The Caldwell Partners International Inc.
Annual Report 2016
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 2016 was another important year in the evolution of Caldwell Partners, having
its share of challenge and success.
We closed out the year with $58.7 million in annual revenue – an increase of 8% over
the previous year. A strong performance by our team over the last two quarters
allowed us to deliver profitable full year results, and while this is not in line with the
results we had planned to deliver, we are pleased with the manner in which we
weathered several challenges, including a 25% year over year revenue decline in
Canada due to weakness in the Canadian financial services and oil and gas industries.
The expansion and hires we made in the United Kingdom did not work as we had
hoped, and though we have retrenched slightly, we are not deterred from being in
the UK. Rather, we have a very healthy core business, and intend to be very
thoughtful about how we add to the team and are looking forward to the future
there.
To mitigate the effects of the headwinds in Canada and the UK, we made select staff
reductions within our search delivery and corporate teams to align our staffing levels
with current and projected search volumes. We additionally relocated our New York
office, subleasing our existing space and moving into a smaller location with a lower
total cost. These actions, while resulting in charges of $1.0 million during the fourth
quarter and dampening our full year operating profit to $1.3 million, have us very
well positioned for a strong fiscal 2017.
As we head into Fiscal 2017, we remain committed to our status as an annuity-based
firm. Subsequent to the cost alignment initiatives that we took in the later part of
Fiscal 2016, we are confident that in normal markets we will deliver an operating
profit that will allow us to reward our shareholders through a sustainable dividend,
Shareholders Letter
1
Caldwell Partners –
to continue to organically grow the company’s revenues, and to maintain a cash
position that will underpin the firm.
We have also just passed the one-year anniversary of our license agreements with
Latin America and New Zealand, and are pleased to report that these relationships
are strong and growing. We are also excited to see early examples of clients being
served by our expanded geographic reach and internationally blended team
approach.
Steve Jobs once said that ‘Great things in business are never done by one person.
They're done by a team of people.’ We are privileged to have a phenomenal team
here at Caldwell Partners, who stand together and are working towards a successful
future. We thank each and every member of our team for the dedication they show
every day to our clients and each other.
Yours sincerely,
G. Edmund King
Chair of the Board
John N. Wallace
President & Chief Executive Officer
Shareholders Letter
2
Caldwell Partners –
(Expressed in $000s Canadian, except per share amounts)
For the Years Ended August 31, 2016 and 2015
Management
Discussion and Analysis
Company description
The Caldwell Partners International Inc. (“Caldwell Partners®” or “the Company” or “We”) 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.
We take pride in delivering an unmatched level of service and expertise to its clients through
our client teams from 22 locations throughout the world including Atlanta, Calgary,
Charleston, Dallas, London, Los Angeles, Nashville, New York, Philadelphia, San Francisco,
Stamford, Toronto and Vancouver, and through our licensee locations in Auckland, Bogota,
Buenos Aires, Caracas, Lima, Mexico City, Miami, Santiago and São Paulo.
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
Management Discussion and Analysis
3
Caldwell Partners –
international economies; competition from other companies directly or indirectly engaged in
executive search; the possibility of a significant shareholder impacting shareholder votes;
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 10, 2016, should be read in
conjunction with the consolidated annual audited financial statements and related notes for
the year ended August 31, 2016. 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 as issued by the International
Accounting Standards Board (IFRS).
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 21 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
Management Discussion and Analysis
4
Caldwell Partners –
note 22 to the consolidated annual financial statements, on July 13, 2015, the Company
entered into an affiliation licensing agreement with CPGroup LATAM Ltd. and its subsidiaries
(“CPGroup”). As of August 31, 2016 CPGroup had 20 revenue producing partners operating
out of 8 offices including Bogota, Buenos Aires, Caracas, Lima, Mexico City, Miami, Santiago
and São Paulo. The licensing 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. Effective November 8, 2015 the Company entered
into a similar licensing agreement with Simon Monks and Partners Limited, a New Zealand
corporation, which subsequently changed its name to The Caldwell Partners International
New Zealand Limited (“Caldwell NZ”). Caldwell NZ had 3 revenue producing partners
operating out of Auckland as of August 31, 2016. In exchange for the license fee payments,
CPGroup and Caldwell NZ each have the right 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: Excluding affiliation 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. This performance will be driven by the
Number of Assignments performed and the 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 our partner productivity and
utilization 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: Professional fees for a given period divided by the
related Number of Assignments. This metric is used to identify and track price trends
Management Discussion and Analysis
5
Caldwell Partners –
as a key driver of our professional fees. It is impacted by both economic and
competitive conditions as well as the seniority level of searches undertaken.
•
Unencumbered Cash: a measure used to identify cash available beyond that required
to fund short term obligations, calculated as the net of i) cash and cash equivalents,
restricted cash, short-term marketable securities, 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.
Selected Financial Information
The following table summarizes selected financial information for the three years ended
August 31:
($ 000s except dividends and earnings per share)
$
¹
¹
¹
¹
¹
¹
Total revenue
Period end number of partners
Average Number of Partners
Annualized Professional Fees per Partner
Number of Assignments
Number of Assignments per Partner
Average Fee per Assignment
Net earnings for the year attributable to owners of the Company
Basic earnings per share
Diluted earnings per share
Total assets
Total non-current financial liabilities
Cash dividends per share
¹
$
2016
58,748
38
38.0
1,516
383
10.1
150
881
0.044
0.043
34,699
687
0.08
$
$
$
$
$
$
$
$
$
$
$
2015
54,527
37
34.8
1,566
428
12.3
127
1,976
0.093
0.092
37,831
1,326
0.08
$
$
$
$
$
$
$
2014
45,086
33
31.7
1,422
388
12.2
116
1,967
0.101
0.100
36,215
553
0.07
$
$
$
$
$
$
$
Please refer to the section on Non-GAAP Financial Measures and Other Operating Measureson page 2 of this document
Discussion of factors impacting the Company’s results
The Company has achieved significant revenue growth over the past three years. The 8%
revenue increase (1% excluding the impact of foreign exchange fluctuations) from 2015 to
2016 was driven by an 18% increase in the Average Fee (11% excluding the impact of foreign
exchange rate fluctuations), a 9% increase in the Average Number of Partners, partly offset by
an 18% decrease in the Number of Assignments per partner.
The 21% revenue increase (12% excluding the impact of foreign exchange fluctuations) from
2014 to 2015 was driven by a 10% increase in the Average Fee (1% excluding the impact of
foreign exchange rate fluctuations), a 1% increase in the Number of Assignments per Partner,
and a 10% increase in the Average Number of Partners.
Our Average Fee is impacted by economic conditions and related competitive pricing
pressures as well as the seniority level of searches undertaken. We protect our Average Fee
by maintaining a strategic focus towards securing high level executive placements, which, in
6
Management Discussion and Analysis
Caldwell Partners –
turn, have higher compensation levels upon which our fees are based. Yearly average foreign
exchange rate movements can also have a significant impact on our Average Fee. The US
dollar has increased in value approximately 20% over the periods presented and therefore
has driven a significant portion of the higher Average Fee.
The decrease in the Number of Assignments per Partner was primarily attributable to weaker
market conditions, particularly in Canada, due largely to the impact of falling oil prices to
which its economy is tied, and to an extended period of performance ramp up from two new
partners assimilated into our UK office.
The increase in the Average Number of Partners was driven primarily by organic hires as well
as our acquisition of Hawksmoor Search, Ltd. based in the United Kingdom in October 2015.
The partner headcount metric has increased from 33 in 2014 to 38 at the close of 2016 within
our owned operations and from 33 to 58 including our affiliation partners during the same
timeframe.
In fiscal 2016, net earnings decreased $1,095 to $881 from $1,976 in the prior year resulting
from a $538 increase in income tax expense on a shift in taxable income being generated in
the United States where income tax rates are higher relative to Canada and the UK, coupled
with an overall reduction in operating profit of $898, offset by an increase in investment
income of $341 from the realization of gains from the sale of marketable securities.
The key components of the fiscal 2016 decline in operating profit of $898 were increased
losses in the UK of $993 over the prior year, charges in the fourth quarter of fiscal 2016 of
$759 related to the sublease and relocation of our New York office premises and $250 of
separation costs associated with aligning our support staff structure to current-state business
needs. These year over year cost increases were partially offset by reductions in management
short-term and long term compensation of $1,305 relating to non-attainment of financial
performance goals and share price-based accrual adjustments. Aside from the above noted
variances, there was a remaining net unfavorable operating performance year-over-year of
$201 arising from declines in Canada related to its weaker economy, partially offset by
improved US operations performance.
The 2016 financial results and cost drivers are discussed more fully in the following
Operating Results section. Additionally, the Business Outlook section discusses actions taken
to reduce our UK losses and fixed costs prospectively and our current views on future
operating profit performance.
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 mostly offset by 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, as the prior year benefitted
from the recognition of deferred tax assets. The Company has now utilized its ordinary
operating loss carryforwards in the US and Canada, which has increased the effective tax rate
on future profitable results.
Management Discussion and Analysis
7
Caldwell Partners –
Fiscal 2015 results and results compared to 2014 are more fully discussed within this
document under Operating Results and in the prior year Management Discussion and
Analysis document as filed on SEDAR.
Revenue
Operating Results
2016
2015
Professional fees
Investment income
Professional revenue
License fee revenue
Revenue
¹
Period end number of partners
Average Number of Partners
Annualized Professional Fees per Partner
Number of Assignments
Number of Assignments per Partner
Average Fee per Assignment
¹
¹
¹
¹
Professional fees
Investment income
Professional revenue
License fee revenue
Revenue
¹
Period end number of partners
Average Number of Partners
Annualized Professional Fees per Partner
Number of Assignments
Number of Assignments per Partner
Average Fee per Assignment
¹
¹
¹
¹
¹
¹
Q1
13,945
$
$
-
$
13,945
$
65
14,010
$
Q2
14,281
787
15,068
67
15,135
$
$
$
$
$
Q3
13,680
90
13,770
57
13,827
$
$
$
$
$
$
$
$
38
37.5
1,487
105
2.8
133
38
38.0
1,503
77
2.0
185
38
38.0
1,440
107
2.8
128
$
$
$
12,436
$
$
-
12,436
$
-
$
$
12,436
11,874
$
$
-
11,874
$
-
$
$
11,874
14,813
$
-
$
14,813
$
-
$
$
14,813
$
$
$
34
34.0
1,463
115
3.4
108
34
34.0
1,397
95
2.8
125
35
34.8
1,703
123
3.5
120
$
$
$
Q4
15,712
$
-
$
15,712
$
$
64
15,776
$
Annual
57,618
$
877
$
58,495
$
$
253
$
58,748
$
$
38
38.5
1,632
94
2.4
167
38
38.0
1,516
383
10.1
150
$
$
$
15,365
$
-
15,365
$
$
39
15,404
$
$
54,488
$
-
$
54,488
$
39
$
54,527
$
$
37
36.0
1,707
95
2.6
162
37
34.8
1,566
428
12.3
127
$
$
Revenue and operating income are difficult to predict and have historically varied
significantly from quarter to quarter. There is no discernible seasonality in our business on a
quarterly basis. We track our revenue by professional fees, investment income and license fee
revenue.
