Halifax, Canada
MD&A and Financial Statements
2022
Management’s Discussion & Analysis
Clarke Inc.
December 31, 2022 and 2021
1
MANAGEMENT’S DISCUSSION & ANALYSIS
Management’s Discussion & Analysis (“MD&A”) presents management’s view of the financial position and performance of
Clarke Inc. (“Clarke” or the “Company”) for the year ended December 31, 2022 compared with the year ended December 31,
2021. The following information is derived from the Company’s consolidated financial statements which are prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board. This MD&A should be read in conjunction with the information disclosed within the consolidated financial statements
and notes thereto for the year ended December 31, 2022 and the Company’s Annual Information Form (“AIF”), including the
risk factors described therein, available on SEDAR at www.sedar.com. This MD&A provides an overall discussion, followed
by analyses of the performance of the Company’s major investments. The MD&A is prepared as at March 8, 2023 (unless
otherwise stated). All dollar amounts are shown in millions of Canadian dollars except per share amounts or unless otherwise
indicated.
OVERVIEW & STRATEGY
Clarke was incorporated on December 9, 1997 pursuant to the Canada Business Corporations Act and its head office is located
at 145 Hobsons Lake Drive, Halifax, Nova Scotia.
The Company is an investment and real estate company with holdings in a diversified group of businesses and across real estate
sectors. The Company operates primarily in Canada. The Company continually evaluates the acquisition, retention, and
disposition of its holdings and changes in its asset mix should be expected. Our objective is to maximize shareholder value.
While not the perfect metric, we believe that Clarke’s book value per share, together with the dividends paid to shareholders,
is an appropriate measure of our success in maximizing shareholder value over time.
We attempt to maximize shareholder value by allocating capital to investments that we believe will generate high returns and
reallocating capital over time as needed. In doing this, Clarke’s goal is to identify investments that are either undervalued or
are underperforming and may be in need of positive change. These investments may be companies, securities or other assets,
and they may be public entities or private entities. Clarke seeks active involvement in the governance and/or management of
the company in which it invests. In these cases, Clarke will have acquired the investment with a view of changes that could be
made to improve the underlying company’s performance and maximize the company’s value. When Clarke believes that an
investee company has implemented appropriate changes and/or the value of the investee company has reached or exceeded its
intrinsic value, Clarke may sell its investment. Clarke has a diverse and significant portfolio of direct real estate holdings across
the hospitality, commercial, industrial, and residential sectors. We do not believe in limiting ourselves to specific types of
investments. Clarke generally invests in industries that have hard assets, including manufacturing, industrial, energy and real
estate businesses.
REVIEW AND OUTLOOK1
During 2022, the Company’s book value per common share increased by $0.80, or 6%. The increase is primarily due to (i)
hotel net operating income of $20.8 million, or $1.45 per common share, (ii) the tax-effected increase of our accrued pension
assets of $16.5 million, or $1.14 per common share, and (iii) the after-tax impact of fair value adjustments to our property and
equipment, net of depreciation recorded in the year of $18.1 million, or $1.26 per common share, offset by (iv) the non-cash
reduction relating to the accounting treatment of the asset ceiling on our accrued pension assets, net of tax, of $34.1 million, or
$2.36 per common share, and (v) interest and accretion of $6.5 million, or $0.45 per common share. Our book value per
common share at the end of the year was $15.28 while our common share price was $12.48.
Hotel Operations
The Canadian hotel industry has generally recovered to pre-COVID-19 pandemic (the “Pandemic”) revenue levels. We are
pleased that both revenues and operating results for our hotels have continued to recover from the decline caused by the
Pandemic.
Our hotels have showed significant improvement in 2022 – in particular, in the last six months. While it is difficult to perfectly
compare pre-Pandemic results to current results due to hotel renovations, the outsourcing of certain food and beverage
operations and the modification of use and/or target markets for certain assets, our revenue in both the third and fourth quarters
1This MD&A refers to "book value per share” and “net operating income”. These are non-IFRS measures and ratios. Refer to the “Cautionary Statement
Regarding Use of Non-IFRS Accounting Measures and Ratios” section of this MD&A for more information.
2
has recovered to pre-Pandemic levels. Hotel revenues in the fourth quarter of 2022 outpaced the fourth quarter of 2021 by 63%.
As a result of this recovery and the improved outlook, the Company revalued 16 of its hotels in the fourth quarter of 2022 for
an aggregate gross increase of $32.9 million. Of this, $1.3 million was recognized in net income and $31.6 million was
recognized in other comprehensive income.
We continue to proactively evaluate potential renovations and conversions of underperforming assets in an attempt to provide
shareholders with the highest and best use of our hospitality assets. This has and will continue to include exploring more long-
term stay offerings and potential residential conversions if these are deemed accretive to the Company.
During the second quarter, the Company acquired, through its wholly owned subsidiary Holloway Lodging Corporation
(“Holloway”), the Stanford Inn & Suites in Grande Prairie, AB, for a purchase price of $11.6 million. The acquisition was the
first hospitality acquisition for Holloway since 2016 – a hiatus of six years. The Stanford Inn & Suites has 206 rooms, the
majority of which are kitchenette suites, and features two food and beverage outlets, a fitness center, meeting and banquet space
and nearly two acres of oversized equipment and truck parking on an adjoining parcel of excess land. We are very pleased with
the results of this hotel to date, and it has complimented our other Grande Prairie, AB assets.
Renovations were completed at our Sternwheeler Hotel & Conference Centre in Whitehorse, YT and we are very excited to
have brought this refreshed asset to market. The renovation has re-positioned this hotel to be the premiere hotel in the market
as international and domestic travel returned. The renovations, which commenced in 2021, were completed in June 2022. The
positive results have been immediate and hotel revenue after the renovation were the highest since the hotel’s acquisition in
2016.
Real Estate and Corporate
Construction continues on the first phase of the redevelopment of our excess land on Carling Avenue in Ottawa, ON (the
“Carling Avenue Development”). While the first phase of construction is underway, pre-construction activities are also ongoing
for its second phase. The two phases will consist of a multi-building residential apartment complex including ground-floor
retail space. Phase one of the Carling Avenue Development consists of two residential towers with 404 rental units. While
construction financing was secured in the fourth quarter of 2022, the project has been self-financed to date with cash on hand
and existing credit facilities (see the “Liquidity and Capital Resources” section below).
The Company has $158.6 million of debt as of December 31, 2022 and has access to two secured, revolving credit facilities.
The Company’s maximum combined borrowing base under these revolving credit facilities was $55.0 million as of December
31, 2022, of which $26.1 million was drawn and $28.9 million was undrawn and available.
RESULTS OF OPERATIONS
Highlights of the consolidated financial statements for the last three completed fiscal years are as follows:
Hotel revenue
Provision of services
Investment and other income (loss)*
Net income (loss)
Comprehensive income (loss)
Basic earnings (loss) per share (“EPS”)
Diluted EPS
Total assets
Total liabilities
Long-term financial liabilities
Book value per share
Year ended
December 31, 2022
$
54.7
9.7
2.8
3.2
10.1
0.23
0.23
416.1
201.2
62.7
15.28
Year ended
December 31, 2021
$
32.0
9.4
24.6
16.4
45.5
1.12
0.96
384.6
176.0
107.2
14.48
Year ended
December 31, 2020
$
30.5
4.6
(8.2)
(19.2)
(10.5)
(1.21)
(1.21)
311.0
142.4
109.7
11.20
*Investment and other income (loss) includes unrealized and realized gains and losses on assets and liabilities, fair value changes of
property and equipment and investment property presented in the statement of earnings, interest income, pension expense/recovery and
foreign exchange gains/losses.
3
Net income for the year ended December 31, 2022 was $3.2 million compared to $16.4 million in 2021 and a loss of $19.2
million in 2020.
The Company’s operating businesses were significantly more profitable in 2022 compared to 2021 and 2022 – in particular,
the Company’s hotels. Hotel revenue for the year ended December 31, 2022 was $54.7 million compared to $32.0 million and
$30.5 million in 2021 and 2020, respectively. The hospitality segment’s net income before taxes was $9.2 million for the year
ended December 31, 2022 compared to $1.4 million in 2021 and a loss before taxes of $23.9 million in 2020. The improved
results are due to the general recovery of the tourism and hotel industries from the Pandemic and the acquisition of one hotel
in the year.
While net income for the year ended December 31, 2022 was fueled primarily by the Company’s operating businesses, in 2021,
net income was primarily driven by $22.3 million of net gains on the Company’s marketable securities. In 2022, these gains
were insignificant due to the significant liquidation of the Company’s marketable securities in 2021. In 2020, the net loss was
driven by both hotel revaluation losses and unrealized losses on the Company’s marketable securities.
Comprehensive income for the year ended December 2022 was $10.1 million compared to $45.5 million in 2021 and a
comprehensive loss of $10.5 million in 2020. In addition to the impact of the marketable securities gains in 2021, the subdued
comprehensive income in the year compared to 2021 is attributable mainly to the accounting treatment of the asset ceiling on
the Company’s accrued pension benefit asset – primarily due to an increase in the estimated discount rate.
Clarke’s basic and diluted EPS for the year ended December 31, 2022 was $0.23, compared to basic EPS of $1.12 and diluted
EPS of $0.96 for the year ended December 31, 2021 and a basic and diluted loss per share of $1.21 in 2020.
BOOK VALUE PER COMMON SHARE
The Company’s book value per common share at December 31, 2022 was $15.28, an increase of $0.80 since December 31,
2021. The following graph shows Clarke’s book value per common share, common share price and cumulative dividends paid
over the past ten years.
$16.00
$15.00
$14.00
$13.00
$12.00
$11.00
$10.00
$9.00
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
15.06
12.50
12.44
15.28
14.48
12.57
12.21
10.00
9.86
11.61
10.45
12.21
9.36
10.71
12.48
11.20
10.32
9.02
9.02
9.02
7.99
8.32
5.44
5.44
5.44
6.68
3.44
0.84
1.24
0.34
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Book Value Per Share
Cumulative Dividend
Clarke Share Price
4
SEGMENT REPORTING
The table below summarizes the Company’s holdings based on total assets. The Other category is not a segment and is disclosed
for reconciliation purposes. It consists of our treasury and executive functions, our pension plans and our convertible
debentures.
Segment
Investment
Hospitality
Other
Total
Investment segment
December 31, 2022
$
157.6
227.4
31.1
416.1
%
37.8
54.7
7.5
100.0
December 31, 2021
$
109.1
218.5
57.0
384.6
%
28.4
56.8
14.8
100.0
The Investment segment is comprised of the Company’s ferry business, marketable securities, investment properties and real
estate inventory under development.
The Company is a one-third partner in a real estate development project in downtown Montreal that is currently under
construction. The building is located at 1111 Atwater Avenue (the “1111 Atwater Development”), the former site of the
Montreal Children’s Hospital. The development involves a 38-storey building including seniors’ housing, rental units and
luxury condominiums, with extensive amenities for residents. In November 2022, the Company made an additional $0.3 million
investment in the 1111 Atwater Development, and exercised its right to exit the co-ownership agreement for consideration
equal to the Company’s aggregate investment plus a 6.0% return. The closing of the sale of the Company's interest is expected
to occur on March 31, 2023.
The Carling Avenue Development and the 1111 Atwater Development are the drivers of the segment’s $43.3 million of capital
expenditures in 2022.
The Company owns a passenger/car ferry operating on the St. Lawrence River that has been under contract with the Government
of Québec since 1973. The ferry does not operate during the first quarter of the year and completes its annual maintenance and
repairs during this off-season period. The ferry commenced service for the season on April 14, 2022.
The Company sold its marketable securities to the Clarke Inc. Master Trust (the “Master Trust”), which holds the units of the
pension plans administered by the Company in the fourth quarter for proceeds of $3.0 million. No marketable securities were
held directly by the Company as of December 31, 2022.
