The Caldwell Partners International Inc.
Annual Report 2011
Premier
providers
of
executive
search
Dear Shareholders, Clients, and Friends:
Fiscal 2011 was another year of continuing growth and change for Caldwell Partners.
We opened a new office in Atlanta, made five important partner hires, established a
strategic alliance with an executive search firm headquartered in Hong Kong, and
moved to one common operating database for the first time since the expansion into
the United States began. These additions and improvements helped fuel increases in
our average fees and billings per partner, both of which contributed to a revenue
increase of 27% year-over-year.
Caldwell Partners has now transformed from a respected Canadian brand to a firm
with a strong North American presence. We began our fiscal 2009 year with 13
partners in Canada and no operations or partners in the United States. Three years
later, 23 of our 34 partners are located in six American offices, accounting for 63% of
our total operating revenues.
It has been an exciting undertaking to transform this business, and the investments
we have made in growing the company have broadened our footprint, deepened our
industry and functional expertise and extended our brand across North America.
Additionally, the strategic alliances we have established with executive search firms
based in London and Hong Kong, further strengthen our international presence and
enhance our platform for continued growth.
Having achieved multiple years of strong revenue growth from these strategic
investments, we will continue to devote our energies in fiscal 2012 to improving
profitability. Our strong focus will remain on enhancing shareholder value with
strategic additions of quality people being made to the team.
We are pleased by the great efforts our team made this year, and by the results we
are beginning to see. We continue to grow revenues, our team is getting stronger and
Shareholders Letter
1
Caldwell Partners –
more cohesive, we are extending our reach with like-minded allies in important
international markets, and we remain relentlessly focused on delivering superior
service to our clients.
We’d like to thank each and every member of the Caldwell team for the 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 Canadian, except per share amounts)
For the Years Ended August 31, 2011 and 2010
Management
Discussion and Analysis
Company description
The Caldwell Partners International Inc. (“Caldwell Partners” or “the Company”) is
one of North America’s premier providers of executive search and has been for over
40 years. As one of the region’s most trusted advisors in executive search, the
Company has a sterling reputation built on successful searches for boards, chief and
senior executives, and selected functional experts.
With offices in Vancouver, San Francisco, Los Angeles, Dallas, Calgary, Atlanta,
Toronto, Stamford, New York City, and strategic alliances in London and Hong Kong,
the Company 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. 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 28, 2011, should be
read in conjunction with the audited consolidated financial statements and related
notes for the year ended August 31, 2011. 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 of dollars unless otherwise noted. Certain comparative account balances
have been reclassified to achieve comparability to current year balances.
While gross profit, operating profit and unencumbered cash are non-GAAP measures,
the Company believes that they provide a useful appreciation of the performance of
its core human capital service operations as they exclude income or loss from
investments and taxes. The summary of the most recent eight quarters is provided for
each income statement category.
Operating Revenue
Operating Results
2011
2010
Q1
Q2
Q3
$6,455
$3,830
$8,844
$5,282
$9,562
$7,366
Q4
Annual
$9,377
$34,238
$10,426
$26,904
Management Discussion and Analysis
4
Caldwell Partners –
While fiscal 2011 fourth quarter revenues reflect favourably against recent quarters,
they are down 10% over the comparable period last year to $9,377. Fiscal 2010
fourth quarter revenues were unusually high due to the commencement of a number
of very high-level engagements, as well as some significant final billings, with
professional fees being 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 were
unusually high in the fourth quarter of fiscal 2010. Revenues generated in the United
States of America (US) represent 66% or $6,147 of the fiscal 2011 fourth quarter
total, decreasing from $6,491 in the comparable period of 2010. Revenues from
Canadian operations were $3,230 in the fourth quarter of fiscal 2011, also down from
$3,935 in the comparable period of 2010.
Annual fiscal 2011 operating revenues increased 27% over fiscal 2010 levels to
$34,238. The increase is attributable to year over year growth in Canadian search
revenues (6% increase) and strong year over year growth in the US (44% increase),
the result of both an increased number of partners and improved partner
productivity. The exceptional fiscal 2010 fourth quarter led to a comparably softer
fiscal 2011 first quarter, but in the last three quarters of fiscal 2011, revenues
rebounded to levels more representative of the Company’s current productive
resources. Given the Company’s size, sector focus, and market volatility, sequential
quarterly revenues may continue to be somewhat variable.
Direct Cost of Revenue
2011
2010
Q1
Q2
Q3
$5,621
$3,188
$6,924
$3,845
$7,240
$5,719
Q4
$6,912
$7,989
Annual
$26,697
$20,741
Direct costs associated with the generation of revenue, being both variable and fixed
compensation and related costs of employees involved in search activities, decreased
13% to $6,912 in the fiscal 2011 fourth quarter (2010: $7,989). This decrease reflects
the Company’s 10% decrease in operating revenue and lower effective rates of
commissions paid. Direct costs represented 74% of operating revenue in the fiscal
2011 fourth quarter as compared to 77% in the comparable period of fiscal 2010.
Management Discussion and Analysis
5
Caldwell Partners –
Fiscal 2011 annual direct costs totalled $26,697 or 78% of operating revenues, as
compared to $20,741 or 77% in the same period last year. This proportionate
increase reflects the Company’s ongoing investment in additional search
professionals as it executes its strategic growth plan to hire seasoned partners. At
August 31, 2011, the firm employed 34 partners compared to 31 partners at August
31, 2010.