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 our relatively small partner base, we have limited
diversification and consequently results will fluctuate significantly from quarter to quarter.
The preceding chart sets forth select revenue and operating measures. We believe these
measures help explain our revenue and its variation from period to period.
Professional Fees
Fourth Quarter Consolidated Professional Fees
Professional fees for the fourth quarter of 2016 increased 2.3% (1.8% excluding a 0.5%
Management Discussion and Analysis
8
Caldwell Partners –
favourable variance from exchange rate fluctuations) over the comparable period last year to
$15,712 (2015: $15,365).
The positive impact of a higher Average Number of Partners at 38.5 compared to 36.0 in the
prior year period was offset by lower productivity per partner. The Number of Assignments
per Partner decreased to 2.4 (2015: 2.6), resulting in a decrease in the total Number of
Assignments to 94 (2015: 95). The Average Fee per Assignment rose to $167 (2015: $162),
driven in part by favourable foreign exchange movements of 0.5%.
Year-to-Date Consolidated Professional Fees
Professional fees for the year increased 5.7% (a decline of 0.8% excluding a 6.5% favourable
variance from exchange rate fluctuations) over the comparable period last year to $57,618
(2015: $54,488).
The positive impact of a higher Average Number of Partners at 38.0 compared to 34.8 in the
prior year period and a higher Average Fee per Assignment was offset by lower productivity
per partner. The increase in Average Fee per Assignment to $150 (2015: $127) was driven by
favourable foreign exchange movements of 7.3% and incremental professional fees earned
and recognized on placements that began during the current year but related to searches
conducted in prior periods. The year-to-date Number of Assignments per Partner decreased
to 10.1 (2015: 12.3), resulting in a decrease in the total Number of Assignments to 383 (2015:
428).
Fourth Quarter and Year-to-Date Professional Fees by Geography
United States:
Fourth quarter professional fees in the US were up 11.8% (10.5% excluding a 1.3%
favourable variance from exchange rate fluctuations) to $12,063 (2015: $10,794). The
increase was the result of growth in the Average Fee per Assignment and the Number of
Assignments per Partner with the Average Number of Partners remaining constant.
Professional fees in the US for the year were up 16.2% (6.8% excluding a 9.4% favourable
variance from exchange rate fluctuations) to $43,170 (2015: $37,136). Increases in both the
Average Fee per Assignment and Average Number of Partners were partially offset by a lower
Number of Assignments per Partner during the period.
Canada:
Fourth quarter professional fees in Canada continued to be pressured by economic conditions
in Western Canada as well as the Financial Services sector across Canada and were down
24.3% to $3,139 (2015: $4,145). The impact of a higher Average Number of Partners was
more than offset by a lower Number of Assignments per Partner and a lower Average Fee per
Assignment.
Professional fees in Canada for the year were down 25.1% to $12,260 (2015: $16,377), with a
lower Number of Assignments per Partner and a lower Average Fee per Assignment being
only slightly offset by a higher Average Number of Partners.
Management Discussion and Analysis
9
Caldwell Partners –
Europe:
Fourth quarter Europe professional fees were up 19.5% to $509 (2015: $426) last year. Year
to date professional fees in Europe were $2,188 versus $975 last year. The Europe operation
was acquired and initiated business on October 1, 2014, and as a result, only eleven months
of operations were included in fiscal 2015. Additionally, two partners were added late in the
fourth quarter of 2015, so the majority of 2016 had three partners compared to 2015 with
only one partner.
Investment income
During fiscal 2016, the firm monetized an equity position obtained as a portion of
professional fee consideration in the US from a prior period which resulted in the recognition
of $877 of investment income which was settled in a combination of cash ($491) and shares
of a publicly traded company restricted by a mandatory hold period of six months ($386).
These shares are shown within marketable securities in the Consolidated Statement of
Financial Position as of August 31, 2016. Subsequent to finalizing the fee, the value of the
shares decreased, with such decrease of $103 being reflected in accumulated other
comprehensive income until the underlying securities are sold. Accounting for investment
income and the related equity interests is described in Note 3 to the consolidated financial
statements.
The Company holds $573 (August 31, 2015: nil) in investments in illiquid marketable
securities in private companies obtained in addition to cash for performance of search
services and reflected in non-current assets in the consolidated statements of financial
position.
License Fees
License fees from our affiliations in Latin America and New Zealand for the use of the
Caldwell Partners brand and intellectual property were $64 (2015: $39) for the fourth
quarter and $253 (2015: $39) for the full year. As the licensing agreements were signed in the
fourth quarter of fiscal 2015 and first quarter of fiscal 2016, respectively, the license fees
were lower during 2015.
Cost of Sales
2016
2015
Cost of sales
Cost of sales as a % of professional revenue
Cost of sales
Cost of sales as a % of professional revenue
$
$
Q1
10,868
77.9%
9,172
73.8%
Q2
11,693
77.6%
8,851
74.5%
$
$
$
$
Q4
11,447
72.9%
11,433
74.4%
Annual
$
44,604
76.3%
40,257
73.9%
$
$
$
Q3
10,596
76.9%
10,801
72.9%
Cost of sales pertains to professional revenue (including professional fees and investment
income) and comprises partner compensation, related search delivery personnel
compensation and the direct costs of providing our search services. Compensation costs
include fixed salaries, variable incentive compensation and related employee benefits and
payroll taxes. In aggregate and over time, these costs are largely variable to professional
revenue, with fluctuations arising from changes in incentive compensation based on Average
10
Management Discussion and Analysis
Caldwell Partners –
Professional Fee per Partner and the leverage impact of certain fixed support costs during
periods of growth or decline. Variable incentive compensation for our Partners is based on a
percentage of the amount of collected professional revenue attributed to each respective
Partner; the higher the collected professional revenue in a fiscal year, the higher the
percentage the Partner is eligible to earn. 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 individuals’ 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 Consolidated Cost of Sales
Fourth quarter cost of sales increased 0.1% or $14 to $11,447 (0.6% excluding the 0.5%
variance from exchange rate fluctuations as the magnitude of the decline in the British pound
outweighed the strengthening of the US dollar) from $11,433. The dollar increase was from
higher total compensation linked to the growth in professional revenue. This increase was
partially offset by variable partner compensation costs benefiting from revenue in the fourth
quarter being weighted towards partners with lower commission percentages. On a segment
basis, the year-over-year cost of sales increase of $14 came from increases in the US ($793)
offset by decreases in Canada ($758) and Europe ($21).
As a percentage of professional revenue, cost of sales fell 1.5% to 72.9%, down from 74.4% in
the same period last year. The decrease as a percentage of professional revenue was due
primarily to the benefits of lower variable partner compensation discussed above and the
leverage obtained with having higher quarterly revenue on relatively fixed partner support
personnel compensation costs.
Year-to-Date Consolidated Cost of Sales
Cost of sales for the year increased 10.8% to $44,604 (an increase of 4.0% excluding the 6.8%
variance from exchange rate fluctuations) from $40,257. As a percentage of professional
revenue, cost of sales rose to 76.3% as a percentage of professional revenue, up $4,347 or
2.4% of professional revenue from 73.9% in the same period last year. The increase as a
percentage of professional revenue is primarily attributable to the fixed cost of staff added
during 2015 in support of rising search volumes which subsequently fell off, particularly in
Canada, coupled with the investment hires made in the UK office in the fourth quarter of the
previous fiscal year. During the last two quarters of 2016, select reductions in search delivery
and support staffing were made to better align with current search volume levels. The
Business Outlook section discusses these and other cost alignment actions and our
prospective views.
Fourth Quarter and Year-to-Date Cost of Sales by Geography
United States:
Fourth quarter cost of sales in the US increased $793 or 9.9% ($710 or 8.9% on a constant
dollar basis), versus the 11.8% increase in US professional revenue, to $8,780 (2015: $7,987).
Management Discussion and Analysis
11
Caldwell Partners –
Cost of sales declined as a percentage of professional revenue, and represented 72.8% of
professional revenue compared to 74.0% in the prior year. Higher partner compensation (up
1.0% as a percentage of professional revenue) was partially offset by lower fixed cost partner
support personnel compensation (down 1.8% as a percentage of professional revenue) and
lower costs of search delivery materials (down 0.4% as a percentage of professional
revenue).
Full year cost of sales in the US increased $5,129 or 18.4% ($2,373 or 8.5% on a constant
dollar basis), versus the 16.2% increase in US professional revenue to $33,018 (2015:
$27,889). As a percentage of professional revenue these costs represented 76.5% of
professional revenue compared to 75.1% in the prior year. Slightly higher costs of search
delivery materials (up 0.1% as a percentage of professional revenue) were offset by slightly
lower partner compensation (down 0.2% as a percentage of professional revenue) with
partner support personnel compensation flat with the previous year.
Canada:
Fourth quarter cost of sales in Canada decreased $761 or 25.9% consistent with the Canada
professional revenue decline of 24.3% to $2,179 (2015: $2,940). There were decreases in all
components with partner compensation down $718, partner support personnel
compensation down $11 and search delivery materials down $32.
As a percentage of professional revenue, these costs represented 69.4% of professional
revenue vs. 70.9% in the prior year. Partner support personnel compensation, which is
largely fixed in nature was up 4.7% as a percentage of professional fees as a result of the
decrease in professional revenue during the quarter. This increase was offset by lower
variable partner compensation on reduced commission tiers and lower search delivery
materials, which were down 5.7% and 0.5% as a percentage of professional revenue,
respectively.
