ANNUAL REPORT 2018
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.
Darcy D. Morris
Consultant and Corporate Director
John N. Wallace
President & Chief Executive Officer
The Caldwell Partners International Inc.
Kathryn A. Welsh
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
One Six Five Avenue Road
Chief Operating & Finance Officer
Toronto, Ontario, M5R 3S4
The Caldwell Partners International Inc.
+1 416 920 7702 fax +1 416 920 8533
leaders@caldwellpartners.com
Dear Shareholders, Clients, and Friends:
Fiscal 2018 was an outstanding year of accomplishment and growth for Caldwell. We
exceeded all of our expectations, closing out the year with over $66.8 million in annual
revenue, an increase of 15.7%, and nearly $4 million in operating profit, an increase of
27.4% – both new levels of success for our firm. Our fourth quarter also brought record
levels of revenue, positioning us well as we head into fiscal 2019.
In the United States, where the majority of our search business is derived, business was
extremely strong throughout fiscal 2018, but especially so in the second half of the year.
In Canada, higher average fees largely offset lower search volumes resulting in a small
revenue decrease. Our team in the United Kingdom saw a return to growth, and we
remain confident in and committed to our European expansion strategy.
We saw increased teaming and collaboration, and greater traction in cross-border work
with our colleagues in Latin America and New Zealand, and we look forward to further
developing and growing our cross-border client work in this coming year.
We unveiled a bold new brand, logo and website that better represents who we are today
and keeps the primary focus on the power of the work we do. Deeper than just a new
look, our new brand is built on the very idea that Talent Transforms, because at Caldwell
we believe people are the greatest sustainable difference for organizations. This is a
differentiator for us, and gives us a broader platform to develop further services.
We have hit a new threshold in terms of the work we are doing, and there is now
significant breadth and depth to the services and expertise that we can offer to our
clients. We continued to claim new space with the launch of our Value Creation and
Blockchain Advisory solutions, giving our clients more flexible options for solving their
executive talent needs. We look forward to further expanding these and other
complementary services to provide more seamless talent solutions for our clients.
As we look ahead to Fiscal 2019, our biggest priority is to continue to add value for our
shareholders’ investment by adding great partners and teams to the firm, expanding our
footprint where it is strategic and sustainable, and allowing us to keep doing what we
Caldwell – Shareholders Letter
1
love – making our clients better, more competitive and more successful by connecting
them with transformational talent.
We are extremely proud of our entire Caldwell team. These results are a testament to
each of them, and the seamless way in which we all work together. They are a composite
of the respect we have for our clients, for the work we do, for our shareholders and for
each other.
Yours sincerely,
G. Edmund King
Chair of the Board
John N. Wallace
President & Chief Executive Officer
Caldwell – Shareholders Letter
2
THE CALDWELL PARTNERS
INTERNATIONAL INC
MANAGEMENT DISCUSSION AND ANALYSIS
For the years ended August 31, 2018
and August 31, 2017
Caldwell – Management Discussion & Analysis
3
Management Discussion and Analysis
(Expressed in CAD $000s, except per share amounts)
COMPANY DESCRIPTION
At Caldwell we believe Talent Transforms. As a leading provider of executive talent, we enable our
clients to thrive and succeed by helping them identify, recruit and retain their best people. Our
reputation–nearly 50 years in the making–has been built on transformative searches across functions and
geographies at the very highest levels of management and operations. We leverage our skills and
networks to also provide agile talent in the form of flexible and on-demand advisory solutions for
companies looking for support in strategy and operations. With offices and partners across North
America, Europe, Latin America and Asia Pacific, we take pride in delivering an unmatched level of
service and expertise to our clients.
The Caldwell Partners’ common shares are listed on the Toronto Stock Exchange (TSX: CWL). Please visit
our website at www.caldwellpartners.com for further information.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this document are based on current expectations that are subject to the
significant risks and uncertainties cited. These forward-looking statements generally can be identified by
use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,”
“foresee,” “may,” “will,” “likely,” “estimates,” “potential,” “continue” or other similar words or
phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking
statements. The Company is subject to many factors that could cause our actual results to differ
materially from those contemplated by the relevant forward looking statement including, but not limited
to, our ability to attract and retain key personnel; exposure to our Partners taking our clients with them
to another firm; the performance of the US, Canadian 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; technological advances may
significantly disrupt the labour market and weaken demand for human capital at a rapid rate; foreign
currency exchange rate fluctuations; affiliation agreements may fail to renew or affiliates may be
acquired; marketable securities valuation fluctuations; increasing dependence on third parties for the
execution of critical functions; volatility of the market price and volume of our common shares; potential
impairment of our acquired goodwill and intangible assets; and disruption as a result of actions of certain
stockholders or potential acquirers of the Company. 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.
Caldwell – Management Discussion & Analysis
4
PRESENTATION
The following discussion and analysis, prepared on November 13, 2018, should be read in conjunction
with the consolidated annual audited financial statements and related notes for the year ended August
31, 2018. 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, 2018 CPGroup had 17 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 an initial term of five years and provides for CPGroup to pay
the Company a licence fee based on a percentage of Latin American revenue. 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, 2018. In exchange for the licence 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.
Caldwell – Management Discussion & Analysis
5
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.
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)
2018
2017
2016
Total revenue
Period end number of partners¹
Average Number of Partners¹
$
66,883
$
57,805
$
58,748
39
38.1
39
37.5
38
38.0
Annualized Professional Fees per Partner¹
$
1,746
$
1,533
$
1,516
Number of Assignments¹
Number of Assignments per Partner¹
Average Fee per Assignment¹
453
11.9
432
11.5
383
10.1
$
147
$
133
$
150
Net earnings for the year attributable to owners of the Company
$
2,015
$
1,957
$
881
Basic earnings per share
Diluted earnings per share
Total assets
Total non-current financial liabilities
Unencumbered Cash¹
Cash dividends per share
$
0.099
$
0.096
$
0.044
$
0.099
$
0.096
$
0.043
$
39,781
$
34,302
$
34,699
$
1,615
$
958
$
687
$
9,553
$
7,883
$
6,297
$
0.08
$
0.08
$
0.08
¹ Please refer to the section on Non-GAAP Financial Measures and Other Operating Measures on page 3 and 4 of this document
DISCUSSION OF FACTORS IMPACTING THE COMPANY’S RESULTS
The Company experienced a 15.7% revenue increase from 2017 to 2018, after a 1.6% revenue decline
from 2016 to 2017.
The 15.7% increase in revenue from 2017 to 2018 was the result of increases in our Average Fee of 10.5%
(13.0% excluding the impact of foreign exchange rate fluctuations), the Number of Assignments per
partner of 3.5% and our Average Number of Partners of 1.6%.
Caldwell – Management Discussion & Analysis
6
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.
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 within our core business, which, in
turn, have higher compensation levels upon which our fees are based. Yearly average foreign exchange
rate movements have the potential to have a significant impact on our Average Fee. The average US
dollar rate has been fairly consistent during the reported periods, declining 0.8% from 2016 to 2017 and
then 3.0% from 2017 to 2018 relative to the Canadian dollar. 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, then recovering somewhat to increase 3.0% from 2017 to
2018. Given the respectively low revenue from our operations in the UK, these moves did not have a
significant result on our financial results.
The following table summarizes the approximate foreign exchange rates impacting the business during
fiscal 2018, 2017 and fiscal 2016 according to geographic segment:
Functional Currency
Fiscal 2018
Fiscal 2017
Fiscal 2016
Exchange Rates to the Canadian Dollar
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
1.28
1.31
1.00
1.00
1.72
1.69
1.32
1.25
1.00
1.00
1.67
1.62
1.33
1.31
1.00
1.00
1.93
1.72
Strong growth has been seen in the Number of Assignments per Partner over the past two years, up
13.9% from 2016 to 2017 to 11.5 and by 3.4% from 2017 to 2018 to 11.9. The partner headcount metric
has increased from 38 in 2016 to 39 at the close of 2018 within our owned operations with 2 new partner
hires in 2018 and 6 in 2017. There is often a lag in revenue from the time of a new partner hire to the
time they are considered at full capacity. This is caused by factors such as non-solicit or non-compete
periods, new brand communication and the nature of staged billing once new searches are awarded.
Caldwell – Management Discussion & Analysis
7
In fiscal 2018, net earnings increased $58 to $2,015 from $1,957 in the prior year. The net earnings
increase resulted from an $853 increase in operating profit, partially offset by a decrease in investment
income of $24 and a $771 increase in income tax expense due to the higher overall profit within the US
at tax rates higher than other regions, not recording deferred tax assets on UK losses and a discrete
charge in deferred tax expense of $654 as a result of new US tax legislation, as described more fully
below under Earnings.
The $853 increase in operating profit from 2017 to 2018 was driven by higher revenues more than
offsetting the corresponding increase in direct costs as well as the increase in expenses. The increase in
expenses was in large part the result of increases in share-based compensation expense caused by a
significant increase of 29.0% in the share price in the current year and an increase in the performance
factor as a result of exceeding incentive compensation performance targets.
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 (2016 benefitted from realized gains on the sale of marketable securities) and a $393
increase in income tax expense on the higher overall profit within higher tax rate geographies.
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 totaling $1,009 incurred
during 2016 related to the sublease and relocation of our New York office premises and separation costs
associated with aligning our support staff structure. These cost decreases were partially offset by
increases in management operating performance bonus accruals of $939 relating to exceeding incentive
compensation performance targets in the current year versus non-attainment in the prior year.
The increase in Unencumbered Cash from 2017 to 2018 of $1,670 was due to an increase in cash and
cash equivalents ($3,973); an increase in accounts receivable ($1,465), an increase in marketable
securities ($606), an increase in net deferred tax assets ($23) and in total current liabilities ($4,062);
coupled with a decrease in net deferred revenue ($335). The increase in Unencumbered Cash from 2016
to 2017 of $1,586 was due to an increase in cash and cash equivalents ($2,441); decreases in accounts
receivable ($638), net current deferred tax assets ($962) and total current liabilities ($810); coupled
with net decreases across other components ($65). A reconciliation of Unencumbered Cash and
discussion of the drivers from 2017 to 2018 and from 2016 to 2017 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 2018 and 2017 results are more fully discussed under Operating Results within the 2018 and 2017
Management Discussion and Analysis documents, respectively, as filed on SEDAR (www.sedar.com).
Additionally, the Business Outlook section discusses our current views on future operating profit
performance.
