Halifax, Canada
MD&A and Financial Statements
2023
Management’s Discussion & Analysis
Clarke Inc.
December 31, 2023 and 2022
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, 2023 compared with the year ended December 31,
2022. The following information is derived from the Company’s consolidated financial statements which are prepared with
accounting standards in accordance with International Financial Reporting Standards (“IFRS” or “IFRS Accounting
Standards”) as issued by the International Accounting Standards Board. This MD&A should be read in conjunction with the
information disclosed in the consolidated financial statements and notes thereto for the year ended December 31, 2023 and the
Company’s Annual Information Form (“AIF”), including the risk factors described therein, available on SEDAR+ at
www.sedarplus.ca. This MD&A provides an overall discussion and analysis of the Company’s performance. The MD&A is
prepared as at March 6, 2024 (unless otherwise stated). All dollar amounts are shown in millions of Canadian dollars except
for per common 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 share1, 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 real estate, companies, securities or
other assets. 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, in particular, hospitality and real estate businesses.
REVIEW AND OUTLOOK1
During 2023, the Company’s book value per common share increased by $1.25, or 8%. The change can be attributed to (i) hotel
net operating income of $22.5 million or $1.60 per share, (ii) revaluation gains on certain hotel properties of $16.1 million or
$1.14 per share and (iii) a gain on the disposition of the Company’s share in a joint operation of $8.1 million or $0.58 per share,
offset by (iv) combined fair value adjustments and realized losses on investment properties of $7.8 million or $0.56 per share,
(v) interest and accretion of $7.2 million or $0.51 per share and (vi) depreciation and amortization of $10.2 million or $0.72
per share. The Company’s book value per common share at the end of the year was $16.53 while our common share price was
$14.28.
RESULTS OF OPERATIONS
The Company’s net income was $3.4 million compared to $3.2 million in 2022 and $16.4 million in 2021. The Company’s
operating businesses were significantly more profitable in both 2023 and 2022 compared to 2021, in particular the Company’s
hotels. Hotel revenue for the year ended December 31, 2023 was $64.2 million compared to $54.7 million and $32.0 million
in 2022 and 2021, respectively. The hospitality segment’s net income before taxes was $10.9 million for the year ended
December 31, 2023 compared to $9.2 million in 2022 and $1.4 million in 2021. Net income in 2023 and 2022 was fueled
primarily by the Company’s operating businesses, whereby in 2021, net income was primarily driven by gains on the
Company’s marketable securities.
Comprehensive income for the year ended December 2023 was $17.1 million compared to $10.1 million in 2022 and $45.5
million in 2021. Comprehensive income in the year ended December 31, 2023 exceeded 2022 due primarily to remeasurement
losses on the Company’s defined benefit pension plans recorded in other comprehensive income (“OCI”) in the prior year,
partially offset by revaluations on certain hotels that were more significant in 2022 than in 2023. Comprehensive income in
2021 was fueled by gains on marketable securities and its defined benefit pension plans as well as revaluation gains on the
Company’s hotels.
1 This 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
Highlights of the consolidated financial statements for the last three completed fiscal years are as follows:
Hotel and rental revenue
Provision of services revenue
Investment and other income *
Net income
Other comprehensive income
Comprehensive income
Basic earnings per share (“EPS”)
Diluted EPS
Total assets
Total liabilities
Long-term financial liabilities
Book value per share
Year ended
December 31, 2023
$
65.2
8.2
4.0
3.4
13.7
17.1
0.24
0.24
395.1
164.4
120.6
16.53
Year ended
December 31, 2022
$
54.7
9.7
2.8
3.2
6.9
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.
29.1.
45.5.
1.12.
0.96.
384.6.
176.0.
107.2.
14.48.
*Investment and other income includes unrealized and realized gains and losses on assets and liabilities, fair value changes of property
and equipment and investment properties presented in the statement of earnings, interest income, pension expense/recovery and foreign
exchange gains/losses.
Real Estate and Corporate
Construction continues on the first phase of the development on Carling Avenue in Ottawa, ON. The development, which is
branded as the “Talisman”, will consist of a five-building residential rental complex including extensive tenant amenities,
parkland and ground-floor commercial space. The Talisman’s first phase, which is two towers and 404 rental units, is nearing
completion, and we expect to welcome our first residents in the second quarter of 2024. The Company’s former Travelodge®
Ottawa West hotel was closed in November 2023 and is currently being demolished on the future site of the Talisman’s second
phase. The second phase will consist of three towers and 612 rental units.
During the fourth quarter of 2023, The Company finalized the exit of its one-third ownership in the 1111 Atwater Avenue
development in Montreal, QC (“1111 Atwater”). The Company received net proceeds of $26.2 million, including cash of $16.5
million and a $9.7 million loan receivable from one of its former partners in the development. The loan is secured by the
borrower’s 50% stake in 1111 Atwater. The Company recognized a gain on disposition of $8.1 million. The Company remains
a guarantor on the construction loan of the 1111 Atwater development for an aggregate amount of $27.7 million. The Company
has an indemnity agreement with its former partners for this guarantee until it is released. The Company expects the guarantee
to be released in 2024.
During the fourth quarter of 2023, the Company sold two of its office buildings located in Houston, TX, for net proceeds of
$7.5 million. The Company recognized a combined $4.3 million fair value adjustment and loss on disposition on these assets.
In addition, the Company recorded a fair value adjustment on an additional investment property in Houston for $3.5 million.
During the third quarter of 2023, the Company redeemed its $34.9 million, 5.50% Series B Convertible Unsecured Subordinated
Debentures, which were to mature on January 1, 2028 (the “Debentures”) for a cash outlay of $35.4 million which included
$0.5 million of accrued interest. The redemption of the Debentures was financed using funds drawn on a credit facility obtained
from a related party. Refer to the “Liquidity and Capital Resources” section of this MD&A for more information on this credit
facility. The Company recorded a loss of $0.8 million on the redemption, representing the difference between the carrying
value and principal amount of the Debentures.
During the second quarter of 2023, one of the Company’s pension plans purchased a group buy-out annuity for its members
for a cash outlay of $4.5 million.
The Company has $125.8 million of debt and has access to two secured, revolving credit facilities. The Company’s maximum
combined borrowing base under these revolving credit facilities was $85.0 million. As of December 31, 2023, the maximum
availability on these facilities was $77.8 million, of which $3.8 million was drawn and $74.0 million was undrawn and available.
3
Hotel Operations
In the first half of 2022, the Canadian hotel industry had generally rebounded from the COVID-19 pandemic. As such, 2023
was our first full year of results that were not materially impacted by the pandemic since 2019, which is why 2023 and 2022
are generally more comparable than recent year-over-year annual results.
We are pleased with the increase in hotel revenue as it was achieved despite the temporary closure of three hotels due to
wildfires and the winding down and ultimate closure of our former Travelodge Ottawa West hotel. Additional reasons for the
increase year-over-year include a full year of operations at the Stanford Inn & Suites, acquired in 2022 and generally stronger
results across the majority of the hotel portfolio.
We continue to proactively evaluate potential renovations and conversions of our hospitality assets in an effort to maximize the
respective asset’s value. During 2023, we converted one hotel to a residential investment property. This 82-unit asset was
renovated in phases over the past two years, de-branded and completed at the end of 2023. This was a major milestone for the
Company that we will use as an example if similar opportunities present themselves. In addition, we commenced the partial
conversion of one hotel into a mixed-use asset, which includes the renovation and conversion of approximately 100 hotel rooms
into 80 residential units. We will continue to explore more long-term stay offerings and potential residential conversions if
these are deemed accretive to the Company.
