The Caldwell Partners International Inc.
Annual Report 2015
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
Computershare Limited
Chartered Accountants, Toronto, Ontario
Counsel
Miller Thomson LLP
Barristers and Solicitors, Toronto, Ontario
Stock Exchange Listing
The Toronto Stock Exchange (symbol: CWL)
Computershare Limited 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 Computershare Limited
100 University Avenue, 8th floor
Toronto, Ontario, M5J 2Y1
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
Dear Shareholders, Clients, and Friends:
Fiscal 2015 was an exceptional year for Caldwell Partners, full of new faces, new
milestones and new levels of success.
We closed out the year with $54.5 million in annual revenue – an increase of 21% –
and operating profit of $2.0 million. Positive results by all measures, and a reflection
of our continuing focus on the service we provide our clients and the long-term value
we strive to deliver to our shareholders.
We began the year with the acquisition of Hawksmoor Search, establishing our
footprint in the United Kingdom and Europe, welcomed 5 additional partners to our
firm over the course of the year, and ended it having entered into an affiliation
agreement with the 16 partners and 7 offices of CPGroup Latam, launching us into
position as one of the top search providers in Latin America. This was an enormous
advance in our capabilities and the next pivotal moment for our firm. Forging an
alliance with such a well-respected, high calibre search team in an important new
geography added important breadth and depth and further solidified our ability to
conduct international and cross-border searches for our clients.
We will continue to build our practice and functional offerings with exceptional
partner hires across geographies in the United States, Canada and Europe, and will
review select expansion opportunities in Asia and the Australia/New Zealand
regions where it allows us to further strengthen the services we are able to provide
to our clients on a global basis.
Just two short years ago we were a $34M North American-based firm, and we are
now a $54M firm with focused international reach - it is an accomplishment of which
we are understandably proud. What has remained constant as we have grown is our
Shareholders Letter
1
Caldwell Partners –
desire to be the absolute best search firm in the industry – the best team providing
the best service, and the best investment for our clients and shareholders.
We are succeeding in the ambitious goals we laid out for ourselves when we first
began our North American expansion – way back in 2009 – and we will continue to
focus on delivering results that exceed expectations.
As always, we thank each and every member of the Caldwell Partners team for the
dedication to our clients and to each other. We are excited for the many possibilities
and opportunities that Fiscal 2016 holds for all of us.
Yours sincerely,
G. Edmund King
Chair of the Board
John N. Wallace
President & Chief Executive Officer
Shareholders Letter
2
Caldwell Partners –
Management
Discussion and Analysis
For the Years Ended August 31, 2015 and 2014
(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, 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.
Forward‐Looking Statements
Forward‐looking statements in this document are based on current expectations that are
subject to the significant risks and uncertainties cited. These forward‐looking statements
generally can be identified by use of statements that include phrases such as “believe,”
“expect,” “anticipate,” “intend,” “plan,” “foresee,” “may,” “will,” “likely,” “estimates,”
“potential,” “continue” or other similar words or phrases. Similarly, statements that describe
our objectives, plans or goals also are forward‐looking statements. The Company is subject to
many factors that could cause our actual results to differ materially from those contemplated
by the relevant forward looking statement including, but not limited to, the Company’s ability
to attract and retain key personnel; the performance of the Canadian, US domestic and
international economies; competition from other companies directly or indirectly engaged in
executive search; the possibility of a significant shareholder impacting shareholder votes;
Caldwell Partners – Management Discussion and Analysis
3
foreign currency exchange rate risks; the Company’s ability to invest retained earnings in
marketable securities and in short‐term money market instruments to generate consistent
investment income returns; and volatility of the market price and volume of common shares.
For more information on the factors that could affect the outcome of forward‐looking
statements, refer to the “Risk Factors” section of our Annual Information Form and other
public filings (copies of which may be obtained at www.sedar.com). These factors should be
considered carefully and the reader should not place undue reliance on the forward‐looking
statements. Although any forward‐looking statements are based on what management
currently believes to be reasonable assumptions, we 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. Except as required by
Canadian securities laws, we do not undertake to update any forward‐looking statements,
whether written or oral, that may be made from time to time by us or on our behalf; such
statements speak only as of the date made. The forward‐looking statements included herein
are expressly qualified in their entirety by this cautionary language.
Presentation
The following discussion and analysis, prepared on November 17, 2015, should be read in
conjunction with the consolidated annual audited financial statements and related notes for
the year ended August 31, 2015. Unless otherwise noted, all currency amounts are provided
in thousands of Canadian dollars (except percentages and per share amounts). All references
to quarters or years are for the fiscal periods unless otherwise noted. Unless otherwise noted
as a non‐GAAP financial measure and other operating measure, financial results are prepared
in accordance with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
The Company’s presentation currency is the Canadian dollar. The company manages its
business in three geographic segments: Canada, United States (US) and Europe whose
functional currencies are the Canadian dollar, US dollar and British pound, respectively.
Segment discussions within are in Canadian dollars, with references made to the impact of
changes in exchange rates from period to period.
As discussed in note 20 to the consolidated annual financial statements, on October 1, 2014,
the Company acquired all of the outstanding shares of Hawksmoor Search Limited
(Hawksmoor), an executive search firm based in London, United Kingdom. The results of
Hawksmoor’s operations have been consolidated with those of the Company from the date of
acquisition and are shown as an additional business segment named Europe.
The Company’s Canadian parent legal entity holds the right to the Company’s brand and
intellectual property. During 2015 the Company’s Canadian parent legal entity began the
process of registering its brand, Caldwell Partners, in select global markets it anticipated
entering during the near future including most countries in Latin America. As discussed in
note 21 to the consolidated annual financial statements, on July 13, 2015, the Company
entered into an affiliation agreement with CPGroup LATAM Ltd. and its subsidiaries
Caldwell Partners – Management Discussion and Analysis
4
(“CPGroup”). The affiliation agreement has an initial term of five years and provides for
CPGroup to pay the Company 2.25% of Latin American revenue for the first two years of the
agreement and 4.25% in subsequent years. In exchange for the license fee payments,
CPGroup will have rights to use the Caldwell Partners brand, search processes, methodologies
and related intellectual property.
Non‐GAAP Financial Measures and Other Operating Measures
Certain non‐GAAP financial measures and other operating measures are used by Company
management to manage the business and explain the results of its operations. Such measures
do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other issuers. Non‐GAAP measures and other
operating measures used herein have been calculated on a consistent basis for the periods
presented and include the following defined terms:
• Average Number of Partners: the number of partners at the beginning of a period plus
the number of partners at the end of each month during a period, divided by the
related number of months. The Average Number of Partners is indicative of our
capacity to generate Professional Fees.
• Annualized Professional Fees per Partner: Professional Fees divided by the Average
Number of Partners; and if a quarterly period, multiplied by four to reflect an
annualized number. The Annualized Revenue per Partner is indicative of how highly
our Partners are performing taken as a whole. The performance will be driven by the
Number of Assignments performed and Average Fee per Assignment.
• Number of Assignments: the number of new executive search assignments contracted
for during a period. This metric shows the search volume and is one of the drivers of
Professional Fees.
• Number of Assignments per Partner: the Number of Assignments divided by the
Average Number of Partners. This metric analyzes how productive our Partners are
and is a measure used to identify and track volume trends as one of the key drivers of
our Professional Fees.
• Average Fee per Assignment: Revenue for a given period divided by the related
Number of Assignments. This metric is used to identify and track price trends as a key
driver of our Professional Fees.
• Unencumbered Cash: the net of i) cash and cash equivalents, restricted cash,
marketable securities, current accounts receivable and net deferred tax assets to be
recovered within 12 months less ii) total current liabilities excluding deferred
revenue and deferred compensation expense related specifically to the deferred
revenue. This measure is used to identify excess cash available beyond that required
to fund short term obligations.
Caldwell Partners – Management Discussion and Analysis
5
Selected Financial Information
The following table summarizes selected financial information for the three years ended
August 31:
($000s except earnings per share)
Total revenue
Period end number of partners1
Average Number of Partners1
Annualized Professional Fees per Partner1
Number of Assignments1
Number of Assignments per Partner1
Average Fee per Assignment1
Net earnings (loss) for the year attributable to owners
of the Company
Basic earnings (loss) per share
Diluted earnings (loss) per share
Total assets
Total non‐current financial liabilities
Cash dividends per share
2015
2014
2013
$54,527
$45,086
$33,803
37
34.8
33
31.7
$1,566
$1,422
428
12.3
$127
388
12.2
$116
33
33.9
$997
354
10.4
$95
$1,976
$1,967
($282)
$0.093
$0.092
$0.101
($0.017)
$0.100
($0.017)
$37,831
$36,215
$22,734
$1,326
$0.08
$553
$0.07
$380
$0.06
1 Please refer to the section on Non‐GAAP Financial Measures and Other Operating Measures on page 5 of this document
Discussion of factors impacting the Company’s results
The Company has achieved significant revenue growth over the past three years. The 21%
revenue increase from 2014 to 2015 was driven by a 10% increase in the Average Fee, a 1%
increase in the Number of Assignments per Partner, and a 10% increase in the Average
Number of Partners. The 33% revenue increase from 2013 to 2014 was driven by a 21%
increase in the Average Fee, a 17% increase in the Number of Assignments per partner, and a
6% decrease in the Average Number of Partners.