Year to date cost of sales in Canada decreased 21.1% relative to the Canada professional
revenue decline of 25.1% to $9,095 (2015: $11,525). Partner compensation decreased by
$2,421 and fixed partner support personnel compensation by $56, offset slightly by search
delivery material costs which are up $47.
As a percentage of professional revenue these costs represented 74.2% vs. 70.4% in the prior
year. The relatively fixed partner support personnel compensation costs and search delivery
materials costs have increased 5.0% and 0.7%, respectively largely due to the decrease in
professional revenue. Those increases have been offset slightly by lower variable partner
compensation on reduced commission tiers (down 1.8% as a percentage of professional
revenue).
Europe:
Fourth quarter cost of sales in Europe decreased $22 (an increase of $115 on a constant
Management Discussion and Analysis
12
Caldwell Partners –
currency basis) to $485 from $507 in the comparable period a year ago. Cost of sales
represented 95.3% of professional revenue compared to 119.0% in the fourth quarter of last
year. This percentage cost decrease is the result of lower partner compensation (down 22.3%
as a percentage of professional revenue) and lower fixed cost partner support personnel
compensation (down 1.5% as a percentage of professional revenue) partially offset by higher
costs of search delivery materials (up 0.3% as a percentage of professional revenue). During
the fourth quarter of 2016, one of the partners hired during the fourth quarter of 2015
resigned and a support person was also reduced. This partner had compensation costs in
excess of revenue, contributing to the higher cost of sales in Europe compared to the other
regions.
Cost of sales in Europe for the year increased $1,648 ($1,662 on a constant currency basis) to
$2,491 from $843 in the comparable period a year ago. Investments made in the fourth
quarter of 2015 resulted in higher costs throughout 2016 and transitional revenues did not
grow as quickly as the added fixed costs related to minimum partner draws and fixed support
personnel costs. As a result, these costs as a percentage of professional revenue increased to
113.9% vs. 86.4% in the same period last year. This increase was the result of higher partner
compensation (up 18.1% as a percentage of professional revenue or $1,092), higher partner
support personnel compensation (up 7.7% as a percentage of professional revenue or $498)
and higher costs of search delivery materials (up 1.6% of professional revenue or $58).
During August, 2016, a partner hired last year in the UK whose compensation and related
costs were significantly higher than the revenue produced, left the firm and corresponding
reductions were made to the support staff. The Business Outlook section discusses these and
other cost alignment actions and our prospective views.
Gross Profit and Margin
$
$
Q4
4,329
27.4%
3,972
25.8%
Annual
14,144
$
24.1%
14,271
26.2%
$
$
$
Q3
3,231
23.4%
4,012
27.1%
$
$
Q2
3,442
22.7%
3,023
25.5%
Q1
$
$
3,142
22.4%
3,264
26.2%
2016
2015
Gross profit in the fourth quarter increased 9.0% (5.1% excluding a 3.9% variance from
exchange rate fluctuations) to $4,329 or 27.4% of revenue versus fourth quarter in the
previous year (2015: $3,972 or 25.8% of revenue); the result of the 2.4% increase in revenue
offset by the 0.1% increase in Cost of Sales as a percentage of Revenue. On a segment basis,
gross profit was $3,280 from the US, $1,025 from Canada ($1,329 less $298 in intercompany
license fee revenue), and $24 from Europe from the variances discussed in revenue and cost
of sales.
Management Discussion and Analysis
13
Caldwell Partners –
On the year, gross profit decreased 0.9% (7.2% excluding a 6.3% variance from exchange rate
fluctuations) to $14,144, from $14,271 in 2015. The decrease was driven by the 2.4%
increase in cost of sales as a percentage of revenue, partially offset by the favourable impact
of a 7.7% revenue increase. As a result, gross margin for 2016 was 24.1% (2015: 26.2%). On a
segment basis, gross profit was $11,029 from the US, $3,418 from Canada ($4,408 less $990
in intercompany license fee revenue), and a loss of $303 from Europe from the variances
discussed in revenue and cost of sales.
Expenses
2016
2015
Q1
$
$
3,290
2,957
Q2
2,733
2,512
$
$
Q3
2,551
3,107
$
$
Fourth Quarter Expenses:
Q4
4,292
3,518
$
$
Annual
$
12,866
$
12,094
Fourth quarter expenses increased 22.0% or $774 over the comparable period in the prior
year to $4,292 (2015: $3,518). Excluding exchange rate variances of $52, expenses on a
constant currency basis increased $722 or 20.5% over the same period last year.
During the fourth quarter of 2016 we incurred certain expenses in connection with reducing
the fixed costs of the Company. In constant currency, this included charges of $701 related to
the sublease and relocation of our New York office premises and $250 of separation costs
associated with aligning our support staff structure to current-state business needs. The New
York office relocation will reduce expenses going forward and will generate annual net cash
savings while providing an enhanced office experience for clients, candidates and employees.
We believe the above two actions will result in lowering annual expenses by approximately
$450. On a cash flow basis, we believe these actions will be cash flow neutral for 2017 and
will result in approximately $330 annual cash savings in future years.
Adjusting for the charges taken, the remaining expenses decreased $229 on a constant
currency basis or 6.5% over the same period last year. The $229 decrease is the result of
higher foreign exchange expense ($92),marketing and business development costs ($76) and
general cost increases across other categories ($39) being more than offset by lower support
staff management bonus accruals on non-attainment of financial performance targets, net of
higher share-based compensation expense ($155), decreases in the cost of training from
adoption costs of our competency based assessment training held in the prior year not
recurring ($170) and professional fees from costs associated with an unsolicited interest by
DHR International, Inc. in acquiring the Company during 2015 ($111).
On a segment basis, expenses were $3,336 from the US ($3,038 net of $298 in intercompany
license fees), $664 from Canada and $292 from Europe.
Management Discussion and Analysis
14
Caldwell Partners –
Year-to-Date Expenses:
Full year expenses increased 6.4% or $772 over the prior year to $12,866 (2015: $12,094).
Excluding exchange rate variances of $587, remaining expenses on a constant currency basis
increased $185 or 1.5% over the same period last year. The increase includes the charges
taken in the fourth quarter of 2016 discussed above of $701 in constant currency related to
the sublease and relocation of our New York office space as well as the separation costs of
$250.
Adjusting for the charges taken, year over year expenses decreased $766 on a constant
currency basis, or 6.3%. The constant currency cost decreases included reduced management
bonuses and share based compensation related to non-attainment of financial performance
targets and a lower share price ($1,031), lower staff training as the initial training on
competency based assessment across 2015 was non-recurring ($245) and one time
professional fees from costs associated with an unsolicited interest by DHR International, Inc.
in acquiring the Company during 2015 ($111). These decreases were partially offset by
higher occupancy from the expansion of square footage at our United Kingdom location, the
addition of our Charleston office and higher lease costs in certain other locations ($288),
increased marketing and business development ($125), higher depreciation expense from
our growth and investment in leased space ($84), legal fees ($71) and foreign exchange losses
on intercompany loan balances and US dollar bank account balances compared to gains last
year ($47) and general increases across other categories ($6). On a segment basis, expenses
were $9,649 from the US ($8,659 net of $990 in intercompany license fees), $2,296 from
Canada and $921 from Europe.
Operating Profit
2016
2015
Q1
$
Q2
$
Q3
$
(148)
(1.1%)
307
2.5%
709
4.7%
511
4.3%
680
4.9%
905
6.1%
$
$
$
Q4
$
$
37
0.2%
453
2.9%
Annual
$
1,278
2.2%
2,176
4.0%
$
For the 2016 fourth quarter, higher revenue ($372) was more than offset by the higher cost of
sales ($14) and higher expenses ($774) attributable to the net impact of cost-alignment
charges, reduction in bonuses and the other fluctuations discussed above, resulting in a
decrease in operating profit of $416 over the comparable period in the prior year to $37
(2015: $453). Excluding favourable exchange rate variances ($154) and the significant
onerous lease charge ($701) and separation cost associated with realigning support staff
structure ($250), operating profit increased $381 or 84.1% to $834.
On a segment basis, the fourth quarter operating profit of $37 came from the US experiencing
a $55 operating loss ($243 income excluding the impact of intercompany license fees) and
inclusive of the $759 New York office sublease and relocation charge, Canada producing $360
Management Discussion and Analysis
15
Caldwell Partners –
of profit ($62, excluding intercompany license fee revenue) and Europe having an operating
loss of $268 from the variances discussed in revenue, cost of sales and expenses. Thus,
excluding intercompany license fees that were not begun until the fourth quarter of fiscal
2015 and eliminate on consolidation, the absolute decrease in operating profit of $416 came
from declines in the US of $246 driven by the $759 New York office sublease and relocation
charge, Canada of $76 on weaker economic conditions and Europe of $94 on increased staff
costs from expansion. Please refer to the Business Outlook section for a forward looking
impact discussion of fixed cost reduction initiatives enacted during the fourth quarter of
2016.
For the 2016 full year, higher revenue ($4,221) offset by increases in cost of sales ($4,347)
and expenses ($772) from the cost-alignment, reduced management bonuses and other
variances discussed above resulted a decrease in operating profit of $898 to $1,278 (2015:
$2,176). Excluding favourable exchange rate variances ($314) and the significant onerous
lease charge ($701) and separation cost associated with realigning support staff structure
($250), operating profit decreased $261 or 12.0% to $1,915.
On a segment basis, for the full year operating profit of $1,278 came from operating profit in
the US of $1,380 ($2,370 net of intercompany license fees) and inclusive of the $759 New
York office sublease charge, and operating profit in Canada of $1,122 ($133 net of
intercompany license fee revenue) being offset by an operating loss of $1,224 from Europe
from investment expansion and the related costs discussed in revenue, cost of sales and
expenses. Thus, excluding intercompany license fees that eliminate on consolidation, the
decrease in absolute operating profit of $898 came from an increase in the US of $914
inclusive of the $759 office charge taken in 2016, offset by declines in Canada of $817 arising
from a more challenging economic environment during 2016 and increased operating losses
in Europe of $995 from expansion investments made late in 2015 not performing to
expectations.
