2011
Annual Report December 31, 2011
Table of
Contents
Financial Highlights
Letter to Shareholders
Ten-Year Historical Financial Highlights
Subsidiary Profiles
Management’s Discussion and Analysis
Financial Statements
Management’s Report to Shareholders
Independent Auditors’ Report
Notes to Consolidated Financial Statements
Corporate Directory
Corporate Information
2
4
16
18
20
47
48
49
54
88
89
1CI Financial Corp. is a diversified wealth management firm and Canada’s third-largest investment fund company. Independent and Canadian-owned, CI provides a comprehensive selection of top-quality investment products and services. CI has two million clients and approximately $96 billion in assets (at February 29, 2012). CI operates primarily through subsidiaries CI Investments Inc. and Assante Wealth Management (Canada) Ltd.CI Investments offers the industry’s broadest selection of investment funds under the CI, Black Creek, Cambridge, Castlerock, Harbour, Signature, Synergy, Portfolio Series, Portfolio Select Series and SunWise Essential Series banners. Assante Wealth Management provides financial advisory services through a national network of 750 professional financial advisors. Stonegate Private Counsel, a division of CI Private Counsel LP, provides wealth planning services to high net worth individuals and families.CI’s other businesses include Perimeter Markets Inc., which operates alternative marketplaces for trading Canadian fixed-income products under the CBID brand. CI also owns interests in Altrinsic Global Advisors, LLC, a global investment manager based in Greenwich, Connecticut, and in Toronto-based alternative asset managers Red Sky Capital Management Ltd. and Lawrence Park Capital Partners Ltd.®1CI Financial Corp. is a diversified wealth management firm and Canada’s third-largest investment fund company. Independent and Canadian-owned, CI provides a comprehensive selection of top-quality investment products and services. CI has two million clients and approximately $96 billion in assets (at February 29, 2012). CI operates primarily through subsidiaries CI Investments Inc. and Assante Wealth Management (Canada) Ltd.CI Investments offers the industry’s broadest selection of investment funds under the CI, Black Creek, Cambridge, Castlerock, Harbour, Signature, Synergy, Portfolio Series, Portfolio Select Series and SunWise Essential Series banners. Assante Wealth Management provides financial advisory services through a national network of 750 professional financial advisors. Stonegate Private Counsel, a division of CI Private Counsel LP, provides wealth planning services to high net worth individuals and families.CI’s other businesses include Perimeter Markets Inc., which operates alternative marketplaces for trading Canadian fixed-income products under the CBID brand. CI also owns interests in Altrinsic Global Advisors, LLC, a global investment manager based in Greenwich, Connecticut, and in Toronto-based alternative asset managers Red Sky Capital Management Ltd. and Lawrence Park Capital Partners Ltd.® Financial Highlights
(in millions of dollars, except share amounts)
As at December 31, 2011 As at December 31, 2010
% change
Assets under management
Total assets
Shares outstanding
69,558
91,102
283,567,039
72,825
95,322
287,434,257
-4%
-4%
-1%
(in millions of dollars, except share amounts)
Average assets under management
Management fees
Total revenues
SG&A
Trailer fees
Net income
Earnings per share
EBITDA*
EBITDA* per share
Dividends recorded per share
Average shares outstanding
For the year ended
December 31, 2011
72,186
1,302.8
1,496.3
290.8
379.5
376.9
1.31
726.2
2.53
0.89
286,997,604
For the year ended
December 31, 2010
65,719
1,193.0
1,379.7
263.6
346.2
328.6
1.14
669.7
2.32
0.77
289,069,167
% change
10%
9%
8%
10%
10%
15%
15%
8%
9%
16%
-1%
*EBITDA (earnings before interest, taxes, depreciation and amortization) is not a standardized earnings measure prescribed by IFRS; however, management
believes that most of its shareholders, creditors, other stakeholders and investment analysts prefer to include the use of this performance measure in
analyzing CI’s results. CI’s method of calculating this measure may not be comparable to similar measures presented by other companies.
2
CIX vs S&P/TSX Composite Index Cumulative Total Return Since IPO (June 1994 = 100)
S&P/TSX Composite Index
CIX
2,711
2,425
2,760
2,445
2,595
2,535
1,339
1,468
1,562
923
214
942
195
244
284
354
395
434
291
392
461
421
May 31
2002
May 31
2003
May 31
2004
May 31
2005
May 31
2006
Dec. 31
2006
Dec. 31
2007
Dec. 31
2008
Dec. 31
2009
Dec. 31
2010
Dec. 31
2011
CIX Share Price (as at fiscal year-end, in $)
31.03
26.72
28.07
22.00
22.50
21.10
14.50
16.44
17.30
12.00
11.90
May 31
2002
May 31
2003
May 31
2004
May 31
2005
May 31
2006
Dec. 31
2006
Dec. 31
2007
Dec. 31
2008
Dec. 31
2009
Dec. 31
2010
Dec. 31
2011
Dividends Recorded Per Share (for the fiscal year, in $)
2.25
1.74
3,500
3,000
2,500
2,000
1,500
1,000
500
0
35
30
25
20
15
10
5
0
2.50
2.00
1.50
1.155
0.675
0.70
0.77
0.63
0.89
1.00
0.29
0.405
0.06
May 31
2002
May 31
2003
May 31
2004
May 31
2005
May 31
2006
Dec. 31
2006
Dec. 31
2007
Dec. 31
2008
Dec. 31
2009
Dec. 31
2010
Dec. 31
2011
0.50
0.00
3
Letter to Shareholders
Dear Shareholders,
Two thousand and eleven was another successful year for your company. Our net income rose 15% from the prior year,
our average assets under management were up 10% to reach a fiscal year record, free cash flow increased 26%, and we
boosted annual dividends paid per share by over 15% to $0.89.
We took a number of significant steps to enhance CI’s competitiveness, including strengthening two in-house portfolio
management teams, bolstering key distribution relationships and launching new products such as our CI Private
Investment Management platform aimed at higher net worth investors. Overall, our portfolio managers performed well,
delivering strong fund returns relative to their peers.
The fact that these achievements were made in the face of another challenging year on financial markets demonstrates
the strengths of your firm.
After posting solid gains in the first quarter, global equity markets gradually succumbed to a number of developments,
starting with the devastating tsunami and nuclear meltdown that hit Japan. This was followed by concerns about the pace
of growth in the United States and China, and the massive and unsustainable debts of Greece and other European Union
countries. These issues derailed investor confidence and sent stock indexes sharply lower in the third and fourth quarters.
Canada’s S&P/TSX Composite Index ended the year with a decline of 8.7% and underperformed the U.S. market for
the first time in eight years. In fact, the American indexes were among the few to make gains in 2011, with the S&P 500
Index recording a 4.4% increase. The MSCI World Index was down 2.9%, and the MSCI EAFE Index, which represents
the world outside North America, fell 9.7%. (All indexes are reported in Canadian dollars.) The turmoil prompted a flight
to safety and investors turned to fixed-income investments, notably North American government bonds. Canada’s DEX
Universe Bond Index rose 9.7% for the year.
4
Not surprisingly, the volatile market conditions had an impact on our asset and sales levels in the latter part of the year.
However, CI remains very profitable, successful and poised for continued growth as market conditions improve. We
accomplish this by focusing on those elements of our business that we have the power to control, and by adhering to the
strategic principles that have guided our progress for nearly two decades.
Strategy
• Productdiversity. By providing a broad selection of high-quality products and services to Canadian investors,
we reduce our dependence on any single market sector, product or portfolio manager and ensure we are well
positioned to respond to the changing needs of investors. More importantly, it enhances our relationships with
advisors by allowing them to meet their clients’ needs through a single supplier.
• Talentedandexperiencedinvestmentmanagers. CI has significant assets under management, and we use this
size and scale to attract the best investment managers in the industry. We select portfolio managers based on a
reputation for skilled investment management and their long-term track records.
• Operationalandperformanceexcellence. This includes the prudent and efficient management of our funds
and our company, the development of high-quality products and a well-known brand.
• Superiorservice. By exceeding the service expectations of our investors and our multiple distribution networks,
we aim to solidify these relationships and maintain a reputation for sound management.
• Skill and knowledge. CI’s managers and employees possess the specialized knowledge and experience to
anticipate client needs, develop appropriate products and market those products effectively.
5
Financial Results
Assets under management at December 31, 2011, were $69.6 million, down 4% from a year earlier. Total assets, which
include assets under management, as well as assets under administration at Assante Wealth Management, were also down
4% to $91.1 billion. While this decline is to be expected given the downturn on financial markets in the second half of
the year, we are pleased to note it was significantly less than the drop experienced by the S&P/TSX Composite Index.
Average assets under management, which reflects our performance over the entire year and is more relevant in explaining
our results, tells a different story. CI’s average assets under management for fiscal 2011 rose by 10% or $6.5 billion to
$72.2 billion, which, as we noted earlier, is a record for the company.
Subsequently, global equity markets rallied in the first two months of 2012, as concerns over European sovereign debt
subsided and U.S. economic indicators strengthened. CI’s assets under management benefited, reaching $73.3 billion at
February 29, 2012. This represents an impressive gain of $3.9 billion or 5.6% over our average assets under management
for the fourth quarter of 2011.
The asset growth in fiscal 2011 drove our revenues to $1.5 billion, up 8%, and our net income to $376.9 million, or
$1.31 per share, an increase of 15%.
Earnings before taxes, interest, depreciation and amortization (EBITDA), which helps to measure CI’s underlying
earnings power, rose 8% to $726.2 million, a record for our company. Expressed as a percentage of revenue, our
EBITDA margin was flat year over year at 48.5% – highlighting the stability of our business, its operating efficiency and
ongoing profitability, as we earned the same profit for each dollar of revenue.
If you are familiar with our company, you know that one of the essential elements in maintaining CI’s profitability is our
relentless focus on controlling expenses. As a rule of thumb, we seek to keep expenses in line with assets and this was the
case in 2011. Selling, general and administrative or “SG&A” spending rose 10% year over year to $290.8 million, the
same rate of increase as average assets under management. As a percentage of average assets under management, SG&A
expenses were 0.40%, unchanged from the year before.
It’s notable that we maintained this ratio while making significant investments in our portfolio management and our
sales and marketing operations during the year. These investments are designed to foster CI’s long-term growth and are
described later in this letter.
6
The growth in assets contributed to a substantial expansion in CI’s free cash flow in 2011, as it grew by 26% to $433.5
million. This robust free cash flow position allowed us to pay down debt and – in keeping with our commitment to return
excess cash to shareholders – buy back shares and increase our dividend.
During the year, CI reduced its debt by $90 million, including the repayment of $100 million in debentures that matured
in December. As a result, our net debt stood at $731 million at the end of 2011, and our debt-to-EBITDA ratio was
1.1:1, just slightly above our long-term target of 1:1. We are comfortable with this level of debt, which carries a very
favourable average interest rate of 3.19%.
The dividend was increased in April, from $0.07 to $0.075 per share per month, resulting in a total dividend for the year
of $0.89 per share, a 16% increase over 2010. As our assets grew in early 2012, we followed this with another increase in
the monthly dividend to $0.08 per share or $0.96 a year. This represents a payout ratio of 65% to 70% of earnings. CI
has steadily increased its dividend since 2009, when we converted back to a corporation from an income trust. In fact,
our dividend has grown at annual rate of 17% in the past three years, including the latest increase.
In 2011, with a total dividend payment of $254.2 million and the repurchase of 4.7 million shares worth $95.2 million,
CI returned $349.4 million to shareholders. This continues CI’s extraordinary record of wealth creation over the long
term. Since CI’s initial public offering in 1994, the company has returned $3.8 billion to shareholders in dividends,
distributions and share repurchases.
CI finished 2011 with a share price of $21.10, down 6% from a year earlier. With dividends, the total return was negative
2%. Again, over the long term, CI stock has performed exceptionally well, especially in relation to the index and peer
group. From the IPO to December 31, 2011, CI shares have posted a total return of 2,435%, compared to 321% for
the S&P/TSX Composite Index and 908% for the financial services sub-index.
Operating Results
Net sales – positive in a volatile year
Volatile capital market conditions had an impact on CI’s sales, particularly as the European sovereign debt crisis
intensified in the second half of the year. Gross sales for the year totalled $9.1 billion, a decline of 7% from the year
before. However, CI still achieved positive net sales of $323 million.
7
One product line in particular dominated redemptions. Our legacy segregated fund products, which are closed to new
investors, experienced redemptions as many contracts reached maturity. It’s important to note that we had very strong
net sales in our core mutual fund lineup and our current segregated fund offering, SunWise Essential Series. In addition,
our most important distribution channels, which include Sun Life Advisors, Assante Wealth Management, and Edward
Jones, turned in significant net sales – indicating the success and strength of these relationships.
Product development – emphasizing quality
A cornerstone of CI’s strategy is to offer a broad lineup of high-quality products, representing the talent of some of the
best portfolio managers available. In 2011, the quality of our products and fund managers continued to be recognized
through industry rankings and awards.
In 2011, CI led its competitors with the most four and five-star-rated funds (including multiple versions) as ranked by
Morningstar Canada, a leading independent investment research organization.
CI was the recipient of two Morningstar Canadian Investment Awards in 2011, bringing our total to 45 since 1998.
Notably, in 2011, CI’s Portfolio Series was the winner of the inaugural Canadian Investment Award for best fund of
funds. This product segment has experienced tremendous growth in recent years and this award shows that CI is one of
the leaders in the managed solutions category with Portfolio Series, Portfolio Select Series, Evolution Private Managed
Accounts and others.
CI funds also received nine Lipper Fund Awards in 2011, and were awarded another eight Lipper trophies for 2012.
Since the program’s inception in Canada in 2007, CI has won 39 Lipper Fund Awards, which honour funds that have
excelled in delivering consistently strong risk-adjusted performance, relative to peers.
Over the years, CI has remained responsive to the needs of Canadian investors, refining our product lineup to meet the
changing marketplace. Our new products in 2011 included:
• CI Private Investment Management (PIM), a program designed to meet the needs of the growing “mass affluent”
market. PIM offers access to CI’s portfolio management teams through a tax-efficient and flexible structure.
8
• Three Black Creek-branded funds, which brought the award-winning Black Creek Investment Management team
to the CI mutual fund platform. Black Creek is led by Bill Kanko and Richard Jenkins, industry veterans and global
investment specialists. The new funds are modelled on the three funds that Black Creek manages for CI’s Castlerock
Investments division.
• Harbour Voyageur Corporate Class, a fund managed by the award-winning Harbour Advisors team that’s designed
to capture investment opportunities in a wide range of market capitalizations.
Low interest rates and high stock market volatility have continued to encourage high demand for income investments and
CI added to its extensive lineup of income solutions with the launch of two funds in January 2012: Cambridge Income
Fund, a global diversified income solution managed by Cambridge Advisors, and Signature High Yield Bond Fund,
which taps into the fixed-income expertise at Signature Global Advisors.
Portfolio management – building on excellence
The quality and skill of CI’s investment managers has been crucial to CI’s success. Our strategy has been to retain and
develop portfolio management teams that operate independently of one another and offer distinct approaches to investing
– giving investors a choice of managers and investment styles within the CI lineup. The degree of choice is highlighted
by our practice of using sub-brands for fund families managed by certain teams, including Black Creek, Cambridge,
Harbour, Signature and Synergy. CI uses both internal investment teams (Cambridge Advisors, Signature Advisors and
Harbour Advisors) and external sub-advisors.
Our in-house teams have posted excellent long-term returns and are responsible for about three-quarters of our assets.
Signature, under the leadership of Eric Bushell, manages $35 billion; Harbour, which is led by industry veteran Gerry
Coleman, manages $15 billion, and Cambridge, led by Alan Radlo, manages $3 billion. In 2011, we expanded the depth
of talent and expertise at Cambridge and Signature to support the growth of their mandates.
At Cambridge, we hired award-winning Portfolio Managers Robert Swanson and Brandon Snow, reuniting them with
Mr. Radlo, who worked with them at their former firm. Mr. Swanson in particular is well known within the Canadian
advisor community and both are first-rate additions to CI’s roster of money managers. The Cambridge team was also
augmented with the hiring of two additional research analysts.
9
10Under Mr. Radlo, Cambridge has recorded outstanding results since its founding in 2008. The new hires have allowed for the launch of Cambridge Income Fund and the assignment of other mandates to the Cambridge team – and have laid the foundation for further growth. Cambridge Advisors has the capacity and the potential to manage significantly more assets in the coming years.Signature Global Advisors is CI’s largest and most diversified in-house portfolio management team, with a broad range of Canadian and global equity and income funds. Over the years, Mr. Bushell has focused on developing specialized sector and asset class expertise on a global basis. In 2011, this expertise was bolstered with the addition of several research analysts and an emerging markets strategist.The changes at Cambridge and Signature facilitated the streamlining of our portfolio management lineup during the year. In June, we ended our relationships with sub-advisors Legg Mason Capital Management and Trilogy Global Advisors and transferred the portfolio management of 26 U.S. and global equity, balanced and income funds to the Signature and Cambridge teams. These moves were made to enhance the funds’ performance and to attain increased operating efficiencies. As part of our growth strategy, we have developed relationships with selected alternative asset managers. In 2010, we invested in Red Sky Capital Management Ltd., led by President Timothy Lazaris. The Red Sky equity hedge fund has performed well since inception in September 2010, outpacing the S&P/TSX Composite Index by over 7% (to February 29, 2012). In February 2012, we took a significant minority stake in Lawrence Park Capital Partners, an alternative asset manager with a unique fixed-income strategy. Our investments have helped to support these firms and promote their development, while positioning CI to participate in their growth and profitability. We also see the potential to work with these firms to develop unique products that would appeal to the high net worth segment of our existing client base.Castlerock Investments – a successful acquisitionIn December 2010, CI purchased Hartford Investments Canada Corp., with approximately $1.8 billion in assets in 17 mutual funds. It was a small acquisition relative to CI’s overall asset base; however, results in 2011 demonstrated the value of the transaction.10Under Mr. Radlo, Cambridge has recorded outstanding results since its founding in 2008. The new hires have allowed for the launch of Cambridge Income Fund and the assignment of other mandates to the Cambridge team – and have laid the foundation for further growth. Cambridge Advisors has the capacity and the potential to manage significantly more assets in the coming years.Signature Global Advisors is CI’s largest and most diversified in-house portfolio management team, with a broad range of Canadian and global equity and income funds. Over the years, Mr. Bushell has focused on developing specialized sector and asset class expertise on a global basis. In 2011, this expertise was bolstered with the addition of several research analysts and an emerging markets strategist.The changes at Cambridge and Signature facilitated the streamlining of our portfolio management lineup during the year. In June, we ended our relationships with sub-advisors Legg Mason Capital Management and Trilogy Global Advisors and transferred the portfolio management of 26 U.S. and global equity, balanced and income funds to the Signature and Cambridge teams. These moves were made to enhance the funds’ performance and to attain increased operating efficiencies. As part of our growth strategy, we have developed relationships with selected alternative asset managers. In 2010, we invested in Red Sky Capital Management Ltd., led by President Timothy Lazaris. The Red Sky equity hedge fund has performed well since inception in September 2010, outpacing the S&P/TSX Composite Index by over 7% (to February 29, 2012). In February 2012, we took a significant minority stake in Lawrence Park Capital Partners, an alternative asset manager with a unique fixed-income strategy. Our investments have helped to support these firms and promote their development, while positioning CI to participate in their growth and profitability. We also see the potential to work with these firms to develop unique products that would appeal to the high net worth segment of our existing client base.Castlerock Investments – a successful acquisitionIn December 2010, CI purchased Hartford Investments Canada Corp., with approximately $1.8 billion in assets in 17 mutual funds. It was a small acquisition relative to CI’s overall asset base; however, results in 2011 demonstrated the value of the transaction. The corporate operations were quickly integrated into CI, providing immediate cost savings. In February 2011, we
renamed the firm Castlerock Investments, positioning it as a distinct division of CI with a focused lineup of funds. We
replaced three of the firm’s five sub-advisors with CI portfolio managers, and launched four funds to provide additional
choice to unitholders. In total, the Castlerock funds had impressive net sales of $65 million in 2011.