Gross Profit and Margin
2011
2010
Q1
$834
13%
$642
17%
Q2
Q3
$1,920
22%
$1,437
27%
$2,322
24%
$1,647
22%
Q4
$2,465
26%
Annual
$7,541
22%
$2,436
$6,162
23%
23%
Gross profit in the fourth quarter of fiscal 2011 increased slightly over fiscal 2010 to
$2,465 (2010: $2,436). Fiscal 2011 fourth quarter gross margin improved to 26%
(2010: 23%). This increased gross margin reflects a 13% decrease in direct costs as
compared to a 10% decline in revenue levels.
Annual fiscal 2011 gross operating profit increased to $7,541, up 22% over fiscal
2010 gross operating profit of $6,162. The gross operating margin for the year
decreased slightly to 22% (2010: 23%).
General and Administrative Expenses
2011
2010
Q1
Q2
Q3
$1,942
$1,838
$1,887
$1,583
$1,814
$1,696
Q4
$1,816
$1,660
Annual
$7,459
$6,777
Fiscal 2011 fourth quarter general and administrative expenses increased $156 or
9% over the fourth quarter of last year to $1,816. This increase is attributable to the
write-off of the Company’s legacy search software. New software was implemented
during the fiscal 2011 to improve efficiency and fully-integrate both the US and
Canadian operations, making the legacy search software redundant.
Management Discussion and Analysis
6
Caldwell Partners –
Annual general and administrative expenses total $7,459 for fiscal 2011, increasing
$682 as compared to $6,777 a year earlier. Approximately half of this increase is the
result of foreign exchange losses incurred this year. The aforementioned software
write-off, occupancy costs that were comparably higher than the previous year due to
the opening of a new Atlanta office and expansions of both the New York and San
Francisco offices, and additional compensation costs also contributed to this increase.
Operating Profit
2011
Q1
2010
($1,108)
-
Q2
$33
0%
($1,195)
($146)
-
-
Q3
$508
5%
($49)
-
Q4
$649
7%
$776
7%
Annual
$82
0%
($614)
-
Operating margin in the fourth quarter of fiscal 2011 was consistent with the fiscal
2010 fourth quarter at 7%. Operating income in the fourth quarter of fiscal 2011 was
down 16% to $649 (2010: $776).
The company achieved a small annual operating profit of $82 for fiscal 2011,
improving from an operating loss of $614 in the previous year.
Investment Income
2011
2010
Q1
$16
$26
Q2
$15
$96
Q3
$20
$158
Q4
$195
$83
Annual
$246
$363
The Company manages market risk by selecting from various instruments available to
invest in 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 at August 31,
2011, $3,127 (100%) of the investment portfolio is placed with a third party
investment manager and held in two pooled funds.
Management Discussion and Analysis
7
Caldwell Partners –
For the fourth quarter of fiscal 2011, the Company reported investment income of
$195 versus $83 in the comparable period last year, largely the result of realizing
capital gains of $105 in the most recent quarter Annual investment income for the
fiscal 2011 year totalled $246 as compared to $363 in fiscal 2010. As a result of a
reduction of investments in preferred shares in fiscal 2011, dividend income was only
$65 as compared to $103 in fiscal 2010. At the fiscal 2011 year end, the Company held
none of its portfolio in preferred shares.
At August 31, 2011 the market value of investments held by the Company was $231
above book value. This unrealized gain has been reflected in both other
comprehensive income and in the stated value of the investment portfolio.
Net Earnings (Loss) Before Tax
Net Earnings
2011
2010
Q1
Q2
($1,092)
$48
($1,170)
($1,051)
Q3
$528
$109
Q4
$844
$859
Annual
$328
($1,253)
Fourth quarter net earnings before tax were $844 in fiscal 2011 as compared to $859
in the comparable period a year earlier, the result of factors noted in the above
discussion. Annual net earnings before tax were $328 as compared to a loss of $1.253
million in the comparable period of fiscal 2010.
Fiscal 2010 results also reflect a one-time restructuring charge of $1.0 million relating
to the retirement of the Company’s founder, C. Douglas Caldwell, executive chairman
and director of the Company, and the related agreement to accelerate the planned
conversion of the Company’s voting Class B Shares to non-voting Class A Shares.
Management Discussion and Analysis
8
Caldwell Partners –
Net Earnings (Loss) After Tax
2011
2010
2011
2010
Q1
Q2
Q3
($1,092)
($1,170)
$48
Earnings (Loss) Per Share
($1,051)
$528
$109
($0.064)
$0.002
($0.071)
($0.064)
$0.032
$0.007
Q4
$675
$859
Annual
$159
($1,253)
$0.039
$0.052
$0.009
($0.076)
Current tax expense of $242 arose in fiscal 2011 as the result of book to filing
differences. No offsetting future tax recovery was recognized as management
considered it prudent to adopt a conservative approach in the recognition of tax loss
recoveries. As a result a net tax expense of $169 was recorded in fiscal 2011 versus
tax expense of nil in fiscal 2010.
Fourth quarter net earnings after tax were $675 or $0.039 per share in fiscal 2011 as
compared to $859 ($0.052 per share) in the comparable period a year earlier. Annual
earnings after tax of $159 ($0.009 per share) compare to a $1.25 million loss ($0.076
per share) in the comparable period of fiscal 2010.
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.
Liquidity and Capital Resources
The Company’s financial performance and its policy of conserving its financial
resources in prior years has enabled Caldwell Partners to remain debt-free. As at
August 31, 2011, the Company had $3,127 of marketable securities plus cash and cash
equivalents of $6,944, for a total of $10,071 down from $10,581 at year-end fiscal
2010. This decline is largely the result of increases in working capital balances and
the exclusion of $250 in restricted cash in the form of a term deposit set aside as
Management Discussion and Analysis
9
Caldwell Partners –
collateral security enabling the Company to enter foreign exchange hedges with a
Canadian financial institution.
