ANNUAL REPORT 2019
AT CALDWELL, WE BELIEVE IN THE
TRANSFORMATIVE POWER
OF GREAT PEOPLE.
AT CALDWELL, WE BELIEVE IN THE
TRANSFORMATIVE POWER
OF GREAT PEOPLE.
Dear Shareholders, Clients, and Friends:
Fiscal 2019 was an important year in the growth and evolution of Caldwell, bringing new
faces, new initiatives, new milestones and new heights.
After a sluggish start to the year, our team performed an incredible turn-around and
delivered a strong second half and a phenomenal fourth quarter - our strongest to date.
We closed out the year with over $72.1 million in annual revenue.
Our reported annual operating profit of $1.6 million was appreciably dampened by two
fourth quarter expenses — a $1.5 million non-cash goodwill impairment charge in the UK
and a $0.3 million New York municipal tax assessment related to prior years. In addition,
we incurred UK operating losses (excluding the goodwill write down) of $1.7 million for
the year, up from the operating losses of $0.5 million last year. These factors masked an
otherwise strong performance from our Caldwell team.
This was a year of important milestones: we celebrated 30 years of being listed on the
TSX. It also marked the 10-year anniversary of our US expansion plan – a hugely successful
undertaking that has fundamentally repositioned our firm. In fiscal 2009, Caldwell brought
in $12.7 million in revenue – $1.7 million from the United States. Fast forward 10 years
and the region now represents 76% of our total revenue and is a major engine of our
success.
We expanded our team in fiscal 2019 – adding a number of new partners and teams,
opening new offices in Houston and Chicago, and expanding our global footprint
significantly with our strategic alliance with Sydney-based Hattonneale. These team
additions give further depth and breadth to our capabilities across functions, practices
and geographies, adding greatly to our ability to serve our clients globally and seamlessly.
Our UK operation has had ongoing challenges in expanding revenue and earnings. We
remain committed to the UK becoming a sustainable and profitable contributor to the
Caldwell brand and are pleased to see improvement in new business booking and business
development activity early in fiscal 2020 as individuals transition into the firm and non-
Caldwell – Shareholders Letter
1
solicitation periods run their course. We continue to consider the UK and Europe to be
strategically important.
We expanded our portfolio of services, launching Caldwell Advance, our mid-level search
offering for emerging leaders and advancing professionals that allows us have an
increasingly meaningful impact on our clients’ overall talent strategy. We continued to
claim new space with the launch of our Diversity & Inclusion Advisory solutions, providing
more flexible options for solving our clients’ executive talent needs.
We also became a certified partner of The Predictive Index, whose talent optimization
tools give us a scientific way to help our clients reach their goals by aligning their business
strategy with their people strategy to deliver on their results.
We also saw some major changes at the board level, bidding a very fond farewell to our
longtime Board Chairman Ed King, and welcoming new Board Chairman Elias Vamvakas and
new Board Director John Young.
As we look ahead to Fiscal 2020, our biggest priority is to focus on sustainable growth by
doing what we do best – making our clients better, more competitive and more successful
by connecting them with transformational talent. We will continue to pursue targeted
partner hires, explore initiatives and potential acquisitions that will enhance our value
and differentiation in the market, and expand our portfolio of services to help our clients
hire the right people, then manage and inspire them to achieve maximum business results
as fast as possible.
It's an exciting time to be a member of the Caldwell team - we are all energized about our
firm, our direction, our initiatives and the ways in which we will keep moving onward and
upward. We are grateful to the entire team, for their tireless work on behalf of our
clients, our candidates and each other. It is their energy, their enthusiasm, their love for
what we do that drives us ever forward.
Yours sincerely,
Elias Vamvakas
Chair of the Board
John N. Wallace
President & Chief Executive Officer
Caldwell – Shareholders Letter
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THE CALDWELL PARTNERS
INTERNATIONAL INC
MANAGEMENT DISCUSSION AND ANALYSIS
For the years ended August 31, 2019
and August 31, 2018
Caldwell – Management Discussion & Analysis
3
Management Discussion and Analysis
(Expressed in CAD $000s, except per share amounts)
COMPANY DESCRIPTION
The Caldwell Partners International Inc. (the “Company” or “we”) 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 consulting advice on the
identification, evaluation, assessment and recommendation of qualified candidates for specific
positions. The Company concentrates its activities on locating executives to fill senior executive
employment and executive advisory solutions. Our core service offerings have historically been the
placement of executives in full-time employed roles or an advisory capacity within fiduciary governance
boards.
During fiscal 2018 we began selling executive advisory solutions involving the placement of executives
on an on-demand basis who provide operational advisory and executive knowledge services for our
clients. During the second quarter of fiscal 2019, we launched Caldwell Advance--a service offering
providing search services for emerging leaders and advancing professionals for roles at levels below our
executive search business. Caldwell Advance services are provided by different teams and with a
different staffing leverage model than our executive search services. Also during the second quarter of
fiscal 2019, we announced our agreement with The Predictive Index, LLC (“PI”) naming us as a PI
Certified Partner. As a PI Certified Partner, we may utilize The Predictive Index suite of talent strategy
and assessment tools within our search services as well as sell and service the PI platform directly to our
clients for their enterprise-wide use. We do not know the scale to which our new solutions may expand
in the future or if we will maintain such service offerings if we are unable to scale related revenue.
We take pride in delivering an unmatched level of service and expertise to our clients through our
owned and licensed client teams from 18 locations throughout the world including Atlanta, Calgary,
Charleston, Chicago, Dallas, Houston, London, Los Angeles, Miami, Nashville, New York, Philadelphia,
San Francisco, Stamford, Toronto and Vancouver, and through our licensee locations in Auckland, New
Zealand and Sydney, Australia.
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;
Caldwell – Management Discussion & Analysis
4
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 forward-looking statements. Although any forward-looking statements are based
on what management currently believes to be reasonable assumptions, we cannot assure readers that
actual results, performance or achievements will be consistent with these forward-looking statements,
and management’s assumptions may prove to be incorrect. Except as required by Canadian securities
laws, we do not undertake to update any forward-looking statements, whether written or oral, that may
be made from time to time by us or on our behalf; such statements speak only as of the date made. The
forward-looking statements included herein are expressly qualified in their entirety by this cautionary
language.
PRESENTATION
The following discussion and analysis, prepared on November 18, 2019, should be read in conjunction
with the consolidated annual audited financial statements and related notes for the year ended August
31, 2019. Unless otherwise noted, all currency amounts are provided in thousands of Canadian dollars
(except 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 or other operating measure,
financial results are prepared in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board (IFRS).
Our presentation currency is the Canadian dollar. We manage our 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 financial statements, on 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 (“Caldwell NZ”). The licensing agreement has an initial term of five years and provides for
Caldwell NZ to pay the Company a licence fee based on a percentage of revenue. Caldwell NZ had three
revenue producing employees plus related staff operating out of Auckland as of August 31, 2019.
Effective February 7, 2019, the Company entered into a similar licensing agreement with Hattonneale
Pty Ltd. (“Hattonneale”), an Australia-based firm. Hattonneale had four revenue-producing employees
plus related staff operating out of Sydney, Australia as of August 31, 2019. In exchange for the licence
fee payments, Caldwell NZ and Hattonneale each have the right to use the Caldwell Partners brand,
search processes, methodologies and related intellectual property. The Company also maintained a
licensing agreement which commenced on July 13, 2015 with CPGroup Latam Ltd. (“CPGroup”) that was
terminated by mutual agreement effective February 28, 2019, and discussed further in the Revenue
section of this document under License Fees.
Caldwell – Management Discussion & Analysis
5
NON-GAAP FINANCIAL MEASURES AND OTHER OPERATING MEASURES
Certain non‐GAAP financial measures and other operating measures are used by our 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 is driven by the Number of Assignments performed and the Average
Fee per Assignment.
• Number of Assignments: the number of new executive search assignments contracted for during
a period. This metric shows the search volume and is one of the drivers of professional fees.
• Number of Assignments per Partner: the Number of Assignments divided by the Average Number
of Partners. This metric analyzes our partner productivity and utilization and is a measure used
to identify and track volume trends as one of the key drivers of our professional fees.
• Average Fee per Assignment: Professional fees for a given period divided by the related Number
of Assignments. This metric is used to identify and track price trends as a key driver of our
professional fees. It is impacted by both economic and competitive conditions as well as the
seniority level of searches undertaken.
• Revenue, Net of Reimbursements: total revenue for a given period less direct expense
reimbursements recovered from clients, which subsequent to the adoption of IFRS 15 effective
September 1, 2018, is included as part of revenue. This metric is used in the denominator for
the calculation of gross margin and operating margin and provides for meaningful comparability
between pre-IFRS 15 and post-IFRS 15 reporting periods.
• 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 and unbilled
revenue.
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SELECTED FINANCIAL INFORMATION
The following table summarizes selected financial information for the three years ended August 31:
DISCUSSION OF FACTORS IMPACTING THE COMPANY’S RESULTS
As discussed in the Operating Results section, the adoption of a new accounting pronouncement in fiscal
2019 required us to reflect on a gross basis certain revenue and costs from direct expenses incurred in
the performance of our search work and billed to our clients for reimbursement. Previously, these had
been shown netted within cost of sales. This caused an increase in revenue and cost of sales in fiscal
2019 of $1,689 over the prior fiscal years’ presentation. To provide consistency of presentation, results
are discussed as Revenue, Net of Reimbursements defined in the above Non-GAAP Financial Measures.
Revenue, Net of Reimbursements of $70.4 million set a new annual record and was 5.3% over the prior
year. Operating profit of $1.6 million included the goodwill impairment charge of $1.5 million. Excluding
the impairment expense, operating profit for the year was $3.1 million, down from $4.0 million in the
prior year. Many factors contributed to the operating profit results as discussed more fully in the
Operating Results herein, but much can be derived from the geographies. Our North American
operations generated operating profit of $4.8 million (2018: $4.5 million), while our European business,
excluding the goodwill impairment, had an operating loss of $1.7 million (2018: operating loss of $0.5
million). The European business has had ongoing challenges in revenue generation from transitioning
new hires. There is normally an assimilation and ramp-up period associated with new hires, and this has
been compounded with a small overall partner base in the UK, client non-solicit periods for certain new
hires and pressure in the markets from Brexit. We continue to consider Europe to be strategically
important, but with a sustained period of operating losses, our goodwill balance could not be supported,
resulting in the impairment charge.
Caldwell – Management Discussion & Analysis
7
($000s except dividends and earnings per share)201920182017Total revenue72,138$ 66,883$ 57,805$ Revenue, Net of Reimbursements70,449$ 66,883$ 57,805$ Period end number of partners¹403939Average Number of Partners¹39.538.137.5Annualized Professional Fees per Partner¹1,766$ 1,746$ 1,533$ Number of Assignments¹439453432Number of Assignments per Partner¹11.111.911.5Average Fee per Assignment¹159$ 147$ 133$ Operating profit1,640$ 3,966$ 3,113$ Net earnings for the year attributable to owners of the Company325$ 2,015$ 1,957$ Basic earnings per share0.016$ 0.099$ 0.096$ Diluted earnings per share0.016$ 0.099$ 0.096$ Total assets40,608$ 39,781$ 34,302$ Total non-current financial liabilities1,068$ 1,615$ 958$ Unencumbered Cash¹7,326$ 9,553$ 7,883$ Cash dividends per share0.0875$ 0.0800$ 0.0800$ ¹ Please refer to the section on Non‐GAAP Financial Measures and Other Operating Measures on page 4 of this document
The 5.3% increase in Revenue, Net of Reimbursements from 2018 to 2019 was the result of increases in
our Average Fee of 8.2% (5.6% excluding the impact of foreign exchange rate fluctuations) and a slightly
higher Average Number of Partners partially offset by a 6.6% decrease in the Number of Assignments per
partner.
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 a slight increase in the Average Number of Partners.
Our Average Fee is impacted by economic conditions and related competitive pricing pressures as well
as the seniority level of searches undertaken. We 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 3.0% from 2017 to 2018 and
then increasing 3.9% from 2018 to 2019 relative to the Canadian dollar. The average British Pound rate
has also been fairly stable, increasing 3.0% from 2017 to 2018 relative to the Canadian Dollar, then
declining 1.2% from 2018 to 2019.
The following table summarizes the approximate foreign exchange rates impacting the business during
fiscal 2019, 2018 and fiscal 2017 according to geographic segment:
Functional Currency
Fiscal 2019
Fiscal 2018
Fiscal 2017
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
1.33
1.33
1.00
1.00
1.70
1.62
1.28
1.31
1.00
1.00
1.72
1.69
1.32
1.25
1.00
1.00
1.67
1.62
The Number of Assignments per Partner was up 3.4% from 2017 to 2018 to 11.9 before falling back 6.6%
from 2018 to 2019 to 11.1. The partner headcount metric was flat at 39 from 2017 to 2018, rising to 40
from 2018 to 2019 with 2 new partner hires in 2018 and 6 in 2019, being offset by 2 partner departures
in 2018 and 5 in 2019. 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
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In fiscal 2019, net earnings decreased $1,690 to $325 from $2,015 in the prior year. The net earnings
decrease resulted from a $2,326 decrease in operating profit partially offset by an increase in
investment income of $197 and a $439 decrease in income tax expense due to the lower overall profit.
Of the $2,326 decrease in operating profit from 2018 to 2019, $1,521 related to an impairment expense
taken by the company to fully write down the goodwill from the European entity. Excluding the goodwill
expense, operating profit decreased $805 driven by higher direct costs more than offsetting the
corresponding increase in Revenue, Net of Reimbursements and a 2.1% increase in expenses. The
increase in expenses was largely the result of $350 in municipal tax expenses arising from an assessment
levied in the fourth quarter but related primarily to prior periods and $450 in legal fees related to the
unsuccessful pursuit of a claim against a former client. These expense increases were partially offset by
reductions in share-based compensation expense caused by a decrease in the share price in the current
year and in the performance factor as a result of not meeting incentive compensation performance
targets.
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.
Unencumbered cash was $7,326 at the end of fiscal 2019 compared to $9,553 at the end of fiscal 2018.
We use Unencumbered Cash, as defined in the Non-GAAP Financial Measures section of this document,
to identify cash available beyond that required to fund short term obligations. The decrease in
Unencumbered Cash from 2018 to 2019 of $2,227 was due to dividends and the sign-on costs from
investments in new partner hires exceeding cash generated from operations during the year. As defined
in the calculation, short-term liquid assets available decreased $2,558, offset by a decline in short-term
liabilities needing funding of $331.
Unencumbered cash was $9,553 at the end of fiscal 2018 compared to $7,883 at the end of fiscal 2017.
The increase in Unencumbered Cash from 2017 to 2018 of $1,670 came from cash generated from
operations in excess of dividends and the sign-on costs from investments in new partner hires. There
was an increase in short-term liquid assets available of $6,067, offset by an increase in short-term
liabilities needing funding of $4,397.
A reconciliation of Unencumbered Cash and further discussion of the drivers from 2018 to 2019 and from
2017 to 2018 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 2019 results are discussed more fully in this document, and 2018 results are more fully discussed
under Operating Results within the 2018 Management Discussion and Analysis documents as filed on
Caldwell – Management Discussion & Analysis
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SEDAR (www.sedar.com). Additionally, the Business Outlook section discusses our current views on
future operating profit performance.
OPERATING RESULTS
ADOPTION OF IFRS 15
On September 1, 2018, we adopted IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), 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.
