The Caldwell Partners International Inc.
Annual Report 2014
Premier providers of executive search
Dear Shareholders, Clients, and Friends:
Fiscal 2014 was a watershed year for Caldwell Partners, filled with important
milestones and unprecedented levels of success.
We closed out the year with $45.1 million in annual revenue – an increase of 33% –
and operating profit of $1.3 million, which represents an increase of $1.4M.
Certainly the economic tailwinds and favourable conditions have played a significant
role in our growth, but we also believe this is a testament to the quality of the
strategic additions we have made to our team in recent years. We have the depth and
breadth to serve our clients’ needs across every major sector and geography, and we
are seeing the resulting gains in our practices and expanding corporate brand.
Our October 1, 2014 acquisition of London-based Hawksmoor Search Limited is a
clear continuation of a growth strategy fuelled by our determination to continually
improve our service to our clients and to create sustainable value for our
shareholders.
This not only brought a known and talented team into our firm, but also created
what we believe is the premier global insurance practice for executive search. And
with this new footprint in the UK, we are truly excited about our growth prospects
and our ability to deliver superior client service in Europe.
Entering into fiscal 2015, we are intensifying our focus on organic growth through
the addition of high calibre search professionals to build our practice and functional
offerings across geographies in the United States, Canada and now, Europe.
Fiscal 2014 also saw the completion of a private placement of common shares of the
firm, with nearly all of our partners, management team and all of the Board Members
Caldwell Partners – Shareholders Letter
1
participating. The transaction raised $3.34 million in cash, which will allow us to
continue to make important investments in growing our business.
More importantly, though, by allowing our Partner team to acquire common shares
in those quantities, the interests of this important group of stakeholders is better
aligned with the interests of all shareholders. The professional services industry is
one in which the most valuable assets walk in and out of the door every day. To have
near unanimous participation from eligible participants evidences the long-term
commitment that our people have to our organization.
When we look back on how far we’ve come, it is hard not to feel an overwhelming
sense of pride in and gratitude to the entire Caldwell Partners team. Five years ago
our revenue was $16 million from 27 partners billing an average $600,000. Here we
stand now with $45 million in revenue from an average of 32 partners billing $1.4
million per partner – it is a wonderful collective achievement, and one to which we
are pleased to see the market responding. In the last year, our stock price has risen
73%, and we remain focused on being an annuity-based, dividend-paying firm.
As always, we thank each and every member of the Caldwell Partners team for the
dedication to our clients and to each other. There is great energy and momentum
within the firm, and we look forward to the year ahead!
Yours sincerely,
G. Edmund King
Chair of the Board
John N. Wallace
President & Chief Executive Officer
Caldwell Partners – Shareholders Letter
2
Management
Discussion and Analysis
For the Years Ended August 31, 2014 and 2013
(Expressed in $000s Canadian, except per share amounts)
Company description
The Caldwell Partners International Inc. (“The Caldwell Partners” or “the Company”)
is a premier international provider of executive search and has been for over 40
years. As one of the 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 and partners in Atlanta, Calgary, Dallas, London, Los Angeles,
Minneapolis, Nashville, New York, Philadelphia, San Francisco, Stamford, Toronto and
Vancouver, and an alliance in Hong Kong, the Company takes pride in delivering an
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.
Caldwell Partners – Management Discussion and Analysis
3
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. The Company is subject to many risks identified in the
“Risk Factors” section of the Company’s Annual Information Form and other public
filings (copies of which may be obtained at www.sedar.com). Should one or more of
these risks or uncertainties materialize, or should assumptions underlying the
forward-looking statements prove incorrect, actual results, performance or
achievements may vary materially from those expressed or implied by this
Management discussion and analysis (MD&A). These factors should be considered
carefully and the reader should not place undue reliance on the forward-looking
statements. Although any forward-looking statements contained in this report are
based on what management currently believes to be reasonable assumptions, the
Company cannot assure readers that actual results, performance or achievements will
be consistent with these forward-looking statements, and management’s assumptions
may prove to be incorrect. These forward-looking statements are made as of the date
of this MD&A.
Presentation
The following discussion and analysis, prepared on November 13, 2014, should be
read in conjunction with the consolidated annual financial statements and related
notes for the year ended August 31, 2014. 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.
Caldwell Partners – Management Discussion and Analysis
4
Operating Results
Operating Revenue
Q1
Q2
Q3
Q4
Annual
Revenue $10,339 $9,158 $12,358 $13,231 $45,086
2014
2013
Period end number of partners
31
31
31
33
Average number of partners
32.6
31.6
31.0
32.0
33
31.7
Annualized revenue per partner $1,269
$1,159 $1,595 $1,654
$1,422
Revenue $7,417
$6,825 $9,223 $10,338 $33,803
Period end number of partners
33
34
35
33
Average number of partners
33.3
33.5
35.0
34.0
33
33.9
Annualized revenue per partner
$891
$815
$1,054 $1,216
$997
2014 fourth quarter revenue increased by 28% (24% excluding a 4% variance from
exchange rate fluctuations) over the comparable period last year to $13,231 (2013:
$10,338). 2014 annual revenue increased 33% (28% excluding a 5% favorable
variance from exchange rate fluctuations) over fiscal 2013 to $45,086 (2013:
$33,803).
The revenue increases for the quarter and full year compared to the same periods in
the prior year are attributable to increased partner productivity in both the US and
Canadian businesses, offset by fewer partners in the US. Revenue in the US for the
quarter was up 36% (30% excluding a 6% variance from exchange rate fluctuations),
from higher search volumes offset by fewer partners. For the year, US revenue was up
43% (34% excluding a 9% variance from exchange rate fluctuations), on higher
average fees and higher search volumes, partially offset by fewer partners. Fourth
quarter revenue in Canada was up 13%, primarily on increased average fees and to a
lesser extent larger search volumes, delivered by a consistent number of partners.
Full year revenue in Canada was up 16% on higher average fees with stable volumes
and number of partners. US revenues represent 70% of consolidated revenues in
2014 versus 66% a year ago, driven by the faster growth in US revenue relative to
Canada.
Caldwell Partners – Management Discussion and Analysis
5
Cost of Sales
2014
2013
Q1
$7,754
$5,620
Q2
$6,859
$5,595
Q3
$9,270
$7,183
Q4
Annual
$10,170
$34,053
$7,607
$26,005
Cost of sales, which is both variable and fixed compensation and related costs of
partners and other employees directly involved in search activities, were up 34%
(30% excluding a 4% variance from exchange rate fluctuations) to $10,170 in the
2014 fourth quarter over the comparable period a year earlier (2013: $7,607). The
increase was primarily from the variable compensation impact of the 28% rise in
revenue coupled with higher commission rates on increased per partner
performances, partly offset by increases in search delivery personnel which occurred
at a lower rate than the revenue increase. As a result, fourth quarter cost of sales
represented 77% of operating revenue in 2014 versus 74% in 2013.
For the full year 2014, cost of sales increased by 31% (25% excluding a 6% variance
from exchange rate fluctuations) over the prior year to $34,053 from $26,005,
reflecting the compensation impact of revenue increasing by 33% for the period and
higher commission rates on increased per partner performances, offset by increases
in search delivery personnel during 2014 which occurred at a lower rate than the
revenue growth, lower amortization of sign-on bonuses and lower net costs of the
Company’s CEO of the Year event. As a result, 2014 year-to-date direct costs
represented 76% of operating revenue versus 77% of revenue in 2013.
Gross Profit and Margin
Q1
Q2
Q3
Q4
Annual
2014
$2,585
$2,298
$3,089
$3,062
$11,034
25%
25%
25%
23%
24%
2013
$1,797
$1,230
$2,040
$2,731
$7,798
24%
18%
22%
26%
23%
Gross profit in the fourth quarter of 2014 increased by 12% (9% excluding a 3%
variance from exchange rate fluctuations) to $3,062 or 23% of revenue versus fourth
quarter in the previous year (2013: $2,731 or 26% of revenue); the result of the 28%
increase in revenue offset by the 34% increase in cost of sales.