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.
During the current year the Company opened its newest office in Atlanta, Georgia and
added net three new partners. These investments are most often incurred as sign on
bonuses for new partner hires which are reflected in operating results over a 24 to 36
month amortization period and in transition costs as revenue levels ramp up relative
to new partner draw levels.
Cash and equivalent marketable securities represented approximately 47% of the
Company’s total balance sheet at August 31, 2011, down from 48% at the end of the
fiscal 2010. After considering current accounts receivables and current accounts
payable, unencumbered cash and marketable securities total approximately $5.4
million. The Company’s investment in marketable securities now comprises only
professionally managed investment funds.
Accounts receivable were $6,537 at the end of fiscal 2011, up $662 from $5,875 at the
end of fiscal 2010 reflecting an increase in the average number of days outstanding
from 42 days last year to 48 days in the current year. This increase in aging is largely
attributable the timing of new bookings, with a relatively disproportionate amount of
billings occurring late in the fourth quarter of fiscal 2010 as compared to the
comparable period this year. Accounts payable were $10,724 at August 31, 2011, up
$1,550 from $9,174 at the end of fiscal 2010 with the increase largely reflecting
compensation accruals in excess of payments made to partners during the year.
Management Discussion and Analysis
10
Caldwell Partners –
The Company’s investment in property and equipment was $1,782 compared with
$1,656 at the 2010 year-end. This reflects net additions of $507 net of depreciation of
$381. Capital expenditures primarily included leasehold improvements, furniture,
computer and office equipment acquired to outfit and equip the Company’s new and
expanded offices.
Shareholders’ equity at August 31, 2011 was $10,744 up from $10,615 at year-end
2010. This increase reflects the net earnings, an unrealized loss on marketable
securities of $54 and stock compensation costs of $25.
Business Outlook
Over the past two years, Caldwell Partners has transformed from a respected
Canadian brand to a firm with a strong North American presence. The Company
began its fiscal 2009 year with 13 partners in Canada and no operations or partners
in the United States. In the spring of 2009, the Company opened its first office in the
United States and at the end of fiscal 2011, now has 23 of its total 34 partners located
in six American offices. The Company has also established strategic alliances with
executive search firms based in London and Hong Kong, further strengthening its
international presence and enhancing its platform for continued growth.
The importance of the strategic decision to establish operations in the United States is
highlighted in the Company’s current year. Revenues from the United States year-to-
date represent 63% of fiscal 2011 operating revenues. With the addition of four new
partners in fiscal 2011, the American operation is poised to continue to grow and is
expected to represent an increasing proportion of Company revenues and
profitability. With many of the initial investments required to hire new partners now
having been expensed, the ongoing costs of partner acquisition should be reduced.
Coupled with increasing revenues as these partners ramp up, increasing levels of
profitability from operations in the United States are anticipated.
While the Company has more than doubled its revenue-producing potential over the
past two and one half years, it has also seen significant improvements in both the
average fee level and billings per partner. While entry into new geographic markets
will be considered, much of the investment in infrastructure has been completed. As
revenues continue to improve, the Company will continue to leverage these costs and
11
Management Discussion and Analysis
Caldwell Partners –
with a view to delivering improved profitability and sustainable value for its
shareholders over the longer term.
Having achieved multiple years of strong revenue growth from strategic investments
made to expand the business, the Company will continue to devote its energies in
fiscal 2012 to improving profitability. The Company’s strong focus will remain on
enhancing shareholder value with strategic additions of quality people being made to
the team.
Despite the persistent global economic uncertainty, the executive search business
remains relatively healthy in most industry sectors. However, given the relative size
of the Company’s client-facing team, its sector focus and market variability,
fluctuations in quarterly revenues will likely continue. The first quarter of each fiscal
year in particular is typically affected by the seasonal impact of slower summer
bookings.
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 $200 for fiscal 2011 (2010 - $235), 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
12
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 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. The Company is
invested in pooled short-term money market instruments designed to adequately
diversify its investments to reduce investment risk. Currently, professional
investment managers invest and manage the entire $3,127 investment portfolio in
accordance with the Company’s investment policies. As at August 31, 2011,
marketable securities, cash and cash equivalents total approximately $10,071. With
the volatility of capital markets, returns on the Company’s investment portfolio may
diminish. After considering current accounts receivables and current accounts
payable, unencumbered cash and marketable securities total approximately $5.4
million.
Management Discussion and Analysis
13
Caldwell Partners –
As the Company’s operations in the United States continue to expand, foreign
exchange risk will also increase. During the year the Company entered into a forward
contract with a commercial banker to sell $2,000 USD to mitigate this risk. That
forward agreement expired on August 31st. Subsequent to year-end, two additional
forward contracts to sell US dollars totalling $2,000 USD were entered into. Currently,
none of the Company’s investment portfolio is denominated in U.S. dollars.
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer are responsible for
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.
The Chief Executive Officer and the Chief Financial Officer, after evaluating the
effectiveness of the Company’s disclosure procedures as at August 31, 2011, 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
Management is also responsible for establishing and maintaining adequate internal
controls over financial reporting. Internal controls over financial reporting are
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with Canadian GAAP.
In designing and evaluating such controls, it should be recognized that due to
inherent limitations, any controls, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives and
may not prevent or detect misstatements. Projections of any evaluations of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. Additionally, management is required to
use judgement in evaluating controls and procedures.
