Annual Report
2017
AT CALDWELL, WE BELIEVE IN THE
TRANSFORMATIVE POWER
OF GREAT PEOPLE.
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 Operating & Finance 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 Operating & Finance Officer
The Caldwell Partners International Inc.
One Six Five Avenue Road
Toronto, Ontario, M5R 3S4
+1 416 920 7702
fax +1 416 920 8533
leaders@caldwellpartners.com
Dear Shareholders, Clients, and Friends:
Fiscal 2017 was a year of new faces, new energy, and new ideas.
We closed out the year with $57.8 million in annual revenue, and the $3.1 million in
operating profit we achieved is a marked increase over the previous year. After a
challenging Fiscal 2016, our Canadian team had an extraordinary comeback, with
tremendous work in client development driving strong search volume and revenue
increases over last year.
In the United States, where the majority of our search business is derived from, we
continued to experience a steady economic environment with higher search volumes
that were offset by lower average fees. While our operating results in the United
Kingdom were hurt by two partner departures that reduced our local partner base to
one for most of the fiscal year, we have since hired two partners in London, bringing
our partner count back up and continuing our European expansion strategy.
We are enormously pleased to see the ongoing transformation of Caldwell Partners
into an integrated international firm. We have seen increased traction in cross-
border collaboration with our colleagues in Latin America and New Zealand, to the
betterment of our ability to connect our clients with transformational talent across
the globe.
We added six new partner teams resident in Stamford, New York, Miami, Atlanta and
London in Fiscal 2017, expanding the depth and breadth of our capabilities across
functions, practices and geographies.
As we look ahead to Fiscal 2018, additional revenue and earnings growth remains a
priority, but at a measured pace that will not otherwise impede our long-term
profitability and 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
Shareholders Letter
1
Caldwell Partners –
offerings across geographies in United States, Canada and Europe. We are
additionally looking to expand our service lines in prudent areas that can leverage
the existing expertise of our search teams, as evidenced by the recent launch of our
Cyber Advisory Solutions.
It never ceases to impress us how our team stands strong together, providing
support and strength when and where it is needed. It speaks to a larger purpose that
we all have – a fundamental reason why we are in this firm – not just what we do or
how we do it. Our strength lies in our common drive to make our clients better, more
competitive and more successful by connecting them with talent that transforms. We
work tirelessly together, across offices, competencies and geographies, and will
continue to increase the breadth and depth of our team to strengthen our ability to
achieve this goal.
“If everyone is moving forward together, then success takes care
of itself."
Henry Ford once said
It has been another exciting year, and we look forward to moving forward
together with our whole team here at Caldwell Partners. As always, we thank our
entire team for their tireless dedication to our clients, our candidates and to 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, 2017 and 2016
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 our 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, our ability to attract
and retain key personnel; exposure to our Partners taking our clients with them to another
Management Discussion and Analysis
3
Caldwell Partners –
firm; the performance of the Canadian, US and international economies; competition from
other companies directly or indirectly engaged in executive search; liability risk in the
services we perform; potential legal liability from clients, employees and candidates for
employment; cybersecurity requirements, vulnerabilities, threats and attacks; damage to our
brand reputation; our ability to align our cost structure to changes in our revenue; adverse
tax law rulings; our ability to generate sufficient cash flow from operations to support our
growth and maintain our dividend; foreign currency exchange rate fluctuations; marketable
securities valuation fluctuations; volatility of the market price and volume of our common
shares; and any potential impairment of our acquired goodwill and intangible assets. 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 9, 2017, should be read in
conjunction with the consolidated annual audited financial statements and related notes for
the year ended August 31, 2017. 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.
The Company’s Canadian parent legal entity holds the right to the Company’s brand and
intellectual property. As discussed in 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, 2017 CPGroup had 16 revenue
producing partners plus related staff operating out of 8 offices including Bogota, Buenos
Aires, Caracas, Lima, Mexico City, Miami, Santiago and São Paulo. The licensing agreement has
4
Management Discussion and Analysis
Caldwell Partners –
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. On
June 6, 2017, the Company agreed to extend the 2.25% licensee fee rate to CPGroup for one
additional year through July 13, 2018 to provide for their continued increased branding and
marketing initiatives in Latin America. 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 plus
related staff operating out of Auckland as of August 31, 2017. 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
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.
Management Discussion and Analysis
5
Caldwell Partners –
•
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
Unencumbered cash
Cash dividends per share
¹
$
2017
57,805
39
37.5
1,533
432
11.5
133
1,957
0.096
0.096
34,302
958
7,883
0.08
$
$
$
$
$
$
$
$
$
$
$
2016
58,748
38
38.0
1,516
383
10.1
150
881
0.044
0.043
34,699
687
6,297
0.08
$
$
$
$
$
$
$
$
$
2015
54,527
37
34.8
1,566
428
12.3
127
1,976
0.093
0.092
37,831
1,326
8,381
0.08
$
$
$
$
$
$
$
$
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 experienced a 1.6% revenue decline from 2016 to 2017, after achieving a 7.7%
revenue increase from 2015 to 2016.
The 1.6% decline in revenue from 2016 to 2017 was the result of decreases in our Average
Fee of 11.3% (10.9% excluding the impact of foreign exchange rate fluctuations) and our
Average Number of Partners of 1.3%. These declines were partially offset by a 13.9% increase
in the Number of Assignments per partner.
The 7.7% increase from 2015 to 2016 was driven by increases in our Average Fee of 18.1%
(11.0% excluding the impact of foreign exchange rate fluctuations) and our Average Number
of Partners (9.2%), partly offset by an 18.0% decrease in the Number of Assignments per
partner.
Management Discussion and Analysis
6
Caldwell Partners –
Our Average Fee is impacted by economic conditions and related competitive pricing
pressures as well as the seniority level of searches undertaken. We attempt to protect our
Average Fee by maintaining a strategic focus towards securing high level executive
placements, which, in 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 average US dollar rate was stable from 2016 to 2017, declining 0.8%
relative to the Canadian dollar after experiencing a 9.0% increase from 2015 to 2016. The
United Kingdom’s announced departure from the European Union caused a decline of 13.5%
in the average British Pound rate from 2016 to 2017 relative to the Canadian Dollar, but given
the small size of our operations in the UK, this did not have a significant result on our
financial results.
The following table summarizes the approximate foreign exchange rates impacting the
business during fiscal 2017, 2016 and fiscal 2015 according to geographic segment.
Exchange Rates to the Canadian Dollar
Fiscal 2016
Fiscal 2017
Fiscal 2015
Functional Currency
United States
US dollar – average
US dollar – period end
Canada
Canadian dollar – average
Canadian dollar – period end
Europe
British pound – average
British pound – period end
1.32
1.25
1.00
1.00
1.67
1.62
1.33
1.31
1.00
1.00
1.93
1.72
1.22
1.32
1.00
1.00
1.90
2.03
The Number of Assignments per Partner rebounded from 2016 to 2017, after falling from
2015 to 2016. The fluctuations were attributable largely to Canada where we faced
significantly weaker market conditions during 2016 relative to 2015 and 2017. The weakness
in 2016 was attributable in large part to the impact of falling oil prices to which Western
Canada’s economy is tied and which then spread to financial services. A general rebound in
financial services and the diversification of our search work in Western Canada has led to
notably increased search volumes in 2017.
The increase in the Average Number of Partners over the past two years has been 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 37 in
2015 to 39 at the close of 2017 within our owned operations and from 37 to 58 including our
affiliation partners during the same timeframe.
Management Discussion and Analysis
7
Caldwell Partners –
In fiscal 2017, net earnings increased $1,076 to $1,957 from $881 in the prior year. The net
earnings increase resulted from a $1,835 increase in operating profit, partially offset by a
decrease in investment income of $366 from the marketable securities gains realized on sales
during 2016 and a $393 increase in income tax expense on the higher overall profit.
The key components of the $1,835 increase in operating profit from 2016 to 2017 were lower
direct costs resulting from expense alignment initiatives and non-recurring costs last year
related to the sublease and relocation of our New York office premises and separation costs
associated with aligning our support staff structure totaling $1,009. These cost decreases
were partially offset by increases in management operating performance bonus accruals of
$939 relating to achievement of performance targets in the current year versus non-
attainment in the prior year.
The 2017 financial results and cost drivers are discussed more fully in the following
Operating Results section. Additionally, the Business Outlook section discusses our current
views on future operating profit performance.
In 2016, net earnings decreased $1,095 to $881 compared to 2015, the result of a decrease in
operating profit and an increase in income tax expense offset by realized marketable security
investment gains. The $898 decrease in operating profit was the result of 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. The $538 increase in income tax expense
resulted from a shift in taxable income being generated in the United States where income tax
rates are higher relative to Canada and the UK, and an increase in investment income of $341
from the realization of gains from the sale of marketable securities.
The increase in unencumbered cash from 2016 to 2017 of $1,586 was due to an increase in
cash and cash equivalents ($2,495); decreases in accounts receivable ($638), net current
deferred tax assets ($962) and total current liabilities ($810); coupled with net decreases
across other components ($119). The decrease in unencumbered cash from 2015 to 2016 of
$2,084 was the result of decreases in cash and cash equivalents ($1,534) and current
marketable securities ($2,709) offset by increases in accounts receivable ($1,702) and net
increases across other components ($457). A reconciliation of unencumbered cash and
discussion of the drivers from 2016 to 2017 and from 2015 to 2016 is included in the
Liquidity and Capital Resources section of this Management Discussion and Analysis and the
prior year’s Management Discussion and Analysis, respectively.
Fiscal 2016 and 2015 results are more fully discussed under Operating Results within the
2016 and 2015 Management Discussion and Analysis documents, respectively, as filed on
SEDAR (www.sedar.com).
Management Discussion and Analysis
8
Caldwell Partners –
Revenue
Operating Results
2017
2016
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
13,629
$
$
-
$
13,629
$
75
$
13,704
Q2
13,665
$
$
-
$
13,665
$
62
$
13,727
Q3
14,443
$
$
-
$
14,443
$
81
$
14,524
$
$
$
37
37.8
1,442
116
3.1
117
35
36.0
1,518
88
2.4
155
40
37.0
1,561
116
3.1
125
$
$
$
13,945
$
$
-
$
13,945
$
65
$
14,010
$
$
$
$
$
14,281
787
15,068
67
15,135
$
$
$
$
$
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
$
$
$
Q4
15,758
$
$
-
$
15,758
$
92
$
15,850
Annual
57,495
$
$
-
$
57,495
$
310
$
57,805
$
$
39
39.5
1,596
112
2.8
141
39
37.5
1,533
432
11.5
133
$
$
15,712
$
$
-
$
15,712
$
64
$
15,776
$
$
$
$
$
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
$
$
¹ Please refer to the section on Non-GAAP Financial Measures and Other Operating Measures on page 2 of this
document
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 2017 increased 0.3% (0.9% excluding an
Management Discussion and Analysis
9
Caldwell Partners –
unfavourable 0.6% variance from exchange rate fluctuations) over the comparable period last
year to $15,758 (2016: $15,712).