BOOK VALUE PER SHARE
The Company’s book value per share at December 31, 2023 was $16.53, an increase of $1.25 since December 31, 2022. The
following graph illustrates Clarke’s book value per share, share price and cumulative dividends paid over the past ten years.
$17.00
$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
12.57
10.00
12.21
9.86
11.61
9.36
10.71
10.45
12.21
12.50
15.06
12.44
16.53
14.28
14.48
15.28
12.48
10.32
11.20
8.68
8.68
8.68
8.68
5.10
5.10
5.10
6.68
3.10
0.50
0.90
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Book Value per Share
Cumulative Dividend
Clarke Share Price
4
SEGMENT REPORTING
The table below summarizes the Company’s assets by segment. The Other category is not a segment and is disclosed for
reconciliation purposes. It consists of the Company’s treasury and executive functions, unsecured revolving credit facilities,
pension plans and the Debentures until their redemption in 2023.
Segment
Investment
Hospitality
Other
Total
Investment segment
December 31, 2023
$
139.1
221.2
34.8
395.1
%
35.2
56.0
8.8
100.0
December 31, 2022
$
157.6
227.4
31.1
416.1
%
37.8
54.7
7.5
100.0
The Investment segment represents the Company’s ferry business, investment properties and until its disposition, the 1111
Atwater development. The Hospitality segment consists of the Company’s ownership, management and operation of hotels.
During the fourth quarter, the Company sold two of its investment properties located in Houston, TX. The Company also
evaluated whether these purchase prices were indicative of the fair value of the Company’s remaining Houston, TX investment
property. Using management’s professional judgement and expertise, the Company estimated the value of this remaining
investment property and recorded a fair value decrease. The aggregate fair value decrease and eventual loss on disposition of
the Company’s investment properties of $7.8 million is presented in investment and other income within the statement of
earnings for the year ended December 31, 2023.
The Company owns a passenger/car ferry that has been operating on the St. Lawrence River 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’s 2023 season ran from April 6, 2023 until January 2, 2024 and will commence
its 2024 season on March 28, 2024.
Hospitality segment
Results for the year ended December 31, 2023 compared to the year ended December 31, 2022 are as follows:
Hotel revenue
Investment and other income
Total revenue and other income
Less:
Hotel operating expenses, property taxes and insurance
Depreciation and amortization
Interest and accretion
Income before income taxes
Year ended
December 31,
2023
$
64.2
4.3
68.5
Year ended
December 31,
2022
$
54.7
1.8
56.4
42.5
10.0
5.0
10.9
34.7
9.4
3.0
9.2
Investment and other income for the Hospitality segment is comprised primarily of fair value adjustments of $4.3 million and
$1.3 million, recorded on certain hotels in the years ended December 31, 2023 and 2022, respectively.
Hotel revenue was $64.2 million for the year ended December 31, 2023 compared to $54.7 million in 2022. Income before
taxes was $10.9 million for the year ended December 31, 2023 compared to $9.2 million in 2022.
In 2022, the Company recognized non-recurring government grants in this segment totaling $4.0 million as a direct reduction
of hotel operating expenses, property taxes and insurance. In addition to the increased business levels in the year, this is a key
driver of the increased hospitality expenses compared to 2022.
5
OUTSTANDING SHARE DATA
At March 6, 2024, the Company had:
• An unlimited number of common shares authorized and 13,958,157 common shares outstanding; and
• 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 to purchase its securities. The Board of Directors 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
these normal course issuer bids outstanding within fiscal 2023 and 2022 are as follows:
Bid Date
June 29, 2021
June 29, 2022
July 4, 2023
Expiry
June 28, 2022
June 28, 2023
July 3, 2024
Maximum #
733,608
711,543
699,232
Repurchased #
451,500
237,025
31,600
LIQUIDITY AND CAPITAL RESOURCES
On October 30, 2023, the Company renewed a maturing credit facility. The $55.0 million credit facility is comprised of a $25.0
million term loan and a $30.0 million revolving line of credit. The revolving line of credit bears interest at prime plus 1.00%
and the term loan bears interest at a fixed rate of 6.95% with a 25-year amortization period. The credit facility has a four-year
term and is secured by a registered charge on five hotel properties.
On October 13, 2023, the Company amended one of its revolving lines of credit to increase the maximum borrowing capacity
from $40.0 million to $55.0 million. The Company pledged an additional hotel property and its ferry operations, both previously
unencumbered as part of this amendment. In addition to this incremental security, the facility is secured by a registered charge
on five hotel properties and one office building.
On July 28, 2023, the Company redeemed its outstanding Debentures. The redemption was financed using a $35.0 million
credit facility with an entity owned by the Company’s Chairman and his immediate family member. This facility has a
maximum borrowing capacity of $35.0 million, bears interest at 6.00% and has interest-only payments until January 1, 2028.
After January 1, 2028, the facility will continue as a revolving line of credit due on demand.
On February 9, 2023, 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.
In the year ended December 31, 2022, the Company entered into a $85.0 million construction credit facility for the construction
of the first phase of the Talisman. 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 made draws totalling $41.3 million on this credit facility during
the year ended December 31, 2023.
The Company monitors and forecasts its cash balances and cash flows to meet its required obligations. The Company believes
it has access to sufficient capital through cash on hand, operating cash flows and existing borrowing facilities to meet its
obligations as they come due.
Cash flow from operating activities
Cash provided by operating activities was $8.2 million for the year ended December 31, 2023, compared to $3.4 million in
2022. In both 2023 and 2022, 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.
6
Cash flow from investing activities
Cash used in investing activities was $24.9 million for the year ended December 31, 2023, compared to $36.8 million in 2022.
The cash used was primarily attributable to progress on the Talisman development and capital expenditures for the hotel
portfolio. These cash outflows were partially offset by the proceeds on disposition of 1111 Atwater and two investment
properties in Houston, TX. In 2022, the use of cash was primarily due to the acquisition of the Stanford Inn & Suites hotel in
Grande Prairie, AB for $11.6 million and capital expenditures for both the Carling Avenue Development and the hotel portfolio
of $31.8 million.
Cash flow from financing activities
Cash provided from financing activities was $16.6 million for the year ended December 31, 2023, compared to $16.1 million
in 2022. This was primarily the result of net proceeds of long-term debt of $88.9 million, offset by the repayment of long-term
debt of $13.4 million, the redemption of the Debentures of $34.9 million, repayment of short-term indebtedness of $22.3 million
and the repurchase of common shares of $1.5 million. Cash provided in 2022 was primarily related to an increase of $26.1
million in short-term indebtedness and the proceeds of long-term debt of $13.7 million offset by the partial redemption of
Debentures of $15.8 million, the repayment of long-term debt of $4.0 million and the repurchase of common shares of $3.8
million.
Contractual obligations and capital resource requirements
The table below summarizes the Company’s maximum contractual obligations by due date:
Contractual obligations
Long-term debt
Lease obligation
Short-term indebtedness
Total
$
122.0
0.5
3.8
126.3
Less than
1 year
$
1.8
0.1
3.8
5.7
1 – 3 years
$
45.0
0.2
―
45.2
3 - 5 years
$
74.7
0.2
―
74.9
After 5 years
$
0.5
―
―
0.5
The Company maintains two secured 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 $55.0 million. This credit facility bears interest
at the lender’s prime rate plus 1.50%, or based on a spread to banker’s acceptance. At December 31, 2023, the Company had
drawn $3.8 million on this facility. This facility is secured by six hotel properties, one investment property and the Company’s
ferry business. The Company’s second credit facility has a maximum borrowing capacity of $30.0 million and bears interest at
the lender’s prime rate plus 1.00%. At December 31, 2023, the Company had not drawn on this facility. This facility and a
corresponding term loan are secured by five hotel properties. This facility matures in November 2027. Both facilities are subject
to an annual review. Any decline in the fair value or profitability of the pledged assets may limit the Company’s access to the
full amount of these credit facilities.
