exceptions to be classified as equity instruments. The trust units of the Fund meet the puttable equity exceptions
and therefore are classified as equity.
The Fund’s declaration of trust allows a unitholder to tender their units for cash redemption. This cash redemption
right is restricted, at the Fund’s option, to an aggregate cash amount of $25 per month. Historically, the Fund has
not been asked to redeem units for cash.
59
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
k) Unit-Based compensation
The Fund issues unit-based awards to certain employees in the form of unit options. The unit options are financial
liabilities since the units are ultimately puttable back to the Fund in exchange for cash. The cost of cash-settled unit-
based transactions are measured at fair value using a Black-Scholes model and expensed over the vesting period
with the recognition of a corresponding liability. The liability is re-measured at each reporting date with changes in
fair value recognized in earnings.
l) Earnings per unit
Basic earnings per unit (EPU) is calculated by dividing the net earnings for the period attributable to equity owners of
the Fund by the weighted average number of units outstanding during the period.
Diluted EPU is calculated by adjusting the weighted average number of units outstanding and corresponding earnings
impact for dilutive instruments. The Fund’s dilutive instruments comprise unit options, exchangeable shares,
convertible debentures and non-controlling interest put options and call liability. The number of shares included with
respect to unit options is computed using the treasury stock method. The exchangeable Class A shares are evaluated as
to whether or not they are dilutive based on the effect on earnings per unit of eliminating the liability adjustment for the
period and increasing the weighted average number of units outstanding for the units that would be exchanged for the
Class A shares. The dilutive impact of the convertible debentures and non-controlling interest put options and call
liability is calculated using the “if converted” method.
m) Foreign currency translation
Items included in the financial statements of each subsidiary are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The consolidated financial statements are
presented in Canadian dollars, which is the Fund’s functional currency. The financial statements of entities that have a
functional currency different from that of the Fund are translated into Canadian dollars. Assets and liabilities are
translated into Canadian dollars at the closing rate of exchange prevailing at the statement of financial position dates
and income and expense items are translated at the average exchange rate during the period (as this is considered a
reasonable approximation to actual rates). The adjustment arising from the translation of these accounts is recognized
in other comprehensive earnings (loss) as cumulative translation adjustments.
When an entity disposes of its entire interest in a foreign operation, or loses control, joint control, or significant
influence over a foreign operation, the foreign currency gains or losses accumulated in other comprehensive earnings
(loss) related to the foreign operation are recognized in earnings. If an entity disposes of part of an interest in a foreign
operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in other
comprehensive earnings (loss) related to the subsidiary are reallocated between controlling and non-controlling
interests.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Generally, foreign exchange gains and losses resulting from the settlement of foreign currency
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in
currencies other than an operation’s functional currency are recognized in earnings.
n) Financial instruments
The Fund has adopted IFRS 9 Financial Instruments on January 1, 2018 using the modified retrospective approach.
IFRS 9 includes a logical model for classification and measurement, a single, forward-looking expected loss
impairment model and a substantially-reformed approach to hedge accounting. The adoption of IFRS 9 has resulted
in changes to the classification of the Fund’s financial assets but has not changed the classification of the Fund’s
financial liabilities. The carrying values of the Fund’s financial instruments were not impacted by the adoption of
IFRS 9.
60
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
All financial assets previously classified as loans and receivables are now classified as amortized cost. All financial
liabilities previously classified as other financial liabilities are now classified as amortized cost. There were no
changes to the category of financial liabilities classified as fair value through profit or loss (“FVPL”).
At the date of adoption, the application of IFRS 9 had no material impact on the Fund’s consolidated financial
statements.
Recognition
Financial assets and liabilities are recognized when the Fund becomes a party to the contractual provisions of the
instrument.
Classification
Effective January 1, 2018, the Fund classifies its financial assets and liabilities in the following categories depending
on the Fund’s business model for managing the financial assets and the contractual terms of the cash flows:
Those to be measured subsequently at fair value, either through profit or loss or through OCI, and
Those to be measured at amortized cost.
Cash and accounts receivable are classified as amortized cost. After their initial fair value measurement, they are
measured at amortized cost using the effective interest method, as reduced by appropriate allowances for estimated
lifetime expected credit losses.
Accounts payable and accrued liabilities, dividends and distributions payable, and long-term debt are classified as
amortized cost and are net of any related financing fees or issue costs. After their initial fair value measurement,
they are measured at amortized cost using the effective interest method.
Derivative contracts including the non-controlling interest put option and call liability are classified as financial
assets or financial liabilities at FVPL with mark-to-market adjustments being recorded to net earnings at each period
end.
As a result of the Fund’s units being redeemable for cash, the exchangeable Class A shares of the Fund’s subsidiary
BGHI, are presented as financial liabilities and classified as financial assets or financial liabilities at FVPL.
Exchangeable Class A shares are measured at the market price of the units of Fund as of the statement of financial
position date.
Measurement
At initial recognition, the Fund measures a financial asset at its fair value plus, in the case of a financial asset not at
fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the
financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
For those financial instruments where fair value is recognized in the Consolidated Statement of Financial Position
the methods and assumptions used to develop fair value measurements have been classified into one of the three
levels of the fair value hierarchy for financial instruments:
Level 1 includes quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 includes inputs that are observable other than quoted prices included in Level 1
Level 3 includes inputs that are not based on observable market data
o) Non-controlling interests
The Company accounts for transactions where a non-controlling interest exists, and where a put option has been
granted to third parties under IFRS 10 whereby the non-controlling interest is initially recognized at fair value and then
immediately derecognized upon the issuance and recognition of the put option. Differences between the put option
liability recognized at fair value and the amount of any non-controlling interest derecognized is recognized directly in
equity.
61
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
When there is no allocation of profit or loss to non-controlling partners, no non-controlling interest is recognized in the
Consolidated Statement of Financial Position. Distributions to non-controlling partners are recognized as an expense
when paid or payable based on the distribution formula of the agreement.
p) Pensions and other post-retirement benefits
The Company contributes to defined contribution pension plans of employees. Contributions are recognized within
operating expenses at an amount equal to contributions payable for the period. Any outstanding contributions are
recognized as liabilities within accrued liabilities.
q) Provisions
Provisions are recognized when the Fund has a present legal or constructive obligation that has arisen as a result of a
past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a
reliable estimate can be made of the amount of the obligation.
Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the end of
the reporting period, and are discounted to present value where the effect is significant. The increase in the provision
due to the passage of time is recognized as a finance cost.
r) Segment reporting
The chief operating decision-maker is responsible for allocating resources and assessing performance of the
operating segments and has been identified as the joint responsibility of the Chief Executive Officer of the Fund, the
Chief Operating Officer and President of the Fund and the Executive Vice President and Chief Financial Officer of
the Fund.
The Fund’s primary line of business is automotive collision and glass repair and related services, with the majority
of revenues relating to this group of similar services. This line of business operates in Canada and the U.S. and both
regions exhibit similar long-term economic characteristics. In this circumstance, IFRS requires the Company to
provide specific geographical disclosure. For the years reported, the Company’s revenues were derived within
Canada or the U.S. and all property, plant and equipment, goodwill and intangible assets are located within these
two geographic areas.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
Critical accounting estimates
The Fund makes estimates, including the assumptions applied therein, concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are addressed below.
62
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Impairment of Goodwill and Intangible Assets
When testing goodwill and intangibles for impairment, the Fund uses the recorded historical cash flows of the CGU or
group of CGU’s to which the assets relate for the most recent two years, and an estimate or forecast of cash flows for
the next year to establish an estimate of the Fund’s future cash flows. An estimate of the recoverable amount is then
calculated as 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 or CGU). An impairment loss is recognized for the amount by which
the asset’s carrying amount exceeds its recoverable amount. The methods used to value intangible assets and goodwill
require critical estimates to be made regarding the future cash flows and useful lives of the intangible assets. Goodwill
and intangible asset impairments, when recognized, are recorded as a separate charge to earnings, and could materially
impact the operating results of the Fund for any particular accounting period.
Impairment of Other Long-lived Assets
The Fund assesses the recoverability of its long-lived assets, other than goodwill and intangibles, after considering the
potential impairment indicated by such factors as business and market trends, the Fund’s ability to transfer the assets,
future prospects, current market value and other economic factors. In performing its review of recoverability,
management estimates the future cash flows expected to result from the use of the assets and their potential disposition.
If the discounted sum of the expected future cash flows is less than the carrying value of the assets generating those
cash flows, an impairment loss would be recognized based on the excess of the carrying amounts of the assets over
their estimated recoverable value. The underlying estimates for cash flows include estimates for future sales, gross
margin rates and operating expenses. Changes which may impact these estimates include, but are not limited to,
business risks and uncertainties and economic conditions. To the extent that management’s estimates are not realized,
future assessments could result in impairment charges that may have a material impact on the Fund’s consolidated
financial statements.
Fair Value of Financial Instruments
The Fund has applied discounted cash flow methods to establish the fair value of certain financial liabilities recorded
on the Consolidated Statement of Financial Position, as well as disclosed in the notes to the consolidated financial
statements. The Fund also establishes mark-to-market valuations for derivative instruments, which are assumed to
represent the current fair value of these instruments. These valuations rely on assumptions regarding interest and
exchange rates as well as other economic indicators, which at the time of establishing the fair value for disclosure, have
a high degree of uncertainty. Unrealized gains or losses on these derivative financial instruments may not be realized
as markets change.