Investment Income
2016
2015
Q1
$
$
1
13
Q2
$
$
403
11
Q3
$
-
$
34
Q4
$
-
$
5
Annual
$
404
$
63
The Company invests excess cash balances and 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. The Company also
holds one equity security with a short-term trade restriction in a publicly traded company
obtained through search fees being paid partially in equity of the client. As at August 31,
2016, managed funds and the equity investment were $4,784 (August 31, 2015: $7,865) and
$272 (2015: nil), respectively.
Management Discussion and Analysis
16
Caldwell Partners –
For the fourth quarter of 2016, the Company reported no investment income compared to $5
from the comparable period last year. For the full year 2016, the Company reported
investment income of $404 compared to $63 in 2015. This year’s income includes $403 of
realized gains earned on the liquidation of funds as well as interest on term deposits and
other cash balances. The previous year amount 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, 2016, the fair value of marketable securities held by the Company of $5,629
(2015: $7,765) was $335 above book value, reflecting a decrease in value of $100 during the
year. The unrealized gain 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.
Earnings Before Income Taxes
Net Earnings
2016
2015
Net Earnings
Q1
$
$
(147)
320
Q2
1,112
521
$
$
Q3
$
$
680
939
2016
2015
Q1
$
$
(165)
277
Q2
$
$
764
282
Q3
$
$
339
767
Basic Earnings Per Share
2016
2015
Q1
(0.008)
0.013
$
$
Q2
0.038
0.013
$
$
Q3
0.017
0.036
$
$
Q4
$
$
37
459
Annual
$
1,682
$
2,239
Q4
$
$
(57)
650
Annual
$
881
$
1,976
Q4
(0.003)
0.031
$
$
Annual
$
0.044
$
0.093
Income tax expense in the fourth quarter of fiscal 2016 was $94 (2015: $192 recovery) from
current income tax recovery of $309 (2015: $268 recovery) and deferred tax expense of $403
(2015: $76).
Income tax expense for the year ending August 31, 2016 was $801 (2015: $263) reflecting
current tax expense of $398 (2015: $187) and deferred tax expense of $403 (2015: $76).
Income tax expense for Canada for the quarter ended August 31, 2016 was $172 (2015: $108
recovery). For the full year income tax expense for 2016 was $366 (2015: $108 recovery) for
an effective tax rate of 24.0% based on a statutory tax rate of approximately 26.5% in Canada.
17
Management Discussion and Analysis
Caldwell Partners –
Income tax recoverable for the US for the quarter ended August 31, 2016 was $78 (2015: $83
recovery). Full year income tax expense for 2016 was $496 (2015: $371) or 35.9% based on a
US effective tax rate of approximately 40.0%.
The UK recognized a tax recovery of $61 representing losses the Company was able to carry
back against previous profits earned by Hawksmoor Search Limited, which the Company
acquired in October 2014. The UK did not recognize deferred income tax assets of $245
(2015: $46) that can be carried forward against future taxable income.
The fourth quarter net loss was $57 ($0.003 per share) in 2016, as compared to $650 of net
earnings ($0.031 per share) in the comparable period a year earlier. The full year net
earnings after tax were $881 ($0.044 per share) in 2016, versus $1,976 ($0.093 per share) in
2015.
Dividends
The Board of Directors continues to believe that the payment of regular dividends is in the
best interests of the Company and its shareholders. In setting quarterly dividend payments,
the Board of Directors considers many factors including current earnings results, future
earnings projections, cash needs for operational growth and balances of Unencumbered Cash
(as defined in Non-GAAP Financial Measures on page 3 and discussed below in Liquidity and
Capital Resources) which can act as a buffer against short-term earnings volatility.
Subsequent to shareholder approval of the restatement of capital on May 1, 2012, the
Company has now declared eighteen quarterly dividends through May 31, 2016 with total
dividends declared through August 31, 2016 of 32.0 cents per share or $6,249 in total.
On November 10, 2016 the Board of Directors declared a dividend of 2.0 cents per share,
payable to holders of Common Shares of record on November 21, 2016 and to be paid on
December 16, 2016.
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.
As at August 31, 2016, the Company had $5,056 of current marketable securities plus cash
and cash equivalents including restricted cash of $8,609, for a total cash and current
marketable securities balance of $13,665, down $4,554 from $18,219 at year-end 2015. The
decrease is primarily due to the purchase and cancellation of shares in the Company from
DHR ($1,604 as discussed in the following Outstanding Shares section), dividends paid
Management Discussion and Analysis
18
Caldwell Partners –
($1,610), contingent consideration paid ($254) and other changes in net working capital and
non-cash transactions ($1,086).
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, marketable
security balances and accounts receivable 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
taking into account non-operating sources and uses of cash. At August 31, 2016, current
Compensation Payable was $16,125 (2015: $16,614), total cash and current marketable
securities were $13,665 (2015: $18,219) and Accounts Receivable were $10,031 (2015:
$8,239). As a result of these trends, the Company uses the non-GAAP measure of
Unencumbered Cash as a more consistent measure for the cash the company has available
beyond that needed for short-term obligations.
Unencumbered Cash is defined in the section on Non-GAAP Financial Measures and Other
Operating Measures on page 3 of this document. The following chart sets forth the calculation
of Unencumbered Cash and provides reconciliation to cash and cash-equivalents:
as at
Cash and cash-equivalents
Restricted cash
Marketable securities - current
Accounts receivable
Net current deferred tax assets
August 31
2016
August 31
2015
$8,422
187
5,056
10,031
2,891
26,587
$9,956
498
7,765
8,329
3,303
29,851
Total current liabilities
Excluding
(20,901)
(21,916)
Deferred revenue
Deferred compensation
Total Unencumbered Cash
1,187
(576)
$6,297
945
(499)
$8,381
Accounts receivable were $10,031 at August 31, 2016, up $1,702 from $8,329 at the end of
fiscal 2015. Days outstanding based on quarterly revenue were 54 days at August 31, 2016
versus 48 days at August 31, 2015. At August 31, 2016, a reserve of $598 or approximately
42% of accounts over 90 days old has been taken.
Management Discussion and Analysis
19
Caldwell Partners –
Total liabilities were $21,772 at August 31, 2016, down $1,470 from $23,242 at the end of
2015 reflecting the purchase of shares from DHR International, Inc. as well as the payment of
bonuses for 2015, taxes, contingent consideration and a tranche of share based
compensation.
The Company’s investment in property and equipment at August 31, 2016 was $1,838
compared with $1,818 at the end of 2015. This reflects additions of $414, reclassification of
$238 from deferred rent within Accounts Payable related to tenant improvements received in
a lease in the previous year and depreciation expense of $539, disposals of $78 and exchange
rate fluctuations over the year of $15. Capital expenditures included computer hardware and
software, leasehold improvements and office furniture and equipment.
Shareholders’ equity at August 31, 2016 was $12,927, down $1,662 from $14,589 at the end
of 2015. This decrease reflects the net earnings for the year of $881, dividend declared of
$1,610, realized capital gains moved out of accumulated other comprehensive income of
$403, translation losses on consolidation of $430 and an unrealized loss on marketable
securities of $100.
The Board of Directors believes the payment of regular dividends is in the best interests of
the Company and its shareholders. In contemplating dividends declared for 2016 the Board
looked at many factors including current earnings results, future earnings projections, cash
needs for operational growth and balances of Unencumbered Cash which can act as a buffer
against short-term earnings volatility. Adjusting for after tax cost reduction measures of $640
($759 lease charge plus $250 separation costs less $369 related taxes) fiscal 2016 net
earnings of $881 would have been $1,521 relative to dividends declared of $1,610.
Subsequent to shareholder approval of the restatement of capital on May 1, 2012, the
Company has now declared eighteen quarterly dividends through August 31, 2016. On
November 10, 2016 the Board of Directors declared a dividend of 2.0 cents per share, payable
to holders of Common Shares of record on November 21, 2016 and to be paid on December
16, 2016.
Total
2017
2018
2019
2020
2021 Thereafter
Contractual Obligations
Operating leases
$
Accounts payable
Compensation payable
Dividends payable
Contingent consideration
14,479
2,384
16,812
403
289
$
3,376
2,384
16,125
403
289
$
2,919
-
297
-
-
$
2,652
-
115
-
-
$
2,290
-
-
-
-
1,737
-
-
-
-
$
1,505
-
275
-
-
Total
$
34,367
$
22,577
$
3,216
$
2,767
$
2,290
$
1,737
$
1,780
The operating lease commitments are in respect to the office space required to operate our
business and do not reflect offsetting sublease payments. Cash outlays for our contractual
obligations and commitments identified above are expected to be funded by cash on hand and
Management Discussion and Analysis
20
Caldwell Partners –
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, 2016 the authorized share capital of the Company consists of an unlimited
number of Common Shares of which 20,129,155 are issued and outstanding (August 31,
2015: 21,275,155). 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 15 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 $1,604 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
In Canada during the first half of fiscal 2016, we experienced significant economic challenges
in the Western Canada market, spurred by the impact of falling oil prices to which the
region’s economy is tied. In the second half of the fiscal year, Canada saw continued weakness
in Western Canada, as well as in the Financial Services sector during the third quarter.
Stabilization was seen during the fourth quarter with some modest improvements, yet still
reflecting a 23% reduction in search volumes in the region year to date.
In the United States, where the majority of our search business is generated, volumes during
the first half of the year stayed relatively strong; however there was some weakening during
the second half with overall volumes on a per partner basis falling from the historic highs set
in the second half of last year. We entered fiscal 2016 with search delivery and support
staffing levels suitable to accommodating these high performance levels which did not
sustain.
In the United Kingdom, operating results were negatively impacted by our investments in the
region, which included the assimilation of two new partners in the fourth quarter of fiscal
2015. The addition of these costs, coupled with weak revenue transitioning in from hires
resulted in substantial operating losses in the UK in the fourth quarter of $269 (2015:
operating loss of $175) and year to date of $1,224 (2015: operating loss of $231).
As a result of the continued weakness in Canada, softening of search volumes in the US, and
lack of revenue achievement in the UK, we moved to reduce search delivery and support
staffing and certain fixed costs. Specifically, over the last quarter we reduced our non-partner
search delivery team from 68 at the end of February to 62 at the end of May to 59 at the end
of August. We also reduced the size of our management support team, aligning
responsibilities more effectively. During August, 2016, a partner hired last year in the UK
Management Discussion and Analysis
21
Caldwell Partners –
whose compensation and related costs were significantly higher than the revenue produced,
left the firm. Also during August, as discussed in our Operating Results we subleased our New
York office and relocated to an office with a smaller footprint with the goal of reducing costs
and improving net cash flow while providing an enhanced office experience for clients,
candidates and employees.