We expect to move the administration of the Castlerock funds to CI’s platform later in 2012, which will lead to increased
operating efficiencies to the benefit of the funds’ unitholders. We will also be looking at opportunities to merge similar
funds and simplify our overall fund lineup.
Distribution – developing solid relationships
Developing and maintaining productive relationships with the networks of financial professionals who distribute our
funds is a cornerstone of CI’s success and a vital part of our long-term strategy.
The key distribution networks for CI’s asset management products include our own Assante Wealth Management, as
well as Sun Life Financial advisors. In 2011, we established a closer and more beneficial relationship with Edward Jones,
which named CI a preferred partner for mutual funds.
Assante performed well in 2011, reinforcing its status as one of Canada’s pre-eminent financial advisory firm. Assets
under administration declined by 4% over the year to $21.5 billion, reflecting the decline of financial markets. In this
environment, however, Assante’s advisors maintained their focus on the conservative management of the financial affairs
of Canadian families. Net new assets under administration remained positive as Canadians continue to seek out holistic
financial advice. Assante clients were well served through the volatile environment of the past few years by our emphasis
on investing discipline and patience. Our advisors provide diversified portfolio solutions, backed by the expertise of
leading money managers, including the portfolio management teams of CI Investments.
Assante continues a comprehensive communications program for advisors and clients that provides timely insights from
portfolio managers on market developments and the positioning of their investments, as well as relevant information
on issues such as income, estate and succession planning. Through initiatives such as the Wealth Matters series, Assante
continues to demonstrate its leadership and focus on delivering valued advice to Canadians. It also demonstrates our
commitment to an integrated approach to wealth management that incorporates all aspects of managing a client’s
finances – risk management, estate planning and tax planning, in addition to sound investment management. We assist
our advisors in providing this advanced level of service through a large in-house staff that includes tax, insurance, estate
planning and other experts.
11
Our recruiting efforts consist of a two-pronged focus on attracting experienced advisors who embrace our philosophy of
wealth management, as well as younger advisors who will provide ongoing relationship continuity for our clients as part
of existing advisory teams. In 2011, we added 17 new advisors.
In today’s environment, sound advice coupled with financial stability and operating efficiency is critical in fostering
trusting relationships with clients. Assante’s competitive advantages include the security of CI’s financial strength,
the benefits of CI’s experience and support in operations, technology, client services and sales, as well as its portfolio
management expertise and products. With this solid foundation, Assante is pursuing a growth strategy based on
continuing recruitment and fostering the growth of our advisors’ practices through the provision of wealth planning
expertise, enhanced systems support and sophisticated portfolio solutions.
CI’s institutional division, CI Institutional Asset Management (CIIAM), is a crucial part of our efforts to expand our
distribution. CIIAM, which oversees $10.5 billion in assets, has been very successful over the long term in attracting assets
from other financial institutions, typically as part of their fund-of-fund products. We call this the Alliance part of our
institutional operations and it remains a significant, though maturing business for CI.
In recent years, CIIAM has put increased emphasis on penetrating the traditional institutional investment markets –
pensions and endowments – and is building momentum in this segment. In 2011, our pension and endowment assets
increased by 13%, and we gained 14 new clients and investment commitments of more than $300 million. This success
has not gone unnoticed by the industry. CI was named the “Fastest Growing Endowment and Foundation Assets Money
Manager” in its category at the 2011 Benefits Canada Pension and Investment Awards. To accelerate our growth in this
area, we have added new mandates to appeal to institutional clients, including a core Canadian equity mandate managed
by Cambridge Advisors.
Sales and marketing – Canada’s Investment Company
As we noted previously, an important component of CI’s business strategy is to provide superior service to investors and
to advisors and other financial professionals who make the decision to recommend our funds to their clients. We do this
through our administration and client services departments, and through our sales and marketing group, which is our
primary point of contact for most advisors.
12
In 2011, we undertook several notable initiatives within sales and marketing aimed at building the CI brand and
strengthening our ties with investors and advisors, including:
• Expanding our sales team and implementing a new contact management system to ensure the highest level of service.
• Holding our first-ever “digital roadshow” in September 2011, which allowed more than 1,600 advisors to hear the
latest views of several portfolio management teams without having to leave their offices. We held our second digital
roadshow in January 2012.
• Hosting a three-day educational conference in Las Vegas – called the Leadership Forum – that provided more than
600 financial advisors with enhanced access to our portfolio management teams and extensive information about our
products. The event was so well received that we are holding a second conference in 2012 that will be longer and
include more advisors.
• Developing CI Mobile, a new app for the iPad that offers convenient mobile access to information about CI Investments
and its products, including up-to-date prices, performance and portfolio manager commentary. In March 2012, CI
Mobile was named best investment mobile application at the 2012 Internet Advertising Competition.
And, in early 2012, we launched one of our first national advertising campaigns in several years with the goal of raising
the profile of CI Investments among Canadian investors during the RRSP sales season. The radio, television and Web-
based advertising highlighted CI Investments’ portfolio management expertise and experience, our broad product lineup
and our leadership as one of Canada’s largest and most trusted independent financial services companies. Emphasizing
our message was the tagline Canada’s Investment Company.
In addition, we purchased rink board advertising for CI Investments and Assante in several National Hockey League
arenas across Canada – highly visible ad space as a number of teams made exciting runs at qualifying for the playoffs.
Outlook
Since CI went public in 1994, the competitive landscape in our industry has changed dramatically. Consolidation has
extinguished more than 20 independent firms, while the big five banks increased their market share of long-term assets to
approximately 40%. Unlike many of our independent competitors, CI experienced tremendous growth in assets, market
share and market capitalization over this period.
13
Today, the environment is even more challenging and competitive. Two major market declines in just over a decade
have left many Canadians wary of the markets, even as their need for professional financial advice remains pressing.
Nevertheless, your company is well positioned to continue to grow and prosper. CI is the third-largest investment
fund company in Canada, with an impressive 9% market share. Our financial strength and profitability affirms our
independence and allows us to move quickly to take advantage of any potential strategic transaction.
CI is not standing still as the competition intensifies. As we have outlined in this letter, we are leveraging our competitive
advantages of size, scale, distribution, portfolio management expertise, efficiency of operations and a trusted brand to
achieve continued growth. At the same time, we are maintaining our financial discipline.
CI is a large, yet entrepreneurial asset manager, and we see many opportunities ahead for such a company. We continue
our commitment to offering the highest standard of products to our investors, adhering to sound management principles
and rewarding our shareholders.
In closing, we thank our employees, our clients, our advisors, our sub-advisors and our shareholders for their support.
Sincerely,
William T. Holland
Stephen A. MacPhail
Chairman
President and Chief Executive Officer
March 26, 2012
14
15
Ten-Year Historical Financial Highlights
(millions of dollars, except per share amounts)
(from continuing operations)
2011
2010
2009
2008
Years Ended Dec. 31
Assets under management, end of year
Assets under administration
Total assets
69,558
21,544
91,102
72,825
22,497
95,322
64,226
21,489
85,715
52,801
18,449
71,250
Net sales of funds
Management fees
Other income
Total revenues
Selling, general and administrative
Trailer fees
Other expenses
Total expenses
Income taxes
Net income before amortization of goodwill
Net income
EBITDA*
Earnings per share
EBITDA* per share
Dividends per share
323
1,059
1,451
1,740
1,302.8
193.5
1,496.3
1,193.0
186.7
1,379.7
1,041.5
177.0
1,218.5
1,163.8
202.4
1,366.2
290.8
379.5
304.9
975.2
144.2
376.9
376.9
726.2
1.31
2.53
0.89
263.6
346.2
295.4
905.2
146.0
328.6
328.6
669.7
1.14
2.32
0.77
278.9
299.7
298.4
877.0
45.3
296.2
296.2
539.3
1.01
1.84
0.63
256.4
336.1
340.0
932.5
(17.5)
451.2
451.2
638.6
1.62
2.29
1.74
Shareholders’ equity, end of year
Shares outstanding, end of year
1,620.2
283,567,039
1,566.1
287,434,257
1,610.9
291,821,114
1,601.7
292,492,805
*EBITDA (earnings before interest, taxes, depreciation and amortization) is not a standardized earnings measure prescribed by IFRS; however, management believes that most of its shareholders, creditors, other stakeholders and
investment analysts prefer to include the use of this performance measure in analyzing CI’s results. CI’s method of calculating this measure may not be comparable to similar measures presented by other companies.
Total Client Assets
$billions
Total Revenues
$millions
May 2002
May 2003
May 2004
May 2005
May 2006
Dec. 2006
(seven months)
Dec. 2007
Dec. 2008
Dec. 2009
Dec. 2010
Dec. 2011
20.6
28.8
63.6
72.8
81.5
71.3
0
20
40
60
80
90.1
92.8
85.7
95.3
91.1
100
May 2002
May 2003
May 2004
May 2005
May 2006
Dec. 2006
(seven months)
Dec. 2007
Dec. 2008
Dec. 2009
Dec. 2010
Dec. 2011
512.8
668.4
954.5
1,195.1
1,323.4
805.0
1,503.0
1,366.2
1,218.5
1,379.7
1,496.3
0
500
1000
1500
2000
16
Years Ended Dec. 31
2007
Seven Months Ended
Dec. 31, 2006
2006
2005
Years Ended May 31
2004
2003
2002
67,171
25,657
92,828
1,898
1,292.7
210.3
1,503.0
291.1
369.1
291.7
951.9
(54.4)
605.5
605.5
724.3
2.15
2.57
2.25
62,737
27,319
90,056
56,905
24,563
81,468
49,055
23,751
72,806
44,223
19,349
63,572
28,773
-
28,773
20,619
-
20,619
437
3,111
1,717
898
(596)
481
693.8
111.2
805.0
147.8
193.3
140.3
481.4
(31.1)
354.7
354.7
403.5
1.25
1.42
1.155
1,110.0
213.4
1,323.4
994.6
200.5
1,195.1
353.6
291.0
204.2
848.8
165.6
309.0
309.0
577.4
1.08
2.02
0.70
328.1
250.7
168.3
747.1
163.2
284.7
284.7
529.5
0.97
1.81
0.675
820.7
133.8
954.5
256.8
197.8
108.1
562.7
170.7
221.0
221.0
442.2
0.82
1.65
0.405
595.8
72.6
668.4
203.3
147.4
197.8
548.5
49.0
71.0
71.0
297.4
0.32
1.32
0.29
446.5
66.3
512.8
119.8
97.8
236.4
454.0
22.0
36.8
(61.4)
265.5
(0.35)
1.51
0.06
1,450.7
281,514,003
1,371.1
280,132,687
1,545.0
285,680,519
1,472.8
286,643,091
1,533.9
295,199,027
632.7
235,525,648
56.8
170,785,428
Income Before Income Taxes
$millions
EBITDA* Per Share
$
58,8
120.0
May 2002
May 2003
May 2004
May 2005
May 2006
Dec. 2006
(seven months)
Dec. 2007
Dec. 2008
Dec. 2009
Dec. 2010
Dec. 2011
391.7
447.9
474.6
323.6
433.7
341.4
551.1
474.6
521.1
May 2002
May 2003
May 2004
May 2005
May 2006
Dec. 2006
(seven months)
Dec. 2007
Dec. 2008
Dec. 2009
Dec. 2010
Dec. 2011
1.51
1.32
1.65
1.81
2.02
1.42
1.84
2.57
2.29
2.32
2.53
0
100
200
300
400
500
600
0,0
0,5
1,0
1,5
2,0
2,5
3,0
17
Subsidiary Profiles
CI Investments Inc.
CI Investments is one of Canada’s largest investment management companies, with approximately $73 billion in assets
under management (at February 29, 2012) on behalf of two million Canadians. We are known for our comprehensive
and high-quality selection of investment products and services, operational excellence and efficiency, and a broad lineup
of leading portfolio management teams. CI Investments has demonstrated a record of innovation and an ability to adapt
to meet the changing demands of the marketplace and its clients.
We partner with independent financial advisors and third-party institutions in the distribution of our products and services,
which include mutual funds, segregated funds, managed solutions, structured products and alternative investments. Our
brands include CI, Harbour, Signature, Synergy, Cambridge, Black Creek, Lakeview, Skylon, Portfolio Series, Portfolio
Select Series, and SunWise Essential Series. We also market a lineup of 21 mutual funds under the Castlerock brand
through our Castlerock Investments division. In addition, we manage portfolio solutions under the United Financial
brand, which are available through advisors with Assante Wealth Management. We service the institutional marketplace
through a dedicated division, CI Institutional Asset Management.
CI’s strength is founded on the expertise and experience of its portfolio managers. Our managers, a mix of in-house teams
and sub-advisors, represent the full spectrum of investment disciplines, from value to growth. Our in-house investment
managers include: Signature Global Advisors, led by Eric Bushell; Harbour Advisors, led by Gerry Coleman; and
Cambridge Advisors, led by Alan Radlo. CI and its managers have been recognized through 45 Morningstar Canadian
Investment Awards over the past 14 years, including the prestigious Analysts’ Choice Investment Fund Company of the
Year in 2006, 2007 and 2009, as well as Morningstar Fund Manager of the Decade in 2010 and Morningstar Fund
Manager of the Year in 2009 for Mr. Bushell. Mr. Coleman is a two-time Fund Manager of the Year, receiving the award
in 2001 and 2008.
18
®
Assante Wealth Management (Canada) Limited
Assante Wealth Management is a leading provider of fully integrated wealth management solutions for affluent
Canadians. With 750 advisors across Canada, our independent advisory network is one of the largest in the country.
We serve over 300,000 clients nationwide, administering $22.7 billion in assets (at February 29, 2012) on their behalf.
The success of Assante is closely linked to our advisors and the strong partnership we have developed with them. Backed
by a wealth of resources, including investment analysts, portfolio managers, tax lawyers, accountants, estate planning and
insurance specialists and wealth planners, Assante advisors provide a comprehensive and integrated approach to wealth
management.
We also support our advisors by providing an industry-leading suite of products and solutions. This includes the United
Financial brand of solutions, Evolution Private Managed Accounts and Optima Strategy, which are managed by CI
Investments Inc. and are available exclusively through Assante advisors. For high net worth clients with more complex
wealth planning needs, Assante offers the Private Client Managed Portfolios through the United Financial division of CI
Private Counsel LP.
Our services are offered through Assante Capital Management, an investment dealer, and Assante Financial
Management, a mutual fund dealer, which together operate under the brand name Assante Wealth Management.
Stonegate Private Counsel, a division of CI Private Counsel LP, is a group of experienced professionals who provide
wealth planning and inter-generational financial services to high net worth individuals and families.
19
Management’s
Discussion
and Analysis
This Management’s Discussion and Analysis (“MD&A”) dated February 16, 2012, presents an analysis of the financial
position of CI Financial Corp. and its subsidiaries (“CI”) as at December 31, 2011, compared with December 31, 2010,
and the results of operations for the year ended and quarter ended December 31, 2011, compared with the year ended
and quarter ended December 31, 2010 and the quarter ended September 30, 2011.
On January 1, 2011, CI adopted International Financial Reporting Standards (“IFRS”) for financial reporting purposes,
using a transition date of January 1, 2010. The financial statements for the three months and year ended December 31,
2011, including required comparative information, have been prepared in accordance with IFRS 1, First-time Adoption
of International Financial Reporting Standards, and with International Accounting Standard (“IAS”) 34, Interim Financial
Reporting, as issued by the International Accounting Standards Board (“IASB”). Prior to the adoption of IFRS, CI
prepared its Interim and Annual Consolidated Financial Statements in accordance with Canadian generally accepted
accounting principles (“GAAP”).
The adoption of IFRS has not had an impact on CI’s operations, strategic decisions and cash flow. Information on the
transition to IFRS is provided in the Notes to Consolidated Financial Statements for the year ended December 31, 2011.
The principal subsidiaries referenced herein include CI Investments Inc. (“CI Investments”) and Assante Wealth
Management (Canada) Ltd. (“AWM”). The Asset Management segment of the business includes the operating results
and financial position of CI Investments and its subsidiaries, including Castlerock Investments Inc. (“Castlerock”) and
CI Private Counsel LP (“CIPC”). The Asset Administration segment includes the operating results and financial position
of AWM and its subsidiaries, including Assante Capital Management Ltd. (“ACM”) and Assante Financial Management
Ltd. (“AFM”).