Caldwell Partners – Management Discussion and Analysis
6
On a year-to-date basis, 2014 gross profit increased 41% (35% excluding a 6%
variance from exchange rate fluctuations) to $11,034, from $7,798 in 2013. The
increase was driven by the revenue increase of 33% on better performance in Canada
and the US, offset by the cost of sales increase of 31% from the increased
compensation costs on higher revenue and increases in search delivery personnel
costs. As a result, gross margin for 2014 was 24% (2013: 23%).
Expenses
2014
2013
Q1
$2,177
$1,850
Q2
$2,248
$1,889
Q3
$2,457
$2,406
Q4
$2,889
$1,785
Annual
$9,771
$7,930
Fourth quarter 2014 expenses increased 62% or $1,104 over the same period prior
year to $2,889 (2013: $1,785). Excluding exchange rate variances, expenses increased
$1,052 or 59% over the same period last year. The increase is the result of higher
compensation on improved company performance from both improved short-term
bonus achievement and the impact of share price increases on cash settled share-
based compensation plans ($756), higher occupancy costs ($86), higher legal fees
primarily related to the acquisition of Hawksmoor Search Limited and the
amalgamation of corporate entities ($72), and general cost increases across other cost
categories ($138).
Full year 2014 expenses increased 23% or $1,841 over the same period prior year to
$9,771 (2013: $7,930). Excluding exchange rate variances, expenses increased $1,583
or 20% over the same period last year. The increase came from higher compensation
on improved Company performance from improved short-term bonus achievement,
the implementation of a long-term performance share unit plan and the impact of
share price increases on cash settled share-based compensation plans ($1,351),
occupancy costs primarily from the move of the Stamford, Connecticut office in the
second quarter of fiscal 2013 ($158), recruitment expenses ($99), legal fees primarily
related to the acquisition of Hawksmoor Search Limited and the amalgamation of
corporate entities ($83), higher directors’ expenses arising from the impact of share
price increases on cash settled share-based compensation ($83), consulting expenses
($79) and net general cost increases across other cost categories ($176), offset by the
non-recurrence of severance expense ($446) incurred during Q3 of fiscal 2013
related to the separation of a partner in Canada.
Caldwell Partners – Management Discussion and Analysis
7
Operating Profit (Loss)
2014
2013
Q1
$408
4%
($52)
(1%)
Q2
$50
1%
($659)
(10%)
Q3
$633
5%
($367)
(4%)
Q4
$172
1%
$946
9%
Annual
$1,263
3%
($132)
0%
For the 2014 fourth quarter, higher revenue ($2,893) offset by higher cost of sales
($2,563) and expenses ($1,104) resulted in a decrease in operating profit of $774
over the comparable period in the prior year.
For the 2014 full year, higher revenue ($11,283) less related increased cost of sales
($8,048) and expenses ($1,841) resulted in operating profit of $1,263, a $1,395
increase over the prior year’s operating loss of $132.
Investment Income
2014
2013
Q1
$1
$2
Q2
$4
$7
Q3
$6
$2
Q4
$13
$2
Annual
$24
$13
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. As at August 31, 2014, the
entire investment portfolio is placed with a third party investment manager and held
in three pooled funds.
For the fourth quarter of 2014, the Company reported investment income of $13
compared to $2 from the comparable period last year. For the full year 2014, the
Company reported investment income of $24 compared to $13 from 2013. The
income amounts are the result of interest income on the investments and cash
balances invested in high-yield savings accounts and certificates of deposit.
As at August 31, 2014, the fair value of investments held by the Company of $7,809
(2013: $3,577) was $912 above book value, and reflecting an increase in value of
$232 during the year. This unrealized gain has been reflected in both other
comprehensive income and in the stated value of the investment portfolio.
Caldwell Partners – Management Discussion and Analysis
8
Net Earnings (Loss)
Earnings (Loss) Before Tax
2014
2013
Q1
$409
($50)
Q2
$54
Q3
$639
($652)
($365)
Q4
$185
$948
Annual
$1,287
($119)
For the fourth quarter of 2014, the revenue increase, less higher cost of sales and
expenses noted in the above discussion resulted in earnings before income taxes of
$185 compared to earnings before income taxes of $948 a year ago.
The full year 2014 earnings before income taxes were $1,287 compared to the $119
of loss before income taxes in 2013.
During the 2014 fourth quarter, the Company determined it was probable that it
would be able to utilize deferred tax assets within its US subsidiary. Accordingly, the
Company recognized a deferred tax credit of $2,443. This was partially offset by
current income tax expense of $1,736 and $1,763 for the quarter and year to date,
respectively. This resulted in a net tax credit of $707 (2013: expense of $155) for the
quarter and $680 (2013: expense of $163) for the year. The Company also has
Canadian loss carry-forwards available to be applied against taxable income as it
arises in future periods. As at August 31, 2014 no benefit for such future potential
Canadian deferred tax assets has been recorded.
Net Earnings (Loss)
2014
2013
Q1
$393
($56)
Q2
$43
Q3
$639
($653)
($366)
Q4
$892
$793
Annual
$1,967
($282)
Earnings (Loss) Per Share
2014
2013
$0.023
$0.002
$0.032
$0.044
$0.101
($0.003)
($0.038)
($0.021)
$0.045
($0.017)
The fourth quarter net earnings were $892 ($0.044 per share) in 2014, as compared
to $793 of net earnings ($0.045 per share) in the comparable period a year earlier.
The year-to-date net earnings after tax were $1,967 ($0.101 per share) in 2014,
versus a net loss of $282 (-$0.017 per share) in 2013.
Caldwell Partners – Management Discussion and Analysis
9
Dividends
Since shareholders approved a restatement of capital on May 1, 2012 that allowed the
Company to reinstate the payment of quarterly dividends, total dividends declared
through August 31, 2014 are 16.0 cents per share or $2,937 in total, as reflected in the
following chart:
Declaration Date
Payment Date
May 1, 2012
July 23, 2012
June 15, 2012
September 14, 2012
November 15, 2012
December 14, 2012
January 11, 2013
March 15, 2013
April 11, 2013
July 11, 2013
June 14, 2013
September 13, 2013
November 8, 2013
December 13, 2013
January 20, 2014
March 14, 2014
April 10, 2014
July 10, 2014
June 13, 2014
September 12, 2014
Dividend
per Share
Aggregate
Amount
$0.015
$0.015
$0.015
$0.015
$0.015
$0.015
$0.0175
$0.0175
$0.0175
$0.0175
$255
$255
$256
$256
$256
$256
$299
$368
$368
$368
On November 13, 2014 the Board of Directors declared a dividend of 2.0 cents per
share, payable to holders of Common Shares of record on November 25, 2014 and to
be paid on December 12, 2014.
Liquidity and Capital Resources
As of August 31, 2014, the Company had $7,809 of marketable securities plus cash
and cash equivalents including restricted cash of $13,195, for a total cash and
marketable securities balance of $21,004, up $9,559 from $11,445 at year-end 2013.
The increase is due to cash proceeds from the private placement, 2014 operating
income and resultant cash flows from operations less dividend payments to
shareholders, capital expenditures and net increases from other changes including
foreign currency fluctuations and partner sign-on bonuses.
Unencumbered cash, a non-GAAP measure, that we define as the net of cash and cash
equivalents, restricted cash, marketable securities, current accounts receivable, net
Caldwell Partners – Management Discussion and Analysis
10
deferred tax assets to be recovered within 12 months and total liabilities excluding
deferred revenue and deferred compensation expense related to deferred revenue
totals approximately $11,396 at August 31, 2014, up from $6,797 at the end of fiscal
2013. The increase is the result of the cash proceeds from the private placement and
cash flow from operations, offset increased current taxes payable, sign-on payments
to certain new partner hires, dividend payments issued during the fiscal 2014, capital
expenditures and exchange rate fluctuations.
Accounts receivable were $8,141 at August 31, 2014, up $1,052 from $7,089 at the
end of fiscal 2013. Days outstanding based on quarterly revenue were 55 days at
August 31, 2014 versus 56 days at August 31, 2013. At August 31, 2014, a reserve of
$389 or approximately 31% of accounts over 90 days old has been taken.
Total liabilities were $21,837 at August 31, 2014, up $9,328 from $12,509 at the end
of 2013 reflecting an increase in commissions and bonuses payable on the increased
revenue in 2014 compared to 2013, the increase in current taxes payable in 2014
compared to 2013 and the increase in the deferral of revenue in 2014 net of the
related deferral of compensation expense.