Hospitality segment
The Company owns and operates hotels across Canada. Results for the year ended December 31, 2022 compared to the year
ended December 31, 2021 are as follows:
Hotel revenue
Investment and other income
Total revenue and other income
Less:
Hotel operating expenses, general and administrative expenses,
property taxes and insurance
Depreciation and amortization
Interest and accretion
Income before income taxes
Year ended
December 31, 2022
$
54.7
1.8
56.4
Year ended
December 31, 2021
$
32.0
2.8
34.8
34.7
9.4
3.0
9.2
20.8
10.0
2.7
1.4
5
Hotel revenue was $54.7 million for the year ended December 31, 2022 compared to $32.0 million in 2021. Income before
income taxes was $9.2 million for the year ended December 31, 2022 compared to $1.4 million in 2021. The improved results
are due to the general recovery of the hotels from the Pandemic and the acquisition of one hotel in the year. Hospitality assets
increased by $8.9 million in the year, primarily due to the acquisition of one hotel and the fair value adjustments recorded.
Other
The decrease in assets of $25.9 million in this category, primarily relates to the non-cash reduction of the Company’s accrued
pension benefit asset due to the accounting treatment of the asset ceiling.
OUTSTANDING SHARE DATA
At March 8, 2023, the Company had:
An unlimited number of common shares authorized and 14,062,044 common shares outstanding;
An unlimited number of First and Second Preferred Shares authorized and none outstanding.
REPURCHASE OF COMMON SHARES
The Company periodically files normal course issuer bids (“NCIB”) and substantial issuer bids (“SIB”) to purchase its
securities. The Board and senior management are of the opinion that, from time to time, the purchase of common shares at the
prevailing market price may be a worthwhile use of funds and in the best interest of the Company and its shareholders.
A summary of the repurchases under the Company's issuer bids outstanding within fiscal 2022 and 2021 are as follows:
Expiry
Bid Date
June 29, 2020
June 28, 2021
January 27, 2021
March 22, 2021
June 29, 2021
June 28, 2022
June 29, 2022
June 28, 2023
*up to and including March 8, 2023
Type
NCIB
SIB
NCIB
NCIB
LIQUIDITY AND CAPITAL RESOURCES
Maximum #
795,024
n/a
733,608
711,543
Repurchased #
795,024
20,524
451,500
158,625*
On October 4, 2022, the Company entered into a $85.0 million credit facility with a major Canadian bank for the construction
of phase one of the Carling Avenue Development. The facility is available to the Company as construction costs are incurred,
bears interest at the lender’s prime rate and has a three-year term. The Company has not yet drawn on this facility.
On October 13, 2022, the Company extended a loan facility comprised of a $20.2 million term loan payable and a $15.0 million
revolving line of credit, which matured on September 1, 2022. The loan facility was extended for approximately one year and
now matures on October 1, 2023. The term loan has a fixed interest rate of 6.55% and a 12-year amortization period. The
revolving line of credit bears interest at the lender’s prime rate plus 1.40%.
On October 31, 2022, the Company redeemed $15.8 million of its convertible debentures at par from the debentureholders on
a pro rata basis. The cash outlay, including $0.5 million of accrued interest, was $16.2 million.
Subsequent to December 31, 2022, using available funds from its revolving credit facilities, the Company repaid a term loan
of $11.0 million, which was secured by a second lien on five hotels and three investment properties.
The Company had $1.1 million of cash and cash equivalents on hand as at December 31, 2022, compared to $18.4 million as
at December 31, 2021. The use of cash was primarily related to the hotel acquisition, capital additions and investment in our
various real estate developments, and the partial redemption of convertible debentures offset by net borrowings of long-term
debt and credit facilities.
6
Cash flow from operating activities
Cash provided by operating activities was $3.4 million for the year ended December 31, 2022, compared to using $7.2 million
in 2021. In both 2022 and 2021, this was primarily the result of cash generated from hotel and ferry operations offset by capital
expenditures on the Company’s real estate inventory under development. These capital expenditure cashflows are considered
operating activities because of the Company’s planned strategy to divest of these assets upon completion.
At December 31, 2022, current liabilities exceeded current assets by $50.0 million, compared $21.2 million at December 31,
2021. The change is primarily attributable to the proceeds from the Company’s revolving credit facilities used for the hotel
acquisition and the convertible debentures redemption. The Company has the ability to fund its working capital needs through
its cash on hand, its existing credit facilities and the anticipated renewals of long-term debt presented as current on the statement
of financial position.
Cash flow from investing activities
Cash used in investing activities was $36.8 million for the year ended December 31, 2022, compared to providing $30.7 million
in 2021. This was primarily the result of additions of property and equipment and investment properties of $31.8 million, and
the acquisition of the Stanford Inn & Suites for $11.6 million. Cash provided from investing activities during the year ended
December 31, 2021 was primarily the result of proceeds from the sale of marketable securities of $73.3 million, offset by
additions to property and equipment and investment properties of $17.4 million, the Company’s $21.1 million investment in
the 1111 Atwater Development and purchases of marketable securities of $7.0 million.
Cash flow from financing activities
Cash provided from financing activities was $16.1 million for the year ended December 31, 2022, compared to using $7.8
million in 2021. This was primarily due to a total draw on revolving credit facilities of $26.1 million and proceeds from long-
term debt of $13.7 million offset by the partial redemption of convertible debentures of $15.8 million, repayments on long term
debt of $4.0 million, and the repurchase of common shares of $3.8 million. Cash used in financing activities during the year
ended December 31, 2021 was primarily related to the repurchase of common shares of $5.5 million, and the repayment of
short and long-term debt of $15.4 million, offset by the proceeds of long-term debt of $13.1 million.
Contractual obligations and capital resource requirements
The table below summarizes the Company’s maximum contractual obligations by due date:
Contractual obligations
Convertible debentures
Long-term debt
Lease obligation
Total
$
35.0
98.4
0.7
134.1
Less than
1 year
$
―
77.7
0.2
77.9
1 – 3 years
$
―
6.6
0.3
6.9
3 - 5 years
$
―
13.0
0.2
13.2
After 5 years
$
35.0
1.1
0.1
36.2
The convertible debentures have a face value of $35.0 million and mature on January 1, 2028. These debentures are convertible
into common shares of the Company at any time at the option of the holder, and therefore the actual cash required at maturity,
if any, is dependent upon the number of debentures remaining unconverted. The debentures are also redeemable, at the option
of the Company, in whole or in part. The redemption price is the principal amount plus accrued and unpaid interest. The
Company is required to provide at least 30 days’ prior notice of the redemption.
The Company maintains two credit facilities with Canadian chartered banks. The borrowing capacity of the first credit facility
is determined by a borrowing base calculation, subject to a maximum of $40.0 million. This credit facility bears interest at the
lender’s prime rate plus 1.50%, or based on a spread to banker’s acceptance. As at December 31, 2022, the Company had drawn
$18.1 million on this facility. The aggregate carrying amounts of the five hotels and three investment properties securing this
facility is $89.1 million. The Company has a second credit facility with a maximum borrowing capacity of $15.0 million. This
credit facility bears interest at the lenders prime rate plus 1.40%. As at December 31, 2022, the Company had drawn $8.0
million on this facility. This facility, and a corresponding term loan, are secured by five hotel properties with an aggregate
carrying value of $76.2 million. This facility is subject to an annual review and matures in October 2023. Any decline in the
fair value or operations of the pledged assets may limit the Company’s access to the full amount of the short-term facilities.
7
FOURTH QUARTER
A comparison of results for the three months ended December 31, 2022, and 2021, is as follows:
Revenue
Hotel
Provision of services
Investment and other income
Expenses
Operating expenses
Cost of services provided
General and administrative expenses
Property taxes and insurance
Depreciation and amortization
Interest and accretion
Income before income taxes
Income taxes
Net income
Comprehensive income
Three months ended
December 31, 2022
$
Three months ended
December 31, 2021
$
15.2
2.9
1.5
19.6
10.1
1.3
0.8
0.8
2.4
1.8
2.5
1.1
1.3
20.4
9.3
3.5
7.7
20.5
6.7
2.1
0.9
0.1
2.6
1.4
6.8
1.0
5.8
7.4
The Company had net income of $1.3 million in the fourth quarter of 2022 compared to $5.8 million in the same period in
2021. Net realized and unrealized gains on investments for the fourth quarter of 2022 were $0.1 million compared to $5.1
million for the same period in 2021. The gains on the Company’s marketable securities held in 2021 are primarily why net
income in the fourth quarter of 2021 outpaced 2022 despite the significant rebound in hotel operations.
Comprehensive income for the fourth quarter was $20.4 million compared to $7.4 million for the same period in 2021. The
primary driver of the increase was the revaluation of hotels due to their recovery and improved outlook.
For the three months ended December 31, 2022, Clarke’s basic and diluted EPS was $0.10, compared to basic EPS of $0.40
and diluted EPS of $0.36 for the same period in 2021.
Cash used in operating activities was $0.2 million for the fourth quarter of 2022, compared to using $3.6 million in the same
period in 2021. Cash flows in the fourth quarter of both 2022 and 2021 were driven mainly by the hospitality and ferry
operations, offset by capital expenditures for real estate inventory under development.
Cash used in investment activities was $5.1 million in the fourth quarter of 2022, compared to providing $24.6 million in the
same period in 2021. The primary reasons for the cash used in the fourth quarter 2022 were additions to the Carling Avenue
Development of $8.9 million and capital expenditures of $1.4 million offset by of $5.3 million of proceeds from the disposition
of loans receivable and marketable securities. Total proceeds on the sale of investments of $37.7 million, net of purchases of
marketable securities of $4.6 million and capital expenditures on property and equipment and investment properties of $8.6
million were the drivers of the cash provided in the fourth quarter of 2021.
Cash provided by financing activities for the fourth quarter of 2022 was $4.9 million compared to using $4.5 million in the
same period in 2021. The primary source of cash was related to an increase of $17.9 million in short-term indebtedness and
$4.1 million of proceeds from long-term debt, which were offset by the partial redemption of convertible debentures of $15.8
million. Cash used in financing activities in the fourth quarter of 2021 was related primarily to repayment of long-term debt
of $2.2 million and repayment of short-term indebtedness of $6.4 million, offset by proceeds of long-term debt of $4.3 million.
8
SUMMARY OF QUARTERLY RESULTS
Key financial information for the current and preceding seven quarters is as follows:
Three months ended
Revenue and other income
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Basic EPS (in dollars)
Diluted EPS (in dollars)
Dec.
2022
$
19.6
1.3
19.1
20.4
0.10
0.10
Sept.
2022
$
22.2
3.9
0.6
4.5
0.27
0.25
Jun.
2022
$
15.1
(0.5)
(20.0)
(20.5)
(0.04)
(0.04)
Mar.
2022
$
10.2
(1.4)
7.2
5.7
(0.10)
(0.10)
Dec.
2021
$
20.5
5.8
1.6
7.4
0.40
0.36
Sept.
2021
$
18.0
3.5
1.9
5.4
0.24
0.16
Jun.
2021
$
13.3
3.1
14.9
18.0
0.21
0.20
Mar.
2021
$
14.3
4.1
10.7
14.8
0.27
0.25
As seen in the table above, our results can fluctuate significantly from quarter to quarter, in part as a result of certain accounting
standards the Company follows, and as a result of fluctuations in the market prices of our securities portfolio. Under IFRS,
realized and unrealized gains and losses on our publicly-traded securities are recorded in “revenue” on our consolidated
statements of earnings. The Company does not believe that quarterly fluctuations in the stock prices of our investee companies
necessarily reflect a change in the value of the underlying businesses in which we are invested. The values of the underlying
businesses are often more stable than their stock prices reflect. Clarke views its investments on a longer-term basis as opposed
to on a quarter-to-quarter basis.
The Company’s hotel and ferry businesses are seasonal in nature and their results tend to fluctuate throughout the year. The
revenues are generally highest in the third quarter due to increased leisure travel during the summer months. While certain
expenses fluctuate according to revenue and operating levels, other expenses such as property taxes, insurance and interest are
fixed and are incurred evenly throughout the year.
RELATED PARTY TRANSACTIONS
The Company was party to the following related party transactions during the year ended December 31, 2022:
The Company was a party to rental and information technology agreements with companies owned by the Company’s
Chairman and his immediate family member. During 2022, the Company paid $0.3 million (2021 – $0.2 million)
under the agreements.