There were two significant revenue areas impacted by the adoption of IFRS 15:
Professional fees: We are paid a retainer for executive search services 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, known as upticks, were
previously recognized in the period in which the placed candidate began working. Under IFRS 15, we are
now required to estimate this 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 impact of adopting IFRS 15 on our results related to uptick revenue for the three months
ending August 31, 2019 was to increase: revenue by $456; compensation expense and resulting gross
profit by $228; income taxes by $62; and net earnings by $166, or $0.008 per share. For the year ending
August 31, 2019, the impact was to increase: revenue by $1,390; compensation expense and resulting
gross profit by $695; income taxes by $188; and net earnings by $507, or $0.025 per share.
Direct expense reimbursements: We incur reimbursable direct out of pocket expenses in the
performance of our services for items such as candidate and partner travel, meals, accommodation,
background checks and other costs directly identifiable to a specific search assignment. Before adopting
IFRS 15, these amounts were presented within cost of sales as the net amount of direct expenses
incurred offset by amounts billed and recovered from clients. With the adoption of IFRS 15, we now
show the gross amount of direct expenses billed and recovered from clients as revenue, with the
corresponding gross amount incurred as a cost of sales. In the three month and one year periods ending
August 31, 2019, direct expense reimbursements in revenues and reimbursed expenses within cost of
sales of $398 and $1,689, respectively would have been shown as a net zero in cost of sales before
adopting IFRS 15.
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The table below sets forth our reported results, what our results would have been without the adoption
of IFRS 15 and the resulting impact on our results for the three months ending August 31, 2019:
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Balances WithoutAdoption of ImpactAs ReportedIFRS 15of ChangesRevenuesProfessional fees20,50220,046 456 Direct expense reimbursements398- 398 Total Revenue20,97120,117 854 Cost of sales14,83814,610 228 Reimbursed expenses398- 398 15,23614,610 626 Gross profit5,7355,507 228 Income taxes670 608 62 Net earnings for the period attributable to owners of the Company(954)(1,120)166 Earnings per shareBasic and diluted(0.047)(0.055)0.008For the three months ended August 31, 2019
The table below sets forth our reported results, what our results would have been without the adoption
of IFRS 15 and the resulting impact on our results for the year ending August 31, 2019:
Please refer to the consolidated annual audited financial statements and note 3 for additional
information on the adoption of IFRS 15.
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Balances WithoutAdoption of ImpactAs ReportedIFRS 15of ChangesRevenuesProfessional fees69,74968,359 1,390 Direct expense reimbursements1,689- 1,689 Total Revenue72,13869,059 3,079 Cost of sales53,04652,351 695 Reimbursed expenses1,689- 1,689 54,73552,351 2,384 Gross profit17,40316,708 695 Income taxes1,5261,338 188 Net earnings for the period attributable to owners of the Company325(182)507 Earnings per shareBasic and diluted0.016(0.009)0.025For the year ended August 31, 2019
OPERATING RESULTS BY SEGMENT
The following provides a reconciliation of the Company’s consolidated statements of earnings by
geographic segment to the consolidated results for the fourth quarter ended August 31, 2019:
The following provides a reconciliation of the Company’s consolidated statements of earnings by
geographic segment to the consolidated results for the fiscal year ended August 31, 2019:
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CanadaUnited States EuropeEliminationTotalProfessional fees4,496 15,950 56 - 20,502 Licence fees559 - - (488) 71 Direct expense reimbursements89 308 1 - 398 Revenues5,144 16,258 57 (488) 20,971 Cost of Sales(3,612) (10,761) (465) - (14,838) Reimbursed direct expenses(89) (308) (1) - (398) (3,701) (11,069) (466) - (15,236) Gross profit (loss)1,443 5,189 (409) (488) 5,735 General and administrative(905) (3,082) - - (3,987) Goodwill impairment- - (1,521) - (1,521) Sales and marketing(55) (393) (25) - (473) Licence fees- (488) - 488 - Foreign exchange loss(8) - (97) - (105) Total expenses(968) (3,963) (1,643) 488 (6,086) Operating profit (loss)475 1,226 (2,052) - (351) Investment income67 - - - 67 Income taxes(207) (463) - - (670) Net earnings (loss) for the year335 763 (2,052) - (954) CanadaUnited States EuropeEliminationTotalProfessional fees3,836 14,244 663 - 18,743 Licence fees461 - - (319) 142 Revenues4,297 14,244 663 (319) 18,885 Cost of Sales(2,686) (10,308) (558) - (13,552) Gross profit (loss)1,611 3,936 105 (319) 5,333 General and administrative(974) (2,514) (217) - (3,705) Sales and marketing(60) (467) (15) - (542) Licence fees- (319) - 319 - Foreign exchange gain (loss)24 (4) (32) - (12) Total expenses(1,010) (3,304) (264) 319 (4,259) Operating profit (loss)601 632 (159) - 1,074 Investment income8 - - - 8 Income taxes(134) (600) - - (734) Net earnings (loss) for the year475 32 (159) - 348 Three months ended August 31, 2019Three months ended August 31, 2018
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CanadaUnited States EuropeEliminationTotalProfessional fees15,497 53,282 970 - 69,749 Licence fees2,030 - - (1,330) 700 Direct expense reimbursements455 1,224 10 1,689 Revenues17,982 54,506 980 (1,330) 72,138 Cost of Sales(11,259) (39,743) (2,044) - (53,046) Reimbursed direct expenses(455) (1,224) (10) (1,689) (11,714) (40,967) (2,054) - (54,735) Gross profit (loss)6,268 13,539 (1,074) (1,330) 17,403 General and administrative(3,204) (9,101) (313) - (12,618) Goodwill impairment- - (1,521) - (1,521) Sales and marketing(244) (1,104) (108) - (1,456) Licence fees- (1,330) - 1,330 - Foreign exchange gain (loss)27 2 (197) - (168) Total expenses(3,421) (11,533) (2,139) 1,330 (15,763) Operating profit (loss)2,847 2,006 (3,213) - 1,640 Investment income211 - - - 211 Income taxes(824) (702) - - (1,526) Net earnings (loss) for the year2,234 1,304 (3,213) - 325 CanadaUnited States EuropeEliminationTotalProfessional fees14,546 49,770 2,196 - 66,512 Licence fees1,494 - - (1,123) 371 Revenues16,040 49,770 2,196 (1,123) 66,883 Cost of Sales(10,398) (36,744) (1,826) - (48,968) Gross profit (loss)5,642 13,026 370 (1,123) 17,915 General and administrative(3,392) (8,314) (781) - (12,487) Sales and marketing(182) (1,252) (73) - (1,507) Licence fees- (1,123) - 1,123 - Foreign exchange gain (loss)99 4 (58) - 45 Total expenses(3,475) (10,685) (912) 1,123 (13,949) Operating profit (loss)2,167 2,341 (542) - 3,966 Investment income14 - - - 14 Income taxes(602) (1,363) - - (1,965) Net earnings (loss) for the year1,579 978 (542) - 2,015 Twelve months ended August 31, 2019Twelve months ended August 31, 2018
REVENUE
¹ Please refer to the section on Non‐GAAP Financial Measures and Other Operating Measures on page 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.
Caldwell – Management Discussion & Analysis
15
Q1Q2Q3Q4AnnualProfessional Fees15,169$ 14,543$ 19,535$ 20,502$ 69,749$ License fees217$ 374$ 38$ 71$ 700$ Revenue, Net of Reimbursements15,386$ 14,917$ 19,573$ 20,573$ 70,449$ Direct expense reimbursements506$ 411$ 374$ 398$ 1,689$ Revenue15,892$ 15,328$ 19,947$ 20,971$ 72,138$ Period end number of partners¹3939404040Average Number of Partners¹39.339.339.340.039.5Annualized Professional Fees per Partner¹1,544$ 1,480$ 1,988$ 2,050$ 1,766 Number of Assignments¹10889115127439Number of Assignments per Partner¹2.72.32.93.211.1Average Fee per Assignment¹140$ 163$ 170$ 161$ 159$ Professional Fees14,973$ 14,854$ 17,942$ 18,743$ 66,512$ License fee revenue76$ 67$ 86$ 142$ 371$ Revenue15,049$ 14,921$ 18,028$ 18,885$ 66,883$ Period end number of partners¹3838383939Average Number of Partners¹38.038.038.038.338.1Annualized Professional Fees per Partner¹1,576$ 1,564$ 1,889$ 1,957$ 1,746$ Number of Assignments¹114104122113453Number of Assignments per Partner¹3.02.73.23.011.9Average Fee per Assignment¹131$ 143$ 147$ 166$ 147$ 20192018
PROFESSIONAL FEES
Fourth Quarter Consolidated Professional Fees
Professional fees for the fourth quarter of fiscal 2019 were $20,502, a new quarter-high result. The
application of IFRS 15 resulted in a $456 increase in professional fees during the quarter. Excluding the
IFRS 15 impact, professional fees increased 7.0% (6.1% excluding a favourable 0.9% variance from
exchange rate fluctuations) from the comparable period last year to $20,046 (2018: $18,743).
Higher productivity per partner and a higher Average Number of Partners were partially offset by a
lower Average Fee per Assignment during the quarter. The Number of Assignments per Partner increased
to 3.2 (2018: 3.0) while the Average Number of Partners increased from 38.3 in the prior year to 40.0,
resulting in an increase in the total Number of Assignments to 127 (2018: 113). The Average Fee per
Assignment decreased to $161 ($157 excluding the impact of both IFRS 15 and exchange rate
fluctuations) (2018: $166).
Year-to-Date Consolidated Professional Fees
Professional fees for 2019 were $69,749. The application of IFRS 15 resulted in a $1,390 increase in
professional fees during the period. Excluding the IFRS 15 impact, professional fees increased 2.8% (0.1%
excluding a favourable 2.7% variance from exchange rate fluctuations) over the comparable period last
year to $68,359 (2018: $66,512).
The increase in full year professional fees was the result of increases in the Average Number of Partners
and the Average Fee per Assignment partially offset by a lower Number of Assignments per Partner. A
higher Average Number of Partners at 39.5 compared to 38.1 in the prior year and decrease in the
Number of Assignments per Partner to 11.1 (2018: 11.9) resulted in a net decrease in the total Number
of Assignments to 439 (2018: 453). The Average Fee per Assignment increased to $159 ($152 excluding
the impact of both IFRS 15 and exchange rate fluctuations) (2018: $147).
Fourth Quarter and Year-to-Date Professional Fees by Geography
United States:
Fourth quarter professional fees in the US were $15,950. The adoption of IFRS 15 resulted in a $380
increase in professional fees for the US during the quarter. Excluding that adjustment, professional fees
in the US increased 9.3% (8.1% excluding a favourable 1.2% variance from exchange rate fluctuations) to
$15,570 (2018: $14,244). The increase excluding the IFRS 15 impact was the result of a decrease in the
Average Fee per Assignment being more than offset by increases in the Average Number of Partners and
the Number of Assignments per Partner during the period.
Professional fees in the US were $53,282 in 2019. The adoption of IFRS 15 resulted in a $1,267 increase
in professional fees for the US during the period. Excluding that adjustment, professional fees in the US
increased 4.5% (0.9% excluding a favourable 3.6% variance from exchange rate fluctuations) to $52,015
(2018: $49,770). The increase excluding the IFRS 15 impact was the result of increases in the Average
Number of Partners and the Average Fee per Assignment partially offset by a lower Number of
Assignments per Partner during the period.
Caldwell – Management Discussion & Analysis
16
Canada:
Fourth quarter professional fees in Canada were $4,496. The adoption of IFRS 15 resulted in a $102
increase in professional fees for Canada during the quarter. Excluding that adjustment, professional fees
increased 14.6% to $4,394 (2018: $3,836). The increase in professional fees excluding the IFRS 15 impact
resulted from a significantly higher Number of Assignments per Partner more than offsetting a lower
Average Number of Partners and lower Average Fee per Assignment.
Year to date professional fees in Canada were $15,497. The adoption of IFRS 15 resulted in a $110
increase in professional fees for Canada during 2019. Excluding that adjustment, professional fees
increased 5.8% to $15,387 (2018: $14,546). The increase in professional fees excluding the IFRS 15
impact resulted from a higher Average Fee per Assignment and higher Number of Assignments per
Partner being partially offset by a lower Average Number of Partners.
Europe:
Fourth quarter professional fees in Europe were $56. The adoption of IFRS 15 resulted in a $25 decrease
in professional fees for Europe during the quarter. Excluding that adjustment, professional fees
decreased 87.7% (86.9% excluding a favourable 0.8% variance from exchange rate fluctuations) to $81
(2018: $663). Decreases in the Average Fee per Assignment and the Number of Assignments per Partner
were only partially offset by an increase in the Average Number of Partners.
Professional fees in Europe for the year were $970. The adoption of IFRS 15 resulted in a $13 increase in
professional fees for Europe during the year. Excluding that adjustment, professional fees decreased
55.2% (55.1% excluding an unfavourable 0.1% variance from exchange rate fluctuations) to $957 (2018:
$2,196) A significantly lower Number of Assignments per Partner was only partially offset by a higher
Average Fee per Assignment and higher Average Number of Partners. As previously described, results in
Europe have been adversely affected by revenue generation challenges from new hire transitions and
pressures in the market from Brexit.
LICENCE FEES
License fees from our licensees for the use of the Caldwell brand and intellectual property for the
fourth quarter were $71 (2018: $142). For the year, licence fees were $700 (2018: $371).
Effective February 28, 2019, the Company and CPGroup Latam announced a mutual agreement to end
the licensing relationship. As part of the agreement for early termination, the licensee made a one-time
payment to the Company for $218. The total license fees from CPGroup Latam, including the
termination payment, were $497 (2018: $245) for the year.
Additionally, intercompany licence fees which eliminate on consolidation are charged from our Canadian
parent company to our US subsidiary. These intercompany fees totaled $488 for the fourth quarter
(2018: $319) and $1,330 for the full year (2018: $1,123). Intercompany licence fees to the European
subsidiary are waived during the buildout to profitability of the region.
DIRECT EXPENSE REIMBURSEMENTS
Direct expenses incurred and billed to clients during the fiscal 2019 fourth quarter were $398 (2018:
$532, with the revenue billed and cost of sale amounts presented as net zero). Year to date direct
expenses incurred and billed to clients were $1,689 (2018: $1,733, with the revenue billed and cost of
sale amounts presented as net zero). See the Adoption of IFRS 15 discussion on page 8.
Caldwell – Management Discussion & Analysis
17
COST OF SALES
Cost of sales pertains to professional fees and comprises partner compensation, related search delivery
personnel compensation and the direct costs of providing our search services. Compensation costs
include fixed salaries and draws, variable incentive compensation and related employee benefits and
payroll taxes.
Our partners are paid draws--a set level of base compensation. Variable incentive compensation is based
on a percentage of the amount of collected professional fees attributed to each respective partner,
based on a tiered commission grid. The higher a partner’s collected professional fees in a fiscal year,
the higher the percentage the partner is eligible to earn. The partners’ variable compensation
incentives are credited first to draw amounts already paid as an advance, with any excess due as a
commission payment. A deficit occurs when a partner’s variable compensation earned is less than their
draw. The full draw amount is expensed each period. Additionally, any excess variable compensation
due is expensed and accrued for future payment. Deficit amounts within a fiscal year may be recouped
in subsequent quarters if a partner earns enough variable compensation over the remainder of the year
to credit against any deficit which has already been expensed. Deficits at the end of each fiscal year are
forgiven and not brought forward into future fiscal years for recoupment. In periods of organic growth,
as new partner hires transition, deficits may increase.
