The Caldwell Partners International Inc.
Annual Report 2010
Premier
providers
of
executive
search
Dear Shareholders, Clients, and Friends:
The 2010 fiscal year was an important one for Caldwell Partners, marking the first full
year of our North American expansion strategy. We are pleased with our
accomplishments to date - we nearly doubled our revenue, opened five physical
locations in the USA, established a strategic alliance with a London-based executive
search boutique, and built a strong North American platform from which we are
better able to serve our clients. Our footprint is broader, our industry and functional
practice is deeper, and it is encouraging to see the experience and reputation of our
new American partners extend the company’s brand and reach across North America.
We began our fiscal 2009 year with 13 partners in Canada and no operations or
partners in the United States. Over the course of fiscal 2010, we took full advantage of
the economic recession and our own financial strength to selectively invest in a core
of highly experienced professionals for our US operations. While others in the
executive recruitment industry reduced staff during the economic decline and are
now having to re-hire as market conditions improve, we chose to retain and build on
our professional headcount. At the close of the 2010 calendar year, we now have 31
partners in total, 19 of whom are in the United States. This gives us a solid foundation
on which we can continue to grow, and we expect to make measured, strategic
additions to the team where billing thresholds, sector expertise and client focus align
with our growth plans and our culture.
The depth and breadth of our team and our collective expertise make us well-
positioned to provide exceptional service to our clients as the economic recovery
slowly unfolds and their executive recruitment needs increase.
As a result of our investments in the USA and improvements in market conditions
across North America, we were able to deliver a $13.1 million (81%) increase in
revenue, up to $29.2 million for the fiscal 2010 year. Our volumes built to record
Shareholders Letter
1
Caldwell Partners –
levels in the fourth quarter, allowing us to turn in our first quarterly operating profit
in nine quarters.
In the fourth quarter, we were fortunate to commence work on a number of very high-
level assignments and collect significant final billings on several other searches. While
we will continue to focus on serving the needs of our growing client base with
excellence and tenacity in the coming year, attaining revenue levels comparable to the
fourth quarter will prove challenging in the short-term.
As we focused our efforts on placements at the top of the house, we experienced a
marked improvement in our average fee per search in fiscal 2010, a key driver of our
efficiency and profitability. This focus will continue as we move forward and as we
selectively hire seasoned search professionals to complement our current team.
The dedication of our people and the intense effort we give our clients are key
components of our success. We’d like to thank each and every member of the Caldwell
team for the lasting accomplishments and strong financial results that we collectively
achieved over the course of the past fiscal year. We are excited about what we’ve
achieved and look forward to the year ahead!
Yours sincerely,
G. Edmund King
Chair of the Board
John N. Wallace
President & Chief Executive Officer
Shareholders Letter
2
Caldwell Partners –
(Expressed in $000s, except per share amounts)
For the Years Ended August 31, 2010 and 2009
Management
Discussion and Analysis
Company description
The Caldwell Partners International Inc. (“The Caldwell Partners” or “the Company”)
is one of North America’s premier providers of executive search and has been for 40
years. As one of the region’s most trusted advisors in executive search, the firm has a
sterling reputation built on successful searches for boards, chief and senior
executives, and selected functional experts.
With offices and partners in Vancouver, San Francisco, Los Angeles, Dallas, Calgary,
Chicago, Atlanta, Toronto, Stamford, New York City, and a strategic presence in
London, the firm takes pride in delivering unmatched level of service and expertise to
its clients.
The Caldwell Partners’ common shares are listed on the Toronto Stock Exchange
(TSX: CWL). Please visit our website at www.caldwellpartners.com for further
information.
Management Discussion and Analysis
3
Caldwell Partners –
Forward-Looking Statements
Forward-looking statements in this document are based on current expectations that
are subject to the significant risks and uncertainties cited herein. The Caldwell
Partners assumes no obligation to update the forward-looking statements, or to
update the reasons why actual results could differ from those reflected in the forward-
looking statements.
Presentation
The following discussion and analysis, prepared on November 17, 2010, should be
read in conjunction with the audited consolidated financial statements and related
notes for the year ended August 31, 2010. The statements have been prepared in
accordance with generally accepted accounting principles in Canada (Canadian
GAAP). All currency amounts are provided in Canadian dollars unless otherwise
noted. All references to quarters or years are for the fiscal periods unless otherwise
noted. All numbers (except percentages and per share amounts) are expressed in
thousands unless otherwise noted.
While gross and operating profit are non-GAAP measures, the Company believes that
they provide a useful appreciation of the performance of its core human capital
services operations as they exclude income or loss from investments, restructuring
costs and taxes. The summary of the most recent eight quarters is provided for each
income statement category.
Operating Revenue
Operating Results
2009
2010
Q1
$4,136
$4,396
Q2
$3,312
$5,690
Q3
$4092
$7,938
Q4
$4,591
$11,176
Management Discussion and Analysis
4
Caldwell Partners –
Fiscal 2010 fourth quarter operating revenue increased to $11,176, a 143% increase
over the comparable period last year and a 41% increase over fiscal 2010 third
quarter revenues. US revenues represent 60% or $6,667 of the fourth quarter total,
increasing from $722 in the comparable period of 2009 due to a significant increase in
the number of US partners and their increasing individual contributions to revenue.
Revenues from Canadian core search operations increased 40% in the fourth quarter
as compared to 2009. However, declines in revenues from advertising and interim
assignments tempered this improvement, with total fourth quarter revenues
increasing 17% over the fiscal 2009 level to $4,510.
Annual operating revenues increased 81% to $29,201 in fiscal 2010 as compared to
$16,130 for the fiscal 2009 year. Revenue from US operations increased to $15,427 in
fiscal 2010, more than nine times the fiscal 2009 level of $1,679. The Company
commenced operations in the United States very late in the second quarter of fiscal
2009 generating modest revenues in its first months of operation. In fiscal 2010, with
now eighteen partners on board in five offices and making increasing contributions to
revenue (including the Cromwell acquisition completed in late fiscal 2009), US
operations generated 53% of annual revenues.
While revenue from Canadian core search operations increased 11% on the year, as
noted above, declines in non-core revenues netted an overall decrease of 5%,
resulting in Canadian revenues of $13,773 versus $14,452 in fiscal 2009. As the
Company continues to focus on its core search business, these non-core revenues now
represent less than 2% of consolidated revenue as compared to 14% in fiscal 2009.
The shift away from these non-core sources of revenue has improved percentage
operating margins in Canada.
Both the Canadian and US operations began to report increasing business activity in
the 2010 second quarter as the North American economies continued their recoveries
and the Company continued to execute its strategic growth plan to hire seasoned
professionals and to improve average fees per assignment by focusing on higher level
assignments. This growth continued into the second half of the year, with fiscal 2010
fourth quarter revenues reaching an unprecedented $11,177. Fourth quarter
revenues were in part impacted by the commencement of a number of very high-level
engagements, as well as some significant final billings, with professional fees being
Management Discussion and Analysis
5
Caldwell Partners –
trued up to reflect the actual compensation of placed candidates upon completion of
the engagement. While a normal part of the Company’s revenue stream, the number
and magnitude of some of these fees was unusually high in the fourth quarter. While
the Company looks forward to continued improving quarterly revenues in fiscal 2011,
attaining levels comparable to the fourth quarter of fiscal 2010 will prove challenging
in the short-term.
Direct Cost of Revenue
2009
2010
Q1
$3,625
$3,754
Q2
$2,744
$4,253
Q3
$3,599
$6,291
Q4
$4,915
$8,739
Direct costs associated with the generation of revenue, being both variable and fixed
compensation costs of employees involved in search activities, print advertising,
interim candidate costs, and reimbursable expenses, increased 78% to $8,739 in the
fiscal 2010 fourth quarter (2009: $4,915). The increase reflects the Company’s 143%
increase in operating revenue, with direct costs now representing 78% of operating
revenue as compared to 107% in the comparable period of fiscal 2009. This decrease
is largely due to increasing volumes as economic conditions improve as well as
improving margin contributions from new partner additions. Decreases in advertising
and interim executive revenues, which carry lower margins than the core executive
search business, have also contributed to this improvement.