The Company provides administrative and asset management services to two pension plans it sponsors and charged
$2.2 million (2021 – $2.7 million) for services provided during the year.
During the year, the Company sold marketable securities and loans receivable totaling $5.2 million to the Master Trust.
In the year ended December 31, 2022, the Company provided and received non-monetary services with entities owned
by the Company’s Chairman and his immediate family member with a fair value of $0.2 million (2021 – $0.1 million).
The Company provided hotel management services in exchange for receiving legal, tax, investment property
management and construction consulting services.
Key management consists of the directors and officers of the Company. The compensation incurred is as follows:
Year ended December 31, 2022
Salary and fees
Pension value
Total
Board of directors
$
0.1
0.8
0.9
Officers
$
0.4
―
0.4
Total
$
0.5
0.8
1.3
9
FINANCIAL INSTRUMENTS
In the normal course of operations, the Company uses the following financial and other instruments:
To generate investment returns, the Company will invest in equity, debt and other securities. These instruments may have
interest rate, market, credit and foreign exchange risk associated with them.
To manage foreign exchange, interest rate and general market risk, the Company may enter into futures and forward
exchange contracts. These instruments may have interest, market, credit and foreign exchange risk associated with them.
Clarke may hedge its foreign currency exposure on U.S. dollar denominated investments.
Notes 1, 2, 3, 4, 5, 11, 12, 13, 14 and 24 to the consolidated financial statements for the year ended December 31, 2022 and the
Company’s 2022 AIF, provide further information on classifications in the financial statements, and risks, pertaining to the use
of financial instruments by the Company.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
In accordance with Canadian Securities Administrators National Instrument 52-109 - Certification of Disclosure in Issuers’
Annual and Interim Filings, the Company has filed certificates signed by the President & Chief Executive Officer and the Chief
Financial Officer that, among other things, report on the design and effectiveness of disclosure controls and procedures and the
design and effectiveness of internal controls over financial reporting.
Management has also designed internal controls over financial reporting to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The
President & Chief Executive Officer and the Chief Financial Officer have supervised Company’s management in the evaluation
of the design and effectiveness of the Company’s internal controls over financial reporting as of the end of the period covered
by the annual filings and believe the design and effectiveness to be adequate to provide such reasonable assurance using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework (2013).
There have been no changes in the Company’s disclosure controls and procedures or internal controls over financial reporting
during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the
effectiveness of the internal controls over financial reporting.
ENVIRONMENTAL MATTERS
The Company’s businesses are exposed to the following environmental risks in conducting regular operations: (i) contamination
of owned or leased property; and (ii) contamination of the environment relating to spills or leaks originating from the
Company’s ferry.
The Company’s businesses regularly review their operations and facilities to identify any potential environmental
contamination or liability. Limited internal reviews, which may include third party environmental assessments, have been
conducted at all the Company’s wholly-owned real estate. These limited reviews identified no material remediation issues or
potential risks and there have been no material events arising subsequently that would indicate additional obligations.
The Company believes it and its businesses comply in all material respects with all relevant environmental laws and
regulations. The Company is not aware of any material uninsured pending or proceeding actions against it or any of its
businesses relating to environmental issues.
SIGNIFICANT ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Please refer to notes 1 and 2 of our consolidated financial statements for the year ended December 31, 2022 for a detailed
discussion regarding our significant accounting policies and application of significant accounting judgments, estimates and
assumptions.
10
Valuation of property and equipment
Land and buildings and components are revalued on a sufficiently regular basis using third party offers, internal models or
external appraisals, when available, so that the carrying value of an asset does not differ materially from its fair value at each
reporting date. The Company has established a methodology to evaluate when circumstances indicate that the carrying amount
may differ materially from its fair value, which includes significant changes in operating performance, economic activity,
regional development opportunities and new competition in the markets in which each property operates.
The Company performed a revaluation analysis on its hotels in the fourth quarter of 2022 using third party provided
capitalization rates, independent appraisals, and management’s knowledge of various markets. A revaluation increase of $37.6
million was recorded among 13 hotels and a revaluation decrease of $4.7 million among three hotels. Property and equipment
increased by $32.9 million as a result, with a net increase of $31.6 million recorded in the consolidated statement of
comprehensive income and a net increase of $1.3 million recorded in the consolidated statement of earnings. A revaluation
adjustment was not required for one hotel.
The fair value of ten hotel properties was evaluated using an income capitalization model prepared internally. Management
engaged third party appraisers for assistance in determining appropriate capitalization rates, specific to the markets where the
Company operates its hotels. In situations where an income capitalization model resulted in a fair value that differed
significantly from the price per room metrics in recent market transactions, the Company used comparable hotel sales prices,
professional judgement, and management expertise to determine the fair value. Five hotels were valued based on market data.
Two hotels were revalued using third-party appraisals.
Fair value of investment properties and investment properties under construction
The Company’s significant investment properties as at December 31, 2022, consist of three office buildings, and the Carling
Avenue Development.
The Company did not require fair value adjustments on its investment properties during 2022. A fair value decrease of $2.1
million was recorded in earnings during the year ended December 31, 2021 as a result of independent appraisals.
Changes to the fair value of the Company’s investment properties and investment properties under construction will occur
periodically, based on operating performance, economic activity, regional development opportunities and new competition in
the markets in which they operate.
Investment entity
IFRS 10 – Consolidated Financial Statements defines investment entities, and it allows entities to measure their subsidiaries at
FVTPL instead of consolidating the results. Management has assessed the standard and determined that the Company does not
meet all criteria outlined in IFRS 10 in order for a parent to be considered an investment entity. The Company consolidates all
of its controlled investments.
Business combinations
During 2021, the Company entered into a joint operation. The transaction was treated as a business combination in accordance
with IFRS 3 – Business combinations. The purchase price allocation requires management to use significant estimates and
assumptions, including fair value estimates of assets acquired and liabilities assumed.
While the Company uses its best estimates and assumptions as part of the purchase price allocation to accurately value the
assets acquired and liabilities assumed at the business combination date, estimates and assumptions are inherently uncertain
and subject to refinement. As a result, during the measurement period, which is the earlier of the date management receives
the information it requires or one year from the business combination date, adjustments are recorded to the assets acquired and
liabilities assumed.
Changes in any of the assumptions or estimates used in determining the fair value of assets acquired and liabilities assumed
could impact the initial amounts assigned to assets and liabilities in the purchase price allocation. Unanticipated events and
circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
11
Pension benefits and asset ceiling
The costs of defined benefit pension plans and the present value of the pension obligation are determined using actuarial
valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the
future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases.
Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is
highly sensitive to changes in these assumptions.
All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the
interest rates of corporate bonds in the respective currency with at least AA rating, with extrapolated maturities corresponding
to the expected duration of the defined benefit obligation. The underlying bonds are further reviewed for quality, and those
having excessive credit spreads are removed from the population of bonds on which the discount rate is based, on the basis that
they do not represent high quality bonds. The mortality rate is based on publicly available mortality tables. Future salary
increases and pension increases are based on expected future inflation rates. Further details about the assumptions used are
disclosed in the consolidated financial statements for the year ended December 31, 2022. Management is also required to make
certain assumptions regarding the quantification of the asset ceiling, which impacts the accrued pension benefit recorded on
the consolidated statements of financial position.
CAUTIONARY STATEMENT REGARDING USE OF NON-IFRS ACCOUNTING MEASURES
This MD&A makes reference to “book value per share” and “net operating income” (or “hotel net operating income”). Book
value per share and net operating income are not financial measures or ratios calculated and presented in accordance with
International Financial Reporting Standards (“IFRS”) and should not be considered in isolation or as a substitute to any financial
measures or ratios of performance calculated and presented in accordance with IFRS. These non-IFRS financial measures and
ratios are presented in this MD&A because management of Clarke believes that such measures and ratios enhance the user’s
understanding of our historical and current financial performance.
Book value per share is measured by dividing shareholders’ equity of the Company at the date of the statement of financial
position by the number of common shares outstanding at that date. Net operating income is defined as revenue less expenses.
Net operating income measures operating results before interest, depreciation, and amortization.
The following table reconciles hotel net operating income to income before taxes of the Company’s hospitality segment as
disclosed in the consolidated financial statements for the year ended December 31, 2022.
Income before income taxes
Deduct:
Investment and other income
Add:
Non-operating corporate expenses
Depreciation and amortization
Interest and accretion
Hotel net operating income
Year ended
December 31, 2022
$
9.2
Year ended
December 31, 2021
$
1.4
(1.8)
(2.8)
1.0
9.4
3.0
20.8
0.1
10.0
2.7
11.3
Clarke’s method of determining these amounts may differ from other companies’ methods and, accordingly, these amounts
may not be comparable to measures used by other companies.
Due to rounding, numbers presented throughout this document may not sum precisely to the totals provided.
FORWARD-LOOKING STATEMENTS
This MD&A may contain or refer to certain forward-looking statements relating, but not limited, to the Company’s
expectations, intentions, plans and beliefs with respect to the Company. Often, but not always, forward-looking statements can
be identified by the use of words such as “plans”, “expects”, “does not expect”, “is expected”, “budgets”, “estimates”,
“forecasts”, “intends”, “anticipates” or “does not anticipate”, “believes”, or equivalents or variations of such words and phrases,
or state that certain actions, events or results, “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be
12
achieved. Forward-looking statements include, without limitation, those with respect to the future or expected performance of
the Company’s investee companies, the future price and value of securities held by the Company, changes in these securities
holdings, the future price of oil and value of securities held by the Company, changes to the Company’s hedging practices,
currency fluctuations and requirements for additional capital. Forward-looking statements rely on certain underlying
assumptions that, if not realized, can result in such forward-looking statements not being achieved. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be
materially different from the historical results or from any future results expressed or implied by such forward-looking
statements. Such risks and uncertainties include, among others, the Company’s investment strategy, legal and regulatory risks,
general market risk, potential lack of diversification in the Company’s investments, interest rates, foreign currency fluctuations,
the sale of Company investments, the fact that dividends from investee companies are not guaranteed, reliance on key
executives, commodity market risk, risks associated with investment in derivative instruments and other factors. With respect
to the Company’s investment in hotel and ferry operations, such risks and uncertainties include, among others, weather
conditions, safety, claims and insurance, uninsured losses, changes in levels of business and commercial travel and tourism,
increases in the supply of accommodations in local markets, the recurring need for renovation and improvement of hotel
properties, labour relations, and other factors.
Although the Company has attempted to identify important factors that could cause actions, events or results not to be as
estimated or intended, there can be no assurance that forward-looking statements will prove to be accurate as actual results and
future events could differ materially from those anticipated in such statements. Other than as required by applicable Canadian
securities laws, the Company does not update or revise any such forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated events. Accordingly, readers should not place undue
reliance on forward-looking statements.
13
Consolidated Financial Statements
Clarke Inc.
December 31, 2022 and 2021
14
Independent auditor’s report
To the Shareholders of Clarke Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Clarke Inc. and its subsidiaries (together, the Company) as at December 31, 2022
and 2021, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board
(IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2022 and 2021;
the consolidated statements of earnings for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of cash flows for the years then ended;
the consolidated statements of shareholders’ equity for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
Cogswell Tower, 2000 Barrington Street, Suite 1101, Halifax, Nova Scotia, Canada B3J 3K1
T: +1 902 491 7400, F: +1 902 422 1166
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
15 Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2022. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Valuation of land and buildings and
components
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 1 – Summary of significant
accounting policies, note 2 – Significant accounting
judgments, estimates and assumptions and note 8
– Property and equipment to the consolidated
financial statements.
The total carrying amount of land and buildings and
components is $209.7 million as at December 31,
2022. The Company has recorded a revaluation
gain of $1.3 million in the consolidated statement of
earnings and a pre-tax revaluation gain of $31.6
million in the consolidated statement of
comprehensive income for the year ended
December 31, 2022.
The Company accounts for land and buildings and
components (hotels) under the revaluation model.