The increase in the Average Fee was aided by our strategic focus towards securing high level
executive placements, which in turn have higher compensation levels upon which our fees are
based, and our ability to defend against competitive pricing pressures as well as yearly
average foreign exchange rate movements, specifically in the US dollar which has increased in
value approximately 20% over the periods presented.
The increase in the number of searches booked per partner is a function of the increasing
calibre of our partner group as well as strong market conditions.
The increase in the Average Number of Partners was driven by organic hires as well as our
acquisition of Hawksmoor Search, Ltd. based in the United Kingdom in October 2015 which
Caldwell Partners – Management Discussion and Analysis
6
brought its partner. As a result of these actions the partner headcount metric has increased
from 33 in 2013 to 37 at the close of 2015.
In fiscal 2014, net earnings increased $2,249 to $1,967 from a loss of $282 in the prior year as
a result of a $1,395 increase in operating profit, driven by improved revenue metrics as
discussed above, an $11 increase in investment income and an $843 reduction in income tax
expense due to current tax expense of $1,763 being more than offset by deferred tax income
of $2,443 from the recognition of deferred tax assets.
In fiscal 2015, net earnings increased $9 to $1,976 as a result of a $913 increase in operating
profit, a $39 increase in investment income and a $943 increase in tax expense. Income tax
expense in 2015 reflects current tax expense of $187 and deferred tax expense of $76. Income
tax expense increased in 2015 compared to 2014 due to the recognition of deferred tax assets
in 2014. The Company has now utilized its ordinary operating loss carryforwards in the US
and Canada which may cause the effective tax rate to rise in the future on profitable results.
Income taxes are more fully discussed within this document under Operating Results in the
prior discussion and analysis documents as filed on SEDAR.
Operating Results
Revenue
Q1
Q2
Q3
Q4
Annual
Professional fees
$12,436 $11,874 $14,813 $15,365 $54,488
License fee revenue
‐
‐
‐ $ 39 $ 39
Revenue
$12,436 $11,874 $14,813 $15,404 $54,527
2015
Period end number of partners1
Average Number of Partners1
34
34.0
34
34.0
35
37
34.8
36.0
37
34.8
Annualized Professional Fees per Partner1
$1,463
$1,397
$1,703
$1,707
$1,566
Number of Assignments1
Number of Assignments per Partner1
115
3.4
95
2.8
123
3.5
95
2.6
428
12.3
Average Fee per Assignment1
$108
$125
$120
$162
$127
Professional fees
$10,339
$9,158 $12,358 $13,231 $45,086
License fee revenue
‐
‐
‐
‐
‐
Revenue
$10,339
$9,158 $12,358 $13,231 $45,086
2014
Period end number of partners1
Average Number of Partners1
31
32.6
31
31.6
31
33
31.0
32.0
33
31.7
Annualized Professional Fees per Partner1
$1,269
$1,159
$1,595
$1,654
$1,422
Number of Assignments1
Number of Assignments per Partner1
90
2.8
69
2.2
121
3.9
108
3.4
388
12.2
Average Fee per Assignment1
$115
$133
$102
$123
$116
1 Please refer to the section on Non‐GAAP Financial Measures and Other Operating Measures on page 5 of this document
Caldwell Partners – Management Discussion and Analysis
7
Revenue and operating income are difficult to predict and have historically varied from
quarter to quarter. There is no discernible seasonality in our business on a quarterly basis.
We track our revenue by professional fees and license fee revenue. Professional fees
represent revenue from executive search and related activities for the Company and its
subsidiaries. License fee revenue represents the license and technical assistance fees paid by
the Company’s affiliate CPGroup.
Our capacity to generate revenue increases with the number of partners we employ and
affiliate with, and is dependent on the fees we are able to charge and our partners’
productivity that is, in turn influenced significantly by competition and general economic
hiring conditions. Additionally, given the fewer number of partners we have relative to our
larger competitors, results will fluctuate significantly from quarter to quarter based on the
timing of searches contracted from a relatively small population of partners. The above chart
sets forth select revenue and operating measures. We believe these measures help explain the
revenue and its variation from period to period.
Professional Fees
Fourth quarter professional fees increased 16% (4% excluding a 12% variance from
exchange rate fluctuations) over the comparable period last year to $15,365 (2014: $13,231).
The increase resulted from a 32% increase in the Average Fee per Assignment to $162 (2014:
$123) despite a 12% decrease in number of assignments to 95 (2014: 108) from a higher
Average Number of Partners generating greater dollar‐volume productivity.
Full year professional fees increased 21% (12% excluding a 9% variance from exchange rate
fluctuations) over the prior year to $54,488 (2014: $45,086). The increase was the result of a
10% increase in Average Fee per Assignment to $127 (2014: $116) and a 10% increase in the
Number of Assignments to 428 (2014: 388) caused by a higher Average Number of Partners
and higher partner productivity.
Fourth quarter professional fees in the US were up 14% (down 4% excluding an 18%
favorable variance from exchange rate fluctuations) to $10,794 (2014: $9,503) driven by an
increase in the Average Number of Partners and higher Average Fees partially offset by
slightly lower search volumes during the current year. Full year US Professional Fees
increased 17% (4% excluding a 13% favorable variance from exchange rate fluctuations) to
$37,136 (2014: $31,692) on an increase in the Average Number of Partners, higher search
volumes and higher Average Fees per Assignment.
Fourth quarter professional fees in Canada were up 11% to $4,145 (2014: $3,728) with
significantly higher Average Fees per Assignment more than offsetting a lower Average
Number of Partners and decrease in search volumes. Full year professional fees for Canada
increased 22% to $16,377 (2014: $13,394), from higher search volumes on Higher Average
Fees per Assignment partially offset by a decrease in the Average Number of Partners.
Caldwell Partners – Management Discussion and Analysis
8
In its first year of existence, fourth quarter and full year professional fees for the UK were
$426 and $975, respectively.
License Fee Revenue
As discussed in the Presentation section above, beginning in the fourth quarter, the Company
began charging its third party Latin American affiliate CPGroup for the use of its brand and
intellectual property. For the 2015 fourth quarter and year to date, third party license fee
revenue was $39.
Cost of Sales
Q1
Q2
Q3
Q4
Annual
2015 Cost of sales
$9,172
$8,851 $10,801 $11,433 $40,257
Cost of sales as a percentage of
professional fees
73.8% 74.5% 72.9%
74.2% 73.8%
2014 Cost of sales
$7,754
$6,859
$9,270 $10,170 $34,053
Cost of sales as a percentage of
professional fees
75.0% 74.9% 75.0%
76.9% 75.5%
Cost of sales pertains to revenue generated from professional fees and comprises partner
compensation, related search delivery personnel compensation and the direct costs of
delivering our search services. Compensation costs include fixed salaries, variable incentive
compensation and related employee benefits and taxes. In aggregate and over time, these
costs are largely variable to professional fees, with fluctuations arising from changes in
incentive compensation based on Average Revenue per Partner and leverage of certain fixed
costs during periods of growth. Significant fluctuations can be seen by geography from
quarter to quarter based on the relatively small number of partners in each region and how
those individual’s estimated compensation changes based on annualizing their quarterly
results in recording compensation accruals. Costs associated with license fee revenue such as
legal and professional fees are included in general and administrative expenses.
Fourth quarter cost of sales was $11,433 (2014: $10,170) or 74.2% of professional fees, up
$1,263 but down 2.7% of professional fees from 76.9% in the same period last year. The
decline as a percentage of professional fees was the result of lower partner compensation
accruals from changes in the partner compensation plan and lower average commission
rates. Commission rates are estimated throughout the year and are adjusted to actual full
year performance in the fourth quarter. Search delivery personnel costs were flat with the
prior year.
Caldwell Partners – Management Discussion and Analysis
9
Full year cost of sales of $40,257 (2014: $34,053) represented 73.8% of professional fees,
down 1.7% from 75.5% in the prior year. The decline as a percentage of professional fees was
driven by better utilization of search delivery personnel where costs grew at lower rates
during the period than professional fees (1.4%), declines in partner commissions from higher
rates in the prior year than current year (0.3%) and other direct costs remaining flat.
Fourth quarter cost of sales in the US increased 10% to $7,986 (2014: $7,292) and
represented 74.0% of Professional Fees vs. 76.7% in the prior year with lower variable
commissions (4.9%) being partially offset by higher search delivery staffing and related
compensation (1.9%) and higher costs of search delivery materials (0.3%). Full year cost of
sales in the US increased 17% to $27,889 (2014: $23,861) and represented 75.1% of
professional fees vs 75.3% in the prior year with lower variable commissions (0.4%) being
partially offset by higher costs of search delivery materials (0.2%) and search delivery staff
compensation being flat.
Fourth quarter cost of sales in Canada increased 2% to $2,940 (2014: $2,878) and
represented 70.9% of professional fees vs. 77.2% in the prior year with slightly higher
variable commissions (0.1%) being more than offset by lower search delivery personnel
compensation by better utilization of search delivery personnel where costs grew at lower
rates during the period than professional fees (3.2%), compensation and benefits from staff
classified as direct costs in the previous fiscal year but classified as general and
administrative expenses in the current year (3.0%) and lower costs of search delivery
materials (0.2%). Full year cost of sales in Canada increased 13% to $11,525 (2014: $10,192)
and represented 70.4% of professional fees vs. 76.1% in the prior year with lower variable
commissions rates (0.2%) in addition to lower search delivery staff compensation again due
to better utilization of the fixed cost base (2.7%) and the reclassification of certain staff costs
to general and administrative expenses (2.6%) and lower costs of search delivery materials
(0.2%).