For the year, fiscal 2010 direct costs total $23,038 or 79% of operating revenues, as
compared to $14,883 or 92% in the same period last year due to similar factors
discussed above.
Gross Profit and Margin
2009
Q1
2010
$511
12%
$642
15%
Q2
$568
17%
$1,437
25%
Q3
$492
12%
$1,647
21%
Q4
($324)
–
$2,436
22%
Management Discussion and Analysis
6
Caldwell Partners –
Gross profit in the fourth quarter of fiscal 2010 rose to $2,436 (2009: loss of $324).
The gross margin in the fourth quarter of fiscal 2010 rose to 22% (2009: nil).
For the fiscal 2010 year, gross profit rose to $6,162, up from $1,247 in fiscal 2009. The
gross margin for the fiscal 2010 year rose to 21% (2009: 8%). The increased gross
profit reflects the significant improvement in revenue levels as the Company
continued to execute its strategic growth plan to hire seasoned professionals and to
improve average fees per assignment by focusing on higher-level assignments. These
higher levels of revenue were better able to support the investments made in new
partners and new offices. In Canada, the shift toward the more profitable core-search
business also contributed to increasing margins in fiscal 2010.
General and Administrative Expenses
2009
2010
Q1
$1,465
$1,838
Q2
$1,041
$1,583
Q3
$2,010
$1,696
Q4
$1,465
$1,660
Annual general and administrative costs total $6,777 in fiscal 2010, up $796 from
$5,981 in fiscal 2009, reflecting the Company’s expansion into the United States and
the addition of the five new offices, of which only two had opened late in the
comparable period a year ago. As well, the Company’s improving financial
performance resulted in accruals for management and other bonuses where none had
been expensed in fiscal 2009. Offsetting these increases were reductions in a number
of head office costs, including reduced compensation costs of the former Executive
Chairman whose settlement costs are included in restructuring charges rather than
compensation costs post March 23, 2010.
Fiscal 2010 fourth quarter general and administrative expenses increased $195 or
13% over the fourth quarter of last year to $1,660. This increase is largely the result
management bonus accruals made in fiscal 2010, net of decreased other
compensation costs, including that of the former Executive Chairman as noted above.
Management Discussion and Analysis
7
Caldwell Partners –
Operating Profit
2009
2010
Q1
($953)
($1,196)
Q2
($474)
($146)
Q3
($1,518)
($49)
Q4
($1,789)
$776
With the significant increase in fourth quarter revenues, improved margins and stable
overheads, the fiscal 2010 fourth quarter produced an operating profit of $776 (2009:
loss of $1,789). While profitability has been strained over the past two years as the
Company executes its strategic growth plan, it is evident that this plan is coming to
fruition as new partners continue to increase revenues and profitability.
While the Company has reported quarter over quarter improvements in operating
profit in fiscal 2010, the fourth quarter profit of $776 was insufficient to cover the
previous nine-month loss of $1,390, resulting in an operating loss for fiscal 2010 of
$614 (2009: loss of $4,734).
Investment Income
2009
2010
Q1
$96
$25
Q2
$48
$96
Q3
($1,224)
$158
Q4
($1,567)
$83
The Company manages market risk by investing in Canadian and foreign equities,
preferred shares of Canadian companies, fixed income instruments and short-term
investments that meet specific investment criteria established and approved by the
Board of Directors and designed to adequately diversify the Company’s investments to
reduce exposure to market risk. Based on current market values, $3,077 (75%) of the
investment portfolio is placed with a third party investment manager.
For the fourth quarter of fiscal 2010, the Company has reported investment income of
$83 versus a significant investment loss of $1,567 in the comparable period last year.
In the fourth quarter of 2009, the Company realized capital losses of $681 incurred on
the disposition of some of the funds managed by a third party investment manager,
and took a $929 provision for the impairment in value of the preferred and common
share portfolio.
Management Discussion and Analysis
8
Caldwell Partners –
Investment income for fiscal 2010 totals $363, including a realized capital gain of
$199. In addition to the 2009 fourth quarter investment losses noted above, the
Company realized further capital losses in its fiscal 2009 third quarter of $1,220 on its
professionally managed funds, contributing to a total investment loss in fiscal 2009 of
$2,647.
At August 31, 2010, the market value of investments held by the Company was $285
above book value. This unrealized gain has been reflected in both other
comprehensive income and in the stated value of the investment portfolio.
Restructuring Costs
The Company has recorded a restructuring charge of $1,001,055 related to the March
23, 2010 retirement of its founder C. Douglas Caldwell from the position of Executive
Chairman and as Director of the Company, and the related agreement to accelerate the
planned conversion of the Company’s non-voting Class B shares to voting Class A
shares. This amount consists of $626,055 for settlement and conclusion of Mr.
Caldwell’s employment contract, an additional $150,000 reimbursed to Mr. Caldwell
for legal and other costs, and $225,000 for the Company’s legal and associated costs.
Pursuant to this settlement, Mr. Caldwell agreed with the Corporation to vote all of his
Class B Shares in favour of a resolution put before a class meeting of the holders of the
Class B Shares, and separately before the holders of Class A Shares, to accelerate the
automatic conversion of all Class B Shares to Class A Shares from November 1, 2011 to
the later of (i) May 1, 2010 or (ii) the first business day thereafter when such
conversion shall be approved by the Toronto Stock Exchange. This resolution was
passed by holders of both Class B Shares and Class A Shares at meetings held on April
21, 2010 with Toronto Stock Exchange approval following on May 10, 2010.
Net Earnings (Loss) Before Tax
Net Earnings
2009
2010
Q1
Q2
Q3
($857)
($1,171)
($426)
($1,051)
($2,742)
$109
Q4
($3,356)
$859
Management Discussion and Analysis
9
Caldwell Partners –
Fourth quarter net earnings before tax were $859 in fiscal 2010 as compared to a loss
of $3,356 in the comparable period a year earlier. For the fiscal 2010 year, the net loss
before tax is $1,253 as compared to a net loss before tax in fiscal 2009 of $7,381. This
considerable improvement in the net loss situation is the result of factors noted in the
above discussion.
Net Earnings (Loss) After Tax
2009
2010
2009
2010
Q1
Q2
Q3
($532)
($1,171)
($0.032)
($0.071)
($286)
($2,460)
Earnings Per Share
($1,051)
$109
($0.018)
($0.064)
($0.150)
$0.007
Q4
($4,292)
$859
($0.252)
$0.052
Income tax recoveries of $747 were recognized in the first nine months of 2009 but
were reversed in the fourth quarter of 2009 as management considered it prudent to
adopt a conservative approach in the recognition of tax loss recoveries. This resulted
in an after tax loss of $4,292 in the fourth quarter of 2009. No income tax recoveries
were recognized in the fiscal 2010 fourth quarter, with net earnings after tax being
$859 ($0.052 per share).
The fiscal 2010 net loss after tax is $1,536 ($0.076 per share) compared to a net loss
after tax of $7,570 ($0.461 per share) in fiscal 2009.
Dividends
In light of the Company’s recent performance and its inability to pay a dividend based
on its deficit position, the Company has suspended its dividend.
Management Discussion and Analysis
10
Caldwell Partners –
Liquidity and Capital Resources
The Company’s financial performance and its policy of conserving its financial
resources in prior years has enabled The Caldwell Partners to remain debt-free. As at
August 31, 2010, the Company had $4,125 of marketable securities plus cash and cash
equivalents of $6,456, for a total of $10,581 up from $10,043 at year-end fiscal 2009.