Hotels are carried at fair value as at the date of
revaluation and subsequently depreciated until the
next revaluation. These assets are revalued on a
sufficiently regular basis using third party offers,
internal models or external appraisals, when
available, so that the carrying amount of an asset
does not differ materially from its fair value at each
reporting date. Increases in fair value are recorded
in other comprehensive income and accumulated in
revaluation surplus, except to the extent that they
reverse a revaluation decrease previously recorded
in the consolidated statement of earnings, in which
case the reversal is recorded in the consolidated
statement of earnings. Decreases in fair value are
charged against other comprehensive income and
the revaluation surplus to the extent of any credit
balance existing in the revaluation surplus in
Tested how management determined the fair
value of the hotels, which included the
following:
– Tested the methodology used to determine
the fair value of the hotels, which includes
the appropriateness of the models used.
– Tested the underlying data used in the
models.
– Evaluated the reasonableness of significant
assumptions, including the budgeted cash
flow forecasts for 2023, by comparing them
to historical results and assessing market
conditions in the market in which each
hotel operates.
– Professionals with specialized skill and
knowledge in the field of real estate
valuations assisted us in evaluating the
appropriateness of the models and the
overall capitalization rates used within the
models or comparable hotel sales, as
applicable.
– Professionals with specialized skills and
knowledge in the field of real estate
valuations assisted us in assessing the
reasonableness of external appraisals.
16 Key audit matter
How our audit addressed the key audit matter
respect of that asset, and thereafter are recorded in
the consolidated statement of earnings.
For internal models, the Company used an income
capitalization model. Management engaged third
party appraisers for assistance in determining
appropriate overall capitalization rates specific to
the markets the Company operates its hotels. The
income capitalization models include the budgeted
cash flow forecasts for 2023. If the income
capitalization model results in a fair value which
differs significantly from the price per room metrics
in recent market transactions, management used
comparable hotel sales prices to determine the fair
value.
As disclosed in note 2, significant assumptions
used in the internal models included the budgeted
cash flow forecasts for 2023, the overall
capitalization rates and in certain situations, the
comparability of recent hotel sales.
We considered this a key audit matter due to the
significant judgments made by management in
determining the fair value of the hotels and
significant assumptions used. This resulted in
complexity and increased audit effort to evaluate
the approach and the appropriateness of estimates
made and rates selected by management. In
addition, the audit effort involved the use of
professionals with specialized skill and knowledge
in the field of real estate valuations.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
Our opinion on the consolidated 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 consolidated 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 consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
17 If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’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 Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
18 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 Company’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 consolidated 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 Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated 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 Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
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.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Maxime Lessard.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Halifax, Nova Scotia
March 8, 2023
19 Clarke Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars)
As at December 31,
ASSETS
Current
Cash and cash equivalents
Marketable securities (note 3)
Receivables (note 4)
Real estate inventory under development (note 26)
Other assets (note 5)
Total current assets
Accrued pension benefit asset (note 7)
Property and equipment (note 8)
Real estate inventory under development (note 26)
Investment properties (note 9)
Deferred income tax assets (note 10)
Other assets (note 5)
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Short-term indebtedness (note 11)
Accounts payable and other liabilities (note 12)
Income taxes payable
Current portion of long-term debt (note 14)
Total current liabilities
Convertible debentures (note 13)
Long-term debt (note 14)
Construction accounts payable and other liabilities (note 12)
Lease obligations
Deferred income tax liabilities (note 10)
Total liabilities
Commitments (note 17)
Shareholders’ equity
Share capital (note 18)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to the consolidated financial statements
On behalf of the Board:
/s/ George Armoyan
Director
/s/ Blair Cook
Director
2022
$
2021
$
1,090
―
8,041
70,418
1,303
80,852
28,630
221,704
―
80,885
3,730
320
416,121
26,086
25,310
2,063
77,423
130,882
34,146
20,929
7,035
560
7,599
201,151
83,190
7,302
41,579
82,899
214,970
416,121
18,423
2,773
9,533
―
2,135
32,864
54,306
178,797
53,704
48,849
13,452
2,657
384,629
―
12,906
3,408
37,751
54,065
49,268
48,765
8,390
730
14,792
176,010
85,218
7,302
40,100
75,999
208,619
384,629
20
Clarke Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of Canadian dollars, except per share amounts)
Years ended December 31,
Revenue and other income
Hotel
Provision of services
Investment and other income (note 19)
Expenses (note 21)
Operating expenses
Cost of services provided
General and administrative expenses
Property taxes and insurance
Depreciation and amortization
Interest and accretion (note 20)
Income before income taxes
Provision for income taxes (note 10)
Net income
Basic earnings per share: (note 18)
Diluted earnings per share: (note 18)
See accompanying notes to the consolidated financial statements
2022
$
54,676
9,656
2,838
67,170
35,356
4,558
2,975
2,886
9,570
6,495
61,840
5,330
2,104
3,226
2021
$
32,000
9,395
24,603
65,998
22,602
3,686
2,548
1,285
10,143
6,008
46,272
19,726
3,347
16,379
0.23
0.23
1.12
0.96
21
Clarke Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of Canadian dollars)
Years ended December 31,
Net income
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurement gains (losses) and effect of
changes to asset ceiling on defined benefit pension
assets, net of income tax (notes 7, 10)
Revaluation gain on property and equipment, net of
income tax (notes 2, 8 and 10)
Items that may be reclassified subsequently to profit or
loss
Unrealized gains (losses) on translation of net investment
in foreign operations, net of income tax (notes 9 and 10)
Other comprehensive income
Comprehensive income
See accompanying notes to the consolidated financial statements
2022
$
2021
$
3,226
16,379
(18,115)
15,795
24,163
13,410
852
6,900
10,126
(108)
29,097
45,476
22
Clarke Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
Years ended December 31,
OPERATING ACTIVITIES
Net income
Adjustments for items not involving cash (note 22)
Additions to real estate inventory under development (note 26)
Net changes in non-cash working capital balances (note 22)
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES
Proceeds on disposition of marketable securities (note 3)
Contribution to joint operation, net of cash acquired (note 26)
Proceeds on disposition of investment property (note 9)
Collection and disposition of loans receivable (note 5)
Acquisition of hotel property (note 6)
Additions to property and equipment (note 8)
Additions to investment properties (note 9)
Distribution of pension plan surplus, net of taxes (note 7)
Purchase of marketable securities
Proceeds on disposition of property and equipment
Proceeds on disposition of assets held for sale
Net cash provided by (used in) investing activities
FINANCING ACTIVITIES
Repurchase of shares for cancellation (note 18)
Redemption of convertible debentures (note 13)
Net proceeds (repayments) of short-term indebtedness (note 11)
Proceeds of long-term debt, net of financing fees (note 14)
Repayment of long-term debt (note 14)
Principal payments of lease obligations
Settlement of share-based liability
Net cash provided by (used in) financing activities
Net change in cash during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements
2022
$
2021
$
3,226
9,485
12,711
(11,998)
2,689
3,402
3,025
(345)
376
2,491
(11,600)
(7,453)
(24,388)
1,064
―
―
―
(36,830)
(3,775)
(15,754)
26,086
13,727
(3,960)
(157)
(72)
16,095
(17,333)
18,423
1,090
16,379
(13,979)
2,400
(11,962)
2,349
(7,213)
73,333
(21,083)
―
1,725
―
(6,768)
(10,628)
914
(7,005)
28
210
30,726
(5,461)
―
(8,243)
13,140
(7,116)
(140)
―
(7,820)
15,693
2,730
18,423
23
Clarke Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars)
Years ended December 31,
Share capital
Common shares:
Balance at beginning of year
Common shares repurchased for cancellation (note 18)
Balance at end of year
Contributed surplus
Balance at beginning of year
Purchase price in excess of the book value of common shares repurchased for cancellation
(note 18)
Balance at end of year
Retained earnings
Balance at beginning of year
Net income
Purchase price in excess of the book value of common shares repurchased for cancellation
(note 18)
Balance at end of year
Accumulated other comprehensive income
Balance at beginning of year
Other comprehensive income
Balance at end of year
Total shareholders’ equity
See accompanying notes to the consolidated financial statements
2022
$
2021
$
85,218
(2,028)
83,190
89,097
(3,879)
85,218
7,302
7,512
―
7,302
(210)
7,302
40,100
3,226
25,093
16,379
(1,747)
41,579
(1,372)
40,100
75,999
6,900
82,899
214,970
46,902
29,097
75,999
208,619
24
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Clarke Inc. (the “Company”) was incorporated on December 9, 1997 pursuant to the Canada Business Corporations Act.
The head office of the Company is located at 145 Hobsons Lake Drive, Halifax, Nova Scotia. The Company is an
investment holding and real estate company with holdings in a diversified group of businesses and across real estate sectors.
The Company operates primarily in Canada. The Company continually evaluates the acquisition, retention, and disposition
of its holdings and changes in its asset mix should be expected. These consolidated financial statements were approved by
the Board of Directors on March 8, 2023.
Basis of presentation and statement of compliance
These consolidated financial statements of the Company and its subsidiaries were prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. These consolidated
financial statements were prepared on a going concern basis under the historical cost convention, as modified by the
revaluation of any financial instruments, property and equipment and investment properties recorded at fair value.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise judgement in applying the Company’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements, are disclosed in note 2.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company’s significant
subsidiary is Holloway Lodging Corporation (“Holloway”). All intercompany transactions have been eliminated on
consolidation. All subsidiaries have the same reporting year end as the Company, and all follow the same accounting
policies.
The consolidated financial statements also include the Company’s share of the assets, liabilities, revenues and expenses of
one joint operation (note 26).
Cash and cash equivalents
Cash and cash equivalents include deposits in banks, certificates of deposit and short-term investments with original
maturities of three months or less.
Revenue recognition
Hotel revenue
Hotel revenue is generated from room occupancy, food and beverage services, rental and ancillary services. The Company
recognizes revenue when the services are provided to the customer and payment of the transaction price is due, as there are
no further performance obligations to be satisfied at that point. Room revenue is shown net of the cost of third-party hotel
brand loyalty programs.
Investment management services revenue
Investment management services revenue is generated from providing investment management services to pension plans
sponsored by the Company. Revenue is recognized as the services are rendered to the pension plans and payment of the
transaction price is due. The total transaction price includes variable consideration based on returns achieved on the assets
of the pension plans on an annual basis.
25
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Investment and other income
Distributions from investments that are treated as a return of capital for income tax purposes reduce the average cost of the
underlying investment. Dividend income is recorded on the ex-dividend date. Interest income is recorded using the
effective interest rate (“EIR”) for all financial instruments measured at amortized cost.
Ferry revenue
Services revenue from the Company’s ferry business is recognized upon provision of those services and customer
acceptance of those services, as there are no further performance obligations to be satisfied at that point. The ferry revenue
is included in provision of services on the consolidated statements of earnings.
Foreign currency translation
The Company’s consolidated financial statements are presented in Canadian dollars, which is also the functional currency of
the parent company. Each of the Company’s subsidiaries determines its own functional currency and items included in the
financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded at their respective functional currency rates prevailing at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency
spot rate of exchange at the reporting date. There were no non-monetary assets or liabilities denominated in foreign
currencies as at December 31, 2022, in entities where the functional currency is Canadian dollars. All foreign exchange
gains and losses are recorded in other income as incurred.
The assets and liabilities of subsidiaries for which the functional currency is not Canadian dollars, are translated into
Canadian dollars at the rate of exchange prevailing at the reporting date and their statements of earnings are translated at
yearly average exchange rates. The exchange differences arising on the translation are recognized in other comprehensive
income. On disposal of a foreign operation, the component of accumulated other comprehensive income relating to that
particular foreign operation is recognized in the consolidated statements of earnings.
Taxes
Current income tax
Current income tax assets and liabilities for the periods are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute these amounts are those that are enacted or
substantively enacted, at the reporting date in the jurisdictions where the Company operates and generates taxable income.