This MD&A contains forward-looking statements concerning anticipated future events, results, circumstances,
performance or expectations with respect to CI and its products and services, including its business operations, strategy
and financial performance and condition. When used in this MD&A, such statements use such words as “may”, “will”,
“expect”, “believe”, and other similar terms. These statements are not historical facts but instead represent management
beliefs regarding future events, many of which, by their nature are inherently uncertain and beyond management
control. Although management believes that the expectations reflected in such forward-looking statements are based
on reasonable assumptions, such statements involve risks and uncertainties. Factors that could cause actual results to
differ materially from expectations include, among other things, general economic and market conditions, including
interest and foreign exchange rates, global financial markets, changes in government regulations or in tax laws, industry
competition, technological developments and other factors described under “Risk Factors” or discussed in other materials
filed with applicable securities regulatory authorities from time to time. The material factors and assumptions applied in
reaching the conclusions contained in these forward-looking statements include that the investment fund industry will
remain stable and that interest rates will remain relatively stable. The reader is cautioned against undue reliance on these
forward-looking statements. For a more complete discussion of the risk factors that may impact actual results, please refer
to the “Risk Factors” section of this MD&A and to the “Risk Factors” section of CI’s most recent Annual Information
Form which is available at www.sedar.com.
21
This MD&A includes several non-IFRS financial measures that do not have any standardized meaning prescribed by
IFRS and may not be comparable to similar measures presented by other companies. However, management believes
that most shareholders, creditors, other stakeholders and investment analysts prefer to include the use of these financial
measures in analyzing CI’s results. These non-IFRS measures and reconciliations to IFRS, where necessary, are shown as
highlighted footnotes to the discussion throughout the document.
TABLE 1: SELECTED ANNUAL INFORMATION
(millions, except per share amounts)
Total revenue
Total expenses
Income before income taxes
Income taxes
Net income
Earnings per share from continuing operations
Diluted earnings per share from continuing operations
Dividends recorded per share
FISCAL YEARS ENDING DECEMBER 31
2009(GAAP)
2010
2011
$1,496.3
$975.2
$521.1
$144.2
$376.9
$1.31
$1.31
$0.89
$1,379.7
$905.1
$474.6
$146.0
$328.6
$1.14
$1.13
$0.77
$1,218.5
$877.0
$341.5
$45.3
$296.2
$1.01
$1.01
$0.63
EBITDA
$726.2
$669.7
$539.3
Total assets
Gross debt
Net debt (gross debt less excess cash)
Average shares outstanding
Shares outstanding
Share price
Market capitalization
$3,085.0
$780.4
$730.7
287.0
283.6
$21.10
$5,983.3
$3,206.4
$870.4
$789.1
289.1
287.4
$22.50
$6,467.3
$3,006.4
$676.5
$672.9
292.5
291.8
$22.00
$6,420.1
22
TABLE 2: SUMMARY OF QUARTERLY RESULTS
(millions of dollars, except per share amounts)
2011
2010
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
INCOME STATEMENT DATA
Management fees
Administration fees
Other revenues
Total revenues
Selling, general & administrative
Trailer fees
Investment dealer fees
Amortization of deferred sales commissions
Interest expense
Other expenses
Total expenses
Income before income taxes
Income taxes
Net income
312.1
30.6
14.0
356.7
70.2
90.8
23.8
40.5
6.8
1.6
233.7
123.0
35.2
87.8
321.4
31.6
14.4
367.4
72.2
93.7
24.8
41.1
7.0
3.0
241.8
125.6
34.8
90.8
337.3
33.2
15.0
385.5
75.1
98.3
26.0
41.3
6.7
2.4
249.8
135.7
37.4
98.3
332.0
36.8
17.9
386.7
73.3
96.6
29.1
41.4
7.0
2.5
249.9
136.8
36.7
100.1
315.3
33.7
19.6
368.6
73.0
91.3
25.8
42.3
5.4
3.5
241.3
127.3
39.9
87.4
294.0
29.6
12.7
336.3
67.3
85.1
22.9
41.6
4.1
2.2
223.2
113.1
37.2
75.9
294.0
30.4
14.4
338.8
56.3
85.9
23.8
41.4
4.2
2.2
213.8
125.0
35.5
89.5
289.7
33.2
13.1
336.0
67.1
83.9
25.8
41.0
4.3
4.8
226.9
109.1
33.4
75.7
Earnings per share
0.31
0.32
0.34
0.35
0.30
0.26
0.31
0.26
Diluted earnings per share
0.31
0.31
0.34
0.35
0.30
0.26
0.31
0.26
Dividends recorded per share
0.225
0.225
0.225
0.215
0.205
0.195
0.190
0.180
23
Business Overview
CI is a diversified wealth management firm and one of Canada’s largest independent investment fund companies. The
principal business of CI is the management, marketing, distribution and administration of mutual funds, segregated funds,
structured products and other fee-earning investment products for Canadian investors. They are distributed primarily
through brokers, independent financial planners and insurance advisors, including ACM and AFM financial advisors. CI
operates through two business segments, Asset Management and Asset Administration. The Asset Management segment
provides the majority of CI’s income and derives its revenue principally from the fees earned on the management of
several families of mutual, segregated, pooled and closed-end funds, structured products and discretionary accounts. The
Asset Administration segment derives its revenue principally from commissions and fees earned on the sale of mutual
funds and other financial products and ongoing service to clients.
Business Strategy
CI maximizes shareholder value by increasing and retaining assets under management and assets under administration
on which it earns an acceptable margin. Management believes this can be achieved by focusing on the following factors:
diversity of products offered by CI; experience and depth of investment managers; performance of the funds; service levels
provided to dealers and investors; and the skill and knowledge of its employees.
CI offers investors a wide range of Canadian and international investment products through a network of investment
dealers, mutual fund dealers, and insurance agents, which include advisors with AWM and Sun Life Financial. Several
acquisitions of fund management companies have allowed CI to offer investors what management believes to be
the broadest selection of investment funds in the Canadian mutual fund industry, including the largest lineup of
segregated funds.
CI uses three teams of in-house and 14 external investment managers to provide investment advice regarding the portfolios
of the funds. These investment managers typically have long careers in the industry as well as extensive track records with
CI. This lineup of investment managers provides a wide selection of styles and areas of expertise for CI’s funds.
CI selects managers with a reputation for skilled investment management. CI has significantly sized mandates available
to attract the top talent in this field. Many of CI’s investment managers have provided excellent long-term performance
for our largest funds. However, CI can and will make changes to its investment managers when unsatisfactory investment
performance has occurred.
CI is the manager of the funds and provides services that include managing or arranging for the management of
investment portfolios, marketing of the funds, maintaining securityholders’ records and accounts, reporting to the
securityholders and processing transactions relating to securities of the funds. CI has invested in information systems and
internal training of staff to an extent which ensures it provides accurate and timely service to dealers and agents selling
CI’s products and to investors.
Management of CI has the specialized skills and knowledge to focus on several key objectives. These include meeting the
needs of its clients, developing new products, enhancing investor awareness and increasing market share by marketing to
investment dealers, mutual fund dealers and life insurance agents.
24
Key Performance Drivers
CI’s results are driven primarily by the level of its assets under management, which are in turn driven by the returns
earned by its funds and the net sales of its funds. The margin earned on these assets under management determines, to a
large extent, CI’s profitability.
The returns of each fund reflect the returns of equities and bonds or other securities held by the fund. These returns will
reflect the returns of equity and bond indexes plus the outperformance or underperformance of the investment manager
of each fund. In years when markets decline (such as 2008), CI’s assets will decline. Conversely, CI’s assets will appreciate
in years when markets perform well. For a particular period, the average assets under management will drive CI’s results
as CI receives the majority of its fees on a daily basis.
Fund sales and acquisitions also affect CI’s assets under management. While sales results help increase assets under
management, they are also an indicator of the level of demand for CI’s products and our success in delivering
attractive products.
CI uses several performance indicators to assess its results. These are described throughout the results of operations and
the discussion of the two operating segments and include the following: net income, earnings per share, pre-tax operating
earnings, EBITDA, EBITDA margin, and dealer gross margin.
2011 Overview
CI’s average assets under management for 2011 increased 10% from 2010. This increase was primarily a result of
strong market performance of the funds as well as $323 million in net sales of CI’s funds. Net income was up 15% to
$376.9 million in 2011.
Primarily as a result of the change in average assets under management, CI’s revenues and pre-tax operating earnings
increased 8% year over year. While some expenses, such as trailer fees, vary directly with the level of assets under
management, most of CI’s expenses are fixed in nature. This point is illustrated by the 8% increase in SG&A excluding
equity-based compensation, which is lower than the increase in average assets under management.
Stock markets around the world were volatile in 2011. The European debt crisis and risks to the U.S. and Chinese
economies weighed heavily on investors’ minds with the result that market gains experienced in the first six months of
2011 were completely erased by early October. Industry gross sales also slowed considerably in the latter half of the year,
and CI’s gross sales declined 7% year over year. This, coupled with some large Class I fund redemptions caused CI’s net
sales to fall below $1 billion for the first time since 2003.
CI continued to be the third-largest investment fund company in Canada with total assets under management of
$69.6 billion at December 31, 2011. CI’s market share is approximately 9%.
According to Morningstar, CI led the entire industry with the most Four and Five-star rated funds (including multiple
versions) for all of 2011 and has ranked either first or second place for the past 10 years. In addition, CI has won 45
Canadian Investment Awards since 1998 and 31 Lipper Awards since 2007.
25
Key Events
In May, CI held a very successful three-day sales conference, attended by over 500 leading investment advisors. The
presentations and discussion focused on the world economy and financial markets in general, and CI’s investment
products in particular. CI’s sales team, senior management and several portfolio managers presented their outlooks,
opinions and strategies to these key distributors of CI’s funds.
CI continues to introduce new products as part of its strategy to provide superior service to its clients and their financial
advisors. In August, CI added three Black Creek-branded funds to its Corporate Class structure to offer the portfolio
management expertise of the Black Creek Investment Management team to investors in CI’s funds. Black Creek is
also a sub-advisor to three Castlerock funds. In early October, CI launched the CI Private Investment Management
program, which offers tax-efficient access to CI’s leading portfolio managers and product platforms at preferred pricing
for larger accounts.
CI also launched CI Mobile, an iPad app that offers convenient on-the-go access to key facts about the company’s
products, including the following: daily fund prices, fund codes and performance; the latest commentary from CI’s
portfolio management teams; profiles of CI’s funds and portfolio management teams; and illustration tools and
financial calculators. The app also allows investors to view their CI account information through secure access to CI’s
InvestorOnline, while advisors have access to their CI accounts through AdvisorOnline.
CI expanded its in-house portfolio management teams, including the hiring of Robert Swanson, who joined the
Cambridge Advisors investment team. At Cambridge, Mr. Swanson is working with a team led by Chief Investment
Officer Alan Radlo and Portfolio Manager Brandon Snow. This move reunites the three managers, who worked together
at another fund company as key members of its Canadian investment team.
CI also streamlined its portfolio management lineup by bringing 26 mandates in-house during the year. These changes
will improve the performance of the funds as well as reduce SG&A expenses over the long term.
At its annual meeting in June 2011, CI’s shareholders voted by an overwhelming margin to continue the company’s
shareholder protection plan until its expiry date of 2014. CI’s Shareholder Rights Plan was approved by shareholders in
2008 and, under the terms of the plan, independent shareholders must ratify its continuance after three years.
CI’s Shareholder Rights Plan does not prevent a takeover of CI but ensures that any change of control transaction is
conducted in a manner that is fair and in the best interests of all shareholders. The Plan’s objective is that all shareholders
be offered an opportunity to tender their shares and receive a premium in the event of a change of control. Therefore, the
Plan prevents a “creeping takeover” of CI or a transfer of control in which only certain shareholders are paid a premium
for their shares.
26
Assets and Sales
Total assets, which include mutual, segregated and hedge funds, separately managed accounts, structured products, pooled
assets and assets under administration were $91.1 billion at December 31, 2011, a decrease of 4% from $95.3 billion at
December 31, 2010. The decline in year-over-year ending assets is due to the volatility of global stock markets caused
by the European debt crisis and the perception of slowing growth in the world’s largest economies. As shown in Table
3, these assets consisted of $69.6 billion in assets under management and $21.5 billion in assets under administration at
December 31, 2011.
TABLE 3: TOTAL ASSETS
(in billions)
Assets under management
Assets under administration*
Total assets under management
As at
Dec. 31, 2011
As at
Dec. 31, 2010
% change
$69.6
21.5
$91.1
$72.8
22.5
$95.3
(4)
(4)
(4)
*Includes $9.8 billion and $10.2 billion of managed assets in CI and United funds in 2011 and 2010, respectively.
Assets under management form the majority of CI’s total assets and provide most of its revenue and net income. The
change in assets under management during each of the past two years is detailed in Table 4. The $3.2 billion drop in
assets under management in 2011 was due to a $3.5 billion decline in market performance partially offset by $0.3 billion
in net sales.
TABLE 4: CHANGE IN ASSETS UNDER MANAGEMENT
(in billions)
Assets under management at January 1
Gross sales
Redemptions
Net sales
Market performance
Assets under management at December 31
2011
$72.8
9.1
8.8
0.3
(3.5)
$69.6
2010
$64.2
9.8
8.7
1.1
7.5
$72.8
27
Table 5 sets out the levels and changes in CI’s average assets under management and the gross and net sales for the
relevant periods. CI’s average assets in the fourth quarter of 2011 were relatively unchanged from the same period in
2010 and down 2% from the prior quarter. This decline was caused by stock market volatility in the latter half of 2011.
As most of CI’s revenues and expenses are based on assets throughout the year, average asset levels are critical to the
analysis of CI’s financial results.
TABLE 5: CHANGE IN AVERAGE ASSETS UNDER MANAGEMENT
(in billions)
Average assets under management
Change to December 31, 2011
Gross sales
Net sales
Results of Operations
Year ended December 31, 2011
Quarter ended Quarter ended Quarter ended
Dec. 31, 2010
Sept. 30, 2011
Dec. 31, 2011
$69.349
$70.823
(2.1%)
$69.297
0.1%
$1.7
($0.4)
$1.8
($0.1)
$2.3
($0.2)
For the year ended December 31, 2011, CI reported net income of $376.9 million ($1.31 per share) versus $328.6 million
($1.14 per share) for the year ended December 31, 2010. The increase of 15% was primarily due to the 10% growth in
average assets under management.
In 2011, CI recorded $144.2 million in income tax expense for an effective tax rate of 27.7%, compared to an effective
tax rate of 30.8% in 2010. The change in CI’s statutory tax rate from 30.9% in 2010 to 28.2% in 2011 was the main
reason for the drop in the effective rate.
In 2011, CI generated total revenues of $1,496.3 million, an increase of 8% from 2010. The increase in average assets
under management was the main contributor to this change.
For the year ended December 31, 2011, redemption fee revenue was $28.6 million compared with $30.9 million for
the year ended December 31, 2010. The decrease is a result of a decline in redemptions of deferred load funds that are
subject to redemption fees.
Other income for the year ended December 31, 2011 was $33.1 million compared to $29.1 million in the prior year.
The change was due to an additional $1.6 million in income from strategic investments and an increase of $1.0 million
in interest income.
Sales, general and administrative (“SG&A”) expenses increased 10% year-over-year from $263.6 million for 2010 to
$290.8 million in 2011. This change relates to investments in sales and marketing initiatives, variable expenses tied to the
increase in average assets under management and a $6.5 million increase in equity-based compensation as CI changed its
accounting methodology in July 2010.
28
Amortization of deferred sales commissions and fund contracts was $166.7 million in 2011, a decrease from
$169.7 million in 2010. This represents the average amount of deferred sales commissions paid in the last seven years
plus a small amount of accelerated amortization as deferred load units are redeemed ahead of their seven-year scheduled
term. The level of spending on deferred sales commissions has declined from that of the prior year.
Interest expense of $27.5 million was recorded for the year ended December 31, 2011 compared with $18.0 million
for the year ended December 31, 2010. The increase in interest expense reflected higher average debt levels and higher
average borrowing costs, as discussed under “Liquidity and Capital Resources.”
Other expenses for the year ended December 31, 2011 were $6.9 million compared to $8.9 million in the prior year. The
prior year included Castlerock acquisition costs.
CI’s pre-tax operating earnings, as set out in Table 6, adjust for the impact of equity-based compensation, gains and losses
on marketable securities, performance fees and non-recurring items. Redemption fee revenue and the amortization of
deferred sales commissions and fund contracts are netted out to remove the impact of financing back-end assets under
management.
Pre-tax operating earnings were $661.8 million in 2011, an increase of 8% from 2010. This change reflects the 10%
change in average assets under management.
TABLE 6: PRE-TAX OPERATING EARNINGS
CI uses pre-tax operating earnings to assess its underlying profitability. CI defines pre-tax operating earnings as income before income
taxes less redemption fee revenue, non-recurring items, performance fees and investment gains, plus amortization of deferred sales
commissions and fund contracts, and equity-based compensation expense.
Quarter ended Quarter ended Quarter ended
(in millions, except per share amounts) Dec. 31, 2011 Sept. 30, 2011 Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
Income before income taxes
Less:
Redemption fees
Non-recurring item(s)
Gain (loss) on marketable securities
Add:
Amortization of DSC and fund contracts
Equity-based compensation expense
Pre-tax operating earnings
per share
$123.0
$125.6
$127.3
$521.1
$474.6
6.9
–
(0.1)
41.1
1.7
$159.0
$0.56
6.9
–
0.7
41.7
1.8
$161.5
$0.56
8.4
3.7
-
42.9
2.8
$160.9
$0.56
28.6
4.9
(0.5)
166.7
7.0
$661.8
$2.31
30.9
3.7
(0.1)
169.7
0.5
$610.3
$2.11
29
As illustrated in Table 7, EBITDA for the year ended December 31, 2011 was $726.2 million ($2.53 per share)
compared with $669.7 million ($2.32 per share) for the year ended December 31, 2010. The 8% year-over-year
increase in EBITDA was primarily due to the 10% increase in average assets under management offset by a $6.5 million
increase in equity-based compensation. EBITDA as a percentage of total revenues (EBITDA margin) for 2011 was
48.5%, unchanged from 2010. This metric indicates that CI is earning the same amount of profits for every dollar of
revenue earned.