This improvement is largely the result of a net decrease in working capital balances of
$1,152, net of restructuring costs of $1,001 recorded in the second quarter of fiscal
2010. These restructuring charges were highly unusual and are not expected to recur.
Working capital balances decreased significantly over the prior year end balances due
primarily to large accruals for commission based partner compensation and
management bonuses paid subsequent to year end, net of a significant increase in
accounts receivable, both changes driven by much higher levels of revenue in fiscal
2010.
The Company continues to take advantage of its financial strength and market
opportunities to strategically expand its organization and business, and to build a
solid platform for sustainable revenue growth and profitable future returns. These
initiatives will continue to require some investment of the Company’s capital reserves
over a period of time. Management believes that the Company has sufficient liquidity
and cash resources to fund both its ongoing operations and its strategic growth
initiatives.
In fiscal 2009, the Company began executing its strategic growth plan by opening
three new offices, hiring eleven additional partners and acquiring an office in New
York City. During fiscal 2010, this growth continued with the addition of eight new
partners across the country and opening a fifth new office in Stamford, Connecticut.
These investments are most often incurred as sign on bonuses for new partner hires
which are reflected in operating results over a 24 month amortization period and in
transition costs as revenue levels ramp up relative to new partner draw levels.
Reflecting the fact that The Caldwell Partners is a professional services firm whose
most important asset is the intangible value of its people, cash and equivalent
marketable securities represented approximately 48% of the Company’s total balance
sheet at August 31, 2010, down from 55% at the end of the fiscal 2009. The Company’s
investment in marketable securities comprises primarily preferred stocks of Canadian
11
Management Discussion and Analysis
Caldwell Partners –
public companies rated P1, P2, or the equivalent, and investment funds. Dividend
income earned on these funds is a tax-efficient method of enhancing income.
Accounts receivable were $5,875 at the end of the fourth quarter of fiscal 2010, up
$2,778 from $3,097 at the end of fiscal 2009, due largely to increases in fourth quarter
revenues in fiscal 2010 as compared to the prior year. Accounts payable were $9,174
at August 31, 2010, up from $3,939 at the end of fiscal 2009. This increase reflects
growing accruals for partner compensation driven by significantly higher levels of
revenue, particularly in the fourth quarter of fiscal 2010.
The Company’s investment in property and equipment was $1,656 compared with
$1,722 at the 2009 year-end. This reflects net additions of $260 net of depreciation of
$326. Capital expenditures included furniture, computer and office equipment
acquired to outfit and equip the Company’s new offices.
Shareholders’ equity at August 31, 2010 was $10,615 down from $11,703 at year-end
2009. This decline reflects the year’s net loss before restructuring charges of $252, an
unrealized gain on marketable securities of $110, stock compensation costs of $55
and restructuring charges of $1,001.
Business Outlook
The Caldwell Partners began its fiscal 2009 year with 13 partners in Canada and no
operations or partners in the United States. At the end of the fiscal 2010, the Company
has 31 partners in total, 18 of whom are in the United States. In addition to its
Canadian team, the Company now has partners located in seven cities in the United
States, giving it a solid foundation on which it expects to continue to grow. The
Company has also established a strategic alliance with a United Kingdom executive
search firm based in London.
The Company took full advantage of its financial strength and the economic recession
to selectively invest in attracting a core of highly experienced professionals for its
operations in the United States. Now, as the economic recovery slowly unfolds, The
Caldwell Partners is positioned to build its business and add selectively to its
organization. While others in the executive recruitment industry reduced staff during
the economic decline and are now having to re-hire as market conditions improve,
Management Discussion and Analysis
12
Caldwell Partners –
The Caldwell Partners chose to retain and build on its professional headcount. Having
more than doubled its revenue-producing potential over the past eighteen months,
management feels that the Company is well-positioned to provide exceptional service
to its clients as their executive recruitment needs increase.
The importance of this strategic decision to establish operations in the United States
was highlighted in the Company’s third and fourth quarters of 2010. Revenues from
the United States during this period out-paced those of Canada, with more than one
half of the Company’s annual revenues being generated in the United States of
America. Both the Canadian and American operations began to report increasing
business activity in the 2010 second quarter as the North American economies
continued their recoveries. This growth continued throughout the second half of the
fiscal year, with 2010 fourth quarter revenues reaching an unprecedented $11,177.
Management is optimistic that bookings will continue near levels experienced over
the past six months. However, given the exceptional revenues of the most recent
quarter, repeating such performance will prove challenging in the short-term. As the
North American economy continues to recover, the Company believes that it also can
expect increasing compensation levels which should be reflected in further increases
in the average level of recruitment assignment fees.
Related Party Transactions
The Company paid rent at the exchange amount to affiliated companies owned by a
shareholder (C. Douglas Caldwell, until March 23, 2010, Executive Chairman) in the
amount of $234,504 for the year ended August 31, 2010 (2009 - $291,421), net of
recoveries from other related parties also controlled by the same shareholder,
pursuant to the Company’s lease commitments. The exchange amount is the amount
of consideration agreed to by the parties of the transaction and was determined to be
fair market rental rates at the inception of the lease by two commercial leasing agents.
On August 7, 2009, the Company entered into an amended lease agreement, extending
the term for a further ten years and for a reduced amount of space. The terms of this
lease were determined to approximate fair market rental rates at the inception of the
lease amendment by an independent commercial real estate counsellor and was
approved by the independent members of the Board of Directors.
Management Discussion and Analysis
13
Caldwell Partners –
Accounting Estimates
The preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the period. Critical areas where
such estimates are made are in the valuation of accounts receivable, marketable
securities and the allocation of fair value of acquired intangible assets. Actual results
could differ from those estimates.
Risks and Uncertainties
The Company operates in a highly competitive industry and its results may be affected
by a number of factors. These factors include, but are not limited to, competition from
other companies directly or indirectly engaged in executive search; the ability of the
Company to execute its growth strategies; the performance of the Canadian domestic
and international economies; the Company’s ability to attract and retain key
personnel, particularly partners who generate business; and the Company’s ability to
invest retained earnings in marketable securities, primarily preferred shares of
Canadian publicly-owned companies rated P1, P2, or the equivalent and in short-term
money market instruments to generate consistent investment income returns.
Investments in marketable securities are inherently subject to market risk, which the
Company endeavours to manage through a conservative investment policy that
adheres to specific criteria set and reviewed by its Board of Directors and is designed
to adequately diversify its investments to reduce exposures. Currently, professional
investment managers invest and manage $3,077 of the investment portfolio in
accordance with the Company’s investment policies. As at August 31, 2010,
marketable securities, cash and cash equivalents total approximately $10,581.
As the Company’s operations in the United States continue to expand, foreign
exchange risk will also increase. Management is considering various methods to
manage this risk. Currently, none of the Company’s investment portfolio is
Management Discussion and Analysis
14
Caldwell Partners –
denominated in US dollars. With the volatility of capital markets returns on the
Company’s investment portfolio may diminish.
On November 17, 2006, a statement of claim was issued in the Superior Court of
Justice of Ontario against the Company, each of its directors and certain companies
which are wholly-owned by C. Douglas Caldwell, the Chairman and then Chief
Executive Officer of the Company.
On November 27, 2008, the Company signed a Settlement Agreement, setting out
terms upon which this lawsuit would be dismissed and all parties released from
claims with respect to matters alleged in the pleadings. This claim was formally
dismissed by the Ontario Superior Court of Justice on December 2, 2008. Pursuant to
this agreement, on February 19, 2009, C. Douglas Caldwell and the plaintiffs voted in
support of combining the Company’s voting and non-voting shares into a single class
of voting shares. Also, pursuant to this agreement, Voting Class B shares were to
receive 1.149 Class A common shares for each of their Class B shares and all Class A
shares will become single-voting common shares. The conversion was to take effect
on November 1, 2011.