Income Taxes
The Fund is subject to income tax in several jurisdictions and estimates are used to determine the provision for income
taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax
determination is uncertain. As a result, the Fund recognizes tax liabilities based on estimates of whether additional
taxes and interest will be due. Uncertain tax liabilities may be recognized when, despite the Fund’s belief that its tax
return positions are supportable, the Fund believes that certain positions are likely to be challenged and may not be
fully sustained upon review by tax authorities. The Fund believes that its accruals for tax liabilities are adequate for all
open audit years based on its assessment of many factors including past experience and interpretations of tax law. To
the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will
impact income tax expense in the period in which such determination is made.
63
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Critical judgments in applying the entity’s accounting policies
Leases
In applying the classification of leases in IAS 17, management considers its premise leases as well as certain equipment
and vehicle leases as operating lease arrangements. In some cases, the lease transaction is not conclusive, and
management uses judgment in determining whether the lease is a finance lease arrangement that transfers substantially
all the risks and rewards incidental to ownership or an operating lease where substantially all the risks and rewards
incidental to ownership are not transferred.
4.
ACCOUNTING STANDARDS AND AMENDMENTS ISSUED BUT NOT YET ADOPTED
The following is an overview of accounting standard changes that the Fund will be required to adopt in future years:
IFRS 16, Leases, was issued by the IASB on January 13, 2016 and will replace the current guidance found in IAS 17,
Leases and related interpretations. The new standard will bring most leases onto the statement of financial position
through recognition of right-of-use assets and lease liabilities. IFRS 16 establishes principles for recognition,
measurement, presentation and disclosure of leases.
The Fund is continuing to evaluate the impact of adopting IFRS 16 on its financial statements, but expects this
standard will have a significant impact on its consolidated statement of financial position, through recognition of
right-of-use assets and lease liabilities, estimated at approximately $450 million and $490 million
respectively. Implementation of the new standard will result in a decrease in lease expenses, which are
classified as operating expenses, and increases to depreciation expense and finance costs as a result of the depreciation
of the right-of-use assets and accretion expense on the lease liability.
The Fund will apply the standard effective January 1, 2019 and plans to transition using the modified retrospective
approach without restatement of prior reporting periods. The Fund expects to apply the recognition exemption for
short-term leases. Other practical expedients available under the guidance are still being evaluated.
Since many of the Fund’s leases are denominated in U.S. dollars, there will be additional volatility in foreign exchange
amounts recognized due to the revaluation to the rate of exchange in effect at the date of the statement of financial
position.
64
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
5.
ACQUISITIONS
The Fund completed 28 acquisitions that added 69 locations during the year ended December 31, 2018 as follows:
Acquisition Date
January 19, 2018
January 31, 2018
February 20, 2018
February 23, 2018
April 17, 2018
May 18, 2018
May 25, 2018
May 28, 2018
June 8, 2018
June 27, 2018
July 3, 2018
July 6, 2018
July 9, 2018
July 10, 2018
August 3, 2018
August 3, 2018
September 21, 2018
October 10, 2018
October 10, 2018
October 12, 2018
October 15, 2018
October 15, 2018
November 1, 2018
November 30, 2018
November 30, 2018
December 11, 2018
December 14, 2018
December 19, 2018
Location
Collier County, FL (2 locations)
Sudbury, ON (4 locations)
Falcon, CO
Dallas, TX (3 locations)
Seattle, WA (3 locations)
Alexandria, LA
Atlanta, GA (2 locations)
Bradford, ON
Chicago, IL
Elk Grove Village, IL
Aurora, ON
Brunswick, OH
Nanaimo, BC
Elkhart, IN
Bessemer & Birmingham, AL
Kenosha, WI
Dundas, ON
Kennewick, WA
Springfield, IL
Saskatoon, SK (2 locations)
Turtle Creek, PA
Brownsburg & Greenwood, IN
Kansas City, MO (5 locations)
West Hawksbury, ON
Wisconsin and Northern Illinois (18 locations)
Albany, OR
Western & Central Regions, TX (9 locations)
Jacksonville, NC
On May 29, 2017, the Company entered into a definitive agreement to acquire the assets and business of Assured
Automotive Inc. and related entities ("Assured"), a multi-location collision repair company operating 68 locations in the
province of Ontario, including 30 intake centers co-located at automotive dealerships. The acquisition of the assets and
business of Assured closed on July 4, 2017, effective July 1, 2017.
The Fund also completed 16 acquisitions that added 33 locations during the year ended December 31, 2017 as follows:
65
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Acquisition Date
January 6, 2017
January 13, 2017
March 17, 2017
April 19, 2017
April 27, 2017
June 14, 2017
June 27, 2017
August 4, 2017
September 1, 2017
September 8, 2017
September 20, 2017
October 18, 2017
October 27, 2017
December 5, 2017
December 12, 2017
December 15, 2017
Location
Monroe, NC
Phoenix, AZ (4 locations)
Portland, OR (2 locations)
Salem, OR
Orem, UT
Greensboro, GA
Spokane, WA
Calgary, AB (4 locations)
Westerville, OH
Lafayette, LA
Issaquah, WA
Toronto, ON
Nashville, TN (9 locations)
Tumwater, WA
Glenwood Springs, CO
Cleveland, OH (3 locations)
The Fund has accounted for the 2018 acquisitions using the acquisition method as follows:
Acquisitions in 2018
Identifiable net assets acquired at fair value:
Cash
Other currents assets
Property, plant and equipment
Identified intangible assets
Customer relationships
Non-compete agreements
Liabilities assumed
Deferred income tax liability
Identifiable net assets acquired
Goodwill
Total purchase consideration
Consideration provided
Cash paid or payable
Contingent consideration
Sellers notes
Total consideration provided
66
Total
acquisitions
$
416
3,464
34,876
43,935
1,408
(1,499)
(595)
$
82,005
65,381
$
147,386
$
118,426
8,887
20,073
$
147,386
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
The Fund has accounted for the 2017 acquisitions using the acquisition method as follows:
Acquisitions in 2017
Assured
Other
acquisitions
Total
acquisitions
Identifiable net assets acquired at fair value:
Other currents assets
Property, plant and equipment
Identified intangible assets
Customer relationships
Brand name
Non-compete agreements
Liabilities assumed
Identifiable net assets acquired
Goodwill
$
16,915
12,083
$
1,933
19,753
$
18,848
31,836
65,000
14,000
8,000
(18,766)
27,773
-
1,362
(520)
92,773
14,000
9,362
(19,286)
$
97,232
104,731
$
50,301
31,751
$
147,533
136,482
Total purchase consideration
$
201,963
$
82,052
$
284,015
Consideration provided
Cash paid or payable
Units issued
Sellers notes
$
150,247
51,716
-
$
75,411
-
6,641
$
225,658
51,716
6,641
Total consideration provided
$
201,963
$
82,052
$
284,015
The preliminary purchase prices for the 2018 acquisitions may be revised as additional information becomes available.
Further adjustments may be recorded in future periods as purchase price adjustments are finalized.
U.S. acquisition transactions are initially recognized in Canadian dollars at the rates of exchange in effect on the
transaction dates. Subsequently, the assets and liabilities are translated at the rate in effect at the Statement of Financial
Position date.
A significant part of the goodwill recorded on the acquisitions can be attributed to the assembled workforce and the
operating know-how of key personnel. However, no intangible assets qualified for separate recognition in this respect.
Goodwill recognized during 2018 is expected to be deductible for tax purposes, except for the goodwill related to the
January 31, 2018 acquisition in Sudbury. Goodwill recognized on this transaction totaled $2,658.
On November 1, 2018, the Company acquired the assets of A&B Body Shop, Inc. The contingent consideration
recorded is based on the business meeting predetermined earnings targets during the period from January 1, 2019 to
December 31, 2021. A maximum payment of $3,284 in 2021 would be required if the business meets or exceeds the
target. The present value of the contingent consideration of $2,492 has been determined using a cost of borrowing
discount rate.
On December 14, 2018, the Company acquired the assets of Paceline Collision Centers. The contingent consideration
recorded is based on the business meeting predetermined earnings targets during the period from January 1, 2019 to
December 31, 2021. A maximum payment of $6,690 in 2021 would be required if the business meets or exceeds the
target. The present value of the contingent consideration of $6,395 has been determined using a cost of borrowing
discount rate.
67
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Funding for the Assured transaction was a combination of cash and the issuance of 537,872 units to the sellers at a unit
price of $96.15. The value of the 537,872 units issued as consideration increased from $88.31 as priced per the Asset
Purchase and Sale Agreement prior to the public announcement of the acquisition to $96.15 at the time of closing.
The results of operations reflect the revenues and expenses of acquired operations from the date of acquisition.
Revenue contributed by acquisitions since being acquired were $60,933. Net losses incurred by acquisitions since being
acquired were $962. If 2018 acquisitions had been acquired on January 1, 2018, the Fund’s net earnings for the year
ended December 31, 2018 would have been $83,089 (unaudited).
6.
INVENTORY
As at
Parts and materials
Work in process
December 31, December 31,
2018
2017
$
15,533
26,271
$
12,846
14,165
$
41,804
$
27,011
Included in cost of sales for the year ended December 31, 2018 are parts and material costs of $581,337 (2017 –
$479,460) and labour costs of $304,968 (2017 – $259,940) with the balance of cost of sales primarily made up of sublet
charges.
68
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
7.