The positive impact of a higher Average Number of Partners at 39.5 compared to 38.5 in the
prior year period and higher productivity per partner was partially offset by a lower Average
Fee. The Number of Assignments per Partner increased to 2.8 (2016: 2.4), resulting in an
increase in the total Number of Assignments to 112 (2016: 94). The Average Fee per
Assignment decreased to $141 (2016: $167).
Year-to-Date Consolidated Professional Fees
Professional fees for the year decreased 0.2% (an increase of 0.4% excluding an unfavourable
0.6% variance from exchange rate fluctuations) over the comparable period last year to
$57,495 (2016: $57,618).
A slightly lower Average Number of Partners at 37.5 compared to 38.0 in the prior year and a
lower Average Fee per Assignment were partially offset by higher productivity per partner.
The Average Fee per Assignment decreased to $133 (2016: $150). The year-to-date Number
of Assignments per Partner increased to 11.5 (2016: 10.1), resulting in an increase in the total
Number of Assignments to 432 (2016: 383).
Fourth Quarter and Year-to-Date Professional Fees by Geography
United States:
Fourth quarter professional fees in the US were down 13.0% (12.3% excluding an
unfavourable 0.7% variance from exchange rate fluctuations) to $10,492 (2016: $12,063).
Increases in both the Average Number of Partners and Number of Assignments per Partner
were more than offset by a decrease in the Average Fee per Assignment during the period.
Professional fees in the US for the year were down 3.5% (3.0% excluding an unfavourable
0.5% variance from exchange rate fluctuations) to $41,658 (2016: $43,170). Similar to the
results for the quarter, increases in both the Average Number of Partners and Number of
Assignments per Partner were more than offset by a decrease in the Average Fee per
Assignment during the period.
Canada:
Fourth quarter professional fees in Canada were up 61.9% to $5,079 (2016: $3,139). The
impact of a slightly lower Average Number of Partners was more than offset by a higher
Number of Assignments per Partner and a higher Average Fee per Assignment. Two specific
assignments generating Professional Fees in excess of $800 drove professional fees and the
Average Fee per Assignment in the current year quarter.
Professional fees in Canada for the year were up 21.1% to $14,852 (2016: $12,260), with a
higher Average Number of Partners and higher Number of Assignments per Partner partially
offset by a lower Average Fee per Assignment.
Europe:
Fourth quarter professional fees in Europe were down 63.3% (down 59.4% excluding an
Management Discussion and Analysis
10
Caldwell Partners –
unfavourable 3.9% variance from exchange rate fluctuations) to $187 (2016: $509). During
the fourth quarter of fiscal 2016 and first quarter of fiscal 2017, two partners, whose
aggregate related costs were significantly higher than the revenue produced, left the firm and
corresponding reductions were made to the support staff. Despite a new partner being hired
near the end of the current year third quarter, there was still a decrease during the quarter in
the Average Number of Partners, exacerbated by a decrease in the Number of Assignments
per Partner and only partially offset by an increase in the Average Fee per Assignment.
Professional fees in Europe for the year were down 55.0% (down 47.1% excluding an
unfavourable 7.9% variance from exchange rate fluctuations) to $985 (2016: $2,188) with
lower Average Number of Partners and lower Number of Assignments per Partner being
offset slightly by a higher Average Fee per Assignment, for the reasons noted above.
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 recorded during the second quarter ($787) and third quarter
($90) of fiscal 2016. The investment 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). The
investment was sold during the third quarter of fiscal 2017 upon expiration of the hold
period.
The Company holds $172 (August 31, 2016: $573) in investments in illiquid marketable
securities in private companies obtained in addition to cash for performance of search
services and these investments are reflected in non-current assets in the consolidated
statements of financial position. Accounting for investment income and the related equity
interests is described in note 3 to the annual consolidated financial statements.
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 $92 (2016: $64) for the fourth
quarter and $310 (2016: $253) for the full year.
Cost of Sales
2017
2016
Cost of sales
Cost of sales as a % of professional revenue
Cost of sales
Cost of sales as a % of professional revenue
$
$
Q1
10,221
75.0%
10,868
77.9%
$
$
Q2
9,725
71.2%
11,693
77.6%
$
$
Q4
11,588
73.5%
11,447
72.9%
$
$
Q3
10,771
74.6%
10,596
76.9%
Annual
$
$
42,305
73.6%
44,604
76.3%
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
Management Discussion and Analysis
11
Caldwell Partners –
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
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 1.2% or $141 to $11,588 (1.8% excluding a favourable
0.6% variance from exchange rate fluctuations) from $11,447. On a segment basis, the year-
over-year cost of sales increase of $141 came from an increase in Canada ($1,547) partially
offset by decreases in the US ($1,101) and Europe ($305).
As a percentage of professional revenue, cost of sales increased 0.6% to 73.5%, up from
72.9% in the same period last year. Higher partner compensation (up 0.8% as a percentage of
professional revenue) caused by higher partner compensation tiers obtained during the
fourth quarter and applied to year-to-date revenue and higher costs of search delivery
materials (up 0.7% as a percentage of professional revenue) were partially offset by fixed cost
partner support personnel compensation (down 0.9% as a percentage of professional
revenue).
Year-to-Date Consolidated Cost of Sales
Cost of sales for the year decreased 5.2% to $42,305 (4.5% excluding a favourable 0.7%
variance from exchange rate fluctuations) from $44,604. As a percentage of professional
revenue, cost of sales decreased to 73.6%, down $2,299 or 2.7% of professional revenue from
76.3% in the same period last year. Lower partner compensation (down 1.1% as a percentage
of professional revenue) was driven by lower variable commission tiers in the current year
compensation plan compared to the prior year lower partner support personnel
compensation (down 1.7% as a percentage of professional revenue). These favourable
variances were partially offset by slightly higher costs of search delivery materials (up 0.1%
as a percentage of professional revenue).
Fourth Quarter and Year-to-Date Cost of Sales by Geography
United States:
Compared to the 13.0% decrease in US professional revenue, fourth quarter cost of sales in
the US decreased $1,101 or 12.5% ($1,050 or 12.0% on a constant dollar basis) to $7,683
(2016: $8,784). Cost of sales increased as a percentage of professional revenue, and
represented 73.2% of professional revenue compared to 72.8% in the prior year. Higher fixed
Management Discussion and Analysis
12
Caldwell Partners –
cost partner support personnel compensation (up 1.0% as a percentage of professional
revenue) and higher costs of search delivery materials (up 0.8% as a percentage of
professional revenue) were partially offset by lower partner compensation (down 1.4% as a
percentage of professional revenue).
Compared to the 3.5% decrease in US professional revenue, full year cost of sales in the US
decreased $2,606 or 7.9% ($2,486 or 7.5% on a constant dollar basis), to $30,412 (2016:
$33,018). As a percentage of professional revenue these costs represented 73.0% of
professional revenue compared to 75.0% in the prior year. Lower partner compensation
(down 1.0% as a percentage of professional revenue), lower partner support personnel
compensation (down 1.0% as a percentage of professional revenue) and search delivery
material costs remaining flat account for the decline in cost of sales as a percentage of
revenue.
Canada:
Compared to the professional revenue increase of 61.9%, fourth quarter cost of sales in
Canada increased $1,547 or 71.1% to $3,724 (2016: $2,177). As a percentage of professional
revenue, these costs represented 73.3% of professional revenue vs. 69.4% in the prior year.
The increase was driven by higher variable partner compensation on increasing commission
tiers from elevated average revenue per partner (up 8.6% as a percentage of professional
revenue) and higher search delivery material costs (up 0.8% as a percentage of professional
revenue). These increases were partially offset by lower partner support personnel
compensation as a percentage of revenue, as leverage was obtained from the fixed cost nature
of support costs in the short-term during a period of rapidly increasing revenue, effectively
reducing the costs percentage by 5.5% as a percentage of professional fees.
Relative to the professional revenue increase of 21.1%, full year cost of sales in Canada
increased $1,990 or 21.9% to $11,085 (2016: $9,095). As a percentage of professional
revenue these costs represented 74.6% vs. 74.2% in the prior year. Increases in variable
partner compensation (up 2.9% as a percentage of professional revenue) and search delivery
materials costs (up 0.4% as a percentage of professional revenue) have been partially offset
by lower partner support personnel compensation costs (down 2.9% as a percentage of
professional revenue).
Europe:
Compared to the 63.3% decrease in professional revenue, fourth quarter cost of sales in
Europe decreased $305 or 62.8% ($289 or 59.5% on a constant currency basis) to $181 from
$486 in the comparable period a year ago. Cost of sales represented 96.8% of professional
revenue compared to 95.3% in the fourth quarter of last year. This percentage cost increase is
the result of higher partner support personnel compensation (up 8.3% as a percentage of
professional revenue) and higher costs of search delivery materials (up 1.1% as a percentage
of professional revenue) being partially offset by lower partner compensation (down 7.9% as
a percentage of professional revenue).
Management Discussion and Analysis
13
Caldwell Partners –
Compared to the 55.0% decrease in professional revenue, cost of sales in Europe for the year
decreased $1,683 or 67.6% ($1,558 or 62.5% on a constant currency basis), to $808 from
$2,491 in the comparable period a year ago. Costs as a percentage of professional revenue
decreased to 82.0% vs. 113.8% in the same period last year. This decrease was the result of
lower partner compensation on reduced staffing (down 28.1% as a percentage of professional
revenue), lower partner support personnel compensation (down 2.1% as a percentage of
professional revenue) and lower costs of search delivery materials (down 1.6% of
professional revenue).
Gross Profit and Margin
$
$
Q4
4,262
26.9%
4,329
27.4%
Annual
$
$
15,500
26.8%
14,144
24.1%
$
$
Q3
3,753
25.8%
3,231
23.4%
$
$
Q2
4,002
29.2%
3,442
22.7%
Q1
$
$
3,483
25.4%
3,142
22.4%
2017
2016
Gross profit in the fourth quarter decreased 1.5% (0.7% excluding an unfavourable 0.8%
variance from exchange rate fluctuations) to $4,262 or 26.9% of revenue in the previous year
(2016: $4,329 or 27.4% of revenue). The 0.5% increase in total revenue was offset by the
0.6% increase in Cost of Sales as a percentage of Revenue. On a segment basis, gross profit
was $2,809 from the US, $1,447 from Canada ($1,681 less $234 in intercompany license fee
revenue), and $6 from Europe.