However, pursuant to a settlement with the Company’s founder and former Executive
Chairman, C. Douglas Caldwell, this share conversion was accelerated. On April 21,
2010, holders of both Class A Non-voting Shares and Class B Voting Shares voted in
favour of accelerating this automatic conversion, and following approval by the
Toronto Stock Exchange on May 10, 2010, 3,883,450 Class B Shares were converted to
4,462,082 Class A shares. Immediately following this conversion, all Class A Shares
were then reclassified as Common Shares with one vote per share. As at August 31,
2010, the authorized share capital of the Company consists of an unlimited number of
Common Shares of which 16,985,505 are issued and outstanding.
The Company’s Chief Executive Officer and Chief Financial Officer are responsible for
Disclosure Controls and Procedures
establishing and maintaining the Company’s disclosure controls and procedures. The
Chief Executive Officer and Chief Financial Officer, in conjunction with the Board of
Directors, review any material information affecting the Company to evaluate and
determine the appropriateness and timing of public release.
Management Discussion and Analysis
15
Caldwell Partners –
The Chief Executive Officer and the Chief Financial Officer, after evaluating the
effectiveness of the Company’s disclosure procedures as at August 31, 2010, have
concluded that the Company’s disclosure controls and procedures are adequate and
effective to ensure that material information relating to the Company and its
subsidiaries would have been known to them.
Internal Control Over Financial Reporting
Internal Control Over Financial Reporting (“ICFR”) is designed to provide reasonable
assurance regarding the reliability of the Company’s financial reporting and its
compliance with GAAP in its financial statements. The Chief Executive Officer and the
Chief Financial Officer have evaluated whether there were changes to its ICFR during
the quarter ended August 31, 2010 that have materially affected, or are reasonably
likely to materially affect, its ICFR. No such changes were identified through their
evaluation.
International Financial
Reporting Standards
On February 13, 2008, the Canadian Accounting Standards Board confirmed that the
International Financial Reporting Standards (IFRS) will replace Canada’s current
generally accepted accounting principles for publicly accountable profit-oriented
enterprises for interim and annual financial statements effective January 1, 2011. The
Company is evaluating the effects of adopting these reporting standards. The key
elements of the Company’s changeover plan include:
1
Scoping and diagnostic.
2
High-level analysis to:
•
•
•
Assess differences between IFRS and GAAP.
Identify elective and mandatory exceptions available under IFRS.
Scope out potential impacts on systems and processes.
Management Discussion and Analysis
16
Caldwell Partners –
•
Identify impacts on business relationships including contractual
arrangements.
•
Impact analysis, evaluation and design:
•
•
•
Determine projected impact of adopting IRS on financial statements and
develop accounting processes.
Develop and finalize changes to systems and internal controls.
Address business activities including contractual obligations, hedging,
compensation arrangements, budgeting/forecasting.
Prepare reporting templates and training plan.
3
4
•
•
•
•
Implementation and review:
Collect and compile IFRS information for reporting.
Train staff.
Execute changes to information systems and business activities.
Communicate.
The Company recently began its scoping and diagnostic phase based on new guidance
and current and proposed changes in the business. Areas that could have a potential
significant impact include revenue recognition, financial instruments, leases and
income taxes. Management expects that most of the adjustments required on the
transition to IFRS will be made retrospectively against opening retained earnings at
the date the first comparative balance sheet is presented.
The Company will be assessing the impact on financial reporting, business processes,
internal controls and information systems to ensure a timely conversion. With an
August 31st fiscal year end, the Company will be converting to IFRS on September 1,
2011.
Other Information
Additional information relating to the Company, including the Company’s Annual
Information Form, is available on SEDAR at
www.sedar.com
Management Discussion and Analysis
17
Caldwell Partners –
Consolidated
Financial Statements
For the Years Ended August 31, 2010 and 2009
Consolidated Financial Statements
18
Caldwell Partners –
Management’s Report to Shareholders
The consolidated financial statements and all information contained in this annual
report are the responsibility of management and the Board of Directors of the
Corporation. The financial statements have been prepared by management in
accordance with accounting principles generally accepted in Canada and, where
appropriate, reflect management’s best estimates and judgments based on currently
available information. The Corporation has established accounting and reporting
systems supported by internal controls designed to safeguard assets from loss or
unauthorized use and ensure the accuracy of the financial records. The financial
information presented throughout this annual report is consistent with the
consolidated financial statements.
PricewaterhouseCoopers LLP, an independent firm of chartered accountants, has been
appointed by the shareholders as external auditors of the Corporation. The Auditors’
Report to the Shareholders, which describes the scope of their examination and
expresses their opinion, is presented herein. The Audit Committee of the Board of
Directors, whose members are not employees of the Corporation, meets with
management and the independent auditors to satisfy itself that the responsibilities of
the respective parties are properly discharged and to review the consolidated
financial statements before they are presented to the Board for approval.
John N. Wallace
Karen E. Richards, CA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECRETARY AND CHIEF FINANCIAL
OFFICER
November 17, 2010
Consolidated Financial Statements
19
Caldwell Partners –
PricewaterhouseCoopers LLP
Chartered Accountants
Mississauga Executive Centre
One Robert Speck Parkway, Suite 1100
Mississauga, Ontario
Canada L4Z 3M3
Telephone +1 905 949 7400
Facsimile +1 416 814 3220
www.pwc.com/ca
Auditors’ Report
To the Shareholders of
The Caldwell Partners International Inc.
We have audited the consolidated balance sheets of The Caldwell Partners International Inc. (the Company) as
at August 31, 2010 and 2009 and the consolidated statements of loss, comprehensive loss, shareholders’ equity
and accumulated other comprehensive income and cash flows for the years then ended. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Company as at August 31, 2010 and 2009 and the results of its operations and its cash flows for
the years then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants, Licensed Public Accountants
Mississauga, Ontario
November 17, 2010
“PricewaterhouseCoopers” refers
PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
to PricewaterhouseCoopers LLP, an Ontario
liability partnership, or, as
limited
the context requires,
the
Caldwell Partners – Consolidated Financial Statements
20
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
Assets
Current Assets
Cash and cash equivalents
Marketable securities (note 4)
Accounts receivable
Income taxes receivable
Prepaid expenses and other assets
Loans receivable, long-term (note 5)
Property and equipment (note 6)
Intangible assets (note 7)
Goodwill (note 3)
Liabilities
Current Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Current portion of incentive accrual (note 9)
Long-term incentive accrual (note 9)
Shareholders' equity
Capital stock (note 10)
Contributed surplus (note 10)
Deficit
Accumulated other comprehensive income
Commitments and contingencies (note 13)
The accompanying notes are an integral part of these financial statements.
Signed on behalf of the Board:
As at August 31
2010
2009
$6,456,274
4,124,785
5,875,065
87,377
1,693,133
18,236,634
471,020
1,655,907
1,015,728
723,390
$22,102,679
$4,718,014
$5,325,160
3,097,334
320,578
1,020,029
14,481,115
418,937
1,721,900
1,181,392
415,896
$18,219,240
$9,174,008
207,346
1,639,818
11,021,172
$3,938,743
326,209
530,250
4,795,202
466,614
1,721,256
16,064,078
4,154,196
(9,888,438)
285,057
10,614,893
16,064,078
4,098,998
(8,635,678)
175,384
11,702,782
$22,102,679
$18,219,240
G. Edmund King
Chair of the Board
Kathryn A. Welsh
Director
Caldwell Partners – Consolidated Financial Statements
21
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF LOSS
Operating revenue
Direct cost of revenue
Gross operating profit
Expenses:
Other employee compensation, general and administration
Depreciation of property and equipment
Amortization of intangibles
Foreign exchange (gain) loss
Operating loss
Investment income (loss), net
Loss before the following:
Restructuring costs (note 11)
Net loss before tax
Provision for taxes
Net loss for the year
Loss per share
Weighted average number of shares outstanding:
Basic and fully diluted
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
Net loss for the year
Other comprehensive income:
Unrealized gain on marketable securities
Reclassification of (gains) losses included in the consolidated statement of loss
Change in unrealized gain on marketable securities
Comprehensive loss for the year
The accompanying notes are an integral part of these financial statements.
