ANNUAL REPORT 2020
AT CALDWELL, WE BELIEVE IN THE
TRANSFORMATIVE POWER
OF GREAT PEOPLE.
Dear Shareholders, Clients, and Friends:
Fiscal 2020 certainly was a year unlike any other. After a record start to the year, the
world went in a completely unexpected direction when the pandemic and ensuing
economic fallout hit in March. With that came a swift and material reduction in business,
as new assignment levels fell and remained depressed throughout the summer.
Despite the daunting climate, we did what we do best – providing high quality service to
our clients while ensuring the safety of our employees. With an impressive ability to adapt
and innovate in new business development and search execution, our team has done a
superlative job of delivering outstanding and transformative leadership talent for our
clients throughout.
Through a combination of decisive cost management initiatives, coupled with the benefit
of government stimulus grants, we are exiting this challenging year in a position of
financial strength. We generated positive earnings for the year - $58.2 million in revenue
and $3.8 million in operating profit – and have a balance sheet and a cash position with
liquidity to manage through further twists and turns in the ongoing pandemic
environment.
In the face of swirling uncertainty, we focused on serving our clients’ needs and making
continuous improvements in our ability to do so. We added several new executive search
partners and teams in fiscal 2020 and established a presence in Richmond, VA. We
launched Caldwell Analytics, our talent optimization solution that uses highly respected,
results-driven assessments to drive better results for our clients. Additionally, Caldwell
Advance, which leverages our proven search process to deliver emerging leaders and
advancing professionals, continues to grow to positive reception from our clients.
Public awareness of the importance of diversity and inclusion grew in 2020, and we
committed to champion change for ourselves, for our clients and for our industry at large.
We signed pledges with CEO Action for Diversity & Inclusion™ and BlackNorth Initiative,
two organizations committed to advancing diversity and inclusion in the workplace. We
were also named to the Globe and Mail’s Women Lead Here list, a new annual benchmark
of executive gender diversity in corporate Canada. As one of just 75 companies to earn
this honour for the percentage of female-identifying representation in the top three tiers
Caldwell – Shareholders Letter
1
of executive management, we are proud of the positive steps we’ve taken, and look
forward to further initiatives ahead.
We celebrated our 50th anniversary on September 1 – an incredible milestone and a
testament to the importance of the work we do. We’ve been making a real difference to
the success of our clients and the lives of our candidates for 50 years, one search at a
time. We here at Caldwell take great pride in this important work.
As we look ahead to Fiscal 2021, we intend to leverage our strong financial position to
make strategic investments to expand and refine our ability to serve our clients’ needs.
Since the trough of the summer, we have seen monthly sequential increases in new search
volumes and business development activity and are confident in our ability to garner
market share throughout a recovering market. Circumstances will keep evolving, but we
have the greatest team out there and will continue to thrive and succeed.
We are immensely grateful to our entire Caldwell team. They have proven beyond a
shadow of a doubt that they are up to any challenge and can keep moving onward and
upward in any circumstance. Their outstanding resourcefulness, commitment and
fortitude have been a real inspiration and a source of great pride to us all.
Yours sincerely,
Elias Vamvakas
Chair of the Board
John Wallace
President & Chief Executive Officer
Caldwell – Shareholders Letter
2
THE CALDWELL PARTNERS
INTERNATIONAL INC
MANAGEMENT DISCUSSION AND ANALYSIS
For the years ended August 31, 2020
and August 31, 2019
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 a talent acquisition firm specializing
in recruiting executives on behalf of its clients. The Company contracts with its clients, on an assignment
basis, to provide consulting advice on the identification, evaluation, assessment and recommendation of
qualified candidates for specific positions. Our core service offerings have historically been the placement
of executives in full-time employed roles or an advisory capacity withing fiduciary governance boards.
During 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 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 refer to these
strategy and assessment offerings as Caldwell Analytics. 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, Sydney, Toronto, Vancouver and, through our licensee location in Auckland, New Zealand.
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, including the impact of pandemic
diseases; 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 and other
governmental rulings; our ability to generate sufficient cash flow from operations to support our growth
while providing potential dividends; 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
Caldwell – Management Discussion & Analysis
4
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 12, 2020, should be read in conjunction with
our consolidated annual audited financial statements and related notes and our Annual Information Form
for the year ended August 31, 2020. 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).
The significant impact COVID-19 has had on our business, which may continue in subsequent periods, is
discussed below in the Impact of COVID-19 on Operating Results section and our Business Outlook and Risk
Factors sections.
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. 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 23 to the consolidated financial statements, the Company has a licensing
agreement with a non-owned entity, The Caldwell Partners International New Zealand Limited (“Caldwell
NZ”). The licensing agreement 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, 2020. In exchange for the licence fee payments, Caldwell NZ can 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 a licensing
agreement which commenced on February 7, 2019 with Hattonneale Pty Ltd. of Australia that was
terminated by mutual agreement effective August 31, 2020. This is 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.
Caldwell – Management Discussion & Analysis
6
ACCOUNTING PRONOUNCEMENTS IMPACTING OPERATING RESULTS
ADOPTION OF IFRS 16, LEASES
Effective September 1, 2019 we implemented IFRS 16, Leases (“IFRS 16”), as discussed in detail in our
consolidated financial statements in the recently applied accounting standards section. IFRS 16 requires
us to record most of our lease agreements as both a liability and an asset. The present value of future
lease payment obligations is recorded as a lease liability using our incremental borrowing rate. A right-
of-use (“ROU”) asset reflecting the benefit of using the leased space in the future is also recorded, initially
at the same amount.
The lease liability is classified and treated as a financial liability, similar to debt. The balance is accreted
each period at our incremental borrowing rate. The resulting lease liability interest expense is presented
in our consolidated statement of earnings on a line item below operating profit.
The ROU asset is classified and treated as a long-term asset, similar to a fixed asset. The ROU is reduced
over time through a straight-line depreciation matching the time we receive the benefit of using the
premises or other leased assets or over the assets' expected useful life, whichever is shorter.
A summary of the most significant areas of impact from IFRS 16 are as follows:
Statement of Financial Position
Our total liabilities and our total assets have increased. We recognized a lease liability, classified between
its current and non-current portions, and a corresponding ROU asset which is classified as non-current.
Prior to IFRS 16, we disclosed the amounts payable in future periods on our leases in the notes to our
consolidated financial statements, but we did not record liabilities or assets pertaining to future periods
other than a deferred rent liability created by the straight-line recognition of expense relative to lease
payments made, which are generally lower in early periods and escalate throughout the lease life. Prior
to the implementation of IFRS 16, we carried an onerous lease provision equal to the net difference
between the discounted future payments we were required to pay the landlord and the amount we
expected to receive from our subtenant. These future payments are now reflected as a present valued
lease liability on future amounts payable and a present valued lease receivable on future amounts
receivable. The deferred rent liability is no longer applicable and was derecognized on the adoption of
IFRS 16.
Statement of Earnings
As permitted by IFRS 16, we elected to exclude operating, maintenance and real estate tax expenses on
our leases from the present value calculation of the lease liability and ROU asset. These operating costs
are treated as period costs and included as occupancy expenses in arriving at operating profit. Prior to
IFRS 16, these costs were comparably recorded as occupancy expenses.
Depreciation expense on ROU assets is recognized on a straight-line basis as an occupancy cost, and it is
included in expenses in arriving at operating profit. Prior to IFRS 16, we recorded period lease expense
on a straight-line basis over the lease's life, but there was not a present-value component to the
calculation. Therefore, lease expense in occupancy expenses would have been higher in periods before
the adoption of IFRS 16.
Interest expense is calculated on the discounted lease liability and included in arriving at earnings before
tax. Prior to IFRS 16, lease liabilities were off the balance sheet, and no expense was recorded.
Caldwell – Management Discussion & Analysis
7
Statement of Cash Flows
Our lease agreements, including future payment obligations and rights to use the premises, have not
changed. As such, the impact on our consolidated interim statement of cash flow in total has not changed.
However, the classification of payments within the cash flow has changed. As the lease liability is now
considered a financial liability, we add back ROU amortization and interest expense to our operating
activities and reflect the principal payments on the lease liability, the receipt of sublease payments and
the interest expense on lease liability as financing activities. Prior to adopting IFRS 16, all related lease
costs were classified as operating activities. Current period operating costs on our leased facilities are
included as operating activities, as they were before adopting IFRS 16.
IMPACT OF COVID-19 ON OPERATING RESULTS
On January 30, 2020, the World Health Organization (WHO) characterized the novel coronavirus (COVID-
19) as a public health emergency. At that time, there had not been a direct negative impact seen within
the regions we operate. On March 11, the WHO expanded its characterization of COVID-19 to a global
pandemic. The effect of COVID-19 on us has been significant. Areas of impact include both decreased
revenue and the resulting initiatives we took to control and reduce costs.
Employment levels and hiring at our clients were dramatically reduced. This is reflected in our
operations by lower levels of new searches, increased competitive pricing pressure and delays in closing
searches when face to face interviews were disrupted by travel and health restrictions. Revenue was
additionally pressured by our taking a provision for professional fee adjustments based on our concerns
regarding our clients' additional financial pressures.
In reaction to the immediate and anticipated continuing revenue impact, in the third quarter of 2020 we
reduced our employee staffing levels through terminations and furloughs and reduced the base salary
and draws of all employees, including management and the board of directors. Mitigating the immediate
negative revenue impact, our quarterly results benefitted from the reversal of year-to-date bonus
accruals, a reduction in share-based compensation accruals arising from a decline in our share price, a
reduction in the average variable compensation paid to partners based on their respective revenue
levels, office rationalization savings, reduced discretionary spending and the ability to obtain certain
government stimulus grants (see below). To enhance immediate liquidity, we converted our managed
bond funds to cash, which resulted in realized investment losses in the quarter and suspended dividend
declarations.
As of the date of this MD&A, our business has seen some recovery from the revenue declines in the third
and fourth quarters. We have generated profit in the third and fourth quarters and positive cashflow
increasing our Unencumbered Cash, as a result of government stimulus grants, our cost savings
initiatives and built-in variable compensation plans. Based on these trends, we announced we are
returning to our employees, management and board of directors the amount of their remuneration cuts
by making restoration payments in place of any short-term or discretionary bonus amounts for the year.
The restoration amounts are fully provided for in our year-end accruals as of August 31, 2020.
These impacts are discussed in more detail in the following sections, and we reference our Business
Outlook section for a discussion on anticipated future results.
GOVERNMENT STIMULUS GRANTS
We have participated in available stimulus grants offered by the governments in Canada and the United
States to help offset the negative impact of the COVID-19 pandemic. The total amount of government
stimulus grants recognized during 2020 was $2,839 ($241 and $2,598 in the third and fourth quarters,
Caldwell – Management Discussion & Analysis
8
respectively).
Canada government stimulus grant
Within Canada, we participated in the Canada Emergency Wage Subsidy (“CEWS”). CEWS provides
qualifying companies with a monthly financial support grant based on payroll, subject to certain caps.
Eligibility is triggered by and scaled according to the reduction in year-over-year Canadian revenue on a
month by month basis. We anticipate the CEWS will continue into the beginning of fiscal 2021, but at a
reduced amount as our revenue begins to recover and the stimulus program ends or is altered to be of
smaller or no continuing benefit.
We recognized government stimulus grant income as a reduction in cost of sales expenses of $241, $466
and $707 in the third quarter, fourth quarter and full year of 2020, respectively.
United States government stimulus grant
On April 22, 2020 we were granted a US dollar-denominated loan from TD Bank N.A. in the amount of
USD $1,613 ($2,267 at the grant date exchange rate) pursuant to the Paycheck Protection Program
("PPP") established as part of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") which
was enacted on March 27, 2020 in the United States.
The loan, which is in the form of a note dated April 22, 2020 issued by the Company, matures on April
22, 2022 and bears interest at a rate of 1.0% per annum, payable monthly, but only if the government
denies the application for loan forgiveness. The note may be prepaid at any time before maturity with
no prepayment penalties. Subject to certain limitations, funds from the loan used for payroll costs,
costs used to continue group health care benefits, rent and utilities are eligible for potential forgiveness
upon review and approval by the lender per the CARES Act.
We believe we have complied with the relevant provisions of the program by validly using the entire
proceeds of the loan for qualifying expenses during the coverage period and that forgiveness of the loan
is therefore probable. As a result, we have recategorized the proceeds from the loan to a government
stimulus grant, represented by deductions in cost of goods sold and selling, general and administrative
expenses, respectively.
We applied for forgiveness review by our lender and the US government on September 21, 2020. It is
unknown how long the loan forgiveness review process will take, with an indication from our lender of
up to five months. Ultimate forgiveness is dependent on the bank review and a further review by the
Small Business Administration of the United States (“SBA”). While management believes the forgiveness
criteria have been achieved, no forgiveness guarantee can be given until the SBA grants formal
forgiveness.
While other stimulus measures are being discussed in the United States, we do not anticipate obtaining
additional grants.
The total government stimulus grant recognized was $2,132 based on exchange rates in effect when
recognized in the fourth quarter as a reduction of cost of sales expenses ($1,739) and selling, general
and administrative expenses ($393).
Caldwell – Management Discussion & Analysis
9
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
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 expenses.
This caused an increase in revenue and cost of sales expenses in fiscal 2020 and 2019 of $1,326 and $1,689,
respectively compared to the 2018 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 decreased by 19.3% to $56.9 million during 2020. The first half of the
year was up 14% while the back half of the year, which was significantly impacted by the COVID-19
pandemic, was down 44%. The decrease in Revenue, Net of Reimbursements from 2019 to 2020 was the
result of decreases in our Average Fee of 12.6% (13.4% excluding the impact of foreign exchange rate
fluctuations), Number of Assignments per partner of 4.5% and Average Number of Partners of 2.8% and a
decrease in license fees as a result of the termination of our Latin America license agreement.
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.
Our Average Fee is impacted by economic conditions and related competitive pricing pressures and 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 relatively consistent during the reported periods,
increasing 3.9% from 2018 to 2019 and then increasing 0.8% from 2019 to 2020 relative to the Canadian
Caldwell – Management Discussion & Analysis
10
($000s except dividends and earnings per share)202020192018Total revenue58,193$ 72,138$ 66,883$ Revenue, Net of Reimbursements¹56,867$ 70,449$ 66,883$ Period end number of partners384039Average Number of Partners¹38.439.538.1Annualized Professional Fees per Partner¹1,476$ 1,766$ 1,746$ Number of Assignments¹408439453Number of Assignments per Partner¹10.611.111.9Average Fee per Assignment¹139$ 159$ 147$ Operating profit3,766$ 1,640$ 3,966$ Net earnings for the year attributable to owners of the Company2,846$ 325$ 2,015$ Basic earnings per share0.139$ 0.016$ 0.099$ Diluted earnings per share0.139$ 0.016$ 0.099$ Total assets40,871$ 40,608$ 39,781$ Total non-current financial liabilities7,666$ 1,068$ 1,615$ Unencumbered Cash¹11,069$ 7,326$ 9,553$ Cash dividends per share0.0450$ 0.0875$ 0.0800$ ¹ Please refer to the section on Non-GAAP Financial Measures and Other Operating Measures on page 6 of this document
dollar. The average British Pound rate has also been relatively stable over the three years, decreasing
1.2% from 2018 to 2019 relative to the Canadian Dollar, then increasing 0.6% from 2019 to 2020.