Quarter ended December 31, 2011
For the quarter ended December 31, 2011, CI reported net income of $87.8 million ($0.31 per share) versus
$87.4 million ($0.30 per share) for the quarter ended December 31, 2010 and $90.8 million ($0.32 per share) for the
quarter ended September 30, 2011.
For the fourth quarter of 2011, CI recorded $35.2 million in income tax expense for an effective tax rate of 28.6%,
compared to $39.9 million in the fourth quarter of 2010 for an effective tax rate of 31.4%. The third quarter of 2011
included $34.8 million in income tax expense, for an effective tax rate of 27.7%. The decrease in the year-over-year
effective tax rates was a result of the decrease in both federal and provincial corporate income tax rates.
Total revenues declined 3% in the fourth quarter of 2011 compared with the same period in 2010. The main contributor
to this change was a $4.1 million decline in other income. The fourth quarter of 2010 included a non-recurring fee of
$5.0 million ($3.7 million net of expenses).
For the quarter ended December 31, 2011, redemption fee revenue was $6.9 million compared with $8.4 million for
the quarter ended December 31, 2010 and unchanged from the quarter ended September 30, 2011. The decrease from
2010 related to a decrease in redemptions from deferred load funds.
TABLE 7: EBITDA AND EBITDA MARGIN
CI uses EBITDA (earnings before interest, taxes, depreciation and amortization) to assess its underlying profitability prior to the
impact of its financing structure, income taxes and the amortization of deferred sales commissions, fund contracts and capital
assets. This also permits comparisons of companies within the industry, before any distortion caused by different financing methods,
levels of taxation and mix of business between front-end and back-end sales commission assets under management. EBITDA is a
measure of operating performance, a facilitator for valuation and a proxy for cash flow.
Quarter ended Quarter ended Quarter ended
(in millions, except per share amounts) Dec. 31, 2011 Sept. 30, 2011 Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
Net income
Add (deduct):
Interest expense
Income tax expense
Amortization of DSC and fund contracts
Amortization of other items
EBITDA
per share
EBITDA margin (as a % of revenue)
$87.8
$90.8
$87.4
$376.9
$328.6
6.8
35.2
41.1
2.7
$173.6
$0.61
48.7%
7.0
34.8
41.7
2.5
$176.8
$0.61
48.1%
5.4
39.9
42.9
1.9
$177.5
$0.62
48.2%
27.5
144.2
166.7
10.9
$726.2
$2.53
48.5%
18.0
146.0
169.7
7.4
$669.7
$2.32
48.5%
30
The fourth quarter of 2011 included SG&A expenses of $70.2 million. This 4% decline from the fourth quarter of 2010
relates to a 2% decline in average assets under management and a $1.1 million decline in equity-based compensation.
Amortization of deferred sales commissions and fund contracts was $41.1 million in the fourth quarter of 2011, a
decrease from $42.9 million in the fourth quarter of 2010 and from $41.7 million in the third quarter of 2011. This
decline is consistent with the drop in the level of spending on deferred sales commissions over the past year.
Interest expense of $6.8 million was recorded for the quarter ended December 31, 2011 compared with $5.4 million
for the quarter ended December 31, 2010 and $7.0 million for the quarter ended September 30, 2011. As mentioned
earlier, the increase in interest expense from the prior-year period reflected higher average debt levels at higher average
rates, as discussed under “Liquidity and Capital Resources.”
Pre-tax operating earnings were $159.0 million in the fourth quarter of 2011, a decrease of 1% from the fourth quarter
of 2010 and 2% from the prior quarter. These changes primarily reflect the change in average assets under management,
which were unchanged from the fourth quarter of 2010 and down 2% from the prior quarter.
As illustrated in Table 7, EBITDA for the quarter ended December 31, 2011 was $173.6 million ($0.61 per share)
compared with $177.5 million ($0.62 per share) for the quarter ended December 31, 2010 and $176.8 million ($0.61
per share) for the quarter ended September 30, 2011. The 2% year-over-year decrease in quarterly EBITDA reflects the
change in average assets under management as well as the $5.0 million ($3.7 million net of expenses) non-recurring item
mentioned earlier.
EBITDA as a percentage of total revenues (EBITDA margin) for the fourth quarter of 2011 was 48.7%, up from 48.2%
in the last quarter of 2010 and 48.1% in the prior quarter. This indicates that CI is earning more profit for every dollar
of revenue earned.
31
Asset Management Segment
The Asset Management segment is CI’s principal business segment and includes the operating results and financial
position of CI Investments, Castlerock and CIPC.
TABLE 8: RESULTS OF OPERATIONS – ASSET MANAGEMENT SEGMENT
Quarter ended Quarter ended Quarter ended
Dec. 31, 2011 Sept. 30, 2011 Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
(in millions)
Management fees
Other revenue
Total revenue
Selling, general and administrative
Trailer fees
Amortization of deferred sales commissions
and fund contracts
Other expenses
Total expenses
Income before taxes and
non-segmented items
Year ended December 31, 2011
Revenues
$312.1
10.2
$322.3
$57.3
94.3
41.8
0.8
$194.2
$321.4
10.3
$331.7
$58.6
97.3
42.4
1.7
$200.0
$315.3
15.8
$331.1
$59.1
95.0
43.6
2.2
$199.9
$1,302.8
45.5
$1,348.3
$235.9
394.1
169.7
4.1
$803.8
$1,193.0
44.5
$1,237.5
$210.5
360.3
172.6
5.4
$748.8
$128.1
$131.7
$131.2
$544.5
$488.7
Revenues from management fees were $1,302.8 million for the year ended December 31, 2011, an increase of 9%
from the year ended December 31, 2010. The change was mainly attributable to the change in average assets under
management, which was up 10% from 2010.
For the year ended December 31, 2011, other revenue was $45.5 million versus $44.5 million for the year ended
December 31, 2010. The largest component of other revenue is redemption fees. Redemption fees were $28.6 million
for 2011 compared with $30.9 million for 2010. While total redemptions were up slightly, redemptions of deferred load
funds declined.
Expenses
Selling, general and administrative (“SG&A”) expenses for the Asset Management segment were $235.9 million for the
year ended December 31, 2011, an increase from $210.5 million for the year ended December 31, 2010. Included in
SG&A are expenses relating to CI’s equity-based compensation plan. The year ended December 31, 2011 included
an equity-based compensation expense of $7.0 million compared with an expense of $0.5 million in the year ended
December 31, 2010.
32
On July 1, 2010, CI modified its equity-based compensation plan. This affected CI’s reporting by changing the fair value
of outstanding options at that date as well as the expense related to the amortization of that fair value over the options’
remaining life. Equity-based compensation expense has been a volatile component of compensation that is tied to the
performance of CI’s share price, and so the financial results presented hereinafter exclude the expense to aid the reader
in conducting a comparative analysis.
SG&A expenses, net of the amount related to equity-based compensation (“net SG&A”), were $228.9 million for 2011,
up 9% from $210.0 million for 2010. This increase reflects items within CI’s SG&A that fluctuate with asset levels,
including the cost of external investment managers, as well as the cost of sales and marketing initiatives launched in 2011.
As a percentage of average assets under management, net SG&A expenses were 0.317% for the year ended
December 31, 2011, down from 0.319% for the year ended December 31, 2010. Although spending increased, a large
proportion of CI’s costs are fixed, which is why SG&A decreased as a percentage of average assets.
Trailer fees were $394.1 million for 2011 compared with $360.3 million for 2010. Net of inter-segment amounts,
this expense was $379.5 million for the year ended December 31, 2011 versus $346.2 million for the year ended
December 31, 2010. The 10% increase in trailer fees from the prior year is consistent with the 10% increase in average
assets under management from 2010.
Amortization of deferred sales commissions and fund contracts was $169.7 million for 2011, down from $172.6 million
for the prior year. This change is consistent with the change in deferred sales commissions paid in the past several years.
Other expenses were $4.1 million for the year ended December 31, 2011 compared to $5.4 million for the year ended
December 31, 2010. The decrease from the prior year is due to acquisition expenses in 2010.
Income before income taxes and interest expense for CI’s principal segment was $544.5 million for 2011 compared
with $488.7 million in 2010. The 11% increase from last year is primarily due to the increase in average assets under
management.
Quarter ended December 31, 2011
Revenues
Revenues from management fees were $312.1 million for the quarter ended December 31, 2011, a decrease of 1% from
the quarter ended December 31, 2010 and 3% from $321.4 million for the quarter ended September 30, 2011. The
changes were mainly attributable to changes in average assets under management, which were unchanged and down 2%
from the quarters ended December 31, 2010 and September 30, 2011, respectively.
For the quarter ended December 31, 2011, other revenue was $10.2 million versus $15.8 million and $10.3 million
for the quarters ended December 31, 2010 and September 30, 2011, respectively. The fourth quarter of 2010 included
a non-recurring fee of $5.0 million ($3.7 million net of expenses). Redemption fees were $6.9 million for the quarter
ended December 31, 2011 compared with $8.4 million and $6.9 million for the quarters ended December 31, 2010
and September 30, 2011, respectively.
33
Expenses
Selling, general and administrative (“SG&A”) expenses for the Asset Management segment were $57.3 million for the
quarter ended December 31, 2011, a decrease from $59.1 million for the fourth quarter in 2010 and from $58.6 million
for the quarter ended September 30, 2011. As mentioned earlier, included in SG&A are expenses relating to CI’s equity-
based compensation plan. The quarter ended December 31, 2011 included an equity-based compensation expense of
$1.7 million compared with an expense of $2.8 million in the quarter ended December 31, 2010. The quarter ended
September 30, 2011 had an equity-based compensation expense of $1.8 million.
SG&A expenses, net of the amount related to equity-based compensation (“net SG&A”), were $55.6 million for the
quarter ended December 31, 2011, down from $56.3 million for the comparable quarter in 2010 and down from $56.8
million for the prior quarter.
As a percentage of average assets under management, net SG&A expenses were 0.318% for the quarter ended
December 31, 2011, down from 0.322% for the quarter ended December 31, 2010 and unchanged from 0.318% for
the quarter ended September 30, 2011. As mentioned earlier, the decrease is a result of a large proportion of CI’s costs
being fixed expenses.
Trailer fees were $94.3 million for the quarter ended December 31, 2011 compared with $95.0 million for the quarter
ended December 31, 2010 and $97.3 million for the quarter ended September 30, 2011. Net of inter-segment amounts,
this expense was $90.8 million for the quarter ended December 31, 2011 versus $91.3 million for the fourth quarter of
2010 and $93.7 million for the third quarter of 2011. The decrease from the comparable periods is primarily due to the
changes in average assets under management.
Amortization of deferred sales commissions and fund contracts was $41.8 million for the quarter ended December 31, 2011,
down from $43.6 million in the same quarter last year and from $42.4 million in the previous quarter. This decrease is
consistent with the decrease in deferred sales commissions paid in the recent years.
Other expenses were $0.8 million for the quarter ended December 31, 2011 compared to $2.2 million in the quarter
ended December 31, 2010 and $1.7 million in the prior quarter. The decrease from the prior year period related to
acquisition expenses in 2010.
Income before income taxes and interest expense for CI’s principal segment was $128.1 million for the quarter ended
December 31, 2011 compared with $131.2 million in the same period in 2010 and $131.7 million in the previous
quarter. The decrease from the comparable periods is primarily due to the changes in average assets under management.
34
Asset Administration Segment
The Asset Administration segment includes the operating results and financial position of AWM and its subsidiaries.
TABLE 9: RESULTS OF OPERATIONS – ASSET ADMINISTRATION SEGMENT
The table that follows presents the operating results for the Asset Administration segment:
Quarter ended Quarter ended Quarter ended
Dec. 31, 2011 Sept. 30, 2011 Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
$52.5
3.8
$56.3
$12.9
41.5
0.4
0.2
$55.0
$1.3
$54.3
4.0
$58.3
$13.6
43.1
0.4
0.8
$57.9
$0.4
$56.9
3.8
$60.7
$13.9
44.5
0.4
0.5
$59.3
$1.4
$226.2
15.6
$241.8
$54.8
179.5
1.5
2.8
$238.6
$219.3
15.4
$234.7
$53.1
172.5
1.5
3.6
$230.7
$3.2
$4.0
(in millions)
Administration fees
Other revenue
Total revenue
Selling, general and administrative
Investment dealer fees
Amortization of fund contracts
Other expenses
Total expenses
Income before taxes and
non-segmented items
Year ended December 31, 2011
Revenues
Administration fees are earned on assets under administration in the AWM business. These fees were $226.2 million
for the year ended December 31, 2011, an increase of 3% from $219.3 million for the same period last year. Net of
inter-segment amounts, administration fee revenue was $132.3 million for the year ended December 31, 2011, up from
$126.9 million for the year ended December 31, 2010. The increase from the prior year was mainly attributable to a
5% improvement in average assets under administration. Administration fees should be considered in conjunction with
investment dealer fees, an expense that represents the payout to financial advisors.
TABLE 10: DEALER GROSS MARGIN
CI monitors its operating profitability on the revenues earned within its Asset Administration segment by measuring the dealer gross
margin, which is calculated as administration fee revenue less investment dealer fees, divided by administration fee revenue. CI uses
this measure to assess the margin remaining after the payout to advisors.
(in millions)
Administration fees
Less:
Investment dealer fees
Dealer gross margin
Quarter ended Quarter ended Quarter ended
Dec. 31, 2011 Sept. 30, 2011 Dec. 31, 2010
Year ended
Dec. 31, 2011
Year ended
Dec. 31, 2010
$52.5
$54.3
$56.9
$226.2
$219.3
41.5
$11.0
21.0%
43.1
$11.2
20.6%
44.5
$12.4
21.8%
179.5
$46.7
20.6%
172.5
$46.8
21.3%
35
Other revenues earned by the Asset Administration segment are mainly comprised of interest income on cash
balances, and foreign exchange gains and losses. For 2011, other revenues were $15.6 million, increasing slightly from
$15.4 million for 2010.
Expenses
Investment dealer fees represent the payout to advisors on revenues they generate and were $179.5 million for the year
ended December 31, 2011, compared to $172.5 million for the year ended December 31, 2010. This increase relates to
the increase in administration fees discussed earlier.
As detailed in Table 10, dealer gross margin was $46.7 million or 20.6% of administration fee revenue for 2011, compared
to $46.8 million or 21.3% for 2010. The change in gross margin from the prior period relates to the change in average
investment dealer fees paid out to financial advisors on their administration fees. Generally, as an advisor’s assets under
administration and administration fee revenues grow, the payout rates to the respective advisor will correspondingly
increase up to a maximum payout rate.
Selling, general and administrative (“SG&A”) expenses for the segment were $54.8 million for the year ended
December 31, 2011 compared to $53.1 million in the year ended December 31, 2010.
The Asset Administration segment had income before income taxes and non-segmented items of $3.2 million for 2011,
down from $4.0 million in 2010. The year-over-year decrease is due primarily to the decrease in dealer gross margin.
Quarter ended December 31, 2011
Revenues
Administration fees were $52.5 million for the quarter ended December 31, 2011, a decrease of 8% from $56.9 million
for the same period last year and a decrease of 3% from the prior quarter. Net of inter-segment amounts, administration
fee revenue was $30.6 million for the quarter ended December 31, 2011, down from $33.7 million for the quarter
ended December 31, 2010 and from $31.6 million in the previous quarter. The decrease from the prior year was mainly
attributable to a decrease in sales commissions received.
As mentioned earlier, other revenues earned by the Asset Administration segment are mainly comprised of interest
income on cash balances, and foreign exchange gains and losses. For the quarter ended December 31, 2011, other
revenues were $3.8 million, unchanged from $3.8 million for the fourth quarter of last year and down from $4.0 million
in the third quarter of 2011.
Expenses
Investment dealer fees were $41.5 million for the quarter ended December 31, 2011 compared to $44.5 million for the
fourth quarter last year and $43.1 million for the quarter ended September 30, 2011.
As detailed in Table 10, dealer gross margin was $11.0 million or 21.0% of administration fee revenue for the quarter
ended December 31, 2011 compared to $12.4 million or 21.8% for the fourth quarter of 2010 and $11.2 million or
20.6% for the previous quarter. The decrease in gross margin from the prior year period relates to financial advisors
earning a higher average investment dealer fee rate on their administration fees.
36
Selling, general and administrative (“SG&A”) expenses for the segment were $12.9 million for the quarter ended
December 31, 2011 compared to $13.9 million in the fourth quarter in 2010 and $13.6 million in the third quarter
of 2011.
The Asset Administration segment had income before income taxes and non-segmented items of $1.3 million for
the quarter ended December 31, 2011, down slightly from $1.4 million for the fourth quarter in 2010 and up from
$0.4 million for the prior quarter.
Liquidity and Capital Resources
CI generated $574.7 million of operating cash flow in the year ended December 31, 2011 up $73.3 million from
$501.4 million in 2010. CI measures its operating cash flow before the change in working capital and the actual cash
amount paid for interest and income taxes, as these items often distort the cash flow generated during the period.
Working capital is affected by seasonality, interest is primarily paid semi-annually, and tax instalments paid may differ
materially from the cash tax accrual. CI’s main uses of capital are the financing of deferred sales commissions, the payment
of dividends on its shares, the funding of capital expenditures and the repurchase of shares through its normal course
issuer bid program. At current levels of cash flow and anticipated dividend payout rates, CI produces sufficient cash to
meet its obligations and pay down debt.
CI paid sales commissions of $141.2 million in 2011. This compares to $157.8 million in 2010. The decrease in sales
commissions from the prior year is consistent with the trend in lower gross sales for 2011.
CI invested $43.7 million in marketable securities in 2011. During the same period, CI received proceeds of $32.1 million
from the disposition of marketable securities, resulting in a realized loss of $0.5 million. The fair value of marketable
securities at December 31, 2011 was $42.1 million. Marketable securities are comprised of seed capital investments in
its funds and strategic investments.
During the year ended December 31, 2011, CI incurred capital expenditures of $21.5 million of which $15.2 million
related to leasehold improvements. The improvements should be viewed in conjunction with leasehold inducements of
$21.1 million provided in the prior year. The remaining capital expenditures related to the purchase of new technology
systems and upgrades and office equipment.
The statement of financial position for CI at December 31, 2011 reflects total assets of $3.085 billion, a decrease of
$121.0 million from $3.206 billion at December 31, 2010. This change can be attributed to a decrease in current assets
of $93.9 million and a decrease in long-term assets of $27.6 million.