PROPERTY, PLANT AND EQUIPMENT
La nd
Buildings
S ho p
Equipm e nt
Offic e
Equipm e nt
Co m pute r
Ha rdwa re
S igna ge
Ve hic le s
De pre c ia tio n ra te s
5%
15%
20%
30%
15%
30%
Le a s e ho ld
Im pro ve m e nts
10 to 25 ye a rs
s tra ight line
To ta l
As a t J a nua ry 1, 2017
C o s t
Ac c um ula te d
de pre c ia tio n
$
4,704
$
8,704
$
114,915
$
11,456
$
11,264
$
10,635
$
20,756
$
90,134
$
272,568
-
(834)
(50,919)
(5,301)
(7,360)
(3,979)
(11,751)
(30,611)
(110,755)
Ne t bo o k va lue
$
4,704
$
7,870
$
63,996
$
6,155
$
3,904
$
6,656
$
9,005
$
59,523
$
161,813
F o r the ye a r e nde d
De c e m be r 31, 2017
Additio ns
P ro c e e ds o n
dis po s a l
Ga in (lo s s ) o n
dis po s a l
De pre c ia tio n
2,650
11,574
26,078
2,508
6,440
1,490
2,520
20,152
73,412
-
-
-
-
-
(505)
(717)
(39)
(16)
(11,167)
(3,928)
-
-
(1,440)
(363)
(23)
3
(10)
(2)
(399)
284
(1,665)
(1,074)
(2,979)
(338)
(381)
(530)
(279)
(750)
-
(9,227)
(3,992)
269
(28,057)
(10,588)
F o re ign e xc ha nge
(339)
Ne t bo o k va lue
$
7,015
$
18,222
$
74,924
$
6,860
$
8,321
$
6,679
$
7,901
$
66,177
$
196,099
As a t De c e m be r 31, 2017
C o s t
Ac c um ula te d
de pre c ia tio n
$
7,015
$
19,510
$
133,477
$
13,275
$
16,812
$
11,370
$
20,686
$
103,186
$
325,331
-
(1,288)
(58,553)
(6,415)
(8,491)
(4,691)
(12,785)
(37,009)
(129,232)
Ne t bo o k va lue
$
7,015
$
18,222
$
74,924
$
6,860
$
8,321
$
6,679
$
7,901
$
66,177
$
196,099
F o r the ye a r e nde d
De c e m be r 31, 2018
Additio ns
P ro c e e ds o n
dis po s a l
Ga in (lo s s ) o n
dis po s a l
De pre c ia tio n
F o re ign e xc ha nge
4,020
7,607
31,265
1,547
4,630
1,041
3,655
22,581
76,346
-
-
-
754
-
-
(863)
1,739
-
(22)
-
(1)
-
-
-
-
(468)
234
(97)
(1)
(565)
210
(13,684)
(1,500)
(2,941)
(1,108)
(2,964)
(11,007)
(34,067)
5,373
450
597
536
681
4,950
15,080
Ne t bo o k va lue
$
11,789
$
26,705
$
97,856
$
7,356
$
10,607
$
7,148
$
9,039
$
82,603
$
253,103
As a t De c e m be r 31, 2018
C o s t
Ac c um ula te d
de pre c ia tio n
$
11,789
$
29,016
$
175,704
$
15,801
$
23,009
$
13,284
$
24,625
$
133,876
$
427,104
-
(2,311)
(77,848)
(8,445)
(12,402)
(6,136)
(15,586)
(51,273)
(174,001)
Ne t bo o k va lue
$
11,789
$
26,705
$
97,856
$
7,356
$
10,607
$
7,148
$
9,039
$
82,603
$
253,103
69
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
8.
INCOME TAXES
The Fund is a “specified investment flow-through” (“SIFT”) and until December 31, 2010 was exempt from tax on its
income to the extent that its income was distributed to unitholders. This exemption did not apply to the Company or its
subsidiaries, which are corporations that are subject to income tax. Fund distributions that are sourced from U.S.
business earnings are not subject to the SIFT tax.
The Fund accounts for deferred income tax assets and liabilities in respect of accounting and tax basis differences.
Deferred income tax assets and liabilities which relate to the same jurisdiction are netted on the Consolidated Statement of
Financial Position.
a) The reconciliation between income tax expense and the accounting earnings multiplied by the combined basic
Canadian and U.S. federal, provincial and state tax rates is as follows:
Earnings before income taxes
Earnings subject to tax in the hands of unitholders not the Fund
For the years ended December 31,
2018
2017
$
102,274
(10,438)
$
77,149
(9,582)
Income subject to income taxes
$
91,836
$
67,567
Combined basic Canadian and U.S. federal, provincial and state tax rates
25.42%
37.87%
Income tax expense at combined statutory tax rates
$
23,345
$
25,588
Adjustments for the tax effect of:
Non-deductible depreciation
Other non-deductible expenses
Amortization of permanent goodwill deductions
Allocation to non-controlling interest
Changes in deferred tax assets and liabilities resulting from changes in
substantively enacted tax rates
Dividends treated as interest
Non-deductible fair value adjustments
Effective rate adjustment
Items affecting equity - issue costs
Other
-
383
-
(692)
-
1,142
1,330
45
(27)
(891)
(92)
430
-
(286)
(13,571)
961
1,470
3,211
1,022
(19)
Income tax expense
$
24,635
$
18,714
U.S. tax reform resulted in a one-time income tax recovery in 2017 of $13,571, which is included in changes in deferred
tax assets and liabilities resulting from changes in substantively enacted rates.
The structure of the Fund is such that a portion of the Fund’s earnings continue to be subject to tax in the hands of the
unitholders, not the Fund. This permits the Company to reduce its tax obligation. As a result during the year, the
Company benefitted from an interest deduction in the amount of $8,301 (2017 - $10,240). This amount was received by
the Fund who then is permitted to reduce its taxable income for the distributions declared in the year.
70
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
b) Deferred income taxes consist of the following:
As at
Intangible assets
Non-capital losses carried forward
Property, plant and equipment
Issue costs
Other
Deferred income tax asset
December 31, December 31,
2018
2017
$
-
-
-
-
-
$
(1,052)
1,196
(401)
193
170
$
-
$
106
During 2018, the overall deferred income tax asset position in Canada became an overall deferred income tax liability
position in Canada and has been included below.
As at
Intangible assets
Accrued liabilities
Property, plant and equipment
Acquisition costs
Other
Deferred income tax liability
December 31, December 31,
2018
2017
$
(30,029)
8,557
(21,826)
3,097
319
$
(20,152)
7,187
(15,597)
2,115
145
$
(39,882)
$
(26,302)
c) The movement in deferred income tax assets and liabilities during the year is as follows:
Deferred income tax asset as at
Balance, beginning of year
Deferred income tax expense
Balance, end of year
Deferred income tax liability as at
Balance, beginning of year
Acquired through business combination
Deferred income tax expense
Foreign exchange
Balance, end of year
71
December 31, December 31,
2018
2017
$
106
(106)
$
1,329
(1,223)
$
-
$
106
December 31, December 31,
2018
2017
$
(26,302)
(595)
(12,386)
(599)
$
(25,478)
(1,107)
(1,361)
1,644
$
(39,882)
$
(26,302)
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
d) Deferred income tax assets are recognized to the extent it is probable that sufficient future taxable income will be
available to allow a deferred income tax asset to be realized. At December 31, 2018, the Fund has recognized all of
its deferred income tax assets with the exception of $7,510 (2017 - $7,510) in capital losses available in Canada. At
December 31, 2018, the Fund has non-capital losses in Canada of $1,583 (2017 - $4,432) and net operating losses in
the U.S. of $nil (2017 - $nil).
The losses expire as follows:
Year of expiry
2033
2034
362
1,221
72
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
9.
INTANGIBLE ASSETS
C us to m e r
R e la tio ns hips
B ra nd
Na m e
C o m pute r
S o ftwa re
No n-
c o m pe te
Agre e m e nt
s
Zo ne d
P ro pe rty
R ights
F a vo ura ble
Le a s e
Agre e m e nts
To ta l
As a t J a nua ry 1, 2017
C o s t
$
170,710
$
15,523
$
4,640
$
9,457
$
54
$
8,465
$
208,849
Ac c um ula te d a m o rtiza tio n
(33,210)
(6,655)
(3,137)
(6,715)
(54)
(564)
(50,335)
Ne t bo o k va lue
$
137,500
$
8,868
$
1,503
$
2,742
$
-
$
7,901
$
158,514
F o r the ye a r e nde d
De c e m be r 31, 2017
Ac quire d thro ugh bus ine s s c o m bina tio ns
92,773
14,000
Additio ns
P urc ha s e pric e a llo c a tio n a djus tm e nts
Am o rtiza tio n
F o re ign e xc ha nge
-
1,071
(10,344)
(9,392)
-
-
(5)
(582)
-
416
-
(765)
(28)
9,362
-
38
(1,949)
(161)
-
-
-
-
-
-
-
-
(545)
(501)
116,135
416
1,109
(13,608)
(10,664)
Ne t bo o k va lue
$
211,608
$
22,281
$
1,126
$
10,032
$
-
$
6,855
$
251,902
As a t De c e m be r 31, 2017
C o s t
$
252,696
$
28,503
$
5,055
$
18,257
$
54
$
7,909
$
312,474
Ac c um ula te d a m o rtiza tio n
(41,088)
(6,222)
(3,929)
(8,225)
(54)
(1,054)
(60,572)
Ne t bo o k va lue
$
211,608
$
22,281
$
1,126
$
10,032
$
-
$
6,855
$
251,902
F o r the ye a r e nde d
De c e m be r 31, 2018
Ac quire d thro ugh bus ine s s c o m bina tio ns
43,935
Additio ns
Am o rtiza tio n
F o re ign e xc ha nge
-
(13,639)
13,689
-
-
-
723
-
909
1,408
-
(765)
(2,724)
58
267
-
-
-
-
-
$
45,343
-
(546)
572
909
(17,674)
15,309
Ne t bo o k va lue
$
255,593
$
23,004
$
1,328
$
8,983
$
-
$
6,881
$
295,789
As a t De c e m be r 31, 2018
C o s t
$
314,260
$
29,772
$
6,763
$
20,585
$
54
$
8,601
$
380,035
Ac c um ula te d a m o rtiza tio n
(58,667)
(6,768)
(5,435)
(11,602)
(54)
(1,720)
(84,246)
Ne t bo o k va lue
$
255,593
$
23,004
$
1,328
$
8,983
$
-
$
6,881
$
295,789
73
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
10. GOODWILL
As at
Balance, beginning of year
Acquired through business combination
Purchase price allocation adjustments within the measurement period
Foreign exchange
Balance, end of year
December 31, December 31,
2018
2017
$
351,943
65,381
-
22,543
$
230,701
136,482
73
(15,313)
$
439,867
$
351,943
The Fund has used the value in use method to evaluate the carrying amount of goodwill. The key assumptions used in the
assessment include an estimate of current cash flow, taxes, a growth rate of 2% and capital maintenance expenditures.