7
FOURTH QUARTER
A comparison of results for the three months ended December 31, 2023, and 2022, is as follows:
Revenue
Hotel and rental revenue
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
Provision for income taxes
Net income
Other comprehensive income
Comprehensive income
Three months ended
December 31, 2023
$
Three months ended
December 31, 2022
$
14.7
1.5
8.9
25.1
10.1
1.1
1.4
1.0
2.6
1.5
7.5
―
7.5
8.7
16.1
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
19.1
20.4
Hotel and rental revenue decreased by $0.5 million, from $15.2 million to $14.7 million year over year due to the winding
down and closure of one hotel as part of the Talisman development.
The Company had net income of $7.5 million in the fourth quarter of 2023 compared to $1.3 million in the same period in
2022. The $8.1 million gain recorded on exiting the 1111 Atwater development is the largest factor in the increase year-over-
year.
The Company had OCI of $8.7 million in the fourth quarter of 2023 compared to $19.1 million in 2022. The primary reason
for the decrease year-over-year is the reduced revaluation gains on certain hotel properties in 2023 compared to 2022.
The provision for income taxes for the quarter was reduced due to changes in unrecognized deferred tax timing differences and
recognition of a previously unrecognized benefit.
For the three months ended December 31, 2023, Clarke’s basic and diluted EPS was $0.54, compared to $0.10 for the same
period in 2022.
Cash provided by operating activities was $5.2 million for the fourth quarter of 2023, compared to using $0.2 million in the
same period in 2022. Cash flows in the fourth quarter of both 2023 and 2022 were driven mainly by the hospitality and ferry
operations. In 2022, the cash flow was offset by capital expenditures of $0.9 million for additions to the real estate inventory
under development.
Cash provided by investment activities was $2.9 million in the fourth quarter of 2023, compared to using $5.1 million in the
same period in 2022. The primary sources of cash in the fourth quarter of 2023 were the proceeds on the Company’s disposition
of 1111 Atwater and its two investment properties in Houston, TX, offset by additions to investment properties of $13.3 million
and capital expenditures on the hotels of $3.2 million. Additions to investment properties of $8.9 million and capital
expenditures of $1.4 million offset by $5.3 million of proceeds from the disposition of loans receivable and marketable
securities were the drivers of the cash used in the fourth quarter of 2022.
Cash used in financing activities for the fourth quarter of 2023 was $8.2 million compared to providing $4.9 million in the
same period in 2022. The primary use of cash was related to repayment of short-term indebtedness of $26.4 million, partially
offset by $18.8 million of proceeds from long-term debt. Cash provided by financing activities in the fourth quarter of 2022
was related primarily to a draw of $17.9 million in short-term indebtedness and $4.1 million in proceeds from long-term debt,
which were offset by the partial redemption of Debentures of $15.8 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
Diluted EPS
Dec.
2023
$
25.1
7.5
8.7
16.1
0.54
0.54
Sept.
2023
$
19.2
(1.9)
2.7
0.8
(0.13)
(0.13)
Jun.
2023
$
17.8
(0.5)
(0.3)
(0.8)
(0.03)
(0.03)
Mar.
2023
$
15.4
(1.7)
2.8
1.0
(0.12)
(0.12)
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)
As demonstrated above, our results can fluctuate significantly from quarter to quarter. The Company’s hotel and ferry
businesses are seasonal in nature and their results tend to fluctuate throughout the year. Revenue is 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 generally fixed and are incurred evenly
throughout the year. In addition, the accounting for the accrued pension benefit asset can cause significant volatility to OCI and
comprehensive income (loss) due to changes in assumptions and the impact of the accounting requirements of the asset ceiling
under IFRS. Further volatility in net income, OCI and comprehensive income (loss) can be caused by the timing of various fair
value adjustments to the Company’s property and equipment and investment properties.
FINANCIAL INSTRUMENTS
In the normal course of operations, the Company uses the following financial and other instruments:
• To generate investment returns, the Company may 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. The Company does not currently
have any futures or foreign exchange contracts in place.
The Company has a significant number of financial instruments. Notes 1, 3, 4, 10, 11, 12, 13, and 23 to the audited consolidated
financial statements for the year ended December 31, 2023 and the Company’s 2023 Annual Information Form, provide further
information on classifications in the financial statements, and risks, pertaining to the use of financial instruments by the
Company.
RELATED PARTY TRANSACTIONS
The Company was party to the following related party transactions during the year ended December 31, 2023:
• The Company entered into and fully drew upon a 6.00%, $35.0 million credit facility from a company owned by
Clarke’s Chairman and his immediate family member. Interest of $0.9 million was incurred on this credit facility in
2023.
• 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 2023, the Company paid $0.3 million (2022 – $0.3 million)
under these agreements.
• The Company provided administrative and asset management services to two pension plans it sponsors and charged
$0.9 million (2022 – $2.2 million).
• The Company provided and received services with entities owned by the Company’s Chairman and his immediate
family member with a fair value of $0.3 million (2022 – $0.2 million). The Company provided hotel management
services in exchange for receiving legal, accounting, tax, construction, and pre-construction consulting services.
9
Subsequent to the end of the year, the Company agreed to sell the shares of a wholly owned subsidiary, Holloway Lodging US
Inc. (“HLUS”) to an entity owned by the Company’s Chairman, Mr. George Armoyan and his immediate family member for
US$3.2 million. The primary asset of HLUS is a vacant office building located at 222 Benmar Drive, in Houston, TX. The
transaction constitutes a "related party transaction" pursuant to Multilateral Instrument 61-101 – Protection of Minority Security
Holders in Special Transactions ("MI 61-101"). The Company is exempt from the requirements to obtain a formal valuation
and minority shareholder approval in connection with the sale in reliance on the exemptions contained in sections 5.5(a) and
5.7(1)(a) of MI 61-101, respectively, as the fair market value of the transaction does not exceed 25% of the Company’s market
capitalization. The transaction was reviewed and approved by the Board of Directors of the Company, excluding Mr. George
Armoyan, who abstained from voting on the matter. The transaction is subject to certain post-closing adjustments and is
expected to close in March 2024. The Company recorded a fair value adjustment loss on this investment property in the year
ended December 31, 2023. The Company may need to record additional fair value changes in the statement of earnings in
future periods due to the ultimate settlement of the post-closing adjustments.
Key management consists of the directors and officers of the Company. The compensation incurred is as follows:
Year ended December 31, 2023
Salary and fees
Pension value
Total
Board of directors
$
0.1
0.3
0.4
Officers
$
0.4
―
0.4
Total
$
0.5
0.3
0.8
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 the 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, 2023 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.
10
MATERIAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Please refer to notes 1 and 2 of our consolidated financial statements for the year ended December 31, 2023 for a detailed
discussion regarding our material accounting policies and application of significant accounting judgments, estimates and
assumptions.
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 include: 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 during the year using external appraisals, management’s
knowledge of various markets and capitalization rates obtained from independent third parties. The Company obtained nine
external appraisals which resulted in four hotels with revaluation increases, two hotels with revaluation decreases and three
hotels with no change in value. Two hotel properties were valued using an income capitalization model prepared internally.
Significant assumptions used in the internal income capitalization model included budgeted cash flow forecasts for 2024 and
capitalization rates. The capitalization rates used ranged from 6.25% to 11.50%. If the capitalization rates were 0.25%
higher/lower, the estimated fair value would result in a change of $1.0 million to property and equipment. Based on the
Company’s methodology, the remaining five hotels did not require a revaluation.