CI’s cash and cash equivalents decreased by $94.0 million in 2011 primarily due to the payment of $100 million of
floating rate debentures that matured on December 16, 2011. Accounts receivable and prepaid expenses decreased to
$70.2 million at December 31, 2011 from $95.1 million at December 31, 2010. The decrease primarily related to a
$14.0 million leasehold inducement receivable at December 31, 2010 which was received during the first quarter of 2011.
Deferred sales commissions decreased $23.2 million to $491.2 million as a result of the $164.4 million in amortization
expense offset by the $141.2 million in sales commissions paid. Capital assets increased $11.7 million during the year.
37
Total liabilities decreased by $175.6 million during 2011 to $1.465 billion at December 31, 2011. The primary
contributors to this change were a $90.0 million decrease in long-term debt and a $82.1 million decrease in income
taxes payable.
At December 31, 2011, CI had $750 million in outstanding debentures at an average interest rate of 3.24% with a
carrying value of $747.4 million. In addition, CI had $33.0 million drawn against its credit facility at an average rate of
2.17%. At December 31, 2010, CI had $870.4 million of debt outstanding at an average rate of 3.14%. Net of cash and
marketable securities, debt was $615.7 million at December 31, 2011, down from $620.5 million at December 31, 2010.
The average debt level for the year ended December 31, 2011 was approximately $848 million, compared to $693 million
for 2010.
As mentioned earlier, at December 31, 2011 CI had drawn $33.0 million against its $150 million credit facility.
Principal repayments on CI’s credit facility are only required under the facility should the bank decide not to renew the
facility on its anniversary, in which case 6.25% of the principal would be repaid at each calendar quarter-end, with the
balance payable at the end of the credit facility term (March 17, 2014). These payments would be payable beginning
March 31, 2012 should the bank not renew the facility. CI has requested the renewal and extension of its credit facility.
CI’s current ratio of debt (net of excess cash) to EBITDA is at 1.1 to 1, just above CI’s long-term target of 1 to 1. CI
expects that, absent acquisitions in which debt is increased, the amount of excess cash flow generated will pay down debt
and the ratio of debt to EBITDA will trend lower. CI is within its financial covenants with respect to its credit facility,
which requires that the debt-to-EBITDA ratio remain below 2.5 to 1, and assets under management not fall below
$40 billion, based on a rolling 30-day average.
Shareholders’ equity increased by $54.1 million in 2011 to $1.620 billion at December 31, 2011. During the same
period, CI repurchased 4.7 million shares at a cost of $95.2 million under its normal course issuer bid. CI declared
dividends of $236.4 million ($254.2 million paid), which was less than net income for the year by $140.5 million. CI’s
current dividend payments are $0.075 per share per month, or approximately $255 million per fiscal year.
On December 17, 2012, $250 million in outstanding debentures will mature. CI intends to use available cash on hand
and its credit facility to repay this amount. To the extent that these sources of funds are insufficient at that time, CI will
be required to issue equity or public debt, or increase the size of its credit facility.
Risk Management
There is risk inherent in the conduct of a wealth management business. Some factors which introduce or exacerbate
risk are within the control of management and others are by their nature outside of direct control but must still be
managed. Effective risk management is a key component to achieving CI’s business objectives. It requires management
to identify and anticipate risks in order to development strategies and procedures which minimize or avoid the negative
consequences. Management has developed an approach to risk management which involves executives in each core
business unit and operating area of CI. These executives identify and evaluate risks, applying both a quantitative and a
qualitative analysis and then they assess the likelihood of occurrence of a particular risk. The final step in the process is
to identify mitigating factors or strategies and a process for implementing mitigation processes.
38
The disclosures below provide a summary of the key risks and uncertainties that affect CI’s financial performance. For a
more complete discussion of the risk factors which may adversely impact CI’s business, please refer to the “Risk Factors”
section of CI’s most recent Annual Information Form which is available at www.sedar.com.
Market Risk
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest
rates, foreign exchange rates, and equity and commodity prices. A description of each component of market risk is
described below:
• Interest rate risk is the risk of gain or loss due to the volatility of interest rates.
• Foreign exchange rate risk is the risk of gain or loss due to volatility of foreign exchange rates.
• Equity risk is the risk of gain or loss due to the changes in prices and volatility of individual equity instruments and
equity indexes.
CI’s financial performance is exposed to market risk. Any decline in financial markets or lack of sustained growth in such
markets may result in a corresponding decline in performance and may adversely affect CI’s assets under management,
management fees and revenues, which would reduce cash flow to CI and ultimately impact CI’s dividends.
AssetManagementSegment
CI is subject to market risk throughout its Asset Management business segment. The following is a description of how
CI mitigates the impact this risk has on its financial position and operating earnings.
Management of market risk within CI’s assets under management is the responsibility of the Chief Operating Officer, with
the assistance of the Chief Compliance Officer, CI has a control environment that ensures risks are reviewed regularly
and that risk controls throughout CI are operating in accordance with regulatory requirements. CI’s compliance group
carefully reviews the exposure to interest rate risk, foreign currency risk and equity risk. When a particular market risk
is identified, portfolio managers of the funds are directed to mitigate the risk by reducing their exposure.
At December 31, 2011, approximately 22% of CI’s assets under management were held in fixed-income securities, which
are exposed to interest rate risk. An increase in interest rates causes market prices of fixed-income securities to fall, while
a decrease in interest rates causes market prices to rise. CI estimates that a 50 basis point change in interest rates would
cause a change of about $1 million in annual pre-tax earnings in the Asset Management segment.
At December 31, 2011, about 82% of CI’s assets under management were based in Canadian currency, which diminishes
the exposure to foreign exchange risk. However, at the same time, approximately 15% of CI’s assets under management
were based in U.S. currency. Any change in the value of the Canadian dollar relative to U.S. currency will cause
fluctuations in CI’s assets under management upon which CI’s management fees are calculated. CI estimates that a 10%
change in Canadian/U.S. exchange rates would cause a change of about $13 million in the Asset Management segment’s
annual pre-tax earnings.
39
About 65% of CI’s assets under management were held in equity securities at December 31, 2011, which are subject to
equity risk. Equity risk is classified into two categories: general equity risk and issuer-specific risk. CI employs internal
and external fund managers to take advantage of these individuals’ expertise in particular market niches, sectors and
products and to reduce issuer-specific risk through diversification. CI estimates that a 10% change in the prices of equity
indexes would cause a change of about $54 million in annual pre-tax earnings.
AssetAdministrationSegment
CI’s Asset Administration business is exposed to market risk. The following is a description of how CI mitigates the
impact this risk has on its financial position and results of operations.
Risk management for administered assets is the responsibility of the Chief Compliance Officer and senior
management. Responsibilities include ensuring policies, processes and internal controls are in place and in accordance
with regulatory requirements. CI’s internal audit department reviews CI’s adherence to these policies and procedures.
CI’s operating results are not materially exposed to market risk impacting the asset administration segment given that
this segment usually generates less than 1% of the total income before non-segmented items (this segment had income
of $3.2 million before income taxes and non-segmented items for the year ended December 31, 2011). Investment
advisors regularly review their client portfolios to assess market risk and consult with clients to make appropriate changes
to mitigate it. The effect of a 10% change in any component of market risk (comprised of interest rate risk, foreign
exchange risk and equity risk) would have resulted in a change of less than $1 million to the Asset Administration
segment’s pre-tax earnings.
Credit Risk
Credit risk is the risk of loss associated with the inability of a third party to fulfill its payment obligations. CI is exposed
to the risk that third parties that owe it money, securities or other assets will not perform their obligations. These parties
include trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries,
as well as issuers whose securities are held by CI. These parties may default on their obligations due to bankruptcy,
lack of liquidity, operational failure or other reasons. CI does not have a significant exposure to any individual
counterparty. Credit risk is mitigated by regularly monitoring the credit performance of each individual counterparty
and holding collateral where appropriate.
One of the primary sources of credit risk arises when CI extends credit to clients to purchase securities by way of margin
lending. Margin loans are due on demand and are collateralized by the financial instruments in the client’s account. CI
faces a risk of financial loss in the event a client fails to meet a margin call if market prices for securities held as collateral
decline and if CI is unable to recover sufficient value from the collateral held. The credit extended is limited by regulatory
requirements and by CI’s internal credit policy. Credit risk is managed by dealing with counterparties CI believes to be
creditworthy and by actively monitoring credit and margin exposure and the financial health of the counterparties. CI
has concluded that current economic and credit conditions have not significantly impacted its financial assets.
40
Liquidity Risk
Liquidity risk is the risk that CI may not be able to generate sufficient funds within the time required in order to meet
its obligations as they come due. While CI monitors its liquidity risk through a daily cash management process, access
to financing may be negatively impacted by unprecedented market volatility and the European debt crisis. These factors
may affect the ability of CI to obtain funds or make other arrangements on terms favourable to CI.
Strategic Risks
Strategic risks are risks that directly impact the overall direction of CI and ability of CI to successfully implement proposed
strategies. The key strategic risk is the risk that management fails to anticipate, and respond to changes in the business
environment including demographic and competitive changes. CI’s performance is directly affected by financial market
and business conditions, including the legislation and policies of the governments and regulatory authorities having
jurisdiction over CI’s operations. These are beyond the control of CI however, an important part of the risk management
process is the on-going review and assessment of industry and economic trends and changes. Strategies are then designed
to mitigate the impact of any anticipated changes, including the introduction of new products and cost control strategies.
Distribution Risk
CI distributes its investment products through a number of distribution channels including brokers, independent
financial planners and insurance advisors. CI’s access to these distribution channels is impacted by the strength of the
relationship with certain business partners and the level of competition faced from the financial institutions that own
those channels. While CI continues to develop and enhance existing relationships, there can be no assurance that CI will
continue to enjoy the level of access that it has in the past, which would adversely affect its sales of investment products.
Operational Risks
Operational risks are risks related to the actions, or failure in the processes, that support the business including
administration, information technology, product development and marketing. The administrative services provided by
CI depend on software supplied by third-party suppliers. Failure of a key supplier, the loss of these suppliers’ products,
or problems or errors related to such products would have a material adverse effect on the ability of CI to provide these
administrative services. Changes to the pricing arrangement with such third-party suppliers because of upgrades or other
circumstances could have an adverse effect upon the profitability of CI. There can be no assurances that CI’s systems will
operate or that CI will be able to prevent an extended systems failure in the event of a subsystem component or software
failure or in the event of an earthquake, fire or any other natural disaster, or a power or telecommunications failure. Any
systems failure that causes interruptions in the operations of CI could have a material adverse effect on its business,
financial condition and operating results. CI may also experience losses in connection with employee errors. Although
CI has implemented a system of internal controls to mitigate potential losses due to system failure or employee errors,
there can be no assurance that these losses will not be incurred in the future.
Competition
CI operates in a highly competitive environment, with competition based on a variety of factors, including the range
of products offered, brand recognition, investment performance, business reputation, financing strength, the strength
and continuity of institutional, management and sales relationships, quality of service, level of fees charged and level of
commissions and other compensation paid. CI competes with a large number of mutual fund companies and other
41
providers of investment products, investment management firms, broker-dealers, banks, insurance companies and other
financial institutions. Some of these competitors have greater capital and other resources, and offer more comprehensive
lines of products and services than CI. The trend toward greater consolidation within the investment management
industry has increased the strength of a number of CI’s competitors. Additionally, there are few barriers to entry by new
investment management firms, and the successful efforts of new entrants have resulted in increased competition. CI’s
competitors seek to expand market share by offering different products and services than those offered by CI. While CI
continues to develop and market new products and services, there can be no assurance that CI will maintain its current
standing or market share, and that may adversely affect the business, financial condition or operating results of CI.
Regulatory and Legal Risk
Certain subsidiaries of CI are heavily regulated in all jurisdictions where they carry on business. Laws and regulations
applied at the national and provincial level generally grant governmental agencies and self-regulatory bodies broad
administrative discretion over the activities of CI, including the power to limit or restrict business activities as well as
impose additional disclosure requirements on CI products and services. Possible sanctions include the revocation or
imposition of conditions on licenses to operate certain businesses, the suspension or expulsion from a particular market
or jurisdiction of any of CI’s business segments or its key personnel or financial advisors, and the imposition of fines and
censures. It is also possible that the laws and regulations governing a subsidiary’s operations or particular investment
products or services could be amended or interpreted in a manner that is adverse to CI. To the extent that existing or
future regulations affecting the sale or offering of CI’s product or services or CI’s investment strategies cause or contribute
to reduced sales of CI’s products or lower margins or impair the investment performance of CI’s products, CI’s aggregate
assets under management and its revenues may be adversely affected.
Certain subsidiaries of CI are subject to minimum regulatory capital requirements. This may require CI to keep
sufficient cash and other liquid assets on hand to maintain capital requirements rather than using them in connection
with its business. Failure to maintain required regulatory capital by CI may subject it to fines, suspension or revocation
of registration by the relevant securities regulator. A significant operating loss by a registrant subsidiary or an unusually
large charge against regulatory capital could adversely affect the ability of CI to expand or even maintain its present
level of business, which could have a material adverse effect on CI’s business, results of operations, financial condition
and prospects.
Given the nature of CI’s business, CI may from time to time be subject to claims or complaints from investors or others in
the normal course of business. The legal risks facing CI, its directors, officers, employees or agents in this respect include
potential liability for violations of securities laws, breach of fiduciary duty and misuse of investors’ funds. Some violations
of securities laws and breach of fiduciary duty could result in civil liability, fines, sanctions, or expulsion from a self-
regulatory organization or the suspension or revocation of CI’s subsidiaries’ right to carry on their existing business. CI
may incur significant costs in connection with such potential liabilities.
42
Commitment of Financial Advisors and Other Key Personnel
The market for financial advisors is extremely competitive and is increasingly characterized by frequent movement
by financial advisors among different firms. Individual financial advisors of AWM have regular direct contact with
clients, which can lead to a strong and personal client relationship based on the client’s trust in the individual financial
advisor. The loss of a significant number of financial advisors could lead to the loss of client accounts which could have
a material adverse effect on the results of operations and prospects of AWM, and, in turn, CI. Although AWM uses or
has used a combination of competitive compensation structures and equity with vesting provisions as a means of seeking
to retain financial advisors, there can be no assurance that financial advisors will remain with AWM.
The success of CI is also dependent upon, among other things, the skills and expertise of its human resources including
the management and investment personnel and its personnel with skills related to, among other things, marketing,
risk management, credit, information technology, accounting, administrative operations and legal affairs. These
individuals play an important role in developing, implementing, operating, managing and distributing CI’s products and
services. Accordingly, the recruitment of competent personnel, continuous training and transfer of knowledge are key
activities that are essential to CI’s performance. In addition, the growth in total assets under management in the industry
and the reliance on investment performance to sell financial products have increased the demand for experienced and
high-performing portfolio managers. Compensation packages for these managers may increase at a rate well in excess of
inflation and well above the rates of increase observed in other industries and the rest of the labour market. CI believes
that it has the resources necessary for the operation of CI’s business. The loss of these individuals or an inability to attract,
retain and motivate a sufficient number of qualified personnel could adversely affect CI’s business.
Information Regarding Guarantors
The following tables provide unaudited consolidated financial information for CI, CI Investments and non-guarantor
subsidiaries for the periods identified below, presented with a separate column for: (i) CI; (ii) CI Investments, (iii) the
non-guarantor subsidiaries of CI on a combined basis (the “Other Subsidiaries”); (iv) consolidating adjustments; and (v)
the total consolidated amounts.
STATEMENT OF INCOME DATA FOR THE YEAR ENDED DECEMBER 31*
(in millions of dollars)
2011
2010
CI Financial
CI Investments
2010
2011
Other
Subsidiaries
Consolidating
Adjustments
Total Consolidated
Amounts
2011
2010
2011
2010
2011
2010
Revenue
Net income
669.8
654.4
12.7 1,358.4 1,211.2
283.6
379.7
(4.9)
395.7
37.1
373.8
38.1
(927.6)
(694.3)
(217.9) 1,496.3 1,379.8
328.6
376.9
11.8
43
STATEMENT OF FINANCIAL POSITION DATA AS AT DECEMBER 31*
(in millions of dollars)
2011
2010
CI Financial
CI Investments
2010
2011
Other
Subsidiaries
Consolidating
Adjustments
Total Consolidated
Amounts
2011
2010
2011
2010
2011
2010
Current assets
Non-current assets
Current liabilities
Non-current liabilities
262.4
486.8
172.5
278.2
1,699.9 1,837.8 2,936.1 3,360.4
202.4
106.9
164.1
467.7 1,302.0 1,486.1
301.9
222.1
199.9
137.4
150.4
0.2
(499.4)
192.3
453.7
(279.2)
157.7 (2,048.2) (2,603.2) 2,725.2 2,752.7
495.7
(43.6)
172.8
556.0
908.9 1,144.6
(828.2)
19.0
(3.2)
(615.4)
359.8
*Some comparative figures have been reclassified to conform to the presentation in the current year.
Related Party Transactions
The Bank of Nova Scotia (“Scotiabank”) owns approximately 37% of the common shares of CI, and is therefore
considered a related party. CI has entered into transactions related to the advisory and distribution of its mutual funds
with Scotiabank and its related parties. These transactions are in the normal course of operations and are recorded at
the agreed upon exchange amounts. During the three and twelve months ended December 31, 2011, CI incurred
charges for deferred sales commissions of $1.0 million and $4.9 million, respectively [three and twelve months ended
December 31, 2010 – $0.5 million and $2.5 million, respectively] and trailer fees of $5.0 million and $20.0 million,
respectively [three and twelve months ended December 31, 2010 – $1.8 million and $7.0 million, respectively] which
were paid or payable to Scotiabank and its related parties. The balance payable to Scotiabank and its related parties
as at December 31, 2011 of $1.7 million [December 31, 2010 – $0.6 million] is included in accounts payable and
accrued liabilities.
Share Capital
As at December 31, 2011, CI had 283,567,039 shares outstanding.
At December 31, 2011, 6.0 million options to purchase shares were outstanding, of which 1.6 million options were
exercisable.
Contractual Obligations
The table that follows summarizes CI’s contractual obligations at December 31, 2011.