For the year, gross profit increased 9.6% (10.2% excluding an unfavourable 0.6% variance
from exchange rate fluctuations) to $15,500, from $14,144 in 2016. The higher gross profit
was driven by the 2.7% decrease in cost of sales as a percentage of revenue, partially offset by
the unfavourable impact of a 1.6% revenue decrease. As a result, gross margin for 2017 was
26.8% (2016: 24.1%). On a segment basis, gross profit was $11,246 from the US, $4,077 from
Canada ($5,012 less $935 in intercompany license fee revenue), and $177 from Europe.
The quarter and full year variances are discussed in detail under Revenue and Cost of Sales.
Expenses
2017
2016
Q1
$
$
2,384
3,290
Q2
3,396
2,733
$
$
Q3
3,131
2,551
$
$
Q4
3,476
4,292
$
$
Annual
$
$
12,387
12,866
Management Discussion and Analysis
14
Caldwell Partners –
Fourth Quarter Expenses:
Fourth quarter expenses decreased 19.0% or $816 from the prior year comparable period to
$3,476 (2016: $4,292). Excluding exchange rate variances of $15, expenses on a constant
currency basis decreased $831 or 19.3% versus the same period last year.
During the fourth quarter of the previous year we incurred certain expenses in connection
with reducing the fixed costs of the Company. This included charges 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.
Adjusting for the charges taken, the remaining expenses increased $178 on a constant
currency basis or 5.6% over the same period last year. The $178 increase is the result of
management operating performance bonus accruals based on achievement of performance
targets in the current year versus non‐attainment in the prior year ($387), higher marketing
and business development costs ($105), partner recruitment expenses ($62) and the change
in foreign exchange losses ($43), being offset by lower share‐based compensation expense
($148), lower legal fees resulting from costs associated with our support staff restructure and
global trademark filings last year not recurring ($116), lower management and corporate
support staff salaries ($42), lower occupancy costs on our New York office relocation and a
reduction in the square footage at our United Kingdom location partially offset by operating
lease cost escalations ($35) and general cost decreases across other categories ($78).
On a segment basis, expenses were $2,593 from the US ($2,359 net of $234 in intercompany
Year‐to‐Date Expenses:
license fees), $969 from Canada and $148 from Europe.
Full year expenses decreased 3.7% or $479 over the prior year to $12,387 (2016: $12,866).
Excluding exchange rate variances of $119, remaining expenses on a constant currency basis
decreased $360 or 2.8% over the same period last year. The decrease includes the charges
taken in the fourth quarter of 2016 discussed above of $759 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 increased $649 on a constant
currency basis, or 5.5%. Constant currency cost increases were seen in management
operating performance bonus accruals based on achievement of performance targets in the
current year versus non‐attainment in the prior year ($958) and partner recruitment
expenses ($121). These were partially offset by lower management and corporate support
staff salaries ($130), a reduction in the contingent consideration payable related to the
Hawksmoor acquisition based on final earn‐out achievement calculations ($115), lower
partner conference costs ($97), lower foreign exchanges gains on intercompany loan balances
and USD bank account balances ($36) and general decreases across other categories ($52).
On a segment basis, expenses were $9,346 from the US ($8,411 net of $935 in intercompany
license fees), $3,311 from Canada and $665 from Europe.
Management Discussion and Analysis
15
Caldwell Partners –
Operating Profit
2017
2016
Q1
$
Q2
$
Q3
$
1,099
8.0%
(148)
(1.1%)
606
4.4%
709
4.7%
622
4.3%
680
4.9%
$
$
$
Q4
$
Annual
$
786
5.0%
37
0.2%
3,113
5.4%
1,278
2.3%
$
$
For the 2017 fourth quarter, higher revenue ($74) and lower expenses ($816) partially offset
by higher cost of sales ($141) resulted in an increase in operating profit of $749 over the
comparable period in the prior year to $786 (2016: $37). Exchange rate variances accounted
for net reduction of $47 in operating profit relative to the rates in effect in the prior year
period.
On a segment basis, the fourth quarter operating profit of $786 came from the US producing
$216 ($450 income excluding the impact of intercompany license fees), Canada $712 ($478,
excluding intercompany license fee revenue) and Europe generating an operating loss of
$142.
For the 2017 full year, lower revenue ($943) more than offset by decreases in cost of sales
($2,299) and expenses ($479) from variances discussed above resulted in an increase in
operating profit of $1,835 to $3,113 (2016: $1,278). Exchange rate variances accounted for a
net $23 increase in operating profit relative to the rates in effect in the prior year.
On a segment basis, full year operating profit of $3,113 came from operating profit in the US
of $1,900 ($2,835 net of intercompany license fees) and operating profit in Canada of $1,701
($766 net of intercompany license fee revenue) being offset by an operating loss in Europe of
$488.
The quarter and full year variances are discussed in detail under Revenue, Cost of Sales and
Expenses.
Investment Income from Marketable Securities
2017
2016
Q1
$
-
$
1
Q2
$
-
$
403
Q3
(142)
$
$
-
Q4
$
180
$
-
Annual
$
$
38
404
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. We also previously
held an equity security with a short-term trade restriction in a publicly traded company. This
security was obtained when a client company was acquired in which the we held an equity
Management Discussion and Analysis
16
Caldwell Partners –
position previously obtained through the settlement of search fees being paid partially in
equity of the client company. The entire position in this security was sold during the third
quarter of fiscal 2017 resulting in a realized loss of $142 being recognized in investment
income which had previously been recorded to other comprehensive income in the
consolidated interim statements of comprehensive earnings. As at August 31, 2017, managed
funds and client equity investments classified as short-term were $5,048 (August 31, 2016:
$4,784) and nil (2016: $272), respectively. Additionally, we have a portfolio of illiquid equity
investments obtained through search fees that are classified as long-term with a balance of
$172 at August 31, 2017 (August 31, 2016: $573).
Regarding investments generated from search services with clients, compensation equal to
50% of the investment is paid to the respective partners involved with the search upon
monetization of the investment. As of August 31, 2016, a partner’s entitlement to any
amounts upon liquidation was contingent upon being employed at the time of liquidation and
we recorded the investment at 100% of the fair market value with a related 50%
compensation payable liability. Effective in fiscal 2017, the continuing employment
requirement was lifted, and all rights to the partners’ 50% of the equity instruments were
transferred and assigned beneficially to the respective partners. As a result of this change, the
gross asset value and compensation payable have been offset, with the investment now
recorded at the net amount to which the Company has economic rights. Estimated changes in
the fair value of this carrying amount are recorded in other comprehensive income. When the
investments are ultimately settled, any accumulated gains or losses would transferred from
accumulated other comprehensive income and realized as investment income in the
consolidated statement of earnings during such settlement period. 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.
For the fourth quarter of 2017, the Company reported investment income of $180. No
investment income was reported in the comparable period last year. For the full year 2017,
the Company reported investment income of $38 compared to $404 in 2016. This year’s
income includes $180 of realized gains earned on the liquidation of funds and $142 of
realized losses on the liquidation of an equity position obtained through search fees being
paid partially in equity of the client. The previous year amount includes $403 of realized gains
earned on the liquidation of funds as well as interest on term deposits and other cash
balances.
Management Discussion and Analysis
17
Caldwell Partners –
Earnings Before Income Taxes
Earnings
2017
2016
Q1
$
$
1,099
(147)
Q2
$
$
606
1,112
Q3
$
$
480
680
Net Earnings
2017
2016
Q1
$
$
762
(165)
Q2
$
$
267
764
Q3
$
$
224
339
Basic Earnings Per Share
2017
2016
Q1
$
$
0.038
(0.008)
Q2
0.013
0.038
$
$
Q3
0.011
0.017
$
$
Q4
$
$
966
37
Annual
$
$
3,151
1,682
Q4
$
$
704
(57)
Annual
$
$
1,957
881
Q4
0.034
(0.003)
$
$
Annual
$
$
0.096
0.044
Income tax expense in the fourth quarter of fiscal 2017 was $262 (2016: $94) arising from a
current income tax recovery of $462 (2016: $309 recovery) offset by a deferred tax expense
of $724 (2016: $403).
Income tax expense for the year ending August 31, 2017 was $1,194 (2016: $801) reflecting
current tax expense of $470 (2016: $398) and deferred tax expense of $724 (2016: $403).
Income tax expense for Canada for the quarter ended August 31, 2017 was $202 (2016:
$172). For the full year income tax expense for 2017 was $460 (2016: $366) reflecting an
effective tax rate of 24.5% compared to a statutory tax rate of approximately 26.5% in
Canada.
Income tax expense for the US for the quarter ended August 31, 2017 was $60 (2016: $78
recovery). Full year income tax expense for 2017 was $734 (2016: $496) or 41.8% compared
to a US effective tax rate of approximately 40.0%.
No income tax expense recovery was recognized during 2017 for the UK (2016: recovery of
$61). Deferred income tax assets of $98 (2016: $245) that can be carried forward against
future taxable income have not been recognized.
Fourth quarter net earnings were $704 ($0.034 per share) in 2017, as compared to a net loss
of $57 ($0.003 per share) in the comparable period a year earlier. The full year net earnings
after tax were $1,957 ($0.096 per share) in 2017, versus $881 ($0.044 per share) in 2016.
Management Discussion and Analysis
18
Caldwell Partners –
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 twenty-two quarterly dividends through August 31, 2017 with
total dividends declared of 40.0 cents per share or $7,871 in total.
On November 9, 2017 the Board of Directors declared a dividend of 2.0 cents per share,
payable to holders of Common Shares of record on November 20, 2017 and to be paid on
December 15, 2017.
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, 2017, the Company had $5,048 of current marketable securities plus cash
and cash equivalents including restricted cash of $11,050, for a total cash and current
marketable securities balance of $16,098, up $2,433 from $13,665 at year-end 2016. The
increase is the result of cash flow from operations being only partially offset by sign-on
payments to certain new partner hires, dividend payments issued during the year and capital
expenditures.