These assumptions are based on past experience. A discount rate of 10% has been applied to the expected cash flow, after
adjusting the cash flow for an estimate of the taxes and capital maintenance expenditures.
The purchase price allocation adjustments represent additional consideration which resulted in the recognition of
additional goodwill in 2017 as well as balance sheet reclassifications between property, plant and equipment and
goodwill within the measurement period for certain 2017 acquisitions.
11. DISTRIBUTIONS AND DIVIDENDS
The Fund’s Trustees have discretion in declaring distributions. The Fund’s distribution policy is to make distributions
of its available cash from operations taking into account current and future performance amounts necessary for principal
and interest payments on debt obligations, amounts required for maintenance capital expenditures and amounts
allocated to reserves.
Distributions to unitholders and dividends on the exchangeable Class A shares were declared and paid as follows:
Record date
Payment date
Dividend per Share Distribution amount Dividend amount
Distribution per Unit /
January 31, 2018
February 28, 2018
March 31, 2018
April 30, 2018
May 31, 2018
June 30, 2018
July 31, 2018
August 31, 2018
September 30, 2018
October 31, 2018
November 30, 2018
December 31, 2018
February 26, 2018
March 27, 2018
April 26, 2018
May 29, 2018
June 27, 2018
July 27, 2018
August 29, 2018
September 26, 2018
October 29, 2018
November 28, 2018
December 21, 2018
January 29, 2019
$
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0440
0.0450
0.0450
$
865
865
866
865
865
866
865
866
866
865
892
892
$
10
10
9
10
10
9
10
10
9
9
10
10
$
0.5300
$
10,438
$
116
74
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Record date
Payment date
Dividend per Share Distribution amount Dividend amount
Distribution per Unit /
January 31, 2017
February 28, 2017
March 31, 2017
April 30, 2017
May 31, 2017
June 30, 2017
July 31, 2017
August 31, 2017
September 30, 2017
October 31, 2017
November 30, 2017
December 31, 2017
February 24, 2017
March 29, 2017
April 26, 2017
May 29, 2017
June 28, 2017
July 27, 2017
August 29, 2017
September 27, 2017
October 27, 2017
November 28, 2017
December 20, 2017
January 29, 2018
$
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0430
0.0440
0.0440
$
776
777
777
777
777
777
800
801
801
801
859
859
$
10
10
10
10
10
10
10
10
10
10
10
10
$
0.5180
$
9,582
$
120
At December 31, 2018, there were 190,784 (December 31, 2017 – 200,395) exchangeable Class A shares outstanding
with a carrying value of $21,549 (December 31, 2017 - $20,218).
During 2018, a fair value adjustment expense in the amount of $2,372 (2017 – $3,102) was recorded against earnings
related to these exchangeable Class A shares.
Further distributions and dividends were declared for the months of January, February and March 2019 in the amount of
$0.045 per unit/share. The total amount of distributions and dividends declared after the reporting date was $2,678 and
$29, respectively.
12. LONG-TERM DEBT
On May 26, 2017, the Company entered into a second amended and restated credit agreement for a term of five years,
increasing the revolving credit facility to $300,000 U.S., with an accordion feature which can increase the facility to a
maximum of $450,000 U.S. The facility is with a syndicate of Canadian and U.S. banks and is secured by the shares
and assets of the Company as well as guarantees by BGIF and BGHI. The interest rate is based on a pricing grid of the
Fund’s ratio of total funded debt to EBITDA as determined under the credit agreement. The Company can draw the
facility in either the U.S. or in Canada, in either U.S. or Canadian dollars. The Company can make draws in tranches as
required. Tranches bear interest only and are not repayable until the maturity date but can be voluntarily repaid at any
time. The Company has the ability to choose the base interest rate between Prime, Bankers Acceptances (“BA”) or
London Inter Bank Offer Rate (“LIBOR”). The total syndicated facility includes a swing line up to a maximum of
$5,000 U.S. in Canada and $20,000 U.S. in the U.S.
Under the revolving facility, the Company is subject to certain financial covenants which must be maintained to avoid
acceleration of the termination of the credit agreement. The financial covenants require the Fund to maintain a total
debt to EBITDA ratio of less than 4.25; a senior debt to EBITDA ratio of less than 3.50 up to March 31, 2018 and less
than 3.25 thereafter; and a fixed charge coverage ratio of greater than 1.03. For three quarters following a material
acquisition, the total debt to EBITDA ratio may be increased to less than 4.75 and the senior debt to EBITDA ratio may
be increased to less than 4.00 up to March 31, 2018 and less than 3.75 thereafter. The debt calculations exclude the
convertible debentures. At December 31, 2018, the Company has drawn $61,300 U.S. (December 31, 2017 - $40,000
U.S.) and $139,000 Canadian (December 31, 2017 - $150,800) on the revolving credit facility.
Deferred financing costs of $356 were incurred during 2015 to complete the amended and restated credit agreement.
These fees were amortized to finance costs on a straight line basis over the five year term of the amended and restated
credit agreement until May 26, 2017 when the second amended and restated credit agreement was signed. At that time,
75
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
the unamortized deferred financing costs of $226 were recorded as finance costs. Financing costs of $859 incurred
during 2017 to complete the second amended and restated credit agreement have been deferred. These fees are
amortized to finance costs on a straight line basis over the five year term of the second amended and restated credit
agreement. The unamortized deferred financing costs of $587 have been netted against the debt drawn as at December
31, 2018.
As at December 31, 2018, the Company was in compliance with all financial covenants.
Seller notes payable of $66,120 (of which $65,422, or $47,971 U.S., are U.S. denominated) on the financing of certain
acquisitions are unsecured, at interest rates ranging from 1% to 8%. The notes are repayable from January 2019 to
January 2027 in the same currency as the related note.
Long-term debt is comprised of the following:
As at
Revolving credit facility (net of financing costs)
Seller notes
Current portion
The following is the continuity of long-term debt:
As at
Balance, beginning of year
Consideration on acquisition
Draws
Repayments
Deferred financing costs
Amortization of deferred finance costs
Foreign exchange
Balance, end of year
The following table summarizes the repayment schedule of the long-term debt:
Principal Payments
Less than 1 year
1 to 5 years
Greater than 5 years
December 31, December 31,
2018
2017
$
222,039
66,120
$
200,222
57,754
$
288,159
16,390
$
257,976
15,134
$
271,769
$
242,842
December 31, December 31,
2018
2017
$
257,976
20,073
67,799
(66,079)
-
172
8,218
$
101,617
6,641
209,053
(53,212)
(859)
350
(5,614)
$
288,159
$
257,976
December 31, December 31,
2018
2017
$
16,390
256,674
15,095
$
15,134
227,060
15,782
$
288,159
$
257,976
Included in finance costs for the year ended December 31, 2018 is interest on long-term debt of $9,700 (2017 - $7,454).
76
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
13. OBLIGATIONS UNDER FINANCE LEASES
As at
Equipment leases, at interest rates ranging from 4.65% to 9.09%, due January
2019 to June 2020 (2017 - 4.65% to 9.09%, due January 2018 to June 2020),
secured by equipment with a net book value of $2,757 (2017 - $4,264)
Vehicle leases, at interest rates ranging from 5.50% to 9.69%, due January 2019
to August 2021 (2017 - 5.50% to 13.67%, due January 2018 to August 2021),
secured by vehicles with a net book value of $7,625 (2017 - $6,447)
Amounts representing interest
Current portion
December 31, December 31,
2018
2017
$
1,345
$
2,599
7,698
7,043
$
9,043
$
9,642
636
721
$
8,407
3,846
$
8,921
3,652
$
4,561
$
5,269
Included in finance costs is interest related to finance leases of $532 (2017 - $782).