The Company’s investment in property and equipment at August 31, 2014 was $1,610
compared with $1,361 at the end of 2013. This reflects additions of $609 and
depreciation expense of $354, disposals of $20 and exchange rate fluctuations over
the year of $14. Capital expenditures included computer hardware and software,
leasehold improvements and office furniture and equipment.
Shareholders’ equity at August 31, 2014 was $14,378, up $4,152 from $10,226 at the
end of 2013. This increase reflects the $3,251 in proceeds from the private placement,
year-to-date net earnings of $1,967, dividend payments of $1,401, an unrealized gain
on marketable securities of $232, translation gains on consolidation of $99 and share-
based payment expense of $6.
The Board of Directors believes the payment of regular dividends is in the best
interests of the Company and its shareholders. Subsequent to shareholder approval of
the restatement of capital on May 1, 2012, the Company has now declared ten
quarterly dividends through August 31, 2014. On November 13, 2014 the Board of
Directors declared a dividend of 2.0 cents per share, payable to holders of Common
Shares of record on November 25, 2014 and to be paid on December 12, 2014.
Caldwell Partners – Management Discussion and Analysis
11
Business Outlook
Improving market conditions prevailed throughout fiscal 2014, resulting in a marked
increase in productivity measures on a per partner basis. Entering into fiscal 2015, we
are intensifying our focus on growth through the addition of high caliber search
professionals. To that end, the Company closed an agreement on October 1, 2014 to
acquire Hawksmoor Search Limited in London, United Kingdom. The acquisition
solidifies our premier insurance practice, establishes the Company’s UK and
European footprint, and expands our reach into additional client markets. We also
continue to pursue organic growth, as we seek to build our practice and functional
offerings across geographies in United States, Canada and now, Europe. Our focus
remains on the higher end of the search market, where high-touch search is seen as
an important business investment, rather than an expense. This work allows us to
deliver the most value and return to our clients, as well as our shareholders, as it
contributes to both higher search fees and productivity efficiencies.
Related Party Transactions
Pursuant to its lease agreements, the Company paid rent for its Toronto office to an
affiliated company owned by a shareholder, C. Douglas Caldwell, registered as owning
more than 10% of the Company. 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. Occupancy costs within general and
administrative expenses in the consolidated statements of earnings (loss) have been
recognized for the year ended August 31, 2014 in the amount of $200 (2013: $200).
Critical Accounting Estimates & 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 consolidated
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.
Caldwell Partners – Management Discussion and Analysis
12
Revenue recognition
The Company’s method of revenue recognition requires it to estimate the expected
average performance period and the percentage of completion, based on the
proportion of the estimated effort to fulfill the Company’s obligations throughout the
expected average performance period for its executive searches. Differences between
the estimated percentage of completion and the amounts billed will give rise to a
deferral of revenue to a future period. Changes in the average performance period or
the proportion of effort expended throughout the performance period for its
executive searches could lead to an under or overvaluation of revenue. Further
information on deferred revenue is included in note 11 to the consolidated financial
statements.
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 operations in future
periods.
Impairment of Goodwill
The Company tests at least annually whether goodwill is subject to any impairment.
Various assumptions are made in performing this test, including estimates of future
revenue streams, operating costs and discount rates. Future results that differ from
management’s current estimates would affect the results of operation in future
periods.
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; 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
Caldwell Partners – Management Discussion and Analysis
13
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 funds designed to
adequately diversify its investments to reduce investment risk. Currently,
professional investment managers invest and manage the entire $7,809 investment
portfolio in accordance with the Company’s investment policies. As at August 31,
2014, marketable securities, cash and cash equivalents and restricted cash total
approximately $21,004. With the volatility of capital markets, returns on the
Company’s investment portfolio may diminish.
As the Company’s operations in the United States continue to expand, foreign
exchange risk will also increase. At August 31, 2014, the Company was not hedging
this risk.
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining the Company’s disclosure controls and procedures. The
Chief Executive Officer and Chief Financial Officer, in conjunction with the Board of
Directors, review any material information affecting the Company to evaluate and
determine the appropriateness and timing of public release.
The Chief Executive Officer and the Chief Financial Officer, after evaluating the
effectiveness of the Company’s disclosure procedures as at August 31, 2014, 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 consolidated 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
Caldwell Partners – Management Discussion and Analysis
14
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 judgment in evaluating controls and procedures.
Management has used the criteria established in Internal Control - Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) 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 consolidated financial statements for external purposes in accordance
with IFRS as at August 31, 2014.
Management has also evaluated whether there were changes in the Company’s
internal controls over financial reporting during the reporting period ended August
31, 2014 that materially affected, or are reasonably likely to affect, the Company’s
internal controls over financial reporting. Management has determined that no
changes occurred during the quarter ended August 31, 2014 that would have a
material impact.
Other Information
Additional information relating to the Company, including the Company’s Annual
Information Form, is available on SEDAR at www.sedar.com
Caldwell Partners – Management Discussion and Analysis
15
Consolidated
Financial Statements
For the Years Ended August 31, 2014 and 2013
Caldwell Partners – Consolidated Financial Statements
16
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 International Financial Reporting
Standards as issued by the International Accounting Standards Board 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 professional
accountants, has been appointed by the shareholders as the 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
C. Christopher Beck, CPA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECRETARY AND CHIEF FINANCIAL
OFFICER
November 13, 2014
Caldwell Partners – Consolidated Financial Statements
17
Independent Auditor’s Report
To the Shareholders of
The Caldwell Partners International Inc.
We have audited the accompanying consolidated financial statements of The Caldwell Partners International
Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at August 31, 2014
and August 31, 2013 and the consolidated statements of earnings (loss), comprehensive earnings, changes in
equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
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 Caldwell Partners International Inc. and its subsidiaries as at August 31, 2014 and August 31, 2013 and
their financial performance and their cash flows for the years then ended in accordance with International
Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
November 13, 2014
Caldwell Partners – Consolidated Financial Statements
18
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in $Canadian)
Assets
Current assets
Cash and cash equivalents
Marketable securities (note 4)
Accounts receivable
Prepaid expenses and other assets
Non-current assets
Restricted cash
Advances
Property and equipment (note 5)
Intangible assets (note 6)
Goodwill (note 7)
Deferred income taxes (note 12)
Total assets
Liabilities
Current liabilities
Accounts payable
Compensation payable (notes 10 and 11)
Dividends payable (note 14)
Income taxes payable
Deferred revenue (note 11)
Compensation payable (note 10)
Equity attributable to owners of the Company
Share capital (note 14)
Contributed surplus (note 14)
Accumulated other comprehensive income
Deficit
Total equity
Total liabilities and equity
As at
August 31
2014
As at
August 31
2013
12,742,873
7,809,403
8,141,145
1,364,383
30,057,804
452,138
195,033
1,609,811
384,470
1,072,315
2,443,435
7,612,957
3,576,811
7,088,555
1,060,998
19,339,321
255,012
292,035
1,360,646
447,434
1,039,922
-
36,215,006
22,734,370
1,399,983
15,752,702
367,513
1,790,091
1,974,144
21,284,433
1,345,146
9,156,182
255,983
13,741
1,357,718
12,128,770
552,799
21,837,232
379,981
12,508,751
7,330,563
16,253,631
911,417
(10,117,837)
14,377,774
36,215,006
4,080,020
16,247,987
580,959
(10,683,347)
10,225,619
22,734,370
The accompanying notes are an integral part of these financial statements.