Caldwell – Management Discussion & Analysis
8
OPERATING RESULTS
REVENUE
Q1
Q2
Q3
Q4
Annual
Professional Fees
$
14,973
$
14,854
$
17,942
$
18,743
$
66,512
License fee revenue
$
76
$
67
$
86
$
142
$
371
Revenue
$
15,049
$
14,921
$
18,028
$
18,885
$
66,883
2018
Period end number of partners¹
Average Number of Partners¹
38
38.0
38
38.0
38
38.0
39
38.3
39
38.1
Annualized Professional Fees per Partner¹
$
1,576
$
1,564
$
1,889
$
1,957
$
1,746
Number of Assignments¹
Number of Assignments per Partner¹
114
3.0
104
2.7
122
3.2
113
3.0
453
11.9
Average Fee per Assignment¹
$
131
$
143
$
147
$
166
$
147
Professional Fees
$
13,629
$
13,665
$
14,443
$
15,758
$
57,495
License fee revenue
$
75
$
62
$
81
$
92
$
310
Revenue
$
13,704
$
13,727
$
14,524
$
15,850
$
57,805
2017
Period end number of partners¹
Average Number of Partners¹
37
37.8
35
36.0
40
37.0
39
39.5
39
37.5
Annualized Professional Fees per Partner¹
$
1,442
$
1,518
$
1,561
$
1,596
$
1,533
Number of Assignments¹
Number of Assignments per Partner¹
116
3.1
88
2.4
116
3.1
112
2.8
432
11.5
Average Fee per Assignment¹
$
117
$
155
$
125
$
141
$
133
¹ Please refer to the section on Non-GAAP Financial Measures and Other Operating Measures on pages 3 and 4 of this document.
Revenue and operating income are difficult to predict and have historically varied significantly from
quarter to quarter. There is no specific seasonality in our business on a quarterly basis, although
historically we have usually seen lower revenue in quarters one and two compared to quarters three and
four. We track our revenue by professional fees, investment income and licence 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 2018 increased 18.9% (16.2% excluding a favourable 2.7%
variance from exchange rate fluctuations) over the comparable period last year to $18,743 (2017:
$15,758).
A significantly higher Average Fee per Assignment and higher productivity per partner were partially
Caldwell – Management Discussion & Analysis
9
offset by a lower Average Number of Partners during the quarter. The Number of Assignments per
Partner increased to 3.0 (2017: 2.8) while the Average Number of Partners decreased from 39.5 in the
prior year to 38.3, resulting in a slight increase in the total Number of Assignments to 113 (2017: 112).
The Average Fee per Assignment increased to $166 ($162 on a constant currency basis) (2017: $141).
Year-to-Date Consolidated Professional Fees
Professional fees for the year increased 15.7% (an increase of 17.9% excluding an unfavourable 2.2%
variance from exchange rate fluctuations) over the comparable period last year to $66,512 (2017:
$57,495).
The increase in year-to-date professional fees was the result of increases in the Average Number of
Partners, the Number of Assignments per Partner and Average Fee. A higher Average Number of Partners
at 38.1 compared to 37.5 in the prior year and an increase in the Number of Assignments per Partner to
11.9 (2017: 11.5) resulted in an increase in the total Number of Assignments to 453 (2017: 432). The
Average Fee per Assignment increased to $147 ($150 on a constant currency basis) (2017: $133).
Fourth Quarter and Year-to-Date Professional Fees by Geography
United States:
Fourth quarter professional fees in the US were up 35.7% (31.9% excluding a favourable 3.8% variance
from exchange rate fluctuations) to $14,244 (2017: $10,492). A decrease in the Average Number of
Partners was more than offset by increases in the Number of Assignments per Partner and the Average
Fee per Assignment during the period.
Professional fees in the US for the year were up 19.5% (22.7% excluding an unfavourable 3.2% variance
from exchange rate fluctuations) to $49,770 (2017: $41,658). This was the result of increases in the
Average Number of Partners, the Number of Assignments per Partner and the Average Fee per
Assignment during the period.
Canada:
Fourth quarter professional fees in Canada were down 24.5% to $3,836 (2017: $5,079). The impact of a
lower Average Number of Partners, lower Number of Assignments per Partner and a lower Average Fee
per Assignment. Two specific assignments generating collective Professional Fees in excess of $800 in
the previous year without similar high fee searches in the current year drove much of the decrease in
professional fees and the Average Fee per Assignment in the current quarter.
Professional fees in Canada for the year were down 2.1% to $14,546 (2017: $14,852), with a higher
Average Fee per Assignment and higher Number of Assignments per Partner being more than offset by a
lower Average Number of Partners.
Europe:
Fourth quarter professional fees in Europe were up 254.5% (up 244.6% excluding a favourable 9.9%
variance from exchange rate fluctuations) to $663 (2017: $187). A decrease in the Average Fee per
Assignment was more than offset by increases in the Average Number of Partners and the Number of
Assignments per Partner.
Professional fees in Europe for the year were up 122.9% (up 113.8% excluding a favourable 9.1% variance
from exchange rate fluctuations) to $2,196 (2017: $985) with a higher Average Number of Partners,
Number of Assignments per Partner and Average Fee per Assignment.
Caldwell – Management Discussion & Analysis
10
LICENCE FEES
Licence fees from our affiliations in Latin America and New Zealand for the use of the Caldwell Partners
brand and intellectual property were $142 (2017: $92) for the fourth quarter and $371 (2017: $310) for
the full year. Additionally, intercompany licence fees which eliminate on consolidation are charged from
our Canadian parent company to our US subsidiary. These intercompany fees totaled $319 for the fourth
quarter (2017: $234) and $1,123 for the full year (2017: $935). Intercompany licence fees to the
European subsidiary are waived during the buildout to profitability of the region.
COST OF SALES
2018
2017
Cost of sales
$
11,073
$
11,244
$
13,099
$
13,552
$
48,968
Cost of sales as a % of professional revenue
74.0%
75.7%
73.0%
72.3%
73.6%
Cost of sales
$
10,221
$
9,725
$
10,771
$
11,588
$
42,305
Cost of sales as a % of professional revenue
75.0%
71.2%
74.6%
73.5%
73.6%
Q1
Q2
Q3
Q4
Annual
include fixed salaries, variable
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
incentive
compensation and related employee benefits and payroll taxes. In aggregate and over time, these costs
are largely variable to professional revenue, with fluctuations arising from changes in incentive
compensation based on Average 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 licence 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 16.9% or $1,964 to $13,552 (14.4% excluding an unfavourable 2.5%
variance from exchange rate fluctuations) from $11,588. On a segment basis, the year-over-year cost of
sales increase of $1,964 came from an increases in the US ($2,625) and Europe ($377) partially offset by
a decrease in Canada ($1,038).
As a percentage of professional revenue, cost of sales decreased 1.2% to 72.3%, down from 73.5% in the
same period last year. Lower partner compensation (down 2.5% as a percentage of professional revenue)
was experienced as a result of updating estimated partner compensation accruals from estimated full
year commission tiers used through the third quarter to actual commission tiers known on each
individual’s final revenue results for the year. This reduction in expense was partially offset by higher
fixed cost partner support personnel compensation (up 0.8% as a percentage of professional revenue)
due to increases in staffing, particularly in the second half of the year to accommodate the growth in
revenue, as well as higher costs of search delivery materials (up 0.5% as a percentage of professional
revenue).
Caldwell – Management Discussion & Analysis
11
Year-to-Date Consolidated Cost of Sales
Cost of sales for the year increased 15.7% or $6,663 to $48,968 (18.1% excluding a favourable 2.4%
variance from exchange rate fluctuations) from $42,305. As a percentage of professional revenue, cost
of sales was consistent at 73.6%. Lower fixed cost partner support personnel compensation (down 0.4%
as a percentage of professional revenue) was offset by increased search delivery materials (up 0.3% as a
percentage of professional revenue) and slightly higher partner compensation (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 35.7% (31.9% on a constant currency basis) increase in US professional revenue, fourth
quarter cost of sales in the US increased $2,625 or 34.2% ($2,314 or 30.1% on a constant currency basis)
to $10,308 (2017: $7,683). Cost of sales decreased as a percentage of professional revenue, and
represented 72.4% of professional revenue in 2018 compared to 73.2% in the prior year. Lower partner
compensation (down 0.3% as a percentage of professional revenue) and lower fixed cost partner support
personnel compensation (down 0.8% as a percentage of professional revenue) were partially offset by
higher costs of search delivery materials (up 0.3% as a percentage of professional revenue).
Compared to the 19.5% (22.7% on a constant currency basis) increase in US professional revenue, full
year cost of sales in the US increased $6,332 or 20.8% ($7,393 or 24.3% on a constant currency basis), to
$36,744 (2017: $30,412). As a percentage of professional revenue these costs represented 73.8% of
professional revenue compared to 73.0% in the prior year. Higher partner compensation due to higher
average commission tiers resulting from higher revenues (up 1.2% as a percentage of professional
revenue) and higher search delivery material costs (up 0.4% as a percentage of professional revenue)
were partially offset by lower fixed cost partner support personnel compensation (down 0.8% as a
percentage of professional revenue).
Canada:
Compared to the professional revenue decrease of 24.5%, fourth quarter cost of sales in Canada
decreased $1,038 or 27.9% to $2,686 (2017: $3,724). As a percentage of professional revenue, these
costs represented 70.0% of professional revenue vs. 73.3% in the prior year. A decrease in variable
partner compensation on lower commission tiers from lower average revenue per partner (down 9.7% as
a percentage of professional revenue) was partially offset by higher fixed cost partner support personnel
compensation (up 5.8% as a percentage of professional revenue) and increased search delivery material
costs (up 0.6% as a percentage of professional revenue).
Relative to the professional revenue decrease of 2.1%, full year cost of sales in Canada decreased $687
or 6.2% to $10,398 (2017: $11,085). As a percentage of professional revenue these costs represented
71.5% vs. 74.6% in the prior year. A decrease in variable partner compensation on lower commission
tiers from lower average revenue per partner (down 4.4% as a percentage of professional revenue) was
partially offset by higher fixed cost partner support personnel compensation (up 1.3% as a percentage of
professional revenue). Search delivery material costs were unchanged as a percentage of professional
revenue.
Europe:
Compared to the 254.5% (244.6% on a constant currency basis) increase in professional revenue, fourth
quarter cost of sales in Europe increased $377 or 208.3% ($364 or 202.3% on a constant currency basis)
to $558 (2017: $181). Cost of sales represented 84.2% of professional revenue compared to 96.8% in the
fourth quarter of last year. This percentage cost decrease is the result of higher variable partner
Caldwell – Management Discussion & Analysis
12
compensation on higher revenue (up 7.0% as a percentage of professional revenue) being more than
offset by lower fixed partner support personnel compensation (down 17.8% as a percentage of
professional revenue) and costs of search delivery materials (down 1.8% as a percentage of professional
revenue).