Minimum lease payments required as at December 31, 2018 are as follows:
Principal and
Interest Payments
Amounts Representing
Interest
Principal Payments
Less than 1 year
1 to 5 years
$
4,185
4,858
339
297
$
$
3,846
4,561
$
9,043
636
$
8,407
14. FAIR VALUE ADJUSTMENTS
Convertible debenture conversion feature
Exchangeable Class A common shares
Unit based payment obligation
Non-controlling interest put option
and call liability
For the years ended
December 31,
2018
2017
$
-
2,372
4,896
$
1,161
3,102
9,783
(2,481)
(5,879)
Total fair value adjustments
$
4,787
$
8,167
77
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
15. FINANCIAL INSTRUMENTS
Carrying value and estimated fair value of financial instruments
Classification
Fair value
hierarchy
December 31, 2018
Fair
value
Carrying
amount
December 31, 2017
Carrying
amount
Fair
value
Financial assets
Cash
Amortized cost
n/a
64,476
64,476
47,831
47,831
Accounts receivable
Amortized cost
n/a
105,088
105,088
104,545
104,545
Financial liabilities
Accounts payable and
accrued liabilities
Distributions and dividends
payable
Amortized cost
n/a
267,991
267,991
195,837
195,837
Amortized cost
n/a
902
902
869
869
Long-term debt
Amortized cost
n/a
288,159
288,159
257,976
257,976
Exchangeable Class A
common shares
FVPL (1)
Non-controlling interest put
options and call liability
FVPL (1)
(1) Fair Value Through Profit or Loss
1
3
21,549
21,549
20,218
20,218
20,556
20,556
21,242
21,242
For the Fund’s current financial assets and liabilities, including accounts receivable, accounts payable and accrued
liabilities, and distributions and dividends payable, which are short term in nature and subject to normal trade terms, the
carrying values approximate their fair value. As there is no ready secondary market for the Fund’s long-term debt, the fair
value has been estimated using the discounted cash flow method. The fair value using the discounted cash flow method is
approximately equal to carrying value. The fair value for the non-controlling interest put option and call liability is based
on the estimated cash payment or receipt necessary to settle the contract at the Statement of Financial Position date. Cash
payments or receipts are based on discounted cash flows using current market rates and prices and adjusted for credit risk.
The fair value of the exchangeable Class A shares is estimated using the market price of the units of Fund as of the
Statement of Financial Position date.
Collateral
The Company’s syndicated loan facility is collateralized by a General Security Agreement. The carrying amount of the
financial assets pledged as collateral for this facility at December 31, 2018 was approximately $169,564 (December 31,
2017 - $152,376).
Interest rate risk
The Company’s operating line and syndicated loan facility are exposed to interest rate fluctuations and the Company
does not hold any financial instruments to mitigate this risk. Convertible debentures and seller notes are at fixed
interest rates.
78
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Foreign currency risk
The Company’s operations in the U.S. are more closely tied to its domestic currency. Accordingly, the U.S. operations
are measured in U.S. dollars and the Company’s foreign exchange translation exposure relates to these operations.
When the U.S. operation’s net asset values are converted to Canadian dollars, currency fluctuations result in period to
period changes in those net asset values. The Fund’s equity position reflects these changes in net asset values as
recorded in accumulated other comprehensive earnings. The income and expenses of the U.S. operations are translated
into Canadian dollars at the average rate for the period in order to include their financial results in the consolidated
financial statements. Period to period changes in the average exchange rates cause translation effects that have an
impact on net earnings. Unlike the effect of exchange rate fluctuations on transaction exposure, the exchange rate
translation risk does not affect local currency cash flows.
Transactional foreign currency risk also exists in circumstances where U.S. denominated cash is received in Canada.
The Company monitors U.S. denominated cash flows to be received in Canada and evaluates whether to use forward
foreign exchange contracts. No forward foreign exchange contracts were used during 2018 or 2017.
The Fund earns interest on promissory notes issued to The Boyd Group (U.S.) Inc., the parent of the Fund’s U.S.
operations. As at December 31, 2018 and December 31, 2017, promissory notes denominated in Canadian dollars are
as follows:
Promissory notes
As at
Promissory note at 5.0% due September 29, 2027
Promissory note at 6.5% due January 1, 2020
Promissory note at 8.58% due January 1 2024
Promissory note at 8.58% due January 1, 2024
Promissory note at 8.58% due January 1, 2024
December 31, December 31,
2018
2017
$
108,000
41,800
6,800
25,000
30,000
$
108,000
41,800
6,800
25,000
30,000
$
211,600
$
211,600
On September 29, 2017, the $108,000 note was renewed for a term of 10 years at an interest rate of 5.0%. On October
16, 2017, $83,500 of the $108,000 note due September 29, 2027 was assigned by the Fund to The Boyd Group Inc.
This assignment was related to the conversion and redemption of the Fund’s 2014 convertible debentures and was made
in exchange for The Boyd Group Inc. issuing 83,500 Class IV shares to the Fund.
The Fund’s U.S. operations purchase Canadian dollars at market rates to fund the monthly interest payments.
Credit risk
The carrying amount of financial assets represents the maximum credit exposure. Cash is in the form of deposits on
demand with major financial institutions that have strong long-term credit ratings. The Fund is subject to risk of non-
payment of accounts receivable; however, the Fund’s receivables are largely collected from the insurers of its customers.
Accordingly, the Fund’s accounts receivable comprises mostly amounts due from national and international insurance
companies or provincial crown corporations.
79
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Aging of accounts receivable
As at
Neither impaired nor past due
Past due:
Over 90 days
Allowance for doubtful accounts
Accounts receivable
December 31, December 31,
2018
2017
$
102,980
$
101,437
3,587
4,616
$
106,567
(1,479)
$
106,053
(1,508)
$
105,088
$
104,545
The Fund uses an allowance account to record an estimate of potential impairment for accounts receivables. The Fund has
not identified specific accounts it believes to be impaired.
Allowance for doubtful accounts
As at
Balance, beginning of year
Increase (decrease) in allowance (net of recoveries and amounts
written off)
Balance, end of year
Liquidity risk
December 31, December 31,
2018
2017
$
1,508
$
999
(29)
509
$
1,479
$
1,508
The following table details the Fund’s remaining contractual maturities for its financial liabilities.
Accounts payable and
accrued liabilities
Long-term debt
Obligations under finance
leases
Operating lease obligation
Total
Within 1
year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
After 5
years
$
267,991
288,159
$
267,991
16,390
$
-
13,672
$
-
10,828
$
-
5,446
$
-
226,728
$
-
15,095
8,407
535,533
3,846
93,820
2,080
85,726
2,379
75,882
13
63,278
13
47,137
76
169,690
$
1,100,090
$
382,047
$
101,478
$
89,089
$
68,737
$
273,878
$
184,861
Obligations of the Fund are generally satisfied through future operating cash flows and the collection of accounts
receivable.
80
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Market Risk and Sensitivity Analysis
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in
market prices. Components of market risk to which the Fund is exposed are interest rate risk and foreign exchange rate
risk as discussed above.
The Fund has used a sensitivity analysis technique that measures the estimated change to net earnings and equity of a 1%
(100 basis points) difference in market interest rates. The sensitivity analysis assumes that changes in market interest rates
only affect interest income or expense of variable financial instruments not covered by hedging instruments. For the year
ended December 31, 2018 it is estimated that the impact of a 1% increase to market rates would result in a $2,051 decrease
(2017 – $965 decrease) to net earnings as well as comprehensive earnings.
The currency risk sensitivity analysis is based on a 5% strengthening or weakening of the Canadian Dollar against the U.S.
Dollar and assumes that all other variables remain constant. Under this assumption, net earnings for the year ended
December 31, 2018 as well as comprehensive earnings would have changed by $nil due to no foreign exchange contracts
being in place at the end of 2018 and 2017.
Exchangeable Class A Common Shares
The Class A common shares of BGHI are exchangeable into units of the Fund. To facilitate the exchange, BGHI issues
one Class B common share to the Fund for each Class A common share that has been retracted. The Fund in turn issues
a trust unit to the Class A common shareholder. The exchangeable feature results in the Class A common shares of
BGHI being presented as financial liabilities of the Fund. Exchangeable Class A shares are measured at the market
price of the units of the Fund as at the statement of financial position date. Exchanges are recorded at carrying value.
At December 31, 2018 there were 190,784 (2017 – 200,395) shares outstanding with a carrying value of $21,549 (2017
– $20,218). Total retractions for the year were 9,611 (2017 – 3,798) for $1,042 (2017 – $355).
Non-controlling interest put option and call liability
On May 31, 2013, the Fund entered into a contribution agreement whereby Glass America Inc. contributed its auto-
glass business to Gerber Glass in exchange for membership representing a 30% ownership interest in a new combined
Glass America LLC. The GA Company Agreement contained a put option as well as a call option, which provided the
non-controlling interest with the right to require Gerber Glass to purchase their retained interest and Gerber Glass with
the right to require the non-controlling interest to sell their retained interest respectively, according to a valuation
formula defined in the GA Company Agreement. On September 29, 2017, Gerber Glass exercised its call option to
acquire the 30% interest in the Glass America entity. On January 31, 2019, the call option transaction was completed,
and Gerber Glass LLC acquired the 30% non-controlling interest in Glass America LLC.
On May 31, 2013, in connection with the acquisition of Glass America, the Fund amended and restated the limited
liability company agreement of Gerber Glass LLC (the “Gerber Glass Company Agreement”) which provides a member
of its U.S. management team the opportunity to participate in the future growth of the Fund’s U.S. glass business.
Within the agreement was a put option held by the non-controlling member that provided the member an option to put
the business back to the Fund according to a valuation formula defined in the agreement. On October 31, 2016, the
Fund amended the Gerber Glass Company Agreement. The put option held by the non-controlling member continues
to provide the member an option to put the business back to the Fund according to a valuation formula defined in the
Gerber Glass Company Agreement; however, the put option is not exercisable until December 31, 2018 and is
exercisable anytime thereafter by the glass-business operating member. The put option may be exercised before
December 31, 2018 upon the occurrence of certain unusual events such as a change of control or resignation of the
operating member. All fair value changes in the estimated liability are recorded in earnings.