In aggregate and over time, cost of sales is largely variable to professional fees, 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 rapid growth or decline. Significant fluctuations
can be seen by geography from quarter to quarter based on the relatively small number of partners in
each region and how those individuals’ estimated compensation changes based on annualizing their
quarterly results in recording compensation accruals. Costs associated with license fee revenue such as
legal and professional fees are included in general and administrative expenses. Costs associated with
direct expense reimbursements are recorded separately as reimbursed direct expenses.
Fourth Quarter Consolidated Cost of Sales
Fourth quarter cost of sales was $14,838. The adoption of IFRS 15 resulted in a $228 increase in cost of
sales for the quarter from the related revenue increase. Excluding the IFRS 15 impact, cost of sales
increased 7.8% (7.2% on a constant currency basis) to $14,610 (2018: $13,552).
As a percentage of professional fees, cost of sales increased 0.1% to 72.4%, up from 72.3% in the same
period last year. Higher partner compensation (up 1.8% as a percentage of professional fees) was
experienced as a result of higher partner commission tier attainments from the increased revenue and
higher partner deficits in Europe from partners whose draws exceed commissions earned. This increase
in expense was partially offset by lower partner support personnel compensation (down 0.9% as a
percentage of professional fees) and search delivery materials (down 0.8% as a percentage of
professional fees), both of which are variable over longer periods of time, but semi-fixed in nature from
quarter to quarter. Excluding Europe, cost of sales for the rest of the business was 70.3% of professional
fees (2018: 71.9%).
On a segment basis, the year-over-year cost of sales increase of $1,286 came from an increase in Canada
($926) and the US ($453) partially offset by a decrease in Europe ($93).
Caldwell – Management Discussion & Analysis
18
Q1Q2Q3Q4AnnualCost of sales11,578$ 11,926$ 14,704$ 14,838$ 53,046$ Cost of sales as a % of professional fees76.3%82.0%75.3%72.4%76.1%Cost of sales11,073$ 11,244$ 13,099$ 13,552$ 48,968$ Cost of sales as a % of professional fees74.0%75.7%73.0%72.3%73.6%20192018
Year-to-Date Consolidated Cost of Sales
Cost of sales for the year was $53,046. The adoption of IFRS 15 resulted in a $695 increase in cost of
sales for the period. Excluding the IFRS 15 impact, cost of sales increased 6.8% (4.0% on a constant
currency basis) to $52,351 (2018: $48,968).
As a percentage of professional fees, cost of sales increased by 2.5% to 76.1%, up from 73.6% in the
same period last year. The adoption of IFRS 15 did not have a material impact on cost of sales as a
percent of professional fees as partner compensation expense is recognized at approximately the same
percent on revenue with or without IFRS 15 adjustments. The increase was due to higher partner
compensation (2.0% as a percentage of professional fees) and search delivery support compensation (up
0.8% as a percentage of professional fees) partially offset by a decrease in search delivery materials
costs (0.3% as a percentage of professional fees). The increase in partner compensation for the year was
driven by a combination of higher partner deficits from partners whose draws exceed commissions
earned, concentrated largely in Europe, and higher partner commission tier attainments, from an
increasing proportion of revenue coming from those in top tiers. The increase in search delivery support
compensation came partially from hires made during the second half of fiscal 2018 to support the record
search volumes seen that were not maintained through the first half of fiscal 2019 and partially from
hires made during the current year to support recently recruited partners who are still integrating into
the firm and requiring industry and geographical support not already resident with existing staff.
Excluding Europe, cost of sales for the rest of the business was 74.2% of professional fees (2018: 73.3%).
On a segment basis, the $4,078 year-over-year cost of sales increase for the year came from increases in
the US ($2,999), Canada ($861) and Europe ($218).
Fourth Quarter and Year-to-Date Cost of Sales by Geography
United States:
Fourth quarter
Relative to the professional fees increase of 12.0% (including the IFRS 15 impact), fourth quarter cost of
sales in the US increased by 4.4% or $453 to $10,761 (2018: $10,308). The net increase included a $190
increase in cost of sales during the quarter from the application of IFRS 15. Excluding the impact of
adopting IFRS 15, cost of sales increased 2.6% (1.6% on a constant currency basis) to $10,571 (2018:
$10,308) compared to a professional fee increase of 9.3% (8.1% on a constant currency basis).
Cost of sales decreased 4.9% to 67.5% as a percentage of professional fees compared to 72.4% in the
prior year as a result of decreases in partner compensation (down 2.0% as a percentage of professional
fees). The compensation decrease was due to a relatively larger proportion of revenue being generated
by partners in lower commission tiers during the quarter, the recoupment of deficits generated earlier
in the year and relatively fixed cost partner support personnel compensation due to the higher revenue
(down 1.9% as a percentage of professional fees) and search delivery materials (down 1.0% as a
percentage of professional fees).
Year-to-date
Relative to the professional fees increase of 7.1% (including the IFRS 15 impact), cost of sales for 2019 in
the US increased by 8.2% or $2,999 to $39,743 (2018: $36,744). The net increase included a $633
increase in cost of sales during the quarter from the application of IFRS 15. Excluding the impact of
adopting IFRS 15, cost of sales increased 6.4% (2.6% on a constant currency basis) to $39,110 (2018:
$36,744) compared to a professional fee increase of 4.5% (0.9% on a constant currency basis).
Cost of sales increased 0.8% to 74.6% as a percentage of professional fees compared to 73.8% in the
prior year. This increase was the result of higher partner compensation (up 0.8% as a percentage of
Caldwell – Management Discussion & Analysis
19
professional fees) due to revenue coming from partners in higher compensation tiers and, to a lesser
extent, partners in compensation deficit positions. Relatively fixed cost partner support personnel
compensation (up 0.3% as a percentage of professional fees) was offset by lower search delivery
materials (0.3% as a percentage of professional fees).
Canada:
Fourth quarter
Relative to the professional fees increase of 17.2% (including the IFRS 15 impact), fourth quarter cost of
sales in Canada increased 34.5% or $926 to $3,612 (2018: $2,686). The net increase included a $51
increase in cost of sales during the quarter from the application of IFRS 15. Excluding the impact of
adopting IFRS 15, cost of sales increased 32.5% to $3,561 (2018: $2,686) compared to a professional fee
increase of 14.6%.
As a percentage of professional fees, these costs increased 10.3% to 80.3% versus 70.0% in the prior
year. An increase in partner compensation (up 10.0% of professional fees arising from higher average
commission grid tier attainment on increased
in revenue which applies across year-to-date
compensation) and an increase in relatively fixed partner support personnel compensation (0.4% of
professional fees) was partially offset by a decrease in search delivery materials (0.1% of professional
fees).
Year-to-date
Relative to the professional fees increase of 6.5% (including the IFRS 15 impact), year to date cost of
sales in Canada increased by 8.3% or $861 to $11,259 (2018: $10,398). The net increase included a $55
increase in cost of sales during the period from the application of IFRS 15. Excluding the impact of
adopting IFRS 15, cost of sales increased 7.8% to $11,204 (2018: $10,398) compared to a professional fee
increase of 5.8%.
As a percentage of professional fees, these costs increased 1.1% to 72.6% versus 71.5% in the prior year.
The increase was the result of increases in partner compensation (0.9% of professional fees), the result
of higher commission grid tiers related to the higher revenue, higher partner support personnel
compensation (0.1% of professional fees) and higher search delivery materials (0.1% of professional
fees).
Europe:
Fourth quarter
Europe continued to face revenue challenges during the quarter. A further discussion can be found in
the Business Outlook section of this document. Relative to the professional fees decrease of 91.6%
(including the IFRS 15 impact), fourth quarter cost of sales in Europe decreased by only 16.7% (12.4% on
a constant currency basis) or $93 to $465 (2018: $558) given the fixed nature of partner draws. The net
decrease included a $13 decrease in cost of sales during the quarter from the application of IFRS 15.
Excluding the impact of adopting IFRS 15, cost of sales decreased 14.3% to $478 (2018: $558) compared
to a professional fee decrease of 87.7%.
In dollars, revenue of $56 was far outweighed by cost of sales of $465k. As a percentage of professional
fees, these costs represented 830.4% vs. 84.2% in the prior year. Cost of sales exceeded professional
fees due to very low revenue levels produced in the current quarter against increases in the fixed
portion of partner compensation (the result of net partner additions over last year) and partner support
personnel compensation to support the hires.
Caldwell – Management Discussion & Analysis
20
Year-to-date
Cost of sales in Europe for 2019 increased 11.9% or $218 to $2,044 (2018: $1,826) relative to the
professional fee decrease of 55.8% (including the IFRS 15 impact). The increase included a $7 increase in
cost of sales during the period from the application of IFRS 15. Excluding the impact of adopting IFRS 15,
cost of sales increased by 11.6% (13.7% on a constant currency basis) to $2,037 (2018: $1,826) compared
to a professional fee decrease of 56.4% (55.1% on a constant currency basis).
As a percentage of professional fees, these costs represented 210.7% vs. 83.2% in the prior year. Year to
date cost of sales exceed professional fees due to very low revenue levels produced during the year
against increases in the fixed portion of partner compensation (the result of net partner additions over
last year) with partners in compensation deficits, exacerbated by the cost of partner support personnel
from hires made to support the increased number of partners.
At year-end, the region has four partners, including one hired in the first quarter and one hired in the
second quarter. The Company expects ongoing profit suppression as newly hired partners ramp up their
business. As discussed in Expenses, the protracted ramp-up of new hire revenue, coupled with the fixed
costs has led to an impairment charge on the Company’s goodwill related to Europe.
GROSS PROFIT AND MARGIN (as a percentage of Revenue, Net of Reimbursements)
Fourth Quarter Gross Profit and Margin:
Gross profit in the fourth quarter was $5,735. The adoption of IFRS 15 resulted in a $228 increase in
gross profit during the quarter resulting from an increases in the US ($190) and Canada ($51) partially
offset by a decrease in Europe ($13). Excluding the IFRS 15 adoption, gross profit increased 3.3% (1.7%
on a constant currency basis) to $5,507 or 27.4% as a percentage of Revenue, Net of Reimbursements
(2018: $5,333 or 28.2%). On a constant currency basis, and excluding the impact of IFRS 15, gross profit
was $5,422 (2018: $5,333), or 27.2% of Revenue, Net of Reimbursements (2018: 28.2%).
On a segment basis, gross profit was generated as follows:
Caldwell – Management Discussion & Analysis
21
Q1Q2Q3Q4Annual3,808$ 2,991$ 4,869$ 5,735$ 17,403$ 24.7%20.1%24.9%27.9%24.7%3,976$ 3,677$ 4,929$ 5,333$ 17,915$ 26.4%24.6%27.3%28.2%26.8%2019201820192018Canada¹955$ 1,292$ United States5,189$ 3,936$ Europe(409)$ 105$ Total5,735$ 5,333$ ¹ 2019: $1,443 less $488 in intercompany licence fee revenue eliminated in consolidation 2018: $1,611 less $319 in intercompany licence fee revenue eliminated in consolidation
Year-to-Date Gross Profit and Margin:
Gross profit for the year was $17,403. The adoption of IFRS 15 resulted in a $695 increase in gross profit
year to date resulting from increases in the US ($634), Canada ($55) and Europe ($6). Excluding the IFRS
15 adoption, gross profit decreased 6.7% (9.0% on a constant currency basis) to $16,708 or 24.4% of
Revenue, Net of Reimbursements (2018: $17,915 or 26.8%). On a constant currency basis, and excluding
the impact of IFRS 15, gross profit was $16,294 (2018: $17,915), or 24.2% of Revenue, Net of
Reimbursements (2018: 26.8%).
On a segment basis, gross profit was generated as follows:
The quarter and full year variances are discussed in detail under the Revenue and Cost of Sales sections
of this document.
EXPENSES
Fourth Quarter Expenses:
Fourth quarter expenses increased 42.9% or $1,827 from the prior year comparable period to $6,086
(2018: $4,259). The increase was primarily related to two factors: (i) an impairment expense of $1,521
taken by the Company to fully write down the carrying value of the goodwill on its European segment;
and (ii) the result of a municipal tax assessment of $350 primarily related to prior years.
The goodwill that was impaired related to our UK acquisition of Hawksmoor Search Limited in 2014. Our
European business has had ongoing challenges in revenue generation from new hires. There is normally
an assimilation and ramp-up period associated with new hires, and this has been compounded with a
small overall partner base in Europe, client non-solicit periods for certain new hires and pressure in the
market from Brexit. While we continue to view Europe as strategically important, given the sustained
period of operating losses, our goodwill balance could not be supported, resulting in the impairment
charge. For additional information please see note 7 to our Consolidated Financial Statements and also
the Business Outlook section herein.
Caldwell – Management Discussion & Analysis
22
20192018Canada¹4,938$ 4,519$ United States13,539$ 13,026$ Europe(1,074)$ 370$ Total17,403$ 17,915$ ¹ 2019: $6,268 less $1,330 in intercompany licence fee revenue eliminated in consolidation 2018: $5,642 less $1,123 in intercompany licence fee revenue eliminated in consolidationQ1Q2Q3Q4Annual20193,379$ 2,968$ 3,330$ 6,086$ 15,763$ 20183,072$ 2,970$ 3,648$ 4,259$ 13,949$
The municipal tax assessment expense reflects taxes levied in the fourth quarter following an audit of
New York City commercial rent tax. The $350 charge represents the expected total amount to be paid
and relates primarily to prior fiscal periods.
Excluding the impairment charge, the tax assessment and exchange rate variances of $19, expenses on a
constant currency basis decreased $63 or 1.5% versus the same period last year.
The constant currency decrease was the result of decreased share-based compensation expense caused
by a decrease in the share price in the current year ($158), decreased marketing expenses due to a
brand update initiative in the previous year ($140), lower legal fees ($136) and lower director expenses
resulting from lower deferred stock unit valuations on the lower share price ($85) being partially offset
by increases in management bonus accruals as a result of partial attainment of operational targets
which had not been accrued for through the third quarter based on financial results ($322), higher
foreign exchanges losses on intercompany loan balances and US dollar denominated bank account
balances ($95) and general cost increases across other categories ($39).
On a segment basis, expenses were generated as follows:
Year-to-Date Expenses:
Full year expenses increased 13.0% or $1,814 over the prior year to $15,763 (2018: $13,949). Excluding
the fourth quarter goodwill impairment expense ($1,521), municipal tax assessment ($350), legal fees
related to the unsuccessful pursuit of a claim against a former client ($450), and exchange rate
variances of $226, expenses on a constant currency basis decreased $733 or 17.2% over the same period
last year.
The constant currency cost decrease of $733 resulted from decreased share-based compensation
expense caused by a decrease in the share price in the current year versus a share price increase in the
previous year ($453), decreases in management bonus accruals as a result of partial attainment of
operational targets in the current year versus higher attainment in the prior year ($269), decreased
office expenses primarily the result of savings realized on IT investments ($201), decreased marketing
expenses as a result of last year’s brand update initiative ($189), lower director expenses resulting from
lower deferred stock unit valuations on the lower share price ($134) and a decrease in other general
legal fees ($126). These constant currency decreases were partially offset by foreign exchanges losses
on intercompany loan balances and US dollar denominated bank account balances in the current year
compared to gains in the prior year ($227) increased compensation on higher corporate staff headcount
($141), increased business development costs on higher revenue ($107), increased recruitment fees
($73), increased consulting expenses ($67), and general increases across other categories ($24).