PAYMENTS DUE BY YEAR
(millions)
Credit facility
Debentures
Operating leases
Total
Less than
1 year
$8.3
250.0
11.3
$269.6
Total
$33.0
750.0
110.7
$893.7
1 – 2
$8.2
-
9.6
$17.8
2 – 3
$16.5
200.0
8.9
$225.4
3 – 4
$-
-
8.3
$8.3
5 or more
years
$-
-
64.3
$64.3
4 – 5
$-
300.0
8.3
$308.3
44
Significant Accounting Estimates
The December 31, 2011 Consolidated Financial Statements have been prepared in accordance with IFRS. For a
discussion of all significant accounting policies, refer to Note 1 of the Notes to the Consolidated Financial Statements.
Included in the Notes to the Consolidated Financial Statements is Note 4 which provides a discussion regarding the
recoverable amount of CI’s goodwill and intangible assets compared to its carrying value.
CI carries significant goodwill and intangible assets on its statement of financial position. CI uses valuation models that
use estimates of future market returns and sales and redemptions of investment products as the primary determinants
of fair value. CI also uses a valuation approach based on a multiple of assets under management and assets under
administration for each of CI’s operating segments. The multiple used by CI reflects recent transactions and research
reports by independent equity research analysts. CI has reviewed these key variables in light of the current economic
climate. Estimates of sales and redemptions are very likely to change as economic conditions either improve or
deteriorate, whereas estimates of future market returns are less likely to do so. The models are most sensitive to current
levels of assets under management and administration as well as estimates of future market returns. While these balances
are not currently impaired, a decline of 20% in the fair value of certain models may result in an impairment of goodwill
or other intangibles recorded on the statement of financial position.
Adoption of International Financial Reporting Standards
CI adopted IFRS effective January 1, 2011 with a transition date of January 1, 2010. The adoption of IFRS has not had
an impact on CI’s operations, strategic decisions and cash flow. CI’s IFRS accounting policies are provided in Note 1
of the Notes to the Consolidated Financial Statements. In addition, Note 19 to the Consolidated Financial Statements
presents reconciliations between CI’s 2010 GAAP results and the 2010 IFRS results and explanations of the adjustments
to transition to IFRS. The reconciliations include the Consolidated Net Income, Comprehensive Income and Cash Flows
for the year ended December 31, 2010 as well as a reconciliation of Shareholder’s Equity as at December 31, 2010 and
January 1, 2010.
Highlights of the Impact of IFRS
Deferred sales commissions
Net income and earnings per share under IFRS will generally be slightly higher than under GAAP for the next six years due
to the $59.2 million reduction in deferred sales commissions on the statement of financial position on January 1, 2010.
This reduces the amount to be amortized over the next six years. This effect will be most pronounced in the first year
under IFRS and will subside each year. The pre-tax effect was approximately $4 million in 2010.
EBITDA will not be impacted by the change to deferred sales commissions, as this measure reports income before this
type of charge.
Legal provisions
CI recorded legal provisions of $12.1 million upon the adoption of IFRS, and, as these obligations are settled or reversed,
net income and earnings per share will be greater than they would have been under GAAP by the after-tax amount of the
reduction to this balance. The timing of this is not certain and could take many years to be realized.
45
EBITDA will also be positively impacted by the legal provisions, eventually in the full amount of the initial provision as
this is a pre-tax measure of income.
Impact of IFRS on earnings volatility
In periods where redemptions of CI’s funds fluctuate significantly, CI’s earnings will become less volatile under IFRS than
under GAAP, as any increase (decrease) in redemption fee revenue will be substantially offset by an increase (decrease) in
the amortization of deferred sales commissions.
In periods where CI faces an increase in legal claims or litigation, CI’s earnings will become more volatile. This is primarily
as a result of recording changes to contingent liabilities each quarter, where IFRS has a lower probability threshold for
recording a provision.
Alternatives and policy choices under IFRS
CI elected to use certain optional exemptions from full retrospective application of IFRS for business combinations and
share-based payments. CI did not restate the purchase equations for acquisitions that occurred prior to January 1, 2010
as the amount of goodwill and intangibles recorded would not have materially changed. Similarly, CI did not revalue
vested options under IFRS methodology as at the January 1, 2010 transition date, but instead only revalued unvested
options. As CI used the intrinsic value method prior to July 1, 2010, an appropriate amount had already been expensed
with respect to these vested options.
Disclosure Controls and Internal Controls over Financial Reporting
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with management, is
responsible for the design of CI’s disclosure controls and procedures. Management has evaluated, with participation of
the CEO and CFO, the effectiveness of the disclosure controls and procedures as at December 31, 2011. Based on this
evaluation, the CEO and CFO have concluded that they are reasonably assured these Disclosure Controls and Procedures
were effective and that material information relating to CI was made known to them within the time periods specified
under applicable securities legislation.
Management, under the supervision of the CEO and CFO, is responsible for the design and maintenance of adequate
internal controls over financial reporting for the purposes of providing reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However,
due to its inherent limitations, internal controls over financial reporting can only provide reasonable, not absolute,
assurance that the financial statements are free of misstatements. The COSO framework was used to assist management,
along with the CEO and CFO, in the evaluation of these internal control systems. Management, under the direction of
the CEO and CFO, have concluded that the internal controls over financial reporting are effective. Management used
various tools to evaluate internal controls over financial reporting which included interaction with key control systems,
review of policy and procedure documentation, observation or reperformance of control procedures to evaluate the
effectiveness of controls and concluded that these controls are effective. For the year ended December 31, 2011, there
have been no changes to the internal controls over financial reporting that have materially affected, or are reasonably likely
to affect, internal controls over financial reporting.
Additional information relating to CI, including the most recent audited financial statements, management information circular
and annual information form are available on SEDAR at www.sedar.com.
46
Consolidated
Financial Statements
Year-ended December 31, 2011
CI Financial Corp.
Management’s Report to Shareholders
Management of CI Financial Corp. [“CI”] is responsible for the integrity and objectivity of the consolidated financial statements
and all other information contained in this document. The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards and are based on management’s best information and judgment.
In fulfilling its responsibilities, management has developed internal control systems and procedures designed to provide
reasonable assurance that CI’s assets are safeguarded, that transactions are executed in accordance with appropriate
authorization, and that accounting records may be relied upon to properly reflect CI’s business transactions.
The Audit Committee of the Board of Directors is composed of outside directors who meet periodically and independently
with management and the auditors to discuss CI’s financial reporting and internal control. The Audit Committee reviews
the financial information prepared by management and the results of the audit by the auditors prior to recommending the
consolidated financial statements to the Board of Directors for approval. The external auditors have unrestricted access to the
Audit Committee.
Management recognizes its responsibility to conduct CI’s affairs in the best interests of its shareholders.
Stephen A. MacPhail
Chief Executive Officer
Douglas J. Jamieson
Chief Financial Officer
48
Independent Auditors’ Report
To the shareholders of CI Financial Corp.
We have audited the accompanying consolidated financial statements of CI Financial Corp. [“CI”], which comprise the
consolidated statements of financial position as at December 31, 2011 and 2010 and January 1, 2010, and the consolidated
statements of income and comprehensive income, changes in shareholders’ equity and cash flows for the years ended
December 31, 2011 and 2010, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CI as
at December 31, 2011 and 2010 and January 1, 2010, and the results of its operations and its cash flows for the years ended
December 31, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Toronto, Canada
February 16, 2012
49
Consolidated Statements of Financial Position
[in thousands of Canadian dollars]
As at
As at
December 31, 2011 December 31, 2010
$
$
As at
January 1, 2010
$
ASSETS
Current
Cash and cash equivalents
Client and trust funds on deposit
Marketable securities
Accounts receivable and prepaid expenses
Total current assets
Capital assets, net [note 3]
Deferred sales commissions, net of accumulated amortization of
$718,122 [December 31, 2010 – $678,789, January 1, 2010 – $649,999]
Intangibles [note 4]
Other assets [note 5]
Deferred income taxes [note 11]
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities [note 5]
Provision for other liabilities [note 7]
Dividends payable [note 10]
Client and trust funds payable
Income taxes payable [note 11]
Equity-based compensation [note 9(b)]
Preferred shares issued by subsidiary [note 8]
Current portion of long-term debt [notes 6 and 16]
Total current liabilities
Deferred lease inducement
Long-term debt [notes 6 and 16]
Provision for other liabilities [note 7]
Deferred income taxes [note 11]
Total liabilities
Shareholders’ equity
Share capital [note 9(a)]
Contributed surplus
Deficit
Accumulated other comprehensive income (loss)
Total shareholders’ equity
122,550
124,978
42,099
70,168
359,795
49,634
491,216
2,156,433
27,904
—
3,084,982
120,797
2,417
42,526
123,745
8,736
—
—
257,763
555,984
18,489
522,592
6,530
361,202
1,464,797
1,964,334
20,059
(362,377)
(1,831)
1,620,185
3,084,982
216,537
108,726
33,300
95,137
453,700
37,933
514,415
2,158,818
41,568
—
3,206,434
131,917
2,275
60,320
107,673
90,813
—
—
102,747
495,745
19,072
767,615
9,153
348,775
1,640,360
1,984,488
21,846
(440,404)
144
1,566,074
3,206,434
77,120
109,004
6,460
93,358
285,942
17,573
522,971
2,062,027
47,760
4,669
2,940,942
111,046
16,918
35,096
108,004
8,727
35,104
20,662
8,062
343,619
—
668,462
9,675
359,270
1,381,026
2,008,846
11,445
(460,105)
(270)
1,559,916
2,940,942
(see accompanying notes)
On behalf of the Board of Directors:
50
-----------------------------------
William T. Holland
Director
-----------------------------------
G. Raymond Chang
Director
Consolidated Statements of Income and Comprehensive Income
For the years ended December 31
[in thousands of Canadian dollars, except per share amounts]
REVENUE
Management fees
Administration fees
Redemption fees
Loss on marketable securities
Other income
EXPENSES
Selling, general and administrative
Trailer fees [note 16]
Investment dealer fees
Amortization of deferred sales commissions
Amortization of intangibles
Interest [notes 6 and 16]
Other [note 5]
Income before income taxes
Provision for income taxes [note 11]
Current
Deferred
Net income for the year
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on available-for-sale financial assets,
net of income taxes of ($449) [2010 – $58]
Reversal of losses to net income on available-for-sale
financial assets, net of income taxes of $125 [2010 – $17]
Total other comprehensive income (loss), net of tax
Comprehensive income
Basic earnings per share [note 9(c)]
Diluted earnings per share [note 9(c)]
(see accompanying notes)
2011
$
2010
$
1,302,773
132,272
28,629
(489)
33,108
1,496,293
1,192,991
126,861
30,895
(149)
29,149
1,379,747
290,776
379,454
103,753
164,431
2,386
27,496
6,927
975,223
521,070
131,420
12,751
144,171
376,899
263,640
346,233
98,244
166,310
3,851
18,011
8,895
905,184
474,563
139,533
6,462
145,995
328,568
(2,656)
315
681
(1,975)
374,924
$1.31
$1.31
99
414
328,982
$1.14
$1.13
51
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31
Contributed
surplus
[note 9(b)]
$
Accumulated
other
comprehensive
income (loss)
Deficit
$
$
21,846
—
—
(8,787)
7,000
(1,787)
20,059
11,445
—
—
—
(13,755)
17,050
7,106
10,401
21,846
(440,404)
376,899
(236,407)
(62,465)
—
—
78,027
(362,377)
(460,105)
328,568
(245,253)
(63,614)
144
(1,975)
—
—
—
—
(1,975)
(1,831)
(270)
414
—
—
—
—
19,701
(440,404)
414
144
Total
$
1,566,074
374,924
(236,407)
(95,194)
3,788
7,000
54,111
1,620,185
1,559,916
328,982
(245,253)
(96,965)
(4,762)
17,050
7,106
6,158
1,566,074
Share capital
[note 9(a)]
[in thousands of Canadian dollars]
$
1,984,488
—
—
(32,729)
12,575
—
(20,154)
1,964,334
2,008,846
—
—
(33,351)
8,993
(24,358)
1,984,488
Balance, January 1, 2011
Comprehensive income
Dividends declared [note 10]
Shares repurchased
Issuance of share capital on exercise of options
and vesting of deferred equity units
Compensation expense for equity-based plans
Change during the year
Balance, December 31, 2011
Balance, January 1, 2010
Comprehensive income
Dividends declared [note 10]
Shares repurchased
Issuance of share capital on exercise of options
and vesting of deferred equity units
Modification of option plan
Compensation expense for equity-based plans
Change during the year
Balance, December 31, 2010
(see accompanying notes)
52
Consolidated Statements of Cash Flows
For the years ended December 31
[in thousands of Canadian dollars]
OPERATING ACTIVITIES
Net income
Add (deduct) items not involving cash
Loss on marketable securities
Equity-based compensation
Amortization of deferred sales commissions
Amortization of intangibles
Amortization of other
Deferred income taxes
Cash provided by operating activities before changes
in operating assets and liabilities
Net change in non-cash working capital balances
Income taxes paid
Interest paid
Cash provided by operating activities
INVESTING ACTIVITIES
Purchase of marketable securities
Proceeds on sale of marketable securities
Additions to capital assets
Deferred sales commissions paid
Decrease in other assets
Purchase of subsidiary, net of cash and cash equivalents acquired
Cash used in investing activities
FINANCING ACTIVITIES
Increase (decrease) in long-term debt
Issuance (repayment) of debentures
Repurchase of share capital [note 9(a)]
Issuance of share capital [note 9(a)]
Dividends paid to shareholders [note 10]
Cash used in financing activities
Net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(see accompanying notes)
2011
$
2010
$
376,899
328,568
489
7,000
164,431
2,386
10,773
12,751
574,729
177,154
(213,326)
(27,507)
511,050
(43,740)
32,082
(21,477)
(141,232)
5,821
—
(168,546)
9,092
(100,000)
(95,194)
3,812
(254,201)
(436,491)
(93,987)
216,537
122,550
149
(10,896)
166,310
3,851
6,963
6,462
501,407
148,133
(57,403)
(15,520)
576,617
(28,121)
1,651
(26,735)
(157,753)
6,192
(109,076)
(313,842)
(105,000)
298,250
(96,965)
386
(220,029)
(123,358)
139,417
77,120
216,537
53
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
CI Financial Corp. [“CI”] is incorporated under the laws of the Province of Ontario. CI’s primary business is the management and
distribution of a broad range of financial products and services, including mutual funds, segregated funds, financial planning,
insurance, investment advice, wealth management and estate and succession planning.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements represent the first annual financial statements of CI prepared in accordance with
International Financial Reporting Standards [“IFRS”], as issued by the International Accounting Standards Board [“IASB”]. CI
adopted IFRS in accordance with IFRS 1, First-time Adoption of International Reporting Standards [“IFRS 1”] as discussed in
Note 19.
These audited consolidated financial statements were authorized for issuance by the Board of Directors of CI on February 16, 2012.
Basis of presentation
The consolidated financial statements of CI have been prepared on a historical cost basis, except for certain financial instruments
that have been measured at fair value. CI’s presentation currency is the Canadian dollar. The functional currency of CI and its
subsidiaries is also the Canadian dollar.
Basis of consolidation
The consolidated financial statements include the accounts of CI, CI Investments Inc. [“CI Investments”] and Assante Wealth
Management (Canada) Ltd. [“AWM”] and their subsidiaries, which are entities over which CI has control. Control exists when CI
has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. Hereinafter, CI and its subsidiaries are referred to as CI.
Revenue recognition
Revenue is recognized to the extent that it is probable that economic benefits will flow to CI and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration received or receivable. In addition to these general
principles, CI applies the following specific revenue recognition policies:
Management fees are based upon the net asset value of the funds managed by CI and are recognized on an accrual basis.
Administration fees and other income are recognized as services are provided under contractual arrangements. Administration
fees include commission revenue, which is recorded on a trade date basis and advisory fees, which are recorded when the
services related to the underlying engagements are completed.
Redemption fees payable by securityholders of deferred sales charge mutual funds, the sales commission of which was financed
by CI, are recognized as revenue on the trade date of the redemption of the applicable mutual fund securities.
54
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Financial instruments
Financial assets are classified as fair value through profit or loss [“FVPL”], available-for-sale [“AFS”] or loans and receivables.
Financial liabilities are classified as FVPL or other.
Financial instruments are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition or
issue of a financial instrument classified as other than as FVPL are added to the carrying amount of the asset or liability. The fair
value of financial instruments is generally determined by reference to quoted market bid prices where an active market exists.
Where there is no active market, the fair value is determined using valuation techniques.
Financial instruments classified as FVPL are carried at fair value in the statement of financial position and any gains or losses
are recorded in net income in the period in which they arise. Financial instruments classified as FVPL include cash and cash
equivalents as well as an amount included in accounts payable and other liabilities.
Financial assets classified as AFS are carried at fair value in the statement of financial position. Movements in the fair value
are recorded in other comprehensive income (loss) until disposed, at which time the cumulative amount recorded in other
comprehensive income (loss) is recognized in net income. Where there is objective evidence that an AFS asset is impaired, the
cumulative impairment loss is reclassified from other comprehensive income (loss) to net income with subsequent movements
also recognized in net income. Financial assets classified as AFS include marketable securities.
Loans and receivables and other financial liabilities are recognized at amortized cost using the effective interest rate method.
Such accounts include client and trust funds on deposits, accounts receivable, accounts payable and accrued liabilities,
dividends payable, client and trust funds payable and long-term debt.
All financial instruments recognized at fair value in the consolidated statement of financial position are classified into three fair
value hierarchy levels as follows:
•
•
Level 1 – valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities.
Level 2 – valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model
that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by
correlation or other means.
•
Level 3 – valuation techniques with significant unobservable market inputs.
Derivatives and hedging
CI may enter into interest rate swap agreements to reduce its exposure to interest rate risk on its long-term debt. CI does
not enter into derivative financial instruments for trading or speculative purposes. At the inception of the swap agreement,
CI formally documents the hedging relationship, detailing the risk management objective and the hedging strategy of the
hedge. The documentation specifies the asset, liability or cash flows being hedged, the related hedging item, the nature of
the specific risk exposure or exposures being hedged, the intended term of the hedging relationship, the method for assessing
the effectiveness of the hedging relationship, and the method for measuring the ineffectiveness of the hedging relationship.