As a result, a revaluation increase of $19.8 million was recorded among six hotels and a revaluation decrease of $3.7 million
among two hotels. Property and equipment increased by $16.1 million as a result, with a net increase of $11.8 million included
in other comprehensive income and a net increase of $4.3 million recorded in earnings.
During the year ended December 31, 2022, the Company used a combination of external appraisals, comparable hotel sales
prices and professional judgement to revalue its hotel portfolio. Property and equipment was increased by $32.9 million as a
result of these revaluations. An increase of $1.3 million was recorded in earnings and an increase of $31.6 million was recorded
in other comprehensive income.
Fair value of investment properties
The Company’s significant investment properties as at December 31, 2023, consisted of one office building, a multi-building
residential rental complex under construction and a residential rental building.
During the year, the Company sold two of its three investment properties located in Houston, TX. These investment properties
were remeasured at their fair value less costs to sell, resulting in a fair value decrease of $4.3 million being recorded. The
Company also evaluated whether these purchase prices were indicative of the fair value of the Company’s remaining Houston,
TX investment property. Using management’s professional judgement and expertise, the Company estimated the value of this
remaining investment property and recorded a fair value decrease of $3.5 million. The aggregate of these fair value decreases
and the eventual realized loss on the Company’s investment properties of $7.8 million is included in investment and other
income in the consolidated statements of earnings.
Changes to the fair value of the Company’s investment properties may occur periodically, based on operating performance,
economic activity, regional development opportunities and new competition in the markets in which they operate.
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
11
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 asset recorded on the
consolidated statements of financial position.
CAUTIONARY STATEMENT REGARDING USE OF NON-IFRS ACCOUNTING MEASURES AND RATIOS
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 IFRS
and should not be considered in isolation or as a substitute for 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, amortization and income taxes.
The following table reconciles hotel net operating income to income before income taxes of the Company’s hospitality segment
as disclosed in the consolidated financial statements for the year ended December 31, 2023.
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, 2023
$
10.9.
Year ended
December 31, 2022
$
9.2
(4.3).) (1.8)
0.9.
10.0.
5.0.
22.5.
1.0
9.4
3.0
20.8
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
achieved. Forward-looking statements include, without limitation, those with respect to the future or expected performance of
the Company’s investee companies, changes in these securities holdings, the future price of oil, 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 expected timing for completion of the sale of HLUS, the expectation that the Company's
redeployment of capital from its asset dispositions, renovations and repurposes will be accretive to the Company’s shareholders,
the anticipated timing for completion of the first phase of the Talisman residential redevelopment, reliance on key executives
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
12
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, 2023 and 2022
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, 2023
and 2022, 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 Accounting Standards).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2023 and 2022;
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, comprising material accounting policy information
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, Fax to mail: ca_halifax_main_fax@pwc.com
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
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, 2023. 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 – Material accounting policies, note
2 – Significant accounting judgments, estimates
and assumptions and note 7 – Property and
equipment to the consolidated financial statements.
The total carrying amount of land and buildings and
components was $195.4 million as at
December 31, 2023. The Company has recorded a
revaluation gain of $4.3 million in the consolidated
statement of earnings and a pre-tax revaluation
gain of $11.8 million in the consolidated statement
of comprehensive income for the year ended
December 31, 2023.
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 within accumulated other
comprehensive income, 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
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 2024, 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.
– Professionals with specialized skills and
knowledge in the field of real estate
valuations assisted us in assessing the
reasonableness of external appraisals.
Key audit matter
How our audit addressed the key audit matter
any credit balance existing in the revaluation
surplus in 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 used third party
appraisers for assistance in determining
appropriate overall capitalization rates specific to
the markets in which the Company operates its
hotels. The income capitalization models include
the budgeted cash flow forecasts for 2024.
As disclosed in note 2, significant assumptions
used in the internal models included the budgeted
cash flow forecasts for 2024 and capitalization
rates.
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.
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 Accounting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
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.
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 6, 2024
2023
$
2022
$
929
3,957
10,567
183
―
15,636
33,752
206,926
138,486
130
200
395,130
3,763
26,273
―
1,845
31,881
―
120,176
―
392
11,992
164,441
82,574
7,302
44,221
96,592
230,689
395,130
1,090
8,041
1,303
―
70,418
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
Clarke Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars)
As at December 31,
ASSETS
Current
Cash
Receivables (note 3)
Other assets (note 4)
Income taxes receivable
Real estate inventory under development (note 25)
Total current assets
Accrued pension benefit asset (note 6)
Property and equipment (note 7)
Investment properties (note 8)
Deferred income tax assets (note 9)
Other assets (note 4)
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Short-term indebtedness (note 10)
Accounts payable and other liabilities (note 11)
Income taxes payable
Current portion of long-term debt (note 13)
Total current liabilities
Convertible debentures (note 12)
Long-term debt (note 13)
Construction accounts payable (note 11)
Lease obligations
Deferred income tax liabilities (note 9)
Total liabilities
Commitments (note 16)
Shareholders’ equity
Share capital (note 17)
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
2
Clarke Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of Canadian dollars, except per share amounts)
Years ended December 31,
Revenue and other income
Hotel and rental revenue
Provision of services
Investment and other income (note 18)
Expenses (note 19)
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 9)
Net income
Basic and diluted earnings per share: (note 17)
See accompanying notes to the consolidated financial statements
2023
$
65,242
8,249
3,989
77,480
42,657
4,266
3,827
4,251
10,179
7,187
72,367
5,113
1,689
3,424
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
0.24
0.23
3
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
plans, net of income tax (notes 6 and 9)
Revaluation gain on property and equipment, net of
income tax (notes 2, 7 and 9)
Items that may be reclassified subsequently to profit or
loss
Unrealized gains on translation of net investment in
foreign operations, net of income tax (notes 8 and 9)
Other comprehensive income
Comprehensive income
See accompanying notes to the consolidated financial statements
2023
$
2022
$
3,424
3,226
4,628
(18,115)
9,025
24,163
40
13,693
17,117
852
6,900
10,126
4
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 21)
Net change in non-cash working capital balances (note 21)
Additions to real estate inventory under development (note 25)
Net cash provided by operating activities
INVESTING ACTIVITIES
Additions to property and equipment (note 7)
Additions to investment properties (note 8)
Disposal of joint operation interest, net of cash (note 25)
Distribution of pension plan surplus, net of income tax (note 6)
Net proceeds on disposition of investment properties (note 8)
Proceeds on disposition of marketable securities
Collection of loans receivable
Acquisition of hotel property (note 5)
Contribution to joint operation
Net cash used in investing activities
FINANCING ACTIVITIES
Repurchase of shares for cancellation (note 17)
Redemption of convertible debentures (note 12)
Net proceeds (repayment) of short-term indebtedness (note 10)
Proceeds of long-term debt, net of financing fees (note 13)
Repayment of long-term debt (note 13)
Principal payments of lease obligations
Settlement of share-based liability
Net cash provided by financing activities
Net change in cash during the year
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements
2023
$
2022
$
3,424.
9,659.
13,083.
(2)
(4,924)
8,157.
(9,263)
(40,040)
15,863.
1,049.
7,457.
―.
―.
―.
―.
(24,934)
(1,482)
(34,916)
(22,323)
88,896.
(13,404)
(155)
―.
16,616.
(161)
1,090.
929.
3,226
9,485
12,711
2,689
(11,998)
3,402
(7,453)
(24,388)
―.