Management Discussion and Analysis
14
Caldwell Partners –
Management has used the criteria set forth in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organization of the Treadway
Commission, to design and assess the effectiveness of internal controls over financial
reporting. Based on this assessment the Chief Executive Officer and the Chief
Financial Officer concluded that the design and operation of these internal controls
over financial reporting for the Company are effective to provide reasonable
assurance regarding the reliability of financial reporting, and the preparation of
financial statements for external purpose in accordance with GAAP as of August 31,
2011.
Management has also evaluated whether there were changes in the Company’s
internal controls over financial reporting during the reporting period ended August
31, 2011 that materially affected, or are reasonably likely to affect, the Company’s
internal controls over financial reporting. Management has determined that no
changes occurred during the year ended August 31, 2011.
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.
With an August 31st fiscal year end, the Company will have an IFRS opening balance
sheet date of September 1, 2010. Starting with the first quarter of fiscal 2012, the
Company will be presenting its financial statements under IFRS. 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.
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.
Identify impacts on business relationships including contractual
arrangements.
Management Discussion and Analysis
15
Caldwell Partners –
2
3
•
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.
•
•
•
•
Implementation and review:
Collect and compile IFRS information for reporting.
Train staff.
Execute changes to information systems and business activities.
Communicate.
The Company has completed the scoping and diagnostic phase of the changeover
plan, has completed the impact analysis, evaluation and design phase, and created an
opening IFRS balance sheet as at September 1, 2010.
The Company has identified the following significant differences between its current
accounting policies and those required or expected to apply in preparing IFRS
financial statements:
•
Business combinations: Currently, the Company’s US subsidiary is considered
a fully-integrated entity and the Company uses the temporal method to
translate US dollar monetary items of its US subsidiary at the balance sheet
date upon consolidation. This results in all unrealized foreign exchange gains
or losses currently being recognized in the operating results of the Company.
All non-monetary assets and liabilities are translated at historical exchange
rates unless such items are carried at market, in which case they are translated
at the balance sheet rate. Under IFRS, the functional currency of the US
subsidiary will differ from that of its Canadian parent. As such, all balance
sheet items will be translated using the exchange rate in effect at the balance
sheet date, rather than applying to monetary items only. The resultant
unrealized foreign exchange gain or loss will be captured in other
comprehensive income, rather than in the Company’s consolidated statements
of earnings (loss) as it is currently.
IFRS will also impact the company’s note disclosures and likely the classification of
certain expenses on its consolidated statement of earnings (loss).
Management Discussion and Analysis
16
Caldwell Partners –
With regards to IFRS transition, the Company is in the process of analyzing the
optional exemptions available under IFRS 1 “First-time Adoption of International
Financial Reporting Standards” (“IFRS 1”). The exemptions under IFRS 1 applicable to
the Company are as follows:
•
•
•
•
•
Business combinations: IFRS1 allows for guidance under the IFRS business
combinations standard to be applied either retrospectively or prospectively
from the date of transition to IFRS. Retrospective application would require an
entity to restate all business acquisitions that meet the definition of business
under IFRS occurring before its transition date. The Company is currently
assessing its options in this regard.
Fair value or revaluation as deemed cost: IFRS 1 allows an entity to initially
measure an item of property and equipment upon transition to IFRS at fair
value as deemed cost, or under certain circumstances using a previous GAAP
revaluation. Management has concluded that the depreciated cost under
Canadian GAAP is not materially different than under IFRS. Accordingly, no
transition adjustment is required.
Share-based payment transactions: IFRS 1 allows a first time adopter to
prospectively apply IFRS 2 “Share Based Payments” to the equity instruments
that were granted subsequent to November 2, 2002, and are unvested at the
date of transition. The Company’s current method of accounting for stock
option expense under GAAP is consistent with the treatment under IFRS.
Accordingly, no transitional adjustment is required.
Designation of previously recognized financial assets and liabilities: The
Company has decided that no charges are necessary to the previously
recognized financial asset and liability classifications. Accordingly, no
transitional adjustment is required.
Cumulative translation adjustment (CTA): IFRS 1 allows a first-time adopter to
zero out the cumulative translation balance on transition. The Company will
take this election as they will be accounting for their US operations as a self-
sustaining foreign subsidiary prospectively.
The IFRS changeover plan is progressing on schedule.
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, 2011 and 2010
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
Caldwell Partners International Inc. (“the Company”). 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 Company 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 Company. The Auditor’s
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 Company, 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 of Directors for approval.
John N. Wallace
Karen E. Richards, CA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECRETARY AND CHIEF FINANCIAL
OFFICER
November 28, 2011
Consolidated Financial Statements
19
Caldwell Partners –
Independent Auditor’s Report
To the Shareholders of
The Caldwell Partners International Inc.
International Inc.
We have audited the accompanying consolidated financial statements of
(the Company) and its subsidiaries which comprise the consolidated balance sheets as at
August 31, 2011 and August 31, 2010 and the consolidated statements of earnings (loss), comprehensive
earnings (loss), shareholders’ equity and accumulated other comprehensive income and cash flows for the
years then ended, and the related notes, which comprise a summary of significant accounting policies and
other explanatory information.