Caldwell – Management Discussion & Analysis
23
20192018Canada968$ 1,010$ United States¹3,475$ 2,985$ Europe²1,643$ 264$ Total6,086$ 4,259$ ¹ 2019: $3,963 less $488 in intercompany licence fee revenue eliminated in consolidation 2018: $3,304 less $319 in intercompany licence fee revenue eliminated in consolidation² Inclusive of $1,521 goodwill impairment expense
The Company filed suit against a former client regarding a claim for additional fees. The case was heard
and decided during the second quarter. The court determined no additional fees were due to the
Company. Under the client agreement, no damage or claim amounts were due by either party; however,
the prevailing party was entitled to a reimbursement of legal fees, which were fully accrued in the
second quarter. Total expenses related to the matter amounted to $450.
On a segment basis, expenses were generated as follows:
OPERATING PROFIT
Fourth Quarter Operating Profit/(Loss):
The operating loss for the fourth quarter of 2019 was $351. Excluding the goodwill impairment expense
discussed above, operating profit was $1,170. The adoption of IFRS 15 resulted in a $228 increase in
operating profit in the quarter. Excluding the goodwill impairment and IFRS 15 impacts, operating profit
decreased $132 to $942 (2018: $1,074). This $132 decrease came from higher net expenses ($306) from
the municipal tax assessment ($350) less other favourable expense variances ($44). The expense
increases were then partially offset by higher gross profit ($174) attributable to higher Revenue, Net of
Reimbursements ($1,232) less associated cost of sales ($1,058) from the variances discussed above.
Exchange rate variances had a net favourable impact of $109 to the operating profit results.
Caldwell – Management Discussion & Analysis
24
20192018Canada3,421$ 3,475$ United States¹10,203$ 9,562$ Europe²2,139$ 912$ Total15,763$ 13,949$ ¹ 2019: $11,533 less $1,330 in intercompany licence fee revenue eliminated in consolidation 2018: $10,685 less $1,123 in intercompany licence fee revenue eliminated in consolidation² Inclusive of $1,521 goodwill impairment expenseQ1Q2Q3Q4Annual429$ 23$ 1,539$ (351)$ 1,640$ 2.8%0.2%7.9%(1.7%)2.3%904$ 707$ 1,281$ 1,074$ 3,966$ 6.0%4.7%7.1%5.7%5.9%20182019
On a segment basis, fourth quarter operating profit was generated as follows:
Year-to-Date Operating Profit:
Operating profit for the year was $1,640. Excluding the goodwill impairment expense discussed above,
operating profit was $3,161. The adoption of IFRS 15 resulted in a year to date $695 increase in
operating profit. Excluding the goodwill impairment and IFRS 15 impacts, operating profit decreased
$1,500 to $2,466 (2018: $3,966). The $1,500 operating profit decrease was largely the result of lower
gross profit ($1,207) caused by higher revenue ($2,176) being more than offset by higher cost of sales
($3,383). The cost of sales increase over revenue came from higher partner compensation from
concentrations of business brought in by partners in higher grid levels and deficits from partners whose
draws exceed commissions earned as well as higher search team staffing made during the second half of
the prior year. The cost of sales impact was particularly pronounced in Europe which had low revenue
levels on a relatively fixed compensation base as discussed in the Business Outlook section of this
document. Higher expenses ($293) arising from the variances discussed above also contributed to the
operating profit decline. Exchange rate variances had a net favourable impact of $245 to the operating
profit results.
Caldwell – Management Discussion & Analysis
25
201920182019201820192018Canada475$ 601$ (13)$ 282$ (64)$ 282$ United States¹1,226$ 632$ 1,714$ 951$ 1,524$ 951$ Europe²(2,052)$ (159)$ (531)$ (159)$ (518)$ (159)$ Total(351)$ 1,074$ 1,170$ 1,074$ 942$ 1,074$ ¹ Inclusive of United States municipal tax assessment of $350² Inclusive of Europe goodwill impairment expense of $1,521 (in 'As Reported' in 2019)As ReportedExcluding Intercompany License Fee and Goodwill ImpairmentExcluding Intercompany License Fee, Goodwill Impairment and IFRS 15 Impact
On a segment basis, year to date operating profit was generated as follows:
The quarter and year to date variances are discussed in detail under Revenue, Cost of Sales and
Expenses.
INVESTMENT INCOME FROM MARKETABLE SECURITIES
We invest excess cash balances and manage market risk by using third party investment managers 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, 2019, managed funds
were $5,832 (August 31, 2018: $5,654). Additionally, we have a portfolio of illiquid equity investments
obtained through search fees that are classified as long-term with a balance of $85 at August 31, 2019
(August 31, 2018: $137).
Regarding investments generated from search services with clients, compensation equal to 65% of the
investment is paid to the respective partners involved with the search upon monetization of the
investment. All rights to the partners’ 65% (2018: 50%) of the equity instruments are transferred and
assigned beneficially to the respective partners, and a partner’s entitlement to any amounts upon
liquidation is not contingent upon being employed at the time of liquidation. As a result, the gross asset
value and compensation payable are offset, with the investment recorded at the net amount to which
the Company has economic rights.
We have designated the professionally managed fixed income funds within marketable securities at fair
value through profit and loss, and as a result these marketable securities are recorded at fair value with
gains and losses recorded in investment income.
Caldwell – Management Discussion & Analysis
26
201920182019201820192018Canada2,847$ 2,167$ 1,517$ 1,044$ 1,462$ 1,044$ United States¹²2,006$ 2,341$ 3,336$ 3,464$ 2,702$ 3,464$ Europe³(3,213)$ (542)$ (1,692)$ (542)$ (1,698)$ (542)$ Total1,640$ 3,966$ 3,161$ 3,966$ 2,466$ 3,966$ ¹ Inclusive of United States municipal tax assessment of $350 in 2019² Inclusive of United States legal expenses of $450 in 2019² Inclusive of Europe goodwill impairment expense of $1,521 (in 'As Reported' in 2019)As ReportedExcluding Intercompany License Fee and Goodwill ImpairmentExcluding Intercompany License Fee, Goodwill Impairment and IFRS 15 ImpactQ1Q2Q3Q4Annual2019(41)$ 97$ 88$ 67$ 211$ 20182$ 2$ 2$ 8$ 14$
We have designated the client equity investments within marketable securities at fair value through
OCI, and as a result these marketable securities are recorded at fair value with gains and losses
recorded in other comprehensive income. Our policy regarding client equity investments within
marketable securities is to sell the investments as soon as we are reasonably able to do so.
For the fourth quarter of 2019, we reported investment income from marketable securities of $67,
consisting of $59 in gains on managed investment funds (2018: unrealized gain of $35 reported as part of
other comprehensive income prior to the adoption of IFRS 9) and interest income on term deposits of $8
(2018: $8). Also during the fourth quarter, the Company reported investment losses from marketable
securities of $55 (2018: $42) from client equity investments through other comprehensive income.
For the year, we reported investment income from marketable securities of $211 (2018: $14) consisting
of $177 in gains on managed investment funds (2018: unrealized gain of $107 reported as part of other
comprehensive income prior to the adoption of IFRS 9) and interest income on term deposits of $34
(2018: $14). Also during the year, the Company reported investment losses from marketable securities
of $55 (2018: $42) from client equity investments through other comprehensive income.
EARNINGS
EARNINGS BEFORE INCOME TAXES
NET EARNINGS
BASIC EARNINGS PER SHARE
Our effective tax rate on a consolidated basis is high relative to the statutory tax rates we experience in
each of our geographies. This is primarily the result of earnings before tax generated in US and Canada
where we are in a tax-paying situation, and losses before tax in the UK where, due to the uncertainty of
using losses against future taxable income, we do not establish deferred tax assets on the net operating
losses. So our income tax expense effectively represents the tax on our US and Canada operations,
without the current ability to offset UK losses against.
Additionally on December 22, 2017, the US tax reform ("Tax Cuts and Jobs Act") was substantively
enacted and reduced the maximum federal corporate income tax rate for the company's US entity from
35% to 21%. In fiscal 2018, a hybrid rate derived from the previous and new tax rates was applied to US
Caldwell – Management Discussion & Analysis
27
Q1Q2Q3Q4Annual2019388$ 120$ 1,627$ (284)$ 1,851$ 2018906$ 709$ 1,283$ 1,082$ 3,980$ Q1Q2Q3Q4Annual2019211$ 33$ 1,035$ (954)$ 325$ 2018410$ 270$ 987$ 348$ 2,015$ Q1Q2Q3Q4Annual20190.010$ 0.002$ 0.051$ (0.047)$ 0.016$ 20180.020$ 0.013$ 0.048$ 0.018$ 0.099$
taxable income. The Company’s US entity deferred tax balances were adjusted to reflect the lower tax
rate to be utilized in future periods resulting in a net deferred tax expense of $654 for year ending
August 31, 2018, recognized $204 in the second quarter and $450 in the fourth quarter of fiscal 2018. In
the current year, the new, lower tax rate has been applied.
Income tax expense in the fourth quarter of fiscal 2019 was $670 (2018: $734; $284 net of the fourth
quarter deferred tax expense of $450 for the enacted rate adjustment) arising from a current income
tax expense of $1,196 (2018: $1,131) offset by a deferred tax recovery of $526 (2018: $398 recovery).
Income tax expense for the year ending August 31, 2019 was $1,526 or 82.4% of earnings before tax
(2018: $1,965 or 49.4%; $1,311 or 33.1% of earnings before tax, net of deferred tax expense from the
enacted rate adjustment) reflecting current tax expense of $2,052 (2018: $2,148) and deferred tax
recovery of $526 (2018: $183 recovery; $837 deferred tax recovery net of deferred tax expense from the
enacted rate adjustment).
Income tax expense for Canada for the quarter ended August 31, 2019 was $207 (2018: $134). For the
full year income tax expense for 2019 was $824 (2018: $602 or 27.6%) reflecting an effective tax rate of
28.9% compared to a statutory tax rate of approximately 26.5% in Canada.
Income tax expense for the US for the quarter ended August 31, 2019 was $463 (2018: $600; $150 net of
deferred tax expense from the enacted rate adjustment). Full year income tax expense for 2019 was
$702 or 35.0% (2018: $1,363 or 48.0%; $709 or 30.3% net of deferred tax expense from the enacted rate
adjustment).
No income tax expense recovery was recognized during 2019 for the UK (2018: $nil). Deferred income
tax assets of $599 (2018: $105) that can be carried forward against future taxable income have not been
recognized.
Fourth quarter net loss was $954 ($0.047 per share) in 2019, as compared to earnings of $348 ($0.018
per share) in the comparable period a year earlier. The full year net earnings after tax were $325
($0.016 per share) in 2019, versus $2,015 ($0.099 per share) in 2018.
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 4 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
thirty quarterly dividends through August 31, 2019 with total dividends declared of 57.0 cents per share
or $11,339 in total.
Effective November 18, 2019 the Board of Directors declared a dividend of 2.25 cents per share, payable
to holders of Common Shares of record on November 27, 2019 and to be paid on December 19, 2019.
Caldwell – Management Discussion & Analysis
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LIQUIDITY AND CAPITAL RESOURCES
We maintain cash balances at various financial institutions and in various geographies through our
subsidiaries. While we have 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 our legal entities, each entity must
maintain certain statutory liquidity levels.
As at August 31, 2019, we had $5,832 of current marketable securities plus cash and cash equivalents
including restricted cash of $10,668, for a total cash and current marketable securities balance of
$16,500, down $4,177 from $20,677 at year-end 2018. The decrease is the result of the payment of
dividends and advances to new partner hires as well as purchases of property and equipment partially
offset by cash flow from operations.
Our cash and compensation payable balances fluctuate significantly from period to period based on the
timing of commission payments per our compensation plans. Compensation payable is generally at its
lowest after the largest deferred compensation payments are made at the end of each February, and
generally grows during subsequent periods. The compensation payable is funded by the company’s cash,
marketable security balances and accounts receivable which build during the same cycle as the
compensation liability and are similarly reduced as cash is used to satisfy the compensation liability. As
a result, the cash balances and compensation payable typically move together taking into account non-
operating sources and uses of cash. At August 31, 2019, current Compensation Payable was $21,222
(2018: $19,205), total cash and current marketable securities were $16,500 (2018: $20,677) and
Accounts Receivable were $11,915 (2018: $10,858). 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:
Caldwell – Management Discussion & Analysis
29
Accounts receivable were $11,915 at August 31, 2019, up $1,057 from $10,858 at the end of fiscal 2018.
Days outstanding based on quarterly revenue were 52 days at August 31, 2019 versus 49 days at August
31, 2018. At August 31, 2019, a reserve of $501 or approximately 39% of accounts over 90 days old has
been taken (2018: $718 or 38% of accounts over 90 days).
Total liabilities were $26,763 at August 31, 2019, up $902 from $25,861 at the end of 2018. Increases in
compensation payable ($1,470), accounts payable ($696) and dividends payable ($51) were partially
offset by decreases in income taxes payable ($833), deferred revenue ($438) and provisions ($44).
Our investment in property and equipment at August 31, 2019 was $1,379 up $1 from $1,378 at the end
of 2018. This reflects additions of $564, depreciation expense of $520, disposals of $58 and exchange
rate fluctuations over the year of $15. Capital expenditures included leasehold improvements, computer
hardware and office furniture.
Shareholders’ equity at August 31, 2019 was $13,845, down $75 from $13,920 at the end of 2018. This
decrease reflects the opening balance adjustment of $1,291 as a result of the implementation of IFRS
15, the net earnings for the year of $325, dividends declared of $1,836, share based payment expense of
$3, translation gains on consolidation of $197 and unrealized losses on marketable securities of $55.
Caldwell – Management Discussion & Analysis
30
August 31August 31increase/20192018(decrease)Cash and cash-equivalents$10,623$14,885($4,262)Restricted cash45138(93)Marketable securities - current5,8325,654178Accounts receivable11,91510,8581,057Net deferred tax assets on compensation payable2,5141,952562Total current assets within unencumbered cash30,92933,487($2,558)Current liabilities(25,646)(24,153)(1,493)ExcludingDeferred revenue- 438(438)Deferred compensation- (219)219Accrued compensation on unbilled revenue2,043- 2,043Total net current liabilities within unencumbered cash(23,603)(23,934)331Total Unencumbered Cash$7,326$9,553($2,227)as at
CONTRACTUAL OBLIGATIONS
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 $1,949
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 18, 2019 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, 2019: 20,404,555; August
31, 2018: 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 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 18, 2019 options to purchase 250,000 common shares of the Company were
outstanding (August 31, 2019: 250,000; August 31, 2018: 250,000).
BUSINESS OUTLOOK
We experienced a significant softening in the overall search market over much of the first half of fiscal
2019. Strength in Canada was outweighed by weakness in the United States and Europe. Economic
uncertainty as manifested in equity market volatility, seemed to cause pause among our clients,
delaying hiring decisions.
In the latter half of the second quarter, we began to see new search bookings pick up in the United
States. The increased business activity continued throughout second half of the year and was the driving
force behind our record year and fourth quarter revenues. The strong business pipeline in the United
States and consistent activity in Canada has been tempered, however, by ongoing weakness in the
United Kingdom.