Signed on behalf of the Board:
G. Edmund King
Chair of the Board
Kathryn A. Welsh
Chair of the Audit Committee
Caldwell Partners – Consolidated Financial Statements
19
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(in $Canadian)
Revenues (note 11)
Cost of sales (notes 8 and 11)
Gross profit
Expenses (note 8)
General and administrative
Sales and marketing
Foreign exchange gain
Operating profit (loss)
Investment income
Earnings (loss) before income tax
Years ended
August 31
2014
2013
45,086,251
33,802,994
34,052,702
11,033,549
26,005,284
7,797,710
9,097,474
751,408
(78,128)
9,770,754
1,262,795
7,275,173
689,686
(35,035)
7,929,824
(132,114)
23,944
12,713
1,286,739
(119,401)
Income tax (recovery) expense (note 12)
Net earnings (loss) for the year attributable to owners of the Company
(680,047)
162,503
1,966,786
(281,904)
Earnings (loss) per share (note 13)
Basic
Diluted
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE EARNINGS
(in $Canadian)
Net earnings (loss) for the year
Other comprehensive income:
Items that may be reclassified subsequently to net earnings (loss)
Unrealized gain on marketable securities (note 4)
Cumulative translation adjustment
Comprehensive earnings for the year attributable to owners of the Company
The accompanying notes are an integral part of these financial statements.
0.101
0.100
(0.017)
(0.017)
Years ended
August 31
2014
2013
1,966,786
(281,904)
231,632
98,826
2,297,244
273,767
184,900
176,763
Caldwell Partners – Consolidated Financial Statements
20
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in $Canadian)
Accumulated Other Comprehensive
Earnings (Loss)
Deficit
Share Capital
Contributed
Surplus
Cumulative
Translation
Adjustment
Unrealized
Gains on
Marketable
Securities
Total
Equity
Balance - August 31, 2012
(9,377,513)
4,016,020
16,245,848
(284,523)
406,815
11,006,647
Net loss for the year
(281,904)
Dividend payments declared (note 14)
(1,023,930)
Employee stock option plan share issue
Share-based payment expense
Change in unrealized gains on
marketable securities
Change in cumulative translation adjustment
-
-
-
-
-
-
-
-
64,000
(14,776)
-
-
-
16,915
-
-
-
-
-
-
-
-
-
-
-
(281,904)
(1,023,930)
49,224
16,915
273,767
273,767
184,900
-
184,900
Balance - August 31, 2013
(10,683,347)
4,080,020
16,247,987
(99,623)
680,582
10,225,619
Net earnings for the year
1,966,786
Dividend payments declared (note 14)
(1,401,276)
Share-based payment expense
Common share issuance (note 14)
Change in unrealized gain on
marketable securities
Change in cumulative translation adjustment
-
-
-
-
-
-
-
3,250,543
-
-
-
-
5,644
-
-
-
Balance - August 31, 2014
(10,117,837)
7,330,563
16,253,631
The accompanying notes are an integral part of these financial statements.
-
-
-
-
-
98,826
(797)
-
-
-
-
1,966,786
(1,401,276)
5,644
3,250,543
231,632
231,632
-
98,826
912,214
14,377,774
Caldwell Partners – Consolidated Financial Statements
21
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in $Canadian)
Cash provided by (used in)
Operating activities
Net earnings (loss) for the year
Adjustments for:
Depreciation
Amortization
Share-based payment expense
Unrealized foreign exchange on subsidiary loans
(Decrease) increase in non-current severance accrual
(Increase) decrease in deferred taxes
Increase in non-current share-based compensation accrual
Disposal of property and equipment
Net changes in working capital
Increase in accounts receivable
Decrease in income taxes recoverable
Increase in prepaid expenses and other assets
Increase in accounts payable
Increase in compensation payable
Increase in income taxes payable
Increase in dividends payable
Payment of share-based compensation
Increase in deferred revenue
Net cash provided by operating activities
Investing activities
Purchase of marketable securities
Decrease (increase) in advances
Increase in restricted cash
Additions to property and equipment
Net cash used in investing activities
Financing activities
Dividend payments
Common share issuance
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
The accompanying notes are an integral part of these financial statements.
Years ended
August 31
2014
2013
1,966,786
(281,904)
354,256
76,326
5,644
(60,689)
(148,750)
(2,458,962)
321,568
20,079
(1,024,956)
-
(291,772)
35,971
6,798,423
1,787,888
-
(330,313)
599,825
7,651,324
(4,000,960)
105,466
(198,364)
(608,558)
(4,702,416)
(1,289,746)
3,250,543
1,960,797
220,211
5,129,916
7,612,957
12,742,873
400,283
71,563
21,339
(164,300)
44,964
77,403
148,750
-
(722,625)
49,501
(248,119)
303,171
1,250,695
12,465
1,201
-
1,348,890
2,313,277
-
(177,627)
(2,046)
(221,360)
(401,033)
(1,023,930)
44,800
(979,130)
185,597
1,118,711
6,494,246
7,612,957
Caldwell Partners – Consolidated Financial Statements
22
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Years Ended August 31, 2014 and August 31, 2013
(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 13, 2014.
2. Basis of Presentation
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
3. Summary of Significant Accounting Policies, Judgments and Estimation Uncertainty
Summary of 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.
Consolidation
These consolidated financial statements include the assets and liabilities and results of operations of the
Company and its subsidiaries. In Canada the subsidiaries include Prince Arthur Advertising Inc., Caldwell
Interim Executives Inc. and Caldwell Investments Inc. In the United States, the subsidiary is The Caldwell
Partners International Ltd. Effective September 1, 2014, all Canadian subsidiaries were amalgamated with
The Caldwell Partners International Inc. leaving The Caldwell Partners International Inc. as the only
Canadian entity.
All intercompany transactions, balances and unrealized gains and losses from intercompany transactions are
eliminated on consolidation.
Subsidiaries are all those entities over which the Company has control. The Company controls an entity when
it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
Caldwell Partners – Consolidated Financial Statements
23
affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Company. They are deconsolidated from the date control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities assumed
at the date of acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the acquisition date, irrespective of the
extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the
Company's share of the identifiable net assets acquired is recorded as goodwill. The Company records
contingent consideration agreements at fair value and is classified at fair value through profit or loss with
movements in the fair value being recognized within finance expense in the consolidated statements of
earnings (loss).
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). 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
statements of earnings (loss), within foreign exchange gain.
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.
Caldwell Partners – Consolidated Financial Statements
24
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 and a cash balance set aside by a US financial
institution for collateral security on a letter of credit made out to the landlord of a leased facility.
Advances
Advances are sign-on payments made to employees to join the Company. Such amounts may be recouped if the
employee leaves the Company before a contractually stipulated period of time has lapsed, usually 24 to 36
months from their start date. The advances are amortized to expenses on a straight-line basis over the life of
the contractual recoupment period.
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 statements of financial position
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 US currency (see (v) below).
Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs
are expensed in the consolidated statement of earnings (loss). Gains and losses arising from changes in fair
value are presented in the statements of earnings (loss) within general and administrative expenses 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 statements of
financial position 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.
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
statements of earnings (loss) as part of investment income. Dividends on available-for-sale equity instruments
are recognized in the statements of earnings (loss) as part of investment income 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 statements of earnings (loss)
and are included in investment income.
Caldwell Partners – Consolidated Financial Statements
25
(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.
(iv) Other financial liabilities at amortized cost: Financial liabilities at amortized cost include accounts
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, financial liabilities
at amortized cost 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 enters into short-term foreign-exchange periodically to sell
US currency. Foreign exchange contracts are purchased from a reputable financial institution. The Company
has a risk of loss in the event 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 foreign
exchange contracts are included in general and administrative expenses on the statements of earnings (loss).
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
statements of earnings (loss). This amount represents the cumulative loss in accumulated other comprehensive
income that is reclassified to net earnings.
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.
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 statements of earnings (loss) during the period in which they are
incurred.
Caldwell Partners – Consolidated Financial Statements
26
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 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 general and administrative expenses in the statements
of earnings (loss).
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 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 (which is 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.
Stock-based compensation
The Company grants stock options, restricted stock units, performance stock units and deferred stock units
periodically to certain employees and directors.
Stock options currently outstanding vest over two or 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 statements of earnings (loss) in the period in which they occur.
Restricted stock units (RSUs) are notional 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 updated at each reporting date. Compensation expense is recognized on a straight-line basis
over the vesting period.
Performance stock units (PSUs) are notional common shares of the Company that cliff vest three years from
the date of grant and are settled in cash. The amount to be paid on vesting is dependent on the Company’s
Caldwell Partners – Consolidated Financial Statements
27
share price at the vesting date and a performance factor ranging between 50% and 150% based on the
Company’s actual revenue and net operating profit performance compared to targets set by the Board of
Directors each year over the cumulative three-year service period.