Derivative financial instruments that have been designated and qualify for hedge accounting are classified as either cash flow
or fair value hedges.
55
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Changes in the fair value of the interest rate swaps are recognized in the consolidated statement of income and comprehensive
income as other income. Similarly, changes in the fair value of the hedged item attributable to the hedged risk are also
recognized in the consolidated statement of income and comprehensive income as other income, with a corresponding
adjustment to the long-term debt in the consolidated statement of financial position. Hedge accounting is discontinued
prospectively if the hedging relationship no longer qualifies as an effective hedge or if the hedging item is settled. The hedged
item is no longer adjusted to reflect changes in fair value. Amounts previously recorded as cumulative adjustments to the
effective portion of gains and losses attributable to the hedged risk are amortized using the effective interest rate method and
recognized in the consolidated statement of income and comprehensive income over the remaining useful life of the hedged
item. Hedge accounting is also discontinued if the hedged item is sold or terminated before maturity. In such a situation, the
cumulative adjustments with respect to the effective portion of gains and losses attributable to the hedged risk are immediately
recorded in the consolidated statement of income and comprehensive income.
Cash and cash equivalents
Cash and cash equivalents include cash on deposit, highly liquid investments and interest bearing deposits with original
maturities of 90 days or less.
Client and trust funds
Client and trust funds on deposit include amounts representing cash held in trust with Canadian financial institutions for clients
in respect of self-administered Registered Retirement Savings Plans and Registered Retirement Income Funds, and amounts
received from clients for which the settlement date on the purchase of securities has not occurred or accounts in which the
clients maintain a cash balance. Client and trust funds on deposit also include amounts for client transactions that are entered
into on either a cash or margin basis and recorded on the trade date of the transaction. Amounts are due from clients on the
settlement date of the transaction for cash accounts. For margin accounts, CI extends credit to a client for the purchase of
securities, collateralized by the financial instruments in the client’s account. Amounts loaned are limited by margin regulations
of the Investment Industry Regulatory Organization of Canada [“IIROC”] and other regulatory authorities, and are subject to CI’s
credit review and daily monitoring procedures.
The corresponding liabilities related to the above accounts and transactions are included in client and trust funds payable.
Marketable securities
Marketable securities consist of investments in mutual fund securities and publicly traded companies. Marketable securities are
measured at fair value and recognized on the trade date. Mutual fund securities are valued using the net asset value per unit
of each fund. The fair value of publicly traded companies is determined using quoted market prices. Realized and unrealized
gains and losses are recognized using average cost. Except for impairment losses, gains and losses in the fair value of marketable
securities are recorded as other comprehensive income (loss) until disposed of, at which time any gain or loss is recorded in net
income. When a decline in fair value is other than temporary and there is objective evidence of impairment, the cumulative
loss that had been recognized directly in other comprehensive income (loss) is removed and recognized in net income, even
though the financial asset has not been derecognized. Distributions from mutual fund securities are recorded as other income.
Distributions that are reinvested increase the cost base of the marketable securities.
56
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Capital assets
Capital assets are recorded at cost less accumulated amortization. These assets are amortized over their estimated useful lives
as follows:
Computer hardware
Straight-line over three years
Office equipment
Straight-line over five years
Leasehold improvements
Straight-line over the term of the lease
Deferred sales commissions
Commissions paid on sales of deferred sales charge mutual funds represent commissions paid by CI to brokers and dealers, and
are recorded on the trade date of the sale of the applicable mutual fund product. Deferred sales commissions are amortized
over the expected investment period of 36 to 84 months on a straight-line basis from the date recorded. When redemptions
occur, the actual investment period is shorter than expected, and the unamortized deferred sales commission related to the
original investment in the mutual funds is charged to net income and included in the amortization of deferred sales commissions.
Intangibles
Fund contracts
Fund administration contracts and fund management contracts [collectively, “fund contracts”] are recorded net of any
write-down for impairment. CI evaluates the carrying value of fund contracts for potential impairment by comparing the
recoverable amount with their carrying value. These evaluations are performed on an annual basis or more frequently if events
or changes in circumstances indicate a potential impairment. Any impairment would be written off to income.
Fund administration contracts are amortized on a straight-line basis over 25 years. Fund management contracts with a finite life
are amortized on a straight-line basis over a period of up to 20 years, depending on the contractual terms of such agreements
and management’s best estimate of their useful lives. Fund management contracts with an indefinite life are not amortized.
Goodwill
Goodwill is recorded as the excess of purchase price over identifiable assets acquired. Following initial recognition, goodwill
is stated at cost less any accumulated impairment losses. Goodwill is evaluated for impairment at least annually and any
impairment is recognized immediately in income and not subsequently reversed. Goodwill is allocated to the appropriate
cash-generating unit for the purpose of impairment testing.
Other intangibles
Other intangibles include the cost of trademarks and computer software, capitalized where it is probable that future economic
benefits that are attributable to the assets will flow to CI and the cost of the assets can be measured reliably. Computer
software is recorded initially at cost and amortized over its expected useful life of two years on a straight-line basis. Trademarks
have an indefinite life and are not amortized.
57
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Equity-based compensation
CI uses the fair value method to account for equity-settled employee incentive share options. The value of the equity-based
compensation, as at the date of grant, is recognized over the applicable vesting period as compensation expense with a
corresponding increase in contributed surplus. When options are exercised, the proceeds received, together with the amount
in contributed surplus, are credited to share capital.
Employee incentive share options that include a cash-settlement option are recognized as compensation expense and
recorded as a liability based upon the fair value of outstanding share options at the statement of financial position date and the
proportion of the expired vesting period. On the exercise of these share options for cash, the liability recorded with respect to
the options is reduced for settlement. If these options are settled with shares, the liability recorded with respect to the options
and consideration paid by the option holders are credited to share capital.
The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are
expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet
the related service condition at the vesting date.
Deferred lease inducements
Lease inducements are deferred and amortized on a straight-line basis over the term of the lease.
Income taxes
Current income tax liabilities are measured at the amount expected to be paid to tax authorities, net of recoveries based on the
tax rates and laws enacted or substantively enacted at the statement of financial position date.
The liability method of tax allocation is used in accounting for income taxes. Under this method, deferred income tax assets
and liabilities are determined based on differences between the carrying amount and the tax basis of assets and liabilities
and measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to
reverse. Deferred income tax assets are recognized to the extent that it is probable that taxable income will be available against
which deductible temporary differences can be utilized. Deferred income tax liabilities are generally recognized for all taxable
temporary differences.
Deferred income tax liabilities are recognized for taxable temporary differences arising from investments in subsidiaries and joint
ventures, except where the reversal of the temporary difference can be controlled and it is probable that the difference will not
reverse in the foreseeable future. Deferred income tax liabilities are not recognized on temporary differences that arise from
goodwill which is not deductible for tax purposes. Deferred income tax assets and liabilities are not recognized in respect of
temporary differences that arise on initial recognition of assets and liabilities acquired other than for a business combination.
Provision for other liabilities
A provision for other liabilities is recognized if, as a result of a past event, CI has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. In
the event that the time value of money is material, provisions are determined by discounting the expected future cash flows at
a pre-tax rate that reflects a current market assessment of the time value of money and the risks specific to the liability.
58
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Foreign currency translation
Monetary assets and liabilities are translated into Canadian dollars using the exchange rates in effect at the statement of
financial position date. Non-monetary assets and liabilities are translated into Canadian dollars using historical exchange rates.
Revenue and expenses are translated at average rates prevailing during the month. Other foreign currency transactions are
translated into Canadian dollars using the exchange rate in effect on the transaction date. Translation exchange gains and losses
are included in other income in the month in which they occur.
Critical accounting estimates and judgements
In the process of applying CI’s accounting policies, management has made significant judgements involving estimates and
assumptions which are summarized as follows:
[i]
Impairment of intangible assets
Indefinite life intangible assets are reviewed for impairment annually or more frequently if changes in circumstances
indicate that the carrying value may be impaired. The values associated with intangibles involve estimates and assumptions,
including those with respect to future cash inflows and outflows, discount rates and asset lives. These estimates require
significant judgement regarding market growth rates, fund flow assumptions, expected margins and costs which could
affect CI’s future results if the current estimates of future performance and fair values change. These determinations also
affect the amount of amortization expense on fund contracts with finite lives recognized in future periods.
[ii] Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable income will be
available against which the losses can be utilized. Significant management judgement is required to determine the amount
of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable income together with
future tax planning strategies.
[iii] Provision for other liabilities
Due to the nature of provisions, a considerable part of their determination is based on estimates and judgements, including
assumptions concerning the future. The actual outcome of these uncertain factors may be materially different from the
estimates, causing differences with the estimated provisions. Further details are provided in Note 7.
[iv] Share-based payments
The cost of employee services received (compensation expense) in exchange for awards of equity instruments recognized
is estimated using a Black-Scholes option valuation model which requires the use of assumptions. Further details regarding
the assumptions used in the option pricing model are provided in Note 9 [b].
59
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
2. BUSINESS ACQUISITION
On December 15, 2010, CI acquired control of Hartford Investments Canada Corp., a mutual fund company, for cash consideration
of $115,000. In January 2011, the name was changed to Castlerock Investments Inc. [“Castlerock”] and on June 30, 2011 Castlerock
amalgamated with CI Investments. CI accounted for the acquisition using the purchase method and the results of operations
have been consolidated from the date of the transaction.
Details of the net assets acquired, at fair value, are as follows:
Cash and cash equivalents
Other assets
Deferred income taxes
Fund management contracts
Accounts payable and accrued liabilities
Goodwill on acquisition
$
5,947
132
12,362
32,000
(4,082)
68,641
115,000
The acquired fund management contracts with a fair value of $32,000 have an indefinite life. The goodwill acquired of $68,641,
which is not tax deductible, has been allocated to the asset management segment of CI and relates to the expected synergies
and/or intangible assets that do not qualify for separate recognition.
For the period January 1, 2010 to December 15, 2010, prior to the acquisition date, Castlerock recorded a net loss of $8,897. Due
to the synergies between Castlerock and CI, it is impracticable for management to estimate what CI’s reported net income
would have been if the acquisition of Castlerock occurred on January 1, 2010.
60
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
3. CAPITAL ASSETS
Capital assets consist of the following:
Cost
Balance, January 1, 2010
Additions
Balance, December 31, 2010
Additions
Retired
Balance, December 31, 2011
Accumulated depreciation
Balance, January 1, 2010
Depreciation
Balance, December 31, 2010
Depreciation
Retired
Balance, December 31, 2011
Carrying value
At January 1, 2010
At December 31, 2010
At December 31, 2011
Computer
hardware
$
Office
equipment
$
Leasehold
improvements
$
17,050
1,822
18,872
4,371
(11,444)
11,799
14,108
1,785
15,893
2,805
(11,444)
7,254
2,942
2,979
4,545
9,096
3,305
12,401
1,880
(4,888)
9,393
8,089
727
8,816
1,177
(4,888)
5,105
1,007
3,585
4,288
26,460
21,608
48,068
15,226
(9,832)
53,462
12,836
3,863
16,699
5,794
(9,832)
12,661
13,624
31,369
40,801
Total
$
52,606
26,735
79,341
21,477
(26,164)
74,654
35,033
6,375
41,408
9,776
(26,164)
25,020
17,573
37,933
49,634
61
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
4. INTANGIBLES
Intangibles consist of the following:
Fund
administration
contracts
$
Fund
management
contracts
finite life
$
Fund
management
contracts
indefinite life
$
Other
intangibles
$
Total
$
37,600
—
37,600
37,600
9,048
1,504
10,552
1,504
12,056
27,500
—
27,500
27,500
13,056
1,850
14,906
775
15,681
967,082
32,000
999,082
999,082
16,657
—
16,657
16,657
2,100,124
100,641
2,200,765
2,200,765
—
—
—
—
—
15,993
496
16,489
106
16,595
38,097
3,850
41,947
2,385
44,332
Goodwill
$
1,051,285
68,641
1,119,926
1,119,926
—
—
—
—
—
1,051,285
1,119,926
1,119,926
28,552
27,048
25,544
N/A 16.9 – 17.4 yrs
14,444
12,594
11,819
15.3 yrs
967,082
999,082
999,082
N/A
2,062,027
2,158,818
2,156,433
664
168
62
N/A
Cost
Balance, January 1, 2010
Business combination
Balance, December 31, 2010
Balance, December 31, 2011
Accumulated amortization
Balance, January 1, 2010
Amortization
Balance, December 31, 2010
Amortization
Balance, December 31, 2011
Carrying value
At January 1, 2010
At December 31, 2010
At December 31, 2011
Remaining term
[a] Cash-generating units
CI has two cash-generating units [“CGU”] for the purpose of assessing the carrying value of the allocated goodwill and
intangible assets, being the asset management and asset administration operating segments as described in Note 17.
[b] Impairment testing of goodwill
As at December 31, 2011 and 2010, CI had goodwill of $927,344 and $192,582 for the asset management and asset
administration operating segments, respectively [January 1, 2010 – $858,703 and $192,582, respectively]. The recoverable
amount of goodwill for the asset management and asset administration operating segments as at December 31, 2011 and
2010 and as at January 1, 2010 has been calculated at fair value less costs to sell, using a valuation multiple applied to assets
under management and assets under administration, respectively. This methodology is commonly used in the marketplace
by independent equity research analysts.
The calculation of the recoverable amounts exceeds the carrying amount of goodwill for both the asset management
and the asset administration operating segments. Recent equity market performance, recent market transactions and CI’s
current market capitalization provide additional evidence that the recoverable amount of goodwill is in excess of the
carrying amount.
62
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
[c] Impairment testing of fund contracts
As at December 31, 2011 and 2010, CI had indefinite life fund management contracts within the asset management CGU of
$999,082 [January 1, 2010 – $967,082]. These are contracts for the management of open end funds which have no expiry or
termination provisions. The recoverable amount of indefinite life intangibles for the asset management operating segment
as at December 31, 2011 and 2010 and as at January 1, 2010 has been determined from a value in use calculation, using 10-year
forecasts and a terminal value for the period thereafter. The key assumptions used in the forecast calculation include
assumptions on market appreciation, net sales of funds and operating margins. The terminal value has been calculated
assuming a long-term growth rate of 2% per annum in perpetuity [January 1 and December 31, 2010 – 2%], based on a long-
term real GDP growth rate. A discount rate of 8.05% per annum [December 31, 2010 – 9.14% and January 1, 2010 – 9.77%] has
been applied to the recoverable amount calculation.
The calculation of the recoverable amount exceeds the carrying amount of indefinite life management contracts as at
December 31, 2011 and 2010 and as at January 1, 2010. Recent equity market performance provides additional evidence that
the recoverable amount of indefinite life intangibles is in excess of the carrying amount.
5. OTHER ASSETS, INCOME AND EXPENSES
Other assets consists mainly of an investment in a limited partnership, long-term accounts receivable, deferred charges and
loans advanced to employees, shareholders and investment advisors.
CI has an employee share purchase loan program for key employees. These loans are renewable yearly and bear interest at
prescribed rates. As at December 31, 2011, the carrying amount of employee share purchase loans is $10,450 [December 31, 2010
– $13,902 and January 1, 2010 – $15,846] and is included in other assets. These loans become due immediately upon termination
of employment or sale of the shares that are held as collateral. As at December 31, 2011, the shares held as collateral have a
market value of approximately $16,941 [December 31, 2010 – $26,300 and January 1, 2010 – $29,030].
Other assets include shareholder loans in the amount of $3,185 as at December 31, 2011 [December 31, 2010 – $10,368 and
January 1, 2010 – $11,303] issued primarily to investment advisors. These amounts are secured primarily by common shares of
CI that are held as collateral. These loans become due immediately either on termination of the advisor relationship or upon
the sale of CI shares that are held as collateral. As at December 31, 2011, the shares held as collateral have a market value of
approximately $3,190 [December 31, 2010 – $18,656 and January 1, 2010 – $17,352].
CI has a hiring and retention incentive program whereby loans are extended to current investment advisors. These loans are
initially recorded at their fair value, may bear interest at prescribed rates and are contractually forgiven on a straight-line basis
over the applicable contractual period, which varies in length from three to seven years. CI utilizes the effective interest rate
method to amortize the forgiven amount. The forgiven amount is included in selling, general and administrative expenses. As at
December 31, 2011, loans to investment advisors of $1,576 [December 31, 2010 – $3,646 and January 1, 2010 – $5,826] are included
in other assets. These loans become due on demand upon termination or breach in the terms of the agreements.
Other income consists mainly of fees received for the administration of third party mutual funds, custody fees, equity income,
foreign exchange gains (losses) and interest income. Other expenses consists mainly of distribution fees to limited partnerships,
legal settlements, amortization of debenture transaction costs and capital taxes.
63
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
6. LONG-TERM DEBT
Long-term debt consists of the following:
As at
As at
December 31, 2011 December 31, 2010
$
$
As at
January 1, 2010
$
Credit facility
Bankers’ acceptances
Prime rate loan
Debentures
$100 million, floating rate, due December 16, 2011
$250 million, 3.30%, due December 17, 2012
$200 million, 4.19%, due December 16, 2014
$300 million, 3.94% until December 13, 2015 and floating rate
until December 14, 2016
Current portion of long-term debt
26,000
7,000
33,000
—
249,514
199,258
298,583
747,355
780,355
257,763
24,025
—
24,025
99,748
249,179
199,042
298,368
846,337
870,362
102,747
129,025
—
129,025
99,640
248,960
198,899
—
547,499
676,524
8,062
Credit facility
Effective March 17, 2011, CI entered into a new revolving credit facility with two Canadian chartered banks, terminating the
credit facility that existed prior to this date. The amount that may be borrowed under this facility is $150,000. Amounts may be
borrowed under the facilities in Canadian dollars through prime rate loans, which bear interest at the greater of the bank’s prime
rate and the Canadian Deposit Offering Rate plus 1.00%, or bankers’ acceptances, which bear interest at bankers’ acceptance
rates plus 0.75%. Amounts may also be borrowed in U.S. dollars through base rate loans, which bear interest at the greater of
the bank’s reference rate for loans made by it in Canada in U.S. funds and the federal funds effective rate plus 1.00%, or LIBOR
loans which bear interest at LIBOR plus 0.75%.