The following table summarizes the approximate foreign exchange rates impacting the business during
fiscal 2020, 2019 and fiscal 2018 according to the geographic segment:
Functional Currency
Fiscal 2020
Fiscal 2019
Fiscal 2018
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
1.34
1.30
1.00
1.00
1.71
1.74
1.33
1.33
1.00
1.00
1.70
1.62
1.28
1.31
1.00
1.00
1.72
1.69
The Number of Assignments per Partner was down 6.6% from 2018 to 2019 to 11.1 and then down a further
4.5% from 2019 to 2020 to 10.6. The partner headcount metric increased from 39 to 40 from 2018 to 2019
with 6 additions during the year being offset by 5 partner departures. From 2019 to 2020, partner
headcount decreased from 40 to 38 with 4 new additions and 6 departures. There is often a lag in revenue
from the time a new partner is hired to the time they are considered to be 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.
In fiscal 2020, net earnings increased $2,521 to $2,846 from $325 in the prior year. The net earnings
increase resulted from a $2,126 increase in operating profit and a $1,399 decrease in income tax expense
from $1,526 in 2019 to $127 in 2020. The decrease in tax expense relative to pre-tax earnings is due to an
intercompany loan cancellation between the United States and Europe, resulting in a tax benefit in the
United States and the taxable earnings in Europe being shielded from tax due to the utilization of
previously unrecognized loss carryforwards from prior years. The increase in net earnings was partially
offset by investment losses in 2020 of $605, versus gains of $211 last year and interest expense on the
lease liability on the implementation of IFRS 16 in the current year of $324.
Operating profit from 2019 to 2020 increased by $2,126. Excluding i) the 2019 $1,521 impairment expense
to write off the goodwill from our European entity and ii) the government stimulus grants in 2020 totalling
$2,839, operating profit decreased $2,234. This decrease was driven by a 19.3% decrease in Revenue, Net
of Reimbursement, partially offset by a 16.4% decrease in cost of sales and a 17.7% decrease in selling,
general and administrative expenses. The reduction in cost of sales is primarily the result of declines in
partner compensation which is variable with revenue. The reduction in expenses is mostly the result of
lower management and support bonus accruals because of not meeting targeted performance and lower
Caldwell – Management Discussion & Analysis
11
share-based compensation costs on unachieved targets and a reduction in the share price, combined with
cost containment measures implemented in the third quarter.
In fiscal 2019, net earnings decreased $1,690 to $325 from $2,015 in the prior year. The net earnings
decrease resulted from the $2,326 decrease in operating profit partially offset by an increase in
investment income of $197 and a $439 decrease in income tax expense on lower pre-tax profit. Of the
$2,326 decrease in operating profit from 2018 to 2019, $1,521 related to the write off of goodwill from
our 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. A 2.1%
increase in expenses largely resulted from $350 in municipal tax expenses arising from an assessment
levied 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 the performance
factor because of not meeting incentive compensation performance targets.
Unencumbered cash was $11,069 at the end of fiscal 2020 compared to $7,326 at the end of fiscal 2019.
As defined in the Non-GAAP Financial Measures section of this document, we use Unencumbered Cash to
identify cash available beyond that required to fund short term obligations. The increase in Unencumbered
Cash from 2019 to 2020 of $3,743 resulted from the proceeds of government stimulus grants, the tax
recovery from US forgiveness of the UK intercompany loan, the suspension of the dividend in light of the
pandemic’s impact on the Company and cash generated from operations during the year. As defined in
the calculation, the decrease in short-term liabilities needing funding of $10,242 outpaced the reduction
in short-term liquid assets available of $6,499.
Unencumbered cash was $7,326 at the end of fiscal 2019 compared to $9,553 at the end of fiscal 2018.
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.
A reconciliation of Unencumbered Cash and further discussion of the drivers from 2019 to 2020 and from
2018 to 2019 are 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 2020 results are discussed more fully in this document, and 2019 results are more fully discussed
under Operating Results within the 2019 Management Discussion and Analysis documents as filed on SEDAR
(www.sedar.com). Additionally, the Business Outlook section discusses our current views on future
operating profit performance.
Caldwell – Management Discussion & Analysis
12
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, 2020:
Caldwell – Management Discussion & Analysis
13
CanadaUnited States EuropeEliminationTotalProfessional fees2,304 7,541 1,283 - 11,128 Licence fees192 - - (168) 24 Direct expense reimbursements34 68 - - 102 Revenues2,530 7,609 1,283 (168) 11,254 Cost of Sales1,451 6,538 707 - 8,696 Government stimulus grants(466) (1,739) - - (2,205) Reimbursed direct expenses34 68 - - 102 Gross profit1,511 2,742 576 (168) 4,661 Selling, general and administrative665 1,775 312 - 2,752 Licence fees- 168 - (168) - Government stimulus grants- (393) - - (393) Operating profit846 1,192 264 - 2,302 Interest expense on lease liability 51 96 - - 147 Investment loss (income)(7) - - - (7) Intercompany loan cancellation- 2,416 (2,416) - - Foreign exchange (gain) loss32 40 (200) - (128) Earnings before tax770 (1,360) 2,880 - 2,290 Income taxes204 (486) - - (282) Net earnings (loss) for the year566 (874) 2,880 - 2,572 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 Sales3,612 10,761 465 - 14,838 Reimbursed direct expenses89 308 1 - 398 Gross profit (loss)1,443 5,189 (409) (488) 5,735 Selling, general and administrative960 3,475 25 - 4,460 Goodwill impairment- - 1,521 - 1,521 Licence fees- 488 - (488) - Operating profit (loss)483 1,226 (1,955) - (246) Investment income(67) - - - (67) Foreign exchange (gain) loss8 - 97 - 105 Earnings before tax542 1,226 (2,052) - (284) Income taxes207 463 - - 670 Net earnings (loss) for the year335 763 (2,052) - (954) Three months ended August 31, 2020Three months 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, 2020:
Caldwell – Management Discussion & Analysis
14
CanadaUnited States EuropeEliminationTotalProfessional fees10,607 42,842 3,241 - 56,690 Licence fees1,141 - - (964) 177 Direct expense reimbursements345 980 1 - 1,326 Revenues12,093 43,822 3,242 (964) 58,193 Cost of Sales7,325 34,589 2,438 - 44,352 Government stimulus grants(707) (1,739) - - (2,446) Reimbursed direct expenses345 980 1 - 1,326 Gross profit5,130 9,992 803 (964) 14,961 Selling, general and administrative2,876 7,891 821 - 11,588 Licence fees- 964 - (964) - Government stimulus grants- (393) - - (393) Operating profit2,254 1,530 (18) - 3,766 Interest expense on lease liability 105 262 - - 367 Investment loss (income)605 - - - 605 Intercompany loan cancellation- 2,416 (2,416) - - Foreign exchange (gain) loss14 39 (232) - (179) Earnings before tax1,530 (1,187) 2,630 - 2,973 Income taxes564 (437) - - 127 Net earnings (loss) for the year966 (750) 2,630 - 2,846 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 Sales11,259 39,743 2,044 - 53,046 Reimbursed direct expenses455 1,224 10 - 1,689 Gross profit (loss)6,268 13,539 (1,074) (1,330) 17,403 Selling, general and administrative3,448 10,205 421 - 14,074 Goodwill impairment- - 1,521 - 1,521 Licence fees- 1,330 - (1,330) - Operating profit (loss)2,820 2,004 (3,016) - 1,808 Investment income(211) - - - (211) Foreign exchange (gain) loss(27) (2) 197 - 168 Earnings before tax3,058 2,006 (3,213) - 1,851 Income taxes824 702 - - 1,526 Net earnings (loss) for the year2,234 1,304 (3,213) - 325 Twelve months ended August 31, 2020Twelve months ended August 31, 2019
REVENUE
(1) The above chart is after the elimination of intercompany license fees charged by Canada to the United States.
(²) Please refer to the section on Non-GAAP Financial Measures and Other Operating Measures on page 6 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
depends on the fees we can charge and our partners’ productivity which is 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 considerably 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
Q1Q2Q3Q4AnnualCanada3,729$ 3,310$ 1,264$ 2,304$ 10,607$ United States12,885$ 12,442$ 9,974$ 7,541$ 42,842$ Europe884$ 1,089$ (15)$ 1,283$ 3,241$ Consolidated Professional fees17,498$ 16,841$ 11,223$ 11,128$ 56,690$ License fees59$ 55$ 39$ 24$ 177$ Revenue, Net of Reimbursements²17,557$ 16,896$ 11,262$ 11,152$ 56,867$ Direct expense reimbursements519$ 411$ 294$ 102$ 1,326$ Revenue18,076$ 17,307$ 11,556$ 11,254$ 58,193$ Period end number of partners3940373838Average Number of Partners²39.039.538.337.338.5Annualized Professional Fees per Partner²1,795$ 1,705$ 1,172$ 1,193$ 1,472$ Number of Assignments²11312461110408Number of Assignments per Partner²2.93.11.62.910.6Average Fee per Assignment²155$ 136$ 184$ 101$ 139$ Canada3,813$ 3,763$ 3,425$ 4,496$ 15,497$ United States10,886$ 10,594$ 15,852$ 15,950$ 53,282$ Europe470$ 186$ 258$ 56$ 970$ Consolidated Professional fees15,169$ 14,543$ 19,535$ 20,502$ 69,749$ License fees217$ 374$ 38$ 71$ 700$ Revenue, Net of Reimbursements²15,386$ 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 partners3939404040Average Number of Partners²39.339.339.340.039.5Annualized Professional Fees per Partner²1,544$ 1,480$ 1,988$ 2,050$ 1,766$ Number of Assignments²10889115127439Number of Assignments per Partner²2.72.32.93.211.1Average Fee per Assignment²140$ 163$ 170$ 161$ 159$ 20202019
PROFESSIONAL FEES
Fourth Quarter Consolidated Professional Fees
Professional fees for the fourth quarter of fiscal 2020 decreased 45.7% (46.5% excluding a favourable 0.8%
variance from exchange rate fluctuations) from the comparable period last year to $11,128 (2019:
$20,502).
The decrease in professional fees is attributable to reductions in the Number of Assignments to 110 (2019:
127) and Average Fee per Assignment to $101 ($100 excluding exchange rate fluctuations; 2019: $161).
The decrease in both factors is primarily the result of the pandemic's economic impact on our clients and
related pricing pressures among executive search firms. The Number of Assignments decreased due to a
lower Number of Assignments per Partner at 2.9 (2019: 3.2) and a lower Average Number of Partners at
37.3 (2019: 40.0).
Year-to-Date Consolidated Professional Fees
Professional fees for 2020 decreased 18.7% (19.5% excluding a favourable 0.8% variance from exchange
rate fluctuations) over the comparable period last year to $56,690 (2019: $69,749).
The decrease in professional fees is attributable to a reduction in the Number of Assignments to 408 (2019:
439) and a lower Average Fee per Assignment of $139 ($138, excluding exchange rate fluctuations; 2019:
$159). Similar to the above, both factors were negatively impacted by the pandemic in the second half of
the year. The Number of Assignments decreased on a lower Number of Assignments per Partner at 10.6
(2019: 11.1) and a lower Average Number of Partners at 38.5 (2019: 39.5).
The pandemic’s impact on our business commenced in early March, approximately halfway through fiscal
2020. Reviewing our first half’s performance with our second half’s performance highlights this impact.
In the first half of the year, the Average Fee per Assignment was down 3.9% year-over-year at $145 (2019:
$151) with the Number of Assignments up 20.3% at 237 (2019: 197), on a higher annualized Number of
Assignments per Partner at 12.0 (2019: 10.0) on a steady Average Number of Partners at 39.3.
In the second half of the year, the Average Fee per Assignment decreased 21.0% to $131 (2019: $165) and
the Number of Assignments fell by 29.3% to 171 (2019: 242), on a lower annualized Number of Assignments
per Partner at 9.0 (2019: 12.2) and lower Average Number of Partners at 37.9 (2019: 39.4).
Fourth Quarter and Year-to-Date Professional Fees by Geography
United States:
Fourth quarter professional fees in the US were down 52.7% (down 53.6% excluding a favourable 0.6%
variance from exchange rate fluctuations) to $7,541 (2019: $15,950). The decrease resulted from
decreases in the Average Fee per Assignment and the Number of Assignments from reductions in the
Number of Assignments per Partner and Average Number of Partners.
Year to date professional fees in the US were down 19.6% (down 20.6% excluding a favourable 1.0%
variance from exchange rate fluctuations) to $42,842 (2019: $53,282). The decrease was also the result
of decreases in Average Fee per Assignment and Number of Assignments resulting from reductions in the
Number of Assignments per Partner and Average Number of Partners.
Caldwell – Management Discussion & Analysis
16
Canada:
Fourth quarter professional fees in Canada were down 48.8% to $2,304 (2019: $4,496). The decrease
resulted from decreases in the Average Fee per Assignment and the Number of Assignments arising from
reductions in the Number of Assignments per Partner and Average Number of Partners.
Year to date professional fees in Canada were down 31.6% to $10,607 (2019: $15,497). The decrease was
also the result of declines in Average Fee per Assignment and Number of Assignments resulting from
reductions in the Number of Assignments per Partner and Average Number of Partners.
Europe:
Despite the pandemic, business activity in Europe was up significantly over the prior year, with all of the
partners fully integrated, each having been with us for over a year now and who successfully secured
assignments from clients with hiring needs not impacted by the pandemic. However, given the low number
of partners in the region, we expect ongoing quarterly revenue fluctuations.
Fourth quarter professional fees in Europe were up significantly from $56 last year to $1,283. The increase
came from increases in both the Average Fee per Assignment and the Number of Assignments. The increase
in the number of assignments results from a significant increase in the Number of Assignments per Partner,
partially offset by a lower Average Number of Partners.
Year to date professional fees in Europe were up 234.1% (234.2% excluding a 0.1% unfavourable variance
from exchange rate fluctuations) to $3,241 (2019: $970). The increase was the result of a significant
increase in the Number of Assignments. This was driven by a higher Number of Assignments per Partner
with a stable Average Number of Partners. A lower Average Fee per Assignment partially offset these
favourable movements.
LICENCE FEES
Our Canadian entity collects license fees from our licensee in New Zealand to use the Caldwell brand and
intellectual property. For the year ended August 31, 2020, license fees from The Caldwell Partners
International New Zealand Limited were $104 and for the year ended August 31, 2019 they were $127.
The decrease in fees beginning with Q3 fiscal 2019 primarily results from the agreement between the
Company and CPGroup Latam to end our licensing relationship effective February 28, 2019. License fees
from CPGroup LatAm last year were $497. The licensing agreement with Hattonneale Pty Ltd.
(“Hattonneale”) of Australia was also terminated effective August 31, 2020 as Hattonneale withdrew from
the executive search market due to the pandemic impact on their search business. For the year ended
August 31, 2020, license fees from Hattonneale were $73 (2019: $76).
License fees are based on percentages of revenue and were therefore also negatively impacted this year
by revenue pressures from COVID-19 faced by our affiliate in New Zealand and former affiliate in Australia.
Additionally, intercompany licence fees, which are eliminated on consolidation are charged from our
Canadian parent company to our US subsidiary. Intercompany licence fees to the European subsidiary
continue to be waived as we evolve to consistent profitability in the region.
Caldwell – Management Discussion & Analysis
17
DIRECT EXPENSE REIMBURSEMENTS
Direct expenses incurred and billed to clients during the fiscal 2020 fourth quarter were $102 (2019: $398).