Deferred stock units (DSUs) are notional shares of the Company that are issued to the Board of Directors as a
component of their annual retainer. These DSUs vest only when the Board Member leaves the Board and are
settled in cash.
The awards have been recorded as a current or long-term incentive accrual depending on when they vest.
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. To the extent revenue is deferred for recognition in a future period, the Company will also defer
the related amount of estimated compensation expense directly associated with such deferred revenue.
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 taxes
Income taxes comprises both current and deferred tax. Income tax is recognized in the statements of earnings
(loss) 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 income taxes are the expected taxes 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 taxes 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 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
statement of financial position dates and are expected to apply when the deferred tax asset or 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 consists of retainers and indirect expenses billed to clients based on terms set forth in signed
engagement letters with each client. The Company is typically paid a retainer for its executive search services,
Caldwell Partners – Consolidated Financial Statements
28
equal to one-third of the position’s estimated first year compensation. The Company’s standard practice is to
bill its clients for its retainer and indirect expenses in one-third increments over a three-month period
commencing in the month of a client’s acceptance of the contract. Any fees earned in excess of the retainer or
fees that are contingent on a candidate’s future compensation are billed when actual compensation of the
placed candidate is known. Indirect expenses are generally calculated as a percentage of the retainer with
certain dollar limits per search.
Revenue is recognized when it is probable that that the economic benefits will flow to the Company and
service has been provided, the fee is determinable, and collectability is reasonably assured. Revenue from
standard executive search engagements is recognized over the expected average performance period, in
proportion to the estimated effort to fulfill the Company’s obligations under the engagement terms. To the
extent that there are differences between the estimated percentage of completion based on the expected average
performance period and amounts billed, the Company defers a portion of revenue to be recognized in a future
period and records this as deferred revenue on the statements of financial position.
Revenue in excess of the retainer, resulting from actual compensation of the placed candidate exceeding the
estimated compensation, is recognized on completion of the executive search when the amount of the
additional fee is known. Revenue from certain non-standard executive search engagements is recognized in
accordance with the completion of the engagement deliverables.
Cost of sales
Cost of sales includes direct costs associated with the generation of revenue, which is both variable and fixed
compensation and the related costs of employees involved in search activities. When revenue is deferred, the
related amount of estimated compensation expense directly associated with such deferred revenue is also
deferred. This expense deferral is recorded as a reduction in compensation payable on the statements of
financial position.
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 office space 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.
Caldwell Partners – Consolidated Financial Statements
29
Dividends
Dividends on common shares are recognized in the Company's financial statements in the period in which the
dividends are approved by the Board of Directors of the Company.
Earnings per share
Basic earnings per share ("EPS") is calculated by dividing the net earnings 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 instruments consist of stock
options.
New standards, amendments and interpretations adopted by the Company
The Company has adopted the following new and revised standards, along with any consequential
amendments, effective September 1, 2013. These changes were made in accordance with the applicable
transitional provisions.
IFRS 10, Consolidated Financial Statements (IFRS 10)
IFRS 10 replaced the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial
Statements, and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 provides a single model for
consolidation of an investee only if the investor possesses the ability to direct the activities of that entity and
has exposure to variable returns from its involvement with the investee. The Company assessed its
consolidation conclusions on September 1, 2013 and determined that the adoption of IFRS 10 did not result in
any change in the consolidation status of any of its subsidiaries.
IFRS 13, Fair Value Measurement (IFRS 13)
IFRS 13 provides a single framework for measuring fair value. The measurement of the fair value of an asset
or liability is based on assumptions that market participants would use when pricing the asset or liability under
current market conditions, including assumptions about risk. The Company adopted IFRS 13 on September 1,
2013 on a prospective basis. The adoption of IFRS 13 did not require any adjustments to the valuation
techniques used by the Company to measure fair value and did not result in any measurement adjustments as
at September 1, 2013.
Accounting standards issued but not yet applied
IFRS 9, Financial Instruments (IFRS 9)
The final version of IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will replace
International Accounting Standard (IAS) IAS 39 Financial Instruments: Recognition and Measurement. IFRS
9 introduces a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment
model and a substantially reformed approach to hedge accounting. The new single, principle based approach
for determining the classification of financial assets is driven by cash flow characteristics and the business
model in which an asset is held. The new model also results in a single impairment model being applied to all
financial instruments, which will require more timely recognition of expected credit losses. It also includes
changes in respect of the entity’s own credit risk in measuring liabilities elected to be measured at fair value,
so that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer
recognized in profit or loss. IFRS 9 is effective for annual periods beginning on or after January 1, 2018,
however is available for early adoption. In addition, the entity’s own credit changes can be early applied in
Caldwell Partners – Consolidated Financial Statements
30
isolation without otherwise changing the accounting for financial instruments. The Company has yet to assess
the full impact of IFRS 9 and has not yet determined when it will adopt the new standard.
IFRS 15, Revenue from Contracts with Customers (IFRS 15)
This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue and IFRIC 13 Customer Loyalty
Programs. This standard outlines a single comprehensive model for entities to account for revenue arising
from contracts with customers. The latest date of mandatory implementation of IFRS 15 is January 1, 2017.
The Company has not yet assessed the potential impact of IFRS 15.
IAS 32, Financial Instruments: Presentation (IAS 32)
This standard outlines the accounting requirements for the presentation of financial instruments as financial
liabilities or equity and for offsetting financial assets and financial liabilities. The Company is currently
considering the impact of IAS 32 and intends to adopt IAS 32 no later than September 1, 2014.
IAS 36, Impairment of Assets (IAS 36)
This standard prescribes the procedure the Company applies to ensure its assets are not carried at more than
their recoverable amount. The company is required to conduct impairment tests where there is an indication of
impairment of an asset, and the test is conducted for a cash-generating unit (CGU) where an asset does not
generate cash inflows that are largely independent of those from other assets. The standard was modified to
clarify some of the disclosure requirements regarding the recoverable amount of impaired assets and CGUs
with significant goodwill or intangible assets with indefinite useful lives. The Company is currently
considering the impact of these changes and intends to adopt IAS 36 no later than September 1, 2014.
IFRIC 21, Levies (IFRIC 21)
This standard sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation
addresses what the obligating event is that gives rise to pay a levy and when a liability should be recognized.
The Company is currently considering the impact of the IFRIC and intends to adopt IFRIC 21 no later than
September 1, 2014.
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 the expected average performance period
and the percentage of completion, based on the proportion of the estimated effort to fulfill the Company’s
obligations throughout the expected average performance period for its executive searches. Differences
between the estimated percentage of completion and the amounts billed will give rise to a deferral of revenue
to a future period. Changes in the average performance period or the proportion of effort expended throughout
the performance period for its executive searches could lead to an under or overvaluation of revenue. Further
information on deferred revenue is included in note 11.
Allowance for doubtful accounts
Caldwell Partners – Consolidated Financial Statements
31
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. 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 7. Future results that
differ from management’s current estimates would affect the results of operation in future periods.
4. Marketable Securities
The Company has investments in managed funds (classified as available-for-sale financial assets), which are
comprised of the following:
Fair
value
7,809,403
3,576,811
Cost, net
of writedowns
and provisions
6,897,191
2,896,231
August 31
2014
2013
During fiscal 2014 and 2013, the Company recorded no realized gains or losses on disposition of available-
for-sale marketable securities. An unrealized gain of $231,632 was recognized as part of other comprehensive
income during the year (2013: $273,767).
