The Caldwell Partners International Inc.
Annual Report 2012
Premier
providers
of
executive
search
Dear Shareholders, Clients, and Friends:
Fiscal 2012 was a year of important milestones for Caldwell Partners. We reinstated
a quarterly dividend in the third quarter, were named a top 10 – and the fastest
growing – executive search firm in North America, and posted an annual operating
profit of $1.0M. We entered fiscal 2012 with a stated commitment to our
Shareholders to devote our energies to improving profitability. In spite of a business
climate that remained challenging, our ongoing attention to the management of our
cost structure resulted in a substantial year over year increase in profit.
We continue our work to evolve Caldwell Partners into a strong North American
firm, and the recognition of our top-10 status was an exciting sign that we have made
real progress. We began our fiscal 2009 year with 13 partners in Canada and no
operations or partners in the United States. Four years later, 23 of our 34 partners
are located in six American offices, accounting for 69% of our total operating
revenues.
Our primary objectives are - and always have been - to keep improving our service to
our clients and to creating value for our shareholders. To that end, we remain
focused on improving our overall market presence and competitiveness. Over the
course of this past year, clients have been cautious in making human capital
investments, given the economic uncertainty. We remain confident, however, about
the long term prospects for executive search in North America and will continue to
invest in the growth of our firm.
Our current partner team is a cohesive group of experienced professionals with a
remarkable esprit de corps, representing a solid platform from which we can grow.
We will make targeted, strategic additions to this team to continue to add to the
depth and breadth of our sector and functional experience.
Shareholders Letter
1
Caldwell Partners –
We are pleased by the great efforts our team made this year, and by the results we
are attaining. We’d like to thank each and every member of the Caldwell Partners
team for the solid financial results that we collectively achieved over the course of
the past fiscal year. We are energized by what we have accomplished together 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, 2012 and 2011
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 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 a strategic presence 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. 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 23, 2012, should be
read in conjunction with the consolidated annual financial statements and related
notes for the year ended August 31, 2012. These are the Company’s first set of annual
financial statements prepared in accordance with the International Financial
Reporting Standards (IFRS) thus IFRS1 First –time Adoption of International
Financial Reporting Standards have been applied. 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.
Revenue
Operating Results
2012
2011
Q1
Q2
Q3
$7,271
$6,455
$7,221
$8,844
$9,356
$9,562
Q4
$8,856
$9,377
Annual
$32,704
$34,238
Fiscal 2012 fourth quarter revenue decreased by 6% over the comparable period last
year to $8,856. Revenues from US operations represent 66% or $5,841 of the fourth
quarter total, decreasing 5% from $6,147 in the comparable period of 2011. Revenues
from Canadian operations decreased 7% to $3,015 in the current period from $3,230
in the comparable period of 2011. Sequentially, 2012 fourth quarter revenues were
5% lower than those of the third quarter of fiscal 2012.
Management Discussion and Analysis
4
Caldwell Partners –
Fiscal 2012 annual revenues decreased 4% over the same period a year earlier to
$32,704. The decrease is attributable to weakness in Canadian search revenues
(down 20%) more than offsetting growth in US search revenues (up 5%). For the full
fiscal year US revenues represent 69% of consolidated revenues.
Cost of Sales
2012
2011
Q1
Q2
Q3
$5,912
$5,621
$5,675
$6,924
$6,759
$7,240
Q4
$6,236
$6,912
Annual
$24,582
$26,697
Cost of sales, being both variable and fixed compensation and related costs of employees
involved in search activities, decreased 10% to $6,236 in the fiscal 2012 fourth quarter
(2011: $6,912). With the majority of these costs being partner compensation that is tied
directly to performance, this decreased cost reflects the 6% decline in revenues, as well as a
reduction in the amortized cost of new partner sign-on bonuses this year versus last.
Fiscal 2012 annual direct costs decreased 8% to $24,582 reflecting revenue declines
of 4% for the year as well as the first quarter reversal of some remaining accruals for
fiscal 2011 partner compensation which were no longer required. As well, having
secured financial sponsorship for one of the awards programs in the current year, net
expense of this program was reduced by $442 over fiscal 2011 levels. Fiscal 2012
direct costs represent 75% of operating revenue, down from 78% of revenue last
year.
Gross Profit and Margin
2012
2011
Q1
Q2
Q3
$1,358
$1,546
19%
$834
13%
21%
$1,920
22%
$2,597
28%
$2,322
24%
Q4
$2,621
30%
Annual
$8,122
25%
$2,465
$7,541
26%
22%
Gross profit in the fourth quarter of fiscal 2012 increased 6% to $2,621 (2011: $2,465). The
Management Discussion and Analysis
5
Caldwell Partners –
gross margin in the fourth quarter of fiscal 2012 increased to 30% (2011: 26%), reflecting an
8% decrease in direct costs that more than offset the 4% revenue decline, as discussed above.
Fiscal 2012 annual gross operating profit rose to $8,122, up from $7,541. The gross
operating margin for the year increased to 25% (2011: 22%).
Expenses
2012
2011
Q1
Q2
Q3
$1,758
$1,842
$1,792
$1,787
$1,888
$1,808
Q4
$1,673
$1,993
Annual
$7,111
$7,430
Expenses decreased 16% from $1,993 in the fourth quarter last year to $1,673 in
fiscal 2012. In the fourth quarter of fiscal 2011, the Company wrote off the remaining
balance of its legacy search software, resulting in higher than normal expenses during
the quarter. As well, management bonus accruals were lower in the current year’s
fourth quarter as compared to fiscal 2011.
Fiscal 2012 annual expenses totaled $7,111, down 4% over last year for the reasons
noted above. As well, higher occupancy costs with new leased premises and higher
marketing and public relations costs, have been offset by decreases in foreign
exchange expense.
Operating Profit (Loss)
2012
2011
Q1
Q2
($401)
($246)
-
0%
($1,009)
$133
-
2%
Q3
$710
8%
$514
5%
Q4
$948
11%
$473
5%
Annual
$1,011
3%
$111
0%
As compared to the comparable period of fiscal 2011, higher gross profit margins and
lower expenses in the fourth quarter of fiscal 2012 resulted in an operating profit of
$948, double the $473 earned in the previous year. The fiscal 2012 annual operating
profit of $1,011 represents a $900 improvement over the $111 earned last year for
reasons discussed above.
Management Discussion and Analysis
Caldwell Partners –
6
Investment Income
2012
2011
Q1
$2
$16
Q2
$7
$15
Q3
$1
$20
Q4
$5
$195
Annual
$15
$246
The Company manages market risk by using a third party investment manager to
follow the specific investment criteria established and approved by the Board of
Directors and designed to reduce exposure to market risk. 100% of the $3,303 in the
investment portfolio is placed with a third party investment manager and held in two
pooled funds.
For the fourth quarter of fiscal 2012, the Company reported investment income of $5
versus $195 in the comparable period last year. Last year’s reported amount includes
interest and dividend income as well as capital gains on the disposition of preferred
share holdings while the current year includes only interest income.
The fiscal 2012 annual investment income was $15 versus $246 in the preceding year
for the reasons noted above.
At August 31, 2012, the market value of investments held by the Company was $407
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
2012
2011
Q1
Q2
($399)
($992)
($239)
$148
Q3
$711
$534
Q4
$953
$667
Annual
$1,026
$357
The fourth quarter net earnings before income tax was $953 in fiscal 2012
representing a 43% improvement over net earnings of $667 in the comparable period
a year earlier, the result of factors noted in the above discussion.
Management Discussion and Analysis
7
Caldwell Partners –
The fiscal 2012 annual net earnings before income tax was $1,026, a $669 or 187%
improvement over the $357 earned last year.
Tax expense of $45 in the fiscal 2012 year arose as the result of marginal taxable
income earned on US operations. While the Company carries forward Canadian tax
losses, management has adopted a conservative approach and has not recorded the
benefit of any future tax recoveries in the Company’s accounts.
Net Earnings (Loss)
2012
2011
Q1
Q2
($445)
($241)
$148
Q3
$711
$534
Earnings (Loss) Per Share
($993)
2012
2011
($0.025)
($0.014)
($0.058)
$0.009
$0.040
$0.031
Q4
$956
$498
Annual
$981
$187
$0.056
$0.029
$0.058
$0.011
The fourth quarter net earnings was $956 ($0.056 per share) in fiscal 2012 as
compared to $498 ($0.029 per share) in the comparable period a year earlier.
The fiscal 2012 annual net earnings was $981 ($0.058 per share) in fiscal 2012, a
$794 or 425% improvement over the $187 ($0.011 per share) last year.
Dividends
The Board of Directors has declared a dividend of 1.5 cents per share, payable to
holders of Common Shares of record on November 26, 2012 on December 14, 2012.