We believe our cost structure is now streamlined for our current revenue levels, and taking
into account the above actions taken to date globally and to be taken during the first quarter
of fiscal 2017 specific to the UK, we anticipate being in a position to achieve the type of
growing profitability that we obtained over the prior three years. We remain committed to
being in the United Kingdom as important to our strategy of delivering services to our clients
and growing a long-term globally profitable business. This may result in additional modest
operating losses in the UK region during fiscal 2017, but as a result of our recent actions, not
of the magnitude we saw this year.
Additional revenue and earnings growth remains a priority for the Company, but at a
measured pace that will not otherwise impede the long term profitability and continuation of
regular dividend payments. We expect future growth to be driven by targeted partner hires
as we seek to continue to build our practice and functional offerings across geographies in
United States, Canada and Europe. As appropriate, we will review acquisition opportunities.
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, 2016 in the amount of $223
(2015: $223).
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.
Management Discussion and Analysis
22
Caldwell Partners –
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. Subsequent changes
in fair value of the equity interests are recorded as unrealized gains or losses in other
comprehensive income and are recognized to investment income within revenue when
Allowance for doubtful accounts
realized.
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
Valuation of equity interests in clients
would affect the results of operations in future periods.
Equity interests held in clients can be difficult to obtain valuation information on. Equity
instruments are most often in privately held companies without a specific obligation to share
ongoing business performance and valuation information. The Company values such interests
in accordance with its financial instruments policy with available information. As a result, the
Impairment of goodwill
current and future valuation of these interests could differ materially from current estimates.
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
The ability to attract and retain experienced search professionals is critical to our
materially adversely affected by any of these risks.
business
We compete with other executive recruitment firms for experienced consultants. Attracting
and retaining consultants in our industry is important because consultants have primary
Management Discussion and Analysis
23
Caldwell Partners –
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
Our business is impacted by economic conditions
retain key professionals.
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
Competition
may have a negative impact on our financial condition.
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
broadly and effectively source candidates for prospective client engagements becomes
Significant Shareholder
impeded.
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. Mr. Caldwell’s shares could have a material impact on any
Foreign currency exchange rate risks may affect our financial results
matters brought forth to the shareholders for a vote.
With operations in Canada, the United States and the United Kingdom, we do business in
multiple currencies. In the current quarter, approximately 80% 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
We invest in marketable securities whose valuations fluctuate
currency on a forward basis.
Marketable securities consist of investments in professionally managed fixed income funds
and certain equity securities obtained through search fees being paid partially in equity of the
client. The securities are subject to market risk, and should they decline in value, the
Management Discussion and Analysis
24
Caldwell Partners –
unrealized losses and potential realized losses could negatively impact the Company’s
financial position and aggregate results of operations. We mitigate the risk in managed funds
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 mitigate the risk in equity securities, by liquidating
our positions as soon as reasonably able and reviewing for the potential use of hedging
We may not generate sufficient cash flow from operations to support our strategic
derivatives if applicable.
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
Potential Volatility of the Market Price and Volume of Common Shares
may be liquidated and the returns on those instruments could be negatively impacted.
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
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, 2016, 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.
Management Discussion and Analysis
25
Caldwell Partners –
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 also evaluated whether there were changes in the Company’s internal
controls over financial reporting during the reporting period ended August 31, 2016 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, 2016 that would have a material impact.
Other Information
Additional information relating to the Company, including the Company’s Annual Information
www.sedar.com.
Form, is available on SEDAR at
Management Discussion and Analysis
26
Caldwell Partners –
Consolidated
Financial Statements
For the Years Ended August 31, 2016 and 2015
Consolidated Financial Statements
27
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. and its subsidiaries (“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 Independent 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 10, 2016
Consolidated Financial Statements
28
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, 2016
and August 31, 2015 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, 2016 and August 31, 2015 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 10, 2016
Consolidated Financial Statements
29
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in $000s Canadian)
Assets
Current assets
Cash and cash equivalents
Marketable securities (note 4)
Accounts receivable
Prepaid expenses and other assets
Non-current assets
Restricted cash
Marketable securities (note 4)
Advances
Property and equipment (note 5)
Intangible assets (note 6)
Goodwill (note 7)
Deferred income taxes (note 13)
Total assets
Liabilities
Current liabilities
Accounts payable (note 8)
Compensation payable (note 10 and 11)
Accrued share purchase
Dividends payable (note 15)
Income taxes payable
Contingent consideration (note 21)
Deferred revenue (note 11)
Non-current liabilities
Compensation payable (note 10)
Provisions (note 8)
Contingent consideration (note 21)
Equity attributable to owners of the Company
Share capital (note 15)
Contributed surplus (note 15)
Accumulated other comprehensive income
Deficit
Total equity
Total liabilities and equity
As at
August 31
2016
As at
August 31
2015
8,422
5,056
10,031
2,416
25,925
187
573
502
1,838
279
2,920
2,475
9,956
7,765
8,329
1,948
27,998
498
-
1,022
1,818
375
3,220
2,900
34,699
37,831
2,384
16,125
-
403
513
289
1,187
20,901
687
184
-
21,772
7,295
15,025
1,179
(10,572)
12,927
34,699
1,736
16,614
1,604
425
321
271
945
21,916
1,064
-
262
23,242
7,295
15,025
2,112
(9,843)
14,589
37,831
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
Consolidated Financial Statements
30
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in $000s Canadian, except per share amounts)
Revenues
Professional fees (note 11)
Investment income (note 12)
License fees (note 22)
Cost of sales (notes 8, 10 and 11)
Gross profit
Expenses (note 8)
General and administrative
Sales and marketing
Foreign exchange loss (gain)
Operating profit
Investment income (note 4)
Earnings before income tax
Income tax (note 13)
Net earnings for the year attributable to owners of the Company
Earnings per share (note 14)
Basic
Diluted
Twelve months ended
August 31
2016
2015
57,618
877
253
58,748
44,604
14,144
11,682
1,144
40
12,866
1,278
404
1,682
801
881
54,488
-
39
54,527
40,257
14,270
11,158
943
(6)
12,095
2,176
63
2,239
263
1,976
$0.044
$0.043
$0.093
$0.092
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in $000s Canadian)
Net earnings for the year
Other comprehensive income:
Items that may be reclassified subsequently to net earnings
Realization of gains on marketable securities included in net income
Unrealized loss on marketable securities (note 4)
Cumulative translation adjustment
Comprehensive (loss) earnings for the year attributable to owners of the Company
T he accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements
Caldwell Partners –
Twelve months ended
August 31
2016
2015
881
1,976
(403)
(100)
(430)
(52)
-
(72)
1,273
3,177
31
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in $000s Canadian)
Accumulated Other Comprehensive
Income
Deficit
Capital Stock
Contributed
Surplus
Cumulative
Translation
Adjustment
Unrealized
Gain/(Loss) on
Marketable
Securities
Total
Equity
Balance - September 1, 2014
(10,118)
7,331
16,254
(1)
912
14,378
Net earnings for the year
Dividend payments declared (note 15)
Common share issuance (note 15)
Repurchase and cancellation of
common shares
Change in unrealized loss on
marketable securities
Change in cumulative translation adjustment
1,976
(1,701)
-
-
-
-
-
-
379
-
-
-
(415)
(1,229)
-
-
-
-
Balance - August 31, 2015
(9,843)
7,295
15,025
Net earnings for the year
Dividend payments declared (note 15)
Realization of gains on marketable securitiesincluded in net income
Change in unrealized gain on
marketable securities available for sale
Change in cumulative translation adjustment
881
(1,610)
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance - August 31, 2016
(10,572)
7,295
15,025
The accompanying notes are an integral part of these consolidated financial statements.
-
-
-
-
-
1,273
1,272
-
-
-
-
(430)
842
-
-
-
-
1,976
(1,701)
379
(1,644)
(72)
(72)
-
1,273
840
14,589
-
-
881
(1,610)
(403)
(403)
(100)
-
(100)
(430)
337
12,927
Consolidated Financial Statements
32
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in $000s Canadian)
Cash flow provided by (used in)
Operating activities
Net earnings for the year
Adjustments for:
Depreciation
Amortization
Realized gain on marketable securities
Change in fair value of contingent consideration
Unrealized foreign exchange on subsidiary loans
Non-cash professional fees received as equity
Increase in deferred taxes
(Decrease) increase in long term incentive accrual
Loss on disposal of property and equipment
(Increase) decrease in accounts receivable
Increase in prepaid expenses and other assets
Increase in accounts payable
Decrease in compensation payable
Increase (decrease) in income taxes payable
(Decrease) increase in dividends payable
Increase in provisions
Payment of cash-settled share-based compensation
Payment of contingent consideration
Increase (decrease) in deferred revenue
Net cash (used in) provided by operating activities
Investing activities
Proceeds from sale of marketable securities
Acquisition of business, net of cash acquired
Increase in marketable securities
Decrease (increase) in advances
Decrease (increase) in restricted cash
Additions to property and equipment
Net cash provided by (used in) investing activities
Financing activities
Repurchase and cancellation of common shares
Dividend payments
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
T he accompanying notes are an integral part of these consolidated financial statements.
Twelve months ended
August 31
2016
2015
881
1,976
539
94
(403)
10
28
(1,121)
403
(377)
77
(1,916)
(473)
401
(95)
193
-
184
(449)
(254)
245
(2,033)
3,171
-
-
400
313
(414)
3,470
(1,604)
(1,633)
(3,237)
266
(1,534)
9,956
8,422
434
86
-
21
(41)
-
76
511
5
1,019
(336)
58
(227)
(1,498)
58
-
(598)
-
(1,187)
357
-
(1,018)
(27)
(679)
(3)
(474)
(2,201)
-
(1,701)
(1,701)
758
(2,787)
12,743
9,956
Consolidated Financial Statements
33
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Years Ended August 31, 2016 and August 31, 2015
(in $000s Canadian unless otherwise stated)
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
license partners, Latin America and New Zealand.
The Board of Directors approved these consolidated financial statements for issue on November 10, 2016.
2. Basis of Presentation
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (IFRS).