Furniture and
equipment
Computer
equipment
Computer application
software
Leasehold
improvements
Total
5. Property and Equipment
Year ended August 31, 2013:
Opening net book value
Additions
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2013:
535,427
92,530
(116,064)
19,314
531,207
190,746
81,783
(70,987)
7,124
208,666
Cost
Accumulated depreciation
Net book value
2,277,831
(1,746,624)
531,207
2,075,601
(1,866,935)
208,666
Year ended August 31, 2014:
Opening net book value
Additions
Disposals
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2014:
531,207
145,603
(20,079)
(118,618)
5,833
543,946
208,666
110,465
-
(78,246)
2,291
243,176
87,795
35,745
(77,281)
4,198
50,457
722,584
(672,127)
50,457
50,457
5,065
-
(37,586)
554
18,490
690,047
11,302
(135,951)
4,918
570,316
1,504,015
221,360
(400,283)
35,554
1,360,646
2,592,192
(2,021,876)
570,316
7,668,208
(6,307,562)
1,360,646
570,316
347,425
-
(119,806)
6,264
804,199
1,360,646
608,558
(20,079)
(354,256)
14,942
1,609,811
Cost
Accumulated depreciation
Net book value
2,229,596
(1,685,650)
543,946
2,188,357
(1,945,181)
243,176
728,203
(709,713)
18,490
2,944,041
(2,139,842)
804,199
8,090,197
(6,480,386)
1,609,811
Depreciation of property and equipment is included in general and administrative expenses in the statements
of earnings (loss). Disposals of fully depreciated assets have been derecognized amounting to cost and
Caldwell Partners – Consolidated Financial Statements
32
accumulated depreciation of $199,671 and $179,592, respectively (2013: $182,753 and $182,753,
respectively).
6.
Intangible Assets
Year ended August 31,
Opening net book value
Amortization for the year
Exchange differences
Closing net book value
At August 31,
Cost
Accumulated amortization
Net book value
2014
2013
447,434
(76,326)
13,362
384,470
780,683
(396,213)
384,470
488,647
(71,563)
30,350
447,434
767,321
(319,887)
447,434
Intangible assets consist of client lists from acquired entities and are stated at cost less accumulated
amortization. These intangible assets are amortized on a straight-line basis in the statements of earnings (loss)
to general and administrative expenses over their estimated useful life of 10 years with 5 years remaining.
Disposals of fully amortized software assets were derecognized during 2013 amounting to cost and
accumulated amortization of $1,266,029.
7. Goodwill
In assessing goodwill for impairment at August 31, 2014 and 2013, the Company compared the aggregate
recoverable amount of the assets included in the 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 a one-year cash
flow budget. For periods beyond the budget period, cash flows were extrapolated using the growth rates in the
table below. Assumptions made were as follows:
Average growth rate
Expected gross margin
Discount rate
2014
2013
5%
25%
8%
0%
27%
8%
The impairment tests performed resulted in no impairment at August 31, 2014 or 2013.
8. Nature of Expenses
Compensation costs
Occupancy costs
Sales and marketing
Depreciation
Amortization
Other
2014
2013
37,504,230
3,433,571
751,408
354,256
76,326
1,703,665
43,823,456
28,449,009
3,142,354
689,686
400,283
71,563
1,182,213
33,935,108
Caldwell Partners – Consolidated Financial Statements
33
9. Compensation of Key Management
Key management includes the Board of Directors and named executive officers of the Company.
Compensation expense pertaining to key management included:
Salaries and short-term benefits
Share-based compensation expense
10. Compensation Payable
2014
2013
2,027,248
814,254
2,841,502
1,230,289
237,552
1,467,841
The Company maintains certain short-term and long-term incentive plans designed to align compensation
with performance. Compensation payable consisted of the following:
Current compensation payable
Commissions and bonuses
Performance and Restricted Stock Units
Severance
Non-current compensation payable
Performance and Restricted Stock Units
Deferred Stock Units
Severance
Commissions and bonuses
As at August 31
2014
15,053,725
550,227
148,750
15,752,702
2013
8,708,181
238,001
210,000
9,156,182
As at August 31
2014
423,115
129,684
-
552,799
2013
231,231
-
148,750
379,981
Commissions and bonuses represent incentive compensation for search delivery and support personnel. Such
amounts are paid at various points during the year and are short-term in nature.
Severance
During fiscal 2013, the Company reached an agreement to pay an employee a severance of $446,250. The
severance is to be paid out monthly in equal cash installments to the end May 2015. Under certain
circumstances for the former employee, the Company may recoup a portion of the settlement.
Share-based compensation plans
Performance Stock Units (PSUs) and Restricted Stock Units (RSUs)
RSUs are notional common shares of the Company that are restricted to be issued to members of the
management team. During the year, the senior management long-term incentive structure was changed from
RSUs to PSUs. PSUs are notional common shares of the Company that cliff vest three years from the date of
grant and are settled in cash. The future amount to be paid at vesting is dependent on the share price at the
vesting date and a performance factor ranging between 50% and 150% based on the Company’s actual
revenue and net operating profit performance compared to targets set by the Board of Directors each year over
the cumulative three-year service period.
Caldwell Partners – Consolidated Financial Statements
34
RSUs are notional common shares of the Company that 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.
The estimated cost of the PSU plan is being amortized on a straight-line basis over the three-year vesting
period with a performance factor currently estimated at 108% of target. PSU expense of $187,995 has been
recorded for the year ended August 31, 2014 (2013: $ nil) within general and administrative expenses in the
statements of earnings (loss).
RSU expense of $646,129 has been recorded for the year ended August 31, 2014 (2013: $282,965) within
general and administrative expenses in the statements of earnings (loss).
A summary of the Company’s PSU and RSU plans is presented below:
2013
2014
Notional Notional
units
836,000
294,667
-
-
(205,333)
925,334
units
925,334
618,153
152,655
(358,710)
-
1,337,432
Outstanding at beginning of period
Granted
Dividends declared
Settled
Cancelled
Outstanding at end of period
Deferred Stock Units (DSUs)
During the year, the Board of Directors compensation structure was changed from a retainer and per meeting
fee paid all in cash to a fixed fee annual retainer. Under this structure, each non-employee Board Member
receives approximately 50% of the annual retainer in cash and 50% in the form of notional deferred stock
units issued at fair market value on the date of the grant, which track the performance of the Company’s
common shares over time.
DSU expense of $129,684 has been recorded (2013: $ nil) within general and administrative expenses in the
statements of earnings (loss).
A summary of the Company’s DSU plan is presented below:
Outstanding at beginning of period
Granted
Dividends declared
Outstanding at end of period
2014
Notional
units
-
87,600
2,253
89,853
Caldwell Partners – Consolidated Financial Statements
35
11. Deferred Revenue
The Company’s method of revenue recognition requires it to estimate the expected average performance period
and the proportion of the estimated effort to fulfill the Company’s obligations throughout the average
performance period for its executive searches. Differences between the revenue recognition period and the
billing period will give rise to a deferral of revenue. When this occurs the Company defers a portion of the
amounts billed to be recognized in a future period.
At August 31, 2014, the Company had deferred revenue of $1,974,144 (2013: $1,357,718) and related
deferred compensation expense of $892,657 (2013: $582,038), with such amounts to be recognized during a
future period. These amounts are reflected as reductions in revenue and cost of sales in the statements of
earnings (loss).
12.
Income Taxes
Current income tax:
2014
2013
Current tax on net earnings (loss) for the year
1,763,388
89,201
Deferred income tax:
Origination and reversal of temporary differences
(2,443,435)
(680,047)
73,302
162,503
The income 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:
Combined statutory income tax rate
Deferred tax assets not previously recognized
Non-deductible expenses
Prior years taxes
Other
2014
2013
43.0%
(93.9%)
1.5%
(2.6%)
(0.9%)
(52.9%)
50.8%
(147.1%)
(22.8%)
(21.5%)
4.5%
(136.1%)
2014
2013
The analysis of deferred tax assets and liabilities is as follows:
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months
Deferred tax assets to be recovered within 12 months
192,338
2,545,071
265,456
100,620
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 12 months
Deferred tax liabilities to be recovered within 12 months
Deferred tax assets (net)
The movement of the deferred income tax acount is as follows:
As at September 1
Credit to statements of earnings (loss)
As at August 31
(202,949)
(91,025)
2,443,435
(265,456)
(100,620)
-
2014
2013
-
2,443,435
2,443,435
73,302
(73,302)
-
Caldwell Partners – Consolidated Financial Statements
36
The movement in deferred income tax assets and liabilites during the year, without taking into consideration the offsetting
of balances within the same tax jurisdiction, is as follows:
Deferred tax assets
Compensation Non-Capital
payable
losses
Other
Total
At August 31, 2012
(Charged)/credited to statements of earnings (loss)
At August 31, 2013
(Charged)/credited to statements of earnings (loss)
At August 31, 2014
73,302
(73,302)
-
2,338,897
2,338,897
371,974
(181,277)
190,697
(60,329)
130,368
175,378
175,378
92,765
268,143
445,276
(79,201)
366,075
2,371,333
2,737,408
Deferred tax liabilities
Excess carrying
value of P&E
over tax base
Other
Total
At August 31, 2012
(Charged)/credited to statements of earnings (loss)
At August 31, 2013
(Charged)/credited to statements of earnings (loss)
At August 31, 2014
319,379
(53,924)
265,455
(62,506)
202,949
52,595
48,025
100,620
(9,596)
91,024
371,974
(5,899)
366,075
(72,102)
293,973
Deferred income tax assets are recognized for tax loss carry-forwards and other temporary differences to the extent
that the realization of the related tax benefit through future taxable earnings are probable. The Company did not
recognize deferred income tax assets of $651,132 (2013: $1,745,084) that can be carried forward against future
taxable earnings.