Compared to the 122.9% (113.8% on a constant currency basis) increase in professional revenue, cost of
sales in Europe for the year increased $1,018 or 126.0% ($968 or 119.8% on a constant currency basis), to
$1,826 (2017: $808). Costs as a percentage of professional revenue increased to 83.2% from 82.0% in the
same period last year. This increase was the result of higher variable partner compensation on higher
revenue (up 10.0% as a percentage of professional revenue) partially offset by lower fixed cost partner
support personnel compensation (down 8.8% as a percentage of professional revenue) with search
delivery materials unchanged as a percentage of professional revenue.
The results in Europe reflect the positive impact of leverage achieved from fixed cost partner support
personnel against rising revenue from new partners ramping up their businesses.
GROSS PROFIT AND MARGIN
2018
2017
Q1
Q2
Q3
Q4
Annual
$
3,976
$
3,677
$
4,929
$
5,333
$
17,915
26.4%
24.6%
27.3%
28.2%
26.8%
$
3,483
$
4,002
$
3,753
$
4,262
$
15,500
25.4%
29.2%
25.8%
26.9%
26.8%
Gross profit in the fourth quarter increased 25.1% (22.2% excluding a favourable 2.9% variance from
exchange rate fluctuations) to $5,333 or 28.2% of revenue (2017: $4,262 or 26.9% of revenue). The 19.1%
increase in total revenue was partially offset by the 16.9% increase in cost of sales. On a segment basis,
gross profit was $3,936 from the US, $1,292 from Canada ($1,611 less $319 in intercompany licence fee
revenue eliminated in consolidation), and $105 from Europe.
For the year, gross profit increased 15.6% (17.3% excluding an unfavourable 1.7% variance from
exchange rate fluctuations) to $17,915, from $15,500 in 2017. The 15.7% increase in total revenue was
offset by a like 15.7% increase in cost of sales. As a result, gross margin for 2018 remained unchanged
year-over-year at 26.8%. On a segment basis, gross profit was $13,026 from the US, $4,519 from Canada
($5,642 less $1,123 in intercompany licence fee revenue eliminated in consolidation), and $370 from
Europe.
The quarter and full year variances are discussed in detail under the Revenue and Cost of Sales sections
of this document.
EXPENSES
2018
2017
Q1
Q2
Q3
Q4
Annual
$
3,072
$
2,970
$
3,648
$
4,259
$
13,949
$
2,384
$
3,396
$
3,131
$
3,476
$
12,387
Caldwell – Management Discussion & Analysis
13
Fourth Quarter Expenses:
Fourth quarter expenses increased 22.5% or $783 from the prior year comparable period to $4,259
(2017: $3,476). Excluding exchange rate variances of $31, expenses on a constant currency basis
increased $752 or 21.7% versus the same period last year.
The constant currency increase was the result of increased share-based compensation expense caused
by an increase in the share price in the current year as well as an increase in the performance factor as
a result of exceeding operational performance targets ($541), increased legal fees ($118), increased
director expenses resulting from higher deferred stock unit valuations on the higher share price ($116)
and increased marketing expenses related to our brand update initiative ($55). These increases were
partially offset by lower foreign exchanges gains on intercompany loan balances and US dollar
denominated bank account balances ($72) and general cost decreases across other categories ($6).
On a segment basis, expenses were $2,984 from the US ($3,303 prior to eliminating $319 in
intercompany licence fees), $1,010 from Canada and $265 from Europe.
Year-to-Date Expenses:
Full year expenses increased 12.6% or $1,562 over the prior year to $13,949 (2017: $12,387). Excluding
exchange rate variances of $199, expenses on a constant currency basis increased $1,761 or 14.2% over
the same period last year.
Constant currency cost increases resulted from increased share-based compensation expense caused by
the increase in the share price in the current year as well as an increase in the performance factor as a
result of exceeding operational performance targets ($766), increased marketing expenses related to
our brand update initiative which is now complete ($216), firm-wide search team practice meetings for
business development and training being held during the current year but not in the prior year ($182),
increased director expenses resulting from higher deferred stock unit valuations due to the increase in
share price ($130), increased business development costs on higher revenue ($122), a reduction in the
final earn-out amount payable from the fiscal 2015 acquisition of Hawksmoor Search Limited benefiting
the prior year with no such benefit in the current year as the amount was fully settled ($115), increased
legal fees ($79), increased partner recruitment expenses ($77) and general increases across other
categories ($74). On a segment basis, expenses were $9,562 from the US ($10,685 prior to eliminating
$1,123 in intercompany licence fees), $3,475 from Canada and $912 from Europe.
OPERATING PROFIT
Q1
2018
2017
$
$
$
$
Q2
$
707
4.7%
606
4.4%
904
6.0%
1,099
8.0%
Q3
1,281
7.1%
622
4.3%
Q4
1,074
5.7%
786
5.0%
Annual
3,966
5.9%
3,113
5.4%
$
$
$
$
$
For the 2018 fourth quarter, higher revenue ($3,035) partially offset by higher cost of sales ($1,964) and
expenses ($783) resulted in an increase in operating profit of $288 over the comparable period in the
prior year to $1,074 (2017: $786). Exchange rate variances accounted for net reduction of $83 in
operating profit relative to the rates in effect in the prior year period.
Caldwell – Management Discussion & Analysis
14
On a segment basis, the fourth quarter operating profit of $1,074 came from the US producing $952
($633 prior to eliminating $319 of intercompany licence fees), Canada $282 ($601 prior to eliminating
$319 of intercompany licence fee revenue) and Europe generating an operating loss of $160.
For the 2018 full year, higher revenue ($9,078) partially offset by higher cost of sales ($6,663) and
expenses ($1,562) from variances discussed above resulted in an increase in operating profit of $853 to
$3,966 (2017: $3,113). Exchange rate variances accounted for a net $68 increase in operating profit
relative to the rates in effect in the prior year.
On a segment basis, full year operating profit of $3,966 came from operating profit in the US of $3,464
($2,341 prior to eliminating $1,123 of intercompany licence fees) and operating profit in Canada of
$1,044 ($2,167 prior to eliminating intercompany licence fee revenue) being offset by an operating loss
in Europe of $542.
The quarter and full year variances are discussed in detail under Revenue, Cost of Sales and Expenses.
INVESTMENT INCOME FROM MARKETABLE SECURITIES
2018
2017
Q1
$
2
$
-
Q2
$
2
$
-
Q3
$
2
$
(142)
Q4
$
8
$
180
Annual
$
$
14
38
We invest excess cash balances and manage market risk by using a third party investment manager to
follow the specific investment criteria established and approved by the Investment Committee of the
Board of Directors designed to reduce exposure to market risk. As at August 31, 2018, managed funds
were $5,654 (August 31, 2017: $5,048). Additionally, we have a portfolio of illiquid equity investments
obtained through search fees that are classified as long-term with a balance of $137 at August 31, 2017
(August 31, 2017: $172).
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. Upon obtaining an investment, all rights to the partners’ 50% of the equity instruments are
effectively transferred and assigned beneficially to the respective partners. As a result, the gross asset
value and compensation payable are offset, with the investment 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 2018, the Company reported investment income of $8, consisting of interest on
cash balances. During the comparable period last year investment income of $180 was reported
consisting of realized gains on the sale of managed funds. For the full year 2018, the Company reported
investment income of $14, consisting entirely of interest on cash balances, compared to $38 in 2017.
Last 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.
Caldwell – Management Discussion & Analysis
15
EARNINGS
EARNINGS BEFORE INCOME TAXES
2018
2017
Q1
$
$
906
1,099
Q2
$
$
709
606
Q3
$
$
1,283
480
Q4
1,082
966
$
$
Annual
$
$
3,980
3,151
NET EARNINGS
2018
2017
Q1
$
$
410
762
Q2
$
$
270
267
Q3
$
$
987
224
Q4
$
$
348
704
Annual
$
$
2,015
1,957
BASIC EARNINGS PER SHARE
2018
2017
Q1
$
$
0.020
0.038
Q2
Q3
$
$
0.013
0.013
$
$
0.048
0.011
Q4
0.018
0.034
$
$
Annual
$
$
0.099
0.096
On December 22, 2017, the US tax reform ("Tax Cuts and Jobs Act") was substantively enacted and
reduced the maximum federal corporate income tax rate for the Company's US entity from 35% to 21%.
As this rate change occurred part way into our fiscal year, a hybrid rate derived from the current and
new tax rates applies to our fiscal 2018 full year US taxable income. As a result of this new substantively
enacted tax rate, the Company’s US entity deferred tax balances were adjusted during the second
quarter based on an estimated hybrid rate, and again in the fourth quarter to reflect the fully reduced
rate to be realized in fiscal 2019 and future years. Including state and local taxes in addition to federal,
the approximate overall impact in the United States is a reduction in our blended US statutory rate from
37.6% in fiscal 2017 to 29.4% in fiscal 2018 and 25.3% in fiscal 2019 and future periods. While the newly
lowered rates decrease our current income tax expense accordingly, the rate reductions also result in
deferred tax charges in the year to revalue our deferred tax assets originally recognized at the higher
rates. This resulted in deferred tax expense for the full year of $654, with $204 recognized in the
second quarter when the deferred tax assets were adjusted to the hybrid fiscal 2018 rate and $450 in
fourth quarter when the deferred tax assets were adjusted to the fully reduced rate we anticipate to be
able to utilize in future periods.
Income tax expense in the fourth quarter of fiscal 2018 was $734 ($284 net of deferred tax expense for
the enacted rate adjustment) (2017: $262) arising from a current income tax expense of $1,131 (2017:
$462 recovery) offset by a deferred tax recovery of $398 (2017: $724 expense).
Income tax expense for the year ending August 31, 2018 was $1,965 or 49.4% ($1,311 or 33.1% net of
deferred tax expense from the enacted rate adjustment) (2017: $1,194 or 37.9%) reflecting current tax
expense of $2,148 (2017: $469) and deferred tax recovery of $183 ($837 deferred tax recovery net of
deferred tax expense from the enacted rate adjustment) (2017: $725 expense).
Income tax expense for Canada for the quarter ended August 31, 2018 was $134 (2017: $202). For the
full year income tax expense for 2018 was $602 (2017: $460 or 24.5%) reflecting an effective tax rate of
27.6% compared to a statutory tax rate of approximately 26.5% in Canada.