Caldwell – Management Discussion & Analysis
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Total20202021202220232024ThereafterOperating leases15,014$ 3,259$ 3,226$ 2,295$ 2,179$ 925 3,130$ Accounts payable 3,389 3,389 - - - - - Compensation payable22,290 21,222 580 138 - - 350 Dividends payable459 459 - - - - - Total41,152$ 28,329$ 3,806$ 2,433$ 2,179$ 925$ 3,480$
In the United States, where the majority of our search business is generated, market softness early in
fiscal 2019 gave way to strong second half growth. Booking numbers in the region have been consistently
strong since January and the pending engagement pipeline has continued to grow into the early part of
fiscal 2020.
Fiscal 2019 was a difficult year in our European operation. Ongoing challenges in revenue generation
from transitioning new partners were exacerbated by market pressures from Brexit, resulting in
disappointing performance. As a result of ongoing business losses, the goodwill balance attributable to
our European operation could no longer be supported from an accounting perspective and resulted in a
$1,521 non-cash write-down in 2019. However, early new business booking and business development
activity has generated cautious optimism about the prospects for the region in fiscal 2020. Europe
remains strategically important for our overall business, and we have confidence that our partner base
will deliver favourable long-term results.
In Canada, demand for services continues to be strong and stable with consistent new business bookings
through fiscal 2019 and into fiscal 2020.
Additional revenue and earnings growth remain a priority for the Company, at a measured pace that will
not otherwise impede the long-term consolidated profitability and 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 continue to prudently expand our service lines in areas that can leverage
the existing expertise of our search teams. Last year we launched our Agile Talent executive advisory
solutions, leveraging our executive search network to provide talent and knowledge solutions to our
clients on an on-demand basis, where full time hires are not required. Advisory solutions are now
available to clients in the fields of cybersecurity, blockchain and diversity and inclusion whereby
executives who are experts in their fields are placed in ongoing, operational advisory capacities,
available to work with client companies to aid in strategic roadmaps, product design, training,
mentoring, organizational design, best practices and use of existing and emerging technologies. These
same executives can also be made available to address specific client needs regarding a market or
technology on a short-term, ad-hoc basis.
During the second quarter of fiscal 2019, we launched Caldwell Advance--a service offering providing
search services for emerging leaders and advancing professionals for roles at levels below our executive
search business. Caldwell Advance services are provided by different teams and with a different staffing
leverage model than our executive search services and we announced the hiring of a director role for
that service. The expansion was in response to certain existing clients having an enterprise need for
broader talent solutions. Caldwell Advance will focus exclusively on mid-level leaders and individual
contributors, initially primarily focused within our industrial and life sciences practices. Further
expansion of this service line into other practice areas will be contemplated, based on the success of
this trial.
Caldwell – Management Discussion & Analysis
32
Also during the second quarter of fiscal 2019, we announced our agreement with Predictive Index, LLC
(“PI”) naming us as a PI Certified Partner. As a PI Certified Partner, we may utilize The Predictive Index
suite of talent strategy and assessment tools within our search services as well as sell and service the PI
platform directly to our clients for their enterprise-wide use.
We cannot guarantee the success of our service line expansions and will only scale them up further upon
successful initial results. While these initiatives will likely not result in significant additional revenue or
cost in the short-term, we do believe they provide immediate, meaningful differentiation and added
value to our clients with long-term returns expected.
RELATED PARTY TRANSACTIONS
Pursuant to its lease agreements, we paid rent for our 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, 2019 in the
amount of $223 (2018: $223). This lease expires on March 31, 2020.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
We make 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
Our method of revenue recognition requires us to estimate the expected average performance period
and the percentage of completion, based on the proportion of the estimated effort to fulfill our
obligations throughout the expected average performance period for our 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. Additionally, we are required to estimate based on historical
trends the total future value of our search contracts, including uptick amounts that are contingent upon
placement and the final compensation of our candidates, and this additional revenue is recognized over
the performance period. Changes in our actual uptick amounts and changes in the average performance
period or the proportion of effort expended throughout the performance period for our executive
searches could lead to an under or overvaluation of revenue. Further information on deferred revenue
and unbilled revenue are included in note 11 to the consolidated financial statements.
Allowance for doubtful accounts
Estimates are used in determining the allowance for doubtful accounts related to trade receivables. The
estimates are based on management’s best assessment of the expected losses for all accounts
receivable balances. Future collections of receivables that differ from management’s current estimates
would affect the results of operations in future periods.
Caldwell – Management Discussion & Analysis
33
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 tied 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 instruments
are most often in privately held companies without a specific obligation to share ongoing business
performance and valuation information. We value 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
We test 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.
The annual impairment test performed over Europe goodwill determined that the recoverable amount
based on the estimated value in use of the cash generating unit (CGU) was $0 as at August 31, 2019. This
was due to a downward revision to future cash flow projections for the segment resulting from negative
current period performance. As the carrying value for the segment exceeded the aggregate recoverable
amount of the assets in the CGU, an impairment expense of $1,521 (2018: nil) was incurred for the year
ended August 31, 2019.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting standards issued but not yet applied
Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognized on the balance
sheet, as the distinction between operating and finance leases is removed. Under the new standard, an
asset (the right to use the leased item) and a financial liability to pay rentals are recognized. The only
exceptions are short-term and low-value leases.
The standard will primarily affect the accounting for our operating leases for office space. Upon
adoption, lease obligations equal to the present value of the remaining lease payments, discounted
using the Company’s incremental borrowing rate at the date of initial application will be recognized. A
right of use asset, representing our right to use the underlying leased asset, will generally be equal to
the lease obligation at adoption and subsequently depreciated over the remaining lease term. Operating
lease expenses currently recognized in the consolidated statement of net earnings will be replaced by
depreciation of the right of use asset and interest expense on the lease obligation.
Caldwell – Management Discussion & Analysis
34
We completed a scoping and adoption plan during fiscal 2019 to assess and quantify the impact of
implementing IFRS 16.
We will adopt IFRS 16 in our consolidated financial statements for the annual period beginning
September 1, 2019 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. We have elected to apply certain practical expedients allowing us to not recognize
an asset or liability for any lease with a remaining term of fewer than 12 months as at August 31, 2019,
use a single discount rate on a portfolio of leases with reasonably similar characteristics, and place
reliance on previous assessments on whether a lease is onerous. The Company has also elected not to
reassess whether a contract is or contains a lease at the date of initial application. Instead, for
contracts entered into before the transition date, the Company has relied on its assessment made
applying IAS 17 and IFRIC 4, “Determining whether an Arrangement contains a Lease.”
Effective with the implementation of IFRS 16 on September 1, 2019, we expect to recognize $9,686 of
lease liability, $9,047 of right of use asset, $544 of lease receivable from sublease and derecognize $95
of onerous contract provision that is no longer a separate balance under IFRS 16.
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 guide 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. We intend to adopt
the amendments to IFRIC 23 in our consolidated financial statements for the annual period beginning
September 1, 2019. Based on our review of our tax treatments, the adoption of IFRIC 23 is not
anticipated to have a financial impact to the Company.
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
Caldwell – Management Discussion & Analysis
35
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 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 departing partners taking our clients 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 2019, approximately 12% (2018 11%) of consolidated revenue was
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.
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 harm our
financial condition. We mitigate this risk to some extent through 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; 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 regularly to review our policies and form of contracts. We
Caldwell – Management Discussion & Analysis
36
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 harm our business, financial condition and results of operations. Furthermore, even if any action
settles 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 concerning 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 under 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.
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. Also, 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 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.
Caldwell – Management Discussion & Analysis
37
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 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 so that we may respond.
Alignment of our cost structure with revenue
We must ensure that our costs and workforce continue to be in proportion to the 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.
Unfavourable 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 by working with our third party income tax
consultants in reviewing our tax structure regularly and providing advice regarding optimal tax
structures.
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 more than cash
generated, marketable securities and money market instruments may be liquidated, negatively
impacting the returns on those instruments.
Caldwell – Management Discussion & Analysis
38
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 a review of emerging
technologies we may leverage in our search process and focusing on 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 the most recently completed fiscal year, approximately 78% of our revenue was
generated outside of Canada and transacted in a currency other than the Canadian dollar. Translation of
foreign currency financial statements into the Canadian dollar impacts our profitability. Fluctuations in
relative currency values, particularly the strengthening of the Canadian dollar, could hurt our
profitability and financial condition. When management believes the Company has a significant short
term net cash or intercompany loan balance, they 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 Australia and New Zealand.
Nonetheless, such agreements are subject to renewal upon maturity dates outlined 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 before the respective
contract’s 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 practicable and consider the potential use of hedging derivatives if applicable.
Caldwell – Management Discussion & Analysis
39
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.
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
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 more than
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, under 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 the 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 enforce the terms of our credit agreement strictly. Although we are
currently in compliance with the financial covenants of our revolving credit facility, 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
Caldwell – Management Discussion & Analysis
40
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 Shareholders
Ewing Morris & Co. Investment Partners Ltd. ("Ewing Morris") is reported to own, directly or indirectly
approximately 18.0% of the outstanding Common shares. Mr. Darcy D. Morris, CEO of Ewing Morris, is
also a director of the Company. Mr. C. Douglas Caldwell, the original founder of The Caldwell Partners
International, Inc., is reported to own, directly or indirectly approximately 13.6% of the Company’s
outstanding Common shares. Either of these parties’ shares could have a material impact on the
outcome of any matters brought forth to the shareholders for a vote.
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 retain or attract 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 to the target of a
potential acquisition, 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.
Caldwell – Management Discussion & Analysis
41
DISCLOSURE CONTROLS AND PROCEDURES
Our 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, 2019, have concluded that the
Company’s disclosure controls and procedures are adequate and effective to ensure that material
information relating to the Company and its subsidiaries would have been known to them.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is also responsible for establishing and maintaining adequate internal controls over
financial reporting. Internal controls over financial reporting are designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with IFRS.
In designing and evaluating such controls, it should be recognized that due to inherent limitations, any
controls, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives and may not prevent or detect misstatements. Projections of any
evaluations of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Additionally, management is required to use judgment in evaluating
controls and procedures.
Management 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, 2019. 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, 2019.
Management has also evaluated whether there were changes in the Company’s internal controls over
financial reporting during the reporting period ended August 31, 2019 that materially affected, or are
reasonably likely to affect, our internal controls over financial reporting. Management has determined
that no changes occurred during the year ended August 31, 2019 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
42
THE CALDWELL PARTNERS
INTERNATIONAL INC.
Consolidated Financial Statements
for the years ended August 31, 2019
and August 31, 2018
Caldwell – Consolidated Financial Statements
43
The Caldwell Partners International Inc.
Years Ended August 31, 2019 and August 31, 2018
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 18, 2019
Caldwell – Consolidated Financial Statements
44
Independent auditor’s report
To the Shareholders of The Caldwell Partners International Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of The Caldwell Partners International Inc. and its subsidiaries (together, the
Company) as at August 31, 2019 and 2018, and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at August 31, 2019 and 2018;
the consolidated statements of earnings for the years then ended;
the consolidated statements of comprehensive earnings for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flow for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis and the information, other than the consolidated financial statements and our
auditor’s report thereon, included in the annual report.
PricewaterhouseCoopers LLP
PwC Centre, 354 Davis Road, Suite 600, Oakville, Ontario, Canada L6J 0C5
T: +1 905 815 6300, F: +1 905 815 6499
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Paul Hendrikse.
Chartered Professional Accountants, Licensed Public Accountants
Oakville, Ontario
November 18, 2019
Signed on behalf of the Board:
Elias Vamvakas
Chair of the Board
Kathryn A. Welsh
Chair of the Audit Committee
Caldwell – Consolidated Financial Statements
48
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(in $000s Canadian)As atAs atAugust 31August 3120192018AssetsCurrent assetsCash and cash equivalents10,62314,885Marketable securities (note 4)5,8325,654Accounts receivable11,91510,858Unbilled revenue (note 12)4,086- Prepaid expenses and other assets2,3201,71134,77633,108Non-current assetsRestricted cash45138Marketable securities (note 4)85137Advances1,047146Property and equipment (note 5)1,3791,378Intangible assets (note 6)- 92Goodwill (note 7)1,3132,885Deferred income taxes (note 13)1,9631,897Total assets40,60839,781LiabilitiesCurrent liabilitiesAccounts payable (note 11)3,3892,693Compensation payable (notes 9, 10 and 12)21,22219,205Dividends payable (note 15)459408Income taxes payable5761,409Deferred revenue (note 12)- 43825,64624,153Non-current liabilitiesCompensation payable (note 10)1,0681,615Provisions (note 11)499326,76325,861Equity attributable to owners of the CompanyShare capital (note 15)7,5157,515Contributed surplus (note 15)15,00515,002Accumulated other comprehensive income5811,257Deficit (9,256)(9,854)Total equity13,84513,920Total liabilities and equity40,60839,781The accompanying notes are an integral part of these consolidated financial statements.
Caldwell – Consolidated Financial Statements
49
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF EARNINGS(in $000s Canadian, except per share amounts)20192018RevenuesProfessional fees (note 12)69,74966,512Licence fees (note 22)700371 Direct expense reimbursements1,689- 72,13866,883Cost of sales (notes 8, 10 and 12)53,04648,968Reimbursed direct expenses1,689- 54,73548,968Gross profit17,40317,915ExpensesGeneral and administrative (notes 8, 9 and 10)12,61812,487Goodwill impairment (notes 7 and 8)1,521- Sales and marketing (note 8)1,4561,507Foreign exchange loss (gain) (note 8)168(45)15,76313,949Operating profit1,6403,966Investment income (note 4)21114Earnings before income tax1,8513,980Income tax expense (note 13)1,5261,965Net earnings for the year attributable to owners of the Company3252,015Earnings per share (note 14)Basic and diluted$0.016$0.099CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS(in $000s Canadian)20192018Net earnings for the year3252,015Other comprehensive income:Items that may be reclassified subsequently to net earnings(Loss)/gain on marketable securities (note 4)(55)65Cumulative translation adjustment197342Comprehensive earnings for the year attributable to owners of the Company4672,422The accompanying notes are an integral part of these consolidated financial statements. Twelve months ended August 31 Twelve months endedAugust 31
Caldwell – Consolidated Financial Statements
50
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(in $000s Canadian)UnrealizedCumulativeGains (Loss) onContributedTranslationMarketableTotalDeficitShare CapitalSurplusAdjustmentSecuritiesEquityBalance - August 31, 2017(10,237)7,51514,99242842213,120Net earnings for the year2,015----2,015Dividend payments declared (note 15)(1,632)----(1,632)Share-based payment expense (note 15)--10--10Change in unrealized loss on marketable securities----6565 Change in cumulative translation adjustment---342-342Balance - August 31, 2018(9,854)7,51515,00277048713,920Adoption of IFRS 9 (note 3)818---(818)- Adoption of IFRS 15 (note 3)1,291----1,291Net earnings for the year325----325Dividend payments declared (note 15)(1,836)----(1,836)Share-based payment expense (note 15)--3--3Change in unrealized loss on marketable securities (FVOCI)----(55)(55)Change in cumulative translation adjustment---197-197Balance - August 31, 2019(9,256)7,51515,005967(386)13,845The accompanying notes are an integral part of these consolidated financial statements.Accumulated Other ComprehensiveIncome (Loss)
Caldwell – Consolidated Financial Statements
51
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CASH FLOW(in $000s Canadian)20192018Cash flow provided by (used in)Operating activitiesNet earnings for the year3252,015Add (deduct) items not affecting cashDepreciation520537Amortization9490Amortization of advances898751Loss on disposition of assets20- Gain on marketable securities classified as FVPL(177)- Share based payment expense310Unrealized foreign exchange on subsidiary loans136(54)Decrease in provisions(44)(37)Decrease in deferred revenue(449)(676)Increase in unbilled revenue(558)- Increase in deferred income taxes(541)(194)Decrease in goodwill1,521- (Decrease) increase in cash settled share-based compensation(547)657Increase in accounts receivable(849)(1,182)Increase in prepaid expenses and other assets(148)(181)Increase in accounts payable 712599Increase in compensation payable9473,518(Decrease) increase in income taxes payable(879)757Payment of cash settled share-based compensation(943)(553)Net cash provided by operating activities416,057Investing activitiesPurchase of marketable securities- (500)Payment of advances(2,260)- Proceeds from release of restricted cash94- Purchase of property and equipment(564)(176)Proceeds from the disposition of property and equipment38- Net cash used in investing activities(2,692)(676)Financing activitiesDividend payments(1,836)(1,632)Net cash used in financing activities(1,836)(1,632)Effect of exchange rate changes on cash and cash equivalents225219Net (decrease) increase in cash and cash equivalents(4,262)3,968Cash and cash equivalents, beginning of year14,88510,917Cash and cash equivalents, end of year10,62314,885The net impact of opening balance sheet adjustments as a result of implementing IFRS 15 have been eliminated in thecreation of the consolidated interim statements of cash flow.The accompanying notes are an integral part of these consolidated financial statements. August 31Twelve months ended
THE CALDWELL PARTNERS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2019 AND AUGUST 31, 2018
(in $000s Canadian unless otherwise stated, except per share amounts)
1. General Information
The Caldwell Partners International Inc. (the “Company” or “Caldwell”) 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 consulting advice on the
identification, evaluation, assessment and recommendation of qualified candidates for specific
positions. The Company concentrates its activities on locating executives to fill senior executive
employment and executive advisory solutions. Our core service offerings have historically been the
placement of executives in full-time employed roles or an advisory capacity within fiduciary
governance boards.