Year Ending
August 31
2010
2009
$29,200,571
$16,130,469
23,038,191
6,162,380
14,883,389
1,247,080
6,201,296
325,812
271,372
(21,766)
6,776,714
(614,334)
5,512,398
312,990
75,384
79,843
5,980,615
(4,733,535)
362,629
(2,647,068)
(251,705)
(7,380,603)
(1,001,055)
-
(1,252,760)
(7,380,603)
-
189,000
($1,252,760)
($7,569,603)
($0.08)
($0.46)
16,587,596
16,407,366
Year Ending
August 31
2010
2009
($1,252,760)
($7,569,603)
285,057
175,384
(175,384)
109,673
561,295
736,679
($1,143,087)
($6,832,924)
Caldwell Partners – Consolidated Financial Statements
22
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME
Deficit
Capital Stock
Class A
Non-Voting
Shares
Class B
Voting
Shares
Common
Shares
Contributed
Surplus
Accumulated Other
Comprehensive
Income (Loss)
Total
Shareholders'
Equity
Balance - August 31, 2008
($1,066,075)
$0
$19,582,200
$20,950
$488,693
($561,295)
$18,464,473
Net loss for the year ended
August 31, 2009
(7,569,603)
Repurchase and cancellation of Class A
Non-voting Shares
Stock compensation (note 10)
Reduction of stated capital
Change in unrealized gains and losses on
marketable securities available for sale
0
0
0
0
0
0
0
0
0
0
(12,811)
0
0
0
0
0
5,416
78,628
(3,522,490)
(3,771)
3,526,261
0
0
0
0
(7,569,603)
(7,395)
78,628
0
0
0
0
736,679
736,679
Balance - August 31, 2009
($8,635,678)
$0
$16,046,899
$17,179
$4,098,998
$175,384
$11,702,782
Net loss for the year ended
August 31, 2010
(1,252,760)
0
0
0
Conversion of Class B to Class A shares,
and reclassification to Common shares (note 10)
16,064,078
(16,046,899)
(17,179)
Stock compensation (note 10)
Change in unrealized gains and losses on
marketable securities available for sale
0
0
0
0
Balance - August 31, 2010
($9,888,438)
$16,064,078
0
0
$0
The accompanying notes are an integral part of these financial statements.
0
0
55,198
0
0
0
(1,252,760)
0
55,198
0
109,673
109,673
0
0
$0
$4,154,196
$285,057
$10,614,893
Caldwell Partners – Consolidated Financial Statements
23
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Net loss for the year
Items not affecting cash
Depreciation of property and equipment
Amortization of intangibles
(Gain) loss on sale of marketable securities
Provisions for writedowns
Stock compensation expense
Non-cash incentive compensation
Net changes in working capital balances related to operations
Increase in accounts receivable
Decrease in income taxes receivable
Increase in prepaid expenses and other assets
Increase (decrease) in accounts payable and accrued liabilities
Decrease in incentive accrual
(Decrease) increase in deferred revenue
Investment Activities
Proceeds on sale of marketable securities
Purchase of marketable securities
Increase in loans receivable, net
Additions to property and equipment
Disposals of property and equipment
Acquisition of business costs
Acquisition of intangible assets
Financing Activities
Repurchase of Class A shares
Net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash and cash equivalents is comprised of the following:
Cash
Short-term deposits
Supplementary information:
Income taxes paid
Year Ending
2010
2009
($1,252,760)
($7,569,603)
325,812
271,372
(198,567)
-
55,198
294,300
(504,645)
(2,777,731)
233,201
(673,104)
4,931,529
(439,374)
(118,863)
651,013
1,508,615
-
(52,083)
(264,434)
4,615
(3,758)
(105,708)
1,087,247
312,990
75,384
1,901,515
929,459
78,628
652,240
(3,619,387)
(67,953)
760,454
(753,807)
(698,600)
(530,250)
69,800
(4,839,743)
6,281,227
(2,791,079)
(84,959)
(547,931)
84,017
(1,384,086)
-
1,557,189
-
(7,395)
1,738,260
(3,289,949)
4,718,014
$6,456,274
8,007,963
$4,718,014
$5,734,574
721,700
$6,456,274
$965,597
3,752,417
$4,718,014
$104,400
$239,400
The accompanying notes are an integral part of these financial statements.
Caldwell Partners – Consolidated Financial Statements
24
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Years Ended August 31, 2010 and 2009
1. Basis of Presentation
The consolidated financial statements for the years ended August 31, 2010 and 2009 include the accounts of the
Company and its subsidiaries: The Caldwell Partners International Ltd., Prince Arthur Advertising Inc.,
Caldwell Interim Executives Inc. and Caldwell Investments Inc.. All material intercompany transactions have
been eliminated on consolidation.
2. Significant Accounting Policies
Revenue Recognition
Substantially all revenue is derived from fees for professional services related to executive recruitment performed
on a retained basis. The Company also provides its clients from time to time with interim executive placement
services and recruitment advertising through subsidiary companies.
Fee revenue from recruitment activities is generally one-third of the placed candidate’s first year compensation.
Revenue is recognized as services are rendered, generally over a three month period commencing upon client
acceptance. Any fees earned in excess of the initial estimate or fees that are contingent on a candidate’s future
compensation are billed when actual compensation of the placed candidate is known. Where applicable, a
portion of revenue for executive searches is deferred until services are fully rendered.
Property and Equipment
Property and equipment are stated at cost, less accumulated amortization. Amortization is calculated at the
following annual rates to amortize the cost of assets over their estimated useful lives:
Furniture and equipment
Computer equipment
Computer application software
Leasehold improvements
- 20% declining balance
- 30% declining balance
- straight-line over three to ten years
- straight-line over the term of the lease
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of the
impairment loss for long-lived assets is based on the fair value of the asset.
Caldwell Partners – Consolidated Financial Statements
25
Foreign Currency Translation
Transactions of the Company’s Canadian operations denominated in foreign currencies are recorded in
Canadian dollars at exchange rates in effect at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are adjusted to reflect exchange rates at the balance sheet date. Foreign
exchange gains and losses are recorded as incurred in the consolidated statement of loss.
The Company’s US operations are considered an integrated operation of the parent company and as a result, the
net assets have been translated using the temporal method, which translates monetary items at the rate of
exchange in effect on the balance sheet date and non-monetary items at historical rates. Revenue and expense
items are translated at the rate of exchange in effect on the dates they occur. Foreign exchange gains and losses
arising on translation of the US operations are included in the consolidated statement of loss.
Future Income Taxes
The Company accounts for income taxes using the asset and liability method of income tax allocation. Under
this method, assets and liabilities are recorded for the future income tax consequences attributable to differences
between the financial statement carrying values of assets and liabilities and their respective income tax bases.
These future income tax assets and liabilities are recorded using substantively enacted income tax rates. The
effect of a change in income tax rates on these future income tax assets or liabilities is included in income or
other comprehensive income in the period in which the change occurs.
Cash and Cash Equivalents
Cash and cash equivalents comprises cash and short-term deposits with original maturity dates of less than three
months. Short-term deposits are held in treasury bills, money market instruments and bank deposits earning
interest at short-term market rates and have a duration of less than 90 days.
Income from Short-Term Investments and Marketable Securities
Realized gains and losses on the disposal of marketable securities are included in investment income (loss).
Dividend income is recorded on the dividend record date and interest is recorded as earned.
Prepaid Expenses and Other Assets
Prepaid expenses are capitalized expenditures being amortized over their respective contract periods. Other
assets include sign-on bonuses to certain employees which are being amortized over the next twelve months.
These payments are contingent on the employee’s continued employment and are subject to clawback provisions
should the employee terminate his employment prior to the expiration of the clawback period.
Intangible Assets
Intangible assets are recorded at cost and are comprised of client backlog, client lists and non-competition and
non-solicitation agreements. These intangible assets are subject to amortization on a straight-line basis over
their estimated useful lives from 6 months to 10 years. Also included in the intangible assets is software costs
that are not integral to the related hardware. These software costs are being amortized over a period of 2 to 10
years.