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. 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.
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.
Consolidated Financial Statements
34
Caldwell Partners –
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
Functional and presentation currency
(i)
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.
Transactions and balances
(ii)
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 loss (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 cash balance set aside by a US financial institution for collateral security on a letter of
credit made out to the landlord of a leased facility.
Advances
Advances are sign-on payments made to employees to join the Company. Such amounts may be recouped if the
employee leaves the Company before a contractually stipulated period of time has lapsed, usually 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.
Consolidated Financial Statements
35
Caldwell Partners –
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. No such instruments held by the Company are classified in this category.
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 are 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.
Other financial liabilities at amortized cost: Financial liabilities at amortized cost include accounts payable,
(iv)
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.
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.
Consolidated Financial Statements
36
Caldwell Partners –
(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
Leasehold improvements
20% declining balance
30% declining balance
straight-line over three years
straight-line over the term of the lease
Residual values, methods of depreciation and useful lives of the assets are reviewed annually and adjusted if
appropriate.
Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the
carrying amount of the asset and are included as part of general and administrative expenses in the 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.
Consolidated Financial Statements
37
Caldwell Partners –
Commission and bonus plans (Short Term Incentive 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.
Stock-based compensation (Long Term Incentive Plans)
The Company has granted performance stock units, restricted stock units, deferred stock units and stock options
periodically to certain employees and directors.
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 notional dividends received on
the holdings, 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. Notional dividend awards and 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.
Restricted stock units (RSUs) are notional common shares of the Company that are restricted to be issued to
members of the management team. RSU balances are adjusted for notional dividends received on the holdings.
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 three year vesting period. Notional dividend awards and
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.
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. DSU balances are adjusted for notional dividends received on the holdings. Each
non-employee Board Member receives approximately 50% of the annual retainer in cash and 50% in the form of
DSUs issued at fair market value on the date of the grant, which track the performance of the Company’s common
shares over time. 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. Notional dividend awards and
subsequent changes in the fair value of DSUs are recorded in current period compensation expense when the change
occurs.
The awards of PSUs, RSUs and DSUs have been recorded in current or non-current compensation payable depending
on when they vest.
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.
Consolidated Financial Statements
38
Caldwell Partners –
Provisions
Provisions, where applicable, are recognized 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, Investment Income and License Fee Revenue.
Professional Fees:
Professional Fees represent the revenue derived from the executive search services provided to our clients.
Professional fees are comprised of retainers and indirect expenses billed to clients based on terms set forth in
signed engagement letters with each client. The Company is typically paid a retainer for its executive search
services, 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.
Consolidated Financial Statements
39
Caldwell Partners –
Professional fees are paid to the Company predominantly in the form of cash and, on occasion, in the form of equity
interests in our clients as a portion of the search fee. These interests may take the form of common stock, preferred
stock, restricted stock, warrants, options or similar instruments depending on the client and agreement. Equity
payments occur most commonly in venture capital and private equity backed entities where executive cash
compensation is often lower in lieu of the executive receiving compensation more prominently in equity as well as a
desire by early stage companies to preserve cash. The accounting for these equity payments is described below
under Investment Income.
Investment Income:
Equity interests in our clients are available-for-sale financial assets and changes in their value are recorded in other
comprehensive income. Once an equity interest from a client is monetized, the accumulated gain or loss recorded
within other comprehensive income since the initial valuation date is reclassified to investment income within
revenue.
License Fee Revenue:
License fee revenue is comprised of the license and technical assistance fees paid by the Company’s affiliates, as
discussed in Note 22. The license fee revenue is recognized as earned, based on the revenue of the affiliates 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 in the consolidated
statements of financial position.
Leases
The Company leases certain property and equipment. 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.
Leases in which the Company assumes substantially all the risks and rewards of ownership, would be classified as
finance leases and 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. With a finance lease, each lease payment is allocated between the
liability and finance charges. The corresponding rental obligations, net of finance charges, are included in
borrowings. The interest element of the finance cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property
and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the
lease term.
Currently, all of the Company’s leases pertain to its office space and are considered operating leases.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are
recognized as a deduction from equity.
Consolidated Financial Statements
40
Caldwell Partners –
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.
Accounting standards issued but not yet applied
IFRS 9, Financial Instruments (IFRS 9)
The final version of IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will replace International
Accounting Standard (IAS) IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model
for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially
reformed approach to hedge accounting. The new single, principle based approach for determining the classification
of financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new
model also results in a single impairment model being applied to all financial instruments, which will require more
timely recognition of expected credit losses. It also includes changes in respect of the entity’s own credit risk in
measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity’s own
credit risk on such liabilities are no longer recognized in profit or loss. IFRS 9 is effective for annual periods
beginning on or after January 1, 2018, however is available for early adoption. In addition, the entity’s own credit
changes can be early applied in 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 for annual reporting periods beginning on or
after January 1, 2018. The Company has not yet assessed the potential impact of IFRS 15.
Leases
The new standard will eliminate the distinction between operating and finance leases and will bring
IFRS 16,
most leases on the consolidated balance sheets for lessees. This standard is effective for annual reporting periods
beginning on or after January 1, 2019. The company has not yet evaluated the impact on the consolidated financial
statements.
There are no other standards or interpretations that are not yet effective that would be expected to have a material
impact on the Company.
Critical accounting estimates and judgments
The Company makes estimates and assumptions concerning the future that will, by definition, seldom equal actual
results. The following are the estimates and judgments applied by management that most significantly affect the
Company's financial statements. These estimates and judgments have a 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
Consolidated Financial Statements
41
Caldwell Partners –
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 accounts receivable. 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.
Valuation of equity interests in clients
Equity interests held in clients can be difficult to obtain valuation information on. Equity instruments are most often
in privately held companies without a specific obligation to share ongoing business performance and valuation
information. The Company values such interests in accordance with its financial instruments policy with available
information. As a result, the current and future valuation of these interests could differ materially from current
estimates.
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’s marketable securities (classified as available for sale financial assets) which are comprised of
managed bond funds and certain equity securities held for investment obtained through search fees being paid
partially in equity of the client. As of August 31, 2016 managed funds and client equity investments were $4,784 and
Non-current
$845, respectively and as of August 31, 2015 the entire balance represented managed funds of $7,765.
portion
573
-
August 31
2016
2015
Current
portion
5,056
7,765
Fair
value
5,629
7,765
During fiscal 2016, the Company recorded $403 (2015: $35) 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 $100 was recognized as part of other comprehensive income during the year (2015: $72).
Consolidated Financial Statements
42
Caldwell Partners –
5. Property and Equipment
Furniture and
equipment
Computer
equipment
Computer
application
software
Leasehold
improvements
Total
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:
Cost
Accumulated depreciation
Net book value
Year ended August 31, 2016:
Opening net book value
Additions
Reclassification
Disposals
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2016:
Cost
Accumulated depreciation
Net book value
544
133
(5)
(127)
58
603
2,416
(1,813)
603
603
152
-
(58)
(124)
(5)
568
2,505
(1,937)
568
244
142
-
(97)
26
315
2,357
(2,042)
315
315
137
-
-
(116)
(3)
333
2,491
(2,158)
333
18
26
-
(24)
2
22
756
(734)
22
22
6
-
-
(17)
-
11
762
(751)
11
804
173
-
(186)
87
878
3,202
(2,324)
878
878
119
238
(20)
(282)
(7)
926
3,531
(2,605)
926
1,610
474
(5)
(434)
173
1,818
8,731
(6,913)
1,818
1,818
414
238
(78)
(539)
(15)
1,838
9,289
(7,451)
1,838
Depreciation of property and equipment is included in general and administrative expenses in the consolidated
statements of earnings. Disposals of assets have been derecognized amounting to cost and accumulated depreciation
of $260 and $182, respectively (2015: $1,208 and $1,203, respectively).
6. Intangible Assets
Year ended August 31,
Opening net book value
Amortization for the year
Exchange differences
Closing net book value
At August 31,
Cost
Accumulated amortization
Net book value
2016
2015
375
(94)
(2)
279
855
(576)
279
385
(86)
76
375
857
(482)
375
Consolidated Financial Statements
43
Caldwell Partners –
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 3 years remaining.
7. Goodwill
In assessing goodwill for impairment at August 31, 2016 and 2015, 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:
United States
Average growth rate
Expected gross margin
Discount rate
Europe
Average growth rate
Expected gross margin
Discount rate
2016
5%
27%
8%
2016
5%
30%
8%
2015
5%
26%
8%
2015
8%
25%
8%
The impairment tests performed resulted in no impairment at August 31, 2016 or 2015.
8. Nature of Expenses
Compensation costs
Occupancy costs
Sales and marketing
Onerous lease costs
Depreciation
Amortization
Other
2016
2015
47,567
4,710
1,144
759
539
94
2,657
57,470
44,187
4,167
943
-
434
86
2,535
52,352
During the year ended August 31, 2016 the Company entered into agreements to sublease its existing premises in
New York, NY and lease new space. The cumulative proceeds to be received from the sublease are less than the
Company’s contracted lease obligations. Onerous lease costs include the present value of these net sublease
expenses over the approximate five-year term of the sublease ($465), real estate commissions ($206) and other
costs associated with moving from the premises ($88) and were recorded within general and administrative
expenses in the consolidated statements of earnings. The current portion of sublease costs total $316 and is
included in accounts payable and the non-current portion of $184 is included in provisions in the consolidated
statements of financial position.
Consolidated Financial Statements
44
Caldwell Partners –
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:
2016
2015
Salaries and short-term benefits
Share-based compensation expense
1,273
606
1,879
2,107
861
2,968
10. Compensation Payable
The Company maintains certain short-term and long-term incentive plans designed to align compensation with
performance. Compensation payable consists of the following:
Current compensation payable
Commissions and bonuses
Performance and Restricted Stock Units
Non-current compensation payable
PerformanceStock Units
Deferred Stock Units
Commissions and bonuses
As at August 31,
2016
2015
15,216
909
16,125
16,277
337
16,614
As at August 31,
2016
2015
412
275
687
863
201
1,064
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)
The estimated cost of the PSU plan is being amortized on a straight-line basis over the three-year vesting period
with a weighted average performance factor currently estimated at 96% of target. PSU expense for the year ended
August 31, 2016 of $458 (2015: $674) was recorded within general and administrative expenses in the consolidated
statements of earnings.