Management’s responsibility for the consolidated financial statements
The Caldwell Partners
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Canadian generally accepted accounting principles, 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.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company and its subsidiaries as at August 31, 2011 and August 31, 2010 and the results of
their operations and their cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants, Licensed Public Accountants
November 28, 2011
Toronto, Ontario
Consolidated Financial Statements
Caldwell Partners –
20
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
Assets
Current Assets
Cash and short-term deposits
Marketable securities (note 4)
Accounts receivable
Income taxes receivable
Prepaid expenses and other assets
Restricted cash
Loans receivable, long-term (note 5)
Property and equipment (note 6)
Intangible assets (note 7)
Goodwill (note 3)
Future income taxes (note 8)
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
As at August 31
2011
2010
$6,944,084
3,126,827
6,537,347
80,053
1,178,793
17,867,104
250,000
162,543
1,781,892
682,829
1,235,218
72,834
$6,456,274
4,124,785
5,875,065
87,377
1,693,133
18,236,634
0
471,020
1,655,907
1,015,728
723,390
0
$22,052,420
$22,102,679
$10,724,428
0
530,250
11,254,678
53,490
11,308,168
16,064,078
4,179,399
(9,729,821)
230,596
10,744,252
$22,052,420
$9,174,008
207,346
1,639,818
11,021,172
466,614
11,487,786
16,064,078
4,154,196
(9,888,438)
285,057
10,614,893
$22,102,679
Commitments (note 13)
The accompanying notes are an integral part of these financial statements.
Signed on behalf of the Board:
G. Edmund King
Chair of the Board
Kathryn A. Welsh
Chair of the Audit Committee
Consolidated Financial Statements
21
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS (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
Earnings (loss) before the following
Investment income, net
Earnings (loss) before the following
Restructuring costs (note 11)
Net earnings (loss) before tax
Provision for (recovery of) income taxes (note 8)
Current
Future
Net earnings (loss) for the year
Earnings (loss) per share:
Basic and fully-diluted
Weighted average number of shares outstanding:
Basic
Fully-diluted
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE EARNINGS (LOSS)
Net earnings (loss) for the year
Other comprehensive income:
Unrealized gain on marketable securities
Reclassification of gains included in the consolidated
statement of earnings (loss)
Comprehensive earnings (loss) for the year
Year Ending August 31
2011
2010
$34,237,803
$26,903,811
26,696,894
7,540,909
20,741,431
6,162,380
6,415,995
381,051
334,579
327,463
7,459,088
81,821
246,261
328,082
0
328,082
242,299
(72,834)
169,465
6,201,296
325,812
271,372
(21,766)
6,776,714
(614,334)
362,629
(251,705)
(1,001,055)
(1,252,760)
0
0
0
$158,617
($1,252,760)
$0.009
($0.076)
16,985,505
17,505,505
16,587,596
17,307,596
Year Ending August 31
2011
2010
$158,617
($1,252,760)
230,596
285,057
(285,057)
(54,461)
(175,384)
109,673
$104,156
($1,143,087)
The accompanying notes are an integral part of these financial statements.
Consolidated Financial Statements
22
Caldwell Partners –
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
Total
Shareholders'
Equity
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
16,064,078
(16,046,899)
(17,179)
Conversion of Class B to Class A shares,
and reclassification to Common shares (note 10
Stock compensation (note 10)
Change in unrealized gains and losses on
marketable securities available for sale
0
0
0
0
0
Balance - August 31, 2010
($9,888,438)
$16,064,078
Net earnings for the year ended
August 31, 2011
Stock compensation (note 10)
Change in unrealized gains and losses on
marketable securities available for sale
158,617
0
0
0
0
0
0
0
$0
0
0
0
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
0
0
0
0
25,203
0
0
158,617
25,203
0
(54,461)
(54,461)
Balance - August 31, 2011
($9,729,821)
$16,064,078
$0
$0
$4,179,399
$230,596
$10,744,252
The accompanying notes are an integral part of these financial statements.
Consolidated Financial Statements
23
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Operating Activities
Net earnings (loss) for the year
Items not affecting cash
Depreciation of property and equipment
Amortization of intangibles
Gain on sale of marketable securities
Stock compensation expense
Non-cash incentive compensation
Future income taxes
Net changes in working capital balances related to operations
Increase in accounts receivable
Decrease in income taxes receivable
Decrease (increase) in prepaid expenses and other assets
Increase in accounts payable and accrued liabilities
Decrease in incentive accrual
Decrease in deferred revenue
Investment Activities
Proceeds on sale of marketable securities
Purchase of marketable securities
Decrease (increase) in loans receivable, long-term
Additions to property and equipment
Disposals of property and equipment
Acquisition of business costs
Acquisition of intangible assets
Increase in restricted cash
Net increase 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 August 31
2011
2010
$158,617
($1,252,760)
381,051
334,579
(176,206)
25,203
117,122
(72,834)
767,532
(662,282)
7,324
514,340
1,038,592
(1,639,814)
(207,346)
(181,654)
2,119,703
(1,000,000)
308,477
(507,036)
0
0
(1,680)
(250,000)
669,464
487,810
6,456,274
$6,944,084
325,812
271,372
(198,567)
55,198
294,300
0
(504,645)
(2,777,731)
233,201
(673,104)
4,931,529
(439,374)
(118,863)
651,013
1,508,615
0
(52,083)
(264,434)
4,615
(3,758)
(105,708)
0
1,087,247
1,738,260
4,718,014
$6,456,274
$6,944,084
0
$6,944,084
$5,734,574
721,700
$6,456,274
$262,611
$104,400
The accompanying notes are an integral part of these financial statements.
Consolidated Financial Statements
24
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Years Ended August 31, 2011 and 2010
1. Basis of Presentation
The consolidated financial statements for the years ended August 31, 2011 and 2010 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 two and one half
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
Long-Lived Assets
- 20% declining balance
- 30% declining balance
- straight-line over three to ten years
- straight-line over the term of the lease
long-lived assets for
impairment whenever events or changes in
The Company reviews
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. An impairment loss is measured as the amount by which the carrying amount of
the asset exceeds its fair value.