The liability recognized in connection with both the put option and the call liability have been calculated using formulas
defined in the applicable limited liability company agreements. The formula for the Glass America call is based on a
multiple of EBITDA for the trailing twelve months ended August 31, 2017. The formula for the U.S. management
team member put option is based on a multiple of EBITDA for the trailing twelve months ended December 31, 2018.
81
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
During 2018, the Fund made $nil (2017 - $221) in payments to the Glass America non-controlling interest.
The liability for non-controlling interest put options comprises the following:
As at
December 31, December 31,
2018
2017
Glass-business operating partner non-controlling interest put option
Glass America non-controlling interest call liability
$
6,905
13,651
$
7,075
14,167
$
20,556
$
21,242
The change in the non-controlling interest put option and call liabilities is summarized as follows:
December 31, 2018
December 31, 2017
Glass-business
operating
partner
Glass America
non-controlling
interest
Glass-business
operating
partner
Glass America
non-controlling
interest
Balance, beginning of year
Fair value adjustments
Payment to non-controlling interests
Foreign exchange
$
7,075
(753)
-
583
$
14,167
(1,728)
-
1,212
$
7,998
(381)
-
(542)
$
21,204
(5,498)
(221)
(1,318)
Balance, end of year
$
6,905
$
13,651
$
7,075
$
14,167
During 2018, a fair value adjustment recovery in the amount of $2,481 (2017 – $5,879) was recorded to earnings
related to the non-controlling interest put option and call liability.
The exercise price for the call option regarding the Glass America non-controlling interest was calculated in accordance
with the terms of the GA Company Agreement. The Glass America non-controlling interest member did not agree with
the calculation of the exercise price, including certain material changes, and the matter was been submitted to binding
arbitration in accordance with the terms of the GA Company Agreement. On January 31, 2019, the call option
transaction was completed, and Gerber Glass LLC acquired the 30% non-controlling interest in Glass America LLC.
16. UNIT BASED PAYMENT OBLIGATION
Pursuant to the Fund’s Option Agreement and Confirmation, the Fund has granted options to purchase units of the Fund
to certain key executives. The following options are outstanding:
Issue Date
Number of Units Exercise Price Expiry Date
December 31, 2018 December 31, 2017
Fair Value
Fair Value
January 2, 2008
January 2, 2009
January 2, 2010
150,000
150,000
150,000
$
$
$
2.70
3.14
5.41
January 2, 2018
January 2, 2019
January 2, 2020
$
-
-
14,936
$
14,729
13,465
11,991
$
14,936
$
40,185
On November 26, 2018, the Fund completed the settlement of the unit options issued on January 2, 2009. As a result
of the settlement, 150,000 units were issued at an exercise price of $3.14. The fair value of the unit options at
settlement was $15,416.
82
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
On January 2, 2018, the Fund completed the settlement of the unit options issued on January 2, 2008. As a result of
the settlement, 150,000 units were issued at an exercise price of $2.70. The fair value of the unit options at settlement
was $14,729.
The fair value of each outstanding option is estimated using a Black-Scholes valuation model with the following
assumptions used for the outstanding options granted: stock price $112.95, dividend yield 0.52% and expected
volatility 23.75% (determined as a weighted standard deviation of the unit price over the past four years). The risk free
interest rate assumptions used in the valuation model are as follows: January 2, 2008 issuance - N/A, January 2, 2009
issuance – N/A, January 2, 2010 issuance – 1.92%.
During 2018, a fair value adjustment expense in the amount of $4,896 (2017 – $9,783) was recorded to earnings related
to these unit based payment obligations.
17. LEASE COMMITMENTS
The Fund has various operating lease commitments, primarily in respect of leased premises. The aggregate amount of
future minimum lease payments associated with these leases is $535,533 (2017 - $535,715). The minimum amounts
payable over the next five years are as follows:
Less than 1 year
1 to 5 years
Greater than 5 years
$
93,820
272,023
169,690
$
535,533
Included in operating expenses for the year ended December 31, 2018 are operating lease expenses, primarily in respect
of leased premises of $91,260 (2017 – $78,556).
18. CONTINGENCIES
The Fund has two U.S. denominated letters of credit for $225 U.S. (2017 –$225 U.S.).
19. ACCUMULATED OTHER COMPREHENSIVE EARNINGS
Balance, beginning of year
Unrealized gain (loss) on translating financial statements of foreign
operations
Balance, end of year
December 31, December 31,
2018
2017
$
38,810
$
65,560
38,827
(26,750)
$
77,637
$
38,810
There is no tax impact of translating the financial statements of the foreign operation.
83
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
20. CAPITAL
Unitholders’ Capital
Authorized:
Unlimited number of trust units
An unlimited number of units are authorized and may be issued pursuant to the Declaration of Trust. All units are of
the same class with equal rights and privileges. Each unit is redeemable and transferable. A unit entitles the holder
thereof to participate equally in distributions, including the distributions of net earnings and net realized capital gains of
the Fund and distributions on termination or winding-up of the Fund, is fully paid and non-assessable and entitles the
holder thereof to one vote at all meetings of Unitholders for each unit held.
During 2017, at the request of the holder, the Fund converted $1,542 principal amount of the 2014 Debentures into
25,112 units of the Fund. The fair value of the 2014 Debentures at the time of conversion was $2,334.
On July 4, 2017, the Company acquired the assets and business of Assured. Funding for the Assured transaction
included the issuance of 537,872 units of the Fund to the sellers at a unit price of $96.15.
On November 2, 2017, the Fund completed the early redemption and cancellation of its 2014 Debentures due October
31, 2021. Subsequent to the initial announcement of the early redemption, $52,376 principal amount of the 2014
Debentures were converted into 853,027 units of the Fund. The remaining $2,547 in 2014 Debentures were redeemed
and cancelled by issuing 28,995 units.
21. CONTRIBUTED SURPLUS
Units purchased under the Fund’s Normal Course Issuer Bid for a value below their carrying amount represent a
contribution to the benefit of the remaining unitholders and the difference is credited to contributed surplus. The Fund
purchased units for cancellation under Normal Course Issuer Bids in 2009, 2008, and 2007.
22. CAPITAL STRUCTURE
The Fund’s and Company’s objective when managing capital is to maintain a flexible capital structure which optimizes
the cost of capital at acceptable risk. The Fund includes in its definition of capital: equity, long-term debt, convertible
debentures, convertible debenture conversion features, exchangeable Class A shares, non-controlling interest put
options and call liability, unit based payment obligations, obligations under finance leases, net of cash.
The Fund and Company manage the capital structure and make adjustments to it by taking into account changing
economic conditions, operating performance and growth opportunities. In order to maintain or adjust the capital
structure, the Fund or Company may adjust the amount of distributions and dividends it pays, purchase units for
cancellation pursuant to a normal course issuer bid, issue new units, exchange Class A shares, issue new debt or replace
existing debt with different characteristics, issue convertible debentures, issue unit options, expand the revolver,
increase or decrease its obligations under finance lease, pursue alternative structuring of acquisitions, trigger call
options on certain acquisition obligations, or settle certain acquisition obligations using a greater amount of cash or
units.
The Company monitors capital on a number of bases, including a fixed charge coverage ratio, total debt to Adjusted
EBITDA ratios, return on invested capital, a debt to capital ratio, a current ratio, its adjusted distributable cash payout
ratio, diluted earnings per unit and distributions per unit. The fixed charge coverage ratio is the ratio of Adjusted
EBITDA, adding back rental expense, less unfunded capital expenditures, less income tax expense, less dividends and
distributions to debt, rental expense and capital lease payments. Total debt to Adjusted EBITDA is calculated as the
Company’s total debt and capital leases but excluding convertible debentures divided by Adjusted EBITDA. Return on
invested capital is the ratio of Adjusted EBITDA to average invested capital. Adjusted EBITDA is a non-GAAP
measure, whose nearest GAAP measure is Cash Flow from Operations. The distributable cash payout ratio is
calculated by dividing the distributions paid during the period by adjusted distributable cash. Adjusted distributable
cash is a non-GAAP measure, whose nearest GAAP measure is Cash Flow from Operations.
84
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
The Fund’s strategy has been to maintain a strong statement of financial position including its cash position and
financial flexibility while maintaining consistent distributions in order to capitalize on growth opportunities. In
addition, the Fund believes that, from time to time, the market price of the units may not fully reflect the underlying
value of the units and that at such times the purchase of units would be in the best interest of the Fund. Such purchases
increase the proportionate ownership interest of all remaining unitholders.
The Company grows, in part, through the acquisition or start-up of collision and glass repair and replacement
businesses, or other businesses. Sources of capital that the Company has been successful at accessing in the past
include public and private equity placements, convertible debt offerings, the use of equity securities to directly pay for a
portion of acquisitions, capital available through strategic alliances with trading partners, capital lease financing, seller
financing and both senior and subordinate debt facilities or by deferring possible future purchase price payments using
contingent consideration and call or put options.