RSU expense was recorded for the year ended August 31, 2016 of $113 (2015: $149) within general and
administrative expenses in the consolidated statements of earnings. During the year, payments to holders of RSUs
totaled $449 (2015: $598). In 2016 all RSUs were paid out and as at August 31, 2016 none are outstanding.
Consolidated Financial Statements
45
Caldwell Partners –
A summary of the Company’s PSU and RSU plans is presented below:
2016
2015
Outstanding at beginning of period
Granted
Dividends declared
Settled
Outstanding at end of period
Notional
Notional
units (000s) units (000s)
1,363
457
84
(293)
1,611
1,338
394
78
(447)
1,363
Deferred Stock Units (DSUs)
DSU expense for the year ended August 31, 2016 has been recorded of $73 (2015: $72) within general and
administrative expenses in the consolidated statements of earnings.
A summary of the Company’s DSU plan is presented below:
2015
2016
Notional
Notional
units (000s) units (000s)
161
76
11
248
90
64
7
161
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, 2016, the Company had deferred revenue of $1,187 (2015: $945) and related deferred compensation
expense of $576 (2015: $499), 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.
12. Investment income
Investment income derived from equity interest in clients of $877 has been recorded for the year ended August 31,
2016 (2015: nil) resulting from a realized gain of an equity position obtained as a portion of professional fee
consideration in a prior period. Partner commission costs against investment income are reflected in cost of sales in
the consolidated statements of earnings and in compensation payable on the consolidated statements of financial
position. Of the total $877 gain, $491 was collected in cash and $386 is recorded within the current portion of
Marketable Securities.
Consolidated Financial Statements
46
Caldwell Partners –
13. Income Taxes
Current tax:
Current tax on net earnings for the year
Deferred tax:
Origination and reversal of temporary differences
2016
2015
398
403
801
187
76
263
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 recognized/(previously recognised)
Non-deductible expenses
Prior years taxes
Other
2016
2015
41.0%
11.5%
(1.8%)
(3.6%)
0.5%
47.6%
29.9%
(26.9%)
4.9%
(1.0%)
4.8%
11.7%
The analysis of deferred tax assets and liabilities is as follows:
2016
2015
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months
Deferred tax assets to be recovered within 12 months
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)
182
3,242
(688)
(261)
2,475
38
3,303
(308)
(133)
2,900
Consolidated Financial Statements
47
Caldwell Partners –
The analysis of deferred tax assets and liabilities is as follows:
2016
2015
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months
Deferred tax assets to be recovered within 12 months
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)
182
3,242
(688)
(261)
2,475
38
3,303
(308)
(133)
2,900
The movement of the deferred income tax account is as follows:
2016
2015
As of September 1
Debit to statement of earnings
Exchange differences
As of August 31
2,900
(403)
(22)
2,475
2,443
(76)
533
2,900
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
At August 31, 2014
(Charged)/credited to the statement of earnings
Exchange differences
At August 31, 2015
(Charged)/credited to the statement of earnings
Exchange differences
At August 31, 2016
Deferred tax liabilities
At August 31, 2014
(Charged)/Credited to statement of earnings
Exchange differences
At August 31, 2015
Charged/(credited) to the statement of earnings
Exchange differences
At August 31, 2016
Compensation
payable
2,339
135
508
2,982
109
(17)
3,074
Excess carrying
value of PP&E
over tax base
203
89
16
308
14
1
323
Non-Capital
losses
130
(130)
-
-
-
Revenue not
taxable until
a future year
-
-
-
-
361
4
365
Other
268
71
20
359
32
(41)
350
Other
91
63
(21)
133
169
(41)
261
Total
2,737
76
528
3,341
141
(58)
3,424
Total
294
152
(5)
441
544
(36)
949
Deferred income tax assets are recognized for tax loss carry-forwards and other temporary differences to the extent that the
realization of the related tax benefit through future taxable earnings are probable. The Company did not recognize deferred
income tax assets of $245 (2015: $46) that can be carried forward against future taxable income.
As at August 31, 2016, the Company has non-capital losses with the following expiry dates available to reduce income
of future years;
Expiry
Amount
Indefinite
1,298
The Company also has capital losses of $3,101 that can only be utilized against capital gains and are without expiry date.
Consolidated Financial Statements
48
Caldwell Partners –
14.
Earnings per share
Basic
(i)
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
2016
Net earnings for the year
Weighted average number of common shares outstanding
Basic earnings per share
881
20,198,416
$0.044
1,976
21,252,552
$0.093
Diluted
(ii)
Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding
to assume conversion of all dilutive potential common shares. A calculation is done to determine the number of
shares that could have been acquired at fair value (determined as the average market price of the Company’s
outstanding shares for the year), based on the exercise prices attached to the stock options currently outstanding.
2016
2015
Net earnings for the year
Weighted average number of common shares outstanding
Adjustment for stock options
Weighted average number of common shares for diluted earnings per share
Basic earnings per share
881
20,198,416
145,237
20,343,653
$0.043
1,976
21,252,552
166,249
21,418,801
$0.092
15.
Capital Stock
Common Shares
As at August 31, 2016 the authorized share capital of the Company consists of an unlimited number of Common
Shares of which 20,129,555 are issued and outstanding (August 31, 2015: 21,275,155). 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 September 23, 2015 the Company purchased and canceled 1,145,600 common shares of the Company held by
DHR International Inc. for $1.40 per share for $1,604 plus associated legal fees incurred through August 31, 2015 of
$40 for a total cost of $1,644.
On October 1, 2014, as discussed in note 21, the Company issued 275,000 common shares in connection with its
acquisition of Hawksmoor Search Limited.
The Company has declared quarterly dividends since May 1, 2012. A summary of dividends declared during fiscal
Dividends
2015 and 2016 is as follows:
Aggregate
Declaration date
Payment date
per share
dividends declared
November 13, 2014
December 12, 2014
January 8, 2015
April 9, 2015
July 9, 2015
November 17, 2015
January 7, 2016
April 12, 2016
July 7, 2016
March 12, 2015
June 15, 2015
September 14, 2015
December 11, 2015
March 14, 2016
June 16, 2016
September 12, 2016
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
$425
$425
$425
$425
$403
$403
$403
$403
Consolidated Financial Statements
49
Caldwell Partners –
The dividend payable September 12, 2016 has been accrued in the Company’s consolidated financial statements as
at August 31, 2016.
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, 2016
Number of
Weighted
Number of
Weighted
options
average
options
average
outstanding
exercise price
outstanding
exercise price
Outstanding at beginning and end of period
375,000
$0.93
375,000
$0.93
Exercisable at end of period
375,000
375,000
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. No stock option expense has
been recorded in the years ended August 31, 2016 and 2015.
Segmented Information
The Company has consolidated operations in Canada, the United States and 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:
2016
United States
Europe
Elimination
Canada
Total
Professional fees
Investment income
License fees
Revenues
Gross profit (loss)
General and administrative
Sales and marketing
Licensing fees
Foreign exchange loss
Operating profit (loss)
Investment income
Income tax
Net earnings (loss) for the period
12,260
-
1,243
13,503
4,408
(3,037)
(242)
-
(7)
1,122
404
(366)
1,160
43,170
877
-
44,047
11,029
(7,821)
(831)
(990)
(7)
2,188
-
-
2,188
(303)
(824)
(71)
-
(26)
1,380
(1,224)
-
(496)
884
-
61
(1,163)
-
-
(990)
(990)
(990)
-
-
990
-
-
-
-
-
57,618
877
253
58,748
14,144
(11,682)
(1,144)
-
(40)
1,278
404
(801)
881
Consolidated Financial Statements
50
Caldwell Partners –
Professional fees
License fees
Revenues
Gross profit (loss)
General and administrative
Sales and marketing
Licensing fees
Foreign exchange gain (loss)
Operating profit (loss)
Investment income
Income tax
Net earnings (loss) for the period
Canada
United States
Europe
Elimination
Total
2015
16,377
948
17,325
5,801
(3,640)
(314)
-
12
1,859
63
108
2,030
37,136
-
37,136
9,247
(7,172)
(612)
(909)
(6)
548
-
(371)
177
975
-
975
132
(346)
(17)
-
-
(231)
-
-
(231)
-
(909)
(909)
(909)
-
-
909
-
-
-
-
-
54,488
39
54,527
14,271
(11,158)
(943)
-
6
2,176
63
(263)
1,976
Certain items within general and administrative expenses, sales and marketing expenses and foreign exchange gains
and losses comprise corporate support costs and are transferred across the segments. For the year ended August 31,
2016 corporate support costs totaled $4,289 (2015: $5,477) with $3,216 allocated to the US (2015: $3,734), $913 to
Canada (2015: $1,645) and $160 to Europe (2015: $98). Intercompany license fee revenues have been eliminated on
consolidation.
A summary of property and equipment, goodwill and total assets by country is as follows:
Canada
At August 31, 2016
Europe
United States
Total
Canada
At August 31, 2015
Europe
United States
Property
and equipment
Intangible assets
Goodwill
628
1,168
729
1,056
42
-
1,838
279
279
-
-
375
-
-
1,296
1,624
2,920
1,306
1,914
3,220
Total
33
-
1,818
375
Total assets
12,293
19,860
2,546
34,699
18,006
17,381
2,444
37,831
Depreciation recorded on property and equipment and amortization on intangible assets is as follows:
2016
2015
Canada
United States
Europe
Total
Canada
United States
Europe
Total
Depreciation expense
Amortization expense
205
-
318
94
16
-
539
94
198
-
231
86
5
-
434
86
17. Commitments
The Company's future operating lease commitments for premises excluding operating costs, including those
amounts paid to related parties as set out in note 18, are as follows:
Consolidated Financial Statements
51
Caldwell Partners –
Twelve months ending August 31, 2017
Twelve months ending August 31, 2018
Twelve months ending August 31, 2019
Twelve months ending August 31, 2020
Twelve months ending August 31, 2021
September 1, 2021 and thereafter
3,376
2,919
2,652
2,290
1,737
1,505
14,479
The operating lease commitments include gross obligations in connection with the New York, NY sublease as
discussed in note 8. The Company expects to recoup $3,280 through September 30, 2021 which is not reflected in
the above.