Year to date direct expenses incurred and billed to clients were $1,326 (2019: $1,689). Although presented
separately in the revenue and cost of sales expenses sections, these amounts are pass-through expenses
billed at cost and therefore offset to zero.
COST OF SALES
(1) The above chart is after the elimination of intercompany license fees charged by Canada to the United States.
(2) Cost of sales does not reflect the impact of government stimulus grants.
Cost of sales pertains to professional fees and comprises partner compensation, related search delivery
personnel compensation and the direct costs of providing our search services. Compensation costs include
fixed salaries and draws, variable incentive compensation and related employee benefits and payroll
taxes.
Our partners are paid draws--a set level of base compensation. Variable incentive compensation is based
on a percentage of the amount of collected professional fees attributed to each respective partner, based
on a tiered commission grid. The higher a partner’s collected professional fees in a fiscal year, the higher
the partner's earnings percentage. The partners’ variable compensation incentives are credited to draw
amounts already paid as an advance, with any excess due as a commission payment. A deficit occurs when
a partner’s variable compensation earned is less than their draw. The full draw amount is expensed each
period. Additionally, any excess variable compensation due is expensed and accrued for future payment.
Deficit amounts within a fiscal year may be recouped in subsequent quarters if a partner earns enough
variable compensation over the remainder of the year to credit against any deficit that has already been
expensed. Deficits at the end of each fiscal year are forgiven and not brought forward into future fiscal
years for recoupment. In periods of organic growth, as new partner hires transition, deficits may increase.
Caldwell – Management Discussion & Analysis
18
Q1Q2Q3Q4AnnualThird parties59$ 55$ 39$ 24$ 177$ United States290$ 281$ 225$ 168$ 964$ Eliminations(290)$ (281)$ (225)$ (168)$ (964)$ Consolidated59$ 55$ 39$ 24$ 177$ Third parties217$ 374$ 38$ 71$ 700$ United States246$ 238$ 358$ 488$ 1,330$ Eliminations(246)$ (238)$ (358)$ (488)$ (1,330)$ Consolidated217$ 374$ 38$ 71$ 700$ 20202019Q1Q2Q3Q4AnnualCanada2,640$ 2,398$ 836$ 1,451$ 7,325$ United States10,307$ 9,918$ 7,826$ 6,538$ 34,589$ Europe520$ 707$ 504$ 707$ 2,438$ Consolidated²13,467$ 13,023$ 9,166$ 8,696$ 44,352$ % of professional fees77.0%77.3%81.7%78.1%78.2%Canada2,508$ 2,673$ 2,466$ 3,612$ 11,259$ United States8,571$ 8,709$ 11,702$ 10,761$ 39,743$ Europe499$ 544$ 536$ 465$ 2,044$ Consolidated11,578$ 11,926$ 14,704$ 14,838$ 53,046$ % of professional fees76.3%82.0%75.3%72.4%76.1%20192020
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 selling, general and administrative expenses. Costs associated
with direct expense reimbursements are recorded separately as reimbursed direct expenses.
Fourth Quarter Consolidated Cost of Sales
Relative to the professional fee decrease of 45.7%, fourth quarter cost of sales decreased 41.4% (42.1%
excluding an unfavourable 0.7% variance from exchange rate fluctuations) or $6,142 to $8,696.
On a segment basis, the cost of sales decrease came from decreases in the US ($4,223) and Canada
($2,161), partially offset by an increase in Europe ($242). The decline in cost of sales was caused by lower
commissions on reduced revenue and cost savings initiatives.
As cost and staffing reduction initiatives did not fully offset the pace of revenue decline, cost of sales, as
a percentage of professional fees increased 5.8% to 78.1% from 72.4% in the same period last year. The
increase was due to partner support personnel compensation, which is semi-fixed, on the lower revenue
(6.4% of professional fees), higher deficits (3.4% of professional fees), accruals taken to provide for the
retroactive return of employee salary cuts made in the third quarter (2.4% of professional fees) and higher
search delivery materials expenses, which are primarily fixed (1.6% of professional fees) partially offset
by lower commission tiers on lower Annualized Professional Fees per Partner (8.0% of professional fees).
Year-to-Date Consolidated Cost of Sales
Relative to the professional fee decrease of 18.7%, year to date cost of sales decreased 16.4% (17.2%
excluding an unfavourable 0.8% variance from exchange rate fluctuations) or $8,694 to $44,352.
On a segment basis, the variance in cost of sales came from decreases in the US ($5,154), Canada ($3,934)
and partially offset by an increase in Europe ($394).
As a percentage of professional fees, cost of sales increased 2.1% to 78.2%, up from 76.1% in the same
period last year. The increase as a percentage of professional fees was again due to partner support
personnel compensation, which is semi-fixed, on the lower revenue (up 3.5% of professional fees),higher
fixed search delivery materials expenses, which are largely fixed (up 1.0% of professional fees) and higher
deficits (0.5% of professional fees). These increases were partially offset by lower partner compensation
due to lower commission tiers on lower Annualized Professional Fees per Partner (2.9% of professional
fees).
Caldwell – Management Discussion & Analysis
19
Fourth Quarter and Year-to-Date Cost of Sales by Geography
United States:
Fourth quarter
Relative to the US professional fees decrease of 52.7%, fourth quarter cost of sales in the US decreased
by 39.2% or $4,223 to $6,538 (2019: $10,761). As a percentage of professional fees, cost of sales
represented 86.7% compared to 67.5% in the prior year, an increase of 19.2%. The increase was due to
relatively fixed partner support personnel compensation on lower revenue (15.1% as a percentage of
professional fees), higher partner compensation with a small number of partners billing more than
anticipated and earning commission tier grid jumps during the quarter (2.2% of professional fees) and an
increase in search delivery materials (1.9% as a percentage of professional fees).
Year-to-date
Relative to the US professional fees decrease of 19.6%, annual cost of sales in the US decreased 13.0% or
$5,154 to $34,589 (2019: $39,743). As a percentage of professional fees, cost of sales represented 80.7%
compared to 74.6% in the prior year, an increase of 6.1%. The increase resulted from relatively fixed
partner support personnel compensation on lower revenue (5.5% as a percentage of professional fees) and
search delivery materials (1.1% as a percentage of professional fees). These increases were partially offset
by lower partner compensation on lower commission tiers on lower Annualized Professional Fees per
Partner (0.5% of professional fees).
Canada:
Fourth quarter
Relative to the professional fees decrease of 48.8%, fourth quarter cost of sales in Canada decreased by
59.8% or $2,161 to $1,451 (2019: $3,612). As a percentage of professional fees, these costs represented
63.0% compared to 80.3% in the prior year, a decrease of 17.3%. The reduction was from lower partner
compensation caused by lower commission tiers on lower Annualized Professional Fees per Partner (15.8%
of professional fees) and lower partner support personnel compensation (2.9% of professional fees), due
to lower Associate and Consultant commissions resulting from the decrease in revenue. These increases
were partially offset by fixed search delivery materials (1.4% of professional fees).
Year-to-date
Relative to the professional fees decrease of 31.6%, annual cost of sales in Canada decreased by 34.9% or
$3,934 to $7,325 (2019: $11,259). As a percentage of professional fees, these costs represented 69.1%
compared to 72.7% in the prior year, a 3.6% decrease. The decrease is from lower partner compensation
caused by lower commission tiers on lower Annualized Professional Fees per Partner (5.1% of professional
fees). This decrease was partially offset by higher search delivery materials (0.9% of professional fees)
and higher partner support personnel compensation being semi-fixed in nature (0.6% of professional fees).
Europe:
Fourth quarter
Fourth quarter cost of sales in Europe increased by 52.0% or $242 to $707 (2019: $465), which was less
than the rate of increased revenue. This is primarily the result of decreased partner compensation as a
percentage of professional fees due to recouping deficits from prior periods. Additional benefits came
from Partner support personnel compensation and search delivery materials, which are both semi-fixed
in nature, relative to the increase in revenue.
Caldwell – Management Discussion & Analysis
20
Year-to-date
Relative to the professional fees increase of 234.1%, annual cost of sales in Europe increased by 19.3% or
$394 to $2,438 (2019: $2,044). As a percentage of professional fees, these costs represented 78.4%
compared to 210.7% in the prior year, an improvement of 132.4%. This improvement resulted from very
low revenue for the previous year resulting in significant draw deficits compared to the current year when
increased revenue resulted in lower deficits (86.7%). Partner support personnel compensation being semi-
fixed in nature on much higher revenue (44.0% of professional fees) and lower search delivery materials
(1.7% of professional fees) also contributed to improved percentage results in the current period.
GROSS PROFIT AND MARGIN
(as a percentage of Revenue, Net of Reimbursements)
(1) During fiscal 2020, The Company received government stimulus grants to offset cost of sales expenses. The full year
consolidated impact to gross profit was an increase of $2,446, recognized in Canada with $241 in the third quarter and $466 in
fourth quarter, and in the United States in the fourth quarter of $1,739. This stimulus represents 19.8% and 4.3% of consolidated
Revenue, Net of Reimbursements in the fourth quarter and year, respectively.
Fourth Quarter Gross Profit and Margin:
The fourth quarter's gross profit decreased 18.7% (19.6%, excluding an unfavourable 0.9% variance from
exchange rate fluctuations) to $4,661 (2019: $5,735), with gross profit margin increasing to 41.8% from
27.9%. Exclusive of $2,205 in government stimulus subsidies, gross profit margin was 22.0%, down 5.9%
from 27.9% during the same period a year ago. This decrease came from the rate of decline in Revenue,
Net of Reimbursements (45.8%) exceeding the decline in cost of sales (41.4%).
Year-to-Date Gross Profit and Margin:
Gross profit for 2020 decreased 14.0% (14.8% excluding a favourable 0.8% variance from exchange rate
fluctuations) to $14,961 (2019: $17,403) with gross profit margin increasing to 26.3% from 24.7%. Exclusive
of $2,446 in government stimulus subsidies, the gross profit margin was 22.0%, down 2.7% from 24.7%
during the same period a year ago. This decrease came from the rate of decrease in Revenue, Net of
Reimbursements (19.3%) exceeding the decline in cost of sales (16.4%).
Caldwell – Management Discussion & Analysis
21
Q1Q2Q3Q4AnnualCanada¹1,148$ 967$ 708$ 1,343$ 4,166$ United States¹¹2,578$ 2,524$ 2,148$ 2,742$ 9,992$ Europe364$ 382$ (519)$ 576$ 803$ Consolidated¹4,090$ 3,873$ 2,337$ 4,661$ 14,961$ 23.3%22.9%20.8%41.8%26.3%Canada1,522$ 1,464$ 997$ 955$ 4,938$ United States2,315$ 1,885$ 4,150$ 5,189$ 13,539$ Europe(29)$ (358)$ (278)$ (409)$ (1,074)$ Consolidated3,808$ 2,991$ 4,869$ 5,735$ 17,403$ 24.7%20.1%24.9%27.9%24.7%20202019
The quarter and full year variances are discussed in detail under the Revenue and Cost of Sales sections
of this document.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(as a percentage of Revenue, Net of Reimbursements)
(1) Effective September 1, 2019 we implemented IFRS 16 as discussed in the Presentation section of this MD&A.
(2) Selling, general and administrative expenses do not reflect the impact of government stimulus grants
(3) Q3 2020 selling, general and administrative expenses in Europe were favourably impacted by a recovery of intercompany
management fees expensed in prior periods
Fourth Quarter Expenses
Selling, general and administrative expenses for the fourth quarter decreased $1,708 (38.3%), from $4,460
to $2,752. Excluding unfavourable exchange rate variances of $15 (0.3%), expenses decreased $1,723
(38.6%). This constant currency decrease was the result of the following:
• Management bonus accrual reversals as a result of not meeting targeted performance ($604);
• Decreased share-based compensation expense, the result of a lower share price and a reduction
•
in performance factors, as targeted performance was not achieved ($439);
Lower marketing and business development expenses due to our consultants’ inability to travel as
a result of COVID-19 travel restrictions and reduced marketing spend ($381);
• A municipal tax assessment in Q4 2019 primarily related to prior years ($350); and
• Offsetting favourable variances across other smaller cost categories (-$51).
Year-to-Date Expenses:
Selling, general and administrative expenses for the full year decreased $2,486 (17.7%), to 11,588 from
$14,074. Excluding unfavourable exchange rate variances of $74 (0.5%), expenses decreased $2,560
(18.2%). This constant currency decrease was the result of the following:
•
Lower share-based compensation expense as a result of a lower share price and a reduction in
performance factors as a result of not meeting targeted performance in the current period ($804);
• Management bonus accrual reversals as a result of not meeting targeted performance ($670);
Caldwell – Management Discussion & Analysis
22
Q1Q2Q3Q4AnnualCanada861$ 873$ 477$ 665$ 2,876$ United States2,457$ 2,503$ 1,156$ 1,775$ 7,891$ Europe³377$ 165$ (33)$ 312$ 821$ Consolidated3,695$ 3,541$ 1,600$ 2,752$ 11,588$ 21.0%21.0%14.2%24.7%20.4%Canada983$ 657$ 848$ 960$ 3,448$ United States2,190$ 2,190$ 2,350$ 3,475$ 10,205$ Europe195$ 171$ 30$ 25$ 421$ Consolidated3,368$ 2,979$ 3,330$ 4,460$ 14,074$ 21.9%20.0%17.0%21.7%20.0%2020¹²2019
•
•
Lower marketing and business development expenses ($532);
Lower office expenses as a result of adoption of IFRS 16 ($456), largely offset by the interest on
lease liability (see below);
• A municipal tax assessment in Q4 2019 primarily related to prior years ($350);
•
Lower legal expenses with last year’s expenses being higher than usual due to our pursuit of a
claim against a former client ($265);
Lower costs of annual practice meetings, held last year but not in the current year ($188);
Lower partner recruitment expenses ($111);
•
•
• Offsetting investment costs in our Caldwell Analytics growth initiative through higher consulting
fees (-$501);
• Higher office expenses on the early termination of and losses on disposition related to Dallas
lease (-$292); and
• Unfavourable variances across other smaller cost categories (-$23).
OPERATING PROFIT
(as a percentage of Revenue, Net of Reimbursements)
(1) The above chart is after the elimination of intercompany license fees charged by Canada to the United States.
(2) Q4 2019 operating loss in Europe includes a $1,521 goodwill impairment expense.
(3) Effective September 1, 2019 we implemented IFRS 16 as discussed in the Presentation section of this MD&A.
(4) During fiscal 2020, The Company received government stimulus grants to offset cost of sales and selling, general and administrative
expenses. The full year consolidated impact was an increase to operating profit of $2,839, recognized in Canada with $241 in the
third quarter and $466 in fourth quarter, and in the United States in the fourth quarter of $2,132. This stimulus represents 23.3%
and 5.0% of consolidated Revenue, Net of Reimbursements in the fourth quarter and year, respectively.
Fourth Quarter Operating Profit (Loss):
The fourth quarter's operating profit increased $2,548 to $2,302 (2019: loss of $246). The increase was
the result of lower Revenue, Net of Reimbursements ($9,421) being more than offset by lower cost of
sales ($6,142), lower selling, general and administrative expenses ($1,708), government stimulus grants
received in 2020 ($2,598) and the impairment expense taken in the fourth quarter of fiscal 2019 to write-
off the goodwill balance of our European segment ($1,521).