23. RELATED PARTY TRANSACTIONS
To broaden and deepen management ownership in the Fund, the Company established the Senior Managers Unit Loan
Program (“Unit Loan Program”) in December 2012, which facilitated the one-time purchase of 121,607 of trust units
held by Brock Bulbuck, President and Chief Executive Officer, and Tim O’Day, President and Chief Operating Officer
US Operations, to existing Boyd trustees and senior managers. Only senior managers were eligible to receive loan
support, and only up to 75% of each senior manager’s unit purchase. The loans bear interest at a fixed rate of 3% per
annum with interest payable monthly. For the first five years of the loan, ending December 2017, 2% of the original
loan amount was forgiven and applied as a reduction of the loan principal. This forgiveness is conditional on the
employee being employed by the Company and the employee not being in default of the loan. Participants are required
to make monthly payments equal to .25% of the original principal amount. Beginning March 31, 2013 participants are
required to make additional minimum repayments of principal equal to the lesser of 12.5% of their annual pre-tax bonus
or 12.5% of the original loan amount. Participants are required to repay the loan in full on the earlier of termination of
employment, the sale of the units, or ten years from the date of loan issuance. The loan can be repaid at any time
without penalty; however, the 2% future annual forgiveness would be forfeited. Units purchased are held by the
Company as security for repayment of the loan. Pursuant to the conditions of the senior manager unit loan program,
loan repayments by senior managers amounted to $63 for 2018 (2017 - $223). At December 31, 2018, the carrying
value of loans made under the Unit Loan Program was $22 (2017 - $85). Subsequent to year-end, all loans made under
the Unit Loan Program were fully repaid.
In certain circumstances the Company has entered into property lease arrangements where an employee of the Company
is the landlord. In most cases, the Company assumes these property lease arrangements initially in connection with an
acquisition. The property leases for these locations do not contain any significant non-standard terms and conditions
that would not normally exist in an arm’s length relationship, and the Fund has determined that the terms and conditions
of the leases are representative of fair market rent values.
85
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
The following are the lease expense amounts for facilities under lease with related parties:
Landlord
Affiliated Person(s)
Location
Lease December 31, December 31,
Expires
2017
2018
Kard Properties Ltd.
Desmond D'Silva
Richmond Hill, ON
Kard Properties Ltd.
Desmond D'Silva
Ottawa, ON
Kard Properties Ltd.
Desmond D'Silva
Ajax, ON
Kard Properties Ltd.
Desmond D'Silva
Mississauga, ON
Kard Properties Ltd.
Desmond D'Silva
Oakville, ON
D'Silva Real Estate
Holdings Inc.
Desmond D'Silva
Barrie, ON
2035
2035
2036
2032
2035
2032
Gerber Building No. 1
Ptnrp
Eddie Cheskis,
& Tim O'Day
South Elgin, IL
2023
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Hamilton,ON
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Missisauga, ON
Kard Properties Ltd.
Desmond D'Silva
Scarborough, ON
Kard Properties Ltd.
Desmond D'Silva
Toronto, ON
Kard Properties Ltd.
Desmond D'Silva
Brampton, ON
Kard Properties Ltd.
Desmond D'Silva
Hamilton, ON
Kard Properties Ltd.
Desmond D'Silva
Woodstock, ON
Kard Properties Ltd.
Desmond D'Silva
Etobicoke, ON
Kard Properties Ltd.
Desmond D'Silva
Milton, ON
Kard Properties Ltd.
Desmond D'Silva
Brantford, ON
Kard Properties Ltd.
Desmond D'Silva
Ottawa, ON
2035
2036
2035
2035
2036
2036
2023
2036
2035
2037
2037
2035
2020
2036
$
188
$
92
257
87
50
188
420
122
105
62
50
309
100
87
50
100
103
67
213
113
83
212
127
42
25
92
180
120
52
31
24
153
50
44
25
49
51
33
105
56
-
104
The Fund’s subsidiary, The Boyd Group Inc., has declared dividends totaling $57 (2017 - $56), through BGHI to
4612094 Manitoba Inc., an entity controlled by a senior officer of the Fund. At December 31, 2018, 4612094 Manitoba
Inc. owned 107,329 Class A common shares and 30,000,000 voting common shares of BGHI, representing
approximately 30% of the total voting shares of BGHI.
24. SEGMENTED REPORTING
The Fund has one reportable line of business, being automotive collision repair and related services, with all revenues
relating to a group of similar services. In this circumstance, IFRS requires the Fund to provide geographical disclosure.
For the periods reported, all of the Fund’s revenues were derived within Canada or the United States of America.
Reportable assets include property, plant and equipment, goodwill and intangible assets which are all located within
these two geographic areas.
86
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
Revenues
Canada
United States
Reportable Assets
As at
Canada
United States
For the years ended
December 31,
2018
2017
$
289,482
1,575,131
$
178,968
1,390,480
$
1,864,613
$
1,569,448
December 31,
2018
December 31,
2017
$
239,504
749,255
$
231,928
568,016
$
988,759
$
799,944
The Fund’s revenues are largely derived from the insurers of its customers, who are generally automobile owners. In
three Canadian provinces where the Fund operates, government-owned insurance companies have, by legislation, either
exclusive or semi-exclusive rights to provide insurance to the Fund’s customers. Sales generated in these three markets
represent approximately 2% (2017 – 4%) of the Fund’s total sales. Although the Fund’s services in these markets are
predominately paid for by these government-owned insurance companies, the Fund’s customers (automobile owners)
have freedom of choice of repair provider. In markets where non-government owned insurance companies are
predominant, formal relationships with insurance companies such as Direct Repair Programs (“DRPs”) play an
important role in generating sales volumes for the Fund. Although automobile owners still have the freedom of choice
of repair provider, that choice can be influenced by the insurance companies with DRPs. Of the top five non-
government owned insurance companies that the Fund deals with, which in aggregate account for approximately 40%
(2017 – 44%) of total sales, one insurance company represents approximately 13% (2017 – 14%) of the Fund’s total
sales, while a second insurance company represents approximately 11% (2017 – 13%).
25. COMPENSATION OF KEY MANAGEMENT
Compensation awarded to key management included:
Salaries and short-term employee benefits
Post-employment benefits
Long-term incentive plan
Unit options
For the years ended December 31,
2018
2017
$
5,234
95
2,872
4,896
$
4,654
90
2,266
9,783
$
13,097
$
16,793
Key management includes the Fund’s Trustees as well as the most senior officers of the Fund and Subsidiary
Companies.
87
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
26. SHARE-BASED COMPENSATION
Certain executive officers of the Fund, as well as the Board of Directors of the Company and BGHI, participate in share-
based compensation plans. These plans are cash-settled, with compensation expense determined based on the fair value of
the associated liability at the end of the reporting period until the awards are settled.
Long-term incentive plan
On January 1, 2016, January 1, 2017 and January 1, 2018, Performance Cash Units were granted to certain executive
officers for the 2016, 2017 and 2018 grant years. Performance Cash Units are tied to unit value from date of grant to the
date of vesting and will be paid out in cash over a three-year period, subject to the terms of the plan. Performance Cash
Units represent the right to receive payments linked to the Fund’s unit value, conditional, in whole or in part, upon the
achievement of one or more objective performance goals. The distribution rate declared by the Fund on issued and
outstanding units of the Fund is also applied to the Performance Cash Units. The distribution amount on the Performance
Cash Units is converted into additional Performance Cash Units based on the market value of the Fund’s units at the time
of the distribution. These additional Performance Cash Units vest at the same time as the Performance Cash Units that the
distribution rate was applied on.
The 2016, 2017 and 2018 Awards include non-market performance conditions. The impact of market and non-market
performance conditions is recognized through the adjustment of the award that is expected to vest. At the end of each
reporting period, the Fund re-assesses its estimates of the number of awards that are expected to vest and recognizes the
impact of the revision to compensation expense in earnings over the vesting period.
The fair value of each outstanding Performance Cash Unit is estimated based on the fair market value of the Fund’s
units at the grant date, subsequently adjusted for additional units granted based on the reinvestment of notional
distributions and the market value of the units at the end of each reporting period. The associated compensation
expense is recognized over the vesting period, factoring in the probability of the performance criteria being met during
that period.
Directors Deferred Share Unit Plan
A Directors Deferred Share Unit Plan (“DSUP”) is administered through BGHI and requires independent Trustees,
who are also Directors of BGHI, to receive at least 60% of their Director compensation in the form of deferred shares,
which are essentially notional shares of BGHI and are redeemable for cash on termination. Directors may elect to
receive up to 100% of their Director compensation in the form of deferred shares. The number of deferred share units
to which a Director is entitled will be adjusted for the payment of dividends or other cash distributions on the Class A
common shares of BGHI.
The fair value of each outstanding Director Deferred Share Unit is estimated based on the fair market value of the
BGHI’s shares at the grant date, subsequently adjusted for additional shares granted based on the reinvestment of
notional dividends and the market value of the shares at the end of each reporting period.
27. EMPLOYEE EXPENSES
Salaries and short-term employee benefits
Post-employment benefits
Long-term incentive plan
Unit options
For the years ended December 31,
2018
2017
$
701,476
95
4,150
4,896
$
596,309
90
3,139
9,783
$
710,617
$
609,321
88
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
28. DEFINED CONTRIBUTION PENSION PLANS
The Fund has defined contribution pension plans for certain employees. The Fund matches U.S. employee
contributions at rates up to 6.0% of the employees’ salary. The expense and payments for the year were $1,639 (2017 -
$1,248). The Fund has established a Retirement Defined Contribution Arrangement Trust Agreement for the CEO
which qualifies as retirement compensation arrangement as defined in the Income Tax Act (Canada), RSC 1985, c.1 (5th
Supplement), as amended. The agreement specifies that quarterly contributions are to be made until the end of 2024.
During 2018, $95 (2017 - $90) was paid related to these arrangements.