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 earnings (loss).
Consolidated Financial Statements
25
Caldwell Partners –
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 earnings (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.
Restricted Cash
As at August 31, 2011, restricted cash includes a term deposit set aside by a Canadian financial
institution for collateral security on a foreign exchange hedge entered into by the Company.
Income from Short-Term Investments and Marketable Securities
Realized gains and losses on the disposal of marketable securities are included in investment income.
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 to thirty-six 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 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 3 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.
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. A
discounted cash flow model is used to estimate the fair value of the individual reporting unit. Any
Consolidated Financial Statements
26
Caldwell Partners –
write down of goodwill arising from impairment in value is recorded in the period in which the
impairment is identified.
Stock Based Compensation
The Company accounts for both its stock option and restricted stock unit plans using the fair value
method of accounting for stock based compensation and records stock based compensation over the
vesting period of the grants.
Financial instruments
Financial instruments are financial assets and liabilities of the Company which, in general, provide
the Company the right to receive cash or another financial asset from another party or require the
Company to pay another party cash or other financial assets.
Recognition and Measurement
Financial assets and liabilities are initially recognized at fair value and their subsequent
measurement is dependent on their classification. Their classification depends on the purpose for
which the financial instruments were acquired or issued, their characteristics and the Company’s
designation of such instruments. Relevant accounting standards require that all financial
instruments be classified as either held-for-trading, held-to-maturity, available-for-sale, loans and
receivables or liabilities. All financial assets should be measured at amortized cost or fair value
depending on the type of instrument and any optional designations by the Company. Financial
liabilities are subsequently measured at amortized cost or at fair value if they are classified as held-
for-trading purposes. See note 15 for details of the Company’s classification of its financial
instruments.
Fair value hierarchy
The Company categorizes its financial assets and liabilities measured at fair value into one of three
different levels depending on the observability of the inputs used in the measurement.
Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted
prices for identical assets and liabilities in active markets that are accessible at the
measurement date.
Level 2: This level includes valuations determined using directly or indirectly observable inputs
other than quoted prices included within Level 1. Derivative instruments in this category
are valued using models or other industry standard valuation techniques derived from
observable market inputs.
Level 3: This level includes valuations based on inputs which are less observable, unavailable or
where the observable data does not support a significant portion of the instruments’ fair
value.
Derivative Financial Instruments
The Company has entered into short-term foreign-exchange contracts to sell U.S. currency. Forward
exchange contracts are purchased from a reputable financial institution. The Company has a risk of
loss in the event that the counter-party to the transaction is unable to fulfill its contractual obligation.
All forward-exchange contracts are marked-to-market at each reporting period. Gains and losses on
forward-exchange contracts are included in (income) expense.
Use of estimates
The preparation of these consolidated financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and assumptions that
Consolidated Financial Statements
27
Caldwell Partners –
affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. The most significant assumptions made by management
in the preparation of the consolidated financial statements relate to allowance for doubtful accounts
and fair values to identify potential goodwill and long-lived asset impairments. Actual results could
differ from these estimates.
Future Accounting Policy Changes
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 (Canadian GAAP) for publicly accountable profit-oriented enterprises for interim and
annual financial statements effective January 1, 2011.
st
fiscal year end, the Company will have an IFRS opening balance sheet date of
With an August 31
September 1, 2010. Starting with the first quarter of fiscal 2012, the Company will be presenting its
financial statements under IFRS.
The Company is in the process of analyzing the optional exemptions available under IFRS 1 “First-
time Adoption of International Financial Reporting Standards (“IFRS 1”). The Company is still in the
process of determining which optional exemptions they will elect in compiling their opening IFRS
balance sheet.
The only significant difference currently identified by the Company between IFRS and Canadian
GAAP involves business combinations and the translation of the Company’s US subsidiary on
consolidation. In addition to this identified difference, IFRS is also expected to impact the Company’s
note disclosures and likely the classification of certain expenses on the Company’s income statement.
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
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. As at August 31, 2011, the
client backlog intangible asset has been fully amortized and the client lists and non-solicitation
agreements continue to be amortized over their estimated useful lives set at the date of acquisition.
The intangible assets and goodwill amounts are deductible for tax purposes.
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. Similarly, a further $511,828 was
Consolidated Financial Statements
28
Caldwell Partners –
added to goodwill in fiscal 2011, reflecting additional contingent consideration on total revenues
generated over the first two years, as per the purchase and sale agreement. This additional
consideration remained unpaid at year-end and is accrued within accounts payable and accrued
liabilities and represents the final payment under this agreement.
4. Marketable Securities
The Company has investments in marketable securities which are comprised of the following:
cost, net of
writedowns
& provisions
cost, net of
writedowns
& provisions
market
value
market
value
2010
2011
Managed funds
Preferred shares
Common shares
$
$
$
$
3,126,827
0
0
3,126,827
2,896,231
0
0
2,896,231
3,076,927
915,550
132,308
4,124,785
2,791,081
932,255
116,392
3,839,728
$
$
$
$
During fiscal 2011, the Company disposed of marketable securities with a cost of $1,943,497 and
recorded a realized gain on disposition of $176,206
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.
5. Loans Receivable
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
2011
accumulated
net
2010
accumulated
net
cost
amortization
book value
cost
amortization
book value
Furniture & equipment
Computer equipment
Computer application software
Leasehold improvements
$2,134,523
1,943,312
641,883
2,580,862
$7,300,580
$1,504,615
1,726,747
536,616
1,750,710
$5,518,688
$629,908
216,565
105,267
830,152
$1,781,892
$1,866,918
1,907,428
545,065
2,474,157
$6,793,568
$1,390,191
1,650,235
468,849
1,628,386
$5,137,661
$476,727
257,193
76,216
845,771
$1,655,907
7.