Caldwell – Management Discussion & Analysis
23
Q1Q2Q3Q4AnnualCanada⁴287$ 94$ 231$ 678$ 1,290$ United States⁴121$ 21$ 992$ 1,360$ 2,494$ Europe(13)$ 217$ (486)$ 264$ (18)$ Consolidated395$ 332$ 737$ 2,302$ 3,766$ 2.2%2.0%6.5%20.6%6.6%Canada539$ 807$ 149$ (5)$ 1,490$ United States125$ (305)$ 1,800$ 1,714$ 3,334$ Europe²(224)$ (529)$ (308)$ (1,955)$ (3,016)$ Consolidated440$ 27-$ 1,641$ (246)$ 1,808$ 2.9%(0.2%)8.4%(1.2%)2.6%2020³2019
Excluding the net favourable impact of exchange rate changes on our operations of for the quarter of $33,
operating profit on a constant currency basis increased $2,515 to $2,269.
Year-to-Date Operating Profit:
Operating profit for the full year increased $1,958 to $3,766 (2019: $1,808). The increase was the result
of lower Revenue, Net of Reimbursements ($13,582) being more than offset by lower cost of sales
($8,694), lower selling, general and administrative expenses ($2,486), government stimulus grants
received in 2020 ($2,839), and the impairment expense taken in the fourth quarter of fiscal 2019 to write-
off the goodwill balance of our European segment ($1,521).
Excluding the net favourable impact of exchange rate changes on our operations for the year of $72,
operating profit on a constant currency basis increased $1,886 to $3,694.
INTEREST EXPENSE ON LEASE LIABILITY
Effective September 1, 2019 we implemented IFRS 16 as discussed in the Accounting Pronouncements
Impacting Operating Results section of this MD&A. An interest expense on lease liability of $104 (2019:
$nil) was recognized during the quarter per IFRS 16. For 2020 an interest expense on lease liability of $324
(2019: $nil) was recognized. During periods before fiscal 2020, all lease-related expenses were recognized
as occupancy costs and included in selling, general and administrative expenses in arriving at operating
profit.
INVESTMENT INCOME FROM MARKETABLE SECURITIES
We typically 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. All managed funds were sold during 2020
to maximize liquidity and eliminate further market risk because of the pandemic's economic uncertainty.
As a result, at August 31, 2020, managed funds balances were nil (August 31, 2019: $5,832). The portfolio
of illiquid equity investments obtained through search fees that are classified as long-term had a balance
of $71 at August 31, 2020 (August 31, 2019: $85).
Regarding investments generated from search services with clients, compensation equal to 65% of the
investment is paid to the respective partner involved with the search upon the monetization of the
investment. All rights to the partners’ 65% of the equity instruments are transferred and assigned
beneficially to the respective partner. A partner’s entitlement to any amounts upon liquidation is not
contingent upon being employed at the time of liquidation. As a result, the gross asset value and
compensation payable are offset, with the investment recorded at the net amount to which the Company
has economic rights.
Caldwell – Management Discussion & Analysis
24
Q1Q2Q3Q4Annual202071$ 65$ (748)$ 7$ (605)$ 2019(41)$ 97$ 88$ 67$ 211$
We have designated the professionally managed fixed-income funds, when invested, within marketable
securities at fair value through profit and loss. As a result, these marketable securities are recorded at
fair value with gains and losses recorded in investment income.
We have designated the client equity investments within marketable securities at fair value through OCI.
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 2020, we reported investment income from marketable securities of $7 (2019:
income of $67) consisting of interest income of on term deposits of $7 (2019: $8). Last year’s investment
income from marketable securities also included $59 in gains on managed investment funds. For 2020, we
reported investment losses from marketable securities of $605 (2019: income of $211) consisting of $625
in losses on the disposition of managed investment funds (2019: unrealized gains of $177) and interest
income on term deposits of $20 (2019: $34).
INTERCOMPANY LOAN CANCELLATION
We have established intercompany loan agreements between each of our legal entities. These agreements
provide for funding our international operations and managing cash balances across our geographies. Over
time, our US entity funded a substantial amount to our Europe entity to fund its operating losses during
its establishment. Effective August 31, 2020 the intercompany loan between these two entities was
cancelled in order to better capitalize our Europe entity for its ongoing operations. The loan cancellation
resulted in a $2,416 loss recognized in the US and a comparable gain in the UK during the fourth quarter.
FOREIGN EXCHANGE GAINS AND LOSSES
We maintain cash and intercompany loan balances across our geographies. These balances are not
intended to be permanent investments. Accordingly, changes in exchange rates impact the value of these
accounts from period to period and these changes are recognized in our Consolidated Statements of
Earnings as foreign exchange gains and losses. Changes on other balance sheet accounts that are of a
permanent nature are recognized within Other Comprehensive Earnings. In the fourth quarter and year
we recognized a foreign exchange gain of $128 (2019: loss of $105) and $179 (2019: loss of $168),
respectively through our Consolidated Statements of Earnings. We recognized a cumulative translation
adjustment loss of $662 (2019: $140) and a loss $372 (2019: gain of $197), for the fourth quarter and year,
respectively through Other Comprehensive Earnings.
Caldwell – Management Discussion & Analysis
25
EARNINGS
EARNINGS BEFORE INCOME TAXES
INCOME TAXES
Our effective tax rate on a consolidated basis has been historically higher than the statutory tax rates we
experience in each of our geographies. This is primarily the result of earnings before tax generated in the
US and Canada, where we are in tax-paying situations, and historical losses before tax in the UK where,
due to the uncertainty of using losses against future taxable income, we have not recognized deferred tax
assets on the UK net operating losses. Our income tax expense effectively represents the tax on our US
and Canada operations, without the benefit of tax shelters created by any current period UK losses. In
periods when the UK is profitable, we do not need to recognize tax expense until our historical tax loss
carryforwards have been utilized, or until we recognize UK deferred tax assets on the loss carryforwards
once we can demonstrate sustainable taxable income in the UK. Therefore, in periods where the UK
generates profit, such as 2020, we will incur lower than expected taxes based on statutory tax rates.
There was a net income tax recovery of $282 in the fourth quarter of 2020 (2019: expense of $670). On a
segment basis, the US had an income tax recovery of $486 (2019: expense of $463) partially offset by
income tax expense of $204 (2019: $207) in Canada. No income tax expense was recognized on profit in
the UK due to its available tax loss carry-forwards.
For the full year, there was net income tax expense of $127 (2019: $1,526). On a segment basis, Canada
had income tax expense of $564 (2019: $824) and the US had income tax recovery of $437 (2019: expense
of $702). No income tax expense was recognized in the UK which were not previously recognized.
The US recognized a net tax recovery for the fourth quarter and year in 2020. The loss from loan
cancellation was deductible in the US, creating a tax loss. The tax loss was able to shelter current year
earnings with the excess loss amount carried back and applied against taxable income paid in prior years,
resulting in a recovery. In the UK, the gain on intercompany loan cancellation was fully offset by tax loss
carry-forwards, resulting in no net tax expense in the UK.
Caldwell – Management Discussion & Analysis
26
Q1Q2Q3Q4Annual2020553$ 323$ (193)$ 2,290$ 2,973$ 2019388$ 120$ 1,627$ (284)$ 1,851$ Q1Q2Q3Q4Annual202091$ 7$ 311$ (282)$ 127$ 2019177$ 87$ 592$ 670$ 1,526$
NET EARNINGS
BASIC EARNINGS PER SHARE
Fourth quarter net income was $2,572 ($0.126 per share), as compared to a net loss of $954 ($0.047 per
share) in the comparable period a year earlier. Full-year net income was $2,846 ($0.139 per share)
compared to $325 ($0.016 per share) last year.
DIVIDENDS
The Board of Directors believes that when current and projected cash flows exceed the Company's
operational and strategic investment needs, payment of regular dividends can be 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, capital needs for potential acquisitions and new service line initiatives and current
and projected balances of Unencumbered Cash (as defined in Non-GAAP Financial Measures on page 3 and
discussed below in Liquidity and Capital Resources) which can act as a buffer against short-term earnings
volatility.
In light of the uncertainty surrounding the pandemic's ongoing economic impact and based on cash needs
projected for both operational and strategic investment purposes, and after careful consideration, the
Board of Directors concluded that it would not declare a dividend payment in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
We maintain cash balances at various financial institutions and in multiple geographies through our
subsidiaries. While we can move funds between geographies and legal entities, certain dividend taxes may
apply, including a five percent tax on dividends paid from the United States to Canada. Additionally, to
lend or dividend funds between our legal entities, each entity must maintain certain statutory liquidity
levels.
At August 31, 2020, the Company had $14,526 of cash and cash equivalents, including restricted cash and
no current marketable securities. At year-end 2019 the total cash and current marketable securities
balance was $16,500. The $1,974 decrease is primarily the result of bonus and commission payments due
from 2019, two quarterly dividend payments and the $625 loss realized on the sale of marketable securities
partially offset by the results of operations, including the government stimulus grants of $2,839.
Caldwell – Management Discussion & Analysis
27
Q1Q2Q3Q4Annual2020462$ 316$ (504)$ 2,572$ 2,846$ 2019211$ 33$ 1,035$ (954)$ 325$ Q1Q2Q3Q4Annual20200.023$ 0.015$ (0.025)$ 0.126$ 0.139$ 20190.010$ 0.002$ 0.051$ (0.047)$ 0.016$
Our cash and compensation payable balances fluctuate significantly from period to period based on
commission payments' timing 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 our 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, considering non-operating sources and uses of cash.
At August 31, 2020, current compensation payable was $12,812 (August 31, 2019: $21,222), and total cash
and current marketable securities were $14,526 (August 31, 2019: $16,500) and accounts receivable were
$7,316 (August 31, 2019: $11,915). As a result of these trends, we use the non-GAAP measure of
Unencumbered Cash as a more consistent measure for the cash we have available beyond that needed for
short-term obligations. Unencumbered Cash was positively impacted by the $1,557 reduction in current
liabilities because of the derecognition of deferred rent on the implementation of IFRS 16 in the first
quarter.
Unencumbered Cash is defined in the Non-GAAP Financial Measures and Other Operating Measures on page
6 of this document. The following chart sets forth the calculation of Unencumbered Cash and provides a
reconciliation to cash and cash equivalents:
Accounts receivable were $7,316 at August 31, 2020, down $4,599 from $11,915 at the end of fiscal 2019,
due primarily to the sequential decrease in quarterly revenue. Days outstanding based on quarterly
revenue were 53 days at August 31, 2020 up slightly from 52 days as at August 31, 2019. Additionally, due
to the anticipated economic impact on our clients by the pandemic, we increased our allowance for
professional fee adjustments to $1,315 from $501 at August 31, 2019.
Our investment in property and equipment at August 31, 2020 was $2,128 up $749 from $1,379 at the end
of 2019. This reflects additions of $1,320, depreciation expense of $461, dispositions of $103 and negative
exchange rate fluctuations of $7. Additions primarily consist of leasehold improvements and furniture for
our new Toronto and Chicago offices. The remaining additions were for computer hardware.
Caldwell – Management Discussion & Analysis
28
August 31August 31increase/20202019(decrease)Cash and cash-equivalents$14,481$10,623$3,858Restricted cash4545- Marketable securities - current- 5,832(5,832)Accounts receivable7,31611,915(4,599)Income taxes receivable928- 928Net deferred tax assets on compensation payable1,6602,514(854)Total current assets within unencumbered cash24,43030,929(6,499)Current liabilities(16,449)(25,646)9,197ExcludingAccrued compensation on unbilled revenue1,2152,043(828)Current portion of lease liability1,873- 1,873Total net current liabilities within unencumbered cash(13,361)(23,603)10,242Total Unencumbered Cash$11,069$7,326$3,743as at
An ROU asset of $5,676 was established upon the adoption of IFRS 16 on September 1, 2019. At August 31,
2020, the ROU asset was $7,691, reflecting additions of $3,720 ($4,087, less a tenant improvement
allowance of $367), depreciation expense of $1,565, dispositions of $87 and negative exchange rate
fluctuations of $53.
A lease liability of $6,523 was established upon the adoption of IFRS 16 on September 1, 2019. At August
31, 2020, the lease liability was $8,805, reflecting additions of $4,087, lease payments of $2,021, interest
accretion of $367, dispositions on early termination of $91 and negative exchange rate fluctuations of
$60.
Total liabilities were $24,115 at August 31, 2020, a decrease of $2,648 from $26,763 at the end of fiscal
2019 primarily reflecting payment of bonuses and compensation payable offset by establishing a lease
liability accrual on the implementation of IFRS 16.
On April 22, 2020 we were granted a US dollar-denominated loan from TD Bank N.A. in the amount of USD
$1,613 ($2,267 at the grant date exchange rate and $2,104 at the August 31, 2020 exchange rate) under
the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic
Security Act (“CARES Act”) which was enacted on March 27, 2020 in the US. The loan, which was in the
form of a note dated April 22, 2020 issued by the Company, matures on April 22, 2022 and bears interest
at a rate of 1.0% per annum, payable monthly commencing on November 22, 2020. We believe we have
complied with the program's relevant provisions by validly using the entire proceeds of the loan for
qualifying expenses and have therefore concluded forgiveness of the loan is reasonably assured. As a
result, we have recharacterized the proceeds as deductions in cost of goods sold and general and
administrative expenses at current exchange rates of $1,739 and $393, respectively and reflected the loan
payable as forgiven. The Company applied for forgiveness review by its lender and the US government on
September 21, 2020. It is unknown how long the loan forgiveness review process will take, with an
indication from our lender of up to five months.
Shareholders’ equity at August 31, 2020 was $16,756, an increase of $2,911 from $13,845 at the end of
2019. The increase reflects net earnings for the year of $2,846, the opening retained earnings balance
adjustment resulting from the implementation of IFRS 16 of $1,137, unrealized gains on marketable
securities of $210 and stock compensation of $8 less dividends declared of $918 and currency translation
losses on consolidation of $372.
Despite the COVID-19 pandemic, liquidity improved in 2020. The Unencumbered Cash balance increased
$3,743 over prior year and our revolving line of credit limit was increased from $3,000 to $5,000. We
believe we have sufficient liquidity to operate our business and implement our strategic plan.
CONTRACTUAL OBLIGATIONS
Caldwell – Management Discussion & Analysis
29
Total20212022202320242025ThereafterLease liability8,805$ 1,873$ 1,713$ 1,586$ 786$ 629 2,218$ Accounts payable 1,764 1,764 - - - - - Compensation payable13,546 12,812 128 268 - - 338 Total24,115$ 16,449$ 1,841$ 1,854$ 786$ 629$ 2,556$
The lease liability commitments are in respect to the base rent component of the office space's cost
required to operate our business and do not include expected operating expenses that we will be required
to pay. They also do not reflect offsetting sublease payments from which the Company expects to recoup
of $385 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 outlay's respective year. The Company does not have any material commitments to purchase property
and equipment.
OUTSTANDING SHARES
At November 12, 2020 the Company's authorized share capital consists of an unlimited number of Common
Shares of which 20,404,555 are issued and outstanding (August 31, 2020: 20,404,555; August 31, 2019:
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. On April 2, 2020, options to purchase 250,000 shares of the Company were issued to an
employee. As of August 31, 2020 options to purchase 500,000 common shares of the Company were
outstanding (August 31, 2019: 250,000; August 31, 2018: 250,000).
BUSINESS OUTLOOK
The COVID-19 pandemic significantly impacted the economies our business operates in and the clients we
serve. Since COVID-19’s characterization as a global pandemic on March 11, we experienced a swift and
material reduction in business with new assignment levels falling and remaining low during the third and
into the fourth quarter.