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, 2017, current
Compensation Payable was $15,896 (2016: $16,125), total cash and current marketable
securities were $16,098 (2016: $13,665) and Accounts Receivable were $9,393 (2016:
Management Discussion and Analysis
19
Caldwell Partners –
$10,031). 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
2017
August 31
2016
$10,917
133
5,048
9,393
1,929
27,420
$8,422
187
5,056
10,031
2,891
26,587
Total current liabilities
Excluding
(20,091)
(20,901)
Deferred revenue
Deferred compensation
Total Unencumbered Cash
1,107
(553)
$7,883
1,187
(576)
$6,297
Accounts receivable were $9,393 at August 31, 2017, down $638 from $10,031 at the end of
fiscal 2016. Days outstanding based on quarterly revenue were 51 days at August 31, 2017
versus 54 days at August 31, 2016. At August 31, 2017, a reserve of $522 or approximately
52% of accounts over 90 days old has been taken (2016 $598 or 42% of accounts over 90
days).
Total liabilities were $21,182 at August 31, 2017, down $590 from $21,772 at the end of 2016
reflecting, lower accounts payable ($340) and the payment and reversal of contingent
consideration ($289) offset by net increases across other liabilities ($39).
The Company’s investment in property and equipment at August 31, 2017 was $1,699
compared with $1,838 at the end of 2016. This reflects additions of $469, depreciation
expense of $559 and exchange rate fluctuations over the year of $49. Capital expenditures
included computer hardware and software, leasehold improvements and office furniture and
equipment.
Shareholders’ equity at August 31, 2017 was $13,120, up $193 from $12,927 at the end of
2016. This increase reflects the net earnings for the year of $1,957, dividends declared of
$1,622, employee option plan share issuance of $187, realized capital gains moved out of
accumulated other comprehensive income of $38, translation losses on consolidation of $414
and an unrealized gain on marketable securities of $123.
Management Discussion and Analysis
20
Caldwell Partners –
Total
2018
2019
2020
2021
2022 Thereafter
Contractual Obligations
$
Operating leases
Accounts payable
Compensation payable
Dividends payable
11,648
2,044
16,854
408
$
3,242
2,044
15,896
408
$
2,842
-
335
-
$
2,322
-
264
-
$
1,737
-
-
-
818
-
-
-
$
687
-
359
-
Total
$
30,954
$
21,590
$
3,177
$
2,586
$
1,737
$
818
$
1,046
The operating lease commitments are in respect to the office space required to operate our
business and do not reflect offsetting sublease payments from which the Company expects to
recoup $2,824 through September 30, 2021. Cash outlays for our contractual obligations and
commitments identified above are expected to be funded by cash on hand and cash generated
by operating activities in the respective year of the outlay. The Company does not have any
material commitments to purchase property and equipment.
Outstanding Shares
As at November 9, 2017 the authorized share capital of the Company consists of an unlimited
number of Common Shares of which 20,404,555 are issued and outstanding (August 31,
2017: 20,404,555; August 31, 2016: 20,129,555). 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 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.
On February, 3, 2017 an employee of the Company exercised 275,000 options increasing the
number of outstanding shares from 20,129,555 to 20,404,555. On September 14, 2017,
options to purchase 250,000 shares of the Company were issued to an employee of the
Company. As of November 9, 2017 options to purchase 350,000 common shares of the
Company were outstanding (August 31, 2017: 100,000; August 31, 2016: 375,000).
Business Outlook
In Canada, fiscal 2017 saw a significant rebound from the previous year’s challenges. Although
the energy sector is still depressed in Western Canada, our teams have expanded their work
across other industries while we have also seen a strengthening in the financial services market
from coast to coast. The early indications in fiscal 2018 are a continuation of this stability.
Continued pressure on the Average Fee in Canada during fiscal 2018 is probable given that
2017 benefitted from certain unusually high fee assignments that may not recur, including two
engagements during the fourth quarter generating aggregate fees in excess of $800.
Management Discussion and Analysis
21
Caldwell Partners –
In the United States, where the majority of our search business is generated, we continued to
experience a strong economic environment as evidenced by the higher search volumes,
although they were more than offset by a lower Average Fee per Assignment. We do not
believe this was caused by specific pricing pressures on our fee model, but a reflection of our
taking on slightly lower level assignments. Additionally, we hired five new partners in the
United States during the second half of fiscal 2017 and we expect their revenues to increase
fiscal 2018 results, as they integrate into our firm and log a full year here. Incremental staffing
costs are expected in fiscal 2018 as additional staff hired late in fiscal 2017 to support the
new partners will be with us for the full fiscal 2018 year.
In the United Kingdom, operating results were negatively impacted by the departure of two
partners who had been hired in the prior fiscal year, reducing our partner base to one for
most of the fiscal year. Near the end of the third quarter we hired an additional partner for
our London office and have also added another partner in the first quarter of fiscal 2018.
With these hires, we believe we have substantially enhanced our revenue base for future
periods, although we may not see the impact immediately as they ramp up to full
productivity. We remain committed to being in the United Kingdom and view it as important
to our strategy of delivering services to our clients and growing a long-term globally
profitable business. However, additional modest operating losses in the UK region are
possible during fiscal 2018 as our hires become fully productive.
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.
We are additionally looking to prudently expand our service lines in areas that can leverage
the existing expertise of our search teams. We have recently entered into Executive Advisory
Solutions whereby we will leverage our executive search network to provide talent and
knowledge solutions to our clients, where full time hires are not required. Specifically, we
have launched Cyber Advisory Solutions whereby executives who are experts in cyber
security are structured in operational ongoing advisory boards available to work with client
companies to aid in training, mentoring, organizational design, best practices and use of
existing and emerging technologies. These same executives can also be made available to
address specific client needs regarding a market or technology on a short-term, ad-hoc basis.
We anticipate addressing other functional areas in a similar manner. We cannot ensure the
success of such service line expansion, and will only continue to scale our efforts upon
successful results of our initial functional areas chosen. We do not believe this will result in
significant additional cost in the short term, but feel it will provide meaningful differentiation
and added value to our clients.
Management Discussion and Analysis
22
Caldwell Partners –
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, 2017 in the amount of $223
(2016: $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
Revenue recognition
accounting policies.
The Company’s method of revenue recognition requires it to estimate the expected average
performance period and the percentage of completion, based on the proportion of the
estimated effort to fulfill the Company’s obligations throughout the expected average
performance period for its executive searches. Differences between the estimated percentage
of completion and the amounts billed will give rise to a deferral of revenue to a future period.
Changes in the average performance period or the proportion of effort expended throughout
the performance period for its executive searches could lead to an under or overvaluation of
revenue. Further information on deferred revenue is included in note 11 to the financial
statements. 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
Allowance for doubtful accounts
income within revenue when 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
would affect the results of operations in future periods.
Management Discussion and Analysis
23
Caldwell Partners –
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
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
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
Exposure to our partners taking our clients with them to another firm
retain key professionals.
Our success depends upon our ability to develop and maintain strong, long-term
relationships with our clients. In many cases, one or two partners have primary responsibility
for a client relationship. When a partner leaves one executive search firm and joins another,
clients who have established relationships with the departing partner may move their
business to the partner’s new employer. We may also lose clients if the departing partner has
widespread name recognition or a reputation as a specialist in executing searches in a specific
industry or management function. If we fail to retain important client relationships when a
partner departs our firm, our business, financial condition and results of operations may be
adversely affected. During 2017, approximately 10% of consolidated revenues were
attributed to one revenue generating employee of the Company. We attempt to mitigate this
risk by maintaining strong relationships with our partners and providing for certain
contractual client and employee non-solicitation covenants in our offer of employment letters
with our partners.
Management Discussion and Analysis
24
Caldwell Partners –
Our business is impacted by economic conditions
Our revenue is affected by global economic conditions and economic activity in the regions
where we operate. During economic slowdowns, companies may hire fewer employees which
may have a negative impact on our financial condition. This risk is mitigated to some extent
through our increasing diversity within our revenue base across geographies, industries and
Competition
functions.
The executive search business is highly competitive in terms of both winning and pricing new
engagements. 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. Some of our
competitors possess greater resources, greater name recognition and may be further along in
the development and design of technological solutions to meet client requirements. One 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
Liability risk in the services we perform
engagements becomes impeded.
In the normal course of our operations, we become involved in various legal actions, either as
plaintiff or defendant, including but not limited to our commercial relationships, employment
matters and services delivered, in addition to other things. Such matters include both actual
as well as threatened claims. Possible claims include failure to maintain the confidentiality of
the candidate’s employment search or for discrimination or other violations of the
employment laws or malpractice. In various countries, we are subject to data protection laws
impacting the processing of candidate information. To mitigate this risk, we engage outside
counsel on a regular basis to review our policies and form of contracts. We utilize protective
language in our standard client contracts and maintain professional liability insurance in
amounts and coverage that we believe are adequate; however, we cannot guarantee that our
insurance will cover all claims or that coverage will always be available. Significant uninsured
liabilities could have a negative impact on our business, financial condition and results of
operations. Furthermore, even if any action is settled within insurance limits, this can result
in increases to our insurance premiums. Therefore there can be no assurance that their
resolution will not have a material adverse effect on the Company’s financial condition or
Potential legal liability from clients, employees and candidates for employment
results of operations.
We are exposed to potential claims with respect to the executive search process. For example,
a client could assert a claim for matters such as breach of an off-limit agreement or
recommending a candidate who subsequently proves to be unsuitable for the position filled.
Further, the current employer of a candidate whom we placed could file a claim against us
Management Discussion and Analysis
25
Caldwell Partners –
alleging interference with an employment contract, a candidate could assert an action against
us for failure to maintain the confidentiality of the candidate’s employment search, and a
candidate or employee could assert an action against us for alleged discrimination, violations
of labor and employment law or other matters. Also, in various countries, we are subject to
data protection laws impacting the processing of candidate information and other regulatory
requirements including the legality of gathering historical compensation data from
candidates pursuant to an expanding number of equal pay laws. We attempt to mitigate these
risks through onboarding and continuing training for our employees of existing and
developing legal guidelines. We also carry insurance policies which may reimburse us for
certain suffered losses in this area, although such reimbursement and the amount cannot be
Cybersecurity requirements, vulnerabilities, threats and attacks
guaranteed.
Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted
cyber-related attacks pose a risk to the security of our systems and networks and the
confidentiality, availability and integrity of our data. We have a program in place to detect and
respond to data security incidents. However, we remain potentially vulnerable to additional
known or unknown threats. We also have access to sensitive, confidential or personal data or
information that is subject to privacy and security laws, regulations and client-imposed
controls. Despite our efforts to protect sensitive, confidential or personal data or information,
we may be vulnerable to security breaches, theft, lost data, employee errors and/or
malfeasance that could potentially lead to the compromising of sensitive, confidential or
personal data or information, improper use of our systems or networks, unauthorized access,
use, disclosure, modification or destruction of information. In addition, a cyber-related attack
could result in other negative consequences, including damage to our reputation or
competitiveness, remediation or increased protection costs, litigation or regulatory action
which could result in a negative impact to our results of operations. We attempt to mitigate
this risk through maintaining and complying with our data privacy policy informing our
clients and candidates of how we use their personal information. We additionally utilize a
third party information and security technology company to advise us on risk testing and
mitigation to aid our own internal information technology staff. We also maintain a cyber-
insurance policy which might mitigate certain financial costs in the event we were to suffer a
Brand Reputation
breach that caused us to incur financial losses.