In Europe’s first year of operation, fourth quarter and full year costs of sales were $507
(119%) and $843 (86%), respectively. Costs of sales was notably higher in the Europe than
the other regions due to hires made in the fourth quarter of 2015 who did not transition with
work in process and therefore incurred compensation costs, including amortization of
advances, in the quarter without associated revenue.
Gross Profit and Margin
2015
2014
Q1
$3,264
26.2%
$2,585
25.0%
Q2
$3,023
25.5%
$2,298
25.1%
Q3
$4,012
27.1%
$3,089
25.0%
Q4
$3,972
25.8%
$3,062
23.1%
Annual
$14,271
26.2%
$11,034
24.5%
Caldwell Partners – Management Discussion and Analysis
10
Gross profit in the fourth quarter increased 30% (15% excluding a 15% variance from
exchange rate fluctuations) to $3,972 or 25.8% of revenue versus fourth quarter in the
previous year (2014: $3,062 or 23.1% of revenue); the result of the 16% increase in revenue
offset and 2.7% decrease in Cost of Sales as a percentage of Revenue. On a segment basis,
gross profit was $2,808 from the US, $2,154 from Canada ($1,245 net of $909 in
intercompany license fee revenue), and a loss of $81 from Europe from the variances
discussed in revenue and cost of sales.
On a year‐to‐date basis, gross profit increased 29% (20% excluding a 9% variance from
exchange rate fluctuations) to $14,271, from $11,034 in 2014. The increase was driven by the
revenue increase of 21% and the 1.7% decrease in cost of sales as a percentage of revenue. As
a result, gross margin for 2015 was 26.2% (2014: 24.5%). On a segment basis, gross profit
was $9,247 from the US, $5,801 from Canada ($4,891 net of $909 in intercompany license fee
revenue), and $133 from Europe from the variances discussed in revenue and cost of sales.
Expenses
2015
2014
Q1
$2,957
$2,177
Q2
$2,512
$2,248
Q3
$3,107
$2,457
Q4
$3,518
$2,889
Annual
$12,094
$9,771
Fourth quarter expenses increased 22% or $629 over the same period prior year to $3,518
(2014: $2,889). Excluding exchange rate variances, expenses increased $160 or 6% over the
same period last year. The constant currency cost increase is the result of professional fees
associated with an unsolicited interest by DHR International, Inc. in acquiring the Company
($164), as well as higher occupancy costs from the addition our United Kingdom location
from the acquisition of Hawksmoor and higher lease costs in certain locations ($116), offset
by general cost decreases across other cost categories ($120). On a segment basis, expenses
were $3,228 from the US ($2,319 net of $909 in intercompany license fees), $1,106 from
Canada and $93 from Europe, where there were no such costs last year as we did not operate
in the region prior to 2015.
Full year expenses increased 24% or $2,323 over the prior year to $12,094 (2014: $9,771).
Excluding exchange rate variances, expenses increased $1,063 or 11% over the same period
last year. The constant currency cost increases included occupancy from the addition our
United Kingdom location and higher lease costs in certain locations ($390), compensation and
benefits from staff classified as direct costs in the previous fiscal year ($336), marketing and
business development on increased revenue ($125), professional fees in the fourth quarter
discussed above ($164), higher share‐based compensation expense ($77), foreign exchanges
losses on intercompany loan balances and US dollar bank account balances compared to gains
last year ($70) and general decreases across other categories ($99). On a segment basis,
Caldwell Partners – Management Discussion and Analysis
11
expenses were $8,700 from the US ($7,791 net of $909 in intercompany license fees), $3,942
from Canada and $361 from Europe, where there were no such costs last year as we did not
operate in the region.
Operating Profit
2015
2014
Q1
$307
2.5%
$408
3.9%
Q2
$511
4.3%
$50
0.5%
Q3
$905
6.1%
$633
5.1%
Q4
$453
2.9%
$172
1.3%
Annual
$2,176
4.0%
$1,263
2.8%
For the 2015 fourth quarter, higher revenue ($2,173) offset by higher cost of sales ($1,263)
and expenses ($629) from the variances discussed above resulted in an increase in operating
profit of $281 over the comparable period in the prior year. On a segment basis, $1,048 of
profit was from Canada ($139, excluding intercompany license fee revenue implemented in
the fourth quarter), the US experienced a $420 operating loss ($489 income excluding the
impact of intercompany license fees implemented in the fourth quarter), and Europe’s
operating loss was $175 from the variances discussed in revenue, cost of sales and expenses.
For the 2015 full year, higher revenue ($9,441) less related increased cost of sales ($6,204)
and expenses ($2,323) from the variances discussed above resulted in operating profit of
$2,176; a $913 increase over the prior year’s operating profit of $1,263. On a segment basis,
$1,859 of operating profit was from Canada ($950 net of intercompany license fee revenue)
$547 of operating profit was from the US ($1,456 net of intercompany license fees), offset by
an operating loss of $230 from Europe from the variances discussed in revenue, cost of sales
and expenses.
Investment Income
2015
2014
Q1
$13
$1
Q2
$11
$4
Q3
$34
$6
Q4
$5
$13
Annual
$63
$24
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, 2015, the entire investment portfolio is
placed with two third party investment managers and held in three pooled funds.
For the fourth quarter of 2015, the Company reported investment income of $5 compared to
$13 from the comparable period last year. For the full year 2015, the Company reported
Caldwell Partners – Management Discussion and Analysis
12
investment income of $63 compared to $24 in 2014. This income includes interest on term
deposits and other cash balances. The current year amount also includes $27 of realized gains
earned when one fund was liquidated in order for the funds to be invested in another fund.
As at August 31, 2015, the fair value of investments held by the Company of $7,765 (2014:
$7,809) was $841 above book value, reflecting a decrease in value of $72 during the year. The
unrealized loss for the year and the cumulative unrealized gain have been reflected in both
accumulated other comprehensive income and in the stated value of the investment portfolio.
Net Earnings
Earnings Before Income Taxes
2015
2014
Net Earnings
2015
2014
Q1
$320
$409
Q1
$277
$393
Earnings Per Share
Q2
$521
$54
Q2
$282
$43
Q3
$939
$639
Q3
$767
$639
Q4
$459
$185
Q4
$650
$892
2015
2014
Q1
$0.013
$0.023
Q2
$0.013
$0.002
Q3
$0.036
$0.032
Q4
$0.031
$0.044
Annual
$2,239
$1,287
Annual
$1,976
$1,967
Annual
$0.093
$0.101
There was an income tax recovery of $192 in the fourth quarter of fiscal 2015 (2014: $707
recovery) from current income tax recovery of $268 (2014: $1,736 expense) and deferred tax
expense of $76 (2014: $2,443 recovery). Income tax expense for the year ending August 31,
2015 was $263 ($2014: 680 recovery) reflecting current tax expense of $187 (2014: $1,763)
and deferred tax expense of $76 (2014: $2,443 recovery).
Having used all tax loss carry‐forwards, income tax expense was recognized in Canada in the
current year at a rate of approximately 26%. However, temporary timing differences resulted
in a deferred tax recovery and a net recoverable of $108 (2014: $55 recoverable) for the
segment for the quarter and full year. In the prior year carry‐forwards not previously
recognized as deferred tax assets were available to offset taxable income.
Income tax recoverable for the US for the quarter ended August 31, 2015 was $83 (2014:
$652 recovery). Full year income tax expense for 2015 was $371 or 67.8% based on a US
effective tax rate of approximately 40% and a 5% tax paid on $1,150 in dividends made from
Caldwell Partners – Management Discussion and Analysis
13
the US to Canada during the second quarter versus $625 of taxes recoverable in the
comparable period last year.
The UK did not recognize any tax expense during the year.
The fourth quarter net earnings were $650 ($0.031 per share) in 2015, as compared to $892
of net earnings ($0.044 per share) in the comparable period a year earlier. The full year net
earnings after tax were $1,976 ($0.093 per share) in 2015, versus $1,967 ($0.101 per share)
in 2014.
Earnings per share declined in 2015 compared to 2014 on consistent earnings due to a higher
average outstanding share count during 2015. The Company closed a private placement with
senior search professionals, officers and directors of the Company for the purchase of
common shares of the Company during 2014 which increased the share count by 3,934,650
on a prospective basis. The share count was further increased by 275,000 effective October 1,
2014 with the Company’s acquisition of Hawksmoor. The share count is anticipated to decline
during 2016 once its announced purchase and cancellation of 1,145,600 is completed. These
capital items are more fully discussed in Note 14 to the annual financial statements.
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, 2015 are 24.0 cents per share or $4,641 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 8, 2014
April 10, 2014
July 10, 2014
March 14, 2014
June 13, 2014
September 12, 2014
November 13, 2014
December 12, 2004
January 8, 2015
April 9, 2015
July 9, 2015
March 12, 2015
June 15, 2015
September 14, 2015
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
$0.0200
$0.0200
$0.0200
$0.0200
$255
$255
$256
$256
$256
$256
$299
$368
$368
$368
$426
$426
$426
$426
Caldwell Partners – Management Discussion and Analysis
14
On November 17, 2015 the Board of Directors declared a dividend of 2.0 cents per share,
payable to holders of Common Shares of record on November 27, 2015 and to be paid on
December 11, 2015.