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 agreements, Australia and New Zealand.
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).
The Board of Directors approved these consolidated financial statements for issue effective
November 18, 2019.
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.
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
Caldwell – Consolidated Financial Statements
52
consolidated from the date on which control is transferred to the Company. They are deconsolidated
from the date control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of
an acquisition is measured as the fair value of the assets given, equity instruments issued and
liabilities assumed at the date of acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at
the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the
cost of acquisition over the fair value of the Company's share of the identifiable tangible and
intangible net assets acquired is recorded as goodwill. The Company records contingent
consideration agreements at fair value, which are classified at fair value through profit or loss with
movements in the fair value being recognized within general and administrative expenses in the
consolidated statements of earnings.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified as
the Chief Executive Officer.
Foreign currency translation
(i)
Functional and presentation currency
The financial statements of the parent company and each subsidiary in the consolidated financial
statements of The Caldwell Partners International Inc. are measured using the currency of the
primary economic environment in which the subsidiary operates (the “functional currency”). The
functional and presentation currency of the Company is the Canadian dollar. The functional
currency of the subsidiary located in the United States is the US dollar. The functional currency of
the subsidiary located in the United Kingdom is the British pound sterling.
The financial statements of subsidiaries that have a functional currency different from the
presentation currency are translated into Canadian dollars as follows: assets and liabilities at the
closing rate at the date of the consolidated statements of financial position, and income and
expenses at the average rate of the period (as this is considered a reasonable approximation of the
actual rates prevailing at the transaction dates). All resulting changes are recognized in other
comprehensive income as cumulative translation adjustments.
If the Company disposes of its entire interest in a foreign subsidiary, or loses control over a foreign
subsidiary, the foreign currency gains or losses accumulated in other comprehensive income related
to the foreign subsidiary are recognized in profit or loss.
(ii)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of these transactions. Foreign exchange gains and losses resulting from the
settlement of foreign currency transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in currencies other than an entity’s functional currency
are recognized in the consolidated statements of earnings, within foreign exchange loss (gain).
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with banks and other short-term highly
liquid investments with original maturities of three months or less.
Caldwell – Consolidated Financial Statements
53
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 cost of sales on a
straight-line basis over the life of the contractual recoupment period.
Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows
from the assets have expired or have been transferred and the Company has transferred
substantially all risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount is reported in the consolidated
statements of financial position when there is a legally enforceable right to offset the recognized
amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability
simultaneously. Financial liabilities are derecognized when the obligation specified in the contract is
discharged, cancelled or expires.
The Company classifies its financial assets in the following measurement categories:
•
•
Those to be measured subsequently at fair value (either through OCI or through profit or
loss); and
Those to be measured at amortized cost.
The classification depends on the Company’s business model for managing the financial assets and
financial liabilities and the contractual terms of the cash flows.
(i)
Financial assets
At initial recognition, the Company measures a financial asset at its fair value plus, in
the case of a financial asset not at fair value through profit or loss, transaction costs
that are directly attributable to the acquisition of the financial asset.
The company assesses on a forward-looking basis the expected credit losses associated
with its financial assets carried at amortized cost. Lifetime expected credit losses
represent the expected credit losses that will result from all possible default events
over the expected life of a financial instrument.
Accounts receivable
For accounts receivable, the Company applies the simplified approach permitted by IFRS
9, which requires lifetime expected credit losses to be recognized at the time of initial
recognition of the accounts receivable.
Accounts receivable are written off when there is no reasonable expectation of
recovery. Indicators that there is no reasonable expectation of recovery include,
amongst others, significant financial difficulty of the obligor, delinquencies in payments,
Caldwell – Consolidated Financial Statements
54
and when it becomes probable the borrower will enter bankruptcy or other financial
reorganization. Impairment losses on financial assets carried at amortized cost 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.
Marketable securities
The Company’s marketable securities consist of two investment asset classes, managed
fixed income funds and equity investments in clients:
Fixed income funds investments
The Company’s professionally managed fixed income funds within marketable securities
are recorded initially at their fair value and subsequently measured at fair value through
profit and loss (FVPL).
Equity investments in clients
The Company holds certain equity investments in its clients as a portion of its search
fee. Such investments are generally held for long periods as they are illiquid, often
requiring a client company sale or initial public offering to allow the sale of the
marketable security. The Company’s standard policy is to sell such investments as soon
as reasonably possible once a liquidity event occurs. The Company classifies its equity
investments in clients at fair value through OCI (FVOCI) due to their long-term and
illiquid nature. All future disposals of these marketable securities will result in the
accumulated gains or losses remaining in accumulated OCI.
(ii) Financial liabilities
Financial liabilities at amortized cost include accounts payable, compensation payable
and dividends payable which are initially recognized at the amount required to be paid,
less, when material, a discount to reduce the payables to fair value. Subsequently,
financial liabilities at amortized cost are measured at amortized cost using the effective
interest method. Financial liabilities are classified as current liabilities if payment is due
within twelve months. Otherwise, they are presented as non-current liabilities.
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.
Caldwell – Consolidated Financial Statements
55
Gains and losses on disposal of property and equipment are determined by comparing the proceeds
with the carrying amount of the asset and are included as part of general and administrative
expenses in the consolidated statements of earnings.
Impairment of non-financial assets
Property and equipment and intangible assets (other than goodwill) are tested for impairment
whenever events or changes in circumstances indicate the carrying amount may not be recoverable.
For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash generating units or CGUs). The recoverable
amount is the higher of an asset's fair value less costs to sell and value in use (which is the present
value of the expected future cash flows of the relevant asset or CGU). An impairment loss is
recognized for the amount by which the asset's carrying amount exceeds its recoverable amount.
Goodwill is reviewed for impairment annually or at any time if an indicator of impairment exists.
Goodwill acquired through a business combination is allocated to each CGU or group of CGUs that
are expected to benefit from the related business combination. A group of CGUs represents the
lowest level within the Company at which the goodwill is monitored for internal management
purposes, which is not higher than an operating segment.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals
whenever events or circumstances warrant such consideration.
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
Caldwell – Consolidated Financial Statements
56
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
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 i) professional fees, ii) licence fee revenue and iii) direct expense
reimbursements.
(i)
Professional fees
Professional fees arising from the Company’s executive search engagement performance
obligation are recognized over time as clients simultaneously receive and consume the benefits
Caldwell – Consolidated Financial Statements
57
provided by the Company's performance. Generally, each executive search contract contains
one performance obligation which is the process of identifying potentially qualified candidates
for a specific client position. In most contracts, the transaction price includes both fixed and
variable consideration. Fixed consideration is comprised of a retainer, equal to approximately
one-third of the estimated first-year compensation for the position to be filled and indirect
expenses, equal to a specified percentage of the retainer, as defined in the contract. The
Company generally bills its clients for its retainer and indirect expenses in one-third increments
over three months commencing in the month the contract is executed. If actual compensation of
a placed candidate exceeds the original compensation estimate, the Company is often
authorized to bill the client for one-third of the excess compensation. The search industry and
the Company refer to this additional billing as uptick revenue. In most contracts, variable
consideration is comprised of uptick revenue and reimbursable direct expenses. The Company
bills its clients for uptick revenue upon completion of the executive search and direct expenses
are billed as incurred.
Professional fees are recognized when the Company has satisfied a performance obligation by
transferring services to a client. Professional fees from standard executive search engagements
are recognized over the expected average performance period, in proportion to the estimated
effort to fulfill the Company’s obligations under the engagement terms.
The Company’s method of revenue recognition involves a three-step evaluation and application:
1. First, the average length of time it takes to substantially complete the Company’s
performance obligation is determined. This represents the total period over which
professional fee revenue is to be recognized. This performance period is defined as
the number of days elapsed from beginning the search to completing all candidate
interviews. The average performance period across all of the searches completed by
the Company during the trailing two fiscal years is calculated, providing a large and
representative sample size. The performance period fluctuates from period to period
but has historically averaged approximately three months.
2. Second, the distribution of work effort throughout the performance period is
examined. This distribution determines the proportion of professional fee revenue to
recognize over the performance period. The work effort distribution calculation also
fluctuates from period to period, so the calculation is averaged over the trailing two
fiscal years.
3. Third, the total revenue for each search engagement to be recognized is estimated
which will then be recognized over the performance period and in proportion to the
work effort. Estimated total professional fees for the life of each search include total
retainer payments outlined in engagement letters and, with the adoption of IFRS 15
effective September 1, 2018, an estimate of uptick revenue expected to be received
at the time of successful placement of a candidate. This amount is estimated, in
aggregate, by looking at the total amount of uptick revenue during the trailing 24-
month period relative to the amount of retained revenue billed following our
contracts. Before adopting IFRS 15, this additional uptick revenue was recognized at
the time of candidate placement when it was known and considered earned.
Deferred Revenue and Unbilled Revenue
The Company’s revenue recognition policy creates differences in the timing between the
revenue recognition period and the billing period to its clients. As a result, the amount of
revenue invoiced and billed to clients on each search is compared to the amount of revenue
which should be recognized as calculated by the Company’s revenue recognition model.
Caldwell – Consolidated Financial Statements
58
Deferred Revenue
When aggregate amounts billed to clients exceed the calculated revenue to be recognized, the
Company defers the excess amount billed for recognition in a future period and adjusts the
related compensation expense. This excess amount billed is recorded through a deferred
revenue liability and a reduction in compensation payable related to such revenue.
Unbilled Revenue
When aggregate amounts billed to clients are less than the calculated revenue to be recognized,
the Company recognizes additional revenue in the current period concerning amounts to be
billed in a future period. This additional revenue is recorded through an unbilled revenue asset.
The Company estimates the compensation payable due related to the total recognized revenue
and records an increase in compensation payable related to the unbilled revenue.
Professional fees involving equity
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 due to the executive receiving compensation more
prominently in equity as well as a desire by early-stage companies to preserve cash. If equity is
a component of our professional fee, an estimate of the fair value to be realized at the date of
grant when the search is concluded is treated similar to uptick revenue and included in
professional fees. Per our partner compensation plan, a share of the equity instruments is
transferred and assigned beneficially to the partners as their form of compensation on such
instruments. 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. Prospective
changes in the fair value of the net investment amount are recorded in other comprehensive
income as outlined in the above IFRS 9 discussion and marketable securities note 4.
(ii)
Licence fees
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.
(iii)
Direct expense reimbursements
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. Under IFRS 15, the Company is deemed to be a principal regarding these
transactions as the vendors are selected by the Company and the obligation to pay the vendors
is borne by the Company. As such, the Company shows the gross amount of direct expenses
billed and recovered from clients as revenue, with the gross amount incurred recorded as a cost
of sales.
Caldwell – Consolidated Financial Statements
59
Cost of sales
Cost of sales includes direct costs associated with the generation of professional fees, which is both
variable and fixed compensation, and the related costs of employees involved in search activities.
When professional fees are deferred, the related amount of estimated compensation expense
directly associated with such professional fees is also deferred. This expense deferral is recorded as
a reduction in compensation payable in the consolidated statements of financial position.
Leases
The Company leases certain property and equipment. Leases are classified as either operating or
finance, based on the substance of the transaction at the inception of the lease.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases, net of any incentives
received from the lessor, are charged to profit or loss within general and administrative expenses on
a straight-line basis over the period of the lease.
Leases in which the Company assumes substantially all the risks and rewards of ownership, are
classified as finance leases and capitalized at the lease’s commencement at the lower of the fair
value of the leased property and the present value of the minimum lease payments. With a finance
lease, each lease payment is allocated between the liability and finance charges. The corresponding
rental obligations, net of finance charges, are included in borrowings. The interest element of the
finance cost is charged to profit or loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period. The property and
equipment acquired under finance leases is depreciated over the shorter of the useful life of the
asset and the lease term.
Currently, all of the Company’s leases pertain to its office space and are considered operating
leases.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of
shares are recognized as a deduction from equity.
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.
Caldwell – Consolidated Financial Statements
60
Recently Applied Accounting Standards
•
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments (IFRS 9), replaced the provisions of IAS 39, Financial Instruments:
Recognition and Measurement (IAS 39), that relate to the recognition, classification and
measurement of financial assets and financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting.
There was no impact on the Company’s financial liabilities as a result of the adoption of IFRS 9
on September 1, 2018, and no material change to the Company’s accounting policies for
financial liabilities.
The adoption of IFRS 9 on September 1, 2018 did result in changes in the Company’s accounting
policies and changes in the presentation of financial assets in the areas of accounts receivable
and marketable securities.
Accounts receivable
The Company was required to revise its impairment methodology under IFRS 9 for accounts
receivable. The Company now applies the IFRS 9 simplified approach to measuring expected
credit losses which uses a lifetime expected loss allowance for all accounts receivable. Accounts
receivable have been grouped based on shared credit risk characteristics and the days past due
to measure expected credit losses. Before the adoption of IFRS 9, IAS 39 provided that a credit
loss was only recorded upon the occurrence of a loss event. The implementation of this new
impairment analysis resulted in no required adjustments to the Company’s valuation of accounts
receivable at September 1, 2018.
Marketable securities
The adoption of IFRS 9 impacted the Company's presentation regarding marketable securities.
The Company’s marketable securities are made up of two investment asset classes, managed
fixed income funds and equity investments in clients, each impacted as follows:
Fixed income funds investments
IFRS 9 requires the Company to classify its professionally managed fixed income funds at fair
value through profit or loss (FVPL). Before the adoption of IFRS 9, these securities had changes
in their fair value recorded as accumulated gains or losses in accumulated other comprehensive
income (OCI). Effective with the adoption of IFRS 9, the Company reclassified these
accumulated OCI gains of $818 from accumulated OCI to a reduction in the Company’s deficit.