We depend on our overall professional reputation and brand name recognition to secure new
engagements and hire qualified consultants. Our success also depends on the individual
reputations of our consultants. We obtain many of our new engagements from existing clients
or from referrals by those clients. A client who is dissatisfied with our work can adversely
affect our ability to secure new engagements. If any factor, including poor performance, hurts
our reputation we may experience difficulties in competing successfully for both new
engagements and qualified consultants. Failure to maintain our professional reputation and
Management Discussion and Analysis
26
Caldwell Partners –
brand name could seriously harm our business, financial condition and results of operations.
We attempt to mitigate this risk through the use of a client feedback process utilizing the
third-party product Net Promoter Score® which provides us with feedback on our
Alignment of our cost structure with revenue
engagements and highlighting dissatisfied clients so we may respond.
We must ensure that our costs and workforce continue to be in proportion to demand for our
services. Failure to align our cost structure and headcount with net revenue could adversely
affect our business, financial condition, and results of operations. We attempt to mitigate this
risk related to short-term revenue shifts through having a large portion of our search
professionals’ compensation tied to their individual and team revenue and for management
Unfavorable tax law changes and tax authority rulings may adversely affect results
to consolidated revenue and operating profit.
We are subject to income taxes in Canada, the United States and in various other foreign
jurisdictions. Domestic and international tax liabilities are subject to the allocation of income
among various tax jurisdictions. Our effective tax rate could be adversely affected by changes
in the mix of earnings among countries with differing statutory tax rates, or changes in the
valuation allowance of deferred tax assets or tax laws. We attempt to mitigate this risk
through working with our third party income tax consultants in reviewing our tax structure
We may not generate sufficient cash flow from operations to support our strategic
and providing advice regarding optimal tax structures.
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
Foreign currency exchange rate risks may affect our financial results
may be liquidated and the returns on those instruments could be negatively impacted.
With operations in Canada, the United States and the United Kingdom, we do business in
multiple currencies. In 2017, approximately 74% of our revenue was generated outside of
Canada and transacted in a currency other than the Canadian dollar. Our profitability is
impacted by the translation of foreign currency financial statements into Canadian dollars.
Fluctuations in relative currency values, particularly the strengthening of the Canadian dollar,
could have an adverse effect on our profitability and financial condition. When management
believes it has a significant short term net cash or intercompany loan balance, it will on
occasion hedge its currency exposure by buying or selling the exposed currency on a forward
We invest in marketable securities whose valuations fluctuate
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
27
Management Discussion and Analysis
Caldwell Partners –
client. The securities are subject to market risk, and should they decline in value, the
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
Potential volatility of the market price and volume of common shares
derivatives if applicable.
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
Impairment of our goodwill, other intangible assets and other long-lived assets
the payments to profitability of the Company after accounting for such fluctuations.
All of our acquisitions have been accounted for as purchases and involved purchase prices
well in excess of tangible asset values, resulting in the creation of a significant amount of
goodwill and other intangible assets. Goodwill is initially recorded as the excess of amounts
paid over the fair value of net assets acquired. While goodwill is not amortized, in accordance
with generally accepted accounting principles, we perform assessments of the carrying value
of our goodwill at least annually and we review our goodwill, other intangible assets and
other long-lived assets for impairment whenever events occur or circumstances indicate that
a carrying amount of these assets may not be recoverable. These events and circumstances
include a significant change in business climate, attrition of key personnel, changes in
financial condition or results of operations, a prolonged decline in our stock price and market
capitalization, competition, and other factors. In performing these assessments, we must
make assumptions regarding the estimated fair value of our goodwill and other intangible
assets. These assumptions include estimates of future market growth and trends, forecasted
revenue and costs, capital investments, discount rates, and other variables. If the fair market
value of one of our reporting units or other long term assets is less than the carrying amount
of the related assets, we would be required to record an impairment charge. Due to continual
changes in market and general business conditions, we cannot predict whether, and to what
extent, our goodwill and long-lived intangible assets may be impaired in future periods. Any
Management Discussion and Analysis
28
Caldwell Partners –
resulting impairment loss could have an adverse impact on our business, financial condition
Ability to access credit could be limited
and results of operations.
Our bank can be expected to strictly enforce the terms of our credit agreement. Although we
are currently in compliance with the financial covenants of our revolving credit facility, a
deterioration of economic conditions may negatively impact our business resulting in our
failure to comply with these covenants, which could limit our ability to borrow funds under
our credit facility or from other borrowing facilities in the future. The credit agreement with
the bank is a demand facility and may also be cancelled at any time by our bank. In such
circumstances, we may not be able to secure alternative financing or may only be able to do
so at significantly higher costs. We attempt to mitigate this risk through the negotiation of
flexible financial covenants to the extent we are able, and working to maintain strong
Significant Shareholder
relationships with our banking team.
C. Douglas Caldwell, the former Chief Executive Officer of The Caldwell Partners International,
Inc., is reported to own, directly or indirectly approximately 21% of the Company’s
outstanding Common shares. Mr. Caldwell’s shares could have a material impact on any
Provisions that may make an acquisition of us more difficult and expensive
matters brought forth to the shareholders for a vote.
Anti-takeover provisions in our Certificate of Incorporation, our Bylaws and under Ontario
law may make it more difficult and expensive for us to be acquired in a transaction that is not
approved by our Board of Directors. Some of the provisions in our Certificate of Incorporation
and Bylaws include: limitation on stockholder actions; advance notification requirements for
director nominations and actions to be taken at stockholder meetings; and the ability to issue
additional shares by action of our Board of Directors. These provisions could discourage an
acquisition attempt or other transaction in which stockholders could receive a premium over
the current market price for the common stock.
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, 2017, 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
29
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 carried out an evaluation of the effectiveness of the design and operation of the
Company’s internal controls over financial reporting as at August 31, 2017. Based on that
evaluation, the Chief Executive Officer and the Chief Operating and Financial Officer
concluded that internal controls over financial reporting are effective as at August 31, 2017.
Management has also evaluated whether there were changes in the Company’s internal
controls over financial reporting during the reporting period ended August 31, 2017 that
materially affected, or are reasonably likely to affect, the Company’s internal controls over
financial reporting. Management has determined that no changes occurred during the year
ended August 31, 2017 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
30
Caldwell Partners –
Consolidated
Financial Statements
For the Years Ended August 31, 2017 and 2016
Consolidated Financial Statements
31
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
consolidated 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 to 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
CHIEF OPERATING AND FINANCIAL
OFFICER AND CORPORATE SECRETARY
November 9, 2017
Consolidated Financial Statements
32
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, 2017
and August 31, 2016 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, 2017 and August 31, 2016 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 9, 2017
Consolidated Financial Statements
33
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
Compensation payable (notes 10 and 11)
Dividends payable (note 15)
Income taxes payable
Contingent consideration
Deferred revenue (note 11)
Non-current liabilities
Compensation payable (note 10)
Provisions (note 8)
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
2017
As at
August 31
2016
10,917
5,048
9,393
1,848
27,206
133
172
503
1,699
178
2,761
1,650
8,422
5,056
10,031
2,416
25,925
187
573
502
1,838
279
2,920
2,475
34,302
34,699
2,044
15,896
408
636
-
1,107
20,091
958
133
21,182
7,515
14,992
850
(10,237)
13,120
34,302
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
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
34
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)
Licence fees (note 22)
Cost of sales (notes 8, 10 and 11)
Gross profit
Expenses
General and administrative (note 8)
Sales and marketing
Foreign exchange loss
Operating profit
Investment income (note 4)
Earnings before income taxes
Income taxes (note 13)
Net earnings for the year attributable to owners of the Company
Earnings per share (note 14)
Basic
Diluted
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 earnings (note 4)
Unrealized gain (loss) on marketable securities (note 4)
Cumulative translation adjustment
Comprehensive earnings (loss) for the year attributable to owners of the Company
The accompanying notes are an integral part of these consolidated financial statements.
Twelve months ended
August 31
2017
2016
57,495
-
310
57,805
42,305
15,500
11,210
1,173
4
12,387
3,113
38
3,151
1,194
1,957
57,618
877
253
58,748
44,604
14,144
11,682
1,144
40
12,866
1,278
404
1,682
801
881
$0.096
$0.096
$0.044
$0.043
Twelve months ended
August 31
2017
1,957
(38)
123
(414)
1,628
2016
881
(403)
(100)
(430)
(52)
Consolidated Financial Statements
35
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in $000s Canadian)
Accumulated Other Comprehensive
Income (Loss)
Deficit
Share Capital
Contributed
Surplus
Cumulative
Translation
Adjustment
Unrealized
Gains (Loss) on
Marketable
Securities
Total
Equity
Balance - August 31, 2015
(9,843)
7,295
15,025
1,272
840
14,589
Net earnings for the year
Dividend payments declared (note 15)
Realization of gains on marketable
securities included in net earnings
Change in unrealized loss on marketable securities
Change in cumulative translation adjustment
881
(1,610)
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance - August 31, 2016
(10,572)
7,295
15,025
Net earnings for the year
Dividend payments declared (note 15)
Employee share option plan share issue (note 15)
Realization of gains on marketable
securities included in net earnings
Change in unrealized loss on marketable securities
Change in cumulative translation adjustment
1,957
(1,622)
-
-
-
-
-
-
-
-
220
(33)
-
-
-
-
-
-
Balance - August 31, 2017
(10,237)
7,515
14,992
The accompanying notes are an integral part of these consolidated financial statements.