Caldwell – Management Discussion & Analysis
16
Income tax expense for the US for the quarter ended August 31, 2018 was $600 ($150 net of deferred tax
expense from the enacted rate adjustment) (2017: $60). Full year income tax expense for 2018 was
$1,363 or 48.0% ($709 or 30.3% net of deferred tax expense from the enacted rate adjustment) (2017:
$734 or 41.8%).
No income tax expense recovery was recognized during 2018 for the UK (2017: $nil). Deferred income
tax assets of $105 (2017: $98) that can be carried forward against future taxable income have not been
recognized.
Fourth quarter net earnings were $348 ($0.018 per share) in 2018, as compared to $704 ($0.034 per
share) in the comparable period a year earlier. The full year net earnings after tax were $2,015 ($0.099
per share) in 2018, versus $1,957 ($0.096 per share) in 2017.
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 determining 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, we have now declared
twenty six quarterly dividends through August 31, 2018 with total dividends declared of 48.0 cents per
share or $9,503 in total.
On November 13, 2018 the Board of Directors declared a dividend of 2.25 cents per share, payable to
holders of Common Shares of record on November 26, 2018 and to be paid on December 14, 2018.
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.
As at August 31, 2018, the Company had $5,654 of current marketable securities plus cash and cash
equivalents including restricted cash of $15,023, for a total cash and current marketable securities
balance of $20,677, up $4,579 from $16,098 at year-end 2017. The increase is the result of cash flow
from operations being only partially offset by 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
Caldwell – Management Discussion & Analysis
17
taking into account non-operating sources and uses of cash. At August 31, 2018, current Compensation
Payable was $19,205 (2017: $15,896), total cash and current marketable securities were $20,677 (2017:
$16,098) and Accounts Receivable were $10,858 (2017: $9,393). 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 4 of this document. The following chart sets forth the calculation of Unencumbered
Cash and provides reconciliation to cash and cash-equivalents:
Cash and cash-equivalents
Restricted cash
Marketable securities - current
Accounts receivable
Net deferred tax assets on compensation payable
as at
August 31
August 31
2018
2017
$14,885
$10,917
138
5,654
10,858
1,952
33,487
133
5,048
9,393
1,929
27,420
Total current liabilities
(24,153)
(20,091)
Excluding
Deferred revenue
Deferred compensation
Total Unencumbered Cash
438
(219)
$9,553
1,107
(553)
$7,883
Accounts receivable were $10,858 at August 31, 2018, up $1,465 from $9,393 at the end of fiscal 2017.
Days outstanding based on quarterly revenue were 49 days at August 31, 2018 versus 51 days at August
31, 2017. At August 31, 2018, a reserve of $718 or approximately 38% of accounts over 90 days old has
been taken (2017: $522 or 52% of accounts over 90 days).
Total liabilities were $25,862 at August 31, 2018, up $4,680 from $21,182 at the end of 2017. Increases
were seen in compensation payable ($3,966), income taxes payable ($773) and accounts payable ($650);
offset by decreases in deferred revenue ($669) and provisions ($40).
The Company’s investment in property and equipment at August 31, 2018 was $1,378 compared with
$1,699 at the end of 2017. This reflects additions of $176, depreciation expense of $537 and exchange
rate fluctuations over the year of $40. Capital expenditures included computer hardware and software,
as well as office furniture and equipment.
Shareholders’ equity at August 31, 2018 was $13,919, up $799 from $13,120 at the end of 2017. This
increase reflects the net earnings for the year of $2,015, dividends declared of $1,632, share based
payment expense of $10, translation gains on consolidation of $342 and an unrealized gain on
marketable securities of $65.
Caldwell – Management Discussion & Analysis
18
CONTRACTUAL OBLIGATIONS
Operating leases
Accounts payable
Compensation payable
Dividends payable
Total
2019
2020
2021
2022
2023
Thereafter
$
10,738
$
3,329
$
2,739
$
2,170
$
1,269
1,152
$
79
2,693
20,820
408
2,693
19,205
408
-
827
-
-
318
-
-
-
-
-
-
-
-
470
-
Total
$
34,659
$
25,635
$
3,566
$
2,488
$
1,269
$
1,152
$
549
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 $2,808
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 13, 2018 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, 2018: 20,404,555; August
31, 2017: 20,404,555). 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. On September 14, 2017, options to purchase 250,000
shares of the Company were issued to an employee of the Company. On April 11, 2018 options to
purchase 100,000 shares of the Company expired unexercised. As of November 13, 2018 options to
purchase 250,000 common shares of the Company were outstanding (August 31, 2018: 250,000; August
31, 2017: 100,000).
BUSINESS OUTLOOK
Business fundamentals remain very strong with growth in volumes and higher value assignments on a
consolidated basis, with geographic fluctuations from period to period. Having just recorded our largest
revenue quarter in our history, we are well positioned as we head into fiscal 2019.
United States:
Business in the US was extremely strong throughout fiscal 2018, particularly in the second half of the
year, with increases in both search volumes and the Average Fee per Assignment. The incremental costs
of staff brought on board late in fiscal 2017 and during fiscal 2018 to support our partner growth in the
region were more than covered by the additional revenue of the team. With most metrics for the region
at or approaching record territory, future growth in the region will primarily be led by an expansion of
the partner base. Adding to the partner headcount and expanding into new geographies within the US is
one of our focus initiatives in fiscal 2019.
Caldwell – Management Discussion & Analysis
19
Canada:
In Canada, lower volumes and a lower Average Fee per Assignment during the quarter resulted in a
decrease in revenue over the previous year’s strong results. For the year, a higher Average Fee per
Assignment was offset by lower search volumes resulting in a small revenue decrease. Our teams in
Western Canada continued to expand their businesses in fiscal 2018 while Eastern Canada retrenched
somewhat after a very strong fiscal 2017. We continue to look to hire select partners into Eastern
Canada in order to grow the region.
United Kingdom:
After retrenchment in fiscal 2017, the United Kingdom was back on a growth track in 2018. Entering
fiscal 2019 with three partners and with another serving out garden leave at a former employer and set
to join us in the second quarter, we believe we have substantially enhanced our revenue base potential
for future periods. Despite the improvement in results in fiscal 2018 and the additional headcount, we
anticipate quarter to quarter fluctuations in the UK region due to the small size of the team. We remain
committed to being in the United Kingdom and are actively engaged in further recruitment; viewing it
as important to our strategy of delivering services to our clients and growing a long-term globally
profitable business.
Consolidated:
After a strong fiscal 2018, we see positive market activity across all regions continuing into fiscal 2019.
More aggressive partner headcount and revenue growth are top Company priorities in the coming year.
Although such growth could dampen short-term profit margins, we expect it to maximize long-term
profitability while still allowing for the continuation of regular dividend payments. We expect future
growth to remain driven by targeted partner hires as we seek to continue to build our practice and
functional offerings across geographies in the United States, Canada and Europe. As appropriate, we will
review acquisition opportunities.
Along with partner hires, we have been working to prudently expand our service lines in areas that can
leverage the existing expertise of our search teams. These may include assessment, mid-management
search or other human capital talent offerings.
In fiscal 2018 we launched our Agile Talent Solutions comprised of executive advisory offerings where
we provide sourced executive talent on a variable basis to our clients for their needs in operational
advisory boards and incremental executive knowledge for specific projects. We believe these services
are directly beneficial to our clients and aligned with our core executive search business. For example,
in our Cyber Advisory Solutions, executives who are experts in cyber security are structured into
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,
technology or trend on a short-term, ad-hoc basis.
Agile Talent Solutions launched during fiscal 2018 and included advisory solutions in the areas of Cyber,
Value Creation and Blockchain in the first, third and fourth quarters, respectively. We believe Agile
Talent Solutions provide meaningful differentiation and added value to our clients and we anticipate
launching additional domain offerings during fiscal 2019. These new offerings generated revenue during
fiscal 2018, but are not yet significant to our overall financial results or position. We do not know the
scale to which our new Agile Talent Solutions may expand in the future or if such service offerings will
be maintained if we are unable to scale related revenue.
Caldwell – Management Discussion & Analysis
20
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, 2018 in the amount of $223 (2017: $223).
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 significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year. The following discussion sets forth management’s most significant
estimates and assumptions in determining the value of assets and liabilities, and the most significant
judgments in applying accounting policies.
Revenue recognition
The Company’s method of revenue recognition requires it to estimate the expected average
performance period and the percentage of completion, based on the proportion of the estimated effort
to fulfill the Company’s obligations throughout the expected average performance period for its
executive searches. Differences between the estimated percentage of completion and the amounts
billed will give rise to a deferral of revenue to a future period. Changes in the average performance
period or the proportion of effort expended throughout the performance period for its executive
searches could lead to an under or overvaluation of revenue. Further information on deferred revenue is
included in note 11 to the 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 income within revenue when realized.
Allowance for doubtful accounts
Estimates are used in determining the allowance for doubtful accounts related to trade receivables. The
estimates are based on management’s best assessment of the collectability of the related receivable
balance based, in part, on the age of the specific receivable balance. An allowance is established when
the likelihood of collecting the account has significantly diminished. Future collections of receivables
that differ from management’s current estimates would affect the results of operations in future
periods.
Compensation accruals
Partner commissions are based on a per partner basis on amounts billed during a respective year and
collected within a certain timeframe. These collections are then subject to a commission grid that
escalates as the individual collects more. Assumptions are made regarding what each partner’s full year
collections will be in order to set an estimated commission tier to accrue compensation expense
throughout the year. Additionally, management short term incentive plans are tied primarily to the
revenue and operating results of the company for a respective fiscal year and management long term
incentive plans are both to the Company’s share price as well as operating results over a three year
period. Full year partner collection results, actual operating results and changes in share price that
differ from management’s current estimates would affect the results of operations in future periods.
Caldwell – Management Discussion & Analysis
21
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. 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
Any investment in the Company’s securities is speculative and may involve risk. Before investing in the
Company’s securities, prospective investors should carefully consider, in light of their own financial
circumstances and objectives, the risk factors summarized below, as well as the other information
contained and incorporated by reference into this Annual Information Form. Other risks not currently
known or deemed to be material may also impact our business. Our business and financial results could
be materially adversely affected by any of these risks. The Board of Directors includes in its mandate
and the charters of its committees the responsibility to oversee the mitigating factors associated with
each identified risk factor.