Current income tax relating to items recognized directly in shareholders’ equity is recognized in shareholders’ equity and
not within earnings. Management periodically evaluates positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
26
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are
recognized for all taxable temporary differences, except in respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward amounts of unused tax
credits and unused tax losses, to the extent that it is probable that taxable profit will be generated against the deductible
temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilized, except:
Where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss.
In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are
recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be
utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that
it has become probable that future taxable profits will allow the deferred income tax asset to be recovered. Deferred income
tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the
liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred income tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred income
tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in
shareholders’ equity.
Sales tax
Revenues, expenses and assets are recognized net of the amount of sales tax, except:
Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in
which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as
applicable.
Receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable
from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated
statements of financial position.
27
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Property and equipment
Depreciation of property and equipment is provided on a straight-line basis from the date assets are ready to be put into
service at rates which will amortize the carrying cost less residual value of the property and equipment over their estimated
useful lives. Estimated useful lives and residual values are reviewed at least annually. The estimated useful lives of
property and equipment are as follows:
Property and equipment class
Buildings and components
Furniture, fixtures, and equipment
Ferry and vessel dry dock costs
Right-of-use assets
Useful life
15 – 60 years
2 – 10 years
3 – 5 years
Term of the lease
Land is not amortized. Renovations in progress are amortized once they are put into use.
Property and equipment are stated at cost, net of accumulated depreciation and/or accumulated impairment losses, with the
exception of land and buildings and components, which are accounted for using the revaluation model. Such costs include
the cost of replacing part of the property and equipment. When significant parts of property and equipment are required to
be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciation,
respectively. All other repair and maintenance costs are expensed as incurred.
Under the revaluation model, increases in fair value are recorded in other comprehensive income and accumulated in
revaluation surplus, except to the extent that they reverse a revaluation decrease previously recorded in the consolidated
statement of earnings, in which case the reversal is recorded in the consolidated statement of earnings. Decreases in fair
value are charged against other comprehensive income and the revaluation surplus to the extent of any credit balance
existing in the revaluation surplus in respect of that asset, and thereafter are recorded in the consolidated statement of
earnings.
Land and buildings and components are carried at fair value at the date of revaluation and subsequently depreciated until the
next revaluation. The Company applies the net method for adjustment upon revaluation. The net method eliminates
accumulated depreciation against the carrying amount of the asset and then revalues the net carrying amount. Depreciation
on the carrying amount is charged to earnings.
Investment properties
Investment properties are held either to earn rental income, for capital appreciation (including future re-development) or
both, but not for sale in the ordinary course of business. Investment properties are initially measured at cost, including
transaction costs, and subsequently measured at fair value at each reporting date. The difference between the fair value at
the reporting date and the carrying value is recognized in earnings. Under the fair value model, investment properties are
not depreciated.
Investment properties under construction include properties that will undergo activities that will take a substantial period to
prepare for their intended use. Investment properties under construction are recognized at cost and subsequently remeasured
to fair value at each reporting date. Costs include costs that are directly attributable to the asset, including development
costs, property taxes and borrowing costs. These costs are capitalized when the activities necessary to prepare an asset for
development begin and continue until the date that construction is substantially complete.
28
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Real estate inventory under development
The Company’s real estate inventory under development consists of real estate for which the Company has a planned
strategy to divest upon completion. Real estate inventory under development is accounted for in accordance with IAS 2 –
Inventories, and is measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price
in the ordinary course of business, less estimated costs necessary to make the sale and estimated development costs to
complete. Costs include capitalized borrowing costs.
The carrying amount of real estate inventory under development is reviewed at each statement of financial position date.
Adjustments needed to reduce the carrying amount of the asset to its net realizable value are recognized in earnings.
Financial instruments — initial recognition and subsequent measurement
i) Financial assets
Initial recognition and measurement
Financial assets within the scope of IFRS 9 – Financial Instruments (“IFRS 9”) are classified as financial assets at
amortized cost; fair value through profit or loss (“FVTPL”); or fair value through other comprehensive income, as
appropriate. The Company determines the classification of its financial assets at initial recognition. All financial assets are
recognized initially at fair value plus, in the case of investments not at FVTPL, directly attributable transaction costs. The
Company’s financial assets include cash and cash equivalents, marketable securities, receivables and loans receivable.
Subsequent to initial recognition, all financial assets are carried at amortized cost with the exception of marketable
securities, which are carried at FVTPL.
Subsequent measurement
Financial assets at FVTPL
Financial assets at FVTPL are carried at fair value with changes in fair value recognized in earnings.
Impairment of financial assets at amortized cost
The Company’s loans receivable and receivables are included in this category. The Company has elected to use the
simplified approach to measure expected credit losses for its receivables which uses a lifetime expected impairment
approach. Impairment provisions on receivables are based on credit risk characteristics and days past due, while impairment
provisions on loans receivable are based on credit risk characteristics, collateral and speculative and non-speculative
historical default rates. Receivables and loans receivable are written off when there is no reasonable expectation of
recovery.
ii) Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at FVTPL, or at amortized cost. The
Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized
initially at fair value and in the case of financial liabilities recognized at amortized cost, plus directly attributable transaction
costs. The Company’s financial liabilities include short-term indebtedness, accounts payable and other liabilities,
construction accounts payable and other liabilities, convertible debentures and long-term debt, all of which are measured at
amortized cost with the exception of share-based payment liabilities, which are measured at fair value.
29
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Subsequent measurement
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the EIR
method. Gains and losses are recognized in the consolidated statements of earnings when the liabilities are derecognized as
well as through the EIR method amortization process.
Derecognition and modification
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an
existing financial liability is replaced by another from the same lender on substantially different terms, such an exchange is
treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in earnings. If the change of terms is not substantial and is considered a debt modification of
the financial liability, the carrying amount of the existing debt liability is adjusted to reflect the revised estimated cash flow
payments discounted using the original effective interest rate. The adjustment is recognized as a modification gain or loss in
earnings.
iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statements of financial
position if there is an unconditional and currently enforceable legal right to offset the recognized amounts and there is an
intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
iv) Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to
quoted market last bid price, without any deduction for transaction costs. For financial instruments not traded in an active
market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent
arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a
discounted cash flow analysis or other valuation models.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in earnings, net of any
reimbursement.
Convertible debentures
The Company’s Series B convertible debentures (“debentures”) are carried at amortized cost using the EIR method. The
debentures are both convertible by the holders and redeemable by the Company. The fair value of the conversion and
redemption options were evaluated when the Company assumed the debentures in a past business combination. The fair
value of the conversion option was determined to be immaterial and as such, was not bifurcated with an equity component.
The economic characteristics and risks of the redemption option were determined to be closely related to those of the
debentures. As such, the embedded derivative was not separated from the debentures and is not accounted for as a
derivative.
30
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount.
The recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its
value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its
recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are
recognized in earnings.
A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine
the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor the amount at which it would have been carried after
recognizing depreciation had no impairment been recognized. Such a reversal is recognized in earnings.
Per share information
Basic earnings per share is calculated based on net income using the weighted average number of common shares
outstanding during the year. Diluted earnings per share is calculated based on the weighted average number of common
shares that would have been outstanding during the year, including adjustments for dilutive instruments.
Pensions and other post-employment benefits
The Company has two defined benefit pension plans covering full-time employees who commenced employment before
September 2003. One plan is federally regulated by the Office of the Superintendent of Financial Institutions and one plan
is provincially regulated by Retraite Québec. For certain other employees, the Company has an RRSP and defined
contribution matching pension plan. The cost of providing benefits under the defined benefit plans is determined separately
for each plan using the projected unit credit method. Remeasurement gains and losses and the effect of the limit on the asset
ceiling of the defined benefit plans are included in other comprehensive income. The past service costs, current service
costs, net interest on surplus and non-investment management fees are recognized as an expense in earnings. The defined
benefit asset comprises the fair value of plan assets less the present value of the defined benefit obligation (using a discount
rate based on high quality corporate bonds, as explained in note 2). Plan assets are not available to the creditors of the
Company, nor can they be paid directly to the Company. The value of any defined benefit asset recognized is restricted to
the present value of any economic benefits available in the form of refunds from the plan or reductions in the future
contributions to the plan.
Government grants
Government grants are recognized when there is reasonable assurance that the grant will be received, and all attached
conditions will be met. When the grant relates to an expense item, it is recognized as income over the period necessary to
match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, it is
recorded as a reduction to the cost of the asset. When the Company receives non-monetary grants, no amounts are recorded
in the consolidated statements of earnings as the grants are for consumables in the Company’s operations.
31
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Joint arrangements
A joint arrangement is defined as an arrangement over which two or more parties have joint control, which is the
contractually agreed sharing of control over said arrangement. This exists only when the decisions about the arrangement
require the unanimous consent of the parties sharing control. There are two types of joint arrangements: joint ventures and
joint operations.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint venture. Investments in joint ventures are accounted for using the equity method as described in IAS 28 –
Investments in Associates and Joint Ventures. A joint operation is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. The
Company recognizes its share of any assets, liabilities, revenues and expenses of the joint operation based on its ownership
interest.
The Company’s 1111 Atwater Avenue development (the “Project” or “1111 Atwater”) is a joint arrangement. Joint control
of the arrangement was established by the contractual requirement for unanimous agreement on major decisions relating to
the Project. As the Project is not structured through a separate legal vehicle, it is classified as a joint operation under the
principles of IFRS 11 – Joint arrangements.
2.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS
The preparation of the Company’s consolidated financial statements requires management to make judgements, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of
contingent liabilities, at the end of the reporting period. However, uncertainty about these judgements, estimates and
assumptions could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in
future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date and that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are described below. The Company based its estimates and assumptions on parameters available when the
consolidated financial statements were prepared. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes
are reflected in the assumptions when they occur.
32
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
2.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS (CON’T)
Valuation of property and equipment
Land and buildings and components are revalued on a sufficiently regular basis using third party offers, internal models or
external appraisals, when available, so that the carrying amount of an asset does not differ materially from its fair value at
each reporting date. The Company has established a methodology to evaluate when circumstances indicate that the carrying
amount may differ materially from its fair value, which includes: significant changes in operating performance, economic
activity, regional development opportunities and changing competition in the markets in which each property operates.
The Company performed a revaluation analysis on its hotels in the fourth quarter of 2022 using third party provided
capitalization rates, independent appraisals, and management’s knowledge of various markets. A revaluation increase of
$37,600 was recorded among 13 hotels and a revaluation decrease of $4,700 among three hotels. Property and equipment
increased by $32,900 as a result (note 8), with a net increase of $31,600 included in the consolidated statement of
comprehensive income and a net increase of $1,300 recorded in the consolidated statement of earnings (notes 19 and 22). A
revaluation adjustment was not required for one hotel.
Ten hotel properties were valued using an income capitalization model prepared internally. Management engaged third
party appraisers for assistance in determining appropriate capitalization rates, specific to the markets where the Company
operates its hotels. In situations where an income capitalization model resulted in a fair value that differed significantly
from the price per room metrics in recent market transactions, the Company used comparable hotel sales prices, professional
judgement, and management expertise to determine the fair value. Five hotels were valued based on market data. Two
hotels were revalued using third-party appraisals.
Significant assumptions used in the internal income capitalization models include budgeted cash flow forecasts for 2023,
capitalization rates, and in certain situations the comparability of recent hotel sales. The capitalization rates ranged from
8.5% - 11.5%. If capitalization rates were 0.25% higher/lower, the estimated fair value would result in a change of $2,900 to
property and equipment.
During the prior year, the Company used a combination of third-party appraisals, five-year discounted cash flow forecasts
prepared internally, comparable hotel sales prices and professional judgement to revalue its hotel portfolio. Property and
equipment was increased by $6,700 as a result of revaluations recorded during the year ended December 31, 2021 (note 8).
An increase of $2,300 was recorded in the consolidated statement of earnings and an increase of $4,400 was recorded in the
consolidated statement of comprehensive income during 2021.
Fair value of investment properties and investment properties under construction
The Company’s significant investment properties as at December 31, 2022, consist of three office buildings, and a multi-
building residential rental complex under construction (the “Ottawa Development”).