Since shareholders approved a restatement of capital on May 1, 2012 which allowed
the Company to reinstate the payment of quarterly dividends, total dividends
declared to date are 4.5 cents per share or $764 in total.
Management Discussion and Analysis
8
Caldwell Partners –
Liquidity and Capital Resources
As of August 31, 2012, the Company had $3,303 of marketable securities plus cash
and cash equivalents of $6,494, for a total of $9,797, down slightly from $10,071 at
year-end fiscal 2011.
Cash and marketable securities represented approximately 50% of the Company’s
total assets on August 31, 2012, up from 48% at the end of fiscal 2011. After
considering current accounts receivable and current accounts payable,
unencumbered cash and marketable securities total approximately $7,100 at August
31, 2012, up from $5,600 at the end of fiscal 2011. The Company’s investments in
marketable securities now comprise only professionally managed funds.
Accounts receivable were $6,123 at the end of fiscal 2012, down $414 from $6,537 at
the end of fiscal 2011, due to lower fourth quarter revenues this year versus last.
Days outstanding at August 31, 2012 were 56 versus 48 at August 31, 2011. At
August 31, 2012, a provision equal to approximately 41% of accounts over 90 days
old has been taken.
Total accounts payable were $9,123 at August 31, 2012, down from $11,308 at the
end of fiscal 2011. This decrease largely reflects lower accruals required in fiscal 2012
for partner commission and management bonuses given the declines in revenue over
fiscal 2011. As well, with the final payment of contingent consideration being made in
fiscal 2012, that liability has now been eliminated as compared to an accrual of $510
at August 31, 2011.
The Company’s investment in property and equipment at August 31, 2012 was $1,504
compared with $1,701 at the 2011 year-end. This reflects additions of $187 and
depreciation expense of $390, net of the impact exchange rate fluctuations over the
period. Capital expenditures included computer hardware and software as well as
office equipment.
Shareholders’ equity at August 31, 2012 was $11,007 up from $10,310 at year-end
2011. This increase reflects the fiscal 2011 year-to-date net profit, an unrealized gain
on marketable securities of $176, translation gains on consolidation of $31 and stock
Management Discussion and Analysis
9
Caldwell Partners –
compensation costs of $18, net of $510 for the dividends paid on June 15, 2012 and
September 15, 2012. On May 1, 2012, shareholders of the Company approved a
resolution to reduce the stated capital of Common Shares by 75%, adding $12,048 to
Contributed Surplus. This reduction had no impact on total shareholders’ equity, but
allowed the Company to reinstate dividend payments and institute a normal course
issuer bid to repurchase shares.
The Board of Directors believes that the payment of regular dividends is in the best
interests of the Company and all shareholders. Subsequent to shareholder approval
of the restatement of capital on May 1, 2012, the Company has now declared three
quarterly dividends each of 1.5 cents per common share. While it is the Board of
Director’s intention to continue quarterly dividend payments, dividends for future
periods will be declared at the discretion of the Board of Directors and dependent on
the Company’s ongoing performance and cash flow requirements.
Business Outlook
Over the past three years, The Caldwell Partners has evolved 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 three Canadian offices 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 2012, 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.
While the overall business climate remains challenging, the Company’s ongoing
commitment to management of its cost structure has resulted in a substantial year
over year increase in earnings. Client companies have been cautious in making
human capital investments, given the economic uncertainty, but management
remains confident regarding the long term prospects for executive search in North
America and will continue to invest in the growth of the Company.
The Company’s primary objectives continue to be improving service to its clients and
creating value for shareholders. The Company remains focused on improving its
Management Discussion and Analysis
10
Caldwell Partners –
overall market presence and competitiveness and making targeted, strategic
additions to its team.
Related Party Transactions
The Company paid rent 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 (2011 - $200,343), pursuant to the Company’s lease
commitments. The amount of consideration agreed to by the parties was determined
to be fair market rental rates at the inception of the lease by an independent
commercial real estate counselor and was approved by the independent members of
the Board of Directors.
Accounting Estimates
The Company makes estimates and assumptions concerning the future that will, by
definition, seldom equal actual results. Estimates and judgments applied by
management that most significantly affect the Company's financial statements include
revenue recognition, allowance for doubtful accounts and impairment of goodwill.
These estimates and judgments have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial
year.
Changes in Accounting Policies
The Company is required to prepare financial statements in accordance with IFRS
starting with the first quarter of fiscal 2012 including comparative data for fiscal
2011. Detailed notes on changes to previously reported amounts are included in the
notes to the consolidated financial statements for the period ended August 31, 2012.
Management Discussion and Analysis
11
Caldwell Partners –
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 $3,303 investment portfolio in
accordance with the Company’s investment policies. As at August 31, 2012,
marketable securities, cash and cash equivalents total approximately $9,797. 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 $7,100.
As the Company’s operations in the United States continue to expand, foreign
exchange risk will also increase. At August 31, 2012, the Company held one forward
contract to sell US dollars totalling $1,000 USD, expiring on September 14, 2012. That
contract settled shortly after the end of the quarter generating a foreign exchange
gain of $43. 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
Management Discussion and Analysis
12
Caldwell Partners –
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, 2012, 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 IFRS.
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 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 IFRS as of August 31,
2012.
Management has also evaluated whether there were changes in the Company’s
internal controls over financial reporting during the reporting period ended August
31, 2012 that materially affected, or are reasonably likely to affect, the Company’s
Management Discussion and Analysis
13
Caldwell Partners –
internal controls over financial reporting. Management has determined that no
changes occurred during the quarter ended August 31, 2012.
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
14
Caldwell Partners –
Consolidated
Financial Statements
For the Years Ended August 31, 2012 and 2011
Consolidated Financial Statements
15
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 23, 2012
Consolidated Financial Statements
16
Caldwell Partners –
November 23, 2012
Independent Auditor’s Report
To the Shareholders of
The Caldwell Partners International Inc.
Inc.
We have audited the accompanying consolidated financial statements of
(the Company) and its subsidiaries which comprise the consolidated statements of financial position as at
August 31, 2012, August 31, 2011 and September 1, 2010 and the consolidated statements of earnings,
comprehensive earnings (loss), changes in equity and cash flows for the years ended August 31, 2012 and
August 31, 2011, 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 International,
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
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, 2012, August 31, 2011 and September 1, 2010 and their financial
performance and their cash flows for the years ended August 31, 2012 and August 31, 2011 in accordance with
International Financial Reporting Standards.
Chartered Accountants, Licensed Public Accountants
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca
Consolidated Financial Statements
17
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in $Canadian)
Assets
Current assets
Cash and cash-equivalents
Marketable securities (note 7)
Accounts receivable
Income taxes receivable
Prepaid expenses and other assets
Non-current assets
Restricted cash
Advances
Property and equipment (note 8)
Intangible assets (note 9)
Goodwill (note 6)
Deferred income taxes (note 12)
Total assets
Liabilities
Current liabilities
Accounts payable
Compensation payable
Contingent consideration
Dividends payable
Deferred revenue
Current portion of incentive accrual (note 14)
Non-current liabilities
Long-term incentive accrual (note 14)
Equity attributable to owners of the Company
Share capital (note 15)
Contributed surplus (note 15)
Accumulated other comprehensive income (loss)
Deficit
Total equity
Total liabilities and equity
As at August 31
2012
2011
September 1
2010
6,494,246
3,303,044
6,122,577
49,501
775,572
16,744,940
6,944,084
3,126,827
6,537,347
80,053
1,178,793
17,867,104
252,966
92,023
1,504,015
488,647
973,458
73,302
250,000
162,543
1,700,721
597,322
967,236
72,834
$6,456,274
4,124,785
5,875,065
87,377
1,693,133
18,236,634
0
471,020
1,609,306
995,769
1,053,255
0
20,129,351
21,617,760
22,365,984
2,338,238
6,343,417
0
254,782
0
0
8,936,437
2,768,994
7,445,147
510,286
0
0
530,250
11,254,677
2,536,838
6,326,109
722,338
0
207,346
1,639,818
11,432,449
186,267
9,122,704
53,490
11,308,167
466,614
11,899,063
4,016,020
16,245,848
122,292
(9,377,513)
11,006,647
20,129,351
16,064,078
4,179,399
(84,927)
(9,848,957)
10,309,593
21,617,760
16,064,078
4,154,196
285,057
(10,036,410)
10,466,921
22,365,984
Commitments (note 17)
The accompanying notes are an integral part of these consolidated financial statements.