As at August 31, 2014, the Company has non-capital losses in Canada with the following expiry dates available to
reduce earnings of future years;
Expiry
Amount
2029
2031
1,101,331
519,663
The Company also has capital losses of $3,531,000 that can only be utilized against capital gains and are without
expiry date.
13. Earnings (loss) per share
(i) Basic
Basic earnings (loss) per share are calculated by dividing the net earnings (loss) attributable to owners of
the Company by the weighted average number of common shares outstanding during the years.
2014
2013
Net earnings (loss) for the year attributable to owners of the Company
Weighted average number of common shares outstanding
Basic earnings (loss) per share
1,966,786
19,512,532
$0.101
(281,904)
17,048,628
($0.017)
Caldwell Partners – Consolidated Financial Statements
37
(ii) Diluted
Diluted earnings (loss) 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 year), 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.
2014
2013
Net earnings (loss) for the year attributable to owners of the Company
1,966,786
(281,904)
Weighted average number of common shares outstanding
adjustments for:
- stock options
Weighted average number of common shares for diluted
earnings (loss) per share
Diluted earnings (loss) per share
19,512,532
17,048,628
87,743
77,389
19,600,275
17,126,017
$0.100
($0.017)
In 2013 the impact of the share options was anti-dilutive therefore the diluted loss per share is equal to the
basic loss per share.
14. Capital Stock
Common Shares
As at August 31, 2014 the authorized share capital of the Company consists of an unlimited number of
common shares of which 21,000,155 are issued and outstanding (August 31, 2013: 17,065,505). 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.
On January 17, 2014, the Company closed a private placement with senior search professionals, officers and
directors of the Company for the purchase of common shares. Under the terms of the private placement, the
Company issued 3,934,650 common shares at a price $0.85, raising $3,344,453, less transaction costs of
$93,910 for net proceeds of $3,250,543. The purchase price was determined on the basis of the 10-trading day
weighted average price of the common shares on the TSX for the 10 trading days ended December 2, 2013
following the release of the Company’s year-end results. The common shares issued pursuant to the private
placement are subject to a hold period expiring on January 17, 2015.
The Company has declared quarterly dividends since May 1, 2012. A summary of dividends declared during
fiscal 2013 and 2014 to-date is as follows:
Declaration date
November 15, 2012
January 11, 2013
April 11, 2013
July 11, 2013
November 8, 2013
January 20, 2014
April 10, 2014
July 10, 2014
Payment date
December 14, 2012
March 15, 2013
June 14, 2013
September 13, 2013
December 13, 2013
March 14, 2014
June 13, 2014
September 12, 2014
Dividends
per share
$0.015
$0.015
$0.015
$0.015
$0.0175
$0.0175
$0.0175
$0.0175
Aggregate
dividends declared
$
255,983
$
255,983
$
255,982
$
255,982
$
298,737
$
367,513
$
367,512
$
367,513
Caldwell Partners – Consolidated Financial Statements
38
The dividend payable September 12, 2014 has been accrued in the Company’s financial statements as at
August 31, 2014.
On June 25, 2014, the TSX accepted the Company’s notice of intention to purchase through a normal course
issuer bid up to 1,050,008 of its common shares. No shares have been repurchased as at November 13, 2014.
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:
August 31, 2014
August 31, 2013
Number of
Weighted
Number of
Weighted
options
average
options
average
outstanding
exercise price
outstanding
exercise price
Outstanding at beginning of year
Options expired
Options exercised
Options granted
1,015,000
(640,000)
-
-
$0.93
$0.95
-
-
Outstanding at end of year
375,000
$0.93
Exercisable at end of year
325,000
$0.89
-
$0.56
$1.02
$0.93
995,000
-
(80,000)
100,000
1,015,000
777,500
All options currently outstanding vest over two or three years and have a contractual life of five years. Options
have an exercise price equal to the market value of the common shares on the date of issuance. Stock option
expense of $5,644 has been recorded in the year ended August 31, 2014 (2013: $21,339) within general and
administrative expenses. The fair value of the options granted in the previous year was determined using the
Black-Scholes option pricing model (using an expected volatility of 15.5%, a risk-free interest rate of 1%, a
dividend yield of 6%, and an estimated life of four years)
15. 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 statements of earnings (loss) by geographic segment
to the consolidated results:
Canada
2014
United States
Total
Canada
2013
United States
Total
Revenues
13,394,348
31,691,903
45,086,251
11,551,156
22,251,838
33,802,994
Gross profit
General and administrative
Sales and marketing
Foreign exchange gain (loss)
3,202,612
(3,338,686)
(228,569)
78,891
7,830,937
(5,758,788)
(522,839)
(763)
11,033,549
(9,097,474)
(751,408)
78,128
3,489,388
(3,281,123)
(173,723)
43,362
4,308,322
(3,994,050)
(515,963)
(8,327)
7,797,710
(7,275,173)
(689,686)
35,035
Operating profit (loss)
(285,752)
1,548,547
1,262,795
77,904
(210,018)
(132,114)
Investment income
Income taxes
Net earnings (loss) for the year
23,527
54,569
(207,656)
417
625,478
2,174,442
23,944
680,047
1,966,786
12,704
(86,970)
3,638
9
(75,533)
(285,542)
12,713
(162,503)
(281,904)
Caldwell Partners – Consolidated Financial Statements
39
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, 2014,
management fees amounted to $2,072,716 (2013: $1,235,887).
A summary of property and equipment, goodwill and total assets by country is as follows:
Property
and equipment
Intangible assets
Goodwill
At August 31, 2014
United States
Canada
Total
Canada
At August 31, 2013
United States
Total
847,676
762,135
1,609,811
820,661
539,985
1,360,646
-
-
384,470
384,470
1,072,315
1,072,315
-
-
447,434
447,434
1,039,922
1,039,922
Total assets
17,234,605
18,980,401
36,215,006
13,063,565
9,670,805
22,734,370
Depreciation recorded on property and equipment and amortization on intangible assets is as follows:
Canada
2014
United States
Total
Canada
2013
United States
Total
Depreciation expense
Amortization expense
186,693
-
167,763
76,326
354,456
76,326
209,458
-
190,825
71,563
400,283
71,563
16. 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 17, are as follows:
Year ending August 31, 2015
Year ending August 31, 2016
Year ending August 31, 2017
Year ending August 31, 2018
Year ending August 31, 2019
September 1, 2019 and thereafter
2,068,062
1,878,285
1,552,327
1,471,774
1,483,206
2,009,450
10,463,104
During the year ended August 31, 2014, the Company expensed $2,541,104 (2013: $2,350,803) 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 17. 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.
During 2014, the Company entered into a five-year letter of credit agreement with a United States financial
institution for collateral security on a letter of credit made out to the landlord of a leased facility. The letter of
credit commitment as at August 31, 2014 was $194,737.
Caldwell Partners – Consolidated Financial Statements
40
17. Related Party Transactions
Pursuant to its lease agreements, the Company paid rent for its Toronto office to an affiliated company owned
by a shareholder, C. Douglas Caldwell, registered as owning more than 10% of the Company. The amount of
consideration agreed to by the parties was determined to be the 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. Occupancy costs within general and administrative expenses in the statements of
earnings (loss) have been recognized for year ended August 31, 2014 in the amount of $200,343 (2013:
$200,343).