The Company did not require fair value adjustments on its investment properties during 2022. A fair value decrease of
$2,056 was recorded in earnings during the year ended December 31, 2021 as a result of independent appraisals. A
valuation increase of $10,297 relating to the Ottawa Development was recorded in the consolidated statement of
comprehensive income for the year ended December 31, 2021 upon its transfer from property and equipment to investment
properties.
Changes to the fair value of the Company’s investment properties and investment properties under construction will occur
periodically, based on operating performance, economic activity, regional development opportunities and new competition
in the markets in which they operate.
33
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
2.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS (CONT’D)
Investment entity
IFRS 10 – Consolidated Financial Statements defines investment entities, and it allows entities to measure their subsidiaries
at FVTPL instead of consolidating the results. Management has assessed the standard and determined that the Company
does not meet all criteria outlined in IFRS 10 in order for a parent to be considered an investment entity. The Company
consolidates all of its controlled investments.
Business combinations
During 2021, the Company entered into a joint operation (note 26). The transaction was treated as a business combination in
accordance with IFRS 3 – Business combinations. The purchase price allocation requires management to use significant
estimates and assumptions, including fair value estimates of assets acquired and liabilities assumed.
While the Company uses its best estimates and assumptions as part of the purchase price allocation to accurately value the
assets acquired and liabilities assumed at the business combination date, estimates and assumptions are inherently uncertain
and subject to refinement. As a result, during the measurement period, which is the earlier of the date management receives
the information it requires or one year from the business combination date, adjustments are recorded to the assets acquired
and liabilities assumed.
Changes in any of the assumptions or estimates used in determining the fair value of assets acquired and liabilities assumed
could impact the initial amounts assigned to assets and liabilities in the purchase price allocation. Unanticipated events and
circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
Pension benefits and asset ceiling
The costs of defined benefit pension plans and the present value of the pension obligation are determined using actuarial
valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the
future. These include the determination of the discount rate, future salary increases, mortality rates and future pension
increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit
obligation is highly sensitive to changes in these assumptions.
All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers
the interest rates of corporate bonds in the respective currency with at least AA rating, with extrapolated maturities
corresponding to the expected duration of the defined benefit obligation. The underlying bonds are further reviewed for
quality, and those having excessive credit spreads are removed from the population of bonds on which the discount rate is
based, on the basis that they do not represent high quality bonds. The mortality rate is based on publicly available mortality
tables. Future salary increases and pension increases are based on expected future inflation rates. Management is also
required to make certain assumptions regarding the quantification of the asset ceiling, which impacts the accrued pension
benefit recorded on the consolidated statements of financial position.
34
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
3. MARKETABLE SECURITIES
During the year ended December 31, 2022, the Company sold marketable securities for net proceeds of $3,025 (2021 –
$73,333).
4.
RECEIVABLES
Receivables from sales and services
Less: expected credit losses
Receivables from sales and services – net
Investment income receivable
Sales tax receivables
Government grants
Other receivables
5.
OTHER ASSETS
Other current assets
Inventories
Prepaid expenses and deposits
Loans receivable
Other non-current assets
Loans receivable
Intangible and other assets
2022
$
5,881
(54)
5,827
―
1,082
404
728
8,041
2022
$
119
1,184
―
1,303
―
320
320
2021
$
4,350
(16)
4,334
187
1,615
2,623
774
9,533
2021
$
78
1,807
250
2,135
2,202
455
2,657
6.
HOTEL ACQUISITION
On June 13, 2022, the Company acquired the Stanford Inn & Suites in Grande Prairie, AB, for a gross purchase price of
$11,600, which was paid in cash and by drawing on the Company’s revolving credit facilities. The following table
summarizes the fair value of the assets acquired:
Land
Buildings and components
Furniture, fixtures and equipment
Inventory
Assets acquired, at fair value
$
3,700
6,400
1,462
38
11,600
Included in earnings for the year ended December 31, 2022 are acquisition costs of $41, revenue of $3,181, and income
before taxes of $1,095.
35
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
7.
EMPLOYEE FUTURE BENEFITS
The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes annually.
The Company has two registered defined benefit plans (“the Plans”). The most recent actuarial valuations for funding
purposes were completed for the Plans as at December 31, 2021 and December 31, 2020, respectively.
During the year, the Company received a distribution from one of its Plans in the amount of $1,447 (2021 – $1,244) in
accordance with the surplus withdrawal rules of the Quebec Supplemental Pension Plans Act.
Defined benefit plan assets
Fair value of plan assets
Balance, beginning of year
Interest income
Employee contributions
Benefits paid
Non-investment management fees
Remeasurement gains
Surplus distribution
Balance, end of year
Defined benefit plan obligations
Accrued benefit obligation
Balance, beginning of year
Current service cost
Interest cost
Employee contributions
Benefits paid
Remeasurement gains
Balance, end of year
2022
$
104,362
2,961
2
(2,037)
(345)
10,687
(1,447)
114,183
2022
$
50,056
471
1,436
2
(2,037)
(11,150)
38,778
2021
$
88,245
2,146
2
(2,598)
(360)
18,171
(1,244)
104,362
2021
$
54,422
473
1,340
2
(2,598)
(3,583)
50,056
Reconciliations of the funded status of the benefit plans to the amounts recorded on the consolidated statements of financial
position are:
Fair value of plan assets
Accrued benefit obligation
Funded status of plans – surplus
Cumulative impact of asset ceiling
Accrued pension benefit asset
2022
$
114,183
(38,778)
75,405
(46,775)
28,630
2021
$
104,362
(50,056)
54,306
―
54,306
36
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
7.
EMPLOYEE FUTURE BENEFITS (CON’T)
Elements of the defined benefit recovery (expense) recognized in earnings are as follows:
For the years ended December 31,
Current service cost
Net interest on surplus
Provision for non-investment management fees
Defined benefit recovery (expense)
2022
$
(471)
1,525
(345)
709
2021
$
(473)
806
(360)
(27)
Elements of the defined benefit recovery (expense) recognized in other comprehensive income are as follows:
For the years ended December 31,
Remeasurement gains and return on plan assets in excess of discount rate
Impact of asset ceiling
Deferred income tax recovery (expense)
Defined benefit recovery (expense)
2022
$
21,837
(46,775)
6,823
(18,115)
2021
$
21,754
―
(5,959)
15,795
Significant assumptions
Accrued benefit obligation:
Discount rate
Rate of compensation increase
Benefit costs for the year:
Discount rate
Rate of compensation increase
2022
%
2021
%
5.05
2.50 – 4.00
2.90
2.50 – 4.00
2.90
2.50 – 4.00
2.50
2.50 – 4.00
The Company manages a portion of the Plans’ investment portfolio (note 15). The Company earns administration and
management fees that includes an annual performance fee if returns on plan assets exceed certain thresholds.
37
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
8.
PROPERTY AND EQUIPMENT
Year ended
December 31, 2022
Beginning balance
Additions, net
Disposals
Revaluations (note 2)
Transfers
Depreciation
Ending balance
Valuation
Cost, net
Accumulated
depreciation
Net book value
Buildings
and
components
$
126,123
7,713
―
27,965
5,089
(6,399)
160,491
Ferry and
Furniture,
vessel dry
fixtures and
dock costs
equipment
$
$
― 7,000
138 3,509
(3)
―
― ―
― 1,616
(37) (3,025)
101 9,097
Land
$
40,572
3,700
―
4,935
―
―
49,207
Right-of-
use assets
$
507
―
―
―
―
(77)
430
Renovations
in progress
$
4,595
4,488
―
―
(6,705)
―
2,378
Total
$
178,797
19,548
(3)
32,900
―
(9,538)
221,704
49,207
―
160,491
―
―
―
4,795 21,937
―
49,207
―
160,491
(4,694)
101
(12,840)
9,097
―
738
(308)
430
―
2,378
209,698
29,848
―
2,378
(17,842)
221,704
Year ended
December 31, 2021
Beginning balance
Additions, net
Acquired in business
combination (note
26)
Disposals
Revaluations (note 2)
Transfers (note 9)
Depreciation
Ending balance
Valuation
Cost
Accumulated
depreciation
Net book value
Land
$
31,184
―
―
―
19,605
(10,217)
―
40,572
40,572
―
―
40,572
Buildings
and
components
$
135,033
240
Ferry and
vessel dry
dock costs
$
59
―
Furniture,
fixtures and
equipment
$
9,315
953
Right-of-
use assets
$
874
―
Renovations
in progress
$
3,952
9,713
Total
$
180,417
10,906
146
(4)
(2,608)
―
(6,684)
126,123
127,973
―
(1,850)
126,123
―
―
―
―
(59)
―
―
4,657
(4,657)
―
―
(15)
―
―
(3,253)
7,000
―
16,935
(9,935)
7,000
―
(259)
―
―
(108)
507
―
738
(231)
507
―
(73)
―
(8,997)
―
4,595
146
(351)
16,997
(19,214)
(10,104)
178,797
―
4,595
168,545
26,925
―
4,595
(16,673)
178,797
As at December 31, 2022, the net book value of the Company’s land and buildings and components would have been
$42,121 and $120,334 respectively, had the Company used the cost model, and the net book value of property and
equipment would have been $174,461.
Additions in the year ended December 31, 2022 are net of $1,700 in government grants (2021 – $600).
38
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
9.
INVESTMENT PROPERTIES
Year ended December 31, 2022
Beginning balance
Additions
Dispositions
Foreign exchange impact
Ending balance
Year ended December 31, 2021
Beginning balance
Fair value adjustments
Additions
Transfers (note 8)
Foreign exchange impact
Ending balance
Buildings
$
17,010
345
―
1,076
18,431
Vacant land
$
167
―
(122)
―
45
Buildings
$
19,109
(2,056)
82
―
(125)
17,010
Vacant land
$
167
―
―
―
―
167
Investment
properties under
construction
$
31,672
30,737
―
―
62,409
Investment
properties under
construction
$
―
―
12,458
19,214
―
31,672
Total
$
48,849
31,082
(122)
1,076
80,885
Total
$
19,276
(2,056)
12,540
19,214
(125)
48,849
During the year ended December 31, 2022, the Company sold a parcel of vacant land for gross proceeds of $376, resulting
in a gain of $254 (note 19).
10.
INCOME TAXES
The provision for income taxes for the years ended December 31 consists of:
Consolidated statements of earnings
Current income tax
2022
$
Current income tax charge
Adjustments in respect of current income tax of previous year
Deferred income tax
Relating to origination and reversal of temporary differences
Relating to the change in recoverable amount of a deferred income tax asset
Provision for income taxes
333
81
2,071
(381)
2,104
2021
$
3,738
39
892
(1,322)
3,347
39
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
10.
INCOME TAXES (CONT’D)
The provision for income taxes varies from the expected provision at statutory rates for the following reasons:
Provision of income taxes at statutory rate of 27.14% (2021 – 27.14%)
Increase (decrease) from statutory rate:
Effect of difference in statutory rates of subsidiaries
Non-taxable component of realized/unrealized investment gains
Non-taxable and non-deductible expenses
Benefit of previously unrecognized deferred income tax asset
Effect of prior year tax adjustments
Other
Provision for income taxes at effective rate
2022
$
1,447
57
90
(43)
435
74
44
2,104
2021
$
5,354
49
(3,562)
15
791
676
24
3,347
The significant components of the Company’s deferred income tax assets and liabilities are as follows:
Year ended
December 31, 2022
Intangible assets
Marketable securities
Property and equipment and
investment properties
Employee future benefits
Long-term debt and debentures
Losses carried forward
Other
Deferred income tax assets
Deferred income tax liabilities
Year ended
December 31, 2021
Intangible assets
Marketable securities
Property and equipment and
investment properties
Employee future benefits
Long-term debt and debentures
Losses carried forward
Other
Deferred income tax assets
Deferred income tax liabilities
Deferred income
tax asset (liability)
beginning of year
$
136
(33)
Recognized
directly in
equity
$
―
―
Recognized
directly in
earnings
$
(715)
41
Deferred income
tax asset (liability)
end of year
$
(579)
8
7,767
(14,795)
(103)
5,638
50
(1,340)
13,452
(14,792)
(1,340)
(7,682)
6,823
―
―
20
(839)
6,706
(7,545)
(839)
(690)
201
58
(557)
(28)
(1,690)
(16,428)
14,738
(1,690)
(605)
(7,771)
(45)
5,081
42
(3,869)
3,730
(7,599)
(3,869)
Deferred income
tax asset (liability)
beginning of year
$
158
(4,966)
Recognized
directly in
equity
$
―
―
Recognized
directly
in earnings
$
(22)
4,933
Deferred income
tax asset (liability)
end of year
$
136
(33)
9,620
(9,051)
284
9,414
―
5,459
18,286
(12,827)
5,459
(1,287)
(5,959)
―
―
17
(7,229)
(1,287)
(5,942)
(7,229)
(566)
215
(387)
(3,776)
33
430
(3,547)
3,977
430
7,767
(14,795)
(103)
5,638
50
(1,340)
13,452
(14,792)
(1,340)
40
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
10.