Liquidity and Capital Resources
The Company maintains cash balances at various financial institutions and in various
geographies through its subsidiaries. While the Company has the ability to move funds
between geographies and legal entities, there are certain dividend taxes applicable, including
a five percent tax on dividends paid from the United States to Canada. Additionally, in order
to lend or dividend funds between the Company’s legal entities, each entity must maintain
certain statutory liquidity levels at its subsidiaries in order to ensure their liquidity. The
Company’s marketable securities are all held by the Company’s Canadian parent legal entity.
As at August 31, 2015, the Company had $7,765 of marketable securities plus cash and cash
equivalents including restricted cash of $10,454, for a total cash and marketable securities
balance of $18,219, down $2,785 from $21,004 at year‐end 2014. The decrease is due
primarily due to the cash portion of the purchase price related to the Hawksmoor acquisition
and the payment of 2014 income taxes, accrued compensation, new hire advances and
dividends.
The Company’s cash and compensation payable balances fluctuate significantly from period
to period based on the timing of commission payments per the Company’s compensation
plans. Compensation payable is generally at its lowest after the largest deferred
compensation payments are made at the end of each February, and generally grows during
subsequent periods. The compensation payable is funded by the company’s cash and
marketable security balances which build during the same cycle as the compensation liability
and are similarly reduced as cash is used to satisfy the compensation liability. As a result, the
cash balances and compensation payable typically move together. At August 31, 2015, current
Compensation Payable was $16,613 (2014: $15,753), and total cash and marketable
securities were $18,219 (2014: $21,004). As a result of these trends, the Company uses the
non‐GAAP measure of Unencumbered Cash as a more consistent measure for the excess cash
the company has available beyond that needed for short‐term obligations.
We define Unencumbered Cash as the net of i) cash and cash equivalents, restricted cash,
marketable securities, current accounts receivable and net deferred tax assets to be
recovered within 12 months less ii) total current liabilities excluding deferred revenue and
deferred compensation expense related specifically to the deferred revenue. The following
chart sets forth the calculation of Unencumbered Cash and provides reconciliation to cash
and cash‐equivalents:
Caldwell Partners – Management Discussion and Analysis
15
Cash and cash equivalents
Restricted cash
Marketable securities
Accounts receivable
Net current deferred tax assets
Less: total current liabilities
Excluding: deferred revenue
Excluding: deferred compensation
Total unencumbered cash
As at August 31,
2015
$9,956
498
7,765
8,329
3,303
29,851
(21,916)
945
(499)
$8,381
2014
$12,743
452
7,809
8,141
2,545
31,690
(21284)
1,974
(893)
$11,487
Accounts receivable were $8,329 at August 31, 2015, up $188 from $8,141 at the end of fiscal
2014. Days outstanding based on quarterly revenue were 48 days at August 31, 2015 versus
55 days at August 31, 2014. At August 31, 2015, a reserve of $575 or approximately 39% of
accounts over 90 days old has been taken.
Total liabilities were $23,242 at August 31, 2015, up $1,405 from $21,837 at the end of 2014
reflecting the accrual for the purchase of shares from DHR International, Inc., an increase in
compensation payable on the increased revenue in 2015 compared to 2014, the accrual of
contingent consideration pertaining to the Hawksmoor purchase (as discussed in note 20 of
the annual consolidated financial statements) and an increase in share based compensation
accruals net of decreases in current taxes payable and in the deferred revenue.
The Company’s investment in property and equipment at August 31, 2015 was $1,818
compared with $1,610 at the end of 2014. This reflects additions of $474 and depreciation
expense of $434, disposals of $5 and exchange rate fluctuations over the year of $173. Capital
expenditures included computer hardware and software, leasehold improvements and office
furniture and equipment.
Shareholders’ equity at August 31, 2015 was $14,589, up $211 from $14,378 at the end of
2014. This increase reflects the earnings for the year of $1,976, dividend payments of $1,702,
the accrual for the purchase and cancellation of the shares from DHR International, Inc.
representing $1,644, translation gains on consolidation of $1,272, common share issuance
from the Hawksmoor acquisition of $380, an unrealized loss on marketable securities of $72,
and share‐based payment expense of $1.
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 fourteen quarterly dividends through
Caldwell Partners – Management Discussion and Analysis
16
August 31, 2015. On November 17, 2015 the Board of Directors declared a dividend of 2.0
cents per share, payable to holders of Common Shares of record on November 27, 2015 and
to be paid on December 11, 2015.
Contractual Obligations
Total
2016
2017
2018
2019
2020 Thereafter
Operating leases
$13,815
$3,165
$2,679
$2,486 $2,281 $1,907
$1,297
Accounts payable
$1,737
$1,737
‐
‐
Compensation payable
$17,678
$16,614
$683
$180
Accrued share purchase
$1,604
$1,604
Dividends payable
Contingent consideration
$426
$533
$426
$271
‐
‐
$262
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
$201
‐
‐
‐
Total
$35,793
$23,817
$3,624
$2,666 $2,281 $1,907
$1,498
The operating lease commitments are in respect to the office space required to operate our
business. The accrued share purchase commitment is in regard to an agreement the Company
entered into with DHR International, Inc. to repurchase shares of the Company, as discussed
in Note 22 to the annual consolidated financial statements. Cash outlays for our contractual
obligations and commitments identified above are expected to be funded by cash on hand and
cash generated by operating activities in the respective year of the outlay. The Company does
not have any material commitments to purchase property and equipment.
Outstanding Shares
As at August 31, 2015 the authorized share capital of the Company consists of an unlimited
number of Common Shares of which 21,275,155 are issued and outstanding (August 31,
2014: 21,000,155). The holders of Common Shares are entitled to share equally, share for
share, in all dividends declared by the Company and equally in the event of a liquidation,
dissolution or winding‐up of the Company or other distribution of the assets among
shareholders. As discussed in Note 22 to the annual consolidated financial statements, on
September 23, 2015 the Company completed its previously announced purchase of shares of
the Company from DHR International, Inc. The 1,145,600 shares were purchased at $1.40 per
share for $1,603,840 plus associated legal fees. The shares were then cancelled, reducing the
Company’s outstanding shares from 21,275,155 to 20,129,555.
Business Outlook
The executive search market has remained strong throughout fiscal 2015. Productivity levels
on a per partner basis continue to be high and the Company grew its ranks of high calibre
search professionals. The acquisition of London‐based Hawksmoor Search Limited on
October 1, 2014 solidified our premier insurance practice, established the Company’s UK and
Caldwell Partners – Management Discussion and Analysis
17
European footprint, and expanded our reach into additional client markets. The affiliation
agreement with CPGroup entered into on July 13, 2015 further expanded our global presence
with a footprint in an important new geography in Latin America and solidified our ability to
conduct international and cross‐border searches for our clients. Additional revenue and
earnings growth remains a priority for the Company, balanced by our desire to maintain
regular dividend payments. Future growth is anticipated to be primarily in the form of
additional partner hires given the already high existing partner productivity metrics. We will
seek to continue to build our practice and functional offerings with select hires across
geographies in United States, Canada and Europe, reviewing select acquisitions opportunities
as appropriate.
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 have been recognized for the year ended August 31, 2015 in the amount of $223
(2014: $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.
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.
Caldwell Partners – Management Discussion and Analysis
18
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
Below are the material risks facing our Company. Other risks not currently known or deemed
to be material may also impact our business. Our business and financial results could be
materially adversely affected by any of these risks.
The ability to attract and retain experienced search professionals is critical to our
business
We compete with other executive recruitment firms for experienced consultants. Attracting
and retaining consultants in our industry is important because consultants have primary
responsibility for client relationships, and the loss of consultants often leads to the loss of
client relationships. While we believe we offer one of the most competitive compensation
plans in the industry and offer freedom for our partners to operate in the marketplace, the
ability to continue to generate revenue and profits will depend on our ability to attract and
retain key professionals.
Our business is impacted by economic conditions
Our revenue is affected by global economic conditions and economic activity in the regions
where we operate. During economic slowdowns, companies may hire fewer employees which
may have a negative impact on our financial condition.
Competition
The executive search business is highly competitive in terms of both winning and pricing new
engagements. See the “Competition” section in the Annual Information Form. The level of
future profits of the Company will depend on its ability to retain its established client base,
attracting new clients and maintaining fee levels. One key area in which we mitigate
competitive risk with our larger competitors is by having fewer client non‐solicitation
arrangements. It is standard practice in the industry to provide clients with a non‐solicitation
right ranging in scope from the placed executive to the entire client organization; this is
known as “off‐limits” protection. If too many off‐limit arrangements are created, the ability to
Caldwell Partners – Management Discussion and Analysis
19
broadly and effectively source candidates for prospective client engagements becomes
impeded.
Significant Shareholder
C. Douglas Caldwell, the former Chief Executive Officer of The Caldwell Partners International,
Inc., is reported to own, directly or indirectly approximately 20% of the Company’s
outstanding Common shares. The direction of Mr. Caldwell’s shares could have a material
impact on any matters brought forth the shareholders for a vote.
Foreign currency exchange rate risks may affect our financial results
With operations in Canada, the United States and the United Kingdom, we do business in
multiple currencies. In the current year, approximately 69% of our revenue was generated
outside of Canada and transacted in a currency other than the Canadian dollar. Our
profitability is impacted by the translation of foreign currency financial statements into
Canadian dollars. Fluctuations in relative currency values, particularly the strengthening of
the Canadian dollar, could have an adverse effect on our profitability and financial condition.