Signed on behalf of the Board:
G. Edmund King
Chair of the Board
Consolidated Financial Statements
Kathryn A. Welsh
Chair of the Audit Committee
18
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in $Canadian)
Revenues
Cost of sales (note 10)
Gross profit
Expenses (note 10)
General and administrative
Sales & marketing
Other gains and losses (net)
Operating profit
Investment income
Earnings before income tax
Income tax (note 12)
Net earnings for the year attributable to owners of the Company
Earnings per share (note 13):
Basic and diluted
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE EARNINGS (LOSS)
(in $Canadian)
Net earnings for the year
Other comprehensive income:
Unrealized gain (loss) on marketable securities (net of tax - $0)
Cumulative translation adjustment (net of tax - $0)
Comprehensive earnings (loss) for the year attributable to owners of the Company
The accompanying notes are an integral part of these consolidated financial statements.
Year Ending August 31
2012
2011
32,703,717
34,237,803
24,582,103
8,121,614
26,696,894
7,540,909
6,534,699
616,726
(40,696)
7,110,729
1,010,885
14,941
1,025,826
44,818
981,008
6,686,344
577,872
166,036
7,430,252
110,657
246,261
356,918
169,465
187,453
$0.058
$0.011
Year Ending August 31
2012
2011
981,008
187,453
176,217
31,002
1,188,227
(54,459)
(315,525)
(182,531)
Consolidated Financial Statements
19
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in $Canadian)
Accumulated Other Comprehensive
Income (Loss)
Contributed
Surplus
Cumulative
Translation
Adjustment
Unrealized Gains
(Losses) on
Marketable
Securities
Total
Equity
Deficit
Capital Stock
Balance - September 1, 2010
(10,036,410)
16,064,078
4,154,196
Net earnings for the year
187,453
Share based payment expense
Change in unrealized gains and losses on
marketable securities available for sale
Change in cumulative translation adjustment
0
0
0
0
0
0
0
0
25,203
0
0
0
0
0
0
285,057
10,466,921
0
0
187,453
25,203
(54,459)
(54,459)
(315,525)
0
(315,525)
Balance - August 31, 2011
(9,848,957)
16,064,078
4,179,399
(315,525)
230,598
10,309,593
Net earnings for the year
Dividend payments declared
Share based payment expense
Reduction of stated capital
Change in unrealized gains and losses on
marketable securities available for sale
Change in cumulative translation adjustment
981,008
(509,564)
0
0
0
0
0
0
0
0
0
18,391
(12,048,058)
12,048,058
0
0
0
0
0
0
0
0
0
0
0
0
0
981,008
(509,564)
18,391
0
176,217
176,217
31,002
0
31,002
Balance - August 31, 2012
(9,377,513)
4,016,020
16,245,848
(284,523)
406,815
11,006,647
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements
20
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in $Canadian)
Cash flow provided by (used in)
Operating activities
Net earnings for the year
Adjustments for:
Depreciation
Amortization of intangibles
Gain on sale of marktable securities
Stock compensation expense
Unrealized foreign exchange on subsidiary loans
Non-cash incentive compensation
Deferred income taxes
Taxes paid
Net changes in working capital
Decrease (increase) in accounts receivable
Decrease in income taxes receivable
Decrease in prepaid expenses and other assets
(Decrease) increase in accounts payable
(Decrease) increase in compensation payable
(Decrease) increase in contingent consideration
Decrease in incentive accrual
Decrease in deferred revenue
Net cash generated by (used in) operating activities
Investment activities
Proceeds on sale of marketable securities
Purchase of marketable securities
Decrease in advances
Additions to property and equipment
Additions to intangible assets
Increase in restricted cash
Net cash generated by (used in) investing activities
Financing activities
Dividend payments
Net cash used in financing activities
Year Ending August 31
2012
2011
981,008
187,453
390,406
115,016
0
18,391
(75,067)
132,777
0
(44,818)
484,368
74,873
409,015
(455,849)
(1,169,804)
(510,286)
(530,250)
0
(180,220)
0
0
79,855
(187,202)
0
(2,966)
(110,313)
(254,782)
(254,782)
381,070
336,259
(176,206)
25,203
60,529
117,122
(69,005)
(249,760)
(929,176)
257,185
489,870
309,187
1,326,157
(197,856)
(1,639,814)
(201,154)
27,064
2,119,703
(1,000,000)
208,647
(508,735)
(1,679)
(250,000)
567,936
0
0
Effect of exchange rate changes on cash and cash equivalents
95,477
(107,190)
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(449,838)
6,944,084
6,494,246
487,810
6,456,274
6,944,084
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements
21
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Years Ended August 31, 2012 and 2011
(in $ Canadian)
1. General Information
The Caldwell Partners International Inc. (the Company) is an executive search consulting firm
specializing in recruiting executives on behalf of its clients. The Company contracts with its clients, on an
assignment basis, to provide consulting advice on the identification, evaluation, assessment and
recommendation of qualified candidates for specific positions. The Company concentrates its activities
on locating executives to fill senior executive positions.
The Company was incorporated by articles of incorporation under the Business Corporations Act
(Ontario) on August 22, 1979 and is listed on the Toronto Stock Exchange (symbol: CWL). With
operations in both Canada and the United States, the Company’s head office is located at 165 Avenue
Road, Toronto, Ontario.
The Board of Directors approved these consolidated financial statements for issue on November 23,
2012.
2. Basis of Presentation
These consolidated financial statements include the assets and liabilities and results of operations 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.
3. Adoption of IFRS
The Company prepares its consolidated financial statements in accordance with Canadian generally
accepted accounting principles (“GAAP”) as set out in the Handbook of the Canadian Institute of
Chartered Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate
International Financial Reporting Standards (“IFRS”), and requires publicly accountable enterprises to
apply such standards effective for years beginning on or after January 1, 2011. Accordingly, these are the
first annual consolidated financial statements prepared in accordance with IFRS as issued by the IASB.
In these consolidated financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the
adoption of IFRS.
These consolidated financial statements have been prepared in compliance with IFRS. Subject to certain
transition elections disclosed in note 5, the Company has consistently applied the accounting policies
used in the preparation of its opening IFRS statement of financial position as at September 1, 2010
throughout all periods presented, as if these policies had always been in effect. Note 5 discloses the
impact of the transition to IFRS on the Company’s reported financial position, financial performance and
cash flows, including the nature and effect of significant changes in accounting policies from those used
in the Company’s consolidated financial statements for the year ended August 31, 2011 reported under
Canadian GAAP.
Consolidated Financial Statements
22
Caldwell Partners –
4. Significant Accounting Policies, Judgments and Estimation Uncertainty
Significant Accounting Policies
The significant accounting policies used in the preparation of these consolidated financial statements are
described below.
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except
for the revaluation of certain financial assets and financial liabilities to fair value, including available-for-
sale marketable securities and contingent consideration.
Consolidation
The consolidated financial statements of the Company consolidate the accounts of the Company and its
losses from
All intercompany transactions, balances and unrealized gains and
subsidiaries.
intercompany transactions are eliminated on consolidation.
Subsidiaries are those entities which the Company controls by having the power to govern the financial
and operating policies. Subsidiaries are fully consolidated from the date on which control is obtained and
are de-consolidated from the date that control ceases.
Acquisitions are accounted for using the acquisition method. The acquisition method involves the
recognition of the acquiree’s identifiable assets and liabilities, including contingent liabilities, regardless
of whether they were recorded in the financial statements prior to acquisition. On initial recognition, the
assets and liabilities of the acquired subsidiary are included in the consolidated balance sheet at their fair
values. Goodwill is determined after separately identifying intangible assets. Goodwill represents the
excess of acquisition costs over the fair value of the Company’s share of identifiable assets of the acquiree
at the date of acquisition. Any excess of identifiable net assets over acquisition cost is recognized in
profit or loss immediately after acquisition. Transaction costs are expensed as incurred.
The Company records contingent consideration agreements at fair value and classifies them at fair value
through profit or loss with movement in the fair value being recognized in the statement of earnings.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments, has been identified as the Chief
Executive Officer.
Foreign currency translation
(i)
Functional and presentation currency
The financial statements of the parent company and each subsidiary in the consolidated financial
statements of The Caldwell Partners International Inc. are measured using the currency of the primary
economic environment in which the subsidiary operates (the “functional currency”). The functional and
presentation currency of the Company is the Canadian dollar. The functional currency of the subsidiary
located in the United States is the US dollar.
The financial statements of subsidiaries that have a functional currency different from the presentation
currency are translated into Canadian dollars as follows: assets and liabilities – at the closing rate at the
date of the statement of financial position, and income and expenses – at the average rate of the period
(as this is considered a reasonable approximation of the actual rates prevailing at the transaction dates).
Consolidated Financial Statements
23
Caldwell Partners –
All resulting changes are recognized in other comprehensive income as cumulative translation
adjustments.