1,064
376
3,025
2,491
(11,600)
(345)
(36,830)
(3,775)
(15,754)
26,086
13,727
(3,960)
(157)
(72)
16,095
(17,333)
18,423
1,090
5
Clarke Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars)
Years ended December 31,
Share capital
Balance at beginning of year
Common shares issued on debenture conversion (note 17)
Common shares repurchased for cancellation (note 17)
Balance at end of year
Contributed surplus
Balance at beginning and 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 17)
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
2023
$
2022
$
83,190.
84.
(700)
82,574.
85,218
―.
(2,028)
83,190
7,302.
7,302
41,579.
3,424.
40,100
3,226
(782)
44,221.
(1,747)
41,579
82,899.
13,693.
96,592.
230,689.
75,999
6,900
82,899
214,970
6
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
1. MATERIAL 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 6, 2024.
Basis of presentation and statement of compliance
These consolidated financial statements of the Company and its subsidiaries were prepared with accounting standards in
accordance with International Financial Reporting Standards (“IFRS” or “IFRS Accounting Standards”) 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 the consolidated 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.
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 included the Company’s share of the assets, liabilities, revenues and expenses of
its 1111 Atwater Avenue development joint operation in Montreal, QC (“1111 Atwater”) for the period of ownership until
its disposition during the year ended December 31, 2023 (note 25).
Revenue recognition
Hotel and rental revenue
Hotel revenue is generated from room occupancy, food and beverage services, rental and ancillary services, and is presented
net of the cost of hotel brand loyalty programs. Rental revenue is generated from leasing space for both residential and
commercial purposes. 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.
Provision of services
The Company generates revenue from 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.
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.
7
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
1. MATERIAL ACCOUNTING POLICIES (CONT’D)
Investment and other income
Interest income is recorded using the effective interest rate (“EIR”) for all financial instruments measured at amortized cost.
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, 2023, 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 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.
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.
8
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
1. MATERIAL ACCOUNTING POLICIES (CONT’D)
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.
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 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.
9
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
1. MATERIAL ACCOUNTING POLICIES (CONT’D)
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.
Investment properties
Investment properties are held either to earn rental income, for capital appreciation (including future redevelopment) 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 costs that are directly attributable to the asset, including 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.
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, receivables and its loan receivable. Subsequent to initial recognition, all financial
assets are carried at amortized cost.
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 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 an impairment provision on the loan receivable is based on the credit risk characteristics, collateral and
speculative and non-speculative historical default rates. These assets are written off if there is no reasonable expectation of
recovery.
10
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
1. MATERIAL ACCOUNTING POLICIES (CONT’D)
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 at December 31, 2023 include short-term indebtedness, accounts payable and
other liabilities and long-term debt, all of which are measured at amortized cost.
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 EIR. 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.
11
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
1. MATERIAL 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.
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 plan and a defined
contribution 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). 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.
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.
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.
12
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
1. MATERIAL 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 recognized its share of any assets, liabilities, revenues and expenses of the joint operation based on its ownership
interest.
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 each 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.
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 include: 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 during the year using external appraisals, management’s
knowledge of various markets and capitalization rates obtained from independent third parties. The Company obtained nine
external appraisals which resulted in four hotels with revaluation increases, two hotels with revaluation decreases and three
hotels with no change in value. Two additional hotel properties were revalued using an income capitalization model
prepared internally. Significant assumptions used in the internal income capitalization model included budgeted cash flow
forecasts for 2024 and capitalization rates. The capitalization rates used ranged from 6.25% to 11.50%. If the capitalization
rates were 0.25% higher/lower, the estimated fair value would result in a change of $1,000 to property and equipment.
Based on the Company’s methodology, the remaining five hotels did not require a revaluation.
In aggregate, a revaluation increase of $19,800 was recorded on six hotels and a revaluation decrease of $3,700 was
recorded on two hotels. Property and equipment increased by $16,100, with a net increase of $11,800 included in other
comprehensive income and a net increase of $4,300 recorded in earnings.
13
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
2.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS (CONT’D)
During the year ended December 31, 2022, the Company used a combination of external appraisals, comparable hotel sales
prices and professional judgement to revalue its hotel portfolio. Property and equipment was increased by $32,900 as a
result of these revaluations. An increase of $1,300 was recorded in earnings and an increase of $31,600 was recorded in
other comprehensive income.
Fair value of investment properties
The Company’s significant investment properties as at December 31, 2023, consisted of one office building, a multi-
building residential rental complex under construction and a residential rental building.
During the year, the Company sold two of its three investment properties located in Houston, TX. These investment
properties were remeasured at their fair value less costs to sell, resulting in a fair value decrease of $4,289 being recorded.
The Company also evaluated whether these purchase prices were indicative of the fair value of the Company’s remaining
Houston, TX investment property. Using management’s professional judgement and expertise, the Company estimated the
value of this remaining investment property and recorded a fair value decrease of $3,480. The aggregate of these fair value
decreases and the eventual realized loss on the Company’s investment properties was $7,837 and is included in investment
and other income in the consolidated statements of earnings.
Changes to the fair value of the Company’s investment properties may occur periodically, based on operating performance,
economic activity, regional development opportunities and new competition in the markets in which they operate.
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 asset recorded on the consolidated statements of financial position.
14
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
3.
RECEIVABLES
Receivables from sales and services
Less: expected credit losses
Receivables from sales and services – net
Sales tax receivables
Other receivables
4.
OTHER ASSETS
Inventories
Prepaid expenses, deposits and other
Loan receivable (note 25)
Franchise fees and other intangible assets
Total other assets
Less: other assets – current
Other assets – long-term
2023
$
2,708.
(39)
2,669.
807.
481.
3,957.
2022
$
5,881
(54)
5,827
1,082
1,132
8,041
2023
$
86.
791.
9,733.
157.
10,767.
(10,567)
200.
2022
$
119.
1,318.
―.
186.
1,623.
(1,303)
320.
The Company’s loan receivable bears interest at 17.00% and is due from a co-investor in the 1111 Atwater development.
Interest is paid monthly and principal payments of $500 are due in certain months until the loan’s maturity on September
30, 2024. The loan is secured by the borrower’s 50% share of the 1111 Atwater development.
5.
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
15
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
6.
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, 2022 and December 31, 2020, respectively.
During the year ended December 31, 2023, the Company received a distribution from one of its Plans in the amount of
$1,427 (2022 – $1,447) in accordance with the surplus withdrawal rules of the Quebec Supplemental Pension Plans Act.
During the year ended December 31, 2023, one of the Plans purchased a group buy-out annuity for its members for a cash
outlay of $4,482.
The Company manages a portion of the Plans’ investment portfolio. The Company earns administration and management
fees that include an annual performance fee if returns on plan assets exceed certain thresholds.
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 (losses)
Surplus distribution
Purchase of group buy-out annuity
Balance, end of year
Defined benefit plan obligation
Accrued benefit obligation
Balance, beginning of year
Current service cost
Interest cost
Employee contributions
Benefits paid
Remeasurement (gains) losses
Settlements
Purchase of group buy-out annuity
Balance, end of year
2023
$
114,183.
5,494.
3.
(1,958)
(341)
(2,380)
(1,427)
(4,482)
109,092.
2022
$
104,362.
2,961.
2.
(2,037)
(345)
10,687.
(1,447)
―.
114,183.
2023
$
38,778.
365.
1,797.
3.
(1,958)
2,104.
425.
(4,482)
37,032.
2022
$
50,056.
471.
1,436.
2.
(2,037)
(11,150)
―.
―.
38,778.
16
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
6.
EMPLOYEE FUTURE BENEFITS (CONT’D)
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
Impact of asset ceiling, excluding interest
Interest on asset ceiling
Accrued pension benefit asset
2023
$
109,092..
(37,032)
72,060..
2022
$
114,183 .
(38,778).
75,405 .
(35,945) . (46,775).
― .
(2,363) .