Caldwell Partners – Consolidated Financial Statements
26
Goodwill
Goodwill represents the excess of the purchase price, including acquisition costs, over the fair value of
identifiable net assets acquired. Goodwill is reviewed for impairment annually, or more frequently if events or
circumstances indicate that it is more likely than not that the asset might be impaired and the carrying value of
goodwill in excess of its fair value is charged to income.
Stock Based Compensation
The Company accounts for its stock option plan using the fair value method of accounting for stock based
compensation and records stock based compensation over the vesting period of the grants.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent liabilities at the date of the consolidated financial statements and the reported
amounts of revenue and expenses during the period. Actual results could differ from those estimates.
Adoption of New Accounting Pronouncements
Effective September 1, 2009, the Company adopted the CICA Handbook Section 3064, which replaces “Goodwill
and Intangible Assets” Section 3062, and “Research and Development Costs”, Section 3450. The adoption of
this CICA Handbook section, which establishes standards for recognition, measurement and disclosure of
goodwill and intangible assets resulted in the reclassification of $255,467 (net book value) of computer software
costs from property and equipment to intangible assets at August 31, 2009.
Also, on October 1, 2009, the Company adopted the amendments to the disclosure requirements under CICA
Handbook Section 3862 “Financial Instruments - Disclosure” for all financial assets and liabilities that are
recognized at fair value in the consolidated financial statements. These amendments expand the disclosure
requirements around fair value and establish a fair value hierarchy for valuation inputs. The hierarchy prioritizes
the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest
level input that is significant to the fair value measurement in its entirety. These levels are:
• Level 1 – inputs are based on unadjusted quoted prices for identical instruments traded in active markets.
• Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and model-based valuation techniques for
which all significant assumptions are observable in the market or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
• Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that
market participants would use in pricing the asset or liability. The fair values are therefore determined using
model-based techniques that include option pricing models, discounted cash flow models, and similar
techniques.
Recently Issued Accounting Pronouncements Not Yet Effective
Business Combinations, Consolidated Financial Statements and Non-Controlling Interests: Section 1582,
“Business Combinations”, Section 1601, “Consolidated financial statements”, and Section 1602, “Non
controlling interest” replace the former Section 1581, “Business Combinations” and Section 1600, “Consolidated
Financial Statements” and establish a new section for accounting for a non-controlling interest in a subsidiary.
Caldwell Partners – Consolidated Financial Statements
27
These sections provide the Canadian equivalent to International Financial Reporting Standards (“IFRS”) 3,
“Business Combinations” and International Accounting Standard 27, “Consolidated and Separate Financial
Statements”. Section 1582 is effective for business combinations for which the acquisition date is on/after the
beginning of the first annual reporting period beginning on or after January 1, 2011. Section 1601 and Section
1602 apply to interim and annual consolidated financial statements relating to years beginning on or after
January 1, 2011. Management does not expect that there will be a significant impact as a result of adopting these
pronouncements in the financial statements.
3. Business Acquisition
On August 7, 2009, the Company acquired certain assets of a New York based company which provides
executive search consulting services to clients across the United States of America. The results of these
operations have been consolidated with those of the Company from the date of acquisition.
The following table summarizes the estimated fair value of the assets acquired at the date of acquisition.
Assets acquired:
Property, plant and equipment
Intangible assets
Goodwill
Total consideration paid (including transaction costs of $78,246)
$42,265
925,925
415,896
$1,384,086
In fiscal 2010, additional transaction costs of $3,758 were added to goodwill along with contingent consideration
of $303,736 due to actual revenues of the acquired company exceeding the predefined thresholds for fiscal 2010
as per the purchase and sale agreement. The contingent consideration remained unpaid at year-end and is
accrued within accounts payable and accrued liabilities.
Further contingent consideration may add to this acquisition cost in fiscal 2011 dependent on whether actual
revenues achieved in that year are in excess of pre-defined thresholds. There is no maximum to the contingent
consideration that could be paid and the contingent period ends in 2011. Currently, such contingent
consideration cannot be reasonably estimated and as a result any additional consideration paid in the future will
be recorded as an increase to goodwill.
The acquired value of intangible assets of $925,925 were assigned to client backlog, client lists and non-
competition and non-solicitation agreements. All of these intangible assets are subject to amortization over their
estimated useful lives from 6 months to 10 years. The intangible assets and goodwill amounts are deductible for
tax purposes.
4. Marketable Securities
The Company has investments in marketable securities which comprise the following:
2010
market
value
cost, net of
writedowns
& provisions
2009
market
value
cost, net of
writedowns
& provisions
Preferred Shares
Managed Funds
Common Shares
$915,550
3,076,927
132,308
$4,124,785
$932,256
2,791,080
116,392
$3,839,728
$2,242,305
2,966,463
116,392
$5,325,160
$2,242,304
2,791,080
116,392
$5,149,776
Caldwell Partners – Consolidated Financial Statements
28
During fiscal 2010, the Company disposed of marketable securities with a cost of $1,310,048 and recorded a
realized gain on disposition of $198,567.
During fiscal 2009, the Company disposed of marketable securities with a cost of $8,182,742 and recorded a
realized loss on disposition of $1,901,515. As a result of the decline in equity markets, the Company also
determined that its investments in preferred and common shares had experienced an other than temporary
decline in value and recorded an impairment charge of $929,459 in 2009.
5. Loans Receivable, Net
Loans receivable include advances and amounts receivable from employees of the Company. The loans
receivable balance is shown net of any amounts owing to employees, where the legal right of offset and net
settlement option exists. The loan balances do not bear interest and have various repayment terms. The fair
value approximates the carrying value of these loans.
6. Property and Equipment
2010
accumulated
amortization
net book
value
cost
2009
accumulated
amortization
net book
value
cost
Furniture & equipment
Computer equipment
Computer application software
Leasehold improvements
$476,727
$1,866,918 $1,390,191
257,193
1,650,235
76,216
468,849
845,771
1,628,386
$6,793,568 $5,137,661 $1,655,907
1,907,428
545,065
2,474,157
$465,929
$1,780,423 $1,314,494
210,787
1,571,611
97,029
420,877
948,155
1,519,444
$6,548,326 $4,826,426 $1,721,900
1,782,398
517,906
2,467,599
7. Intangible Assets
2010
accumulated
amortization
net book
value
cost
2009
accumulated
amortization
net book
value
cost
Non-integral computer software
Acquired intangible assets (note 3)
$1,187,952
1,030,063
$991,029
211,258
$196,923
818,805
$1,186,382
925,925
$930,915
-
$255,467
925,925
$2,218,015 $1,202,287 $1,015,728
$2,112,307
$930,915 $1,181,392
Caldwell Partners – Consolidated Financial Statements
29
8.
Income Taxes
The following table reconciles income taxes calculated at the combined statutory tax rate with the income tax
provision in the consolidated financial statements.
Combined statutory income tax rate
Decrease resulting from:
Dividends received on preferred and common shares
Non-taxable portion of capital losses
Increase in valuation allowance
Increase resulting from:
Non-deductible expenses
Other
2010
%
2009
%
33.6
33.1
3.0
0.0
(32.7)
0.6
(12.1)
(23.3)
(3.6)
(0.3)
0.0
(0.1)
(0.8)
(2.6)
Future income tax assets and liabilities are provided for temporary differences between the consolidated financial
statement carrying values of existing assets and liabilities and their respective tax bases. The significant
components of future income tax assets and liabilities are as follows:
Future income tax assets:
Capital and non capital losses and other deductions available to offset future
taxable income (net of valuation allowance of $2,281,247)
Future income tax liabilities:
Excess of the carrying values of property and equipment over the tax base
Net future income tax liability
2010
2009
$452,422
$304,850
(452,422)
-
(304,850)
-
As at August 31, 2010, the Company has non-capital losses with the following expiry dates available to reduce
taxable income in future years:
Expiry
Amount
2028 $866,399
2029
$4,144,044
2030
$1,133,786
The Company also has capital losses of $3,523,259 that can only be utilized against capital gains and are without
expiry date.