If the Company disposes of its entire interest in a foreign subsidiary, or loses control over a foreign
subsidiary, the foreign currency gains or losses accumulated in other comprehensive income related to
the foreign subsidiary are recognized in profit or loss.
(ii)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of these transactions. Foreign exchange gains and losses resulting from the
settlement of foreign currency transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in currencies other than an entity’s functional currency are
recognized in the consolidated statement of earnings, within other gains and losses.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly
liquid investments with original maturities of three months or less.
Restricted cash
Restricted cash includes a term deposit set aside by a Canadian financial institution for collateral security
on foreign exchange contracts entered into by the Company.
Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows
from the assets have expired or have been transferred and the Company has transferred substantially all
risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there
is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously. Financial liabilities are derecognized
when the obligation specified in the contract is discharged, cancelled or expires.
At initial recognition, the Company classifies its financial instruments in the following categories
depending on the purpose for which the instruments were acquired:
(i)
Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is
classified in this category if acquired principally for the purpose of selling or repurchasing in the short-
term. Derivatives are also included in this category. The only instruments held by the Company classified
in this category are short-term foreign exchange contracts to sell U.S. currency (see (v) below) and
contingent consideration as at August 31, 2011 and September 1, 2010.
Financial instruments in this category are recognized initially and subsequently at fair value. Transaction
costs are expensed in the consolidated statement of earnings. Gains and losses arising from changes in
fair value are presented in the statement of earnings within other gains and losses (net) in the period in
which they arise. Financial assets and liabilities at fair value through profit or loss are classified as
current except for the portion expected to be realized or paid beyond twelve months of the balance sheet
date, which is classified as non-current.
(ii)
Available-for-sale investments: Available-for-sale investments are non-derivatives that are either
designated in this category or not classified in any of the other categories. The Company's available-for
sale assets comprise its investments in marketable securities.
Consolidated Financial Statements
24
Caldwell Partners –
Available-for-sale investments are recognized initially at fair value plus transaction costs and are
subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized in
other comprehensive income. Available-for-sale investments are classified as current, unless the
investment matures beyond twelve months.
Interest on available-for-sale investments, calculated using the effective interest method, is recognized in
the statement of earnings as part of investment income. Dividends on available-for-sale equity
instruments are recognized in the statement of earnings as part of other gains and losses when the
Company's right to receive payment is established. When an available-for-sale investment is sold or
impaired, the accumulated gains or losses are moved from accumulated other comprehensive income to
the statement of earnings and are included in investment income.
(iii)
Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Company's loans and receivables
comprise accounts receivable and cash and cash equivalents, and are included in current assets due to
their short-term nature. Loans and receivables are initially recognized at the amount expected to be
received, less, when material, a discount to reduce the loans and receivables to fair value. Subsequently,
loans and receivables are measured at amortized cost using the effective interest method less a provision
for impairment.
Other financial liabilities at amortized cost: Financial liabilities at amortized cost include accounts
(iv)
payable, compensation payable and dividends payable which are initially recognized at the amount
required to be paid, less, when material, a discount to reduce the payables to fair value. Subsequently,
accounts payable are measured at amortized cost using the effective interest method.
Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise,
they are presented as non-current liabilities.
(v) Derivative financial instruments: The Company has entered into short-term foreign-exchange
contracts to sell U.S. currency. Foreign 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 foreign exchange contracts are valued at fair value at each
reporting period. Gains and losses on forward-exchange contracts are included in general and
administrative expense on the consolidated statement of earnings.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial asset
(other than a financial asset classified as fair value through profit or loss) is impaired. If such evidence
exists, the Company recognizes an impairment loss, as follows:
(i)
Financial assets carried at amortized cost: The loss is the difference between the amortized cost of
the loan or receivable and the present value of the estimated future cash flows, discounted using the
instrument's original effective interest rate. The carrying amount of the asset is reduced by this amount
either directly or indirectly through the use of an allowance account.
(ii)
Available-for-sale financial assets: The impairment loss is the difference between the original cost of
the asset and its fair value at the measurement date, less any impairment losses previously recognized in
the statement of earnings. This amount represents the cumulative loss in accumulated other
comprehensive income that is reclassified to net income.
Impairment losses on financial assets carried at amortized cost and available for sale financial assets are
reversed in subsequent periods if the amount of the loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized. Impairment losses on available-
for-sale equity investments are not reversed.
Consolidated Financial Statements
25
Caldwell Partners –
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent
costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Company and
the cost can be measured reliably. The carrying amount of a replaced asset is derecognized when
replaced. Repairs and maintenance costs are charged to the statement of earnings during the period in
which they are incurred.
The major categories of property and equipment are depreciated as follows:
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
Residual values, methods of depreciation and useful lives of the assets are reviewed annually and
adjusted if appropriate.
Gains and losses on disposals of property and equipment are determined by comparing the proceeds with
the
carrying amount of the asset and are included as part of other gains and losses in the statement of
earnings.
Identifiable intangible assets
The Company's intangible assets are stated at cost less accumulated amortization and are comprised of
client lists and non-competition and non-solicitation agreements. These intangible assets are amortized
on a straight-line basis in the statement of earnings over their estimated useful lives of 3 to 10 years. Also
included in the intangible assets are software costs that are not integral to the related hardware. These
software costs are being amortized over 3 years.
Impairment of non-financial assets
Property and equipment and intangible assets (other than goodwill) are tested for impairment when
events or changes in circumstances indicate that the carrying amount may not be recoverable. For the
purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units or CGUs). The recoverable amount is the higher
of an asset's fair value less costs to sell and value in use (being the present value of the expected future
cash flows of the relevant asset or CGU). An impairment loss is recognized for the amount by which the
asset's carrying amount exceeds its recoverable amount.
Goodwill is reviewed for impairment annually or at any time if an indicator of impairment exists.
Goodwill acquired through a business combination is allocated to each CGU or group of CGUs that are
expected to benefit from the related business combination. A group of CGUs represents the lowest level
within the Company at which the goodwill is monitored for internal management purposes, which is not
higher than an operating segment.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals when
events or circumstances warrant such consideration.
Consolidated Financial Statements
26
Caldwell Partners –
Stock-based compensation
The Company grants stock options and restricted stock units periodically to certain employees.
Stock options currently outstanding vest over three years and have a contractual life of five years. Each
tranche in an award is considered a separate award with its own vesting period and grant date fair value.
Fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model.
Compensation expense is recognized over the tranche's vesting period by increasing contributed surplus
based on the number of awards expected to vest. Any subsequent changes in fair value to a vested award
are recognized in the consolidated statement of earnings in the period in which they occur.
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. The Board of Directors may elect to settle in either cash or shares;
should the Board of Directors elect to settle in shares, the individual may elect to receive up to half of the
settlement in cash. Fair value of each tranche is based on the fair value of the awards at the date of grant,
with the fair value being updated at each reporting date. Compensation expense is recognized on a
straight-line basis over the vesting period.
The vested awards have been recorded as a current or long-term incentive accrual depending on when
they are expected to be paid.
Commission and bonus plans
The Company recognizes a liability and an expense for bonuses and commissions, based on performance
measures relevant to the particular employee group. Revenue-producing employees earn bonuses tied
directly to individual and team revenue production. Management bonuses are primarily determined
based on achievement of planned revenue and operating profit levels, approved by the Board of Directors
at the outset of the fiscal year. The Company recognizes the expense and related liability in the year such
performance levels are attained.
Provisions
Provisions for legal claims, where applicable, are recognized in other liabilities when the Company has a
present legal or constructive obligation as a result of past events and it is more likely than not that an
outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
Provisions are measured at management's best estimate of the expenditure required to settle the
obligation at the end of the reporting period, and are discounted to present value where the effect is
material.
Income tax
Income tax comprises current and deferred tax. Income tax is recognized in the statement of earnings
except to the extent that it relates to items recognized in other comprehensive income or directly in
equity, in which case the income tax is also recognized in other comprehensive income or directly in
equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of
previous years.
In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred
income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or
substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset or
Consolidated Financial Statements
27
Caldwell Partners –
liability is settled. Deferred tax assets are recognized to the extent that it is probable that future taxable
profit will be available against which the temporary difference can be recognized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries except
where the timing of the reversal of the temporary difference is controlled by the Company and it is
probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are presented as non-current.
Revenue
Revenue is recognized when it is probable that the economic benefits will flow to the Company and
service has been provided, the fee is determinable, and collectability is reasonably assured. Fee revenue
from recruitment services is generally one-third of the placed candidate’s first year compensation.
Revenue is recognized as services are rendered, generally over a two and a half month period
commencing upon engagement by the client. Any fees earned in excess of the initial retainer 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.
Cost of sales
Cost of sales includes direct costs associated with the generation of revenue, being both variable and
fixed compensation and related costs of employees involved in search activities.