-
-
-
-
(430)
842
-
-
-
-
-
-
-
881
(1,610)
(403)
(100)
-
(403)
(100)
(430)
337
12,927
-
-
-
(38)
123
1,957
(1,622)
187
(38)
123
(414)
428
-
(414)
422
13,120
Consolidated Financial Statements
36
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in $000s Canadian)
Twelve months ended
August 31
2017
2016
Cash flow provided by (used in)
Operating activities
Net earnings for the year
Adjustments for:
Depreciation
Amortization
Amortization of advances
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
Reduction in marketable securities following assignment to partner (note 3)
Decrease in deferred taxes
Increase (decrease) in cash settled share-based compensation
Loss on disposal of property and equipment
Decrease (increase) in accounts receivable
Decrease (increase) in prepaid expenses and other assets
(Decrease) increase in accounts payable
Increase (decrease) in compensation payable
Increase in income taxes payable
Payment of cash settled share-based compensation
Payment of contingent consideration
(Decrease) increase in deferred revenue
(Decrease) increase in provisions
Net cash provided by (used in) operating activities
Investing activities
Proceeds from sale of marketable securities
Purchase of marketable securities
Payment of advances
Decrease in restricted cash
Additions to property and equipment
Net cash (used in) provided by investing activities
Financing activities
Share issuance from employee share option plan
Share purchase and cancellation
Dividend payments
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
1,957
559
94
803
(38)
(109)
(12)
-
432
723
271
-
338
759
(277)
929
162
(709)
(181)
(65)
(51)
5,585
1,101
(1,000)
(1,125)
48
(469)
(1,445)
187
-
(1,622)
(1,435)
(210)
2,495
8,422
10,917
881
539
94
992
(403)
10
28
(1,121)
-
403
(377)
77
(1,916)
(473)
401
(95)
193
(449)
(254)
245
184
(1,041)
3,171
-
(592)
313
(414)
2,478
-
(1,604)
(1,633)
(3,237)
266
(1,534)
9,956
8,422
T he accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements
37
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Years Ended August 31, 2017 and August 31, 2016
(in $000s Canadian unless otherwise stated)
1. General Information
The Caldwell Partners International Inc. (the Company) is an executive search firm specializing in recruiting
executives for full-time and advisory roles on behalf of its clients. The Company contracts with its clients, on an
assignment basis, to provide 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 licence partners, Latin America and New Zealand.
2. Basis of Presentation
The Board of Directors approved these consolidated financial statements for issue on November 9, 2017.
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 and balances 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
Consolidated Financial Statements
38
Caldwell Partners –
movements in the fair value being recognized within general and administrative expenses in the consolidated
statements of earnings.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the Chief Executive Officer.
Foreign currency translation
(i)
Functional and presentation currency
The financial statements of the parent company and each subsidiary in the consolidated financial statements of
The Caldwell Partners International Inc. are measured using the currency of the primary economic environment
in which the subsidiary operates (the “functional currency”). The functional and presentation currency of the
Company is the Canadian dollar. The functional currency of the subsidiary located in the United States is the US
dollar. The functional currency of the subsidiary located in the United Kingdom is the British pound sterling.
The financial statements of subsidiaries that have a functional currency different from the presentation
currency are translated into Canadian dollars as follows: assets and liabilities at the closing rate at the date of
the consolidated statements of financial position, and income and expenses at the average rate of the period (as
this is considered a reasonable approximation of the actual rates prevailing at the transaction dates). All
resulting changes are recognized in other comprehensive income as cumulative translation adjustments.
If the Company disposes of its entire interest in a foreign subsidiary, or loses control over a foreign subsidiary,
the foreign currency gains or losses accumulated in other comprehensive income related to the foreign
subsidiary are recognized in profit or loss.
(ii)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of these transactions. Foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities
denominated in currencies other than an entity’s functional currency are recognized in the consolidated
statements of earnings, within foreign exchange loss.
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.
Consolidated Financial Statements
39
Caldwell Partners –
Financial assets and liabilities are offset and the net amount is reported in the consolidated statements of
financial position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Financial liabilities
are derecognized when the obligation specified in the contract is discharged, cancelled or expires.
At initial recognition, the Company classifies its financial instruments in the following categories depending on
the purpose for which the instruments were acquired:
(i)
Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is classified in
this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are
also included in this category. 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 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.
investments: Available-for-sale
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 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:
Consolidated Financial Statements
40
Caldwell Partners –
(i)
Financial assets carried at amortized cost: The loss is the difference between the amortized cost of the loan
or receivable and the present value of the estimated future cash flows, discounted using the instrument's
original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or
indirectly through the use of an allowance account.
(ii)
Available-for-sale financial assets: The impairment loss is the difference between the original cost of the
asset and its fair value at the measurement date, less any impairment losses previously recognized in the
consolidated statements of earnings. This amount represents the cumulative loss in accumulated other
comprehensive income that is reclassified to net earnings.
Impairment losses on financial assets carried at amortized cost and available-for-sale financial assets are
reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized. Impairment losses on available-for-sale equity
investments are not reversed.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are
included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Company and the cost can be
measured reliably. The carrying amount of a replaced asset is derecognized when replaced. Repairs and
maintenance costs are charged to the consolidated statements of earnings during the period in which they are
incurred.
The major categories of property and equipment are depreciated as follows:
Furniture and equipment
Computer equipment
Computer application software
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 disposal 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.
41
Consolidated Financial Statements
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. There are no longer any RSUs outstanding and the plan is now considered inactive.
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 value on the date of the grant, which track the performance of the Company’s
common shares over time. These DSUs vest upon grant, but are redeemable only when the Board Member
leaves the Board, at which time they 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.
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
42
Consolidated Financial Statements
Caldwell Partners –
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 licence fee revenue.
Professional fees:
Professional fees represent the revenue derived from the executive search services provided to the Company’s
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 the economic benefits will flow to the Company and service
has been provided, the fee is determinable and collectibility 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.
Professional fees are paid to the Company predominantly in the form of cash and, on occasion, in the form of
equity interests in the Company’s 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
43
Consolidated Financial Statements
Caldwell Partners –
client and the 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 the Company’s 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.
Through 2016, the partners’ entitlement to any amounts on liquidation was contingent on being employed at
the time of liquidation and the Company recorded the investment at 100% of the fair value with a related 50%
compensation payable liability. Effective in 2017, the continuing employment requirement was lifted and all
rights to the partners’ 50% of the equity instruments were transferred and assigned beneficially to the
partners. As a result of this change, the gross asset value and compensation payable have been offset, with the
investment now recorded at the net amount the Company has economic rights to with changes in this amount
being recorded in other comprehensive income.
Licence fee revenue:
Licence fee revenue is comprised of the licence 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.
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, are 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
44
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
Revenue recognition
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15). IFRS 15 replaces the
detailed guidance on revenue recognition requirements that currently exists under IFRS. IFRS 15 specifies the
accounting treatment for all revenue arising from contracts with customers, unless the contracts are within the
scope of other IFRS. The standard also provides a model for the measurement and recognition of gains and
losses on the sale of certain non-financial assets that are not an output of the Company's ordinary activities.
Additional disclosure is required under the standard including disaggregation of total revenue, information
about performance obligations, changes in contract asset and liability account balances between periods, and
key judgments and estimates. In July 2015, the effective date for IFRS 15 was deferred to apply to annual
periods beginning on or after January 1, 2018; early application is permitted either following a full retrospective
approach or a modified retrospective approach. The modified retrospective approach allows the standard to be
applied to existing contracts beginning at the initial period of adoption and restatements to the comparative
periods are not required. The Company intends to adopt IFRS 15 in its consolidated financial statements for the
annual period beginning September 1, 2018.
The Company began a scoping and adoption plan during fiscal 2017 and has thus far identified the following
areas that may be impacted by the IFRS 15 adoption:
• The Company is paid a retainer for its executive search services which is based on a percentage of the
placed candidate’s anticipated first year cash compensation. If the candidate’s actual compensation exceeds
this estimate, an additional fee may be billed. These additional fees are currently recognized in the period in
which the placed candidate begins working. Under IFRS 15, the Company will be required to estimate the
additional fee revenue, if any, at the inception of the executive search contract and recognize it over the
performance period of the search. The Company is still evaluating the financial impact of this change.
• The Company incurs reimbursable direct out of pocket expenses in the performance of its services for items
such as candidates and partner travel, meals, accommodation, third party executive assessments,
background checks and other costs directly identifiable to a specific search assignment. Such costs are
incurred and paid by the Company, and are in turn billed to the Company’s clients. These costs are currently
included within cost of sales as the net amount of direct expenses incurred by the Company, offset by
amounts billed and recovered from clients. Pursuant to IFRS 15, the Company will be deemed to be a
principal with regard to these transactions as the vendors are selected by the Company and the obligation
to pay the vendors is borne by the Company. As such, on adoption of IFRS 15, the Company will show the
gross amount of direct expenses billed and recovered from clients as revenue, with the gross amount
incurred as a cost of sales. The full year impact of this treatment in fiscal 2017 would have been an increase
in both revenue and cost of sales by approximately $1,900 (2016: $2,000), with no net change to gross
profit.
The adoption plan review will continue throughout fiscal 2018, and as such, the extent of the full financial and
disclosure impact of adoption of IFRS 15 has not yet been determined.
Consolidated Financial Statements
45
Caldwell Partners –
Financial instruments – recognition and measurement
In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments (IFRS 9), with a mandatory
effective date for annual reporting periods beginning on or after January 1, 2018. The new standard brings
together the classification and measurement, impairment, and hedge accounting phases of the IASB’s project to
replace IAS 39, Financial Instruments Recognition and Measurement. In addition to the new requirements for
classification and measurement of financial assets, a new general hedge accounting model and other
amendments issued in previous versions of IFRS 9, the standard also introduces new impairment requirements
that are based on a forward-looking expected credit loss model. The Company intends to adopt IFRS 9 in its
consolidated financial statements for the annual period beginning September 1, 2018. The extent of the impact
of the adoption of IFRS 9 has not yet been determined. The disclosure requirements in IFRS 7, Financial
Instruments Disclosure (IFRS 7), have also been amended to include the additional disclosure required under
IFRS 9. The Company intends to adopt these amendments to IFRS 7 at the same time as adoption of IFRS 9
beginning September 1, 2018. The extent of the impact of the adoption of the amendments to IFRS 7 has not yet
been determined.
Leases
In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), with a mandatory effective date of January 1, 2019.
The new standard will replace IAS 17, Leases, and will carry forward the accounting requirements for lessors.
IFRS 16 provides a new framework for lessee accounting that requires substantially all assets obtained through
operating leases to be capitalized and a related liability to be recorded. The new standard seeks to provide a
more accurate picture of a company's leased assets and related liabilities and create greater comparability
between companies who lease assets and those who purchase assets. The Company intends to adopt IFRS 16 in
its consolidated financial statements for the annual period beginning September 1, 2019 and will recognize
assets and liabilities for all leases on the consolidated statements of financial position.