INCOME TAXES (CONT’D)
The ultimate realization of deferred income tax assets is dependent upon taxable income during the periods in which those
temporary differences become deductible. In concluding that it is probable that the recorded deferred income tax assets will
be realized, management has relied upon existing taxable temporary differences, expected generation of taxable income and
tax planning opportunities as support for the recorded amounts.
As at December 31, 2022, there was no deferred income tax asset recognized for deductible temporary differences related to
undistributed profits of certain of the Company’s subsidiaries as the Company is able to control and determine whether to,
and the method for distributing, those profits and has determined that those deductible temporary differences will not
reverse in the foreseeable future. The deductible temporary differences associated with investments in subsidiaries for
which a deferred income tax asset has not been recognized aggregate to $7,805 (2021 – $18,257).
As at December 31, 2022, the Company had non-capital losses carried forward for tax purposes of $17,018 (2021 –
$20,626) in Canada and US$14,985 (2021 – US$11,943) in the United States.
Certain deferred income tax assets have not been recognized. They are as follows:
Property and equipment
Non-capital loss carry forwards
Total
11.
SHORT-TERM INDEBTEDNESS
2022
$
1,401
3,543
4,944
2021
$
2,212
3,113
5,325
The Company has two credit facilities with Canadian chartered banks. The borrowing capacity of the first credit facility is
determined by a borrowing base calculation, subject to a maximum of $40,000. This credit facility bears interest at prime
plus 1.50%, or based on a spread to banker’s acceptance. As at December 31, 2022, the Company had drawn $18,086 on
this facility (2021 – nil). The aggregate carrying value of the five hotels and three investment properties securing this
facility is $89,089.
The Company has a second credit facility with a maximum borrowing capacity of $15,000. This credit facility bears interest
at prime plus 1.40%. As at December 31, 2022, the Company had drawn $8,000 on this facility (2021 – nil). This facility,
and a corresponding term loan (note 14), are secured by five hotel properties with a carrying value of $76,200. This facility
is subject to an annual review and matures in October 2023.
Any decline in the fair value or operations of the pledged assets may limit the Company's access to the full amount of the
short-term facilities.
41
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
12. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities
Trade payables
Accrued liabilities
Condominium deposits
Share-based liability (notes 16 and 24)
Construction accounts payable and other liabilities
Construction accounts payable
Condominium deposits
13. CONVERTIBLE DEBENTURES
Debentures – beginning balance
Redemption of debentures
Accretion
Deferred financing fees capitalized
Loss (gain) on modification and redemption
Debentures – ending balance
2022
$
10,802
11,956
2,339
213
25,310
7,035
―
7,035
2022
$
49,268
(15,754)
235
―
397
34,146
2021
$
4,734
8,011
―
161
12,906
7,573
817
8,390
2021
$
50,754
―
62
(103)
(1,445)
49,268
The Company’s outstanding debentures currently bear interest at 6.25% payable semi-annually on April 30th and October
31st and have a face value of $35,000 as at December 31, 2022 (2021 – $50,754). The debentures are publicly traded under
the symbol CKI.DB and are convertible into 72.78 Clarke common shares per $1,000 of principal (amount not in thousands)
at a conversion price of $13.74 per Clarke common share. The Company has the option to repay the principal amount of the
debentures at maturity or redeem the debentures, in whole or in part in cash or by issuing common shares of the Company.
The number of common shares to be issued is calculated by dividing the aggregate principal amount by 95% of the current
market price of the Company’s common shares (calculated in accordance with the indenture).
On October 31, 2022, the Company redeemed $15,754 of its debentures from the debentureholders on a pro rata basis. The
cash outlay was $16,247 including $493 of accrued interest. The redemption resulted in a net loss of $397 recognized in the
year ended December 31, 2022.
On September 20, 2021, holders of the debentures approved an amendment to the terms of the debentures, which extended
the maturity date from February 28, 2023 to January 1, 2028, and amended the interest rate from 6.25% to 5.50% beginning
on April 30, 2023. The amendment took effect on September 30, 2021. As a result of the amendment, a gain on
modification of $1,445 was recognized in earnings in the year ended December 31, 2021.
42
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
14. LONG-TERM DEBT
On April 8, 2022, the Company renewed a mortgage payable of $14,649 with a fixed interest rate of 4.55%. The renewed
mortgage has a fixed interest rate of 3.91%, a fifteen-year amortization period, a five-year term and matures in April 2027.
The mortgage is secured by two hotels.
On October 4, 2022, the Company entered into a $85,000 construction credit facility for the Ottawa Development. The
facility is available to the Company as construction costs are incurred, bears interest at the lender’s prime rate and has a
three-year term. The Company did not draw on this facility in the year ended December 31, 2022.
On October 13, 2022, the Company extended a loan facility comprised of a $20,157 term loan and a $15,000 revolving line
of credit. The loan facility was extended for approximately one year and matures on October 1, 2023. The term loan has a
fixed interest rate of 6.55% and a 12-year amortization period. The revolving line of credit bears interest at prime plus
1.40%. The loan facility is secured by five hotels.
Mortgages payable, with a face value of $41,875, bearing interest at a
weighted average rate of 5.25% and maturing on various dates from
October 2023 to February 2030. Individual first charges on 10 hotel
properties with a carrying value of $125,166 have been pledged as
security for individual mortgages.
Term loan, bearing interest at prime plus 1.50%, secured by a second lien
on the same assets as the $40,000 credit facility (notes 11 and 27).
Mortgage payable, assumed in a joint operation, with a maximum
borrowing limit of $166,950, bearing interest at the 30-day Canadian
Dollar Offered Rate plus 2.60%. To be repaid with the sale proceeds of
the secured real estate of the joint operation (note 26).
Total long-term debt
Less: current portion of long-term debt
Long-term portion
The following table summarizes significant changes in long-term debt:
Total long-term debt – beginning balance
Assumed with joint operation (note 26)
Proceeds from long-term debt, net of financing fees
Repayment of long-term debt
Capitalized interest on construction mortgage
Accretion
Amortization of fair value increment
Total long-term debt – ending balance
2022
$
2021
$
42,039
11,135
45,178
98,352
(77,423)
20,929
2022
$
86,516
―
13,727
(3,960)
2,034
139
(104)
98,352
44,811
12,394
29,311
86,516
(37,751)
48,765
2021
$
64,296
15,470
13,140
(7,116)
701
192
(167)
86,516
43
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
15. RELATED PARTY DISCLOSURES
The Company had, other than those disclosed elsewhere in these consolidated financial statements, the following related
party transactions in the normal course of operations and measured at fair value:
(i) The Company was a party to rental and information technology agreements with companies owned by the
Company’s Chairman and his immediate family member. During 2022, the Company incurred $310 (2021 – $239)
under these agreements.
(ii) The Company provides administrative and asset management services to the Plans and charged $2,170 (2021 –
$2,719) for services provided during the year.
(iii) During the year, the Company sold marketable securities and loans receivable totaling $5,266 to the Clarke Inc.
Master Trust (the “Master Trust”), which holds the units of the Plans.
(iv) During the year, the Company provided and received non-monetary services with entities owned by the
Company’s Chairman and his immediate family member with a fair value of $197 (2021 – $119). The Company
provided hotel management services in exchange for receiving legal, tax, investment property management and
construction consulting services.
Key management consists of the directors and officers of the Company. The compensation expensed is as follows:
Year ended December 31, 2022
Salary and fees
Pension value
Total
Board of directors
$
119
831
950
Officers
$
390
5
395
Total
$
509
836
1,345
16. SHARE-BASED PAYMENTS
The Company had a legacy stock option plan which reserved 7.50% of its issued and outstanding common shares for
directors, officers and certain employees. As of December 31, 2022, there were no options outstanding under this plan
(2021 – 33,333 options outstanding).
Effective January 1, 2022, long term incentive compensation consists of units of the Company (the "Units"). The Units are
intended to incentivize certain employees in a similar manner as a stock option, however, the Units do not allow the
employee to purchase common shares of the Company. Instead, the Units must be cash-settled for their value above the
Company's current stock price when exercised. The 262,500 Units outstanding as of December 31, 2022 have an exercise
price of $14.48, vest over 5 years and expire on December 31, 2028.
The liability for the Units and options are included within accounts payable and other liabilities on the consolidated
statements of financial position. The combined expense recognized for the Units and options for the years ended December
31, 2022 and 2021 was $123 and $42, respectively.
44
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
17. COMMITMENTS
Under the terms of the Company's hotel franchise agreements, which expire at various dates through to 2041, franchise fees
are due to franchise companies on 15 of the Company’s 17 hotels. The franchise fees paid to franchisors are a function of
hotel revenue.
18. SHARE CAPITAL AND EARNINGS PER SHARE
As at and for the year ended December 31,
2022
2021
# of shares
$
# of shares
$
Authorized
Unlimited number of common shares – no par value
Unlimited number of first preferred shares
Unlimited number of second preferred shares
Issued
Outstanding common shares, beginning of year
Common shares repurchased for cancellation
Outstanding common shares, end of year
Earnings per share
14,411,969
(342,825)
14,069,144
85,218
(2,028)
83,190
15,057,892
(645,923)
14,411,969
89,097
(3,879)
85,218
Basic earnings per share
Interest, net of income taxes, on
assumed conversion of
debentures
Gain, net of accretion and tax,
on modification of debentures
Diluted earnings per share
Earnings
$
3,226
―
―
3,226
2022
Weighted
average shares
(in thousands)
#
14,238
Per
share
amount
$
0.23
2021
Weighted
average shares
(in thousands)
#
14,673
Per
share
amount
$
1.12
Earnings
$
16,379
―
―
14,238
2,283
3,694
0.23
(998)
17,664
―
18,367
0.96
The debentures were anti-dilutive for the year ended December 31, 2022 and dilutive for the year ended December 31,
2021.
Common share purchases
During the year ended December 31, 2022, the Company purchased for cancellation 342,825 (2021 – 645,923) common
shares at a cost of $3,775 (2021 – $5,461). The purchase price in excess of the historical book value of the shares in the
amount of $1,747 (2021 – $1,372) has been charged to retained earnings, nil (2021 – $210) was charged to contributed
surplus and $2,028 (2021 – $3,879) has been charged to share capital. The common share repurchases in the current year
were completed under the Company’s normal course issuer bid (“NCIB"), and the repurchases in the prior year were
completed under an NCIB, and a substantial issuer bid.
45
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
19.
INVESTMENT AND OTHER INCOME
Investment and other income is comprised of the following:
Unrealized losses on marketable securities
Realized gains on investment properties (note 9)
Realized gains on marketable securities (note 3)
Revaluation gain on hotel properties (notes 2 and 8)
Fair value adjustment on investment properties
Interest income
Pension recovery (expense) (note 7)
Loss on disposal of property and equipment
Gain (loss) on modification and redemption of debentures (note 13)
Foreign exchange gains
20.