When management believes it has a significant short term net cash or intercompany loan
balance, it will on occasion hedge its currency exposure by buying or selling the exposed
currency on a forward basis.
We invest in marketable securities whose valuations fluctuate
Marketable securities consist of investments in professionally managed fixed income funds.
The securities within the funds are subject to market risk. If the markets in which these
securities trade were to materially decline in value, the unrealized losses and potential
realized losses could negatively impact the Company’s financial position and results of
operations. We mitigate this risk by investing in relatively conservative investments and by
engaging professional investment fund advisors independent from the company with added
oversight from the Investment Committee of the Board of Directors.
We may not generate sufficient cash flow from operations to support our strategic
growth plan and maintain our dividend without utilizing funds invested in marketable
securities
The Company currently has investments in marketable securities and short‐term money
market instruments. However, if additional cash is required to grow the business and pay
dividends in excess of cash generated, marketable securities and money market instruments
may be liquidated and the returns on those instruments could be negatively impacted.
Potential Volatility of the Market Price and Volume of Common Shares
From time to time, the TSX has experienced significant price and volume volatility unrelated
to the performance of specific companies, which could impact the market price of the
Common Shares. Moreover, the market price of the Common Shares may also be adversely
affected by factors such as the concentration of Common Shares held by a small number of
shareholders and the low number of Common Shares that trade on average on a daily basis,
the combination of which has the potential to increase the volatility of the volume of Common
Caldwell Partners – Management Discussion and Analysis
20
Shares offered to be purchased or sold at any particular time. Certain management
compensation components are based on the share price change in the company and could
fluctuate with significant movement up or down in the Company’s share price. The Company
has mitigated the negative impact of share price movements on compensation by also linking
the payments to profitability of the Company after accounting for such fluctuations.
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, 2015, 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 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, 2015.
Caldwell Partners – Management Discussion and Analysis
21
Management has also evaluated whether there were changes in the Company’s internal
controls over financial reporting during the reporting period ended August 31, 2015 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, 2015 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
22
Consolidated
Financial Statements
For the Years Ended August 31, 2015 and 2014
Consolidated Financial Statements
23
Caldwell Partners –
Management’s Report to Shareholders
The consolidated financial statements and all information contained in this annual
report are the responsibility of management and the Board of Directors of The
Caldwell Partners International Inc. (“the Company”). The financial statements have
been prepared by management in accordance with 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 24, 2015
Consolidated Financial Statements
24
Caldwell Partners –
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, 2015 and August 31, 2014 and the consolidated statements of earnings,
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 as issued by the
International Accounting Standards Board, 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,
2015 and August 31, 2014 and their financial performance and their cash flows for the years then
ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
November 17, 2015
Caldwell Partners – Consolidated Financial Statements
25
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)
Accrued share purchase (note 22)
Dividends payable (note 14)
Income taxes payable
Contingent consideration (note 20)
Deferred revenue (note 11)
Non-current liabilities
Compensation payable (note 10)
Contingent consideration (note 20)
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
2015
As at
August 31
2014
9,956,402
7,765,260
8,329,257
1,947,624
27,998,543
497,632
1,022,118
1,817,873
374,561
3,220,443
2,900,083
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
37,831,253
36,215,006
1,736,559
16,613,619
1,603,840
425,503
320,833
270,824
945,270
1,399,983
15,752,702
-
367,513
1,790,091
-
1,974,144
21,916,448
21,284,433
1,063,848
262,116
23,242,412
7,294,900
15,025,252
2,112,140
(9,843,451)
14,588,841
37,831,253
552,799
-
21,837,232
7,330,563
16,253,631
911,417
(10,117,837)
14,377,774
36,215,006
The accompanying notes are an integral part of these consolidated financial statements.
Signed on behalf of the Board:
G. Edmund King
Chair of the Board
Kathryn A. Welsh
Chair of the Audit Committee
Caldwell Partners – Consolidated Financial Statements
26
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in $Canadian)
Revenues
Professional fees (note 11)
License fees (note 21)
Cost of sales (notes 8 and 11)
Gross profit
Expenses (note 8)
General and administrative
Sales and marketing
Foreign exchange gain
Operating profit
Investment income (note 4)
Earnings before income tax
Income tax (note 12)
Net earnings for the year attributable to owners of the Company
Earnings per share (note 13)
Basic
Diluted
Twelve months ended
August 31
2015
2014
54,488,421
39,055
54,527,476
45,086,251
-
45,086,251
40,256,812
14,270,664
34,052,702
11,033,549
11,156,790
943,356
(5,627)
12,094,519
2,176,145
9,097,474
751,408
(78,128)
9,770,754
1,262,795
62,880
23,944
2,239,025
1,286,739
262,627
(680,047)
1,976,398
1,966,786
$0.093
$0.092
$0.101
$0.100
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in $Canadian)
Twelve months ended
August 31
2015
2014
Net earnings for the year
1,976,398
1,966,786
Other comprehensive income:
Items that may be reclassified subsequently to net earnings
Unrealized (loss) gain on marketable securities (note 4)
Cumulative translation adjustment
(71,596)
1,272,319
231,632
98,826
Comprehensive earnings for the year attributable to owners of the Company
3,177,121
2,297,244
The accompanying notes are an integral part of these consolidated financial statements.
Caldwell Partners – Consolidated Financial Statements
27
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in $Canadian)
Accumulated Other Comprehensive
Income (Loss)
Deficit
Capital Stock
Contributed
Surplus
Cumulative
Translation
Adjustment
Unrealized
Gains/(Loss) on
Marketable
Securities
Total
Equity
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 gains 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
Net earnings for the year
1,976,398
Dividend payments declared (note 14)
(1,702,012)
Share-based payment expense
Common share issuance (note 14)
Repurchase and cancellation of
common shares (note 22)
Change in unrealized loss on
marketable securities
Change in cumulative translation adjustment
-
-
-
-
-
-
-
-
379,500
-
-
656
-
(415,163)
(1,229,035)
-
-
-
-
-
-
-
-
-
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
-
-
-
-
-
1,976,398
(1,702,012)
656
379,500
(1,644,198)
(71,596)
(71,596)
1,272,319
-
1,272,319
Balance - August 31, 2015
(9,843,451)
7,294,900 15,025,252
1,271,522
840,618 14,588,841
The accompanying notes are an integral part of these consolidated financial statements.
Caldwell Partners – Consolidated Financial Statements
28
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in $Canadian)
Cash flow provided by (used in)
Operating activities
Net earnings for the year
Adjustments for:
Depreciation
Amortization
Share-based payment expense
Change in fair value of contingent consideration
Unrealized foreign exchange on subsidiary loans
Decrease in non-current severance accrual
Increase (decrease) in deferred taxes
Increase in non-current compensation payable
Disposal of property and equipment
Decrease (increase) in accounts receivable
Increase in prepaid expenses and other assets
Increase in accounts payable
(Decrease) increase in compensation payable
(Decrease) increase in income taxes payable
Increase in dividends payable
Payment of compensation payable (note 10)
(Decrease) increase in deferred revenue
Net cash provided by operating activities
Investing activities
Acquisition of business, net of cash acquired
Increase in marketable securities
(Increase) decrease 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 (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Twelve months ended
August 31
2015
2014
1,976,398
1,966,786
433,860
85,705
656
20,498
(41,436)
-
76,196
511,049
4,932
1,017,546
(336,356)
57,623
(227,094)
(1,498,357)
57,990
(597,589)
(1,186,614)
355,007
(1,017,702)
(27,453)
(678,599)
(3,078)
(473,706)
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
111,530
(330,313)
599,825
7,762,854
-
(4,000,960)
105,466
(198,364)
(608,558)
(2,200,538)
(4,702,416)
(1,702,012)
(1,401,276)
-
(1,702,012)
3,250,543
1,849,267
761,072
(2,786,471)
12,742,873
9,956,402
220,211
5,129,916
7,612,957
12,742,873
T he accompanying notes are an integral part of these consolidated financial statements.
Caldwell Partners – Consolidated Financial Statements
29
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Years Ended August 31, 2015 and August 31, 2014
(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). The Company’s head office is
located at 165 Avenue Road, Toronto, Ontario. The Company operates in Canada, the United States, Europe,
and, through its affiliate, Latin America.
The Board of Directors approved these consolidated financial statements for issue on November 17, 2015.
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
The significant accounting policies used in the preparation of these consolidated financial statements are
described below.
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value, including available-for-sale
marketable securities and contingent consideration.
Consolidation
These consolidated financial statements include the assets and liabilities and results of operations of the
Company and its subsidiaries. Effective September 1, 2014, the Canadian subsidiaries Prince Arthur
Advertising Inc., Caldwell Interim Executives Inc. and Caldwell Investments Inc. were amalgamated with The
Caldwell Partners International Inc. leaving The Caldwell Partners International Inc. as the only Canadian
entity. In the United States, the subsidiary is The Caldwell Partners International Ltd. In the United Kingdom,
the subsidiary is The Caldwell Partners International Europe Ltd.
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 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.
Caldwell Partners – Consolidated Financial Statements
30
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 tangible and intangible net assets acquired is recorded as goodwill. The Company records
contingent consideration agreements at fair value which are classified at fair value through profit or loss with
movements in the fair value being recognized within general and administrative expenses in the consolidated
statements of earnings.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the Chief Executive Officer.