Intangible Assets
2011
accumulated
amortization
cost
net book value
cost
2010
accumulated
amortization
net book value
Computer system software
Acquired intangible assets
$1,189,667
1,030,063
$2,219,730
$1,187,988
348,913
$1,536,901
$1,679
681,150
$682,829
$1,187,952
1,030,063
$2,218,015
$991,029
211,258
$1,202,287
$196,923
818,805
$1,015,728
Consolidated Financial Statements
29
Caldwell Partners –
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
Decrease in valuation allowance
Increase resulting from:
Non-deductible expenses
Book to filing differences
Other
2011
%
2010
%
31.9
33.6
(11.4)
(15.4)
(102.2)
3.0
0.0
(32.7)
5.3
137.0
6.5
51.7
(3.6)
0.0
(0.3)
0.0
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:
In fiscal 2011, a future income tax asset, for which a valuation allowance was fully provided in prior
years, was utilized to offset a portion of the current tax expense arising from book to filing
differences.
Future income tax assets:
Capital and non capital losses and other deductions available to offset
future taxable income (net of valuation allowance of $2,246,921 (2010 -
2,281,247)
Future income tax liabilities:
Excess of the carrying values of property and equipment over the tax base
Net future income tax asset
2011
2010
$424,229
$452,422
(351,395)
$72,834
(452,422)
-
As at August 31, 2011, the Company has non-capital losses with the following expiry dates available
to reduce taxable income in future years:
Expiry
Amount
2028
2029
2030
2031
$225,329
$2,963,779
-
$249,545
The Company also has capital losses of $3,355,000 that can only be utilized against capital gains and
are without expiry date.
9. Current and Long-term Incentive Compensation
Incentive compensation accruals include both incentive compensation for some of the Company’s top
revenue-producing employees as well as a restricted stock unit plan for members of the management
team. Payments that have been vested and will be paid in the next twelve months to top revenue-
producing employees have been included in the current portion of the incentive accrual. The
Consolidated Financial Statements
30
Caldwell Partners –
incentive compensation plan for some of the Company’s top revenue-producing employees has now
concluded and there are no long-term commitments under this plan as at August 31, 2011 ($466,614
as at August 31, 2010).
The long-term incentive accrual represents a provision for a restricted stock unit plan issued to
members of the Company’s management team. Incentive compensation expense of $53,490 has been
recorded in fiscal 2011 (2010 – nil). A liability has been recorded on the balance sheet at August 31,
2011 within the long-term incentive accrual. For more details on the restricted stock units, see note
10.
Capital Stock
10.
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 both August 31, 2011 and 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.
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:
2011
2010
number of
restricted
stock units
outstanding
weighted
average price
on date of
grant
number of
restricted stock
units
outstanding
weighted
average price
on date of
grant
Outstanding at beginning of year
RSUs expired or cancelled
RSUs granted
Outstanding at end of year
-
-
395,000
395,000
-
-
$0.60
$0.60
-
-
-
-
-
-
-
-
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,
Consolidated Financial Statements
31
Caldwell Partners –
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 $25,203 has been recorded in fiscal 2011 (2010 – $55,198). 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).
Restricted Stock Units
On January 13, 2011, 395,000 restricted stock units were granted to members of the management
team based on a current market price of $0.60 per share. Restricted stock units are common shares
of the Company that are restricted to be issued to members of the management team. These
restricted stock units cliff vest three years from the date of grant, and may be settled either in shares
or in cash, at either the board or the individual’s discretion. Therefore, the estimated cost of this plan
is being amortized straight-line over the three year vesting period.
Total outstanding restricted stock units are summarized as follows:
2011
2010
number of
restricted stock
units
outstanding
weighted
average price
on date of
grant
number of
restricted stock
units
outstanding
weighted
average price
on date of
grant
Outstanding at beginning of year
RSUs expired or cancelled
RSUs granted
Outstanding at end of year
-
-
395,000
395,000
-
-
$0.60
$0.60
-
-
-
-
-
-
-
-
11. Restructuring costs
In the second quarter of fiscal 2010, the Company 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 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 consisted 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. This amount was fully paid prior to the fiscal 2010 year end.
This transaction represented a related party transaction and was approved by the Board of Directors.
12. Segmented Information
The Company has operations in both Canada and the United States. 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:
2011
2010
Canada
United States
total
Canada
United States
total
Operating revenue
$12,783,900
$21,453,903
$34,237,803
$11,976,888
$14,926,923
$26,903,811
Operating profit (loss)
$622,066
($540,245)
$81,821
($51,141)
($563,193)
($614,334)
Net earnings (loss)
$909,012
($750,395)
$158,617
($689,567)
($563,193)
($1,252,760)
Consolidated Financial Statements
32
Caldwell Partners –
A summary of property and equipment, goodwill and total assets by country is as follows:
2011
2010
Canada
United States
total
Canada
United States
total
Property and equipment
$1,062,011
$719,881
$1,781,892
$1,177,900
$478,007
$1,655,907
Goodwill
$0
$1,235,218
$1,235,218
$0
$723,390
$723,390
Total assets
$12,111,360
$9,941,060
$22,052,420
$13,053,219
$9,049,460
$22,102,679
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:
$1,433,045
1,450,113
1,307,351
1,212,512
1,102,991
3,944,463
$10,450,474
Year ending August 31, 2012
Year ending August 31, 2013
Year ending August 31, 2014
Year ending August 31, 2015
Year ending August 31, 2016
September 1, 2016 and thereafter
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
$200,343 (2010 - $234,504), 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
receivables, other financial liabilities and derivatives.