Share-based payments
In June 2016, the IASB issued final amendments to IFRS 2, Share-based Payments (IFRS 2), clarifying how to
account for certain types of share-based payment transactions. The amendments, which were developed
through the IFRS Interpretations Committee, provide requirements on the accounting for: (i) the effect of
vesting and non-vesting conditions on the measurement of cash-settled share-based payments; (ii) share-based
payment transactions with a net settlement feature for withholding tax obligations; and (iii) a modification to
the terms and conditions of a share-based payment that changes the classifications of the transaction from cash-
settled to equity-settled. The standard is effective for annual reporting periods beginning on or after January 1,
2018. The Company intends to adopt the amendments to IFRS 2 in its consolidated financial statements for the
annual period beginning September 1, 2018. The extent of the impact of the adoption of the amendments has
not yet been determined.
Uncertainty over income tax treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (IFRIC 23) with a mandatory
effective date of January 1, 2019. The interpretations provide guidance on how to value uncertain income tax
positions based on the probability of whether the relevant tax authorities will accept a company's tax
treatments. A company is to assume that a taxation authority with the right to examine any amounts reported to
it will examine those amounts and will have full knowledge of all relevant information when doing so. IFRIC 23
is to be applied by recognizing the cumulative effect of initially applying these guidelines in opening retained
earnings without adjusting comparative information. The Company intends to adopt the amendments to IFRIC
23 in its consolidated financial statements for the annual period beginning September 1, 2019.The extent of the
impact of the adoption of IFRIC 23 has not yet been determined.
There are no other standards or interpretations that are not yet effective that would be expected to have a
material impact on the Company.
Consolidated Financial Statements
46
Caldwell Partners –
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 consolidated financial statements. These estimates and judgments have a risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year. The
following discussion sets forth management’s most significant estimates and assumptions in determining the
value of assets and liabilities, and the most significant judgments in applying accounting policies.
Revenue recognition
The Company’s method of revenue recognition requires it to estimate the expected average performance period
and the percentage of completion, based on the proportion of the estimated effort to fulfill the Company’s
obligations throughout the expected average performance period for its executive searches. Differences
between the estimated percentage of completion and the amounts billed will give rise to a deferral of revenue to
a future period. Changes in the average performance period or the proportion of effort expended throughout the
performance period for its executive searches could lead to an under or overvaluation of revenue. Further
information on deferred revenue is included in note 11.
Allowance for doubtful accounts
Estimates are used in determining the allowance for doubtful accounts related to accounts receivable. The
estimates are based on management’s best assessment of the collectibility of the related receivable balance
based, in part, on the age of the specific receivable balance. An allowance is established when the likelihood of
collecting the account has significantly diminished. Future collections of receivables that differ from
management’s current estimates would affect the results of operations in future periods.
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 at August 31, 2017 managed funds and client equity investments were $5,048
and $172, respectively and as at August 31, 2016 managed funds and client equity investments were $4,784 and
$845, respectively.
August 31,
2017
2016
Fair
value
Current Non-current
portion
portion
5,220
5,629
5,048
5,056
172
573
During fiscal 2017, the Company recorded $38 (2016: $404) in realized gains on the disposition of available-
for-sale marketable securities and this is included in investment income in the consolidated statements of
earnings. An unrealized gain of $123 was recognized as part of other comprehensive income during the year
(2016 loss of $100).
Consolidated Financial Statements
47
Caldwell Partners –
5. Property and Equipment
Furniture and
equipment
Computer
equipment
Computer
application
software
Leasehold
improvements
Total
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
Year ended August 31, 2017:
Opening net book value
Additions
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2017:
Cost
Accumulated depreciation
Net book value
603
152
-
(57)
(124)
(6)
568
2,505
(1,937)
568
568
120
(120)
(15)
553
2,610
(2,057)
553
315
137
-
-
(116)
(3)
333
2,491
(2,158)
333
333
247
(136)
(9)
435
2,729
(2,294)
435
22
6
-
-
(17)
-
11
762
(751)
11
11
-
(8)
-
3
762
(759)
3
878
119
238
(20)
(282)
(7)
926
3,531
(2,605)
926
926
102
(295)
(25)
708
3,608
(2,900)
708
1,818
414
238
(77)
(539)
(16)
1,838
9,289
(7,451)
1,838
1,838
469
(559)
(49)
1,699
9,709
(8,010)
1,699
Depreciation of property and equipment is included in general and administrative expenses in the consolidated
statements of earnings. There were no disposals of property and equipment in the current year. In the previous
year, disposals of property and equipment were derecognized amounting to cost and accumulated depreciation
of $260 and $183, respectively and a loss on disposal of $77 was recognized.
Consolidated Financial Statements
48
Caldwell Partners –
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
2017
2016
279
(94)
(7)
178
847
(669)
178
375
(94)
(2)
279
855
(576)
279
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 ten years with two years
remaining.
7. Goodwill
In assessing goodwill for impairment as at August 31, 2017 and 2016, 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 amounts. 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
2017
5%
27%
8%
2017
5%
30%
8%
2016
5%
27%
8%
2016
5%
30%
8%
The impairment tests performed resulted in no impairment as at August 31, 2017 or 2016.
Consolidated Financial Statements
49
Caldwell Partners –
8. Nature of Expenses
2017
2016
Compensation costs
Occupancy costs
Sales and marketing
Onerous lease costs
Depreciation
Amortization
Foreign exchange loss
Other
45,809
4,638
1,173
-
559
94
4
2,415
54,692
47,567
4,710
1,144
759
539
94
40
2,617
57,470
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 during the year ended August 31, 2016. The current
portion of sublease costs total $43 (2016 $316) and is included in accounts payable and the non-current portion
of $133 (2016 $149) is included in provisions in the consolidated statements of financial position.
A reconciliation of the provisions balance is below:
2017
Outstanding at beginning of year
Amounts charged against the provision
Increase arising from the passage of time
Foreign exchange
Outstanding at end of year
465
(302)
11
2
176
9. Compensation of Key Management
Key management includes the Board of Directors and the named executive officers of the Company. Effective
with fiscal 2017 two additional executive officers were named, bringing the total to five. Including the two
additional named executive officers, fiscal 2017 salaries and short-term benefits increased by $661.
Compensation expense pertaining to key management included:
2016
2017
Salaries and short-term benefits
Share-based compensation expense
2,681
642
3,323
1,273
606
1,879
Consolidated Financial Statements
50
Caldwell Partners –
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 stock units (PSUs)
As at
August 31, 2017 August 31, 2016
15,216
909
16,125
15,325
571
15,896
Non-current compensation payable
As at
August 31, 2017 August 31, 2016
412
275
687
599
359
958
Performance Stock Units
Deferred stock units (DSUs)
Commissions and bonuses
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 111% (2016 96%) of target. PSU expense
for the year ended August 31, 2017 of $559 (2016 $458) was recorded within general and administrative
expenses in the consolidated statements of earnings.
There was no RSU expense recorded for the year ended August 31, 2017 (2016 $113) within general and
administrative expenses in the consolidated statements of earnings as there are no longer any RSUs outstanding
and the plan is now considered inactive. During the year ended August 31, 2016, a final payment of $449 was
made to the holders of RSUs.
A summary of the Company’s PSU and RSU plans is presented below:
2017
2016
Notional Notional
units (000s) units (000s)
Outstanding at beginning of year
1,611
1,363
Granted
Dividends declared
Settled
Outstanding at end of year
640
116
(733)
1,634
457
84
(293)
1,611
Consolidated Financial Statements
51
Caldwell Partners –
Deferred stock units (DSUs)
DSU expense of $84 (2016 $73) for the year ended August 31, 2017 has been recorded within general and
administrative expenses in the consolidated statements of earnings.
A summary of the Company’s DSU plan is presented below:
2016
2017
Outstanding at beginning of year
Granted
Dividends declared
Outstanding at end of year
Notional
units (000s)
248
77
20
345
Notional
units (000s)
161
76
11
248
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, 2017, the Company had deferred revenue of $1,107 (2016: $1,187) and related deferred
compensation expense of $554 (2016: $576), 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
No investment income derived from equity interest in clients has been recorded during the year ended August
31, 2017 (2016 $877). As discussed in note 3, partner commission costs on investment income derived from
equity interest in clients are directly offset against marketable securities with the investment recorded at the
net amount the Company has economic rights to with changes in this amount being recorded in other
comprehensive income.
13. Income Taxes
Current tax:
Current tax on net earnings for the year
Deferred tax:
Origination and reversal of temporary differences
2017
2016
470
724
1,194
398
403
801
Consolidated Financial Statements
52
Caldwell Partners –
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
Non-deductible expenses
Prior years taxes
Other
2017
2016
34.5%
2.4%
1.6%
0.3%
(0.9%)
37.9%
41.0%
11.5%
(1.8%)
(3.6%)
0.5%
47.6%
The analysis of deferred tax assets and liabilities is as follows:
2017
2016
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 realized after more than 12 months
Deferred tax liabilities to be realized within 12 months
Deferred tax assets (net)
254
2,304
(718)
(190)
1,650
182
3,242
(688)
(261)
2,475
The movement of the deferred income tax account is as follows:
2017
2016
As of September 1
Debit to consolidated statements of earnings
Exchange differences
As at August 31
2,475
(724)
(101)
1,650
2,900
(403)
(22)
2,475
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, 2015
Credited to the consolidated statements of earnings
Exchange differences
At August 31, 2016
(Charged) credited to the consolidated statements of earnings
Exchange differences
At August 31, 2017
Compensation
payable
2,982
109
(17)
3,074
(757)
(125)
2,192
Other
359
32
(41)
350
31
(15)
366
Consolidated Financial Statements
53
Caldwell Partners –
Deferred tax liabilities
At August 31, 2015
Credited to consolidated statements of earnings
Exchange differences
At August 31, 2016
Charged (credited) to the consolidated statements of earnings
Exchange differences
At August 31, 2017
Excess carrying Revenue not
taxable until
value of PP&E
over tax base
a future year
308
14
1
323
16
25
364
-
361
4
365
6
(17)
354
Total
441
544
(36)
949
(2)
(39)
908
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 $283 (2016: $245) that can be carried forward against future taxable income.
As at August 31, 2017, the Company has non-capital losses with the following expiry dates available to reduce income
of future years in the United Kingdom:
Expiry
Amount
Indefinite
1,413
The Company also has capital losses of $2,850 that can only be utilized against capital gains and are without
expiry date.
14. Earnings per share
(i)
Basic
Basic earnings per share are calculated by dividing the net earnings attributable to owners of the Company
by the weighted average number of common shares outstanding during the years.