During the year ended August 31, 2016, the Company expensed $3,452 (2015: $3,072) relating to operating leases
for its eleven locations in Canada, the United States and the United Kingdom, inclusive of rents paid to a related
party described in note 18. This expense is included in general and administrative expenses. With the exception of
the Toronto office, all leases are with third party commercial landlords at fair market rental rates. Lease terms at
inception are 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, 2016 was $143 (2015: $195).
18. 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, 2016 in the amount of $223 (2015: $223).
19. 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.
Consolidated Financial Statements
52
Caldwell Partners –
Level 1:
identical assets and liabilities in active markets that are accessible at the measurement date.
This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for
This level includes financial instruments that are not traded in an active market and whose value is
Level 2:
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:
observable data does not support a significant portion of the instruments’ fair value.
This level includes valuations based on inputs, which are less observable, unavailable or where the
The Company’s Financial Instruments measured at fair value at August 31, 2016 consist of marketable securities
which are comprised of managed funds and certain equity securities held for investment obtained through search
fees being paid partially in equity of the client as discussed in note 4 as well as contingent consideration. At August
31, 2015 the Company’s Financial Instruments measured at fair value consisted of marketable securities comprised
entirely of managed funds and contingent consideration.
2016
Marketable securities
Contingent consideration (note 21)
Level 1
Level 2
Level 3
272
-
272
4,784
-
4,784
573
289
862
2015
Marketable securities
Contingent consideration (note 21)
Level 1
Level 2
Level 3
-
-
0
7,765
-
7,765
-
533
533
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 marketable securities 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 recorded
in other comprehensive income. The professionally managed fixed income funds within marketable securities hold a
combination of government and corporate bonds and are included within level 2 of the fair value hierarchy. 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. A portion of the marketable securities held for investment obtained through search fees being paid
partially in equity trade on the NASDAQ and are measured at fair value using quoted prices and are included within
level 1 of the fair value hierarchy. The remaining marketable securities are included within level 3 of the fair value
hierarchy and are in a private company whose value is derived from estimates used in recent financings with
discounts applied to factor in vesting and transferability restrictions on the units held. 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. A 5% depreciation or appreciation in the value of the marketable securities
included within level 3 of the fair value hierarchy, assuming all other variables remained the same, would have
resulted in an increase or decrease in other comprehensive income/(loss) of $29 recognized in the unrealized
Consolidated Financial Statements
53
Caldwell Partners –
gain/(loss) on marketable securities in the Company’s consolidated statements of comprehensive earnings for the
year ended August 31, 2016 (2015: nil).
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 the US dollar and British pound sterling exchange
rates and the degree of volatility of changes in these in rates as the Company’s financial results are reported in
Canadian dollars.
At August 31, 2016, the Company has a net monetary asset exposure of $5,691 denominated in US dollars (2015:
$5,157). 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 $285
recognized in the cumulative translation adjustment in the Company’s consolidated statements of comprehensive
earnings for the year ended August 31, 2016 (2015: $258).
At August 31, 2016, the Company has net monetary asset exposure of $2,079 denominated in British pound sterling
(2015: $2,330). 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 $104 recognized in the cumulative translation adjustment in the Company’s consolidated statements
of comprehensive earnings for the year ended August 31, 2016 (2015: $116).
Liquidity risk
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure, as far as possible, it will have sufficient cash resources to
meet its financial liabilities as they come due.
The Company manages liquidity by maintaining adequate cash and cash equivalents balances, monitoring its
investment portfolio of marketable securities and monitoring cash requirements to meet expected operational
expenses, including capital requirements. The future ability to pay its obligations relies on the Company collecting
its accounts receivable in a timely manner and by maintaining sufficient cash and cash equivalents in excess of
anticipated needs.
The contractual undiscounted future cash flows of the Company’s significant non-derivative financial liabilities are
as follows:
As at August 31, 2015
As at August 31, 2016
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
2,384
16,125
-
403
289
-
-
-
-
-
-
687
-
-
-
1,736
16,614
1,604
425
271
-
-
-
-
-
-
1,064
-
-
262
Consolidated Financial Statements
54
Caldwell Partners –
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, marketable securities, restricted cash and accounts receivable. The Company places its
cash and cash equivalents with high credit quality financial institutions. Similarly, the professionally managed fixed
income funds within marketable securities are held by reputable financial institutions and hold government and
other investment grade fixed income securities. The Company’s policy regarding equity instruments within
marketable securities is to sell the investments as soon as the Company is reasonably able to do so.
As at August 31
Accounts receivable were comprised of the following at August 31:
2016
2015
Accounts receivable
Less: Allowance for doubtful accounts
Other receivables
10,049
(598)
9,451
580
10,031
8,768
(575)
8,193
136
8,329
No financial assets are past due except for a portion of accounts receivable. As at August 31, 2016, accounts
receivable of $8,616 (2015: $7,290) were fully performing, $835 (2015: $903) were over 90 days but not impaired
and $598 (2015: $575) 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
Start of year
Provision for impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
End of year
Interest rate risk and market price risk
2016
2015
575
419
(148)
(248)
598
389
1,097
(815)
(96)
575
The Company has no external debt outstanding 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, equities and private company investments which are also subject to market price risk
(i.e., fair value fluctuates based on changes in market prices).
At August 31, 2016, the Company has $5,629 invested in marketable securities (2015: $7,765). 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
$281 (2015: $388).
20. 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.
Consolidated Financial Statements
55
Caldwell Partners –
21. 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; (ii) 275,000 shares of The Caldwell Partners International, Inc. newly issued at close; (iii) a net
working capital adjustment of £322 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. 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:
Fair value at acquisition
Change in fair value
Value at August 31, 2015
less contingent consideration paid
Change in fair value
Value at August 31, 2016
512
21
533
(254)
10
289
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.
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
(381)
434
380
512
583
1,909
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
59
80
2
(62)
1,707
1,909
Acquisition related costs of $29 have been charged to general and administrative expenses in the consolidated
statements of earnings for the year ended August 31, 2015.
Consolidated Financial Statements
56
Caldwell Partners –
22. Affiliation Relationships
The Company has entered into licensing arrangements with certain entities to provide executive search services in
markets not directly served by the Company. In exchange for the license fee payments, the licensees will have rights
to use the Caldwell Partners brand, search processes, methodologies and related intellectual property. For the year
ended August 31, 2016 license fees amounted to $253 (2015: $39).
On July 13, 2015, the Company entered into a licensing agreement with CPGroup LATAM Ltd. and its subsidiaries
(“CPGroup”). CPGroup operates throughout Latin America. 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. 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 USD $2,000.
Effective November 8, 2015 the Company entered into a licensing agreement with Simon Monks and Partners
Limited, a New Zealand corporation, which subsequently changed its name to The Caldwell Partners International
New Zealand Limited.
23. Subsequent Events
On September 28, 2016 the Company entered into an agreement with TD Bank to establish a $3,000 revolving
demand, floating rate credit facility for future working capital needs. The facility is limited based on 85.0% of the
Company’s eligible global accounts receivable as defined in the credit agreement, and further reduced to the extent
the facility is used in connection with the issuance of letters of credit. The facility bears variable interest on drawn
amounts based on the Canadian Prime Rate plus 1.0% per annum.
On November 10, 2016, the Board of Directors declared a dividend of 2.0 cents per share, payable to holders of
common shares of record on November 21, 2016 and to be paid on December 16, 2016.
Consolidated Financial Statements
57
Caldwell Partners –
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
Atlanta
3424 Peachtree Road N.E., Suite 1250
Atlanta, GA 30326
United States
+1 404 946 4199
Auckland
Level 31, Vero Centre
48 Shortland Street
Auckland, New Zealand
+64 21 838 428
Bogota
Carrera 10 No. 97A–13
Torre B, Oficina 702
Edificio Bogotá Trade Center
Bogotá, Colombia
+57 1 642 3891
Buenos Aires
Av. del Libertador 602, 8B
C1001ABT, Buenos Aires
Argentina
+54 11 4813 3493
Calgary
520 Fifth Avenue, S.W., Suite 2000
Calgary, AB T2P 3R7
Canada
+1 403 265 8780
Caracas
Torre Extebandes,
Piso 7 Avenida Tamanaco,
El Rosal, 1060-A
Caracas, Venezuela
+58 212 951 4522
Charleston
1240 Winnowing Way, Suite 100
Mt. Pleasant, SC, 29466
United States
+1 843 804 6051
Dallas
2100 Ross Avenue, Suite 880
Dallas, TX 75201
United States
+1 214 748 3200
Lima
Víctor Andrés Belaúnde 147,
Torre Real 3, Of. 1402
San Isidro, Lima Perú
+51 1 399 0970
London
4 Lombard Street
London EC3V 9HD
United Kingdom
+44 20 31 67 2500
Los Angeles
1925 Century Park East, Suite 1200
Los Angeles, CA 90067
United States
+1 310 402 5701
Miami
20900 NE 30th Avenue, Suite 311
Aventura, FL 33180
United States
+1 305 359 3590
Mexico City
Av. Presidente Masaryk, N° 111,
Piso 1 Col. Chapultepec Morales,
C.P. 11570, Mexico City, Mexico, D.F.
+52 55 4123 2900
Nashville
205 Powell Place
Brentwood, TN 37027
United States
+1 615 815 1770
New York
140 East 45th Street, Suite 23C
New York, NY 10017
United States
+1 212 953 3220
Philadelphia
1050 Dale Road
Meadowbrook, PA 19046
United States
+1 215 600 1225
San Francisco
One Post Street, Suite 500
San Francisco, CA 94104
United States
+1 415 983 7700
Santiago
Edificio Isidora Foster
Isidora Goyenechea 3477 Piso 12,
Oficina 120 Las Condes
Santiago, Chile
+56 2 2591 4100
São Paulo
Av. Nações Unidas 12.901 – CENU
Torre Norte – 3o andar – Conjunto 302
Brooklin Paulista, 04578-000
Sao Paulo, Brazil
+55 11 3513 6300
Stamford
263 Tresser Boulevard, Suite 800
Stamford CT 06901
United States
+1 203 324 6400
Toronto
One Six Five Avenue Road, Suite 600
Toronto, ON, M5R 3S4
Canada
+1 416 920 7702
Vancouver
650 West Georgia Street, Suite 2605
Vancouver, BC V6B 4N9
Canada
+1 604 669 3550
Copyright ©2016 The Caldwell Partners International Inc.
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