The ability to attract and retain experienced search professionals is critical to our business
We compete with other executive recruitment firms for experienced consultants. Attracting and
retaining consultants in our industry is important because consultants have primary responsibility for
client relationships, and the loss of consultants often leads to the loss of client relationships. While we
believe we offer one of the most competitive compensation plans in the industry and offer freedom for
our partners to operate in the marketplace, the ability to continue to generate revenue and profits will
depend on our ability to attract and retain key professionals. Additionally, we may pay hiring bonuses to
attract new partners who may leave bonus amounts at their predecessor firm in order to join us. The
aggregate of these amounts can be significant and we expect to continue issuing these types of
payments as we continue to grow.
Exposure to our partners taking our clients with them to another firm
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 2018, approximately 11% 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.
Caldwell – Management Discussion & Analysis
22
Performance of the US, Canadian and international economies
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 functions.
Competition from other companies directly or indirectly engaged in executive search
The executive search business is highly competitive in terms of both winning and pricing new
engagements. The level of our future profits 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
engagements becomes impeded.
Liability risk in the services we perform
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 our financial condition or results of operations.
Potential legal liability from clients, employees and candidates for employment
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 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 labour 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 guaranteed.
Caldwell – Management Discussion & Analysis
23
Cybersecurity requirements, vulnerabilities, threats and attacks
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 the data we maintain from our clients, candidates and employees. 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 breach that caused us to incur financial losses.
Brand Reputation
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 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 engagements and highlighting dissatisfied clients, if any, so we may respond.
Alignment of our cost structure with revenue
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 to consolidated revenue and operating profit.
Unfavorable tax law changes and tax authority rulings may adversely affect results
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 and providing advice regarding optimal tax structures.
Caldwell – Management Discussion & Analysis
24
We may not generate sufficient cash flow from operations to support our strategic growth
plan and maintain our dividend without utilizing funds invested in marketable securities
We currently have investments in marketable securities and short-term money market instruments.
However, if additional cash is required to grow the business and pay dividends in excess of cash
generated, marketable securities and money market instruments may be liquidated and the returns on
those instruments could be negatively impacted.
Technological advances may significantly disrupt the labour market and weaken demand
for human capital at a rapid rate
Our success is directly dependent on our client’s demands for talent. As technology continues to evolve,
more tasks currently performed by people may be replaced by automation, robotics, machine learning,
artificial intelligence and other technological advances outside of our control. This trend poses a risk to
the human resource industry as a whole, particularly in lower-skill job categories that may be more
susceptible to such replacement. We attempt to mitigate this risk through review of emerging
technologies we may leverage in our search process and focusing the most senior tier of executive
placements.
Foreign currency exchange rate risks may affect our financial results
With operations in Canada, the United States and the United Kingdom, we do business in multiple
currencies. During fiscal 2018, approximately 78% of our revenue was generated outside of Canada and
transacted in a currency other than the Canadian dollar. Our profitability is impacted by the translation
of foreign currency financial statements into Canadian dollars. Fluctuations in relative currency values,
particularly the strengthening of the Canadian dollar, could have an adverse effect on our profitability
and financial condition. When management believes it has a significant short term net cash or
intercompany loan balance, it will on occasion hedge its currency exposure by buying or selling the
exposed currency on a forward basis.
Affiliation agreements may fail to renew or affiliates may be acquired
We believe our relationships are positive with our licensed affiliates in Latin American and New Zealand
Nonetheless; such agreements are subject to renewal upon maturity dates set forth in our audited
annual and interim financial statements. Additionally, such agreements have exit provisions for either
party upon a change of control of the other party which could end an agreement prior to the contracts
full term.
We invest in marketable securities whose valuations fluctuate
Marketable securities consist of investments in professionally managed fixed income funds and certain
equity securities obtained through search fees being paid partially in equity of the client. The securities
are subject to market risk, and should they decline in value, the unrealized losses and potential realized
losses could negatively impact our 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 us 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 derivatives if
applicable.
We are increasingly dependent on third parties for the execution of critical functions
We do not maintain all components of our technology infrastructure, and we have outsourced certain
critical applications or business processes to external providers, including cloud-based services. The
failure or inability to perform on the part of one or more of these critical suppliers or partners could
cause significant disruptions and increased costs.
Caldwell – Management Discussion & Analysis
25
Potential volatility of the market price and volume of common shares
From time to time, the TSX has experienced significant price and volume volatility unrelated to the
performance of specific companies, which could impact the market price of the Common Shares.
Moreover, the market price of the Common Shares may also be adversely affected by factors such as the
concentration of Common Shares held by a small number of shareholders and the low number of
Common Shares that trade on average on a daily basis, the combination of which has the potential to
increase the volatility of the volume of Common 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
impact of share price movements on compensation is encompassed in the plan design as payments are
also linked to profitability after accounting for such equity value fluctuations.
Impairment of our goodwill, other intangible assets and other long-lived assets
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 resulting impairment loss could have an adverse impact
on our business, financial condition and results of operations.
Ability to access credit could be limited
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 by
only using the credit line to fund temporary cash requirements, through the negotiation of flexible
financial covenants to the extent we are able, and working to maintain strong relationships with our
banking team.
Significant Shareholder
C. Douglas Caldwell, the original founder of The Caldwell Partners International, Inc., is reported to own,
directly or indirectly approximately 13.8% of the Company’s outstanding Common shares. Mr. Caldwell’s
shares could have a material impact on any matters brought forth to the shareholders for a vote.
Caldwell – Management Discussion & Analysis
26
We may be subject to the actions of activist shareholders
Our Board of Directors and management team are committed to acting in the best interest of all of our
shareholders. We value constructive input from investors and regularly engage in dialogue with our
shareholders regarding strategy and performance. Activist shareholders who disagree with the
composition of the Board of Directors, our strategy or the way the Company is managed may seek to
effect change through various strategies and channels. Responding to shareholder activism can be costly
and time-consuming, disrupt our operations, and divert the attention of management and our employees
from our strategic initiatives. Activist campaigns can create perceived uncertainties as to our future
direction, strategy, or leadership and may result in the loss of potential business opportunities, harm
our ability to attract new employees, investors, and customers, and cause our stock price to experience
periods of volatility or stagnation.
Our business could be disrupted as a result of actions of certain stockholders or potential
acquirers of the Company
If any of our stockholders commence a proxy contest, advocate for change that is not necessarily in the
best interests of the Company and all of its stakeholders, make public statements critical of our
performance or business, or engage in other similar activities, or if we become subject to a potential
acquisition target, then our business could be adversely affected because we may have difficulty
attracting and retaining employees and clients due to perceived uncertainties as to our future direction
and negative public statements about our business; responding to proxy contests and other similar
actions by stockholders is likely to result in us incurring substantial additional costs and significantly
divert the attention of management and our employees; and, if individuals are elected to our Board
with a specific agenda, the execution of our strategic plan may be disrupted or a new strategic plan
altogether may be implemented, which could have a material adverse impact on our business, financial
condition or results of operations. Further, any of these matters or any such actions by stockholders may
impact and result in volatility of the price of our common stock.
Provisions that may make an acquisition of us more difficult and expensive
Some of the provisions in our Certificate of Incorporation and Bylaws, designed to ensure all
shareholders are treated equally and fairly 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. Certain of these anti-takeover
provisions and those 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. 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 Operating and Financial Officer are responsible for
establishing and maintaining the Company’s disclosure controls and procedures. The Chief Executive
Officer and Chief Operating and 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 Operating and Financial Officer, after evaluating the
effectiveness of the Company’s disclosure procedures as at August 31, 2018, 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.
Caldwell – Management Discussion & Analysis
27
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, 2018. 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, 2018.
Management has also evaluated whether there were changes in the Company’s internal controls over
financial reporting during the reporting period ended August 31, 2018 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, 2018 that would have a material
impact.
OTHER INFORMATION
Additional information relating to the Company, including the Company’s Annual Information Form,
is available on SEDAR at www.sedar.com.
Caldwell – Management Discussion & Analysis
28
THE CALDWELL PARTNERS
INTERNATIONAL INC.
Consolidated Financial Statements
for the years ended August 31, 2018
and August 31, 2017
Caldwell – Consolidated Financial Statements
29
The Caldwell Partners International Inc.
Years Ended August 31, 2018 and August 31, 2017
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
PRESIDENT AND CHIEF EXECUTIVE OFFICER
C. Christopher Beck
CHIEF OPERATING AND FINANCIAL OFFICER AND
CORPORATE SECRETARY
November 13, 2018
Caldwell – Consolidated Financial Statements
30
November 13, 2018
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, 2018 and August 31, 2017 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, 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.
PricewaterhouseCoopers LLP
PwC Centre, 354 Davis Road, Suite 600, Oakville, ON, Canada L6J oC5
T: + 905 815 6312, F:+1 905 815 6499, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
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, 2018 and
August 31, 2017 and their financial performance and their cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in $000s Canadian)
Assets
Current assets
Cash and cash equivalents
Marketable securities (note 4)
Accounts receivable
Prepaid expenses and other assets
Non-current assets
Restricted cash
Marketable securities (note 4)
Advances
Property and equipment (note 5)
Intangible assets (note 6)
Goodwill (note 7)
Deferred income taxes (note 13)
Total assets
Liabilities
Current liabilities
Accounts payable (note 11)
Compensation payable (notes 9, 10 and 12)
Dividends payable (note 15)
Income taxes payable
Deferred revenue (note 12)
Non-current liabilities
Compensation payable (note 10)
Provisions (note 11)
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
2018
As at
August 31
2017
14,885
5,654
10,858
1,711
33,108
138
137
146
1,378
92
2,885
1,897
10,917
5,048
9,393
1,848
27,206
133
172
503
1,699
178
2,761
1,650
39,781
34,302
2,693
19,205
408
1,409
438
24,153
1,615
93
25,861
7,515
15,002
1,257
(9,854)
13,920
39,781
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
The accompanying notes are an integral part of these consolidated financial statements.
Signed on behalf of the Board:
G. Edmund King
Chair of the Board
Kathryn A. Welsh
Chair of the Audit Committee
Caldwell – Consolidated Financial Statements
33
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in $000s Canadian, except per share amounts)
Revenues
Professional fees (note 12)
Licence fees (note 22)
Cost of sales (notes 8, 10 and 12)
Gross profit
Expenses
General and administrative (notes 8, 9 and 10)
Sales and marketing (note 8)
Foreign exchange loss (gain) (note 8)
Operating profit
Investment income (note 4)
Earnings before income tax
Income tax expense (note 13)
Net earnings for the year attributable to owners of the Company
Twelve months ended
A ugust 31
2018
2017
66,512
371
66,883
48,968
17,915
12,487
1,507
(45)
13,949
3,966
14
3,980
1,965
2,015
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
Earnings per share (note 14)
Basic and diluted
$0.099
$0.096
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 gain included in net income (note 4)
Unrealized gain on marketable securities (note 4)
Cumulative translation adjustment
Comprehensive earnings for the year attributable to owners of the Company
Twelve months ended
A ugust 31
2018
2,015
-
65
342
2,422
2017
1,957
(38)
123
(414)
1,628
The accompanying notes are an integral part of these consolidated financial statements.