28,630 .
33,752..
Elements of the defined benefit recovery recognized in earnings are as follows:
Years ended December 31,
Current service cost
Net interest on surplus
Provision for non-investment management fees
Past service cost
Defined benefit recovery
2022
2023
$
$
(471)
(365)
1,525.
1,335.
(345)
(341)
―.
(425)
709.
204.
Elements of the defined benefit recovery (expense) recognized in other comprehensive income are as follows:
Years ended December 31,
Remeasurement gains (losses) and return on plan assets in excess of discount rate
Impact of asset ceiling recognized in other comprehensive income
Deferred income tax recovery (expense)
Defined benefit recovery (expense)
2023
$
(4,484)
10,830.
(1,718)
4,628.
2022
$
21,837.
(46,775)
6,823.
(18,115)
Significant assumptions
Accrued benefit obligation:
Discount rate
Rate of compensation increase
Benefit costs for the year:
Discount rate
Rate of compensation increase
2023
%
2022
%
4.60
2.50 – 4.00
5.05
2.50 – 4.00
5.05
2.50 – 4.00
2.90
2.50 – 4.00
17
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
7.
PROPERTY AND EQUIPMENT
Land
$
49,207
―
―
2,415
Year ended
December 31, 2023
Beginning balance
Additions
Disposals
Revaluations (note 2)
Transfers to investment
. properties (note 8)
Transfers
Depreciation
Ending balance
(20,133)
―
―
31,489
(7,650)
2,130
(7,412)
163,920
Valuation
Cost, net
Accumulated
depreciation
Net book value
31,489
―
168,869.
―.
―
31,489
(4,949).
163,920.
Buildings
and
components
$
160,491
2,676
―
13,685
Ferry and
vessel dry
dock costs
$
101
―
―
―
Furniture,
fixtures and
equipment
$
9,097
2,525
(5)
―
Right-of-
use assets
$
430
―
―
―
Renovations
in progress
$
2,378
6,003
―
―
Total
$
221,704
11,204
(5)
16,100
(31,904)
―
(10,173)
206,926
―..
―
(35)
66
―.
4,795.
(4,729).
66.
(1,574)
2,280
(2,646)
9,677
―.
24,301.
(14,624).
9,677..
―
―
(80)
350
(2,547)
(4,410)
―
1,424
―
738
(388)
350
―
1,424
200,358
31,258
―
1,424
(24,690)
206,926
Year ended
December 31, 2022
Beginning balance
Additions, net
Disposals
Revaluations (note 2)
Transfers
Depreciation
Ending balance
Buildings
and
components
$
126,123
7,713
―
27,965
5,089
(6,399)
49,207 160,491.
Land
$
40,572
3,700
―
4,935
―
―
Furniture,
Ferry and
fixtures and
vessel dry
equipment
dock costs
$
$
― 7,000.
138 3,509.
― (3)
― ―.
― 1,616.
(37) (3,025)
101. 9,097.
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
Valuation
Cost, net
Accumulated
depreciation
Net book value
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
As at December 31, 2023, the net book value of the Company’s land and buildings and components would have been
$24,079 and $122,158 respectively, had the Company used the cost model, and the net book value of property and
equipment would have been $159,254.
Additions for the year ended December 31, 2022 are net of $1,700 in government grants.
18
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
8.
INVESTMENT PROPERTIES
Year ended December 31, 2023
Beginning balance
Additions
Disposals
Fair value adjustments (note 2)
Transfers from property and equipment
Foreign exchange impact
Ending balance
Year ended December 31, 2022
Beginning balance
Additions
Disposals
Foreign exchange impact
Ending balance
Buildings
$
18,431.
195.
(7,508)
(7,834)
10,575.
(31)
13,828.
Buildings
$
17,010
345
―
1,076
18,431
Vacant land
$
45
―
―
―
―
―
45
Vacant land
$
167
―
(122)
―
45
Under
construction
$
62,409
40,875
―
―
21,329
―
124,613
Under
construction
$
31,672
30,737
―
―
62,409
Total
$
80,885.
41,070.
(7,508)
(7,834)
31,904.
(31)
138,486.
Total
$
48,849
31,082
(122)
1,076
80,885
Additions in the year ended December 31, 2023 are primarily for the Carling Avenue Development in Ottawa, ON (the
“Carling Avenue Development”). These additions include capitalized borrowing costs of $1,313 (2022 – $387).
During the year ended December 31, 2023, Holloway sold two of its three investment properties located in Houston, TX to
unrelated third parties for total net proceeds of $7,457.
During the year ended December 31, 2023, the Company transferred two assets from property and equipment to investment
properties upon changes in their use. One asset is a hotel that was converted to a residential investment property and one
asset is the land value of a former hotel in the process of being demolished, which will be developed as part of the Carling
Avenue Development. The components of this former hotel other than land have been fully amortized.
9.
INCOME TAXES
The provision for income taxes for the years ended December 31 consists of:
Consolidated statements of earnings
Current income tax
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
2023
$
2022
$
―.
(1,879)
333.
81.
2,617.
951.
1,689.
2,071.
(381)
2,104.
19
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
9.
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 27.07% (2022 – 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
2023
$
1,384.
287.
(124)
(51)
458.
(168)
(97)
1,689.
2022
$
1,447
57.
90.
(43)
435.
74
44.
2,104.
The significant components of the Company’s deferred income tax assets and liabilities are as follows:
Year ended
December 31, 2023
Intangible assets
Marketable securities
Property and equipment and
investment properties
Employee future benefits
Long-term debt
Losses carried forward
Other
Deferred income tax assets
Deferred income tax liabilities
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
Deferred income
tax asset (liability)
beginning of year
$
(579)
8.
Recognized
directly in
equity
$
―.
―.
Recognized
directly in
earnings
$
574.
―.
Deferred income
tax asset (liability)
end of year
$
(5)
8.
(605)
(7,771)
(45)
5,081.
42.
(3,869)
3,730.
(7,599)
(3,869)
(2,775)
(1,718)
―.
―.
68.
(4,425)
(1,741)
(2,684)
(4,425)
(1,598)
354.
107.
(3,004)
(1)
(3,568)
(1,859)
(1,709)
(3,568)
(4,978)
(9,135)
62.
2,077.
109.
(11,862)
130.
(11,992)
(11,862)
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.
(7,682)
6,823.
―.
―.
20.
(839)
6,706.
(7,545)
(839)
(690)
201.
58.
(557)
(28)
(1,690)
(16,428)
14,738.
(1,690)
7,767.
(14,795)
(103)
5,638.
50.
(1,340)
13,452.
(14,792)
(1,340)
20
(605)
(7,771)
(45)
5,081.
42.
(3,869)
3,730.
(7,599)
(3,869)
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
9.
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, 2023, 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 $24,519 (2022 – $7,805).
As at December 31, 2023, the Company had non-capital losses carried forward for tax purposes of $8,022 (2022 – $17,018)
in Canada and US$18,455 (2022 – US$14,985) in the United States.
Certain deferred income tax assets have not been recognized:
Property and equipment
Non-capital loss carry forwards
Total
10.
SHORT-TERM INDEBTEDNESS
2023
$
613
5,231
5,844
2022
$
1,401
3,543
4,944
The Company has two secured 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 $55,000, which was increased from
$40,000 during 2023. This credit facility bears interest at prime plus 1.50% or based on a spread to banker’s acceptance. As
of December 31, 2023, the Company had drawn $3,763 on this facility (2022 – $18,086), and the borrowing base yielded a
maximum draw of $47,761 (2022 – $40,000). The aggregate carrying value of the six hotel properties, one investment
property, and ferry operations securing this facility is $80,790.