2016
2017
Net earnings for the year
Weighted average number of common shares outstanding
Basic earnings per share
1,957
20,288,093
$0.096
881
20,198,416
$0.044
(ii)
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common shares
outstanding to assume conversion of all dilutive potential common shares. A calculation is done to
determine the number of shares that could have been acquired at fair value (determined as the average
market price of the Company’s outstanding shares for the year), based on the exercise prices attached to the
stock options currently outstanding.
2017
2016
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
Diluted earnings per share
1,957
20,288,093
4,369
20,292,462
$0.096
881
20,198,416
145,237
20,343,653
$0.043
Consolidated Financial Statements
54
Caldwell Partners –
15. Capital Stock
Common Shares
As at August 31, 2017 the authorized share capital of the Company consists of an unlimited number of common
shares of which 20,404,555 are issued and outstanding (August 31, 2016: 20,129,555). 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 February, 3, 2017, an employee of the Company exercised 275,000 options increasing the number of
outstanding shares from 20,129,555 to 20,404,555.
The Company has declared quarterly dividends since May 1, 2012. A summary of dividends declared during
fiscal 2016 and 2017 is as follows:
Declaration date
November 17, 2015
January 7, 2016
April 12, 2016
July 7, 2016
November 10, 2016
January 11, 2017
April 13, 2017
July 5, 2017
Payment date
December 11, 2015
March 14, 2016
June 16, 2016
September 12, 2016
December 16, 2016
March 15, 2017
June 20, 2017
September 8, 2017
Dividend
per share
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
$0.0200
Aggregate
dividends declared
$403
$403
$403
$403
$403
$403
$408
$408
The dividend payable September 8, 2017 has been accrued in the Company’s consolidated financial statements
as at August 31, 2017.
Stock Options
Stock options are granted periodically to directors, officers and employees of the Company. Cash received on
exercise of options for common shares is credited to capital stock. Total outstanding stock options are
summarized as follows:
August 31, 2017
August 31, 2016
Number of
Weighted
Number of
Weighted
options
average
options
average
outstanding (000s)
exercise price
outstanding (000s)
exercise price
Outstanding at beginning of year
Exercised during year
Outstanding at end of year
Exercisable at end of year
$0.77
$0.68
$1.02
375
(275)
100
100
$0.77
-
$0.77
375
-
375
375
All options currently outstanding vest over two years and have a contractual life of five years. Options have an
exercise price equal to the fair value of the common shares on the date of issuance. No stock option expense has
been recorded in the years ended August 31, 2017 and 2016.
Consolidated Financial Statements
55
Caldwell Partners –
16. 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:
2017
Canada
United States
Europe
Elimination
Total
Professional fees
Investment income
License fees
Revenues
Gross profit
General and administrative
Sales and marketing
Licence fees
Foreign exchange (loss) gain
Operating profit (loss)
Investment income (loss)
Income taxes
Net earnings (loss) for the year
Professional fees
Investment income
License fees
Revenues
Gross profit (loss)
General and administrative
Sales and marketing
Licence fees
Foreign exchange loss
Operating profit (loss)
Investment income
Income taxes
Net earnings (loss) for the year
14,852
-
1,245
16,097
5,012
(3,146)
(153)
-
(12)
1,701
180
(460)
1,421
41,658
-
-
41,658
11,246
(7,439)
(972)
(935)
-
1,900
(142)
(734)
1,024
985
-
-
985
177
(625)
(48)
-
8
(488)
-
-
(488)
-
-
(935)
(935)
(935)
-
-
935
-
-
-
-
-
57,495
-
310
57,805
15,500
(11,210)
(1,173)
-
(4)
3,113
38
(1,194)
1,957
Canada
United States
Europe
Elimination
Total
2016
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
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
56
Consolidated Financial Statements
Caldwell Partners –
August 31, 2017 corporate support costs totalled $5,391 (2016 $4,289) with $3,934 allocated to the US (2016
$3,216), $1,364 to Canada (2016: $913) and $93 to Europe (2016: $160). Intercompany licence fee revenues
have been eliminated on consolidation.
A summary of property and equipment, goodwill and total assets by country is as follows:
At August 31, 2016
Europe
At August 31, 2017
Europe
United States
United States
Canada
Canada
Total
629
1,045
628
1,168
25
-
1,699
178
178
-
-
279
-
-
1,238
1,523
2,761
1,296
1,624
2,920
Total
42
-
1,838
279
Property
and equipment
Intangible assets
Goodwill
Total assets
13,974
18,793
1,535
34,302
12,293
19,860
2,546
34,699
Depreciation recorded on property and equipment and amortization on intangible assets by country is as follows:
Total
United States
United States
Canada
Canada
Europe
Europe
Total
2017
2016
Depreciation expense
Amortization expense
228
-
306
94
25
-
559
94
205
-
318
94
16
-
539
94
17. Commitments
The Company's future operating lease commitments for premises excluding operating costs, including those
amounts paid to related parties as set out in note 18, are as follows:
Twelve months ending August 31, 2018
Twelve months ending August 31, 2019
Twelve months ending August 31, 2020
Twelve months ending August 31, 2021
Twelve months ending August 31, 2022
September 1, 2022 and thereafter
3,115
2,734
2,229
1,664
784
657
11,183
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 $2,824 through September 30, 2021, which is not reflected
in the above.
During the year ended August 31, 2017, the Company expensed $3,339 (2016 $3,452) 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, depending 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, 2017 was $133 (2016 $143).
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
57
Consolidated Financial Statements
Caldwell Partners –
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, 2017 in the amount of $223 (2016:
$223).
Classification of financial instruments
19. 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
Dividends payable
other financial liabilities
amortized cost
fair value
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
Contingent consideration
fair value through profit or loss
fair value
Fair value hierarchy
The Company categorizes its financial assets and liabilities measured at fair value into one of three different
levels depending on the observability of the inputs used in the measurement.
Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for
identical assets and liabilities in active markets that are accessible at the measurement date.
Level 2: This level includes financial instruments that are not traded in an active market and whose value is
determined by using valuation techniques. These valuation techniques maximize the use of
observable market data where it is available and rely as little as possible on entity specific estimates.
If all significant inputs required to fair value an instrument are observable, the instrument is included
in Level 2. The specific valuation techniques used to value financial instruments include quoted
market prices or dealer quotes for similar instruments.
Level 3: This level includes valuations based on inputs, which are less observable, unavailable or where the
observable data does not support a significant portion of the instruments’ fair value.
The Company’s financial instruments measured at fair value as at August 31, 2017 and 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. In
addition, contingent consideration is also included at August 31, 2016.
August 31, 2017
Marketable securities
-
5,048
172
Level 1
Level 2
Level 3
August 31, 2016
Marketable securities
Contingent consideration
Level 1
Level 2
Level 3
272
-
272
4,784
-
4,784
573
289
862
Consolidated Financial Statements
58
Caldwell Partners –
Fair value
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, compensation payable 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 in the previous year and obtained through search fees being paid partially in equity trade on the
NASDAQ and was measured at fair value using quoted prices and 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 are 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 $9 recognized in the unrealized
gain (loss) on marketable securities in the Company’s consolidated statements of comprehensive earnings for
the year ended August 31, 2017 (2016 $29).
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 rate 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 those in rates as the Company’s financial results are
reported in Canadian dollars.
As at August 31, 2017, the Company has a net monetary asset exposure of $5,117 denominated in US dollars
(2016 $5,691). 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 $256 recognized in the cumulative translation adjustment in the Company’s consolidated statements of
comprehensive earnings for the year ended August 31, 2017 (2016 $285). As these are long-term investments
and not expected to be liquidated to Canadian dollars, they are not hedged.
As at August 31, 2017, the Company has net monetary asset exposure of $915 denominated in British pounds
sterling (2016 $2,079). A 5% depreciation or appreciation in the Canadian dollar against the British pounds
sterling, assuming all other variables remained the same, would have resulted in an increase or decrease in
foreign exchange gain (loss) of $46 recognized in the cumulative translation adjustment in the Company’s
consolidated statements of comprehensive earnings for the year ended August 31, 2017 (2016 $104). As these
are long-term investments and not expected to be liquidated to Canadian dollars, they are not hedged.
Consolidated Financial Statements
59
Caldwell Partners –
The Company also has intercompany loans denominated in US Dollars and British pounds. From time to time,
this short-term foreign currency risk is hedged. At August 31, 2017 and August 31, 2016 no hedges were in
place.
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, 2016
As at August 31, 2017
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
Dividends payable
Contingent consideration
2,044
15,896
408
-
-
-
-
-
-
958
-
-
2,384
16,125
403
289
-
-
-
-
-
687
-
-
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.
Accounts receivable were comprised of the following as at August 31:
As at August 31
Accounts receivable
Less: Allowance for doubtful accounts
Other receivables
2017
2016
9,499
(522)
8,977
416
9,393
10,049
(598)
9,451
580
10,031
No financial assets are past due except for a portion of accounts receivable. As at August 31, 2017, accounts
receivable of $8,503 (2016 $8,616) were fully performing, $474 (2016 $835) were over 90 days but not
impaired and $522 (2016 $598) were over 90 days and impaired.
Consolidated Financial Statements
60
Caldwell Partners –
The following table summarizes the changes in the allowance for doubtful accounts for the accounts receivable:
As at August 31
Beginning 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
2017
2016
598
926
(661)
(341)
522
575
419
(148)
(248)
598
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).
As at August 31, 2017, the Company has $5,220 invested in marketable securities (2016 $5,629). 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 $261 (2016 $281).
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.
21. Credit Facility
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. As at August 31, 2017, no amounts
were outstanding on the credit facility and letters of credit of $256 (August 31, 2016 $nil) have been issued
against the facility.
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 licence 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, 2017, licence fees amounted to $310 (2016 $253).
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. On June 6, 2017, the Company agreed to extend the
2.25% licensee fee rate to CPGroup for one additional year through July 13, 2018 to provide for their continued
increased branding and marketing initiatives in Latin America.
The Government of Venezuela has imposed restrictions on removing cash from its country and as a result,
61
Consolidated Financial Statements
Caldwell Partners –
licence fee revenue related to CPGroup’s Venezuelan operations is not currently recognized. Such licence fees
relating to Venezuela will accumulate but will only be recognized when the ability for payment outside of the
country is available.
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 November 9, 2017, the Board of Directors declared a dividend of 2.0 cents per share, payable to holders of
common shares of record on November 20, 2017 and to be paid on December 15, 2017.
Consolidated Financial Statements
62
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 ©2017 The Caldwell Partners International Inc.
All rights reserved. Reproduction without permission is prohibited. Trademarks and logos are copyrights of their respective owners.
Premier providers of
executive search since 1970