18. Financial Instruments
Classification of financial instruments
The classification of the financial instruments are shown in the table below.
Classification
Measurement
Cash and cash equivalents
loans and receivables
amortized cost
Marketable securities
Accounts receivable
Restricted cash
Accounts payable
available-for-sale
fair value
loans and receivables
amortized cost
loans and receivables
amortized cost
other financial liabilities
amortized cost
Compensation payable
other financial liabilities
amortized cost
Dividends payable
other financial liabilities
amortized cost
Fair value hierarchy
The Company categorizes its financial assets and liabilities measured at fair value into one of three different
levels depending on the observability of the inputs used in the measurement.
Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices
for identical assets and liabilities in active markets that are accessible at the measurement date.
Level 2: This level includes valuations determined using directly or indirectly observable inputs other than
quoted prices included within Level 1. Derivative 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 fair value hierarchy of marketable securities was Level 2 as at August 31, 2014 and 2013.
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 marketable securities 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 statements of earnings (loss). Realized gains and
losses are removed from accumulated other comprehensive income and recognized within the statements of
earnings (loss).
Caldwell Partners – Consolidated Financial Statements
41
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 US currency denominated monetary assets and liabilities. There
is a risk to the Company’s earnings from fluctuations in US 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, 2014, the Company has net monetary asset exposure of $4,884,547 denominated in US dollars
(2013: $3,287,975). A 5% depreciation or appreciation in the Canadian dollar against the US dollar, assuming
all other variables remained the same, would have resulted in an increase or decrease in foreign exchange
gain/(loss) of $244,227 recognized in the cumulative translation adjustment in the Company’s consolidated
statements of financial position for the year ended August 31, 2014 (2013: $164,399).
Based on market conditions and the judgment of management and the Board of Directors, the Company will
on occasion enter into foreign exchange forward contracts with a Canadian financial institution to sell US
dollars to reduce its foreign exchange risk. Two contracts to sell $1 million US each expired during the year
ending August 31, 2014, generating a net foreign exchange gain of $26,000 (2013: $57,000 loss) which has
been recorded in foreign exchange gains in the statements of earnings (loss) for the year. As at August 31,
2014, the fair value of the foreign exchange forward contracts was $ nil (2013: liability of $57,600).
Liquidity risk
Liquidity risk is the risk 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, 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 equivalents 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 undiscounted future cash flows of the Company’s significant non-derivative financial
liabilities are as follows:
As at August 31, 2014
As at August 31, 2013
Less than
6 months
Less than
6 months
6 months
to 1 year
1 to 3 years
6 months
to 1 year 1 to 3 years
Accounts payable
1,399,983
-
-
1,345,146
-
-
Compensation payable
15,708,952
43,750
552,799
9,051,182
105,000
379,981
Dividends payable
367,513
-
-
255,983
-
-
Caldwell Partners – Consolidated Financial Statements
42
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 advances. The Company
places its cash and cash equivalents with high credit quality financial institutions.
Accounts receivable were comprised of the following at August 31:
Accounts receivable
Less: Allowance for doubtful accounts
Other receivables
As at August 31
2014
2013
8,477,576
(389,384)
8,088,192
52,953
8,141,145
7,402,129
(352,031)
7,050,098
38,457
7,088,555
No financial assets are past due except for a portion of accounts receivable. As at August 31, 2014, accounts
receivable of $7,216,677 (2013: $6,372,255) were fully performing, $871,515 (2013: $677,843) were over 90
days but not impaired and $389,384 (2013: $352,031) were over 90 days and impaired.
The following table summarizes the changes in the allowance for doubtful accounts for the accounts
receivable:
As at August 31
2014
2013
Start of year
Provision for impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
End of year
352,031
356,543
(319,190)
-
389,384
531,800
340,517
(469,218)
(51,069)
352,031
Interest rate risk and market price risk
The Company has no external debt and therefore exposure to interest rate risk on debt facilities is minimal.
The Company does invest excess cash in short-term deposits and therefore decreases in interest rates impact
the amount of interest income earned from those investments. Marketable securities are comprised of
investments in pooled funds, which are also subject to market price risk (i.e., fair value fluctuates based on
changes in market prices).
At August 31, 2014, the Company has $7,809,403 invested in managed funds (2013: $3,576,811). 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 $390,470 (2013: $178,841).
Caldwell Partners – Consolidated Financial Statements
43
19. Capital management
The Company’s capital is comprised of common shares of the Company, contributed surplus 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.
20. Subsequent events
On October 1, 2014, the Company completed an agreement to acquire all of the outstanding shares of
Hawksmoor Search Limited (Hawksmoor), an executive search firm based in London, United Kingdom. The
purchase price consists of: (i) cash paid at close of GBP 450,000; (ii) 275,000 shares of The Caldwell Partners
International, Inc. newly issued at close; (iii) a net working capital adjustment to be paid in cash within 100
days of close; and (iv) cash to be paid annually over the following two years up to a cumulative maximum of
GBP 300,000 subject to Hawksmoor’s achieving certain revenue criteria. Hawksmoor’s financial balances and
results from operations will be consolidated into the Company’s financial statements beginning on October 1,
2014.
On November 13 2014, the Board of Directors declared a dividend of 2.0 cents per share, payable to holders of
common shares of record on November 25, 2014 and to be paid on December 12, 2014.
Caldwell Partners – Consolidated Financial Statements
44
Directors
Officers
G Edmund King, Chair of the Board
John N Wallace
Corporate Director
Paul R. Daoust
President and Chief Executive Officer
The Caldwell Partners International Inc.
Consultant and Corporate Director
C. Christopher Beck, CPA
Chief Financial Officer and Corporate Secretary
The Caldwell Partners International Inc.
Richard D Innes
Consultant and 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
Counsel
Miller Thomson LLP
Barristers and Solicitors, Toronto, Ontario
Stock Exchange Listing
The Toronto Stock Exchange (symbol: CWL)
Valiant Trust Company operates a telephone information
inquiry line that can be reached by dialing toll free:
+1 866 313 1872 or +1 604 699 4954
Correspondence may be addressed to:
The Caldwell Partners International Inc.
c/o Valiant Trust Company
130 King Street West, Suite 1800
PO Box 34
Toronto, Ontario, M5X 1A9
for other information, please contact:
C. Christopher Beck, 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 the world’s premier providers of executive search and has been for
more than 40 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 @CaldwellPtners
Atlanta
Los Angeles
Toronto
3424 Peachtree Road N.E.
Suite 1250
Atlanta, GA 30326
+1 403 265 8780
fax +1 403 263 6508
Calgary
520 Fifth Avenue, S.W.,
Suite 2000
Calgary, AB T2P 3R7
+1 403 265 8780
fax +1 403 263 6508
Dallas
909 Lake Carolyn Pkwy
Suite 1150
Irving, TX 75039
+1 214 748 3200
fax +1 972 910 0824
London
4 Lombard Street
London United Kingdom
EC3V 9HD
+44 20 31 67 2500
1925 Century Park East,
Suite 1200
Los Angeles, CA 90067
+1 310 402 5701
fax +1 310 788 3916
Nashville
205 Powell Place
Brentwood, TN 37027
+1 615 815 1770
New York
60 East 42nd Street
Suite 740
New York, NY 10165
+1 212 953 3220
fax +1 212 953 4688
San Francisco
One Post Street
Suite 500
San Francisco, CA 94101
+1 415 983 7700
fax +1 415 983 0148
165 Avenue Road
Suite 600
Toronto, ON M5R 3S4
+1 416 920 7702
fax +1 416 922 8646
Stamford
263 Tresser Boulevard
Suite 800
Stamford, CT 06901
+1 203 324 6400
fax +1 203 356 0570
Vancouver
650 West Georgia Street
Suite 2605
Vancouver, BC V6B 4N9
+1 604 669 3550
fax +1 604 669 5095
Affiliated offices:
Hong Kong
ESGI
Universal Trade Centre
28/F, Suite 2801, 3-5 Arbuthnot Road
Central, Hong Kong
+852.2521.8333
fax +852.2521.8665
Copyright ©2014 The Caldwell Partners International Inc.
All rights reserved. Reproduction without permission is prohibited. Trademarks and logos are copyrights of their respective owners.