However, through a combination of cost reductions, the benefit of government stimulus grants and
compensation plans having high variability that naturally adjust downwards with decreased revenue, we
generated positive earnings through the pandemic and for the year. As a result, we have come out of a
challenging 2020 with a balance sheet and a cash position with liquidity to operate during the current
pandemic environment and to make strategic investments if the opportunity arises.
New search bookings began to stabilize in July, and monthly sequential increases in new search volumes
and business development activity have continued into the first quarter of 2021. There remains much
uncertainty about whether a deepening or second wave of the pandemic will dampen hiring activity
again for our clients. We do not expect that to end until the pandemic passes entirely. Until then, we
will continue to manage costs actively, preserve capital and liquidity and make strategic investments as
opportunities arise.
RELATED PARTY TRANSACTIONS
Under our 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 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. The lease term expired effective March 31, 2020 and the Toronto office relocated.
Caldwell – Management Discussion & Analysis
30
Occupancy costs within general and administrative expenses in the consolidated statements of earnings
have been recognized for the year ended August 31, 2020 in the amount of $130 (2019: $223).
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
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 in the Consolidated Financial
Statements.
Allowance for professional fee adjustments and 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. Substantial judgment is involved based on the circumstances of individual accounts
and the estimated performance of the portfolio. The majority of accounts provided for result from client
concessions to maintain a positive brand in the marketplace and relationships with client contacts based
on circumstances unique to each search. While there are some accounts that are provided for due to
credit reasons, it is often difficult to completely isolate provisions between client concessions and credit
risk. Provision amounts are therefore aggregated as Professional Fee Adjustments.
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
Caldwell – Management Discussion & Analysis
31
from management’s current estimates would affect the results of operations in future periods.
Valuation of equity interests in clients
It can be difficult to obtain valuation information on equity interests held in clients. Equity instruments
are most often in privately held companies without a specific obligation to share ongoing business
performance and valuation information. The Company values such interests in accordance with its
financial instruments policy with available information. As a result, the current and future valuation of
these interests could differ materially from current estimates.
Impairment of goodwill
The Company tests at least annually whether goodwill is subject to any impairment in accordance with
the accounting policy. Various assumptions are made in performing this test, including estimates of future
revenue streams, operating costs and discount rates. These assumptions are disclosed in note 6 of the
Consolidated Financial Statements. Future results that differ from management’s current estimates would
affect the results of operation in future periods.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting standards issued but not yet applied
Conceptual Framework
On March 29, 2018, the IASB issued its revised Conceptual Framework for Financial Reporting. The revised
Conceptual Framework does not constitute a substantial revision from the previously effective guidance
but does provide additional guidance on topics not previously covered, such as presentation and
disclosure. This amendment is effective on January 1, 2020. The Company intends to adopt this
amendment in its consolidated financial statements for the annual period beginning September 1, 2020.
The extent of the impact of the adoption of this amendment has not yet been determined.
Definition of Material
On October 31, 2018, the IASB issued amendments to IAS 1 Presentation of financial statements and IAS 8
Accounting policies, changes in accounting estimates and errors. These amendments clarify and align the
definition of material and provide guidance to help improve consistency in the application of materiality
when used in other IFRS standards. These amendments are effective on January 1, 2020. The Company
intends to adopt these amendments in its consolidated financial statements for the annual period
beginning September 1, 2020. The adoption of these amendments is not expected to have a significant
impact.
Classification of Liabilities as Current or Non-current
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements, to
clarify the classification of liabilities as current or non-current. The amendments are effective for
annual periods beginning on or after January 1, 2023. The Company intends to adopt these amendments
in its consolidated financial statements for the annual period beginning September 1, 2023. The extent
of the impact of the adoption of these amendments has not yet been determined.
Annual Improvements to IFRS Standards 2018–2020
On May 14, 2020, the IASB issued narrow-scope amendments to certain standards as part of its annual
improvement process. Amendments were made to clarify which fees an entity includes when it applies
the ‘10 per cent’ test in assessing whether to derecognize a financial liability in accordance with IFRS 9.
There is also an amendment to IFRS 16 Leases to remove from an example the illustration of the
reimbursement of leasehold improvements by the lessor. Lastly, an amendment was made to IFRS 1 First-
time Adoption of International Financial Reporting Standards for subsidiaries as a first-time adopter. The
Company intends to adopt these amendments prospectively in its consolidated financial statements for
Caldwell – Management Discussion & Analysis
32
the annual period beginning September 1, 2022. The extent of the impact of the adoption of these
standards has not yet been determined.
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.
COVID-19, pandemics and outbreaks
On January 30, 2020, the World Health Organization (WHO) characterized the novel coronavirus (COVID-
19) as a public health emergency. At that time, there had not been a direct negative impact on the regions
where we operate (Canada, the United States and the United Kingdom). On March 11, the WHO expanded
its characterization of COVID-19 to a global pandemic. To-date the pandemic has had a significant impact
on our operations, with year-over-year revenues down materially. We believe that this situation will likely
continue to have an adverse impact on our operating results for the balance of calendar 2020 and the first
half of fiscal 2021 or possibly longer. Given these circumstances' dynamic nature, it is unknown how our
clients, and therefore our revenue, may continue to be affected if such an epidemic persists for an
extended period.
The ability to attract and retain experienced search professionals is critical to our business
We compete with other executive recruitment firms for experienced consultants. Attracting and retaining
consultants in our industry is important because consultants have primary responsibility for client
relationships, and the loss of consultants often leads to the loss of client relationships. While we believe
we offer one of the most competitive compensation plans in the industry and offer freedom for our
partners to operate in the marketplace, the ability to continue to generate revenue and profits will
depend on our ability to attract and retain key professionals. Additionally, we may pay hiring bonuses to
attract new partners who may leave bonus amounts at their predecessor firm 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 operations results
may be adversely affected. During 2020, approximately 15% (2019: 12%) 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 contractual client and employee non-
solicitation covenants in our offer of employment letters with our partners.
Caldwell – Management Discussion & Analysis
33
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 our ability to retain our 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 events. 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 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 increase our insurance premiums. Therefore, there can be no assurance that their
resolution will not have a material adverse effect on our financial condition or operations results.
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 that may reimburse us for certain suffered losses in this area, although such
reimbursement and the amount cannot be guaranteed.
Caldwell – Management Discussion & Analysis
34
Cybersecurity requirements, vulnerabilities, threats and attacks
Increased global cybersecurity vulnerabilities, threats, and more sophisticated and targeted cyber-related
attacks pose a risk to our systems and networks' security 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
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
negatively impact our results of operations. We attempt to mitigate this risk by 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 that might mitigate certain financial costs if we suffered a breach that caused us to incur financial
losses.
Brand Reputation
We depend on our overall professional reputation and brand name recognition to secure new engagements
and hire qualified consultants. Our success also depends on the individual reputations of our consultants.
We obtain many of our new engagements from existing clients or referrals by those clients. A client who
is dissatisfied with our work can adversely affect our ability to secure new engagements. Additionally,
there has been a marked increase in the use of social media platforms, including blogs, social media
websites and other forms of Internet-based communications, which allow individuals access to a broad
audience of consumers and other interested persons. The inappropriate or unauthorized use of such media
vehicles by our clients or employees could increase our costs, cause damage to our brand, lead to litigation
or result in information leakage, including the improper collection or dissemination of personally
identifiable information of candidates and clients. In addition, negative or inaccurate posts or comments
about us on any social networking platforms could damage our reputation, brand image and goodwill. If
any of these factors, including poor performance, hurt our reputation, we may experience difficulties
competing successfully for new engagements and qualified consultants. Failure to maintain our
professional reputation and brand name could seriously harm our business, financial condition, and
operations results. We attempt to mitigate this risk by using 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 operations results. 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.
Caldwell – Management Discussion & Analysis
35
Unfavourable tax law changes and tax authority rulings or other governmental audits or
rulings may adversely affect results
We are subject to income taxes in Canada, the United States and 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 to
review our tax structure and advise optimal tax structures regularly. As described in note 11 to our annual
financial statements, we received a United States government stimulus grant in the form of a forgivable
loan. While we believe we received the funds with a good faith need and have subsequently met the use
criteria and terms to enable forgiveness, the loan’s forgiveness is subject to the review of our lender and
possible governmental audit. It is possible the loan will not be forgiven and will need to be repaid.
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 by reviewing 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, 81% 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 Canadian dollar strengthening, could hurt our profitability and financial condition.
When we have a significant short-term net cash or intercompany loan balance, we will, on occasion, hedge
our 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 affiliate in 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, ending an agreement before the respective contract’s full term.
We invest in marketable securities whose valuations fluctuate
When we build large enough excess cash balances relative to the current liquidity need and economic
cycles, we may invest in marketable securities. Marketable securities consist of investments in
professionally managed fixed-income funds and certain equity securities obtained through search fees
paid partially in the client's equity. The securities are subject to market risk. Should they decline in value,
the unrealized losses and potential realized losses could negatively impact our financial position and
aggregate operations results. We mitigate the risk in managed funds by investing in relatively conservative
investments and engaging professional investment fund advisors independent from us with added oversight
from the Board of Directors' Investment Committee. 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. As
Caldwell – Management Discussion & Analysis
36
a result of the economic uncertainty created by the COVID-pandemic, our managed fixed-income funds
were liquidated to eliminate any further risk exposure. Reinvestment of such funds will be reviewed based
on evolving market conditions and our liquidity position.
We are increasingly dependent on third parties for the execution of critical functions
We do not maintain all our technology infrastructure components, 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. We attempt to mitigate this risk by using large, well-capitalized service
providers, when reasonably possible relative to our technology needs.
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 specific
companies' performance, which could impact the Common Shares' market price. 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 Company's share price and can significantly fluctuate. 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 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. We must
make assumptions regarding our goodwill and other intangible assets' estimated fair value in performing
these assessments. 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 operations results.
Our 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 be cancelled at any
time by our bank. In such circumstances, we may not be able to secure alternative financing or only be
able to do so at significantly higher costs. We attempt to mitigate this risk by only using the credit line to
Caldwell – Management Discussion & Analysis
37
fund temporary cash requirements, negotiating 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,
18.6% 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 founder of The Caldwell Partners International Inc., is reported
to own, directly or indirectly, 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 all of our shareholders' best
interest. 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. They 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 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.
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. In conjunction with the board of
directors, the Chief Executive Officer and Chief Operating and Financial Officer 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, 2020, have concluded that the
Caldwell – Management Discussion & Analysis
38
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 evaluated the effectiveness of the design and operation of the Company’s internal controls
over financial reporting as at August 31, 2020. 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, 2020.
Management has also evaluated whether there were changes in the Company’s internal controls over
financial reporting during the reporting period ended August 31, 2020 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, 2020 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
39
THE CALDWELL PARTNERS
INTERNATIONAL INC.
Consolidated Financial Statements
for the years ended August 31, 2020
and August 31, 2019
The Caldwell Partners International Inc.
Years Ended August 31, 2020 and August 31, 2019
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.
KPMG LLP, an independent firm of chartered professional accountants, has been appointed by the Board
of Directors as the external auditor of the Company, effective, March 6, 2020. 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
November 12, 2020
Caldwell – Consolidated Financial Statements
41
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, ON M5H 2S5
Telephone (416) 777-8500
Fax (416) 777-3969
www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the Shareholders of The Caldwell Partners International Inc.
Opinion
We have audited the consolidated financial statements of The Caldwell Partners
International Inc. (the Entity), which comprise:
the consolidated statement of financial position as at August 31, 2020;
the consolidated statement of earnings for the year then ended;
the consolidated statement of comprehensive earnings for the year then ended;
the consolidated statements of cash flows for the year then ended;
the consolidated statements of changes in equity for the year then ended; and
notes to the consolidated financial statements, including a summary of significant
accounting policies.
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material
respects, the consolidated financial position of the Entity as at August 31, 2020, and its
consolidated financial performance and its consolidated cash flows for the year then ended
in accordance with International Financial Reporting Standards (IFRSs).
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
"Auditors' Responsibilities for the Audit of the Financial Statements" section of our
auditor' report.
We are independent of the Entity in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Canada and we have fulfilled our other
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Other Matter – Comparative Information
The financial statements for the year ended August 31, 2019 were audited by another
auditor who expressed an unmodified opinion on those financial statements on November
18, 2019.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG
LLP.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management's Discussion and Analysis filed with the
relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditors' report
thereon, included in a document likely to be entitled "Glossy Annual Report".
Our opinion on the financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the 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 financial statements or our knowledge obtained in the
audit and remain alert for indications that the other information appears to be materially
misstated.
We obtained the information included in Management's Discussion and Analysis filed with
the relevant Canadian Securities Commissions as at the date of this auditors' report. If,
based on the work we have performed on this other information, we conclude that there is
a material misstatement of this other information, we are required to report that fact in the
auditors' report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors' report thereon,
included in a document likely to be entitled "Glossy Annual Report" is expected to be made
available to us after the date of this auditors' report. If, based on the work we will perform
on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with International Financial Reporting Standards (IFRSs), and
for such internal control as management determines is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, management is responsible for assessing the Entity'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 Entity or to cease operations, or has no realistic alternative but to
do so.
Those charged with governance are responsible for overseeing the Entity's financial
reporting process.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG
LLP.
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditors' 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 the 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 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 Entity'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 Entity's ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors' report to the
related disclosures in the 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 auditors' report. However, future events or
conditions may cause the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG
LLP.
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.
Provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and communicate with
them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the Group Entity to express an opinion on
the financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
The engagement partner on the audit resulting in this auditors' report is Elliot Marer.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
November 12, 2020
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG
LLP.
Signed on behalf of the Board:
Elias Vamvakas
Chair of the Board
Kathryn A. Welsh
Chair of the Audit Committee
Caldwell – Consolidated Financial Statements
46
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(in $000s Canadian)As atAs atAugust 31August 3120202019AssetsCurrent assetsCash and cash equivalents14,48110,623Marketable securities (note 4)- 5,832Accounts receivable (note 20)7,31611,915Income taxes receivable928- Unbilled revenue (note 12)2,4304,086Prepaid expenses and other assets2,5532,32027,70834,776Non-current assetsRestricted cash4545Marketable securities (note 4)7185Advances6951,047Property and equipment (note 5)2,1281,379Right-of-use assets (notes 3 and 10)7,691- Goodwill (note 6)1,2881,313Deferred income taxes (note 13)1,2451,963Total assets40,87140,608LiabilitiesCurrent liabilitiesAccounts payable1,7643,389Compensation payable (notes 8, 9 and 12)12,81221,222Lease liability (notes 3 and 10)1,873- Dividends payable (note 15)- 459Income taxes payable- 57616,44925,646Non-current liabilitiesCompensation payable (note 9)7341,068Provisions (note 3)- 49Lease liability (notes 3 and 10)6,932- 24,11526,763Equity attributable to owners of the CompanyShare capital (note 15)7,5157,515Contributed surplus (note 15)15,01315,005Accumulated other comprehensive income419581Deficit (6,191)(9,256)Total equity16,75613,845Total liabilities and equity40,87140,608The accompanying notes are an integral part of these consolidated financial statements.