Consolidated Financial Statements
33
Caldwell Partners –
As at August 31, 2011, the classification of the financial instruments, as well as their carrying
amounts and fair values, are shown in the table below.
Classification
Measurement
Fair Value
Carrying
Amount
Cash and cash equivalents
Marketable securities
Accounts receivable
Income taxes receivable
Restricted cash
Loans receivable
Accounts payable &
accrued liabilities
Incentive accrual
held for trading
available for sale
loans & receivables
loans & receivables
loans & receivables
loans & receivables
fair value
fair value
amortized cost
amortized cost
fair value
amortized cost
$
6,944,084
3,126,827
6,537,347
80,053
250,000
162,543
$
6,944,084
3,126,827
6,537,347
80,053
250,000
162,543
other financial liabilities
other financial liabilities
amortized cost
amortized cost
10,724,428
583,740
10,724,428
583,740
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
Fair Value
Carrying
Amount
Cash and cash equivalents
Marketable securities
Accounts receivable
Income taxes receivable
Loans receivable
Accounts payable &
accrued liabilities
Incentive accrual
held for trading
available for sale
loans & receivables
loans & receivables
loans & receivables
fair value
fair value
amortized cost
amortized cost
amortized cost
$
6,456,274
4,124,785
5,875,065
87,377
471,020
$
6,456,274
4,124,785
5,875,065
87,377
471,020
other financial liabilities amortized cost
other financial liabilities amortized cost
9,174,008
2,106,432
9,174,008
2,106,432
The following table details the fair value hierarchy of financial instruments by level as at August 31,
2011:
Quoted prices
in active market
(level 1)
Other
observable
inputs (level 2)
Unobservable
inputs (level 3)
Total
Marketable securities
$3,126,827
-
-
$3,126,827
The following table details the fair value hierarchy of financial instruments by level as at August 31,
2010:
Quoted prices
in active market
(level 1)
Other
observable
inputs (level 2)
Unobservable
inputs (level 3)
Total
Marketable securities
$4,124,785
-
-
$4,124,785
Consolidated Financial Statements
34
Caldwell Partners –
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
earnings (loss). Realized gains and losses are removed from accumulated other comprehensive
income and recognized within the consolidated statement of earnings (loss).
Embedded derivatives (elements of contracts whose cash flows move independently from the host
contract) are required to be separated and measured at fair values if certain criteria are met.
Management has 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 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:
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, 2011, the Company has net monetary asset exposure of $3,412,611 denominated in U.S.
dollars. A 5% depreciation or appreciation in the Canadian dollar against the U.S. dollar, assuming
that all other variables remained the same, would have resulted in an increase or decrease in foreign
exchange gain/(loss) of $170,631 recognized in the consolidated statement of earnings (loss) for the
year ended August 31, 2011.
In fiscal 2011, the Company began entering into foreign exchange forward contracts with a Canadian
financial institution to sell US dollars to reduce is foreign exchange risk. One such contract to sell $2
million US expired on August 31, 2011 generating a foreign exchange loss of $17,800 which has been
recorded in the consolidated statement of earnings (loss). Subsequent to year end, on September 2,
2011, the Company entered into two other foreign exchange contracts each to sell $1 million US,
expiring on October 17, 2011 and December 2, 2011.
Consolidated Financial Statements
35
Caldwell Partners –
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 cash resources to meet its financial 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 receivable 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, 2011 are
as follows:
less than 1 year
1 to 3 years
Accounts payable & accrued liabilities
Current portion of incentive accrual
Long-term portion of incentive accrual
$10,724,428
$530,250
$53,490
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, 2011, the Company has accounts receivable balances of $663,855
greater than 90 days (2010 - $347,673) with a provision for doubtful accounts of $225,739 (2010 -
$152,527).
Interest Rate Risk
The Company has no external debt and therefore exposure to interest rate risk on debt facilities is
minimal. 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. Marketable
securities are comprised of investments in pooled funds which are also subject to market price risk
(ie. fair value fluctuates based on changes in market prices).
17. Comparative Figures
In order to provide a more meaningful presentation of revenue and gross operating margins, certain
comparative account balances have been reclassified to achieve comparability to current year
balances. Revenues from print advertising and interim placements are now reflected net of
associated costs within operating revenue, while certain flow through costs are now shown net of
associated revenue within direct cost of revenue. This reclassification has resulted in a decrease in
the prior year’s reported revenue of $2,296,760 for the year ended August 31, 2010. There has also
been a corresponding decrease in other direct search costs, with no impact on the reported gross
operating profit or net earnings (loss) for the year.
Consolidated Financial Statements
36
Caldwell Partners –
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, Toronto, 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
Atlanta
Los Angeles
Stamford
3424 Peachtree Road N.E.
16255 Ventura Boulevard
262 Harbor Drive
Suite 1250
Atlanta, GA 30326
+1 403 265 8780
fax +1 403 263 6508
Suite 1008
Encino, CA 91436
+1 818 995 7800
fax +1 818 995 8734
3rd Floor
Stamford, CT 06902
+1 203 569 6846
fax +1 203 569 6891
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
1095 West Pender Street
Suite 1150
Irving, TX 75039
+1 214 748 3200
fax +1 972 910 0824
Suite 500
Suite 850
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
Copyright ©2011 The Caldwell Partners International Inc.
All rights reserved. Reproduction without permission is prohibited. Trademarks and logos are copyrights of their respective owners.