9. Long-term Incentive Compensation
Included in long-term liabilities is an accrual for long-term incentive compensation for the Company’s
consistently top revenue-producing employees. The current portion reflects payments that have vested and will
be paid in the next twelve months.
Caldwell Partners – Consolidated Financial Statements
30
10. Capital Stock
Common Shares
On April 21, 2010, pursuant to a settlement with the Company’s founder and former Executive Chairman, C.
Douglas Caldwell, holders of both Class A Non-voting Shares and Class B Voting Shares voted in favour of
accelerating a previously approved share conversion whereby the Company’s voting and non-voting shares were
converted into a single class of voting shares. Voting Class B Shares received 1.149 Class A Shares for each of
their Class B Shares and all Class A Shares became single-voting common shares. Following approval being
received by the Toronto Stock Exchange on May 10, 2010, 3,883,450 Class B Shares were converted to
4,462,082 Class A shares. Immediately following this conversion, all Class A Shares were then reclassified as
Common Shares with one vote per share.
As at August 31, 2010, the authorized share capital of the Company consists of an unlimited number of Common
Shares of which 16,985,505 are issued and outstanding. The holders of Common Shares are entitled to share
equally, share for share, in all dividends declared by the Company and equally in the event of a liquidation,
dissolution or winding-up of the Company or other distribution of the assets among shareholders.
As at August 31, 2009, the authorized share capital consisted of an unlimited number of Class A Non-voting
Shares of which 12,523,423 were outstanding and an unlimited number of Class B Voting Shares of which
3,883,450 were issued and outstanding. Over the course of 2009, the Company under its normal course issuer
bid, repurchased and cancelled 8,200 of its Class A Non-voting shares.
Stock Options
Stock options are granted periodically to directors, officers and employees of the Company. Cash received upon
exercise of options for common shares is credited to capital stock. Total outstanding stock options are
summarized as follows:
Outstanding at beginning of year
Options expired or cancelled
Options granted
Outstanding at end of year
2010
2009
number of
options
outstanding
weighted
average
exercise price
number of
options
outstanding
weighted
average
exercise price
600,000
-
120,000
720,000
$1.05
-
$0.56
$0.97
-
-
600,000
600,000
$0.00
-
$1.05
$1.05
All options outstanding have a strike price equal to the market value of Common Shares on the date of issuance.
On September 11, 2008, 600,000 options to purchase Class A Non-voting Shares with a grant price of $1.05
were approved and issued to the Chief Executive Officer and the Chairman. On November 16, 2009, a further
120,000 options with a grant price of $0.56 were approved and issued to the Chief Executive Officer and
Chairman. All options currently outstanding vest over three years and have a contractual life of five years.
Options are exercisable at various times over this five-year period, commencing one year from the date of grant,
based on the market price of the stock on the date of grant. Stock option expense of $55,198 has been recorded
in the twelve months ended August 31, 2010 (2009 – $78,628). The fair value of these options was determined
using the Black-Scholes option pricing model (using an expected volatility of 22.7%, a risk-free interest rate of
2.5% and an estimated useful life of 4 years).
Caldwell Partners – Consolidated Financial Statements
31
11. Restructuring costs
The Company has recorded a restructuring charge of $1,001,055 related to the March 23, 2010 retirement of its
founder and shareholder C. Douglas Caldwell from the position of Executive Chairman and as Director of the
Company, and the related agreement to accelerate the planned conversion of the Company’s non-voting Class A
shares to voting common shares. This amount consists of $626,055 for settlement and conclusion of Mr.
Caldwell’s employment contract, an additional $150,000 paid to Mr. Caldwell for legal and other costs, and
$225,000 representing the Company’s legal and associated costs. These amounts were fully paid and no
amounts remain outstanding at the end of the year. This transaction represents a related party transaction and
was approved by the Board of Directors.
12. Segmented Information
As a result of expansion into the United States of America in 2009, the Company commenced disclosing the
results by geographic segment. Both geographic segments provide retained executive search consulting services
to clients and have similar economic characteristics.
The following provides a reconciliation of the Company’s statement of earnings by geographic segment to the
consolidated results:
2010
2009
Operating revenue
$13,773,196
Canada United States
Total
$15,427,375 $29,200,571
Canada United States
Total
$1,678,547 $16,130,469
$14,451,922
Operating loss
(51,141)
(563,193)
(614,334)
(3,553,828)
(1,179,707)
(4,733,535)
Net loss for the year
(689,567)
(563,193)
(1,252,760)
(6,389,896)
(1,179,707)
(7,569,603)
A summary of property and equipment, goodwill and total assets by country is as follows:
2010
2009
Canada United States
Total
Canada United States
Total
Property and equipment
Goodwill
Total Assets
1,177,900
0
13,053,219
478,007
723,390
9,049,460
1,655,907
723,390
22,102,679
1,297,997
0
15,101,368
423,903
415,896
3,117,872
1,721,900
415,896
18,219,240
13. Commitments
The Company's future operating lease commitments for premises excluding operating costs, including those
amounts paid to related parties as set out in note 14, are as follows:
Year ending August 31, 2011
Year ending August 31, 2012
Year ending August 31, 2013
Year ending August 31, 2014
Year ending August 31, 2015
September 1, 2015 and thereafter
$1,253,486
1,197,301
890,061
488,807
276,853
1,130,140
$5,236,648
Caldwell Partners – Consolidated Financial Statements
32
14. Related Party Transactions
The Company paid rent at the exchange amount to affiliated companies owned by a shareholder (C. Douglas
Caldwell, until March 23, 2010, the Executive Chairman of the Company) in the amount of $234,504 (2009 -
$291,421), net of recoveries from other related parties also controlled by the same shareholder, pursuant to the
Company’s lease commitments. The exchange amount is the amount of consideration agreed to by the parties of
the transaction and was determined to be fair market rental rates at the inception of the lease by two commercial
leasing agents.
On August 7, 2009, the Company entered into an amended lease agreement, extending the term for a further ten
years and for a reduced amount of space. The terms of this lease were determined to approximate fair market
rental rates at the inception of the lease amendment by an independent commercial real estate counselor and was
approved by the independent members of the Board of Directors.
15. Financial Instruments
Classification of Financial Instruments
Under Canadian generally accepted accounting principles, financial instruments are classified into one of the
following categories: held for trading, held to maturity, available for sale, loans and receivable, other financial
liabilities and derivatives.
As at August 31, 2010, the classification of the financial instruments, as well as their carrying amounts and fair
values, are shown in the table below.
Classification
Measurement
Carrying
Amount
Fair Value
Cash & cash equivalents
Marketable securities
Accounts receivable
Loans receivable
Accounts payable &
accrued liabilities
Incentive accrual
held for trading
available for sale
loans & receivables
loans & receivables
fair value
fair value
amortized cost
amortized cost
$
6,456,274
4,124,785
5,875,065
471,020
$
6,456,274
4,124,785
5,875,065
471,020
other financial liabilities
other financial liabilities
amortized cost
amortized cost
9,174,008
2,106,432
9,174,008
2,106,432
As at August 31, 2009, the classification of the financial instruments, as well as their carrying amounts and fair
values, are shown in the table below.