Equity investments in clients
With the adoption of IFRS 9, the Company classifies its equity investments in clients at fair value
through OCI (FVOCI). Before the adoption of IFRS 9, changes in the investment values were still
recorded in OCI, but with a reclassification of accumulated amounts from accumulated OCI to
the consolidated statements of earnings on the disposal of these marketable securities.
•
IFRS 15, Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers (IFRS 15), amended revenue recognition
requirements and established principles for reporting information about the nature, amount,
timing and uncertainty of revenue and cash flows arising from contracts with customers. The
adoption of IFRS 15 from September 1, 2018 resulted in changes in the Company’s revenue
recognition accounting policy. Per the transitional provisions in IFRS 15, the Company has
adopted the new rules on a modified retrospective basis which involves recognizing the
Caldwell – Consolidated Financial Statements
61
cumulative effect of applying the guidance at the date of initial application with no restatement
of the comparative periods presented. The Company recognized the cumulative effect of
initially applying IFRS 15 as an adjustment to its opening deficit balance on September 1, 2018
in shareholders’ equity. Under the modified retrospective method, comparative disclosures are
provided to show what the Company’s consolidated statements of financial position, earnings,
changes in equity and cash flow would have been had IFRS 15 not been adopted. The IFRS 15
adoption impacted the areas of i) professional fees and ii) direct expense reimbursements:
(i) Professional fees. The Company is paid a retainer for its executive search services 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 were previously recognized in the period in which the placed
candidate began working. Under IFRS 15, the Company is now 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.
(ii) Direct expense reimbursements. Direct expense reimbursements were previously included
within cost of sales as the net amount of direct expenses incurred by the Company, offset by
amounts billed and recovered from clients. Under IFRS 15, the Company now shows the gross
amount of direct expenses billed and recovered from clients as revenue, with the gross
amount incurred recorded 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, with no net change to gross profit.
Caldwell – Consolidated Financial Statements
62
The effect of the changes made to the Company’s statement of financial position as of September 1,
2018 as a result of the adoption of IFRS 9 and IFRS 15 were as follows:
Caldwell – Consolidated Financial Statements
63
IFRS 15IFRS 9August 31, 2018AdjustmentsAdjustmentsSeptember 1, 2018Current assetsUnbilled revenue- 3,130 - 3,130 Total current assets33,108 3,130 - 36,238 Non-current assetsDeferred income taxes1,897 (493)- 1,404 Total Non-current assets6,673 (493)- 6,180 Total assets39,781 2,637 - 42,418 Current liabilitiesCompensation payable19,205 1,784 - 20,989 Deferred revenue438 (438)- - Total current liabilities24,153 1,346 - 25,499 Total liabilities25,861 1,346 - 27,207 Equity attributable to owners of the CompanyDeficit(9,854)1,291 818 (7,745)Accumulated other comprehensive income1,257- (818)439Total equity13,920 1,291 - 15,211 Total liabilities and equity39,781 2,637 - 42,418
The effect of the changes made to the Company’s consolidated statement of financial position as of
August 31, 2019 as a result of the adoption of IFRS 15 was as follows:
Caldwell – Consolidated Financial Statements
64
Balances WithoutAdoption of ImpactAs ReportedIFRS 15of ChangesCurrent assetsUnbilled revenue4,086- 4,086Total current assets34,77630,6904,086Non-current assetsDeferred income taxes1,9632,456(493)Total Non-current assets5,8326,325(493)Total assets40,60837,0153,593Current liabilitiesCompensation payable21,22218,7192,503Income taxes payable576388188Deferred revenue- 920(920)Total current liabilities25,64623,8751,771Total liabilities26,76324,9921,771Equity attributable to owners of the CompanyDeficit(9,256)(11,054)1,798Cumulative translation adjustment58155724Total equity13,84512,0231,822Total liabilities and equity40,60837,0153,593August 31, 2019
The effect of IFRS 15 on the Company’s consolidated statement of earnings for the year ended
August 31, 2019 was as follows:
Caldwell – Consolidated Financial Statements
65
Balances WithoutAdoption of ImpactAs ReportedIFRS 15of ChangesRevenuesProfessional fees69,74968,359 1,390 Direct expense reimbursements1,689- 1,689 Total Revenue72,13869,059 3,079 Cost of sales53,04652,351 695 Reimbursed expenses1,689- 1,689 54,73552,351 2,384 Gross profit17,40316,708 695 Income taxes1,5261,338 188 Net earnings for the period attributable to owners of the Company325(182)507 Earnings per shareBasic and diluted0.016(0.009)0.025For the year ended August 31, 2019
Accounting standards issued but not yet applied
Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognized on the balance
sheet, as the distinction between operating and finance leases is removed. Under the new standard,
an asset (the right to use the leased item) and a financial liability to pay rentals are recognized. The
only exceptions are short-term and low-value leases.
The standard will primarily affect the accounting for the Company’s operating leases for office
space. Upon adoption, lease obligations equal to the present value of the remaining lease payments,
discounted using the Company’s incremental borrowing rate at the date of initial application will be
recognized. A right of use asset, representing the Company’s right to use the underlying leased
asset, will generally be equal to the lease obligation at adoption and subsequently depreciated over
the remaining lease term. Operating lease expenses currently recognized in the consolidated
statement of net earnings will be replaced by depreciation of the right of use asset and interest
expense on the lease obligation.
The Company completed a scoping and adoption plan during fiscal 2019 to assess and quantify the
impact of implementing IFRS 16.
The Company will adopt IFRS 16 in its consolidated financial statements for the annual period
beginning September 1, 2019 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. The Company has elected to apply certain practical
expedients allowing it to not recognize an asset or liability for any lease with a remaining term of
fewer than 12 months as at August 31, 2019, use a single discount rate on a portfolio of leases with
reasonably similar characteristics, and place reliance on previous assessments on whether a lease is
onerous. The Company has also elected not to reassess whether a contract is or contains a lease at
the date of initial application. Instead, for contracts entered into before the transition date, the
Company has relied on its assessment made applying IAS 17 and IFRIC 4, “Determining whether an
Arrangement contains a Lease”.
Effective with the implementation of IFRS 16 on September 1, 2019, the Company expects to
recognize $9,686 of lease liability, $9,047 of right of use asset, $544 of lease receivable from
sublease and derecognize $95 of onerous contract provision that is no longer a separate balance
under IFRS 16.
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 guide 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. Based on the Company’s review of
its tax treatments, the adoption of IFRIC 23 is not anticipated to have a financial impact to the
Company.
Caldwell – Consolidated Financial Statements
66
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.
The Company’s method of revenue recognition also requires it to estimate the total expected
revenue at the beginning of each contract, which requires the Company to estimate uptick revenue
on open searches, based on historic uptick rates. Changes in average uptick rates on executive
searches could lead to an under or overvaluation of revenue.
Further information on unbilled and deferred revenue is included in note 12.
Allowance for doubtful accounts
The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses
a lifetime expected loss allowance model in determining the loss for all accounts receivable.
Accounts receivable have been grouped based on shared credit risk characteristics and the days past
due to measure expected credit losses. Accounts receivable are written off when there is no
reasonable expectation of recovery.
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
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.
Caldwell – Consolidated Financial Statements
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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 are comprised of managed bond funds (classified as fair value
through profit or loss) and certain equity securities which are obtained through search fees being
paid partially in equity of the client and are held for long-term investment until there is a market
for sale (classified as fair value through OCI). As at August 31, 2019 managed funds and client equity
investments were $5,832 and $85, respectively, and as at August 31, 2018 managed funds and client
equity investments were $5,654 and $137, respectively.
Investment income consisted of the following:
During fiscal 2019, an unrealized loss of $55 was recognized as part of other comprehensive income
(2018: unrealized gain of $65).
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CurrentNon-currentFairportionportionAugust 31,value(FVPL)(FVOCI)20195,917 5,832 85 20185,791 5,654 137 20192018Interest 34 14 Unrealized gains177 - 211 14 12 months ended August 31,
5. Property and Equipment
Depreciation of property and equipment is included in general and administrative expenses in the
consolidated statements of earnings. Fixed assets with a cost of $170 and accumulated depreciation
of $118 were sold during the year for $38, resulting in a loss on disposal of $14 which was recorded
within general and administrative expenses in the consolidated statements of earnings. Additionally,
assets with cost and accumulated depreciation of $907 (2018: nil) and $901 (2018: nil), respectively
were disposed of during the year resulting in an additional loss of $6.
Caldwell – Consolidated Financial Statements
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Computer Furniture andComputerapplicationLeaseholdequipmentequipmentsoftwareimprovementsTotalYear ended August 31, 2018:Opening net book value553 435 3 708 1,699 Additions41 135 - - 176 Depreciation for the year(103) (160) (2) (272) (537) Exchange differences13 10 - 17 40 Closing net book value504 420 1 453 1,378 At August 31, 2018:Cost2,664 2,874 762 3,625 9,925 Accumulated depreciation(2,160) (2,454) (761) (3,172) (8,547) Net book value504 420 1 453 1,378 Year ended August 31, 2019:Opening net book value504 420 1 453 1,378 Additions97 157 - 310 564 Disposals(56) - - (1) (57) Depreciation for the year(101) (149) (1) (269) (520) Exchange differences5 4 - 5 14 Closing net book value449 432 - 498 1,379 At August 31, 2019:Cost2,710 3,035 762 3,939 10,446 Accumulated depreciation(2,261) (2,603) (762) (3,441) (9,067) Net book value449 432 - 498 1,379
6. Intangible Assets
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 which concluded effective August 31, 2019.
7. Goodwill
In assessing goodwill for impairment as at August 31, 2019 and 2018, 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 cash flow forecasts which were
determined based upon board approved budgets for the next year, and using the following
assumptions to extend the cash flows into future periods:
The impairment tests performed over the United States goodwill resulted in no impairment as at
August 31, 2019 or 2018.
The annual impairment test performed over Europe goodwill determined that the recoverable
amount based on the estimated value in use of the CGU was $0 as at August 31, 2019. This was due
to a downward revision to future cash flow projections for the segment resulting from negative
Caldwell – Consolidated Financial Statements
70
20192018Year ended August 31,Opening net book value92 178 Amortization for the year(94) (90) Exchange differences2 4 Closing net book value- 92 At August 31, Cost853 851 Accumulated amortization(853) (759) Net book value- 92 United States20192018Average growth rate5%5%Expected gross margin24%25%Discount rate8%8%Europe20192018Average growth rate3%3%Expected gross margin10%30%Discount rate8%8%
current period performance. As the carrying value for the segment exceeded the aggregate
recoverable amount of the assets in the CGU, an impairment expense of $1,521 (2018: nil) was
incurred for the year ended August 31, 2019.
8. Nature of Expenses
9. Compensation of Key Management
Key management includes the Board of Directors and the five named executive officers of the
Company.
Compensation expense pertaining to key management included:
Caldwell – Consolidated Financial Statements
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20192018Compensation costs56,55752,962Occupancy costs4,7594,511Reimbursed direct expenses1,689- Goodwill impairment1,521- Sales and marketing1,4561,507Professional services1,049624Staff training and meetings602587Depreciation520537Search execution materials582524Foreign exchange loss (gain)168(45)Amortization9490Other1,5011,62070,49862,91712 months ended August 31,20192018Salaries and short-term benefits2,397 2,669 Share-based compensation expense940 1,546 3,337 4,215 12 months ended August 31,
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
Non-current compensation payable
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 108% (2018:
120%) of target. PSU expense for the year ended August 31, 2019 of $872 (2018: $1,325) was
recorded within general and administrative expenses in the consolidated statements of earnings.
A summary of the Company’s PSU plan is presented below:
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20192018Commissions and bonuses20,069 18,407 Performance Stock Units1,153 798 21,222 19,205 As at August 31,20192018Performance Stock Units718 1,144 Deferred Stock Units350 471 1,068 1,615 As at August 31,Twelve months ended August 31,20192018NotionalNotionalunits (000s)units (000s)Outstanding at beginning of year1,8501,634Granted402570Dividends declared119126Settled(563)(480)Outstanding at end of year1,8081,850
Deferred stock units (DSUs)
DSU expense of $68 (2018: $221) for the year ended August 31, 2019 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:
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 through September 1, 2021 are less than the Company’s contracted lease
obligations. Onerous lease costs include the present value of these net sublease expenses over the
term of the sublease, real estate commissions and other costs associated with moving from the
premises. The current portion of the net sublease costs totals $46 (2018: $45) and is included in
accounts payable and the non-current portion of $49 (2018: $93) is included in provisions in the
consolidated statements of financial position.
A reconciliation of the provisions balance is below:
12. Unbilled Revenue and Deferred Revenue
At August 31, 2019, after adopting IFRS 15, aggregate amounts billed to clients were less than the
calculated revenue to be recognized. As a result, the Company recorded an unbilled revenue asset
of $4,086 and related increase to compensation payable of $2,043.
At August 31, 2018, a period before adopting IFRS 15, the aggregate amounts billed to clients
exceeded the calculated revenue to be recognized. As a result, the Company recorded a deferred
revenue liability of $438 and reduced compensation payable by $219, with such amounts to be
recognized during a future period.
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73
Twelve months ended August 31,20192018NotionalNotionalunits (000s)units (000s)Outstanding at beginning of year352345Granted5872Dividends declared2529Settled(159)(94)Outstanding at end of year27635220192018Outstanding at beginning of year138176Amounts charged against the provision (46)(48)Increase arising from the passage of time64Foreign exchange (3)6Outstanding at end of year95138Twelve months ended August 31,
Please refer to note 3 to these consolidated financial statements for a further discussion of
Company’s revenue recognition policy and the adoption of IFRS 15.
13. Income Taxes
Caldwell – Consolidated Financial Statements
74
20192018Current tax:Current tax on net earnings for the year2,052 2,148 Deferred tax:Origination and reversal of temporary differences(526) (183) 1,526 1,965 Twelve months ended August 31,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:20192018Canadian statutory income tax rate26.7%26.5%Deferred tax assets not recognized32.4%2.7%Non-deductible expenses4.8%0.8%Prior years taxes10.5%0.7%Foreign Rate differences13.7%2.7%Rate change(5.8%)15.1%Other0.1%0.8%82.4%49.3%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 in fiscal 2018, a hybrid rate derived from the current and new tax rates applies to the 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 decreased our 2018 income tax expense, the rate reductions also resulted in deferred tax charges in 2018 to revalue our deferred tax assets originally recognized at the higher rates. This resulted in deferred tax expense of $654 in 2018.
Caldwell – Consolidated Financial Statements
75
The analysis of deferred tax assets and liabilities is as follows:20192018Deferred tax assets:Deferred tax assets to be recovered after more than 12 months285 428 Deferred tax assets to be recovered within 12 months3,033 2,100 Deferred tax liabilities:Deferred tax liabilities to be recovered after more than 12 months(541) (491) Deferred tax liabilities to be recovered within 12 months(814) (140) Deferred tax assets (net)1,963 1,897 As at August 31,The movement of the deferred income tax account is as follows:20192018Outstanding at beginning of year1,897 1,650 Adjustments on initial application of IFRS 15(493) - Credit to statement of earnings526 183 Exchange differences33 64 Outstanding at end of year1,963 1,897 As at August 31,The movement in deferred income tax assets and liabilities during the year, without taking intoconsideration the offsetting of balances within the same tax jurisdiction, is as follows:Deferred tax assetsCompensationpayableOtherTotalAt August 31, 20172,192 366 2,558 Charged to the statement of earnings(13) (107) (120) Exchange differences77 13 90 At August 31, 20182,256 272 2,528 Adjustments on initial application of IFRS 15493 - 493 Credited to the statement of earnings150 241 391 Exchange differences(100) 6 (94) At August 31, 20192,799 519 3,318
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.