Leases
Leases are classified as either operating or finance, based on the substance of the transaction at the
inception of the lease.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases, net of any incentives received
from the lessor, are charged to profit or loss within general and administrative expenses on a straight line
basis over the period of the lease.
The Company leases certain property and equipment. Leases of property and equipment, where the
Company has substantially all the risks and rewards of ownership, are classified as finance leases.
Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased
property and the present value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges. The corresponding rental obligations, net of finance charges,
are included in borrowings. The interest element of the finance cost is charged to profit or loss over the
lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability
for each period. The property and equipment acquired under finance leases is depreciated over the
shorter of the useful life of the asset and the lease term.
Currently, all of the Company’s leases pertain to its nine offices and are considered operating leases.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares
are recognized as a deduction from equity.
Dividends
Dividends on common shares are recognized in the Company's consolidated financial statements in the
period in which the dividends are approved by the Board of Directors of the Company.
Consolidated Financial Statements
28
Caldwell Partners –
Earnings per share
Basic earnings per share ("EPS") is calculated by dividing the net income (loss) for the period
attributable to equity owners of the Company by the weighted average number of common shares
outstanding during the period.
Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for
dilutive instruments. The number of shares included with respect to options and similar instruments is
computed using the treasury stock method. The Company’s potentially dilutive common shares comprise
stock options and restricted stock units granted to employees.
Accounting Standards Issued But Not Yet Applied
International Financial Reporting Standard 9,
("IFRS 9")
Financial Instruments
IFRS 9, Financial Instruments, was issued in November 2009 and addresses classification and
measurement for financial assets. This standard addresses classification and measurement of financial
assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a
new mixed measurement model having only two categories: amortized cost and fair value through profit
or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are
either recognized at fair value through profit or loss or at fair value through other comprehensive
income. Where such equity instruments are measured at fair value through other comprehensive income,
dividends are recognized in profit or loss to the extent not clearly representing a return of investment;
however, other gains and losses (including impairments) associated with such instruments remain in
accumulated comprehensive income indefinitely.
Financial Instruments — Recognition and Measurement,
Requirements for financial liabilities were added in October 2010 and they largely carried forward
existing requirements in IAS 39,
except that fair
value changes due to credit risk for liabilities designated at fair value through profit and loss would
generally be recorded in other comprehensive income.
This standard is required to be applied for accounting periods beginning on or after January 1, 2015, with
earlier adoption permitted. The Company has not yet assessed the impact of the standard or determined
whether it will adopt the standard early.
The following revised standards and amendments are effective for annual periods beginning on or after
January 1, 2013 with earlier application permitted.
IFRS 10, Consolidated Financial Statements, requires an entity to consolidate an investee when it is
exposed, or has rights, to variable returns from its involvement in the investee and has the ability to affect
those returns through its power over the investee. Under existing IFRS, consolidation is required when
an entity has the power to govern the financial and operating policy of an entity so as to obtain benefits
from its activities. IFRS 10 replaces SIC – 12 Consolidation-Special Purpose Entities and parts of IAS 27
Consolidated and Separate Financial Statements. The Company has assessed that the adoption of this
IFRS will not impact the Company’s consolidated financial statements.
IFRS 13, Fair Value Measurement, is a comprehensive standard for fair value measurement and
disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is
the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction
between market participants, at the measurement date. It also establishes disclosures about fair value
measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among
the specific standards requiring fair value measurements and in many cases does not reflect a clear
measurement basis or consistent disclosures. The adoption of this IFRS will not have a material impact
on the Company’s consolidated financial statements. However, it will impact the annual disclosures and
these disclosures could be extensive.
Consolidated Financial Statements
29
Caldwell Partners –
IAS 1, Presentation of Financial Statements, has been amended to require entities to separate items
presented in other comprehensive income (“OCI”) into two groups, based on whether or not items may
be recycled in the future. Entities that choose to present OCI items before tax will be required to show
the amount of tax related to the two groups separately. The amendment is effective for annual periods
beginning on or after July 1, 2012 with earlier application permitted. The Company has assessed that the
adoption of this IFRS will not materially impact the Company’s consolidated financial statements.
However, adoption of this IFRS will require additional disclosures.
There are no other standards or interpretations that are not yet effective that would be expected to have
a material impact on the Company.
Critical accounting estimates and judgments
The Company makes estimates and assumptions concerning the future that will, by definition, seldom
equal actual results. The following are the estimates and judgments applied by management that most
significantly affect the Company's financial statements. These estimates and judgments have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year. The following discussion sets forth management’s most significant estimates and
assumptions in determining the value of assets and liabilities, and the most significant judgments in
applying accounting policies.
Revenue recognition
The Company’s method of revenue recognition requires it to estimate its services performed to date as a
proportion of the total services to be performed based on time required to complete a project. Errors in
estimating the amount of work required to complete an assignment could lead to an under or
overvaluation of revenue.
Allowance for doubtful accounts
Estimates are used in determining the allowance for doubtful accounts related to trade receivables. The
estimates are based on management’s best assessment of the collectability of the related receivable
balance based, in part, on the age of the specific receivable balance. An allowance is established when the
likelihood of collecting the account has significantly diminished. Future collections of receivables that
differ from management’s current estimates would affect the results of operation in future periods.
Impairment of Goodwill
The Company tests at least annually whether goodwill is subject to any impairment in accordance with
the accounting policy stated in Note 4. Various assumptions are made in performing this test, including
estimates of future revenue streams, operating costs and discount rates. These assumptions are
disclosed in note 6. Future results that differ from management’s current estimates would affect the
results of operation in future periods.
5. Transition to IFRS
The effect of the Company's transition to IFRS, described in note 3, is summarized in this note as follows:
(i)
(ii)
Transition elections;
Reconciliation of equity and comprehensive income as previously reported under Canadian
GAAP to IFRS; and
Adjustments to the statement of cash flows.
(i) Transition elections
(iii)
The Company has applied two transition exemptions from full retrospective application of IFRS,
being business combinations and cumulative translation differences. See note 5 (ii) a and b for
further explanation.
Consolidated Financial Statements
30
Caldwell Partners –
(ii) Reconciliation of equity and comprehensive income as previously reported under Canadian
GAAP to IFRS
Equity
Explanatory
note
August 31,
2011
September 1,
2010
Total equity as reported under Canadian GAAP
10,744,252
10,614,893
IFRS adjustments increase (decrease)
Retroactive restatement of business combinations
Translation gain (loss) on consolidation of subsidiary
a
b
(213,084)
(221,575)
(80,486)
(67,486)
Total equity as reported under IFRS
10,309,593
10,466,921
Comprehensive income
Comprehensive income for the period as reported under Canadian GAAP
IFRS adjustments increase (decrease)
Retroactive restatement of business combination
Translation gain (loss) on consolidation of subsidiary
Comprehensive loss for the period reported under IFRS
Explanatory notes
a. Retroactive restatement of business combination
Explanatory
note
Year Ended
August 31,
2011
a
b
104,156
(132,598)
(154,089)
(182,531)
In accordance with IFRS transition provisions, the Company elected to retrospectively apply IFRS
standards with regard to the August 7, 2009 business combination. As a result, the balance sheet as
at September 1, 2010 was adjusted as follows:
•
•
Increase in goodwill and contingent consideration of $410,351 following the requirement to
measure contingent consideration at fair value under IFRS at the date of acquisition with
movements in the fair value being included in the statement of earnings. Under Canadian GAAP,
any payment of contingent consideration adjusted the value of goodwill and was not provided for
until it was likely to be paid. See note 6 below for the revised purchase equation under IFRS.
Decrease in goodwill and increase in the deficit of $80,486 for transaction costs that were
previously capitalized under Canadian GAAP but are required to be expensed under IFRS.
During the year ended August 31, 2011, under IFRS, the Company recorded an expense of $132,598
in the fourth quarter pertaining to the movement in the fair value of the contingent consideration.
b. Translation gain (loss) on consolidation of subsidiary
Under Canadian GAAP, the Company classified its foreign subsidiary as an integrated foreign
operation and therefore the foreign exchange gains and losses on consolidation of the subsidiary was
recognized in the statement of earnings. Under IFRS, this method is not permitted and the Company
has determined that the functional currency of its foreign subsidiary is the US Dollar. All foreign
exchange gains and losses on consolidation are now recognized in accumulated and other
comprehensive income (loss). As a result of this change, all non-monetary assets are now translated
at current rates which resulted in a decrease in the values of goodwill, intangible assets and property
and equipment at September 1, 2010.