The Company has a second credit facility with a maximum borrowing capacity of $30,000, which was increased from
$15,000 during 2023. This credit facility bears interest at prime plus 1.00%. As of December 31, 2023, the Company had
not drawn on this facility (2022 – $8,000). This facility, and a corresponding term loan (note 13), are secured by five hotel
properties with a carrying value of $88,062.
Both secured credit facilities are subject to an annual review and are due on demand. Any decline in the fair value or the
profitability of the pledged assets may limit the Company's access to the full amount of these credit facilities.
21
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
11. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payables
Accrued liabilities
Deposits
2023
$
11,427
14,846
―
26,273
2022
$
10,802
12,169
2,339
25,310
At December 31, 2022, the Company had $7,035 of construction accounts payable due under terms lasting more than one
year, which were presented as long-term on the statement of financial position. At December 31, 2023, the Company did not
have construction accounts payable with terms lasting more than one year.
12. CONVERTIBLE DEBENTURES
Beginning balance
Accretion
Conversion to common shares
Face value of debentures redeemed
Loss on modification and redemption
Ending balance
2023
$
34,146.
61.
(84)
(34,916)
793.
―.
2022
$
49,268
235
―
(15,754)
397
34,146
On July 28, 2023, the Company redeemed all of the remaining debentures from the debenture holders. The cash outlay was
$35,384 including $468 of accrued interest and the Company recorded a net loss of $793 on the redemption. The debentures
bore interest at 6.25%, were traded under the symbol CKI.DB and were convertible at a conversion price of $13.74 per
Clarke Inc. common share.
On October 31, 2022, the Company redeemed $15,754 of its debentures from the debenture holders on a pro rata basis. The
cash outlay was $16,247 including $493 of accrued interest. The Company recorded a net loss of $397 on the redemption.
13. LONG-TERM DEBT
On October 30, 2023, the Company extended a loan facility comprised of a $25,000 term loan and a $30,000 revolving line
of credit (note 10), (the “Combined Facility”). The term loan was extended for four years and matures in November 2027,
has a fixed interest rate of 6.95% and a 25-year amortization period. The Combined Facility is secured by five hotels.
On June 28, 2023, the Company entered into a $35,000 unsecured credit facility with a related party, which was used to
finance the redemption of the Company’s debentures. This facility bears interest at 6.00% and has interest-only payments
until January 1, 2028, whereby afterwards the facility will continue as a revolving line of credit, due on demand.
On February 9, 2023, using its revolving credit facilities, the Company repaid a term loan of $11,042, which was secured at
the time by a second lien on five hotels and three investment properties.
On October 4, 2022, the Company entered into a $85,000 construction credit facility for 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.
22
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
13. LONG-TERM DEBT (CONT’D)
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.
2023
$
2022
$
Mortgages payable, with a face value of $45,722, bearing interest at a
weighted average rate of 5.47% and maturing on various dates from
February 2025 to February 2030. Individual first charges on nine hotel
properties and one investment property with a carrying value of $139,591
have been pledged as security for individual mortgages.
Unsecured credit facility due to a related party, with a maximum borrowing
limit of $35,000, bearing interest at 6.00% (note 14).
Construction mortgage, with a maximum borrowing limit of $85,000,
bearing interest at the lender’s prime rate, secured by the Carling Avenue
Development.
Term loan, bearing interest at prime plus 1.50%, secured at the time by a
second lien on five hotels and three investment properties.
Construction mortgage payable in joint operation, derecognized upon
disposition (notes 16 and 25).
Total long-term debt
Less: current portion of long-term debt
Long-term portion
The following table summarizes the significant changes in long-term debt:
Total long-term debt – beginning balance
Proceeds of long-term debt, net of financing fees
Repayment of long-term debt
Derecognition of long-term debt on disposition (notes 16 and 25)
Capitalized interest on construction mortgage
Accretion
Total long-term debt – ending balance
45,708.
35,000.
41,313.
―.
―.
122,021.
(1,845)
120,176.
2023
$
98,352.
88,896.
(13,404)
(52,965)
1,091.
51.
122,021.
42,039
―
―
11,135
45,178
98,352
(77,423)
20,929
2022
$
86,516
13,727
(3,960)
―.
2,034
35
98,352
23
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
14. 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 2023, the Company incurred $287 (2022 – $310)
under these agreements.
(ii) The Company provided administrative and asset management services to the Plans and charged $910 for services
during the year ended December 31, 2023 (2022 – $2,170).
(iii) The Company provided and received services with entities owned by the Company’s Chairman and his immediate
family member with a fair value of $277 (2022 – $197). The Company provided hotel management services in
exchange for receiving legal, accounting, tax, construction, and pre-construction consulting services.
(iv) During the year ended December 31, 2023, the Company entered into a 6.00%, $35,000 unsecured credit facility
with an entity owned by the Company’s Chairman and his immediate family member. Interest incurred in the year
on this credit facility was $909.
(v) During the year ended December 31, 2022, the Company sold marketable securities and loans receivable totalling
$5,266 to the Plans.
Key management consists of the directors and officers of the Company. The compensation expensed is as follows:
Year ended December 31, 2023
Salary and fees
Pension value
Total
15. LONG-TERM INCENTIVES
Directors
$
126
300
426
Officers
$
400
7
407
Total
$
526
307
833
Effective January 1, 2022, long-term incentive compensation consisted of units of the Company (the "Units"). The Units
were intended to incentivize certain employees in a similar manner as a cash-settled stock option. These units were
cancelled in the year ended December 31, 2023.
16. COMMITMENTS
Under the terms of the Company's hotel franchise agreements, which expire at various dates through to 2042, franchise fees
are due to franchise companies on all but two of the Company’s hotels. The franchise fees paid to franchisors are a function
of hotel revenue.
The Company remains a guarantor on the construction loan of the 1111 Atwater development for an aggregate amount of
$27,700 (notes 13, 23 and 25). The Company has an indemnity agreement with its former partners for this guarantee until it
is released. The Company expects the guarantee to be released in 2024.
24
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
17. SHARE CAPITAL AND EARNINGS PER SHARE
As at and for the year ended December 31,
2023
2022
# 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 issued upon conversion of debentures
Common shares repurchased for cancellation
Outstanding common shares, end of year
14,069,144
6,113
(116,100)
13,959,157
14,411,969
83,190
―
84
(342,825)
(700)
14,069,144
82,574
85,218
―
(2,028)
83,190
Earnings per share
2023
Weighted
average shares
(in thousands)
#
Per
share
amount
$
2022
Weighted
average shares
(in thousands)
#
Per
share
amount
$
Earnings
$
Earnings
$
Basic and diluted earnings per
share
3,424
14,004
0.24
3,226
14,238
0.23
As of December 31, 2023, the Company did not have any potentially dilutive instruments issued. The debentures, which
were redeemed in the year ended December 31, 2023, were anti-dilutive for the year ended December 31, 2022.
Common share activity
During the year ended December 31, 2023, the Company purchased for cancellation 116,100 (2022 – 342,825) common
shares at a cost of $1,482 (2022 – $3,775). The purchase price in excess of the historical book value of the shares in the
amount of $782 (2022 – $1,747) has been charged to retained earnings, and $700 (2022 – $2,028) has been charged to share
capital. The common share repurchases in the years ended December 31, 2023, and 2022 were completed under the
Company’s normal course issuer bids.
25
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
18.
INVESTMENT AND OTHER INCOME
Investment and other income is comprised of the following:
Fair value adjustments and realized gains (losses) on investment
properties (note 2)
Revaluation gain on hotel properties (note 2)
Realized gain on disposal of joint operation (note 25)
Interest income
Pension recovery (note 6)
Loss on disposal of property and equipment
Loss on redemption of debentures (note 12)
Foreign exchange gains
Unrealized losses on marketable securities
Realized gains on marketable securities
19. EXPENSES BY NATURE
2023
$
(7,837)
4,300
8,116
4
204
(5)
(793)
―
―
―
3,989.