Caldwell – Consolidated Financial Statements
47
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF EARNINGS(in $000s Canadian, except per share amounts)20202019RevenuesProfessional fees (note 12)56,69069,749Licence fees (note 23)177700Direct expense reimbursements1,3261,68958,19372,138Cost of sales expensesCost of sales (notes 7, 8 and 12)44,35253,046Government stimulus grants (note 11)(2,446)- Reimbursed direct expenses1,3261,689 43,23254,735Gross profit14,96117,403Operating expensesSelling, general and administrative (notes 7, 8 and 9)11,58814,074Goodwill impairment (note 6)- 1,521Government stimulus grants (note 11)(393)- 11,19515,595Operating profit3,7661,808Finance expenses (income)Interest expense on lease liability (note 10)367- Investment loss (income) (note 4)605(211)Foreign exchange (gain) loss(179)168 Earnings before income tax2,9731,851Income tax expense (note 13)1271,526Net earnings for the year attributable to owners of the Company2,846325Earnings per share (note 14)Basic & Diluted$0.139$0.016CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS(in $000s Canadian)20202019Net earnings for the year2,846325Other comprehensive income:Items that may be reclassified subsequently to net earningsGain (loss) on marketable securities (note 4)210(55)Cumulative translation adjustment(372)197Comprehensive earnings for the year attributable to owners of the Company2,684467Certain comparative figures have been restated to conform with current year presentation.The accompanying notes are an integral part of these consolidated financial statements. August 31 Twelve months ended August 31 Twelve months ended
Caldwell – Consolidated Financial Statements
48
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(in $000s Canadian)UnrealizedCumulativeGains (Loss) onContributedTranslationMarketableTotalDeficitShare CapitalSurplusAdjustmentSecuritiesEquityBalance - August 31, 2018(9,854)7,51515,00277048713,920Adoption of IFRS 9818---(818)0Adoption of IFRS 151,291----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----(55)(55) marketable securities available for sale Change in cumulative translation adjustment---197-197Balance - August 31, 2019(9,256)7,51515,005967(386)13,845Adoption of IFRS 16 (note 3)1,137----1,137 Net earnings for the year2,846----2,846Dividend payments declared (note 15)(918)----(918)Share-based payment expense (note 15)--8--8Change in unrealized loss on----210210 marketable securities available for sale Change in cumulative translation adjustment---(372)-(372)Balance - August 31, 2020(6,191)7,51515,013595(176)16,756The accompanying notes are an integral part of these consolidated financial statements.Accumulated Other ComprehensiveIncome (Loss)
Caldwell – Consolidated Financial Statements
49
THE CALDWELL PARTNERS INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CASH FLOW(in $000s Canadian)Twelve months ended August 3120202019Cash flow provided by (used in)Operating activitiesNet earnings for the year2,846325Add (deduct) items not affecting cashDepreciation of property and equipment461520Amortization of intangible assets- 94Depreciation of right-of-use assets (note 10a)1,565- Amortization of advances1,128898Gain on government stimulus grants (note 11)(2,132)- Loss on disposition of assets10320 Loss on disposition of right-of-use assets87- Reduction in lease liability due to early termination(91)- Interest expense on lease liabilities (note 10b)367- Fees received in shares(23)- Loss (gain) on marketable securities classified as FVPL625(177)Share based payment expense83(Gain) loss on unrealized foreign exchange on subsidiary loans(262)136Decrease in provisions- (44)Decrease in deferred revenue- (449)Decrease (increase) in unbilled revenue1,623(558)Decrease (increase) in deferred income taxes520 (541)Decrease in cash settled share-based compensation(334)(547)Decrease in goodwill- 1,521Changes in working capital (note 16)(5,102)(1,160)Net cash provided by operating activities1,38941Investing activitiesProceeds from sale of marketable securities5,207- Tenant inducement on right-of-use assets367- Payment of advances(576)(2,260)Proceeds from release of restricted cash- 94 Purchase of property and equipment(1,320)(564)Proceeds from the disposition of property and equipment- 38 Net cash used in investing activities3,678(2,692)Financing activitiesDividend payments(1,377)(1,836)Payment of lease liabilities(2,021)- Sublease payments received310- Proceeds from government loan (note 11)2,267- Net cash provided by (used in) financing activities(821)(1,836)Effect of exchange rate changes on cash and cash equivalents(388)225Net increase (decrease) in cash and cash equivalents3,858(4,262)Cash and cash equivalents, beginning of year10,62314,885Cash and cash equivalents, end of year14,48110,623The net impact of opening balance sheet adjustments as a result of implementing IFRS 15 and 16 have been eliminated in the creation of the consolidated statements of cash flow.The accompanying notes are an integral part of these consolidated financial statements.
THE CALDWELL PARTNERS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2020 AND AUGUST 31, 2019
(in $000s Canadian unless otherwise stated, except per share amounts)
1. General Information
The Caldwell Partners International Inc. (the “Company” or “Caldwell”) is a talent acquisition firm
specializing in recruiting executives on behalf of its clients. The Company contracts with its clients,
on an assignment basis, to provide consulting advice on the identification, evaluation, assessment and
recommendation of qualified candidates for specific positions. 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 has recently expanded its service offerings to
encompass mid-management professional roles.
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 79 Wellington Street West, Suite 2410, Toronto, Ontario. The
Company operates in Canada, the United States, Europe and, through a licence agreement, 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
12, 2020.
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 consolidated
from the date on which control is transferred to the Company. They are deconsolidated from the date
control ceases.
Caldwell – Consolidated Financial Statements
50
The acquisition 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
51
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 up to 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. The Company’s expected credit loss model
involves a component of price concession provided to customers.
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, and when it
Caldwell – Consolidated Financial Statements
52
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 during the periods presented 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
53
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, net of provisions. 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 generally dependent
on notional dividends received on the holdings, the Company’s share price at the vesting date and a
performance factor, as applicable. Prior to 2020, all grants were considered standard PSU grants
having 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 (“Standard Grants”).
Beginning fiscal 2020, there are two categories of PSU awards—a reduced Standard Grant and a new
Special Grant. For each of fiscal 2020, 2021 and 2022 the normal Standard Grant was reduced to 50%
of the previous allotment. The remaining 50% of the allotments for fiscal 2020, 2021 and 2022 were
aggregated and accelerated into a special grant (the “Special Grant”). The Special Grant has the same
vesting and settlement features as the Standard Grant, but with a performance factor ranging
between 0% and 200% based on Board of Directors-established revenue targets set for fiscal 2022.
Caldwell – Consolidated Financial Statements
54
Compensation expense is recognized on a straight-line basis over the three-year vesting period. Any
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, as applicable. Each non-employee Board Member receives approximately
50% of the annual retainer in cash and 50% in the form of DSUs issued at fair value on the date of the
grant, which track the performance of the Company’s common shares over time. These DSUs vest
upon grant, but are redeemable only when the Board Member leaves the Board, at which time they
are settled in cash. DSUs are recorded as compensation expense at the fair value of the units when
issued. Any 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.
Caldwell – Consolidated Financial Statements
55
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
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, an estimate of uptick revenue
expected to be received at the time of successful placement of a candidate and an
estimate of price concessions provided to customers through the expected credit loss
model. The uptick revenue 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.
Caldwell – Consolidated Financial Statements
56
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.
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 23. 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 cost of sales
expenses.
Caldwell – Consolidated Financial Statements
57
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
At the inception of a contract, the Company assesses whether it is or contains a lease based on
whether the contract conveys the right to control the use of an identified asset for a period of time
in exchange for consideration.
A right-of-use asset and a corresponding lease liability are recognized at the date a leased asset is
available for use by the Company. The right-of-use asset is initially measured based on the initial
amount of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove or restore
the underlying asset, less any lease incentives received. The lease liability is initially measured at the
present value of the lease payments discounted using the interest rate implicit in the lease or, if that
rate cannot be readily determined, the Company's incremental borrowing rate is used to calculate
present value. The lease term determined by the Company is comprised of the non-cancellable period
of the lease contract, as well as options to terminate or extend the lease term if the exercise of either
option is reasonably certain.
Right-of-use assets are subsequently measured at cost less depreciation on a straight-line basis and
reduced to reflect impairment losses (if any) and adjusted for any remeasurement of the lease
liability. After the lease commencement date, lease liabilities are measured at amortized cost using
the effective interest method, which increases the liability amount to reflect interest on the lease
liability, reduces the liability carrying amount to reflect lease payments made and also reflects any
remeasurement or lease modifications. If a remeasurement to the lease liability is deemed necessary,
a corresponding adjustment is also made to the carrying amount of the right-of-use asset, or is
recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the
underlying asset. Payments related to short-term leases and leases of low-value assets are recognized
on a straight-line basis as an expense in profit or loss over the respective lease terms. Short-term
leases are leases with a lease term of 12 months or less.
The Company sub-leases some of its properties. Under IAS 17, the head lease and sub-lease contracts
were classified as operating leases. On transition to IFRS 16, the right-of-use assets recognized from
the head leases are presented in non-current assets and measured at fair value on transition to IFRS
16. The sub-lease contracts are classified as finance leases under IFRS 16.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of
shares are recognized as a deduction from equity.
Caldwell – Consolidated Financial Statements
58
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.
Change in judgments and estimation uncertainty due to COVID-19
On January 30, 2020, the World Health Organization (WHO) characterized the novel coronavirus
(COVID-19) a public health emergency. At that time, there had not been a direct negative impact seen
within the regions the Company operates. On March 11, the WHO expanded its characterization of
COVID-19 to a global pandemic. The duration and intensity of the impact of COVID-19 and resulting
disruption to the Company's operations have been significant, and the ultimate impact remains
uncertain. Given the dynamic nature of these circumstances, it is unknown how the Company may be
affected if such an epidemic persists for a continuing extended period. The Company has evaluated
subsequent events through November 12, 2020, the date the consolidated financial statements were
available to be issued. The Company believes this situation will continue to have a significant impact
to its operating results in the short-term and will continue to assess the financial impact. Changes in
judgments and estimation uncertainties directly impacted include an increase in the provision for
professional fee adjustments, with reserves being increased to reflect greater uncertainty on client
concessions and client credit positions.
Recently Adopted Accounting Standards
•
IFRS 16, Leases ("IFRS 16")
IFRS 16 provides revised guidance on identifying a lease and for separating lease and non-lease
components of a contract. IFRS 16 introduces a single accounting model for all lessees, thereby
removing the distinction between operating and finance leases. IFRS 16 generally requires a lessee to
recognize an asset (right-of-use of the leased asset) and a financial liability on the consolidated
statements of financial position. The standard permits either a full retrospective or a modified
retrospective approach for adoption.
The Company adopted IFRS 16 on September 1, 2019 using the modified retrospective approach which
results in recognizing the cumulative effect of applying the guidance at the date of initial application
with no restatement of the comparative periods presented.
On transition to IFRS 16, the Company elected to apply certain practical expedients:
• To not recognize an asset or liability for any lease with a remaining term of fewer than 12
months as at August 31, 2019.
• To use a single discount rate on its portfolio of leases with reasonably similar characteristics.
• To place reliance on previous assessments on whether a lease was onerous
• 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
Caldwell – Consolidated Financial Statements
59
made applying IAS 17, Leases ("IAS 17") and IFRIC 4, "Determining whether an Arrangement
contains a Lease."
The Company recognized the cumulative effects of initially applying IFRS 16 as adjustments to its
opening interim consolidated statements of financial position on September 1, 2019. On adoption of
IFRS 16, the Company recognized lease liabilities in relation to leases, which had previously been
classified as operating leases under the principles of IAS 17. These liabilities were measured at the
present value of the remaining lease payments, discounted using the incremental borrowing rate as at
September 1, 2019. The incremental borrowing rate applied to the lease liabilities on September 1,
2019 was 4.95%.
A reconciliation of the Company's lease commitments as at August 31, 2019 and the lease liabilities
recognized as at September 1, 2019 is presented below:
During fiscal 2016 the Company entered into agreements to sublease its existing premises in New York,
NY and lease new space. The cumulative proceeds to be received from the sublease are less than the
Company's contracted lease obligations. Effective with the implementation of IFRS 16 on September 1,
2019, the remaining net sublease cost provision of $95 was derecognized, and a lease-liability of $847
and a sublease receivable asset of $752 were established.
The increase (decrease) to opening balances from adopting IFRS 16 on the opening interim consolidated
statements of financial position is as follows:
Caldwell – Consolidated Financial Statements
60
Operating lease commitments as at August 31, 201915,014 Less:Leases with terms fewer than 12 months(296) Lease with future commencement date(4,614) Variable non-lease components(2,823) 7,281 Discounted using the Company's incremental borrowing rate of 4.95%(722) FX impact(36) Lease liability recognized as at September 1, 20196,523 IFRS 16August 31, 2019AdjustmentsSeptember 1, 2019Prepaid expenses and other current assets2,3207523,072Right-of-use assets- 5,6765,676Deferred income taxes 1,963(420)1,543Total assets40,6086,00846,616Current portion of lease liability- 1,6801,680Accounts payable3,389(1,603)1,786Provisions49(49)- Non-current portion of lease liability- 4,8434,843Total liabilities26,7634,87131,634Deficit(9,256)1,137(8,119)Total equity13,8451,13714,982Total liabilities and equity40,6086,00846,616
•
IFRIC 23, Uncertainty over Income Tax Treatments ("IFRIC 23")
In June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (IFRIC 23) with a
mandatory effective date for annual periods beginning on or after 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.
Beginning September 1, 2019, the Company adopted IFRIC 23. The interpretations provide guidance
on how to value uncertain income tax positions based on the probability of whether the relevant tax
authorities will accept a company's tax treatments. The adoption of IFRIC 23 did not have a financial
impact to the Company.
•
IAS 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”)
As a result of the receipt of government stimulus measures during the year, the Company has adopted
IAS 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). A
government grant is recognized only when it is probable that it will be received and that the Company
will comply with the conditions associated with the grant. Where stimulus is received in the form of
a forgivable loan, such as the Paycheck Protection Program (“PPP”) (see note 11), the Company has
opted to apply government grant accounting and has recognized the proceeds as a reduction of the
related expense upon concluding that forgiveness of the loan is probable and that the Company has
complied with the relevant provisions of the program. If forgiveness of the loan is not probable, it is
presented as a loan on the balance sheet as of the end of the reporting period.
Accounting standards issued but not yet applied
Conceptual Framework
On March 29, 2018, the IASB issued its revised Conceptual Framework for Financial Reporting. The
revised Conceptual Framework does not constitute a substantial revision from the previously effective
guidance but does provide additional guidance on topics not previously covered, such as presentation
and disclosure. This amendment is effective on January 1, 2020. The Company intends to adopt this
amendment in its consolidated financial statements for the annual period beginning September 1,
2020. The extent of the impact of the adoption of this amendment has not yet been determined.
Definition of Material
On October 31, 2018, the IASB issued amendments to IAS 1 Presentation of financial statements and
IAS 8 Accounting policies, changes in accounting estimates and errors. These amendments clarify and
align the definition of material and provide guidance to help improve consistency in the application
of materiality when used in other IFRS standards. These amendments are effective on January 1, 2020.
The Company intends to adopt these amendments in its consolidated financial statements for the
annual period beginning September 1, 2020. The adoption of these amendments is not expected to
have a significant impact.