INTEREST AND ACCRETION
Interest and accretion is comprised of the following:
Interest on short-term indebtedness
Interest on long-term debt and debentures
Accretion
21. EXPENSES BY NATURE
2022
$
(322)
254
387
1,300
―
670
709
(3)
(397)
240
2,838
2022
$
525
5,596
374
6,495
2021
$
(8,646)
―
30,959
2,300
(2,023)
753
(27)
(184)
1,445
26
24,603
2021
$
88
5,666
254
6,008
A summary of operating expenses, costs of services provided, general and administrative expenses, and property taxes and
insurance is presented below:
Salaries, wages and employee benefits, net of government assistance of $2,217
(2021 – $6,448)
Materials, supplies, repairs and utilities, net of government assistance of $1,133
(2021 – nil)
Food, beverage and service costs
Royalty and franchise fees
Property taxes, net of government assistance of $598 (2021 – $1,574)
Other general and administrative
Professional fees
Information technology and support
Insurance, net of government assistance of $199 (2021 – $525)
2022
$
2021
$
18,610
10,412
15,207
2,745
2,558
2,227
1,792
1,347
617
672
45,775
10,835
1,374
1,843
1,157
2,197
1,623
552
128
30,121
The Company has recognized $4,386 of government funding in earnings for the year ended December 31, 2022 (2021 –
$9,282). $4,147 (2021 – $8,547) is presented as a reduction of expenses and $239 (2021 – $735) is presented in revenue.
46
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
22. SUPPLEMENTAL CASH FLOW INFORMATION
Adjustments for items not involving cash
Realized/unrealized gains on marketable securities (note 19)
Depreciation and amortization
Revaluation gain on hotel properties (notes 2 and 8)
Fair value adjustment on investment properties (note 9)
Deferred income tax expense (recovery) (note 10)
Share-based payment expense (note 16)
Amortization of fair value increments from acquisition
Accretion
Realized/unrealized foreign exchange gains
Pension expense (recovery) (note 7)
Loss (gain) on disposal of assets (note 19)
Loss (gain) modification and redemption of debentures (note 13)
Net changes in non-cash working capital balances
Receivables
Income taxes receivable
Other assets
Accounts payable and other liabilities
Income taxes payable
Income taxes paid
Interest received
Interest paid
23. CAPITAL DISCLOSURES
2022
$
(65)
9,570
(1,300)
―
1,690
123
(104)
374
(240)
(709)
(251)
397
9,485
2022
$
1,492
―
686
1,856
(1,345)
2,689
2021
$
(22,313)
10,143
(2,300)
2,056
(430)
42
(167)
254
(30)
27
184
(1,445)
(13,979)
2021
$
(3,663)
349
(276)
2,531
3,408
2,349
2022
$
1,770
859
2021
$
350
490
6,515 5,813
The Company’s capital consists of shareholders’ equity and interest-bearing debt. The objectives of the Company’s capital
management program are to maintain a level of capital that complies with existing debt covenants, optimizes the cost of
capital, funds its business strategies, provides returns to shareholders and builds long-term shareholder value. To maintain
or adjust its capital structure, the Company may, from time to time, issue new shares, issue new debt, repurchase existing
debt or shares and/or adjust the amount of dividends paid to shareholders. The Company is subject to financial covenants
on its short-term credit facilities and certain of its mortgages payable and term loans. There are restrictive covenants for the
Company that are governed by a maximum adjusted tangible net worth ratio (ratio of 1.25x), and debt service coverage ratio
to exceed various levels ranging from 1.20x – 1.40x. All restrictive covenants are in compliance.
47
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The carrying value of cash and cash equivalents, receivables, loans receivable, short-term indebtedness, accounts payable
and other liabilities, and construction accounts payable and other liabilities approximates their fair value due to the short-
term maturity of these instruments.
The methods and assumptions used in estimating the fair value of long-term debt, debentures and the share-based liability
are as follows:
Long-term debt payable
The fair value is determined using internal valuation techniques which incorporate the discounted future cash flows
using discount rates that reflect current market conditions for debt instruments with similar interest rates, terms and
risk. The fair values do not necessarily represent the amounts the Company might pay in actual market
transactions. The carrying value and fair value of the Company’s outstanding mortgages payables at December 31,
2022 was $98,352 and $96,377, respectively.
Debentures
The fair value of the debentures is based on the quoted market price for the debentures. As at December 31, 2022,
the carrying value and fair value of the debentures was $34,146 and $34,125, respectively.
Share-based liability
The fair value of options and Units is determined using the quoted market price for the shares of the Company, the
Black-Scholes option pricing model and internal valuation techniques which incorporate the Company’s historic
share price in calculating volatility.
The Company uses the following hierarchy in attempting to maximize the use of observable inputs and minimize the use of
unobservable inputs, primarily using market prices in active markets:
Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a
market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing on an
ongoing basis.
Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in
markets that are not active or other inputs that are observable that can be corroborated by observable market data for
substantially the full term of the asset or liability.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
The following details the fair value hierarchy classification for the Company’s assets carried at fair value on the
consolidated statements of financial position:
Description
Property and equipment
Investment properties
Total assets
Total
208,298
80,885
289,183
Fair value at December 31, 2022
Level 1
―
―
―
Level 2
―
―
―
Level 3
208,298
80,885
289,183
48
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CON’T)
Description
Marketable securities
Property and equipment
Investment properties
Total
2,773
166,695
48,849
218,317
Fair value at December 31, 2021
Level 1
2,773
―
―
2,773
Level 2
―
―
―
―
Level 3
―
166,695
48,849
215,544
Risks associated with financial assets and liabilities
The Company is exposed to various financial risks arising from its financial assets and liabilities. These include market
risk, liquidity risk and credit risk. To manage these risks, the Company performs detailed risk assessment procedures at the
individual investment level, under the framework of a global risk management philosophy.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk is typically comprised of equity price risk, interest rate risk and foreign exchange risk. Given the
Company’s holdings at December 31, 2022, equity price risk and foreign exchange risk are considered insignificant.
Interest rate risk
The Company is exposed to interest rate risk on its lending and borrowing activities. It manages its exposure to
interest rate risk by primarily using fixed rate debt or debt with a fixed-rate option, so cash flows are not impacted
significantly by a change in interest rates. The weighted average interest rate on its long-term debt is 6.58% with a
weighted average maturity of approximately 2.0 years.
The Company has one term loan, two construction loans and two revolving credit facilities that use floating rates.
One of the construction loans is not drawn. As at December 31, 2022, the after-tax, annualized net income effect of
a 1% change in interest rates would have been $596 on floating rate debt of $81,741.
Credit risk
Credit risk refers to the risk that a counterparty will fail to fulfill its obligations under a contract and, as a result, will cause
the Company to suffer a loss. This risk is mitigated through credit policies that limit transactions according to
counterparties’ credit quality. The Company assesses the credit quality of all counterparties, considering their financial
position, past experience and other factors. The maximum exposure to credit risk associated with financial assets is the total
carrying value of the Company’s receivables.
49
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CON’T)
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations. The Company
believes it has access to sufficient capital through cash on hand, operating cash flows and existing or other borrowing
facilities to meet these obligations. The Company monitors and forecasts its cash balances and cash flows generated from
operations to meet its required obligations. As at December 31, 2022, the Company had cash of $1,090 and available unused
facilities totaling $28,914.
The following table shows the current timing of contractual payments of the Company’s liabilities:
Accounts payable and other liabilities
Interest on debentures
Debentures
Lease obligations
Long-term debt
Interest on long-term debt
Construction accounts payable and other liabilities
Due within
1 year
$
25,310
2,056
―
189
77,657
2,611
―
107,823
1 to 3 years
$
3 to 5 years
$
After 5 years
$
―
3,850
―
252
6,640
1,444
7,035
19,221
―
3,850
―
209
12,996
728
―
17,783
―
321
35,000
70
1,111
45
―
36,547
25. SEGMENTED INFORMATION
The Company operates in two reportable business segments. The Investment segment represents the Company’s marketable
securities portfolio, ferry business, investment properties and real estate inventory under development. The Hospitality
segment consists of the Company’s ownership and operation of hotels. The Other category is not a segment and is disclosed
for reconciliation purposes. The Other category consists of the Company’s treasury and executive functions, its pension
plans and its debentures. Revenue in the Other category pertains primarily to investment management fees.
Transactions between the segments are recorded at fair value, which is the amount of consideration established and agreed
to by management of the segments. Reconciling items represent inter-segment eliminations for services provided between
segments.
50
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
25. SEGMENTED INFORMATION (CON’T)
Year ended December 31, 2022
Revenue and other income:
Hotel revenue and provision of services
Investment and other income
Operating expenses before the undernoted
Depreciation and amortization
Interest and accretion
Income (loss) before income taxes
Assets
Liabilities
Capital expenditures (notes 8 and 9)
Assets located outside of Canada (note 9)
Year ended December 31, 2021
Revenue and other income:
Hotel revenue and provision of services
Investment and other income
Operating expenses before the undernoted
Depreciation and amortization
Interest and accretion
Income (loss) before income taxes
Assets
Liabilities
Capital expenditures (notes 8 and 9)
Assets located outside of Canada (note 9)
Investment
$
Hospitality
$
Other
$
Eliminations
$
Total
$
7,367
419
7,786
8,916
144
―
(1,274)
157,632
68,968
43,264
18,636
54,676
1,751
56,427
34,714
9,426
3,043
9,244
227,409
70,637
19,410
―
2,307
668
2,975
2,163
―
3,452
(2,640)
31,080
61,546
―
―
(18)
―
(18)
(18)
―
―
―
―
―
―
―
64,332
2,838
67,170
45,775
9,570
6,495
5,330
416,121
201,151
62,674
18,636
Investment
$
Hospitality
$
Other
$
Eliminations
$
Total
$
6,505
20,554
27,059
7,372
129
64
19,494
109,111
39,789
22,590
17,348
32,000
2,793
34,793
20,783
9,975
2,685
1,350
218,476
67,270
6,768
―
2,906
1,256
4,162
1,982
39
3,259
(1,118)
57,042
68,951
―
―
(16)
―
(16)
(16)
―
―
―
―
―
―
―
41,395
24,603
65,998
30,121
10,143
6,008
19,726
384,629
176,010
29,358
17,348
The Company operates predominantly in Canada, with the exception of three investment properties located in the United
States (note 9). All material hotel revenue and provision of services was generated by continuing operations in Canada for
the years ended December 31, 2022 and 2021.
51
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
(in thousands of Canadian dollars, except per share amounts)
26.
JOINT OPERATION
On April 21, 2021, the Company entered into a co-ownership agreement (“COA”) with two other co-investors to acquire a
one-third interest in a real estate development project under construction. The Project is located at 1111 Atwater Avenue in
downtown Montreal, QC, and involves a 38-storey building including seniors’ housing, rental units, and luxury
condominiums. The terms of the deal included cash consideration of $21,121 and the assumption of the Company’s share
of the construction financing. In November 2022, the Company made an additional $345 investment in this joint operation
and exercised its right to exit the COA for consideration equal to the Company’s investment plus a 6.0% return. The closing
of the sale of the Company's interest is expected to occur on March 31, 2023. As a result, the corresponding assets and
liabilities associated with the COA have been presented as current at December 31, 2022.
Below is the purchase price allocation representing the Company’s share of the identified assets and liabilities at April 21,
2021:
Cash
Receivables
Other assets
Real estate inventory under development
Property and equipment
Accounts payable and other liabilities
Construction accounts payable and other liabilities
Construction mortgage payable (note 14)
Net assets acquired, at fair value
$
38
1,565
330
40,554
146
(3,567)
(2,475)
(15,470)
21,121
Construction costs of $16,714 (2021 – $13,150), representing the Company’s one-third share, were capitalized to real estate
inventory under development in the year ended December 31, 2022. Revenue of $21 (2021 – nil) and operating expenses of
$1,115 (2021 – $728) related to the joint operation are included in earnings for the year ended December 31, 2022.
27. SUBSEQUENT EVENT
On February 9, 2023, using available funds from its lines of credit, the Company repaid a term loan of $11,042, which was
secured by a second lien on five hotels and three investment properties.
52
Clarke Inc.
Suite 106
145 Hobsons Lake Dr.
Halifax, NS B3S 0H9
www.clarkeinc.com