Foreign currency translation
(i) Functional and presentation currency
The financial statements of the parent company and each subsidiary in the consolidated financial statements of
The Caldwell Partners International Inc. are measured using the currency of the primary economic environment
in which the subsidiary operates (the “functional currency”). The functional and presentation currency of the
Company is the Canadian dollar. The functional currency of the subsidiary located in the United States is the
US dollar. The functional currency of the subsidiary located in the United Kingdom is the British pound
sterling.
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
consolidated statements 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, 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.
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.
Caldwell Partners – Consolidated Financial Statements
31
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 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 consolidated 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) and contingent consideration.
Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs
are expensed in the consolidated statements of earnings. Gains and losses arising from changes in fair value are
presented in the consolidated statements of earnings 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 consolidated 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
consolidated statements of earnings as part of investment income. Dividends on available-for-sale equity
instruments are recognized in the consolidated statements of earnings 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 consolidated
statements of earnings and are included in investment income.
(iii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. The Company's loans and receivables comprise accounts
receivable and cash and cash equivalents, and are included in current assets due to their short-term nature.
Loans and receivables are initially recognized at the amount expected to be received, less, when material, a
discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at
amortized cost using the effective interest method less a provision for impairment.
Caldwell Partners – Consolidated Financial Statements
32
(iv) Other financial liabilities at amortized cost: Financial liabilities at amortized cost include accounts payable,
compensation payable, accrued share purchase 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 counterparty 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 consolidated statements of
earnings.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial asset (other
than a financial asset classified as fair value through profit or loss) is impaired. If such evidence exists, the
Company recognizes an impairment loss as follows:
(i) Financial assets carried at amortized cost: The loss is the difference between the amortized cost of the loan
or receivable and the present value of the estimated future cash flows, discounted using the instrument's original
effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly
through the use of an allowance account.
(ii) Available-for-sale financial assets: The impairment loss is the difference between the original cost of the
asset and its fair value at the measurement date, less any impairment losses previously recognized in the
consolidated statements of earnings. 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 consolidated statements of earnings during the period in which they are
incurred.
The major categories of property and equipment are depreciated as follows:
Furniture and equipment
Computer equipment
Computer application software straight-line over three years
Leasehold improvements
20% declining balance
30% declining balance
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.
Caldwell Partners – Consolidated Financial Statements
33
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 consolidated
statements of earnings.
Impairment of non-financial assets
Property and equipment and intangible assets (other than goodwill) are tested for impairment whenever 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 whenever
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 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 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. Compensation expense is recognized on a straight line basis over the three year vesting
period. Changes in fair value are reflected in current period compensation expense in proportion to the amount
of the vesting period that has lapsed with the balance being amortized straight line over the remaining 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 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 vesting period. Compensation expense is recognized on a straight line basis over
the three year vesting period. Changes in performance factors and fair value are reflected in current period
compensation expense in proportion to the amount of the vesting period that has lapsed, with the balance being
amortized straight line over the remaining vesting period.
Caldwell Partners – Consolidated Financial Statements
34
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. 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. DSUs are recorded as compensation
expense at the fair value of the units when issued. Subsequent changes in the fair value of DSUs are recorded
in current period compensation expense when the change occurs.
The awards have been recorded in current or non-current compensation payable 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 compensation payable 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 comprise both current and deferred tax. Income tax is recognized in the consolidated statements
of earnings except to the extent that it relates to items recognized in other comprehensive income or directly in
equity, in which case the income tax is also recognized in other comprehensive income or directly in equity.
Current 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 consolidated financial statements. Deferred income tax is
determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted
at the consolidated statements 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 Professional Fees and License Fee Revenue.
Professional Fees:
Professional fees are comprised of retainers and indirect expenses billed to clients based on terms set forth in
Caldwell Partners – Consolidated Financial Statements
35
signed engagement letters with each client. The Company is typically paid a retainer for its executive search
services, 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.
Professional fees are 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 consolidated 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.
License Fee Revenue:
License fee revenue is comprised of the license and technical assistance fees paid by the Company’s partner,
CPGroup, as discussed in Note 21. The license fee revenue is recognized as earned, based on the revenue of
CPGroup during the respective periods. The government of Venezuela has imposed restrictions on removing
cash from their country and as a result, license fee revenue related to CPGroup’s Venezuelan operations is not
currently recognized. Such license fees relating to Venezuela will accumulate but only be recognized when the
ability for payment outside of the country is available.
Cost of sales
Cost of sales includes direct costs associated with the generation of professional fees, which is both variable
and fixed compensation and the related costs of employees involved in search activities. When professional
fees are deferred, the related amount of estimated compensation expense directly associated with such
professional fees is also deferred. This expense deferral is recorded as a reduction in compensation payable on
the consolidated 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.
Caldwell Partners – Consolidated Financial Statements
36
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are
recognized as a deduction from equity.
Dividends
Dividends on common shares are recognized in the Company's 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, 2014. These changes were made in accordance with the applicable transitional
provisions.
IAS 32, Financial Instruments: Presentation 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 adoption of this standard did not impact the Company’s consolidated financial
statements.
IAS 36, Impairment of Assets 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
adoption of this standard did not impact the Company’s consolidated financial statements.
IFRIC 21, Levies 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 adoption of this standard did not impact the Company’s consolidated financial statements.
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
Caldwell Partners – Consolidated Financial Statements
37
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 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, 2018. The
Company has not yet assessed the potential impact of IFRS 15.
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 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
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
7,765,260
7,809,403
Cost, net
of writedowns
and provisions
6,924,644
6,897,191
August 31
2015
2014
Caldwell Partners – Consolidated Financial Statements
38
During fiscal 2015, the Company recorded $35,427 (2014: $nil) in realized gains on disposition of available-
for-sale marketable securities and this is included in investment income in the consolidated statements of
earnings. An unrealized loss of $71,596 was recognized as part of other comprehensive income during the year
(2014: unrealized gain of $231,632).
5. Property and Equipment
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:
Furniture and
equipment
Computer
equipment
Computer application
software
Leasehold
improvements
Total
531,207
145,603
(20,079)
(118,618)
5,833
543,946
208,666
110,465
-
(78,246)
2,291
243,176
50,457
5,065
-
(37,586)
554
18,490
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
Year ended August 31, 2015:
Opening net book value
Additions
Disposals
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2015:
543,946
132,823
(4,932)
(127,235)
58,507
603,109
243,176
142,211
-
(96,896)
26,155
314,646
18,490
25,796
-
(23,887)
1,989
22,388
804,199
172,876
-
(185,842)
86,497
877,730
1,609,811
473,706
(4,932)
(433,860)
173,148
1,817,873
Cost
Accumulated depreciation
Net book value
2,415,994
(1,812,885)
603,109
2,356,723
(2,042,077)
314,646
755,988
(733,600)
22,388
3,201,574
(2,323,844)
877,730
8,730,279
(6,912,406)
1,817,873
Depreciation of property and equipment is included in general and administrative expenses in the consolidated
statements of earnings. Disposals of fully depreciated assets have been derecognized amounting to cost and
accumulated depreciation of $1,208,349 and $1,203,416, respectively (2014: $199,671 and $179,592,
respectively).
Caldwell Partners – Consolidated Financial Statements
39
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
2015
2014
384,470
(85,705)
75,796
374,561
447,434
(76,326)
13,362
384,470
856,479
(481,918)
374,561
780,683
(396,213)
384,470
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 consolidated statements of
earnings to general and administrative expenses over their estimated useful life of 10 years with 4 years
remaining.
7. Goodwill
In assessing goodwill for impairment at August 31, 2015 and 2014, the Company compared the aggregate
recoverable amount of the assets included in the CGUs in its United States and Europe segments to their
respective carrying amount. In each case, 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 following assumptions:
2014
5%
25%
8%
United States
Average growth rate
Expected gross margin
Discount rate
Europe
Average growth rate
Expected gross margin
Discount rate
2015
5%
26%
8%
2015
8%
25%
8%
The impairment tests performed resulted in no impairment at August 31, 2015 or 2014.
Caldwell Partners – Consolidated Financial Statements
40
8. Nature of Expenses
Compensation costs
Occupancy costs
Sales and marketing
Depreciation
Amortization
Other
2015
2014
44,186,865
4,166,878
943,356
433,860
85,705
2,534,667
52,351,331
37,504,230
3,433,571
751,408
354,256
76,326
1,703,665
43,823,456
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
2015
2014
2,107,188
860,965
2,968,153
2,027,248
814,254
2,841,502
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
16,277,306
336,313
-
16,613,619
Non-current compensation payable
As at August 31
2015
2014
15,053,725
550,227
148,750
15,752,702
Performance and Restricted Stock Units
Deferred Stock Units
862,440
201,408
1,063,848
Commissions and bonuses
As at August 31
2015
2014
423,115
129,684
552,799
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.
Share-based compensation plans
Performance Stock Units (PSUs) and Restricted Stock Units (RSUs)
Caldwell Partners – Consolidated Financial Statements
41
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 127% of target. PSU expense of $674,445 has been recorded
for the year ended August 31, 2015 (2014: $187,995) within general and administrative expenses in the
consolidated statements of earnings.
RSU expense of $148,555 has been recorded for the year ended August 31, 2015 (2014: $646,129) within
general and administrative expenses in the consolidated statements of earnings. During the year, a payment of
$597,589 was made to the holders of RSUs.