Classification of Liabilities as Current or Non-current
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements, to
clarify the classification of liabilities as current or non-current. The amendments are effective for
annual periods beginning on or after January 1, 2023. The Company intends to adopt these
amendments in its consolidated financial statements for the annual period beginning September 1,
2023. The extent of the impact of the adoption of these amendments has not yet been determined.
Caldwell – Consolidated Financial Statements
61
Annual Improvements to IFRS Standards 2018–2020
On May 14, 2020, the IASB issued narrow-scope amendments to certain standards as part of its annual
improvement process. Amendments were made to clarify which fees an entity includes when it applies
the ‘10 per cent’ test in assessing whether to derecognize a financial liability in accordance with IFRS
9. There is also an amendment to IFRS 16 Leases to remove from an example the illustration of the
reimbursement of leasehold improvements by the lessor. Lastly, an amendment was made to IFRS 1
First-time Adoption of International Financial Reporting Standards for subsidiaries as a first-time
adopter. The Company intends to adopt these amendments prospectively in its consolidated financial
statements for the annual period beginning September 1, 2022. The extent of the impact of the
adoption of these standards has not yet been determined.
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. Substantial judgment is involved based on the circumstances of
individual accounts and the estimated performance of the portfolio. The majority of accounts
provided for result from client concessions to maintain a positive brand in the marketplace and
relationships with client contacts based on circumstances unique to each search. While there are some
accounts that are provided for due to credit reasons, it is often difficult to completely isolate
provisions between client concessions and credit risk. Provision amounts are therefore aggregated as
professional fee adjustments.
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
Caldwell – Consolidated Financial Statements
62
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
It can be difficult to obtain valuation information on equity interests held in clients. Equity
instruments are most often in privately held companies without a specific obligation to share ongoing
business performance and valuation information. The Company values such interests in accordance
with its financial instruments policy with available information. As a result, the current and future
valuation of these interests could differ materially from current estimates.
Impairment of goodwill
The Company tests at least annually whether goodwill is subject to any impairment in accordance
with the accounting policy. Various assumptions are made in performing this test, including estimates
of future revenue streams, operating costs and discount rates. These assumptions are disclosed in
note 6. 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 at August 31, 2020 are comprised of equity securities obtained
through search fees being paid partially in equity of the client and which are held for long-term
investment until there is a market for sale (classified as fair value through OCI).
As at August 31, 2019, marketable securities also contained managed bond funds (classified as fair
value through profit or loss) and held for long-term investment. Due to the uncertainty created by
the COVID-19 pandemic, the Company liquidated its managed bond funds to cash and cash equivalents
during the third quarter of 2020 to maximize available liquidity and eliminate further market risk.
As at August 31, 2020, there were no managed funds, and client equity investments were $71. As at
August 31, 2019 managed funds and client equity investments were $5,832 and $85, respectively.
Investment income consisted of the following:
During fiscal 2020, a net unrealized gain of $210 was recognized as part of other comprehensive
income (2019: $55). Included in the total is a gain of $245 on the reversal of previously recognized
deferred tax liabilities.
Caldwell – Consolidated Financial Statements
63
CurrentNon-currentFairportionportionAugust 31,value(FVPL)(FVOCI)202071 - 71 20195,917 5,832 85 20202019Interest 20 34 (Loss) gain on marketable securities(625) 177 (605) 211 12 months ended August 31,
5. Property and Equipment
Effective August 31, 2020, the Company entered into an agreement to early terminate its lease in
Dallas, Texas ahead of its scheduled term of May 31, 2021. The landlord’s release was made in
exchange for a one-time buyout payment of $104. In connection with the buyout, fixed assets with a
cost of $579 and accumulated depreciation of $476 were disposed of, resulting in a loss of $103
recorded within general and administrative expenses in the consolidated statements of earnings. The
remaining right-of-use asset of $87 associated with the lease was disposed of as shown in note 10a
and the outstanding lease liability of $91 was reversed, as shown in note 10b.
6. Goodwill
In assessing goodwill for impairment as at August 31, 2020 and 2019, the Company compared the
aggregate recoverable amount of the assets included in the CGU in its United States segment to its
respective carrying amount. 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
of Directors-approved budgets for the next year and forecasts for an additional four years, and using
the following assumptions to extend the cash flows into future periods:
Caldwell – Consolidated Financial Statements
64
Computer Furniture andComputerapplicationLeaseholdequipmentequipmentsoftwareimprovementsTotalYear 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 Year ended August 31, 2020:Opening net book value449 432 - 498 1,379 Additions231 84 - 1,005 1,320 Disposals(54) - - (49) (103) Depreciation for the year(78) (149) - (232) (459) Exchange differences(2) (2) - (5) (9) Closing net book value546 365 - 1,217 2,128 At August 31, 2020:Cost2,885 3,117 762 4,890 11,655 Accumulated depreciation(2,339) (2,752) (762) (3,673) (9,526) Net book value546 365 - 1,217 2,128
The impairment tests performed over the United States goodwill resulted in no impairment as at
August 31, 2020 or 2019.
In assessing goodwill for impairment as at August 31, 2019, the carrying value for the Europe segment
exceeded the aggregate recoverable amount of the assets of the CGU and an impairment expense of
$1,521 was recorded.
7. Nature of Expenses
8. 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
65
United States20202019Average growth rate5%5%Expected gross margin24%24%Discount rate8%8%Europe20202019Average growth rate-3%Expected gross margin-10%Discount rate-8%20202019Compensation costs45,99856,557Occupancy costs, including ROU asset depreciation4,4844,759Professional services1,3481,049Reimbursed direct expenses1,3261,689Sales and marketing9281,456Search execution materials868582Depreciation of property and equipment461520Staff training and meetings429602Goodwill impairment- 1,521Amortization- 94Foreign exchange loss (gain)(179)168Government stimulus grants (note 11)(2,839)- Other1,4241,501Total directs costs and expenses54,24870,49812 months ended August 31,
The decrease in salaries, bonuses and short-term benefits was the result of a reduction in bonus
accruals as a result of not meeting targeted performance. The reduction in share-based
compensation is due to a lower share price and a reduction in performance factors, as a result of
not meeting targeted performance.
9.
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. The forms of PSU grants are discussed in note 3. Standard Grants are valued with a
weighted average performance factor estimated at 69% (2019: 108%) of target. Special Grants are
valued with a weighted average performance factor of 100% (2019: not applicable). PSU expense for
the year ended August 31, 2020 of $68 (2019: $872) was recorded within general and administrative
expenses in the consolidated statements of earnings.
Caldwell – Consolidated Financial Statements
66
20202019Salaries, bonuses and short-term benefits1,775 2,397 Share-based compensation expense(16) 940 1,759 3,337 12 months ended August 31,August 31, 2020August 31, 2019Commissions and bonuses12,425 20,069 Performance Stock Units387 1,153 12,812 21,222 As at August 31, 2020August 31, 2019Performance Stock Units396 718 Deferred Stock Units338 350 734 1,068 As at
A summary of the Company’s PSU plan is presented below:
Deferred stock units (DSUs)
DSU recovery of $12 (2019: expense of $68) for the year ended August 31, 2020 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:
10. Leases
a. Right-of-Use Assets
As discussed in Note 3, the Company adopted IFRS 16 effective September 1, 2019, recording right-
of-use assets for leased premises.
A summary of the Company's right-of-use assets is below:
Caldwell – Consolidated Financial Statements
67
Twelve months ended August 31,20202019NotionalNotionalunits (000s)units (000s)Outstanding at beginning of year1,8081,850Granted1,090402Adjustment for dividends paid120119Settled(787)(563)Outstanding at end of year2,2311,808Twelve months ended August 31,20192019NotionalNotionalunits (000s)units (000s)Outstanding at beginning of year276352Granted13858Adjustment for dividends paid1525Settled- (159)Outstanding at end of year429276As at August 31, 2020As at September 1, 2019Cost9,256 Cost 5,676 Accumulated depreciation(1,565) Accumulated depreciation- 7,691 5,676
During the year, the Company adjusted the opening net book value of the right-of-use assets due to
additional information provided by the lessors.
On March 2, 2020, the Company commenced a new lease in Toronto, Ontario with a 10.1 year term
expiring March 31, 2030. A right-of-use asset of $3,585, a tenant inducement receivable of $367 netted
against the right-of-use-asset and a lease liability equal to the total discounted future cash outflows
using an incremental borrowing rate of 4.95%, which are anticipated to be $3,585, were recorded and
included as additions to the lease liability in note 10b. Total undiscounted commitments for the lease
are $4,614.
On June 26, 2020, the Company commenced a new lease in Chicago, Illinois with a 5.5 year term
expiring December 31, 2025. A right-of-use asset and a lease liability of $502 equal to the total
discounted future cash outflows using an incremental borrowing rate of 4.95% were recorded and
included as additions to the lease liability in note 10b. Total undiscounted commitments for the lease
are $580.
b. Lease Liability
As discussed in Note 3, the Company adopted IFRS 16 effective September 1, 2019, recording a right-
of-use asset for its leases. During the year, the Company adjusted the amount of the lease liability
outstanding at adoption as a result of additional information supplied by the lessors. A summary of
the Company's lease liability is below:
c. Leases as a Lessor
As discussed in Note 3, the Company adopted IFRS 16 effective September 1, 2019, recording sublease
receivable assets for leased premises. During the year the Company recognized $33 in interest income
on lease receivables (2019: nil). The undiscounted lease payments to be received as at August 31,
2020 are $455 (2019: nil) and the unearned finance income is $16.
Caldwell – Consolidated Financial Statements
68
Twelve months ended August 31, 2020Opening net book value5,676 Additions4,087 Tenant improvement allowance(367) Disposal(87) Foreign exchange(53) Depreciation(1,565) 7,691 Outstanding at beginning of period- Adoption of IFRS 166,523 Additions (note 10a)4,087 Lease payments(2,021) Reduction in liability due to early termination of lease(91) Foreign exchange(60) Interest and accretion expense367 Outstanding at end of period8,805 Current portion1,873 Non-current portion6,932 Total lease liabilities August 31, 20208,805
11. Government Stimulus Grants
The Company has participated in available stimulus grants offered by the governments in Canada and
the United States to help offset the negative impact of the COVID-19 pandemic.
Canada government stimulus grant
Within Canada, the Company participated in the Canada Emergency Wage Subsidy (“CEWS”). CEWS
provides qualifying companies with a monthly financial support grant based on payroll, subject to
certain caps. Eligibility is triggered by and scaled according to the reduction in year-over-year
Canadian revenue on a month by month basis. The Company recognized government stimulus grant
income as a reduction in cost of sales expenses ($707).
United States government stimulus grant
On April 22, 2020, the Company was granted a US dollar-denominated loan from TD Bank N.A. in the
amount of USD $1,613 ($2,267 at the grant date exchange rate) pursuant to the Paycheck Protection
Program ("PPP") established as part of the Coronavirus Aid, Relief and Economic Security Act ("CARES
Act") which was enacted on March 27, 2020 in the United States.
The loan, which is in the form of a note dated April 22, 2020 issued by the Company, matures on April
22, 2022 and bears interest at a rate of 1.0% per annum, payable monthly, but only if the application
for loan forgiveness is denied by the government. The note may be prepaid at any time prior to
maturity with no prepayment penalties. Subject to certain limitations, funds from the loan used for
payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities,
and interest on other debt obligations are eligible for potential forgiveness upon review and approval
by the lender in accordance with the CARES Act.
The Company utilized the loan proceeds during the third and fourth quarter and believes it has
complied with the relevant provisions of the program by validly using the entire proceeds of the loan
for qualifying expenses during the coverage period and has therefore concluded that forgiveness of
the loan is probable. As a result, the Company has recategorized the proceeds from a loan to that of
a government grant, represented by deductions in cost of goods sold and general and administrative
expenses, respectively.
The Company applied for forgiveness review by its lender and the US government on September 21,
2020. It is unknown how long the loan forgiveness review process will take, with indication from the
Company’s lender of up to five months. Ultimate forgiveness is dependent on the bank review and a
further review by the Small Business Administration of the United States. While management believes
the forgiveness criteria has been achieved, no guarantee of forgiveness can be given until formal
forgiveness is received.
The total government stimulus grant recognized was $2,132 based on exchange rates in effect when
recognized in the fourth quarter as a reduction of cost of sales expenses ($1,739) and general and
administrative expenses ($393).
Caldwell – Consolidated Financial Statements
69
12. Unbilled Revenue and Deferred Revenue
As at August 31, 2020 aggregate amounts billed to clients were less than the calculated revenue to be
recognized. As a result, the Company recorded a net unbilled revenue asset of $2,430 (August 31,
2019: $4,086) and a related increase to compensation payable of $1,215 (August 31, 2019: $2,043). A
summary of the gross unbilled and deferred revenue amounts is below:
13. Income Taxes
Caldwell – Consolidated Financial Statements
70
20202019Unbilled revenue3,106 4,984 Deferred revenue(676) (898) 2,430 4,086 12 months ended August 31,20202019Current tax:Current tax on net earnings for the year(411) 2,052 Deferred tax:Origination and reversal of temporary differences538 (526) 127 1,526 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:20202019Canadian statutory income tax rate26.5%26.7%Current year losses for which no deferred tax asset is recognized0.0%32.4%Recognition of previously unrecognized tax losses(16.9%)0.0%Non-deductible expenses6.8%4.8%Prior years taxes(9.4%)10.5%Foreign Rate differences(6.2%)13.7%Rate change3.0%(5.8%)Other0.5%0.1%4.3%82.4%
Caldwell – Consolidated Financial Statements
71
The analysis of deferred tax assets and liabilities is as follows:20202019Deferred tax assets:Deferred tax assets to be recovered after more than 12 months2,341 285 Deferred tax assets to be recovered within 12 months1,938 3,033 Deferred tax liabilities:Deferred tax liabilities to be recovered after more than 12 months(2,401) (541) Deferred tax liabilities to be recovered within 12 months(633) (814) Deferred tax assets (net)1,245 1,963 The movement of the deferred income tax account is as follows:20202019Outstanding at beginning of year1,963 1,897 Adjustments on initial application of IFRS 15- (493) Adjustments on initial application of IFRS 16(474) - (Debit)/Credit to statement of earnings(538) 526 (Debit)/Credit to statement of comprehensive earnings245 - Exchange differences49 33 Outstanding at end of year1,245 1,963 The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:Deferred tax assetsCompensationLease OtherTotalpayableLiabililyAt August 31, 20182,256 - 272 2,528 Adjustments on initial application of IFRS 15493 - 493 (Charged)/credited to the statement of earnings150 - 241 391 Exchange differences(100) - 6 (94) At August 31, 20192,799 - 519 3,318 Adjustments on initial application of IFRS 16- 2,515 (474) 2,041 (Charged)/credited to the statement of earnings(946) (280) 243 (983) Exchange differences(35) (16) (46) (97) At August 31, 20201,818 2,219 242 4,279
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
72
Excess CarryingRevenue not Value of PP&E Taxable until over tax basea future yearOtherTotalAt August 31, 2018251 238 142 631 Adjustments on initial application of IFRS 15- 986 - 986 (Charged)/Credited to statement of earnings(4) (184) 53 (135) Exchange differences34 (133) (28) (127) At August 31, 2019281 907 167 1,355 Adjustments on initial application of IFRS 162,255 - 260 2,515 Charged/(credited) to the statement of earnings(78) (238) (129) (445) Charged/(Credited) to statement of comprehensive earnings- (245) - (245) Exchange differences(116) (24) (6) (146) At August 31, 20202,342 400 292 3,034 Deferred income tax assets are recognized for tax loss carry-forwards and other temporary differences to the extent that the realization of the related tax benefit through future taxable earnings are probable. The Company did not recognize deferred income tax assets of $213 (2019: $672) that can be carriedforward against future taxable income.As at August 31, 2020, the Company has non-capital losses of $1,119 with indefinite expiry dates available to reduce income of future years in the United Kingdom.The Company also has capital losses of $2,480 in Canada that can only be utilized against capital gains inCanada and are without expiry date. In addition, the Company has a $425 unrealized capital loss onmarketable securities in the US. No deferred tax assets have been recognized for these capital losses.20202019Net earnings for the period attributable to owners of the Company2,846325Weighted average number of common shares outstanding20,404,55520,404,555Basic earnings per share$0.139$0.01612 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, 2020 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). The
holders of common shares are entitled to participate 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 had declared quarterly dividends since May 1, 2012. The dividend was suspended on
April 2, 2020 because of the economic uncertainty arising out of the COVID-19 pandemic. A summary
of dividends declared during fiscal 2019 and 2020 to date is as follows:
Caldwell – Consolidated Financial Statements
73
20202019Net earnings for the period attributable to owners of the Company2,846325Weighted average number of common shares outstanding20,404,55520,404,555Adjustment for stock options56,70651,953Weighted average number of common shares for diluted earnings per share20,461,26120,456,508Diluted earnings per share$0.139$0.01612 months ended August 31,DividendAggregateDeclaration DatePayment DatePer Sharedividends declaredNovember 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$459November 18, 2019December 19, 2019$0.0225$459January 9, 2020March 16, 2020$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
$8 has been recorded in the year ended August 31, 2020 (2019: $3).