29. EARNINGS PER UNIT
Net earnings
Less:
Non-controlling interest put options
and call liability
Net earnings - diluted basis
Basic weighted average number of units
Add:
Non-controlling interest put options
and call liability
Average number of units outstanding -
diluted basis
Basic earnings per unit
Diluted earnings per unit
For the years ended
December 31,
2018
2017
$
77,639
$
58,435
(2,481)
(5,879)
$
75,158
$
52,556
19,684,337
18,489,781
171,826
224,662
19,856,163
18,714,443
$
$
3.944
3.785
$
$
3.160
2.808
Exchangeable class A shares and unit options are instruments that could potentially dilute basic earnings per unit in the
future, but were not included in the calculation of diluted earnings per unit because they are anti-dilutive for the periods
presented.
30. CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Income taxes, net
For the years ended December 31,
2018
2017
$
(11,294)
(972)
(2,814)
45,238
3,865
$
(7,702)
(674)
(5,480)
26,586
(9,664)
$
34,023
$
3,066
89
BOYD GROUP INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
(thousands of Canadian dollars, except unit, share and per unit/share amounts)
31. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
As at
Non-cash changes
December 31,
2017
Cash
Flows
Acquisition Other items
Fair value
changes
Foreign December 31,
exchange
2018
Fund units issued from
treasury in connection
with options exercised
Long-term debt
Obligations under
finance leases
Dividends and distributions
Non-controlling interest
put options and call
liability
Issue costs
$
-
257,976
$
876
1,720
$
-
20,073
$
-
172
$
-
-
$
-
8,218
$
-
288,159
8,921
869
(3,906)
(10,522)
-
-
2,784
10,555
-
-
608
-
8,407
902
21,242
-
-
(101)
-
-
-
(2,481)
-
1,795
-
20,556
-
$
289,008
(11,933)
20,073
13,511
(2,481)
10,621
$
318,024
As at
Non-cash changes
December 31,
2016
Cash
Flows
Acquisition Other items
Fair value
changes
Foreign December 31,
exchange
2017
Long-term debt
Obligations under
finance leases
Dividends and distributions
Non-controlling interest
put options and call
liability
Issue costs
$
101,617
$
154,982
$
6,641
$
350
$
-
$
(5,614)
$
257,976
11,892
787
(4,349)
(9,618)
29,202
-
(221)
(192)
-
-
-
-
1,951
9,700
-
-
(573)
-
8,921
869
-
-
(5,879)
-
(1,860)
-
21,242
-
$
143,498
140,602
6,641
12,001
(5,879)
(8,047)
$
289,008
90
BOARD OF TRUSTEES
The Boyd Group Income Fund Board of Trustees consists of eight members – two that are officers of the Fund and six that
are independent Trustees. The Chairman of the Board is Allan Davis. The Boyd Group Income Fund Board of Trustees has
established three standing committees: The Corporate Governance and Nomination Committee, The Audit Committee, and
the Executive Compensation Committee.
The Corporate Governance and Nomination Committee is chaired by Sally Savoia and includes Robert Gross, Allan Davis
and Violet (Vi) A.M. Konkle. The Audit Committee is chaired by David Brown and includes Allan Davis, Gene Dunn and
Violet (Vi) A.M. Konkle. The Executive Compensation Committee is chaired by Gene Dunn and includes David Brown,
Robert Gross and Sally Savoia.
David Brown is currently President and CEO of Richardson Capital and Managing Director of RBM Capital Limited.
Previously, he was Corporate Secretary of James Richardson & Sons, Limited, and a partner in the independent law and
accounting firm of Gray & Brown. In addition to serving on the Board of Trustees of the Fund, he also serves as a Director
of GMP Capital, Inc., Richardson Financial Group and Pollard Banknote Limited. He graduated from the University of
Manitoba law school, and is a Chartered Professional Accountant and member of the Manitoba Bar Association.
Brock Bulbuck is the CEO of the Fund. Since joining Boyd in 1993, he has played a leading role in the development and
growth of the business. He is a Chartered Professional Accountant and is responsible for the affairs of the Fund, including
strategy, operations and performance In addition to serving on the Board of Trustees of the Fund, he also serves as a
Director on the Board of The North West Company and as a Director of the Pan Am Clinic Foundation. He is also a former
Chair of the Winnipeg Football Club Board of Directors and a former Governor of the Canadian Football League.
Allan Davis is the Independent Chairman of the Fund’s Board of Trustees. He is also President and Director of AFD
Investments Inc., a Winnipeg based management consulting firm. In addition to serving on the Board of Trustees, he is also
a member of the Exchange Income Corporation Board of Directors. He is a Chartered Professional Accountant and holds a
Bachelor of Commerce (Honours) degree from the University of Manitoba.
Gene Dunn is the Chairman of Monarch Industries Ltd. of Winnipeg, a leading Canadian manufacturing company, where
he previously served as President and CEO. He is Past Chairman of the Board of Governors for Balmoral Hall School for
Girls and Past Chairman of the Winnipeg Blue Bombers Football Club. Mr. Dunn is also the Past Chairman of the Board of
Governors of the Canadian Football League.
Robert Gross is the past Executive Chairman of Monro, Inc., the largest chain of company-operated automotive undercar
repair and tire service facilities in the United States. He served as CEO of Monro from 1999 until October 2012 and as
Executive Chairman from October 2012 to August 2017. Prior to his time at Monro, he served as Chairman and CEO at
Tops Appliance City, Inc. and before that as President and COO at Eye Care Centers of America, Inc., a Sears, Roebuck &
Co. company.
Violet (Vi) A.M. Konkle is the past President and Chief Executive Officer of The Brick Ltd. Prior to joining The Brick in
2010 as President, Business Support, she held a number of positions with Walmart Canada, including Chief Operating
Officer and Chief Customer Officer. Ms. Konkle also held a number of senior executive positions with Loblaw Companies
Ltd., including Executive Vice President, Atlantic Wholesale Division. Ms. Konkle is a director of The North West
Company Inc. (a TSX listed public company) as well as being on the board of three privately held companies including
Bailey Metal Products, Elswood Investment Corporation and Longo’s Brothers Fruit Markets Inc. Ms. Konkle also acts as
an Advisor to the Board of Abarta, a Pittsburgh-based privately held company. She is a past director of Dare Foods, The
Brick Ltd., Trans Global Insurance, the Canadian Chamber of Commerce and the National Board of Habitat for Humanity.
Tim O’Day is Boyd’s President and COO of the Fund. He joined Gerber Collision & Glass in February 1998. With Boyd
Group’s acquisition of Gerber in 2004, he was appointed COO for Boyd’s U.S Operations. In 2008, he was appointed
President and COO for U.S. Operations. Earlier in his career, he was with Midas International, where he was elevated to
Vice President–Western Division, responsible for a territory that encompassed 500 Midas locations. Mr. O’Day also serves
on the I-Car Board as Chairman and served on the Board of the Collision Repair Education Foundation until March 2016 for
a period of six years.
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Sally Savoia is a former Vice President and Chief Human Resource Officer for Praxair Inc. and since her retirement in
2014, has served as an independent corporate consultant. Ms. Savoia’s human resources experience includes executive
compensation design and implementation, executive level succession planning, global talent management, leadership
development, diversity and inclusion efforts and global benefits design.
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CORPORATE DIRECTORY
COMPANY OFFICERS & PRIMARY SUBSIDIARY COMPANY OFFICERS
Brock Bulbuck
Chief Executive Officer
Tim O’Day
President & Chief Operating Officer
Stephen Boyd
Vice President,
Corporate Development
Jeff Murray
Vice President,
Finance
Narendra (Pat) Pathipati
Executive Vice President,
Chief Financial Officer &
Secretary-Treasurer
Gary Bunce *
Senior Vice President,
Sales
US Operations
Vince Claudio *
Senior Vice President,
U.S. Collision
Kevin Burnett *
Chief Operating Officer,
U.S. Collision
Eric Danberg *
President,
Boyd Autobody & Glass
Eddie Cheskis *
Chief Executive Officer,
Glass America and Gerber National
Claim Services
Susie Frausto*
Vice President,
Marketing
Kim Morin *
Vice President & Chief Human
Resources Officer
Srikanth Venkataraman*
Vice President,
Information Services
Desmond D’Silva*
Chief Executive Officer,
Assured Automotive
Tony Canade*
President,
Assured Automotive
* Officers of subsidiary companies only
CORPORATE OFFICE
1745 Ellice Avenue, Unit C1
Winnipeg, Manitoba, Canada
R3H 1H9
Telephone: (204) 895-1244
Fax: (204) 895-1283
Website: www.boydgroup.com
For location information, please visit us at www.boydgroup.com
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UNITHOLDER INFORMATION
BOYD GROUP INCOME FUND UNITS AND EXCHANGE LISTING
Units of the Fund are listed on the Toronto Stock Exchange under the symbol BYD.UN
Registrar, Transfer Agents and
Distribution Agents
Computershare Trust Company
8th Floor, 100 University Avenue
Toronto, Ontario
M5J 2Y1
Legal Counsel
Auditors
Thompson Dorfman Sweatman
2200 – 201 Portage Avenue
Winnipeg, Manitoba
R3B 3L3
Deloitte LLP
2200 – 360 Main Street
Winnipeg, Manitoba
R3C 3Z3
Bank Syndicate Lead Member
Additional Bank Syndicate Members
Toronto-Dominion Bank
TD North Tower
77 King Street West, 25th Floor
Toronto, Ontario
M5K 1A2
Bank of America N.A., Canada Branch
The Bank of Nova Scotia
National Bank of Canada
Annual General Meeting
Wednesday, May 15, 2019
Hilton Winnipeg Airport Suites Hotel
1800 Wellington Avenue
Winnipeg, Manitoba
R3H 1B2
1:00 p.m. (CT)
94