Caldwell – Consolidated Financial Statements
34
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in $000s Canadian)
Accumulated Other Comprehensive
Income (Loss)
Unrealized
Cumulative
Gains (Loss) on
Deficit
Share Capital
Surplus
Adjustment
Contributed
Translation
Marketable
Securities
Total
Equity
Balance - August 31, 2016
(10,572)
7,295
15,025
842
337
12,927
Net earnings for the year
Dividend payments declared (note 15)
1,957
(1,622)
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
-
-
-
-
-
-
-
-
220
(33)
-
-
-
-
-
-
Balance - August 31, 2017
(10,237)
7,515
14,992
Net earnings for the year
Dividend payments declared (note 15)
Share-based payment expense (note 15)
Change in unrealized loss on marketable securities
Change in cumulative translation adjustment
2,015
(1,632)
-
-
-
-
-
-
-
-
-
-
10
-
-
Balance - August 31, 2018
(9,854)
7,515
15,002
The accompanying notes are an integral part of these consolidated financial statements.
-
-
-
-
-
(414)
428
-
-
-
-
342
770
-
-
-
1,957
(1,622)
187
(38)
(38)
123
123
-
(414)
422
13,120
-
-
-
65
-
2,015
(1,632)
10
65
342
487
13,920
Caldwell – Consolidated Financial Statements
35
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in $000s Canadian)
Cash flow provided by (used in)
Operating activities
Net earnings for the year
Add (deduct) items not affecting cash
Depreciation
Amortization
Amortization of advances
Realized gain on marketable securities
Share based payment expense
Unrealized foreign exchange on subsidiary loans
Reduction in marketable securities following assignment to partner (note 3)
(Increase) decrease in deferred taxes
Change in fair value of contingent consideration
Increase in cash settled share-based compensation
(Increase) decrease in accounts receivable
(Increase) decrease in prepaid expenses and other assets
Increase (decrease) in accounts payable
Increase in compensation payable
Decrease in provisions
Increase in income taxes payable
Payment of cash settled share-based compensation
Payment of contingent consideration
Decrease in deferred revenue
Net cash provided by 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 investing activities
Financing activities
Share issuance from employee share option plan
Dividend payments
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Twelve months ended
A ugust 31
2018
2017
2,015
1,957
537
90
751
-
10
(54)
-
(194)
-
657
(1,182)
(181)
599
3,518
(37)
757
(553)
-
(676)
6,057
-
(500)
-
-
(176)
(676)
-
(1,632)
(1,632)
219
3,968
10,917
14,885
559
94
803
(38)
-
(12)
432
723
(109)
271
338
759
(277)
929
(51)
162
(709)
(181)
(65)
5,585
1,101
(1,000)
(1,125)
48
(469)
(1,445)
187
(1,622)
(1,435)
(210)
2,495
8,422
10,917
The accompanying notes are an integral part of these consolidated financial statements.
Caldwell – Consolidated Financial Statements
36
THE CALDWELL PARTNERS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2018 AND AUGUST 31, 2017
(in $000s Canadian unless otherwise stated, except per share amounts)
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.
The Board of Directors approved these consolidated financial statements for issue on November 13,
2018.
2. Basis of Presentation
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).
3. Summary of Significant Accounting Policies, Judgments and Estimation Uncertainty
The significant accounting policies used in the preparation of these consolidated financial
statements are described below.
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention,
except for the revaluation of certain financial assets and financial liabilities to fair value, including
available-for-sale marketable securities.
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
Caldwell – Consolidated Financial Statements
37
the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the
cost of acquisition over the fair value of the Company's share of the identifiable tangible and
intangible net assets acquired is recorded as goodwill. The Company records contingent
consideration agreements at fair value, which are classified at fair value through profit or loss with
movements in the fair value being recognized within general and administrative expenses in the
consolidated statements of earnings.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified as
the Chief Executive Officer.
Foreign currency translation
Functional and presentation currency
(i)
The financial statements of the parent company and each subsidiary in the consolidated financial
statements of The Caldwell Partners International Inc. are measured using the currency of the
primary economic environment in which the subsidiary operates (the “functional currency”). The
functional and presentation currency of the Company is the Canadian dollar. The functional
currency of the subsidiary located in the United States is the US dollar. The functional currency of
the subsidiary located in the United Kingdom is the British pound sterling.
The financial statements of subsidiaries that have a functional currency different from the
presentation currency are translated into Canadian dollars as follows: assets and liabilities at the
closing rate at the date of the consolidated statements of financial position, and income and
expenses at the average rate of the period (as this is considered a reasonable approximation of the
actual rates prevailing at the transaction dates). All resulting changes are recognized in other
comprehensive income as cumulative translation adjustments.
If the Company disposes of its entire interest in a foreign subsidiary, or loses control over a foreign
subsidiary, the foreign currency gains or losses accumulated in other comprehensive income related
to the foreign subsidiary are recognized in profit or loss.
Transactions and balances
(ii)
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of these transactions. Foreign exchange gains and losses resulting from the
settlement of foreign currency transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in currencies other than an entity’s functional currency
are recognized in the consolidated statements of earnings, within foreign exchange loss.
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
Caldwell – Consolidated Financial Statements
38
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows
from the assets have expired or have been transferred and the Company has transferred
substantially all risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount is reported in the consolidated
statements of financial position when there is a legally enforceable right to offset the recognized
amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability
simultaneously. Financial liabilities are derecognized when the obligation specified in the contract is
discharged, cancelled or expires.
At initial recognition, the Company classifies its financial instruments in the following categories
depending on the purpose for which the instruments were acquired:
(i) Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is
classified in this category if acquired principally for the purpose of selling or repurchasing in the
short-term. Derivatives are also included in this category. No such instruments held by the
Company are classified in this category.
Financial instruments in this category are recognized initially and subsequently at fair value.
Transaction costs are expensed in the consolidated statements of earnings. Gains and losses arising
from changes in fair value are presented in the consolidated statements of earnings within general
and administrative expenses in the period in which they arise. Financial assets and liabilities at fair
value through profit or loss are classified as current except for the portion expected to be realized
or paid beyond twelve months of the consolidated statements of financial position date, which are
classified as non-current.
(ii) Available-for-sale investments: Available-for-sale investments are non-derivatives that are
either designated in this category or not classified in any of the other categories. The Company's
available-for-sale assets comprise its investments in marketable securities.
Available-for-sale investments are recognized initially at fair value plus transaction costs and are
subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized
in other comprehensive income. Available-for-sale investments are classified as current, unless the
investment matures beyond twelve months.
Interest on available-for-sale investments, calculated using the effective interest method, is
recognized in the consolidated statements of earnings as part of investment income. Dividends on
available-for-sale equity instruments are recognized in the consolidated statements of earnings as
part of investment income when the Company's right to receive payment is established. When an
available-for-sale investment is sold or impaired, the accumulated gains or losses are moved from
accumulated other comprehensive income to the consolidated statements of earnings and are
included in investment income.
(iii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Company's loans and
receivables comprise accounts receivable and cash and cash equivalents, and are included in
current assets due to their short-term nature. Loans and receivables are initially recognized at the
amount expected to be received, less, when material, a discount to reduce the loans and
receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using
the effective interest method less a provision for impairment.
(iv) Other financial liabilities at amortized cost: Financial liabilities at amortized cost include
accounts payable, compensation payable and dividends payable which are initially recognized at
the amount required to be paid, less, when material, a discount to reduce the payables to fair
value. Subsequently, financial liabilities at amortized cost are measured at amortized cost using
the effective interest method.
Caldwell – Consolidated Financial Statements
39
Financial liabilities are classified as current liabilities if payment is due within twelve months.
Otherwise, they are presented as non-current liabilities.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial
asset (other than a financial asset classified as fair value through profit or loss) is impaired. If such
evidence exists, the Company recognizes an impairment loss as follows:
(i) Financial assets carried at amortized cost: The loss is the difference between the amortized cost
of the loan or receivable and the present value of the estimated future cash flows, discounted using
the instrument's original effective interest rate. The carrying amount of the asset is reduced by this
amount either directly or indirectly through the use of an allowance account.
(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.
Caldwell – Consolidated Financial Statements
40
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.
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, 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.
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 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
Caldwell – Consolidated Financial Statements
41
be required to settle the obligation, and the amount can be reliably estimated. Provisions are
measured at management's best estimate of the expenditure required to settle the obligation at the
end of the reporting period, and are discounted to present value where the effect is material.
Income taxes
Income taxes comprise both current and deferred tax. Income tax is recognized in the consolidated
statements of earnings except to the extent that it relates to items recognized in other
comprehensive income or directly in equity, in which case the income tax is also recognized in other
comprehensive income or directly in equity.
Current income taxes are the expected taxes payable on the taxable income for the year, using tax
rates enacted or substantively enacted, at the end of the reporting period, and any adjustment to
taxes payable in respect of previous years.
In general, deferred tax is recognized in respect of temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is determined on a non-discounted basis using tax rates and laws that have
been enacted or substantively enacted at the consolidated statements of financial position dates
and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are
recognized to the extent that it is probable that future taxable profit will be available against which
the temporary difference can be recognized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries
except where the timing of the reversal of the temporary difference is controlled by the Company
and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are presented as non-current.
Revenue
Revenue consists of professional fees, investment income and 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.
Caldwell – Consolidated Financial Statements
42
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 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.
Effective in 2017, the continuing employment requirement was lifted and all rights to the partners’
50% share 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 licence 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.
Caldwell – Consolidated Financial Statements
43
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of
shares are recognized as a deduction from equity.
Dividends
Dividends on common shares are recognized in the Company's financial statements in the period in
which the dividends are approved by the Board of Directors of the Company.
Earnings per share
Basic earnings per share (EPS) is calculated by dividing the net earnings for the period attributable
to equity owners of the Company by the weighted average number of common shares outstanding
during the period.
Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding
for dilutive instruments. The number of shares included with respect to options and similar
instruments is computed using the treasury stock method. The Company’s potentially dilutive
instruments consist of stock options.
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. The Company will 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, which has now been completed.
The Company has identified the following areas that will 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,
truing-up to actual amounts when known.