Caldwell – Consolidated Financial Statements
76
Deferred tax liabilitiesExcess Carrying Revenue not value of PP&Etaxable until over tax basea future yearOtherTotalAt August 31, 2017364 354 190 908 Charged to statement of earnings(134) (128) (41) (303) Exchange differences21 12 (7) 26 At August 31, 2018251 238 142 631 Adjustments on initial application of IFRS 15- 986 - 986 Charged/(credited) to the statement of earnings(4) (184) 53 (135) Exchange differences34 (133) (28) (127) At August 31, 2019281 907 167 1,355 Deferred income tax assets are recognized for tax loss carry-forwards and other temporary differences to theextent that the realization of the related tax benefit through future taxable earnings are probable. TheCompany did not recognize deferred income tax assets of $672 (2018: $400) that can be carried forwardagainst future taxable income.As at August 31, 2019, the Company has non-capital losses of $3,535 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 assets has been recognized for these capital losses.20192018Net earnings for the period attributable to owners of the Company3252,015Weighted average number of common shares outstanding20,404,55520,404,555Basic earnings per share$0.016$0.09912 months ended August 31,
(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.
15. Share Capital
Common shares
As at August 31, 2019 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).
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.
The Company has declared quarterly dividends since May 1, 2012. A summary of dividends declared
during fiscal 2018 and 2019 is as follows:
The dividend payable September 13, 2019 has been accrued in the Company’s consolidated financial
statements as at August 31, 2019.
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20192018Net earnings for the period attributable to owners of the Company3252,015Weighted average number of common shares outstanding20,404,55520,404,555Adjustment for stock options51,95318,660Weighted average number of common shares for diluted earnings per share20,456,50820,423,215Diluted earnings per share$0.016$0.09912 months ended August 31,DividendAggregateDeclaration DatePayment DatePer Sharedividends declaredNovember 9, 2017December 15, 2017$0.0200$408January 11, 2018March 19, 2018$0.0200$408April 5, 2018June 11, 2018$0.0200$408July 10, 2018September 13, 2018$0.0200$408November 13, 2018December 14, 2018$0.0225$459January 10, 2019March 18, 2019$0.0225$459April 3, 2019June 10, 2019$0.0225$459July 10, 2019September 13, 2019$0.0225$459
Stock options
Stock options are granted periodically to directors, officers and employees of the Company. Cash
received on exercise of options for common shares is credited to capital stock. Total outstanding
stock options are summarized as follows:
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 $3 has been recorded in the year ended August 31, 2019 (2018: $10).
Caldwell – Consolidated Financial Statements
78
Number ofWeightedNumber ofWeightedoptionsaverageoptionsaverageoutstanding (000s)exercise priceoutstanding (000s)exercise priceOutstanding at beginning of period250 $1.05100 $1.02Issued during the period- -250 $1.05Expired during period- -(100) $1.02Outstanding at end of period250 $1.05250 $1.05Exercisable at end of period125 - August 31, 2019August 31, 2018
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:
Caldwell – Consolidated Financial Statements
79
CanadaUnited States EuropeEliminationTotalProfessional fees15,497 53,282 970 - 69,749 Licence fees2,030 - - (1,330) 700 Direct expense reimbursements455 1,224 10 1,689 Revenues17,982 54,506 980 (1,330) 72,138 Cost of Sales(11,259) (39,743) (2,044) - (53,046) Reimbursed direct expenses(455) (1,224) (10) (1,689) (11,714) (40,967) (2,054) - (54,735) Gross profit (loss)6,268 13,539 (1,074) (1,330) 17,403 General and administrative(3,204) (9,101) (313) - (12,618) Goodwill impairment- - (1,521) - (1,521) Sales and marketing(244) (1,104) (108) - (1,456) Licence fees- (1,330) - 1,330 - Foreign exchange loss27 2 (197) - (168) Total expenses(3,421) (11,533) (2,139) 1,330 (15,763) Operating profit (loss)2,847 2,006 (3,213) - 1,640 Investment income211 - - - 211 Income taxes(824) (702) - - (1,526) Net earnings (loss) for the year2,234 1,304 (3,213) - 325 CanadaUnited States EuropeEliminationTotalProfessional fees14,546 49,770 2,196 - 66,512 Licence fees1,494 - - (1,123) 371 Revenues16,040 49,770 2,196 (1,123) 66,883 Cost of Sales(10,398) (36,744) (1,826) - (48,968) Gross profit (loss)5,642 13,026 370 (1,123) 17,915 General and administrative(3,392) (8,314) (781) - (12,487) Sales and marketing(182) (1,252) (73) - (1,507) Licence fees- (1,123) - 1,123 - Foreign exchange gain (loss)99 4 (58) - 45 Total expenses(3,475) (10,685) (912) 1,123 (13,949) Operating profit (loss)2,167 2,341 (542) - 3,966 Investment income14 - - - 14 Income taxes(602) (1,363) - - (1,965) Net earnings (loss) for the year1,579 978 (542) - 2,015 Twelve months ended August 31, 2019Twelve months ended August 31, 2018
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, 2019 corporate support costs totaled $6,857 (2018: $6,351)
with $5,241 allocated to the US (2018: $4,775), $1,520 to Canada (2018: $1,356) and $96 to Europe
(2018: $220). Intercompany licence fee revenues have been eliminated on consolidation.
A summary of property and equipment, goodwill and total assets by country is as follows:
Depreciation recorded on property and equipment and amortization of intangible assets by country
is as follows:
17. Commitments
The Company's future operating lease commitments for premises excluding explicitly identified
operating costs, including those amounts paid to related parties as set out in note 18, are as follows:
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 $1,949 through September 1,
2021, which is not reflected in the above.
During the year ended August 31, 2019, the Company expensed $3,366 (2018: $3,350) 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.
Caldwell – Consolidated Financial Statements
80
CanadaUnited StatesEuropeTotalCanadaUnited StatesEuropeTotalProperty and equipment642704331,379459889301,378Intangible assets---- -92-92Goodwill-1,313-1,313-1,2891,5962,885Total assets11,65628,27467840,60814,47323,8371,47139,781At August 31, 2019At August 31, 2018CanadaUnited StatesEuropeTotalCanadaUnited StatesEuropeTotalDepreciation expense2292801152023428716537Amortization expense-94-94-90-9020192018Twelve months ending August 31, 20203,259 Twelve months ending August 31, 20213,226 Twelve months ending August 31, 20222,295 Twelve months ending August 31, 20232,179 Twelve months ending August 31, 2024925 September 1, 2024 and thereafter3,130 15,014
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, 2019 was $45 (2018: $94).
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. The lease term
expires effective March 31, 2020. Occupancy costs within general and administrative expenses in the
consolidated statements of earnings have been recognized for the year ended August 31, 2019 in the
amount of $223 (2018: $223).
19. Financial Instruments
Classification of financial instruments
On September 1, 2018 (the date of initial application of IFRS 9), the Company assessed which
business models to apply to the financial assets held by the Company and has classified its financial
instruments into the appropriate IFRS 9 categories. A summary of the classifications under IFRS 9 as
at August 31, 2019 and under IAS as at August 31, 2018 is shown below:
Caldwell – Consolidated Financial Statements
81
IFRS 9FinancialLiabilitiesassets at at amortizedAs at August 31,Financial instrumentsamortized costcostFVOCI2019Cash and cash equivalents10,623 - - 10,623 Current marketable securities5,832 - - 5,832 Accounts receivable11,915 - - 11,915 Restricted cash45 - - 45 Accounts payable- (3,389)- (3,389)Compensation payable- (21,222)- (21,222)Dividends payable- (459)- (459)Non-current marketable securities- - 85 85 28,415 (25,070)85 3,430
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, 2019 and August 31,
2018 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.
Caldwell – Consolidated Financial Statements
82
IAS 39Other financialLoans andliabilitiesreceivables atat amortizedAs at August 31,Financial instrumentsamortized costcostFVOCI2018Cash and cash equivalents14,885 - - 14,885 Accounts receivable10,858 - - 10,858 Restricted cash138 - - 138 Accounts payable- (2,693)- (2,693)Compensation payable- (19,205)- (19,205)Dividends payable- (408)- (408)Current marketable securities- - 5,654 5,654 Non-current marketable securities- - 137 137 25,881 (22,306)5,791 9,366 August 31, 2019Level 1Level 2Level 3Marketable securities-5,83285August 31, 2018Level 1Level 2Level 3Marketable securities-5,654137
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 professionally managed fixed income funds 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 Company’s professionally managed fixed income funds are
recorded initially at their fair value and subsequently measured at fair value through profit and loss.
As at August 31, 2019, the Company has $5,832 invested in these securities (2018: $5,654). 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 $292 (2018: $283).
The equity securities obtained through search fees being paid partially in equity of the client are
included within level 3 of the fair value hierarchy and are in private companies whose value is
derived from estimates used in recent financings with discounts applied to factor in vesting and
transfer restrictions on the units held. These investments are subsequently measured at fair value
through OCI. As at August 31, 2019, the Company has $85 invested in these securities (2018: $137).
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 $4 (2018: $7).
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, 2019, the Company has US dollar net monetary asset exposure of $10,180 (2018:
$7,638). 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 $509 recognized in the cumulative translation adjustment in the Company’s
consolidated statements of comprehensive earnings for the year ended August 31, 2019 (2018:
$382). As these are long-term investments and not expected to be liquidated to Canadian dollars,
they are not hedged.
As at August 31, 2019, the Company has British pound sterling net monetary asset exposure of
$2,184 (2018: $992). 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 $109 recognized in the cumulative translation
adjustment in the Company’s consolidated statements of comprehensive earnings for the year ended
August 31, 2019 (2017: $50). As these are long-term investments and not expected to be liquidated
to Canadian dollars, they are not hedged.
Caldwell – Consolidated Financial Statements
83
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:
Credit risk
Credit risk is the risk of an unexpected financial 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. The Company monitors the collectability of accounts receivable and estimates loss allowance.
Caldwell – Consolidated Financial Statements
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Less than6 monthsLess than6 months6 monthsto 1 year1 to 3 years6 monthsto 1 year1 to 3 yearsAccounts payable3,389 --2,693 --Compensation payable21,222 -1,068 19,205 -1,615 Dividends payable459 --408 --25,070 - 1,068 22,306 - 1,615 As at August 31, 2019As at August 31, 2018
Accounts receivable comprised the following as at August 31:
No financial assets are past due except for a portion of accounts receivable. As at August 31, 2019,
accounts receivable of $10,875 (2018: $9,120) were fully performing, $770 (2018: $1,178) were over
90 days but not impaired and $501 (2018: $718) were over 90 days and impaired.
The following table summarizes the changes in the loss allowance for the accounts receivable:
Financial instruments that potentially subject the Company to significant concentrations of credit
risk primarily consist of accounts receivable. The Company evaluates the recoverability of its
accounts receivable on an on-going basis.
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).
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.
Caldwell – Consolidated Financial Statements
85
20192018Accounts receivable12,14611,016Less: loss allowance(501)(718)11,64510,298Other receivables27056011,91510,858As at August 3120192018Beginning of year718522Increase in loss allowance870629Receivables written off during the year as uncollectible(971)(398)Unused amounts reversed(116)(35)End of year501718Twelve months endedAugust 31,
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, 2019, no amounts were outstanding on the credit facility
and letters of credit of $271 (August 31, 2018: $266) 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 licence fee
payments, the licencees have rights to use the Caldwell Partners brand, search processes,
methodologies and related intellectual property. For the year ended August 31, 2019 licence fees
amounted to $700 (2018: $371).
Effective July 13, 2015, the Company entered into a five-year licensing agreement with CPGroup
LATAM Ltd. and its subsidiaries (CPGroup), having operations throughout Latin America.
Effective November 8, 2015, the Company entered into a five-year 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, operating in New Zealand.
Effective January 14, 2019, the Company entered into a five-year licensing agreement with
Hattonneale Pty Ltd., an Australian corporation, operating in Australia. The agreement includes an
option to terminate by Hattonneale at the end of the agreement’s second year.
Effective February 28, 2019, the Company and CPGroup announced they had mutually agreed to end
their licensing relationship. As part of the agreement for early termination, CPGroup made a one-
time payment to the Company in the amount of $218, which is reflected in licence fees for the year
ending August 31, 2019. Within total license fees, license fees from CPGroup, including the
termination payment, for the year ended August 31, 2019 were $497 (2018: $245).
23. Subsequent Events
Effective November 18, 2019, the Board of Directors declared a dividend of 2.25 cents per share,
payable to holders of common shares of record on November 27, 2019 and to be paid on December
19, 2019.
Caldwell – Consolidated Financial Statements
86
Directors
Elias Vamvakas, Chair of the Board
Chairman, Greybrook Capital Inc.
Paul R. Daoust
Officers
John N. Wallace
President and Chief Executive Officer
The Caldwell Partners International Inc.
Consultant and Corporate Director
C. Christopher Beck, CPA
Darcy D. Morris
Founder and CEO, Ewing Morris & Co.
Investment Partners
John N. Wallace
President & Chief Executive Officer
The Caldwell Partners International Inc.
Kathryn A. Welsh
Corporate Director
John Young
Chief Executive Officer, Boat Rocker Media Inc.
Shareholder Information
Auditors
PricewaterhouseCoopers LLP
Chartered Accountants, Toronto, Ontario
Counsel
Miller Thomson LLP
Barristers and Solicitors, Toronto, Ontario
Stock Exchange Listing
The Toronto Stock Exchange (symbol: CWL)
Chief Operating & Finance Officer and Corporate Secretary
The Caldwell Partners International Inc.
Transfer Agent
Computershare Limited
Computershare Limited operates a telephone information
inquiry line that can be reached by dialing toll free:
+1 866 313 1872 or +1 604 699 4954
Correspondence may be addressed to:
The Caldwell Partners International Inc.
c/o Computershare Limited
100 University Avenue, 8th floor
Toronto, Ontario, M5J 2Y1
for other information, please contact:
C. Christopher Beck
Chief Operating & Finance Officer
The Caldwell Partners International Inc.
One Six Five Avenue Road
Toronto, Ontario, M5R 3S4
+1 416 920 7702 fax +1 416 920 8533
leaders@caldwellpartners.com
TALENT
TRANSFORMS
WE BELIEVE TALENT TRANSFORMS
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. With offices and partners across
North America, Europe and Asia Pacific, we take pride in delivering an unmatched
level of service and expertise to our clients.
Understanding that transformative talent is not limited to executive levels, our
Caldwell Advance solution focuses on emerging leaders and advancing
professionals who can also have a profound impact on a company’s ability to turn
potential into success. We also leverage our skills and networks to provide agile
talent solutions in the form of flexible and on-demand advisory solutions for
companies looking for support in strategy and operations. Also, we are a leading
licensed certified partner of The Predictive Index (PI), an award-winning talent
optimization platform with a suite of talent strategy and assessment tools that –
when integrated with our search process – helps clients hire the right people, then
manage and inspire them to achieve maximum business results as fast as possible.
www.caldwellpartners.com
@CaldwellPtners
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