16. Changes in Working Capital
Changes in working capital balances on the consolidated statements of cash flow are summarized as
follows:
17. 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 page provides a reconciliation of the Company’s consolidated statements of earnings by
geographic segment to the consolidated results.
Caldwell – Consolidated Financial Statements
74
Number ofWeightedNumber ofWeightedoptionsaverageoptionsaverageoutstanding (000s)exercise priceoutstanding (000s)exercise priceOutstanding at beginning of period250 $1.05250 $1.05Issued during the period250 $0.80- -Expired during period- -- -Outstanding at end of period500 $0.93250 $1.05Exercisable at end of period250 125 August 31, 2020August 31, 2019 August 3120202019Decrease (increase) in accounts receivable4,703(849)Increase in income taxes receivable(939)- Increase in prepaid expenses and other assets(8)(148)(Decrease) increase in accounts payable (4)712(Decrease) increase in compensation payable(7,122)947Decrease in income taxes payable(577)(879)Payment of cash settled share-based compensation(1,155)(943)(5,102)(1,160)Twelve months ended
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, 2020 corporate support costs totaled $4,866 (2019: $6,857) with $3,708
allocated to the US (2019: $5,241), $889 to Canada (2019: $1,520) and $269 to Europe (2019: $96).
Intercompany licence fee revenues have been eliminated on consolidation.
Caldwell – Consolidated Financial Statements
75
CanadaUnited States EuropeEliminationTotalProfessional fees10,607 42,842 3,241 - 56,690 Licence fees1,141 - - (964) 177 Direct expense reimbursements345 980 1 - 1,326 Revenues12,093 43,822 3,242 (964) 58,193 Cost of Sales7,325 34,589 2,438 - 44,352 Government stimulus grants(707) (1,739) - - (2,446) Reimbursed direct expenses345 980 1 - 1,326 Gross profit5,130 9,992 803 (964) 14,961 Selling, general and administrative2,876 7,891 821 - 11,588 Licence fees- 964 - (964) - Government stimulus grants- (393) - - (393) Operating profit2,254 1,530 (18) - 3,766 Interest expense on lease liability 105 262 - - 367 Investment loss (income)605 - - - 605 Intercompany loan cancellation- 2,416 (2,416) - - Foreign exchange (gain) loss14 39 (232) - (179) Earnings before tax1,530 (1,187) 2,630 - 2,973 Income taxes564 (437) - - 127 Net earnings (loss) for the year966 (750) 2,630 - 2,846 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 Sales11,259 39,743 2,044 - 53,046 Reimbursed direct expenses455 1,224 10 - 1,689 Gross profit (loss)6,268 13,539 (1,074) (1,330) 17,403 Selling, general and administrative3,448 10,205 421 - 14,074 Goodwill impairment- - 1,521 - 1,521 Licence fees- 1,330 - (1,330) - Operating profit (loss)2,820 2,004 (3,016) - 1,808 Investment income(211) - - - (211) Foreign exchange (gain) loss(27) (2) 197 - 168 Earnings before tax3,058 2,006 (3,213) - 1,851 Income taxes824 702 - - 1,526 Net earnings (loss) for the year2,234 1,304 (3,213) - 325 Twelve months ended August 31, 2020Twelve months ended August 31, 2019
The Company and its subsidiaries maintain intercompany loan agreements between each other used
to fund advances to and from the different geographical subsidiaries. Due to funded losses in Europe,
the US legal entity developed a substantial receivable balance from the Europe legal entity which the
parties determined was unlikely to be repaid. Effective August 31, 2020 the intercompany loan was
cancelled with the US operations recognizing a deductible loss on cancellation and the Europe
operations recognizing a taxable gain on cancellation which utilized previously unrecognized tax loss
carryforwards. The cancellation gain and loss eliminate in 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:
18. Commitments
The Company's undiscounted future lease commitments for premises excluding explicitly identified
operating costs, are as follows:
Caldwell – Consolidated Financial Statements
76
CanadaUnited StatesEuropeTotalCanadaUnited StatesEuropeTotalProperty and equipment1,566533292,128642704331,379Right-of-use assets3,6334,058-7,691---- Goodwill-1,288-1,288-1,313-1,313Total assets14,06325,81399540,87111,65628,27467840,608At August 31, 2020At August 31, 2019CanadaUnited StatesEuropeTotalCanadaUnited StatesEuropeTotalDepreciation expense: Property and equipement2402101146122928011520Right-of-use assets2921,273-1,565----Amortization expense-----94-9420192020Twelve months ending August 31, 20213,130 Twelve months ending August 31, 20222,365 Twelve months ending August 31, 20232,253 Twelve months ending August 31, 20241,026 Twelve months ending August 31, 2025791 September 1, 2025 and thereafter2,487 12,052
19. 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 expired 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, 2020 in the amount of
$130 (2019: $223). The Toronto office was relocated at the end of this lease term as referenced in
note 10.
20. Financial Instruments
Classification of financial instruments
A summary of the classifications of financial instruments as at August 31, 2020 and August 31, 2019 is
shown below:
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
Caldwell – Consolidated Financial Statements
77
FinancialLiabilitiesassets at at amortizedAs at August 31,Financial instrumentsamortized costcostFVOCI2020Cash and cash equivalents14,481 - - 14,481 Accounts receivable7,316 - - 7,316 Other receivables¹385 - - 385 Restricted cash45 - - 45 Accounts payable- (1,764)- (1,764)Compensation payable- (12,812)- (12,812)Non-current marketable securities- - 71 71 22,227 (14,576)71 7,722 ¹ Included within prepaids and other assets in the consolidated statements of financial positionFinancialLiabilitiesassets 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
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, 2020 consist of
marketable securities, which are comprised of certain equity securities held for investment obtained
through search fees being paid partially in equity of the client. The Company’s financial instruments
measured at fair value as at August 31, 2019 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.
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 held 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 were recorded
initially at their fair value and subsequently measured at fair value through profit and loss. As at
August 31, 2020, the Company no longer held investments in these securities (2019: $5,832).
The equity securities held at August 31, 2020 were obtained through search fees being paid partially
in equity of the client are included within level 1 of the fair value hierarchy and are in a publicly
traded company whose value is based on unadjusted quotes from the NASDAQ. The equity securities
held at August 31, 2019 were also obtained through search fees being paid partially in equity of the
client are included within level 3 of the fair value hierarchy and were in a private company 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, 2020, the Company has $71 invested in these securities (2019: $85). 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 (2019: $4).
Caldwell – Consolidated Financial Statements
78
August 31, 2020Level 1Level 2Level 3Marketable securities71--August 31, 2019Level 1Level 2Level 3Marketable securities-5,83285
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, 2020, the Company has US dollar net monetary asset exposure of $10,332 (2019:
$10,180). 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 $517 recognized in the cumulative translation adjustment in the Company’s consolidated
statements of comprehensive earnings for the year ended August 31, 2020 (2019: $509). As these are
long-term investments and not expected to be liquidated to Canadian dollars, they are not hedged.
As at August 31, 2020, the Company has British pound sterling net monetary asset exposure of $297
(2019: $2,184). 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 $15 recognized in the cumulative translation adjustment
in the Company’s consolidated statements of comprehensive earnings for the year ended August 31,
2020 (2019: $109). As these are long-term investments and not expected to be liquidated to Canadian
dollars, they are not hedged.
Liquidity risk
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due.
The Company’s approach to managing liquidity is to ensure, as far as possible, it will have sufficient
cash resources to meet its financial liabilities as they come due.
The Company manages liquidity by maintaining adequate cash and cash equivalents balances,
monitoring its investment portfolio of marketable securities and monitoring cash requirements to
meet expected operational expenses, including capital requirements. The future ability to pay its
obligations relies on the Company collecting its accounts receivable in a timely manner and by
maintaining sufficient cash and cash equivalents in excess of anticipated needs.
The contractual future cash flows of the Company’s significant non-derivative financial liabilities are
as follows:
Caldwell – Consolidated Financial Statements
79
Less than6 monthsLess than6 months6 monthsto 1 year1 to 3 years6 monthsto 1 year1 to 3 yearsAccounts payable1,764 --3,389 --Compensation payable12,812 -734 21,222 -1,068 Lease liability921 952 6,932 - - - Dividends payable- --459 --15,497 952 7,666 25,070 - 1,068 As at August 31, 2020As at August 31, 2019
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, when invested, 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.
Financial instruments that potentially subject the Company to significant concentrations of credit risk
consist primarily of accounts receivable. The Company evaluates the recoverability of its accounts
receivable on an on-going basis.
As discussed in the Significant Accounting Policy section under Revenue Recognition, there are certain
accounts that are provided for due to client concession reasons and other accounts for credit reasons.
It is often difficult to completely isolate provisions between client concessions and credit concerns.
Provision amounts are therefore aggregated and applied against professional fees. As a result of the
anticipated economic impact on clients by the COVID-19 pandemic, collection reserves were increased
to reflect greater uncertainties on client concessions and client credit positions. Specific reserves
were increased, and judgment was applied to the overall accounts receivable portfolio to maintain a
level of days of sales outstanding, net of provision, consistent with prior periods.
Accounts receivable comprised the following as at August 31:
The following table summarizes the changes in the loss allowance for the accounts receivable:
Caldwell – Consolidated Financial Statements
80
20202019Trade receivables7,80212,146Less: loss allowance(1,315)(501)6,48711,645Other receivables829270Accounts receivable7,31611,915As at August 3120202019Beginning of year501718Increase in loss allowance1,595870Unused loss allowance reversed(16)(116)Provision for professional fee adjustments1,579754Receivables written off during the year as uncollectible(765)(971)End of year1,315501Twelve months endedAugust 31,
As at August 31, 2020, accounts receivable of $6,487 (2019: $11,645) were estimated to be fully
performing. The allowance account of $1,315 (2019: $501) consists of $735 (2019: $501) of over 90
day accounts and $580 (2019: $0) of under 90 day accounts. Of the under 90 day balance, $186 was
for known performance issues and $394 was for an estimation of performance issues based on
expanding days of sales outstanding and the pandemic’s impact on lengthening collection cycles and
pressures from clients on concessions and credit concerns.
Interest rate risk and market price risk
The Company has outstanding debt in the way of the government loan received pursuant to the
Paycheck Protection Program ("PPP") established as part of the Coronavirus Aid, Relief and Economic
Security Act ("CARES Act") which was enacted on March 27, 2020 in the United States. It carries a fixed
interest rate of 1.0%. The loan is forgivable and the Company believes it has complied with the
relevant provisions required for forgiveness. As a result, the Company recharacterized the proceeds
from a loan to that of a government grant (see note 11).
The Company has not currently drawn on its credit facility with TD Bank (see note 22). Therefore,
exposure to interest rate risk 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 include equities which are also subject to market price risk (i.e.
fair value fluctuates based on changes in market prices).
21. 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 or market conditions. Because the Company's Government loan payable and
Credit Facility do not have specific covenants or restrictions, they are not subject to any externally
imposed capital requirements.
22. 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 (the "Credit Facility") for future working capital needs.
The Credit Facility maximum limit was increased to $5,000 effective May 28, 2020. The facility is
limited based on 80.0% 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 net amount the Company is eligible to borrow at August 31, 2020 is $4,656. The
facility bears variable interest on drawn amounts based on the Canadian prime rate plus 1.0% per
annum. As at August 31, 2020, no amounts were outstanding on the credit facility (August 31, 2019:
$nil) and letters of credit of $344 (August 31, 2019: $271) have been issued against the facility.
23. Affiliation Relationships
The Company enters 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 brand, search processes, methodologies and related
intellectual property. For the year ended August 31, 2020 licence fees amounted to $177 (2019: $700).
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. The Company
and CPGroup announced they had mutually agreed to end their licensing relationship, effective
February 28, 2019. There were no license fees from CPGroup in the year ended August 31, 2020 (2019:
$497).
Caldwell – Consolidated Financial Statements
81
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 (“Caldwell New Zealand”), operating in New
Zealand. Effective February 10, 2020, the Company and Caldwell New Zealand agreed to renew their
existing agreement for an additional five year period, provided the extension now allows either party
to terminate the agreement with six months' notice unilaterally. For the year ended August 31, 2020,
license fees from The Caldwell Partners International New Zealand Limited were $104 and for the
year ended August 31, 2019 they were $127.
Effective January 14, 2019, the Company entered into a five-year licensing agreement with
Hattonneale Pty Ltd. (“Hattoneale”), an Australian corporation, operating in Australia. Due to the
global pandemic’s impact on Hattonneale’s business, Hattonneale ceased its executive search
operations to focus on board advisory services, and the Company’s affiliation agreement with
Hattonneale was mutually terminated effective August 31, 2020. For the year ended August 31, 2020,
license fees from Hattonneale were $73 and for the year ended August 31, 2019 they were $76.
Caldwell – Consolidated Financial Statements
82
Directors
Elias Vamvakas, Chair of the Board
Chairman, Greybrook Capital Inc.
Paul R. Daoust
Corporate Director
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
KPMG LLP (Canada)
Chartered Accountants, Toronto, Ontario
Counsel
Miller Thomson LLP
Barristers and Solicitors, Toronto, Ontario
Stock Exchange Listing
The Toronto Stock Exchange (symbol: CWL)
Officers
John N. Wallace
President and Chief Executive Officer
The Caldwell Partners International Inc.
C. Christopher Beck, CPA
Chief Operating & Finance Officer
The Caldwell Partners International Inc.
Michael Falagario, CPA, CFA
Director, Finance, Systems & Planning 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:
79 Wellington Street West
C. Christopher Beck
Chief Operating & Finance Officer
The Caldwell Partners International Inc.
TD South Tower Suite 2410, P.O. Box 75
Toronto, ON M5K 1E7
+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 the best people. Our reputation–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. Caldwell Analytics is a
talent optimization solution that uses highly respected, results-driven assessments
to align our clients’ talent and business strategies, driving better business results.
www.caldwellpartners.com
@CaldwellPtners
Copyright ©2020 The Caldwell Partners International Inc.
All rights reserved. Reproduction without permission is prohibited. Trademarks and logos are copyrights of their respective owners.