• 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 impact of this treatment for the year ended August 31, 2018
would have been an increase in both revenue and cost of sales by approximately $1,733 (2017:
$1,771), with no net change to gross profit.
Caldwell – Consolidated Financial Statements
44
IFRS 15 permits the use of either of the following transition methods: (i) a full retrospective method
reflecting the application of the standard in each prior reporting period or (ii) a retrospective
method with the cumulative effect upon initial adoption recognized at the date of initial application
(modified retrospective). The Company will adopt IFRS 15 on September 1, 2018 using the modified
retrospective method, which involves recognizing the cumulative effect of applying the guidance at
the date of initial application with no restatement of the comparative periods presented. Under the
modified retrospective method, comparative disclosure will be provided showing what our
consolidated statements of financial position, earnings, changes in equity and cash flow would have
been had IFRS 15 not yet been adopted.
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 International Accounting Standard (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
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.
Management of the Company has reviewed the new pronouncements and believes the only area to
be impacted relative to current treatment is in the allowance for doubtful accounts. The Company
currently maintains an allowance for doubtful accounts on a specific reserve basis by each invoice
receivable. The new guidance requires a broader approach to include a general reserve on amounts
not specifically reserved for based on prior historical trends and any relevant future knowledge that
might impact overall collection rates. The adoption of the new guidance is not expected to have a
material impact on the Company.
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 will 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 (IFRIC), 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 adoption of the amendments is not expected to
have a material impact on the Company.
Caldwell – Consolidated Financial Statements
45
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.
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 12.
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.
Compensation accruals
Partner commissions are based on a per partner basis on amounts billed during a respective year and
collected within a certain timeframe. These collections are then subject to a commission grid that
escalates as the individual collects more. Assumptions are made regarding what each partner’s full
year collections will be in order to set an estimated commission tier to accrue compensation
expense throughout the year. Additionally, management short term incentive plans are tied
primarily to the revenue and operating results of the company for a respective fiscal year and
management long term incentive plans are both to the Company’s share price as well as operating
results over a three year period. Full year partner collection results, actual operating results and
changes in share price 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
Caldwell – Consolidated Financial Statements
46
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) 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, 2018 managed funds and client
equity investments were $5,654 and $137, respectively, and as at August 31, 2017 managed funds
and client equity investments were $5,048 and $172, respectively.
August 31,
2018
2017
Fair
value
5,791
5,220
Current Non-current
portion
portion
5,654
5,048
137
172
During fiscal 2018, the Company recorded $14 from interest on cash balances while the prior year’s
income of $38 represented net realized gains on the disposition of available-for-sale marketable
securities. These amounts are included in investment income in the consolidated statements of
earnings. An unrealized gain of $65 was recognized as part of other comprehensive income during
the year (2017: $123).
Caldwell – Consolidated Financial Statements
47
5. Property and Equipment
Furniture and
Computer
application
Leasehold
equipment
equipment
software
improvements
Total
Computer
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
Year ended August 31, 2018:
Opening net book value
Additions
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2018:
Cost
Accumulated depreciation
Net book value
568
120
(120)
(15)
553
333
247
(136)
(9)
435
2,610
(2,057)
553
2,729
(2,294)
435
553
41
(103)
13
504
435
135
(160)
10
420
2,664
(2,160)
504
2,874
(2,454)
420
11
-
-
(8)
3
762
(759)
3
3
-
-
(2)
1
762
(761)
1
926
102
(295)
(25)
708
1,838
469
(559)
(49)
1,699
3,608
(2,900)
708
9,709
(8,010)
1,699
708
-
(272)
17
453
1,699
176
(537)
40
1,378
3,625
(3,172)
453
9,925
(8,547)
1,378
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 or previous year.
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
2018
2017
178
(90)
4
92
851
(759)
92
279
(94)
(7)
178
847
(669)
178
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 one year remaining.
Caldwell – Consolidated Financial Statements
48
7. Goodwill
In assessing goodwill for impairment as at August 31, 2018 and 2017, 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
2018
2017
Average growth rate
Expected gross margin
Discount rate
5%
25%
8%
5%
27%
8%
Europe
2018
2017
Average growth rate
Expected gross margin
Discount rate
3%
30%
8%
5%
30%
8%
The impairment tests performed resulted in no impairment as at August 31, 2018 or 2017.
8. Nature of Expenses
Twelve months ended August 31,
2018
2017
Compensation costs
Occupancy costs
Sales and marketing
Professional services
Staff training and meetings
Depreciation
Search execution materials
Amortization
Foreign exchange (gain) loss
Other
52,962
4,511
1,507
624
587
537
524
90
(45)
1,620
62,917
45,809
4,638
1,173
506
358
559
502
94
4
1,049
54,692
9. Compensation of Key Management
Key management includes the Board of Directors and the five named executive officers of the
Company.
Caldwell – Consolidated Financial Statements
49
Compensation expense pertaining to key management included:
Twelve months ended August 31,
2018
2017
Salaries and short-term benefits
Share-based compensation expense
2,669
1,546
4,215
2,681
642
3,323
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)
Non-current compensation payable
Performance Stock Units
Deferred stock units (DSUs)
As at August 31,
2018
2017
18,407
798
19,205
15,325
571
15,896
As at August 31,
2018
2017
1,144
471
1,615
599
359
958
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)
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 120% (2017:
111%) of target. PSU expense for the year ended August 31, 2018 of $1,325 (2017: $559) was
recorded within general and administrative expenses in the consolidated statements of earnings.
A summary of the Company’s PSU plan is presented below:
Twelve months ended August 31,
2018
2017
Notional
Notional
units (000s)
units (000s)
Outstanding at beginning of year
Granted
Dividends declared
Settled
Outstanding at end of year
1,634
570
126
(480)
1,850
1,611
640
116
(733)
1,634
Caldwell – Consolidated Financial Statements
50
Deferred stock units (DSUs)
DSU expense of $221 (2017: $84) for the year ended August 31, 2018 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:
Twelve months ended August 31,
2018
2017
Notional
Notional
units (000s)
units (000s)
Outstanding at beginning of year
Granted
Dividends declared
Settled
Outstanding at end of year
345
72
29
(94)
352
248
77
20
-
345
11. Provisions
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 $45 (2017: $43) and is included in accounts payable and the non-current portion of $93 (2017:
$133) is included in provisions in the consolidated statements of financial position.
A reconciliation of the provisions balance is below:
Twelve months ended August 31,
2018
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
176
(48)
4
6
138
465
(302)
11
2
176
12. 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, 2018, the Company had deferred revenue of $438 (2017: $1,107) and related deferred
compensation expense of $219 (2017: $554), with such amounts to be recognized during a future
period. These amounts are reflected as reductions in revenue and cost of sales in the consolidated
statements of earnings.
Caldwell – Consolidated Financial Statements
51
13. Income Taxes
Current tax:
Current tax on net earnings for the year
Deferred tax:
Origination and reversal of temporary differences
Twelve months ended August 31,
2018
2017
2,148
(183)
1,965
469
725
1,194
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
Change in tax rates
Other
Twelve months ended August 31,
2018
29.2%
2.7%
0.8%
0.7%
15.1%
0.8%
49.3%
2017
34.5%
2.4%
1.6%
0.3%
-
(0.9%)
37.9%
On December 22, 2017, the US tax reform ("Tax Cuts and Jobs Act") was substantively enacted and
reduced the maximum federal corporate income tax rate for the Company's US entity from 35% to
21%. As this rate change occurred part way into our fiscal year, a hybrid rate derived from the
current and new tax rates applies to our fiscal 2018 full year US taxable income. As a result of this
new substantively enacted tax rate, the Company’s US entity deferred tax balances were adjusted
to reflect the fully reduced rate to be realized in fiscal 2019 and future years. While the lower rates
decrease our current income tax expense, the rate reductions also result in deferred tax charges in
the current year to revalue our deferred tax assets originally recognized at the higher rates. This
resulted in deferred tax expense for the full year of $654.
The analysis of deferred tax assets and liabilities is as follows:
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months
Deferred tax assets to be recovered within 12 months
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 12 months
Deferred tax liabilities to be recovered within 12 months
Deferred tax assets (net)
As at August 31,
2018
2017
428
2,100
(491)
(140)
1,897
253
2,305
(718)
(190)
1,650
The movement of the deferred income tax account is as follows:
2018
2017
Twelve months ended August 31,
Outstanding at beginning of year
Debit to consolidated statements of earnings
Exchange differences
Outstanding at end of year
Caldwell – Consolidated Financial Statements
1,650
183
64
1,897
2,475
(725)
(100)
1,650
52
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, 2016
(Charged)/credited to the consolidated statements of earnings
Exchange differences
At August 31, 2017
(Charged)/credited to the consolidated statements of earnings
Exchange differences
At August 31, 2018
Deferred tax liabilities
Compensation
payable
3,074
(757)
(125)
2,192
(13)
77
2,256
Other
350
31
(15)
366
(107)
13
272
Total
3,424
(726)
(140)
2,558
(120)
90
2,528
At August 31, 2016
(Charged)/credited to the consolidated statements of earnings
Exchange differences
At August 31, 2017
Credited to the consolidated statements of earnings
Exchange differences
At August 31, 2018
Excess carrying
Revenue not
value of PP&E
taxable until
over tax base
a future year
Other
323
16
25
364
(134)
21
251
365
6
(17)
354
(128)
12
238
261
(23)
(48)
190
(41)
(7)
142
Total
949
(1)
(40)
908
(303)
26
631
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 $400 (2017: $283) that can be carried forward against future taxable income.
As at August 31, 2018, the Company has non-capital losses of $2,105 with indefinite expiry dates available to reduce income
of future years in the United Kingdom.
The Company also has capital losses of $2,850 in Canada that can only be utilized against capital gains in Canada and
are without expiry date. No deferred tax asset has been recognized for these capital losses.
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.
Twelve months ended August 31,
2018
2017
Net earnings for the year
2,015
1,957
Weighted average number of common shares outstanding
20,404,555
20,288,093
Basic earnings per share
$0.099
$0.096
Caldwell – Consolidated Financial Statements
53
(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.
Net earnings for the year
Weighted average number of common shares outstanding
Adjustment for stock options
Twelve months ended August 31,
2018
2017
2,015
1,957
20,404,555
20,288,093
18,660
4,369
Weighted average number of common shares for diluted earnings per share
20,423,215
20,292,462
Diluted earnings per share
$0.099
$0.096
15. Share Capital
Common shares
As at August 31, 2018 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).