Consolidated Financial Statements
31
Caldwell Partners –
In accordance with IFRS transition provisions, the Company has also elected to reset the cumulative
translation adjustment account, which includes gains and losses arising from translation of the
Company’s foreign subsidiary, to zero at the date of transition to IFRS. Accumulated other
comprehensive income has been decreased and deficit has been increased by $67,486 at September
1, 2010. During the year ended August 31, 2011, accumulated other comprehensive income has been
decreased and the comprehensive loss for the year has been increased by $154,089.
(iii) Adjustments to the statement of cash flows
The transition from Canadian GAAP to IFRS had no significant impact on cash flows generated by the
Company except for the impact of foreign exchange rate changes on cash and cash equivalents, which
are now shown as a separate line in the statement of cash flows following the change in the
consolidation method of the US subsidiary discussed above.
6. Business Acquisition
On August 7, 2009, the Company acquired certain assets of Cromwell Partners, 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.
As noted in note 5(ii)a, the Company elected to retrospectively apply IFRS standards with regard to this
acquisition. The following table summarizes the fair value of the assets acquired at the date of
acquisition.
Assets acquired:
Property and equipment
Prepaid rent
Intangible assets
Goodwill
Total consideration paid
39,627
34,010
868,151
1,007,628
1,949,416
Consideration comprised of:
Cash
Contingent consideration
1,258,369
691,047
1,949,416
The acquired value of intangible assets of $868,151 were assigned to client backlog ($89,478), client lists
($722,581) and non-competition and non-solicitation agreements ($56,092). All of these intangible
assets are subject to amortization over their estimated useful lives from 6 months to 10 years. As at
August 31, 2012, the client backlog and non-competition and non-solicitation agreements intangible
assets have been fully amortized and the client lists 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.
Total consideration includes an amount of $691,047 which is the estimated fair market value of the
contingent consideration at the date of acquisition. This contingent consideration was dependent on the
acquired company’s ability to meet or exceed pre-determined revenue thresholds in each of its first two
years of operation. The total amount of contingent consideration was known at August 31, 2011, with
$132,598 being the difference between the amount actually paid out and the amount accrued. This
additional amount was expensed in general and administrative expenses in the consolidated statement of
earnings in the fourth quarter of fiscal 2011.
As the goodwill only relates to this acquisition, it has been fully allocated to this cash generating unit.
Consolidated Financial Statements
32
Caldwell Partners –
In assessing goodwill for impairment at August 31, 2012 and 2011, the Company compared the aggregate
recoverable amount of the assets included in the cash generating unit (CGU) in its US segment to its
respective carrying amount. The recoverable amount has been determined based on the estimated value
in use of the CGU using five year cash flow budgets. For periods beyond the budget period, cash flows
were extrapolated using growth rates in the table below. Assumptions made were as follows:
2012
2011
Average growth rate
Expected gross margin
Discount rate
Client attrition rate
5%
28%
8%
10%
5%
34%
8%
10%
7. Marketable Securities
The impairment tests performed resulted in no impairment at August 31, 2012 or August 31, 2011.
The Company has investments in marketable securities (classified as available for sale financial assets)
which are comprised of the following:
September 1, 2010
2012
2011
market
value
cost, net of
writedowns
& provisions
market
value
cost, net of
writedowns
& provisions
Managed funds
Preferred shares
Common shares
3,303,044
2,896,231
3,126,827
2,896,231
-
-
-
-
-
-
-
-
3,303,044
2,896,231
3,126,827
2,896,231
market
value
3,076,927
915,550
132,308
4,124,785
cost, net of
writedowns
& provisions
2,791,081
932,255
116,392
3,839,728
During fiscal 2012, the Company recorded no realized gains or losses on disposition of available for sale
marketable securities.
During fiscal 2011, the Company disposed of available for sale marketable securities with a cost of
$1,943,497 and recorded a realized gain on disposition of $176,206. This realized gain was reclassified
out of accumulated other comprehensive income (loss) and has been reflected in investment income on
the consolidated statement of earnings.
Consolidated Financial Statements
33
Caldwell Partners –
8. Property and Equipment
furniture and
equipment
computer
equipment
computer application
software
leasehold
improvements
total
As at September 1, 2010:
Cost
Accumulated depreciation
Net book value
Year ended August 31, 2011:
Opening net book value
Additions
Depreciation for the period
Exchange differences
Closing net book value
At September 1, 2011:
1,841,684
(1,389,519)
452,165
1,897,539
(1,649,710)
247,829
452,165
269,131
(114,259)
(16,738)
590,299
247,829
35,335
(76,995)
(9,397)
196,772
Cost
Accumulated depreciation
Net book value
2,094,077
(1,503,778)
590,299
1,923,477
(1,726,705)
196,772
Period ended August 31, 2012:
Opening net book value
Additions
Depreciation for the period
Exchange differences
Closing net book value
At August 31, 2012:
590,299
67,383
(126,782)
4,527
535,427
196,772
62,239
(69,243)
978
190,746
Cost
Accumulated depreciation
Net book value
2,165,987
(1,630,560)
535,427
1,986,694
(1,795,948)
190,746
538,634
(468,491)
70,143
70,143
95,345
(67,022)
(3,197)
95,269
630,782
(535,513)
95,269
95,269
52,301
(59,333)
(442)
87,795
682,641
(594,846)
87,795
2,467,252
(1,628,083)
839,169
6,745,109
(5,135,803)
1,609,306
839,169
107,225
(122,794)
(5,219)
818,381
1,609,306
507,036
(381,070)
(34,551)
1,700,721
2,569,258
(1,750,877)
818,381
7,217,594
(5,516,873)
1,700,721
818,381
5,279
(135,048)
1,435
690,047
1,700,721
187,202
(390,406)
6,498
1,504,015
2,575,972
(1,885,925)
690,047
7,411,294
(5,907,279)
1,504,015
Depreciation of property and equipment is included in general and administrative expenses in the
consolidated statement of earnings.
Consolidated Financial Statements
34
Caldwell Partners –
9. Intangible Assets
As at September 1, 2010:
Cost
Accumulated amortization
Net book value
Year ended August 31, 2011:
Opening net book value
Amortization for the period
Additions
Exchange differences
Closing net book value
At September 1, 2011:
Cost
Accumulated amortization
Net book value
Period ended August 31, 2012:
Opening net book value
Amortization for the period
Exchange differences
Closing net book value
At August 31, 2012:
Cost
Accumulated amortization
Net book value
client
lists
non-competition & non-
solicitation agreements
computer
software
755,300
(75,532)
679,768
679,768
(81,050)
-
(21,522)
577,196
733,778
(156,582)
577,196
577,196
(91,742)
3,193
488,647
736,971
(248,324)
488,647
58,632
(19,543)
39,089
39,089
(15,632)
-
(10,906)
12,551
47,726
(35,175)
12,551
12,551
(14,514)
1,963
-
49,689
(49,689)
-
1,294,604
(1,017,692)
276,912
276,912
(239,577)
1,679
(31,439)
7,575
1,264,844
(1,257,269)
7,575
7,575
(8,760)
1,185
-
1,266,029
(1,266,029)
-
total
2,108,536
(1,112,767)
995,769
995,769
(336,259)
1,679
(63,867)
597,322
2,046,348
(1,449,026)
597,322
597,322
(115,016)
6,341
488,647
2,052,689
(1,564,042)
488,647
Amortization of intangible assets is included in general and administrative expenses in the consolidated
statement of earnings.
10. Nature of Expenses
Compensation costs
Occupancy costs
Marketing and business development costs
Depreciation
Amortization
Change in contingent consideration
Other
2012
2011
26,528,286
2,978,331
616,726
390,406
115,016
-
1,064,067
31,692,832
28,005,990
2,582,171
577,872
381,070
336,259
132,598
2,111,186
34,127,146
Consolidated Financial Statements
35
Caldwell Partners –
11. Compensation of Key Management
Key management includes the Board of Directors and named executive officers of the Company.
Compensation awarded to key management included:
2011
2012
Salaries & short-term benefits
Share-based payments
12. Income Taxes
Current tax:
Current tax on net earnings for the year
Deferred tax:
Origination and reversal of timing differences
1,237,539
123,878
1,361,417
1,564,001
48,917
1,612,918
2012
2011
45,286
(468)
44,818
242,299
(72,834)
169,465
The tax on the Company’s earnings before income tax differs from the amount that would arise using the
weighted average tax rate applicable to earnings of the consolidated entities as follows:
2012
%
2011
%
Combined statutory income tax rate
Dividends received on preferred and common shares
Non-taxable portion of capital losses
Utilization of future tax asset not previously recognized
Non-deductible expenses
Tax rate differences
Other
28.6
0.0
0.0
(28.4)
3.2
0.9
0.1
4.4
31.9
(11.4)
(15.4)
(102.2)
5.3
137.0
2.3
47.5
The weighted average applicable tax rate was 4.4% (2011: 47.5%). The decrease is the result of tax rate
differences that were incurred in 2011.