A summary of the Company’s PSU and RSU plans is presented below:
2014
2015
Notional Notional
units
925,334
618,153
152,655
(358,710)
1,337,432
units
1,337,432
394,330
78,295
(447,539)
1,362,518
Outstanding at beginning of period
Granted
Dividends declared
Settled
Outstanding at end of period
Deferred Stock Units (DSUs)
DSU expense of $71,724 has been recorded (2014: $129,684) within general and administrative expenses in the
consolidated statements of earnings.
A summary of the Company’s DSU plan is presented below:
2015
Notional
units
89,853
64,217
7,057
161,127
2014
Notional
units
-
87,600
2,253
89,853
Outstanding at beginning of period
Granted
Dividends declared
Outstanding at end of period
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. The average performance period ranges from period to period
but averages between three and four months. 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, 2015, the Company had deferred revenue of $945,270 (2014: $1,974,144) and related deferred
compensation expense of $499,277 (2014: $892,657), with such amounts to be recognized during a future
period. These amounts are reflected as reductions in revenue and cost of sales in the consolidated statements
of earnings.
Caldwell Partners – Consolidated Financial Statements
42
12. Income Taxes
Current tax:
2015
2014
Current tax on net earnings for the year
186,397
1,763,388
Deferred tax:
Origination and reversal of temporary differences
76,230
262,627
(2,443,435)
(680,047)
The tax on the Company's earnings before income tax differs from the amount that would arise using the weighted
average tax rate applicable to earnings of the consolidated entities as follows:
Combined statutory income tax rate
Deferred tax assets not previously recognized
Non-deductible expenses
Prior years taxes
Other
2015
2014
29.9%
(26.9%)
4.9%
(1.0%)
4.8%
11.7%
43.0%
(93.9%)
1.5%
(2.6%)
(0.9%)
(52.9%)
Caldwell Partners – Consolidated Financial Statements
43
The analysis of deferred tax assets and liabilities is as follows:
2015
2014
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months
Deferred tax assets to be recovered within 12 months
38,204
3,303,234
192,338
2,545,071
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)
(307,887)
(133,468)
2,900,083
(202,949)
(91,025)
2,443,435
The movement of the deferred income tax account is as follows:
2015
2014
As of September 1
Debit to consolidated statements of earnings
Exchange differences
As of August 31
2,443,435
(76,230)
532,878
2,900,083
-
2,443,435
-
2,443,435
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the
offsetting of balances within the same tax jurisdiction, is as follows:
Deferred tax assets
Compensation
payable
Non-capital
losses
Other
Total
At August 31, 2013
(Charged)/credited to consolidated statements of earnings
At August 31, 2014
(Charged)/credited to consolidated statements of earnings
Exchange differences
At August 31, 2015
-
2,338,897
2,338,897
134,573
508,121
2,981,591
190,697
(60,329)
130,368
(130,368)
-
-
175,378
92,765
268,143
71,537
20,167
359,847
366,075
2,371,333
2,737,408
75,742
528,288
3,341,438
Deferred tax liabilities
Excess Carrying
Value of P&E
over tax base
Other
Total
At August 31, 2013
(Charged)/Credited to consolidated statement of earnings
At August 31, 2014
Charged/(credited) to the consolidated statement of earnings
Exchange differences
At August 31, 2015
265,455
(62,506)
202,949
88,502
16,436
307,887
100,620
(9,596)
91,024
63,470
(21,026)
133,468
366,075
(72,102)
293,973
151,972
(4,590)
441,355
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 is probable. The Company did not recognize deferred
income tax assets of $46,006 (2014: $651,132) that can be carried forward against future taxable income.
As at August 31, 2015, the Company has non-capital losses with the following expiry dates available to reduce income
of future years.
Expiry
Amount
Indefinite
231,535
The Company also has capital losses of $3,531,000 that can only be utilized against capital gains and are without
expiry date.
Caldwell Partners – Consolidated Financial Statements
44
13. Earnings per share
(i) Basic
Basic earnings per share are calculated by dividing the net earnings attributable to owners of the Company
by the weighted average number of common shares outstanding during the years.
2015
2014
Net earnings for the year attributable to owners of the Company
Weighted average number of common shares outstanding
Basic earnings per share
1,976,398
21,252,552
$0.093
1,966,786
19,512,532
$0.101
(ii) Diluted
Diluted earnings per share are 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.
2015
2014
Net earnings for the year attributable to owners of the Company
1,976,398
1,966,786
Weighted average number of common shares outstanding
adjustments for:
- stock options
Weighted average number of common shares for diluted
earnings per share
Diluted earnings per share
21,252,552
19,512,532
166,249
87,743
21,418,801
19,600,275
$0.092
$0.100
14. Capital Stock
Common Shares
As at August 31, 2015 the authorized share capital of the Company consists of an unlimited number of
Common Shares of which 21,275,155 are issued and outstanding (August 31, 2014: 21,000,155). 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 July 30, 2015, as discussed in note 22, the Company agreed to purchase and cancel the 1,145,600 common
shares of the Company held by DHR International Inc. for $1.40 per share for $1,603,840 plus associated legal
fees incurred through August 31, 2015 of $40,358 for a total cost of $1,644,198. As of August 31, 2015, the
commitment to repurchase $1,603,840 is reflected as a current liability in the consolidated statements of
financial position. As the purchase had not closed at August 31, 2015, the shares are still reflected as
outstanding.
Caldwell Partners – Consolidated Financial Statements
45
On October 1, 2014, as discussed in note 20, the Company issued 275,000 common shares in connection with
its acquisition of Hawksmoor Search Limited.
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 of the Company. Under the terms of the private
placement, the Company issued 3,934,650 common shares at a price of $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 were subject to a hold period that expired on January 17, 2015.
The Company has declared quarterly dividends since May 1, 2012. A summary of dividends declared during
fiscal 2014 and 2015 to date is as follows:
Declaration date
November 8, 2013
January 8, 2014
April 10, 2014
July 10, 2014
November 13, 2014
January 8, 2015
April 9, 2015
July 9, 2015
Payment date
December 13, 2013
March 14, 2014
June 13, 2014
September 12, 2014
December 12, 2014
March 12, 2015
June 15, 2015
September 14, 2015
Dividends
per share
$0.0175
$0.0175
$0.0175
$0.0175
$0.0200
$0.0200
$0.0200
$0.0200
Aggregate
dividends declared
$298,737
$367,513
$367,512
$367,513
$425,503
$425,503
$425,503
$425,503
The dividend payable September 14, 2015 has been accrued in the Company’s consolidated financial
statements as at August 31, 2015.
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, 2015
August 31, 2014
Number of
Weighted
Number of
Weighted
options
average
options
average
outstanding
exercise price
outstanding
exercise price
Outstanding at beginning of year
Options expired
Outstanding at end of year
Exercisable at end of year
375,000
-
375,000
375,000
$0.93
-
$0.93
1,015,000
(640,000)
375,000
325,000
$0.93
$0.95
$0.93
All options currently outstanding vest over two 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
$656 has been recorded in the year ended August 31, 2015 (2014: $5,644) within general and administrative
expenses.
Caldwell Partners – Consolidated Financial Statements
46
15. Segmented Information
The Company has consolidated operations in Canada, the United States and, with the acquisition of
Hawksmoor Search Limited effective October 1, 2014, Europe. All geographic segments provide retained
executive search consulting services to clients.
The following provides a reconciliation of the Company’s consolidated statements of earnings by geographic
segment to the consolidated results:
Canada
United States
2015
Europe
Elimination
total
Professional fees
License fees
Revenues
Gross profit
General and administrative
Sales and marketing
Licensing fees
Foreign exchange gain (loss)
16,376,851
948,446
17,325,297
5,800,593
(3,639,636)
(314,121)
-
11,840
37,136,540
-
37,136,540
9,247,021
(7,172,448)
(612,063)
(909,391)
(6,292)
975,030
-
975,030
132,441
(344,706)
(17,172)
-
79
Operating profit (loss)
1,858,676
546,827
(229,358)
Investment income
Income tax
Net earnings (loss) for the period
62,848
108,390
2,029,914
-
(371,017)
175,810
32
-
(229,326)
-
(909,391)
(909,391)
(909,391)
-
-
909,391
-
-
-
-
-
54,488,421
39,055
54,527,476
14,270,664
(11,156,790)
(943,356)
-
5,627
2,176,145
62,880
(262,627)
1,976,398
Canada
2014
United States
total
Revenues
13,394,348
31,691,903
45,086,251
Gross profit
General and administrative
Sales and marketing
Licensing fees
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
Operating profit (loss)
(285,752)
1,548,547
1,262,795
Investment income
Income tax
Net (loss) earnings for the period
23,527
54,569
(207,656)
417
625,478
2,174,442
23,944
680,047
1,966,786
General and administrative expenses include management fees representing a transfer of corporate overhead
expenses from the Canadian parent company to its US and UK subsidiaries. For the year ended August 31,
2015, management fees to the US amounted to $2,259,545 (2014: $2,072,716) and management fees to the UK
amounted to $97,932 (2014: $nil). Intercompany license fee revenues have been eliminated on consolidation.