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 2017 and 2018 is as follows:
Declaration Date
Payment Date
Per Share
Dividends Declared
Dividend
Aggregate
November 10, 2016
December 16, 2016
January 11, 2017
March 15, 2017
April 13, 2017
June 20, 2017
July 5, 2017
September 8, 2017
November 9, 2017
December 15, 2017
January 11, 2018
March 19, 2018
April 5, 2018
July 10, 2018
June 11, 2018
September 13, 2018
$0.020
$0.020
$0.020
$0.020
$0.020
$0.020
$0.020
$0.020
$403
$403
$408
$408
$408
$408
$408
$408
The dividend payable September 13, 2018 has been accrued in the Company’s consolidated financial
statements as at August 31, 2018.
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
Caldwell – Consolidated Financial Statements
54
stock options are summarized as follows:
Twelve months ended
Twelve months ended
August 31, 2018
August 31, 2017
Number of
options
Weighted
average
Number of
options
Weighted
average
outstanding (000s) exercise price
outstanding (000s) exercise price
Outstanding at beginning of year
Issued during the year
Exercised during year
Expired during year
Outstanding at end of year
Exercisable at end of year
$1.02
$1.05
-
$1.02
$1.05
100
250
-
(100)
250
-
$0.77
-
$0.68
-
$1.02
375
-
(275)
-
100
100
All options currently outstanding have a contractual life of five years with half vesting one year
after the date of grant and the remainder vesting two years after the date of grant. Options have an
exercise price equal to the fair value of the common shares on the date of issuance. Stock option
expense of $10 has been recorded in the year ended August 31, 2018 (2017: $nil).
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:
Twelve months ended August 31, 2018
Canada
United States
Europe
Elimination
Total
49,770
2,196
-
Professional fees
Licence fees
Revenues
Cost of Sales
Gross profit
General and administrative
Sales and marketing
Licence fees
Foreign exchange gain (loss)
Total expenses
Operating profit (loss)
Investment income
Income taxes
Net earnings (loss) for the year
14,546
1,494
16,040
10,398
5,642
(3,392)
(182)
-
99
(3,475)
2,167
14
(602)
1,579
Caldwell – Consolidated Financial Statements
-
-
49,770
2,196
36,744
13,026
(8,314)
(1,252)
(1,123)
4
(10,685)
2,341
-
(1,363)
978
1,826
370
(781)
(73)
-
(58)
(912)
(542)
-
-
(542)
(1,123)
(1,123)
-
(1,123)
-
-
1,123
-
66,512
371
66,883
48,968
17,915
(12,487)
(1,507)
-
45
1,123
(13,949)
-
-
-
-
3,966
14
(1,965)
2,015
55
Twelve months ended August 31, 2017
Canada
United States
Europe
Elimination
Total
Professional fees
Licence fees
Revenues
Cost of Sales
Gross profit
14,852
1,245
16,097
11,085
5,012
41,658
-
41,658
30,412
11,246
General and administrative
(3,146)
(7,439)
Sales and marketing
Licence fees
Foreign exchange (loss) gain
Total expenses
Operating profit (loss)
Investment income (loss)
Income taxes
Net earnings (loss) for the year
(153)
-
(12)
(3,311)
1,701
180
(460)
1,421
(972)
(935)
-
(9,346)
1,900
(142)
(734)
1,024
985
-
985
808
177
(625)
(48)
-
8
(665)
(488)
-
-
(488)
-
(935)
(935)
-
(935)
-
-
935
-
935
-
-
-
-
57,495
310
57,805
42,305
15,500
(11,210)
(1,173)
-
(4)
(12,387)
3,113
38
(1,194)
1,957
Certain items within general and administrative expenses, sales and marketing expenses and foreign
exchange gains and losses comprise corporate support costs and are transferred across the
segments. For the year ended August 31, 2018 corporate support costs totalled $6,351 (2017:
$5,391) with $4,775 allocated to the US (2017: $3,934), $1,356 to Canada (2017: $1,364) and $220 to
Europe (2017: $93). 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, 2018
At August 31, 2017
Canada
United States
Europe
Total
Canada
United States
Europe
Total
Property
and equipment
459
Intangible assets
Goodwill
-
-
889
92
30
-
1,378
629
1,045
92
178
25
-
1,699
178
1,289
1,596
2,885
1,238
1,523
2,761
-
-
Total assets
14,473
23,837
1,471
39,781
13,974
18,793
1,535
34,302
Depreciation recorded on property and equipment and amortization on intangible assets by country is as
follows:
Canada
United States
Europe
Total
Canada
United States
Europe
Total
2017
2016
Depreciation expense
Amortization expense
234
-
287
90
16
-
537
90
228
-
306
94
25
-
559
94
Caldwell – Consolidated Financial Statements
56
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, 2019
Twelve months ending August 31, 2020
Twelve months ending August 31, 2021
Twelve months ending August 31, 2022
Twelve months ending August 31, 2023
September 1, 2023 and thereafter
3,329
2,739
2,170
1,269
1,152
79
10,738
The operating lease commitments include gross obligations in connection with the New York, NY
sublease as discussed in note 11. The Company expects to recoup $2,808 through September 30,
2021, which is not reflected in the above.
During the year ended August 31, 2018, the Company expensed $3,350 (2017: $3,339) 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, 2018 was $94 (2017: $133).
18. Related Party Transactions
Pursuant to its lease agreements, the Company paid rent for its Toronto office to an affiliated
company owned by a shareholder, C. Douglas Caldwell, registered as owning more than 10% of the
Company. The amount of consideration agreed to by the parties was determined to be the fair
market rental rates at the inception of the lease by an independent commercial real estate
counselor and was approved by the independent Members of the Board of Directors. Occupancy
costs within general and administrative expenses in the consolidated statements of earnings have
been recognized for the year ended August 31, 2018 in the amount of $223 (2017: $223).
19. Financial Instruments
Classification of financial instruments
The classification of the financial instruments is shown in the table below.
Classification
Measurement
Cash and cash equivalents
loans and receivables
amortized cost
Marketable securities
available-for-sale
fair value
Accounts receivable
loans and receivables
amortized cost
Restricted cash
Accounts payable
loans and receivables
amortized cost
other financial liabilities
amortized cost
Compensation payable
other financial liabilities
amortized cost
Dividends payable
other financial liabilities
amortized cost
Caldwell – Consolidated Financial Statements
57
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, 2018 and August 31,
2017 consist of marketable securities, which are comprised of managed funds and certain equity
securities held for investment obtained through search fees being paid partially in equity of the
client as discussed in note 4.
As at August 31, 2018
Marketable securities
-
5,654
137
Level 1
Level 2
Level 3
As at August 31, 2017
Marketable securities
-
5,048
172
Level 1
Level 2
Level 3
Fair value
Cash and cash equivalents, accounts receivable, restricted cash, 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. 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 $7 recognized in the
Caldwell – Consolidated Financial Statements
58
unrealized gain (loss) on marketable securities in the Company’s consolidated statements of
comprehensive earnings for the year ended August 31, 2018 (2017: $9).
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, 2018, the Company has a net monetary asset exposure of $5,851 denominated in US
dollars (2017: $5,117). 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 $293 recognized in the cumulative translation
adjustment in the Company’s consolidated statements of comprehensive earnings for the year ended
August 31, 2018 (2017: $256). As these are long-term investments and not expected to be liquidated
to Canadian dollars, they are not hedged.
As at August 31, 2018, the Company has net monetary asset exposure of $586 denominated in British
pounds sterling (2017: $915). A 5% depreciation or appreciation in the Canadian dollar against the
British pound sterling, assuming all other variables remained the same, would have resulted in an
increase or decrease in foreign exchange gain (loss) of $29 recognized in the cumulative translation
adjustment in the Company’s consolidated statements of comprehensive earnings for the year ended
August 31, 2018 (2017: $46). As these are long-term investments and not expected to be liquidated
to Canadian dollars, they are not hedged.
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, 2018
As at August 31, 2017
Accounts payable
Compensation payable
Dividends payable
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
2,693
19,205
408
22,306
-
-
-
-
-
1,615
-
2,044
15,896
408
1,615
18,348
-
-
-
-
-
958
-
958
Caldwell – Consolidated Financial Statements
59
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, accounts receivable, marketable
securities and restricted cash. 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 comprised the following as at August 31:
Accounts receivable
Less: Allowance for doubtful accounts
Other receivables
As at August 31
2018
2017
11,016
(718)
10,298
560
10,858
9,499
(522)
8,977
416
9,393
No financial assets are past due except for a portion of accounts receivable. As at August 31, 2018,
accounts receivable of $9,120 (2017: $8,503) were fully performing, $1,178 (2017: $474) were over
90 days but not impaired and $718 (2017: $522) were over 90 days and impaired.
The following table summarizes the changes in the allowance for doubtful accounts for the accounts
receivable:
Beginning of year
Provision for impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
End of year
Twelve months ended
August 31,
2018
2017
522
629
(398)
(35)
718
598
926
(661)
(341)
522
Interest rate risk and market price risk
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, 2018, the Company has $5,791 invested in marketable securities (2017: $5,220). 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 $290 (2017: $261).
Caldwell – Consolidated Financial Statements
60
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, 2018, no amounts were outstanding on the credit facility
and letters of credit of $266 (August 31, 2017: $256) 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, 2018, licence fees
amounted to $371 (2017: $310).
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. On July 13, 2018, the Company agreed to an incremental tiered licensing fee
structure which requires CPGroup to pay 4.25% on the first US $5 million of Latin American revenue,
3.25% on the next US $3 million and 2.25% on amounts above US $8million.
The Government of Venezuela has imposed restrictions on removing cash from its country and as a
result, 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 13, 2018, the Board of Directors declared a dividend of 2.25 cents per share, payable
to holders of common shares of record on November 26, 2018 and to be paid on December 14, 2018.
Caldwell – Consolidated Financial Statements
61
TALENT
TRANSFORMS
wE bELiEvE TALENT TRANsfORms™
At Caldwell, our purpose is to enable organizations to thrive and
succeed by helping them identify, recruit and retain their best people.
We believe great talent will transform an organization, turning potential
into success. We believe people are the greatest sustainable difference
for organizations. We believe identifying, evaluating, recruiting and
retaining great talent can make any organization thrive and succeed.
That’s why we dedicate ourselves to helping organizations find,
grow and keep their best people. We work tirelessly together, across
offices,competencies and geographies, committed to a common belief
in the transformational power of great people.
www.caldwellpartners.com
@CaldwellPtners
Copyright ©2018 The Caldwell Partners International Inc.
All rights reserved. Reproduction without permission is prohibited. Trademarks and logos are copyrights of their respective owners.