2022
$
254
1,300
―
670
709
(3)
(397)
240
(322)
387
2,838
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 *
Materials, supplies, repairs and utilities *
Food, beverage and service costs
Royalty and franchise fees
Property taxes *
Other general and administrative *
Professional fees
Information technology and support
Insurance *
2023
$
25,036
15,414
2,746
2,900
3,341
2,844
1,111
693
916
55,001
2022
$
18,610
15,207
2,745
2,558
2,227
1,792
1,347
617
672
45,775
* During the year ended December 31, 2022, the Company recognized $4,147 of government grants which were recognized
as reductions to the above expenses.
20.
INTEREST AND ACCRETION
Interest and accretion expense is comprised of the following:
Interest on short-term indebtedness
Interest on long-term debt and debentures
Accretion
26
2023
$
2,590
4,487
110
7,187
2022
$
525
5,596
374
6,495
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
21. SUPPLEMENTAL CASH FLOW INFORMATION
Adjustments for items not involving cash
Depreciation and amortization
Revaluation gain on hotel properties (note 2)
Fair value adjustments and realized losses (gains) on investment properties (note 2)
Gain on disposition of joint operation (note 25)
Deferred income tax expense (note 9)
Non-cash long-term incentive expense (recovery)
Accretion
Realized/unrealized foreign exchange gains
Pension recovery (note 6)
Loss on disposal of property and equipment
Loss on modification and redemption of debentures (note 12)
Realized/unrealized gains on marketable securities (note 18)
Net change in non-cash working capital balances
Receivables
Other assets
Accounts payable and other liabilities
Income taxes payable
Income taxes paid
Interest received
Interest paid
22. CAPITAL DISCLOSURES
2023
$
10,179.
(4,300)
7,837.
(8,116)
3,568.
(213)
110.
―.
(204)
5.
793.
―.
9,659.
2023
$
885.
458.
523.
(1,868)
(2)
2023
$
356.
4.
8,489.
2022
$
9,570
(1,300)
(254)
―
1,690
123
270
(240)
(709)
3
397
(65)
9,485
2022
$
1,492
686
1,856
(1,345)
2,689
2022
$
1,770.
859.
6,600.
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. At December 31, 2023 and 2022, all covenants
were in compliance.
27
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The carrying value of the Company’s cash, receivables, loan receivable, short-term indebtedness and accounts payable and
other liabilities approximates their fair value due to the short-term maturity of these instruments.
The fair value of long-term debt 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 long-term debt at December 31, 2023 was $122,021 and
$118,630 (2022 – $98,352 and $96,377), respectively.
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:
Property and equipment
Investment properties
Total assets
Property and equipment
Investment properties
Total
$
195,409
138,486
333,895
Total
$
209,698
80,885
290,583
Fair value at December 31, 2023
Level 1
$
―
―
―
Level 2
$
―
―
―
Fair value at December 31, 2022
Level 1
$
―
―
―
Level 2
$
―
―
―
Level 3
$
195,409
138,486
333,895
Level 3
$
209,698
80,885
290,583
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.
28
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONT’D)
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, 2023, 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 6.28% with a
weighted average maturity of approximately 3.1 years.
The Company has one construction loan and two revolving credit facilities that use floating rates. At December 31,
2023, the after-tax, annualized net income effect of a 1% change in interest rates would have been $328 on floating
rate debt of $45,076.
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 loan receivable and receivables.
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, 2023, the Company had cash on-hand of $929 and available
undrawn revolving facilities of $73,998.
The Company remains a guarantor on a construction loan of a former joint operation (notes 13 and 16).
The following table shows the current timing of contractual payments of the Company’s liabilities:
Accounts payable and other liabilities
Short-term indebtedness
Lease obligations
Long-term debt
Interest on long-term debt
1 to 3 years
$
3 to 5 years
$
After 5 years
$
―
―
209
44,993
8,658
53,860
―
―
183
74,707
3,675
78,565
―
―
―
489
12
501
Due within
1 year
$
26,273
3,763
149
1,845
4,632
36,662
29
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
24. SEGMENTED INFORMATION
The Company operates in two reportable business segments. The Investment segment represents the Company’s ferry
business, investment properties and until its disposition, the 1111 Atwater development. The Hospitality segment consists of
the Company’s ownership, management 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 unsecured
credit facility, pension plans and the debentures until their redemption. Revenue in the Other category is primarily
investment management fees.
Transactions between the segments are recorded at fair value, which is the amount of consideration established and agreed
to by management. Reconciling items represent eliminations for services provided between the segments.
The Company operates predominantly in Canada, with the exception of its remaining investment property located in the
United States. All material hotel and rental revenue and provision of services was generated by continuing operations in
Canada for the years ended December 31, 2023 and 2022.
Year ended December 31, 2023
Revenue and other income:
Hotel and rental revenue and provision of
services
Investment and other income (loss)
Operating expenses before the undernoted
Depreciation and amortization
Interest and accretion
Income (loss) before income taxes
Assets
Liabilities
Capital expenditures
Assets located outside of Canada
Investment
$
Hospitality
$
Other
$
Eliminations
$
Total
$
8,398.
279.
8,677.
9,820.
59.
―.
(1,202)
139,104.
62,141.
44,964.
3,342.
64,207
4,295
68,502
42,507
10,049
5,014
10,932
221,197
56,041
9,263
―
910.
(585)
325.
2,698.
71.
2,173.
(4,617)
34,829.
46,259.
―.
―.
(24)
―.
(24)
(24)
―.
―.
―.
―.
―.
―.
―.
73,491
3,989
77,480
55,001
10,179
7,187
5,113
395,130
164,441
54,227
3,342
30
Clarke Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(in thousands of Canadian dollars, except per share amounts)
24. SEGMENTED INFORMATION (CONT’D)
Year ended December 31, 2022
Revenue and other income:
Hotel and rental revenue and provision of
services
Investment and other income (loss)
Operating expenses before the undernoted
Depreciation and amortization
Interest and accretion
Income (loss) before income taxes
Assets
Liabilities
Capital expenditures
Assets located outside of Canada
25.
JOINT OPERATION
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
The Company exercised its put right in the 1111 Atwater co-ownership agreement and subsequently exited this investment
on December 21, 2023 for net proceeds of $26,209, comprised of $16,476 of cash and a $9,733 loan receivable (note 4). As
a result, the Company derecognized its share of the development’s assets and liabilities and recognized a gain of $8,116 in
the year ended December 31, 2023.
In the year ended December 31, 2023, revenue of $954 (2022 – $21) and operating expenses of $2,394 (2022 – $1,115)
related to the joint operation are included in the consolidated statements of earnings.
26. SUBSEQUENT EVENT
Subsequent to December 31, 2023, the Company entered into an agreement to sell the shares of a wholly owned subsidiary,
Holloway Lodging US Inc. (“HLUS”) to an entity owned by the Company’s Chairman and his immediate family member
for US$3,189. The primary asset of HLUS is a vacant office building located at 222 Benmar Drive, in Houston, TX. The
transaction is subject to certain post-closing adjustments. The Company recorded a fair value adjustment loss on this
investment property in the year ended December 31, 2023. The Company may need to record additional fair value changes
in the statement of earnings in future periods due to the ultimate settlement of the post-closing adjustments.
31
Clarke Inc.
Suite 106
145 Hobsons Lake Dr.
Halifax, NS B3S 0H9
www.clarkeinc.com