The analysis of deferred tax assets and deferred tax liabilities is as follows:
2012
2011
Deferred tax assets:
Deferred tax asset to be recovered after more than 12 months
Deferred tax asset to be recovered within 12 months
Deferred tax liabilities:
Deferred tax liabiltities to be recovered after more than 12 months
Deferred tax liabilities to be recovered within 12 months
Deferred tax assets (net)
319,379
125,897
(319,379)
(52,595)
73,302
351,395
72,834
(351,395)
0
72,834
Consolidated Financial Statements
36
Caldwell Partners –
The movement of the deferred income tax account is as follows:
2012
2011
As of September 1
Credit to the statement of earnings
As of August 31
72,834
468
73,302
0
72,834
72,834
The movement in deferred income tax assets and liabilities during the year, without taking into
consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Deferred tax asset:
Compensation
Payable
Non-Capital
Losses
Total
At September 1, 2010
(Charged)/credited to statement of earnings
At August 31, 2011
(Charged)/credited to statement of earnings
At August 31, 2012
0
72,834
72,834
468
73,302
452,422
(101,027)
351,395
20,579
371,974
452,422
(28,193)
424,229
21,047
445,276
Deferred tax liability:
At September 1, 2010
(Charged)/credited to statement of earnings
At August 31, 2011
(Charged)/credited to statement of earnings
At August 31, 2012
Excess Carrying
Value of Plant
& Equipment
Over Tax Base
Other
Total
384,457
(33,062)
351,395
(32,016)
319,379
67,965
(67,965)
0
52,595
52,595
452,422
(101,027)
351,395
20,579
371,974
Deferred income tax assets are recognized for tax loss carry-forwards and other timing differences to the
extent that realization of the related tax benefit through future taxable earnings are probable. The
Company did not recognize deferred income tax assets of $2,124,000 (2011: $2,247,000) that can be
carried forward against future taxable income.
As at August 31, 2012, the Company has non-capital losses with the following expiry dates available to
reduce taxable income in future years:
Expiry
Amount
2029
2030
2031
2,307,525
52,196
399,720
The Company also has capital losses of $3,355,000 that can only be utilized against capital gains and are
without expiry date.
Consolidated Financial Statements
37
Caldwell Partners –
13. Earnings per share
(i)
Basic
Basic earnings per share are calculated by dividing the net earnings attributable to owners of the
Company by the weighted average number of common shares outstanding during the years.
2012
2011
Net earnings for the year attributable to owners of the Company
Weighted average number of Common Shares outstanding
Basic earnings per share
981,008
16,985,505
$0.058
187,453
16,985,505
$0.011
(ii)
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common
shares outstanding to assume conversion of all dilutive potential common shares. A calculation is
done to determine the number of shares that could have been acquired at fair value (determined as
the average market price of the Company’s outstanding shares for the period), based on the exercise
prices attached to the stock options currently outstanding. The number of shares calculated above is
compared with the number of shares that would have been issued assuming exercise of the stock
options.
2012
2011
Net earnings for the year attributable to owners of the Company
981,008
187,453
Weighted average number of Common Shares outstanding
Adjustments for:
- stock options
Weighted average number of common shares for diluted
earnings per share
Diluted earnings per share
16,985,505
16,985,505
18,188
11,613
17,003,693
16,997,118
$0.058
$0.011
14. 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. The incentive compensation plan for top revenue-producing employees has now concluded. As at
August 31, 2012, all payments due under this plan have been made with no liability remaining. Final
payments under this plan made in January 2012 were included in the current portion of the incentive
accrual as at August 31, 2011.
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 $132,777 has been recorded in
fiscal 2012 within general and administrative expenses (2011– $53,490). A liability has been recorded
on the balance sheet at August 31, 2012 within the long-term incentive accrual. For more details on the
restricted stock units, see note 15.
Consolidated Financial Statements
38
Caldwell Partners –
15. Capital Stock
Common Shares
As of August 31, 2012, August 31, 2011 and September 1, 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.
Prior to May 1, 2012, the Company had suspended dividend payments given its deficit position. On May
1, 2012, shareholders of the Company approved a special resolution to reduce the stated capital of the
Company by 75%. This transaction resulted in a $12,048,058 reduction of stated capital with an
equivalent increase in contributed surplus. As a result, the Company was able to reinstitute dividend
payments and make an application to the Toronto Stock Exchange for a normal course issuer bid.
On May 1, 2012, the Board of Directors declared a dividend of 1.5 cents per share which was paid on June
15, 2012 ($254,782 in aggregate). On July 12, 2012, the Board of Directors declared a further dividend of
1.5 cents per share, payable to holders of Common Shares of record on July 23, 2012, with the aggregate
amount of $254,782 being paid on September 14, 2012. This latter amount has been accrued in the
Company’s accounts as at August 31, 2012.
On May 30, 2012, the Toronto Stock Exchange accepted the Company’s notice of intention to purchase
through a normal course issuer bid up to 845,000 of its Common Shares. No shares have been
repurchased as of November 23, 2012.
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:
2012
2011
number of
options
outstanding
weighted
average
exercise price
number of
options
outstanding
weighted
average
exercise price
Outstanding at beginning of period
Options granted
Outstanding at end of period
720,000
275,000
995,000
$0.97
$0.68
$0.89
720,000
-
720,000
$0.97
-
$0.97
All options outstanding are exercisable over a 5 year period from the date of grant and have strike price
equal to the market value of Common Shares on the date of issuance. As at August 31, 2012, 680,000
options were exercisable (2011: 440,000).
On September 11, 2008, 600,000 options to purchase Common 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. On February 6, 2012, 275,000 options with a grant price of $0.68 were approved and issued
to a member of the management team. All options currently outstanding vest over two or 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 $18,391 has been recorded in the year ended August 31, 2012 (2011 – $25,203)
within general and administrative expenses. The fair value of the options granted during the year was
Consolidated Financial Statements
39
Caldwell Partners –
determined using the Black-Scholes option pricing model (using an expected volatility of 24%, a risk-free
interest rate of 2%, a dividend yield of 0%, and an estimated life of 4 years).
Restricted Stock Units
On January 13, 2011, 395,000 restricted stock units (RSUs) 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. The Board of Directors may elect to settle in either cash
or shares; should the Board of Directors elect to settle in shares, the individual may elect to receive up to
half of the settlement in cash. The estimated cost of this plan is being amortized straight-line over the
three year vesting period.
On January 12, 2012, 441,000 restricted stock units were granted to members of the management team
based on a current market price of $0.63 per share. These restricted stock units have the same terms as
the prior grant and are being accounted for in the same manner as those issued on January 13, 2011.
Total outstanding restricted stock units are summarized as follows:
weighted
average
exercise price
number of
RSUs
outstanding
2012
2011
number of
RSUs
outstanding
weighted
average
exercise price
Outstanding at beginning of period
RSUs expired or cancelled
RSUs granted
Outstanding at end of period
395,000
-
441,000
836,000
$0.60
-
$0.63
$0.62
-
-
395,000
395,000
-
-
$0.60
$0.60
RSU expense of $132,779 has been recorded in the year ended August 31, 2012 (2011 – $53,490) within
general and administrative expenses.
16. Segmented Information
The Company has operations in both Canada and the United States. Both geographic segments provide
retained executive search consulting services to clients.
The following provides a reconciliation of the Company’s statement of earnings by geographic segment to
the consolidated results:
2012
United States
2011
United States
Canada
Canada
total
total
Revenue
10,181,559
22,522,158
32,703,717
12,783,900
21,453,903
34,237,803
Gross profit
General and administrative
Sales and marketing
Other gains and losses (net)
3,592,976
(2,408,262)
(143,554)
44,640
4,528,638
(4,126,437)
(473,172)
(3,944)
8,121,614
(6,534,699)
(616,726)
40,696
3,694,827
(2,563,540)
(181,758)
(166,036)
3,846,082
(4,122,804)
(396,114)
-
7,540,909
(6,686,344)
(577,872)
(166,036)
Operating profit (loss)
1,085,800
(74,915)
1,010,885
783,493
(672,836)
110,657
Investment income
Income tax
Net earnings for the year
14,046
-
1,099,846
895
(44,818)
(118,838)
14,941
(44,818)
981,008
246,261
40,685
1,070,439
-
(210,150)
(882,986)
246,261
(169,465)
187,453
Consolidated Financial Statements
40
Caldwell Partners –
General and administrative expenses include management fees representing a transfer of corporate
overhead expenses from the Canadian parent company to its US subsidiary. For year ending August 31,
2012, management fees amounted to $1,583,308 (2011: $1,685,551).