Caldwell Partners – Consolidated Financial Statements
47
A summary of property and equipment, goodwill and total assets by country is as follows:
Property
and equipment
Intangible assets
Goodwill
At August 31, 2015
Canada United States United Kingdom Total
At August 31, 2014
Canada United States
Total
728,850
1,055,812
33,211 1,817,873
847,676
762,135
1,609,811
-
-
374,561
-
374,561
1,305,877
1,914,566 3,220,443
-
-
384,470
384,470
1,072,315
1,072,315
Total assets
18,006,210
17,381,232
2,443,811 37,831,253
17,234,605
18,980,401
36,215,006
Depreciation recorded on property and equipment and amortization on intangible assets is as follows:
2015
Canada United States United Kingdom Total
2014
Canada United States
Total
Depreciation expense
Amortization expense
198,106
-
230,539
85,705
5,215
-
433,860
85,705
186,693
-
167,563
76,326
354,256
76,326
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:
Twelve months ending August 31, 2016
Twelve months ending August 31, 2017
Twelve months ending August 31, 2018
Twelve months ending August 31, 2019
Twelve months ending August 31, 2020
September 1, 2020 and thereafter
3,164,581
2,678,744
2,486,279
2,281,584
1,906,603
1,297,410
13,815,201
During the year ended August 31, 2015, the Company expensed $3,072,454 (2014: $2,541,104) relating to
operating leases for its ten locations in Canada, the United States and the United Kingdom, 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, 2015 was $194,737.
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 consolidated statements
of earnings have been recognized for the year ended August 31, 2015 in the amount of $223,461 (2014:
$200,343).
Caldwell Partners – Consolidated Financial Statements
48
18. Financial Instruments
Classification of financial instruments
The classification of the financial instruments is shown in the table below.
Classification
Measurement
Cash and cash equivalents
loans and receivables
Marketable securities
Accounts receivable
Restricted cash
Accounts payable
available-for-sale
loans and receivables
loans and receivables
other financial liabilities
Compensation payable
other financial liabilities
Accrued share purchase
other financial liabilities
Dividends payable
other financial liabilities
amortized cost
fair value
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
Contingent consideration
fair value through profit or loss
fair value
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 financial instruments that are not traded in an active market and whose value is
determined by using valuation techniques. These valuation techniques maximize the use of
observable market data where it is available and rely as little as possible on entity specific estimates.
If all significant inputs required to fair value an instrument are observable, the instrument is included
in Level 2. The specific valuation techniques used to value financial instruments include quoted
market prices or dealer quotes for similar instruments.
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, 2015 and 2014 and the fair value
hierarchy of contingent consideration was Level 3 as at August 31, 2015 (note 20).
Fair value
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, compensation payable,
accrued share purchase and dividends 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. The marketable securities held by the Company are
professionally managed fixed income funds. These funds hold a combination of government and corporate
bonds. Since there is only an ‘Over the Counter’ market for fixed income securities, such securities owned and
sold short are valued using independent prices obtained directly from third party pricing vendors and the
investment fund’s prime brokers. The prices obtained from these sources usually reflect recent trading activity
and therefore are indicative of fair value. Other than temporary impairments of marketable securities are
recorded within the Company’s consolidated statements of earnings. Realized gains and losses are removed
from accumulated other comprehensive income and recognized within the consolidated statements of earnings.
Caldwell Partners – Consolidated Financial Statements
49
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 and UK currency denominated monetary assets and liabilities.
There is a risk to the Company’s earnings from fluctuations in US dollar and British pound sterling exchange
rates and the degree of volatility of these rates as the Company’s financial results are reported in Canadian
dollars.
At August 31, 2015, the Company has net monetary asset exposure of $5,156,893 denominated in US dollars
(2014: $4,884,547). 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 $257,845 recognized in the cumulative translation adjustment in the Company’s consolidated
statements of financial position for the year ended August 31, 2015 (2014: $244,227).
At August 31, 2015, the Company has net monetary asset exposure of $2,329,698 denominated in British
pound sterling (2014: $nil). A 5% depreciation or appreciation in the Canadian dollar against the British pound
sterling, assuming all other variables remained the same, would have resulted in an increase or decrease in
foreign exchange gain/(loss) of $116,485 recognized in the cumulative translation adjustment in the Company’s
consolidated statements of financial position for the year ended August 31, 2015 (2014: $nil).
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 foreign
currency to reduce its foreign exchange risk. No such contracts expired during the year ended August 31, 2015
and no foreign exchange gains were realized (2014: $26,000) in foreign exchange gains in the consolidated
statements of earnings for the year. As at August 31, 2015, the fair value of the foreign exchange forward
contracts was $nil (2014: $nil).
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:
Caldwell Partners – Consolidated Financial Statements
50
As at August 31, 2015
As at August 31, 2014
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
Compensation payable
Accrued share purchase
Dividends payable
Contingent consideration
1,736,559
16,613,619
1,603,840
425,503
270,824
-
-
-
-
-
-
1,399,983
1,063,848
15,708,952
-
-
-
367,513
262,116
-
-
-
-
-
-
43,750
552,799
-
-
-
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
2015
2014
8,768,561
(575,014)
8,193,547
135,710
8,329,257
8,477,576
(389,384)
8,088,192
52,953
8,141,145
No financial assets are past due except for a portion of accounts receivable. As at August 31, 2015, accounts
receivable of $7,290,132 (2014: $7,216,677) were fully performing, $903,440 (2014: $871,515) were over 90
days but not impaired and $575,014 (2014: $389,384) 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
2015
2014
Start of year
Provision for impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
End of year
389,384
1,096,791
(814,732)
(96,429)
575,014
352,031
356,543
(319,190)
-
389,384
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).
Caldwell Partners – Consolidated Financial Statements
51
At August 31, 2015, the Company has $7,765,260 invested in managed funds (2014: $7,809,403). 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 $388,263 (2014: $390,470).
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. Acquisition of Hawksmoor Search Limited
On October 1, 2014, the Company acquired all of the outstanding shares of Hawksmoor Search Limited
(Hawksmoor), an executive search firm based in London, United Kingdom. The results of these operations
have been consolidated with those of the Company from the date of acquisition. The purchase price consists of:
(i) cash paid at close of £450,000; (ii) 275,000 shares of The Caldwell Partners International, Inc. newly issued
at close; (iii) a net working capital adjustment of £321,888 paid in cash based on the value of assets acquired,
net of liabilities assumed; and (iv) cash to be paid annually over the following two years subject to
Hawksmoor’s achieving certain revenue criteria and with a cumulative maximum payment of £300,000. For
purposes of calculating the purchase price, the value per common share was $1.38 which was the closing share
price on the date of close. The contingent consideration is measured at fair value based on Level 3 inputs. The
contingent consideration is not based on observable inputs and is measured using a discounted cash flow
analysis of expected payments in future periods. The contingent consideration amounts were recorded at their
fair value using a discount rate of 4.0%. The movement in this balance is as follows:
Year ended August 31, 2015:
Opening
Fair value at acquisition
Change in fair value
Closing
-
512,442
20,498
532,940
Purchase price was first assigned to net tangible and intangible assets acquired and liabilities assumed. Potential
intangible assets which were reviewed included tradename, software, customer related intangible assets and
non-compete assets. Management determined that there was no supportable value to be attributed to these
intangible asset categories. Purchase price was not attributed to work-in-progress as there were no ongoing
assignments at the acquisition date. Accordingly, the excess of the purchase price over the net tangible assets
acquired and liabilities assumed was recorded as goodwill and reflects synergies with the Company’s
operations through the value of acquired work force and value of geographic presence for further servicing to
clients. It is not expected to be deductible for tax purposes.
Caldwell Partners – Consolidated Financial Statements
52
Purchase price, net of cash acquired at October 1, 2014:
Cash paid at close
less cash acquired
Net cash paid at close
Value of common shares issued
Contingent consideration
Working capital adjustment
Total purchase price, net of cash acquired
815,085
(380,600)
434,485
379,500
512,442
583,217
1,909,644
Allocation of purchase price, net of cash acquired at October 1, 2014:
Accounts receivable
Income taxes receivable
Prepaid expenses and other current assets
Deferred income taxes
Accounts payable
Goodwill
Total purchase price, net of cash acquired
123,766
58,739
79,724
2,612
(62,404)
1,707,207
1,909,644
Acquisition related costs of $29,265 have been charged to general and administrative expenses in the
consolidated statements of earnings for the year ended August 31, 2015.
21. Affiliation Relationship
On July 13, 2015, the Company entered into an affiliation agreement with CPGroup LATAM Ltd. and its
subsidiaries (“CPGroup”). The Company did not obtain an ownership stake in CPGroup. The affiliation
agreement has an initial term of five years and provides for CPGroup to pay the Company 2.25% of Latin
American revenue for the first two years of the agreement and 4.25% in subsequent years. In exchange for the
license fee payments, CPGroup will have rights to use the Caldwell Partners brand, search processes,
methodologies and related intellectual property. Additionally, should there be a change of control of the
Company during the first two years of the agreement, CPGroup will have the right to terminate the alliance
agreement and will be entitled to a dislocation and rebranding fee of USD2.0 million.
22. Subsequent Events
On September 23, 2015, the Company completed its previously announced purchase of the shares of the
Company from DHR International, Inc. The 1,145,600 shares were purchased at $1.40 per share for $1,603,840
plus associated legal fees. The shares were then cancelled, reducing the Company’s outstanding shares from
21,275,155 to 20,129,555.
On November 17, 2015, the Board of Directors declared a dividend of 2.0 cents per share, payable to holders of
common shares of record on November 27, 2015 and to be paid on December 11, 2015.
Caldwell Partners – Consolidated Financial Statements
53
Caldwell Partners is one the world’s premier providers of executive search and has been for
more than 45 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
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Canada
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Canada
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