Classification
Measurement
Carrying
Amount
Fair Value
Cash & cash equivalents
Marketable securities
Accounts receivable
Loans receivable
Accounts payable &
accrued liabilities
Incentive accrual
held for trading
available for sale
loans & receivables
loans & receivables
fair value
fair value
amortized cost
amortized cost
$
4,718,014
5,325,160
3,097,334
418,937
$
4,718,014
5,325,160
3,097,334
418,937
other financial liabilities
other financial liabilities
amortized cost
amortized cost
3,938,743
2,251,506
3,938,743
2,251,506
Caldwell Partners – Consolidated Financial Statements
33
The following table details the fair value hierarchy of financial instruments by level as at August 31, 2010:
Marketable Securities
Quoted prices
in active market
(level 1)
$4,124,785
Other
observable
inputs (level 2)
$0
Unobservable
inputs (level 3)
$0
Total
$4,124,785
The following table details the fair value hierarchy of financial instruments by level as at August 31, 2009:
Quoted prices
in active market
(level 1)
$5,325,160
Other
observable
inputs (level 2)
$0
Unobservable
inputs (level 3)
$0
Total
$5,325,160
Marketable Securities
Fair value
Cash and cash equivalents, accounts receivable, income taxes receivable and accounts payable and accrued
liabilities are short-term financial instruments whose fair value approximates their carrying amount given that
they will mature shortly.
The Company has designated the marketable securities in its portfolio as available for sale and as a result, these
are recorded at fair value with unrealized gains and losses that are considered temporary in nature being
measured in other comprehensive income. Other than temporary impairments of marketable securities are
recorded within the Company’s consolidated statement of loss. Realized gains and losses are removed from
accumulated other comprehensive income and recognized within the consolidated statement of loss.
Embedded derivatives (elements of contracts whose cash flows more independently from the host contract) are
required to be separated and measured at fair values if certain criteria are met. Under an election permitted by
the new standard, management reviewed its existing contracts and determined that the Company does not
currently have any significant embedded derivatives in these contracts that require separate accounting and
disclosure.
16. Capital management
The Company’s capital is comprised of common shares of the Company and retained earnings/(deficit). The
Company manages its capital to ensure financial flexibility, to increase shareholder value through organic
growth and selective acquisitions, as well as to allow the Company to respond to changes in economic and/or
market conditions. While the Company has access to a line of credit, it continues to remain debt free. The
Company is not subject to any externally imposed capital requirements. There have been no changes in the
Company’s approach to capital management during the current year.
The Company is exposed to various financial risks resulting from its operating, investing and financing
activities. Financial risk management is carried out by the Company’s management, in conjunction with the
Investment Committee of the Board of Directors, with respect to investments in marketable securities and
management of the Company’s cash position. The Company does not enter into arrangements on financial
instruments for speculative purposes. The Company’s main financial risk exposures, as well as its risk
management policy, are detailed as follows:
Caldwell Partners – Consolidated Financial Statements
34
Foreign currency risk
The Company is exposed to exchange risk on U.S. currency denominated monetary assets and liabilities. There is
a risk to the Company’s earnings from fluctuations in Canadian and U.S. dollar exchange rates and the degree of
volatility of these rates as the Company’s financial results are reported in Canadian dollars.
At August 31, 2010, the Company has net monetary asset exposure of $2,861,726 denominated in U.S. dollars.
A 5% depreciation or appreciation in the Canadian dollar against the U.S. dollar, assuming that all other
variables had remained the same, would have resulted in an increase or decrease in foreign exchange gain/(loss)
of $143,086 recognized in the consolidated statement of loss for the year ended August 31, 2010.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to
meet its liabilities as they come due.
The Company manages liquidity by maintaining adequate cash and cash equivalent balances, monitoring its
investment portfolio, and monitoring cash requirements to meet expected operational expenses including capital
requirements. The future ability to pay its obligations relies on the Company collecting its accounts receivables
in a timely manner and by maintaining sufficient cash and cash equivalents in excess of anticipated needs.
The contractual maturities of the Company’s significant financial liabilities as at August 31, 2010 are as follows:
Accounts payable & accrued liabilities
Current portion of incentive accrual
Long-term portion of incentive accrual
less than 1 year
1 to 3 years
$9,174,008
$1,639,818
$466,614
Credit Risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially subject the Company to credit risk consist
principally of cash and cash equivalents and accounts receivable. The Company places its cash and cash
equivalents with high credit quality financial institutions.
The carrying amount of the accounts receivable, net of applicable allowances for doubtful accounts, represent the
Company’s estimated potential credit risk with its clients. The Company’s accounts receivable are not highly
concentrated with particular clients or with clients in particular industry sectors, thereby minimizing credit risk.
Further, the Company monitors its accounts receivable aging on a regular basis. As at August 31, 2010,
$347,673 is greater than 90 days (2009 - $581,837) with a provision for doubtful accounts of $152,527 (2009 -
$368,023).
Interest Rate Risk
The Company has no external debt and therefore exposure to interest rate risk on debt facilities is nil. The
Company does invest excess cash in short-term deposits and therefore decreases in interest rates impact the
amount of interest income earned from those investments. Included within marketable securities are preferred
shares which to a certain extent are also subject to interest rate risk. The remaining portfolio is invested in
Caldwell Partners – Consolidated Financial Statements
35
equities and pooled funds which are also subject to market price risk (ie. fair value fluctuates based on changes in
market prices).
17. Comparative Figures
Certain comparative account balances have been reclassified to achieve comparability to current year balances.
Caldwell Partners – Consolidated Financial Statements
36
Directors
Officers
G Edmund King, Chair of the Board
John N Wallace
Corporate Director
Richard D Innes
President and Chief Executive Officer
The Caldwell Partners International Inc.
Consultant and Corporate Director
Karen E Richards, CA
Chief Financial Officer and Corporate Secretary
The Caldwell Partners International Inc.
David A Lewis
Corporate Director
John N Wallace
President & Chief Executive Officer
The Caldwell Partners International Inc.
Kathryn A Welsh
Consultant and Corporate Director
Shareholder Information
Auditors
Transfer Agent
PricewaterhouseCoopers LLP
Valiant Trust Company
Chartered Accountants, Mississauga, Ontario
CIBC Mellon Trust Company operates a telephone information inquiry
Counsel
Miller Thomson LLP
Barristers and Solicitors, Toronto, Ontario
Stock Exchange Listing
The Toronto Stock Exchange (symbol: CWL)
line that can be reached by dialing toll free:
+1 866 313 1872 or +1 604 699 4954
Correspondence may be addressed to:
The Caldwell Partners International Inc.
c/o Valiant Trust Company
130 King Street West, Suite 1800
PO Box 34
Toronto, Ontario, M5X 1A9
for other information, please contact:
Karen Richards, Chief Financial Officer
+1 416 920 7702
The Caldwell Partners International Inc.
One Six Five Avenue Road
Toronto, Ontario, M5R 3S4
fax +1 416 920 8533
leaders@caldwellpartners.com
Caldwell Partners is one of North America’s premier providers of executive search and has
been for forty years. Our sterling reputation is built on our record of successful searches for
board directors, chief and senior executives, and selected functional experts, and our focus
on providing the highest quality client service.
www.caldwellpartners.com
Calgary
New York
Toronto
520 Fifth Avenue, S.W., Suite 2000
60 East 42nd Street , Suite 740
One Six Five Avenue Road
Calgary, AB T2P 3R7
New York, NY 10165
Toronto, ON, M5R 3S4
+1 403 265 8780
fax +1 403 263 6508
+1 212 953 3220
fax +1 212 953 4688
+1 416 920 7702
fax +1 416 922 8646
Dallas
San Francisco
Vancouver
909 Lake Carolyn Pkwy
One Post Street, Suite 500
1095 West Pender Street, Suite 850
Suite 1150
Irving, TX 75039
+1 214 748 3200
fax +1 972 910 0824
Los Angeles
San Francisco, CA 94104
Vancouver, BC, V6E 2M6
+1 415 983 7700
fax +1 415 983 0148
+1 604 669 3550
fax +1 604 669 5095
Stamford
16255 Ventura Boulevard
262 Harbor Drive, 3rd Floor
Suite 1008
Encino, CA 91436
+1 818 995 7800
fax +1 818 995 8734
Stamford, CT 06902
+1 203 569 6846
fax +1 203 569 6891
Copyright ©2010 The Caldwell Partners International Inc.
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