A summary of property and equipment, goodwill and total assets by country is as follows:
at August 31, 2011
at August 31, 2012
at September 1, 2010
Canada
United States
total
Canada
United States
total
Canada
United States
total
Property
and equipment
Intangible assets
Goodwill
965,161
538,854
1,504,015
1,062,011
638,710
1,700,721
1,177,899
431,407
1,609,306
-
-
488,647
488,647
973,458
973,458
-
-
597,322
597,322
196,923
798,846
995,769
967,236
967,236
-
1,053,255
1,053,255
Total assets
11,737,883
8,391,468
20,129,351
12,111,360
9,506,400
21,617,760
13,053,219
9,312,765
22,365,984
Depreciation recorded on property and equipment is as follows:
2012
2011
Canada
United States
total
Canada
United States
total
Depreciation expense
Amortization expense
205,584
-
184,822
115,016
390,406
115,016
257,866
195,736
123,204
140,523
381,070
336,259
17. 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 18, are as follows:
Twelve months ending August 31, 2013
Twelve months ending August 31, 2014
Twelve months ending August 31, 2015
Twelve months ending August 31, 2016
Twelve months endingAugust 31, 2017
September 1, 2017 and thereafter
1,569,578
1,451,130
1,336,544
1,232,756
938,532
3,099,033
9,627,573
During the year ended August 31, 2012, the Company expensed $2,270,792 (2011: $1,940,585) relating
to operating leases for its nine locations in Canada and the United States, inclusive of rents paid to a
related party described in note 18. This expense is included in general and administrative expenses. With
the exception of the Toronto office, all leases are with third party commercial landlords at fair market
rental rates at the inception of the lease. Lease terms at inception were five to ten years, dependent on
the location.
18. Related Party Transactions
The Company paid rent to an affiliated company owned by a shareholder (C. Douglas Caldwell, until
March 23, 2010, the Executive Chairman of the Company) in the amount of $200,343 (2011 - $200,343),
pursuant to the Company’s lease commitments. The amount of consideration agreed to by the parties
was determined to be fair market rental rates at the inception of the lease by an independent commercial
real estate counselor and was approved by the independent members of the Board of Directors.
Consolidated Financial Statements
41
Caldwell Partners –
19. Financial Instruments
Classification of Financial Instruments
As at August 31, 2012, 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
Cash and cash equivalents
Marketable securities
Accounts receivable
Restricted cash
Accounts payable
Compensation payable
Dividends payable
loans & receivables
available for sale
loans & receivables
loans & receivables
other financial liabilities
other financial liabilities
other financial liabilities
amortized cost
fair value
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
6,494,246
3,303,044
6,122,577
252,966
2,338,238
6,343,417
254,782
Fair Value
6,494,246
3,303,044
6,122,577
252,966
2,338,238
6,343,417
254,782
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
Restricted cash
Accounts payable
Compensation payable
Contingent consideration
loans & receivables
available for sale
loans & receivables
loans & receivables
other financial liabilities
other financial liabilities
fair value through profit or loss
amortized cost
fair value
amortized cost
amortized cost
amortized cost
amortized cost
fair value
6,944,084
3,126,827
6,537,347
250,000
2,768,994
7,445,147
510,286
6,944,084
3,126,827
6,537,347
250,000
2,768,994
7,445,147
510,286
As at September 1, 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
Accounts payable
Compensation payable
Contingent consideration
loans & receivables
available for sale
loans & receivables
other financial liabilities
other financial liabilities
fair value through profit or loss
amortized cost
fair value
amortized cost
amortized cost
amortized cost
fair value
6,456,274
4,124,785
5,875,065
2,536,838
6,326,109
722,338
6,456,274
4,124,785
5,875,065
2,536,838
6,326,109
722,338
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.
Consolidated Financial Statements
42
Caldwell Partners –
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 financial 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.
The following table details the fair value hierarchy of the Company’s financial instruments measured at
fair value by level as at August 31, 2012:
Level 3
Total
Level 2
Level 1
Marketable securities
3,303,044
-
-
3,303,044
The following table details the fair value hierarchy of the Company’s financial instruments measured at
fair value by level as at August 31, 2011:
Level 3
Level 1
Level 2
Total
Marketable securities
Contingent consideration
3,126,827
-
-
-
-
510,286
3,126,827
510,286
The following table details the fair value hierarchy of the Company’s financial instruments measured at
fair value by level as at September 1, 2010:
Level 3
Level 1
Level 2
Total
Marketable securities
Contingent consideration
4,124,785
-
-
-
-
722,338
4,124,785
722,338
The following table summarizes the changes in contingent consideration:
2012
2011
Start of year
Payments
Accruals
End of year
510,286
(510,286)
0
0
722,338
(311,063)
99,011
510,286
Fair value
Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are short-term
financial instruments whose fair value approximates their carrying amount given their short-term
maturity.
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. Realized
gains and losses are removed from accumulated other comprehensive income and recognized within the
consolidated statement of earnings.
Consolidated Financial Statements
43
Caldwell Partners –
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 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, 2012, the Company has net monetary asset exposure of $3,020,700 denominated in U.S.
dollars (2011: $3,412,611). 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 $151,035 recognized in the cumulative translation
adjustment in the Company’s consolidated statement of financial position for the year ended August 31,
2012 (2011: $170,631).
In fiscal 2011, the Company began entering into foreign exchange forward contracts with a Canadian
financial institution to sell US dollars to reduce its foreign exchange risk. Six such contracts each to sell
$1 million US expired during the year ending August 31, 2012, generating a net foreign exchange loss of
$43,900 (2011: $17,800 loss) which has been recorded in other gains and losses (net) in the consolidated
statement of earnings for the year. As at August 31, 2012, the fair value of the foreign exchange forward
contract was $28,600 (2011: $0).
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 of marketable securities, 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 non-derivative financial liabilities as at August
31, 2012 are as follows:
less than
6 months
6 months
to 1 year
1 to 3 years
Accounts payable
Compensation payable
Dividends payable
2,338,238
6,343,417
254,782
Consolidated Financial Statements
44
Caldwell Partners –
The contractual maturities of the Company’s significant non-derivative financial liabilities as at August
31, 2011 are as follows:
less than
6 months
6 months
to 1 year
1 to 3 years
Accounts payable
Compensation payable
2,768,994
7,445,147
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, restricted cash, accounts receivable and loans
receivable. The Company places its cash and cash equivalents with high credit quality financial
institutions.
As at August 31, 2012, August 31, 2011 and September 1, 2010, accounts receivable were comprised of
the following:
August 31
2012
2011
September 1
2010
Trade receivables
Less: allowance for doubtful accounts
Other receivables
6,615,460
(531,800)
6,083,660
38,917
6,122,577
6,611,404
(225,739)
6,385,665
151,682
6,537,347
5,986,341
(152,527)
5,833,814
41,251
5,875,065
No financial assets are past due except for a portion of trade receivables. As at August 31, 2012, trade
receivables of $5,295,752 (2011: $5,843,038) were fully performing, $701,451 (2011: $466,476) were
over 90 days but not impaired and $618,257 (2011: $301,890) were over 90 days and impaired.
The following table summarizes the changes in the allowance for doubtful accounts for the trade
receivables:
Start of year
Provision for impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
End of year
Interest Rate Risk and Market Price Risk
2012
2011
225,739
431,395
(50,627)
(74,707)
531,800
152,527
147,402
(21,000)
(53,190)
225,739
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).
Consolidated Financial Statements
45
Caldwell Partners –
At August 31, 2012, the Company has $3,303,044 invested in managed funds (2011: $3,126,827). A 5%
variation in the market price of underlying securities would have resulted in an increase or decrease in
the value of this asset of $165,152 (2011: $156,341).
20. 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. Because the Company continues to remain debt free, it 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 with the exception of a quarterly dividend review which resulted in
the declaration on May 1, 2012 of a dividend of 1.5 cents per Common Share which was paid on June 15,
2012. On July 12, 2012, a further dividend of 1.5 cents per Common Share was declared and paid on
September 14, 2012.
21. Subsequent event
On November 15, 2012 the Board of Directors declared a dividend of 1.5 cents per share, payable to
holders of Common Shares of record on November 26, 2012 and to be paid on December 14, 2012.
Consolidated Financial Statements
46
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
Valiant Trust Company operates a telephone information inquiry line
Counsel
Miller Thomson LLP
Barristers and Solicitors, Toronto, Ontario
Stock Exchange Listing
The Toronto Stock Exchange (symbol: CWL)
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
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3424 Peachtree Road N.E.
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+1 403 265 8780
fax +1 403 263 6508
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New York
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+1 415 983 7700
fax +1 415 983 0148
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fax +1 604 669 5095
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