CI may also borrow under this facility in the form of letters of credit, which bear a fee of 0.75% on any undrawn portion. As at
December 31, 2011, CI had accessed nil [December 31, 2010 – $360 and January 1, 2010 – $480] by way of letters of credit.
Loans are made by the bank under a 364-day revolving credit facility, the term of which may be extended annually at the bank’s
option. If the bank elects not to extend the term, 50% of the outstanding principal amount shall be repaid in equal quarterly
instalments over the following two years, with the remaining 50% of the outstanding principal balance due two years following
the first quarter-end payment.
64
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
The credit facility is fully and unconditionally guaranteed by CI Investments, a wholly owned subsidiary of CI, and may be
guaranteed by certain other subsidiaries of CI. The credit facility contains a number of financial covenants that require CI to
meet certain financial ratios and financial condition tests. CI is within its financial covenants with respect to its credit facility,
which require that the funded debt to annualized earnings before interest, taxes, depreciation and amortization ratio remain
below 2.5:1 and that CI’s assets under management not fall below $40 billion, calculated based on a rolling 30-day average. There
can be no assurance that future borrowings or equity financing will be available to CI or available on acceptable terms.
Debentures
On December 14, 2010, CI’s subsidiary, CI Investments, completed an offering pursuant to which it issued $300 million principal
amount of debentures due December 14, 2016 [the “2016 Debentures”]. The Debentures issued in 2010 were issued for gross
proceeds of $299,919 or a price of 99.97. The net proceeds of the 2016 Debentures were used to repay amounts owed on CI’s
revolving credit facility and for the acquisition of Castlerock. Interest on the 2016 Debentures is paid semi-annually in arrears
at a rate of 3.94% until December 14, 2015 and will pay a floating rate based on the three-month bankers’ acceptance rate plus
3.00% paid quarterly in arrears during the period December 15, 2015 thru to December 14, 2016. Interest expense attributable
to the 2016 Debentures was $11,885 for the year ended December 31, 2011 [period December 14 to December 31, 2010 – $486].
On December 16, 2009, CI entered into interest rate swap agreements with a Canadian chartered bank to swap the semi-annual
fixed rate payments on the $250 million debentures due December 17, 2012 [the “2012 Debentures”] and the $200 million
debentures due December 16, 2014 [the “2014 Debentures”] for floating rate payments. Based on the terms of the agreements,
CI pays a rate equivalent to the three-month Canadian bankers’ acceptance rate CDOR plus a spread of 142.4 basis points on the
2012 Debentures and a spread of 157.6 basis points on the 2014 Debentures. The rates are reset quarterly and paid semi-annually
to match the fixed payment obligations of the Debentures. The swap agreements terminate on the maturity date of the
respective Debentures unless terminated by CI at an earlier date. As at December 31, 2011, the fair value of the interest rate swap
was an unrealized gain of $9,899 [December 31, 2010 – unrealized gain of $2,467 and January 1, 2010 – unrealized loss of $3,680]
and is included in long-term debt in the consolidated statement of financial position. For the year ended December 31, 2011,
interest expense attributable to the 2012 Debentures and the 2014 Debentures was $6,799 and $5,740 respectively [2010 – $5,563
and $4,759 respectively]
On December 16, 2011, CI repaid $100 million of floating rate debentures which were issued on December 15, 2009 [the “Floating
Rate Debentures”]. Interest on the Floating Rate Debentures was paid at the average three-month bankers’ acceptance rate, of
quotes shown on the Reuters Screen CDOR plus 1.20%, in arrears commencing March 16, 2010. Interest expense attributable to
the Floating Rate Debentures was $2,385 for the year ended December 31, 2011 [2010 – $2,003].
Issuance costs and the issuance discount are amortized over the term of the Debentures using the effective interest rate
method. The amortization expense related to the discount and transaction costs for CI’s issued Debentures for the year ended
December 31, 2011 were $998 [2010 – $588] which is included in other expenses.
65
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
CI may, at its option, redeem the 2012 Debentures or the 2014 Debentures, and CI Investments may, at its option, redeem the
2016 Debentures, in whole or in part, from time to time, on not less than 30 nor more than 60 days’ prior notice to the registered
holder, at a redemption price which is equal to the greater of par or the Government of Canada yield, plus 36 basis points in
the case of the 2012 Debentures, 41 basis points in the case of the 2014 Debentures and 37.5 basis points in the case of the 2016
Debentures. CI considers this embedded prepayment option to be closely related to the Debentures and, as such, does not
account for it separately as a derivative.
In the event that both a change of control occurs and the rating of the Debentures is lowered to below investment grade,
defined as below BBB- by Standard & Poors and BBB (low) by DBRS Limited, CI will be required to make an offer to repurchase
all or, at the option of each holder, any part of each holder’s Debentures at a purchase price payable in cash equivalent to 101%
of the outstanding principal amount of the Debentures together with accrued and unpaid interest, to the date of purchase.
When determining the carrying value of the Debentures, CI has considered the likelihood of a change in control event and the
likelihood of exercising the prepayment option.
The 2012 Debentures and 2014 Debentures are fully and unconditionally guaranteed by CI Investments and may be guaranteed
by certain other subsidiaries of CI. The 2016 Debentures are fully and unconditionally guaranteed by CI.
7. PROVISION FOR OTHER LIABILITIES
CI is engaged in litigation arising in the ordinary course of business. CI has made provisions based on current information and
the probable resolution of any such proceedings and claims. The movement in amounts provided for legal litigation and related
expenses during the year ended December 31, 2011 and 2010 are as follows:
Provision for other liabilities, beginning of year
Additions
Amounts used
Unused amounts reversed
Provision for other liabilities, end of year
Current portion of provision for other liabilities
2011
$
11,428
1,417
(1,597)
(2,301)
8,947
2,417
2010
$
26,593
737
(15,310)
(592)
11,428
2,275
During 2010, CI settled claims of $15,310 related primarily to matters that arose in acquired subsidiaries. CI maintains insurance
policies that may provide coverage against certain claims. Amounts receivable under these policies are not accrued for unless
the realization of income is virtually certain. During the year ended December 31, 2011, CI received insurance proceeds of $16,004
related to the settlement of legal claims for 2011 and prior [2010 – nil]. As at December 31, 2011, included in accounts receivable
and prepaid expenses, is an amount of $40 [January 1, 2010 and December 31, 2010 – nil] to be received under insurance policies.
66
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
8. PREFERRED SHARES ISSUED BY SUBSIDIARY
As at January 1, 2010, there were 20,662,500 preferred shares issued and outstanding. On January 22, 2010, the preferred
shareholders sold their interests to CI in exchange for cash of $20,662.
9. SHARE CAPITAL
A summary of the changes to CI’s share capital is as follows:
[a] Authorized and issued
Common Shares
Authorized
An unlimited number of common shares of CI
Issued
Common shares, balance, January 1, 2010
Issuance of share capital on vesting of
deferred equity units and exercise of share options
Share repurchase
Common shares, balance, December 31, 2010
Issuance of share capital on vesting of
deferred equity units and exercise of share options
Share repurchase
Common shares, balance, December 31, 2011
Number of shares
[in thousands]
#
Stated value
$
291,821
2,008,846
455
(4,842)
287,434
863
(4,730)
283,567
8,993
(33,351)
1,984,488
12,575
(32,729)
1,964,334
During the year ended December 31, 2011, 4,729,800 shares [2010 – 4,842,451 shares] were repurchased under a normal course
issuer bid at an average cost of $20.13 per share [2010 – $20.02 per share] for total consideration of $95,194 [2010 – $96,965].
Deficit was increased by $62,465 [2010 – $63,614] for the cost of the shares repurchased in excess of their stated value.
67
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
[b] Employee incentive share option plan
CI has an employee incentive share option plan [the “Share Option Plan”], as amended and restated, for the executives and key
employees of CI.
During the year ended December 31, 2011, CI granted 1,577,170 options to employees. Compensation expense is recognized
over the three-year vesting period, assuming an estimated forfeiture rate of 0% to 1%, with an offset to contributed surplus.
The fair value of the 2011 option grants was estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
Year of Grant
# of options grants [in thousands]
Vesting terms
Dividend yield
Expected volatility (*)
Risk-free interest rate
Expected life [years]
Fair value per stock option
Exercise price
(*) Based on the historical volatility of CI’s share price
2011
370
2011
1,207
1/3 at end of each year 1/3 at end of each year
following the grant date
following the grant date
4.702% – 5.035%
4.514% – 4.833%
20.00%
20.00%
2.202% – 2.592%
2.276% – 2.637%
3.0 – 4.2
3.0 – 4.2
$2.26 – $2.54
$2.40 – $2.71
$21.55
$22.45
The March 2010 federal budget, which was enacted in December 2010, included changes designed to restrict the tax deductibility
of cash payments to employees made upon exercise of stock options. In response to these changes, the Share Option Plan was
amended effective July 1, 2010 such that CI revoked the employee’s right to demand cash settlement.
As a result of this modification, all outstanding options granted prior to 2010 that were previously accounted for as a liability
are accounted for using the fair value method on the modification date. As a result of this change, $17,050 was transferred to
contributed surplus. The remaining modification date fair value of $7,738 will be recognized as an expense over the remaining
vesting period of the respective options. The fair value of the modified options was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
Year of grant
# of options outstanding at modification date [in thousands]
Dividend yield
Expected volatility (*)
Risk-free interest rate
Expected life [years]
Fair value per stock option
Exercise price
2005
177
4.40%
20.00%
0.55% – 0.94%
2006
8
4.40%
20.00%
1.00% – 1.29%
0.6 – 1.3
$0.05 – $0.21
$18.15 – $18.94 $23.06 – $23.09
$0.10 – $0.47
0 – 0.5
2009
2008
3,819
792
4.7% – 5.1%
4.70%
20.00%
20.00%
1.71% 1.75% – 1.85%
2.4 – 2.6
2.3
$5.23
$1.53 – $6.20
$12.57 $11.60 – $18.20
(*) Based on the historical volatility of CI’s share price
68
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
During the year ended December 31, 2010, CI granted 2,147,538 options to employees. The fair value method of accounting is
used for the valuation of the 2010 share option grants. Compensation expense is recognized over the three-year vesting period,
assuming a 0.75% forfeiture rate, with an offset to contributed surplus. When exercised, amounts originally recorded against
contributed surplus as well as any consideration paid by the option holder is credited to share capital. The fair value of the 2010
option grants was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Year of grant
# of options grants [in thousands]
Vesting terms
Dividend yield
Expected volatility (*)
Risk-free interest rate
Expected life [years]
Fair value per stock option
Exercise price
(*) Based on the historical volatility of CI’s share price
2010
1,823
1/3 at end of each
year following
the grant date
4.20%
20.00%
2.22%
3.5
$2.44
$21.27
2010
130
100% at the
end of 3 years
4.20%
20.00%
2.38%
3.8
$2.39
$21.27
2010
194
1/3 at end of each
year following
the grant date
4.70%
20.00%
2.62%
3.5
$2.22
$19.48
The maximum number of shares that may be issued under the Share Option Plan is 14,000,000 shares. As at December 31, 2011,
there are 6,018,092 shares [2010 – 6,270,204 shares] reserved for issuance on the exercise of share options. These options vest
over periods of up to five years, may be exercised at prices ranging from $11.60 to $22.45 per share and expire at dates up to 2016.
A summary of the changes in the Share Option Plan is as follows:
Options outstanding, January 1, 2010
Options exercisable, January 1, 2010
Options granted
Options exercised (*)
Options cancelled
Options outstanding, December 31, 2010
Options exercisable, December 31, 2010
Options granted
Options exercised (*)
Options cancelled
Options outstanding, December 31, 2011
Options exercisable, December 31, 2011
(*) Weighted-average share price of exercises was $21.68 during the year 2011 [2010 – $21.18]
Number of options
[in thousands]
#
6,394
1,067
2,148
(2,198)
(74)
6,270
727
1,577
(1,665)
(164)
6,018
1,585
Weighted average
exercise price
$
13.11
16.52
21.11
14.06
14.65
15.50
13.52
21.76
12.90
18.02
17.80
15.96
69
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
The equity-based compensation expense under the Share Option Plan for the year ended December 31, 2011 of $7,000
[2010- $1,914] has been included in selling, general and administrative expenses.
Options outstanding and exercisable as at December 31, 2011 are as follows:
Exercise price
$
11.60
12.57
15.59
18.10
18.20
19.48
21.27
21.55
22.45
11.60 to 22.45
Number of
options outstanding
[in thousands]
#
1,725
345
202
20
144
189
1,855
1,168
370
6,018
Weighted average
remaining contractual life
[years]
2.2
1.9
2.3
2.5
2.4
3.4
3.2
4.1
4.2
3.0
Number of
options exercisable
[in thousands]
#
484
345
87
13
30
60
566
—
—
1,585
[c] Basic and diluted earnings per share
The following table presents the calculation of basic and diluted earnings per common share for the years ended December 31:
[in thousands]
Numerator:
Net income – basic and diluted
Denominator:
Weighted average number of common shares - basic
Weighted average effect of dilutive stock options and deferred equity units (*)
Weighted average number of common shares - diluted
2011
2010
$376,899
$328,568
286,998
1,202
288,200
289,069
1,283
290,352
Net earnings per common share
Basic
Diluted
(*) The determination of the weighted average number of common shares – diluted excludes 3,393,000 shares related to stock options that
$1.31
$1.31
$1.14
$1.13
were anti-dilutive for the year ended December 31, 2011 [and 2,137,000 shares for the year ended December 31, 2010].
70
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
[d] Maximum share dilution
The following table presents the maximum number of shares that would be outstanding if all the outstanding options as at
January 31, 2012 were exercised and outstanding:
[in thousands]
Shares outstanding at January 31, 2012
Options to purchase shares
10. DIVIDENDS
The following dividends were paid by CI during the year ended December 31, 2011:
Record date
December 31, 2010
January 31, 2011
February 28, 2011
March 31, 2011
April 30, 2011
May 31, 2011
June 30, 2011
July 31, 2011
August 31, 2011
September 30, 2011
October 31, 2011
November 30, 2011
Paid during the year ended December 31, 2011
Payment date
January 14, 2011
February 15, 2011
March 15, 2011
April 15, 2011
May 13, 2011
June 15, 2011
July 15, 2011
August 15, 2011
September 15, 2011
October 14, 2011
November 15,2011
December 15, 2011
Cash dividend
per share
$
0.07
0.07
0.07
0.075
0.075
0.075
0.075
0.075
0.075
0.075
0.075
0.075
The following dividends were declared but not paid by CI during the year ended December 31, 2011:
Record date
December 31, 2011
January 31, 2012
Declared and accrued as at December 31, 2011
Payment date
January 13, 2012
February 15, 2012
Cash dividend
per share
$
0.075
0.075
283,633
5,349
288,982
Total dividend
amount
$
20,146
20,179
20,183
21,615
21,620
21,632
21,634
21,501
21,569
21,500
21,324
21,298
254,201
Total dividend
amount
$
21,263
21,263
42,526
71
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
The following dividends were paid by CI during the year ended December 31, 2010:
Record date
December 31, 2009
January 31, 2010
March 2, 2010
March 31, 2010
April 30, 2010
May 31, 2010
June 30, 2010
July 31, 2010
August 31, 2010
September 30, 2010
October 31, 2010
November 30, 2010
Paid during the year ended December 31, 2010
Payment date
January 15, 2010
February 15, 2010
March 15, 2010
April 15, 2010
May 14, 2010
June 15, 2010
July 15, 2010
August 13, 2010
September 15, 2010
October 15, 2010
November 15, 2010
December 15, 2010
Cash dividend
per share
$
0.06
0.06
0.06
0.06
0.06
0.065
0.065
0.065
0.065
0.065
0.065
0.07
The following dividends were declared but not paid by CI during the year ended December 31, 2010:
Record date
December 31, 2010
January 31, 2011
February 28, 2011
Declared and accrued as at December 31, 2010
Payment date
January 14, 2011
February 15, 2011
March 15, 2011
Cash dividend
per share
$
0.07
0.07
0.07
Total dividend
amount
$
17,548
17,530
17,480
17,503
17,460
18,759
18,771
18,742
18,683
18,719
18,719
20,115
220,029
Total dividend
amount
$
20,107
20,107
20,106
60,320
72
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
11. INCOME TAXES
[a] The following are the major components of income tax expense for the years ended December 31:
Income Statement
Current income taxes
Based on taxable income of the current year
Adjustments in respect of prior years
Deferred income taxes
Origination and reversal of temporary differences
Other
Income tax expense recognized in net income
Statement of Other Comprehensive Income (Loss)
Deferred income taxes
Unrealized gain (loss) on available-for-sale financial assets
Reversal of losses to net income on available-for-sale financial assets
Income tax expense (recovery) recognized in other comprehensive income (loss)
2011
$
132,387
(967)
131,420
12,203
548
12,751
144,171
(449)
125
(324)
[b] The following is a reconciliation of CI’s statutory and effective income tax rates for the years ended December 31:
Combined Canadian federal and provincial income tax rate
Increase (decrease) in income taxes resulting from
Impact of rate changes on deferred income taxes
Recovery of prior years’ provisions for settled tax items
Other, net
2011
%
28.2
(1.0)
0.4
0.1
27.7
2010
$
140,582
(1,049)
139,533
6,462
—
6,462
145,995
58
17
75
2010
%
30.9
(1.2)
0.2
1.3
30.8
73
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
[c] Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of CI’s deferred income tax liabilities and assets are as follows at December 31, 2011:
As at
January 1, 2011
$
Recognized in
net income
$
Recognized
in other
comprehensive
income (loss)
$
As at
December 31, 2011
$
264,831
132,874
397,705
6,576
32,652
2,609
7,093
48,930
348,775
(3,099)
(10,020)
(13,119)
(472)
(24,512)
(435)
(451)
(25,870)
12,751
—
—
—
—
—
—
324
324
(324)
261,732
122,854
384,586
6,104
8,140
2,174
6,966
23,384
361,202
Deferred income tax liabilities
Fund contracts
Deferred sales commissions
Total deferred income tax liabilities
Deferred income tax assets
Equity-based compensation
Non-capital loss carryforwards
Provision for other liabilities
Other
Total deferred income tax assets
Net deferred income tax liabilities
74
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Significant components of CI’s deferred income tax liabilities and assets are as follows at December 31, 2010:
As at
January 1, 2010
$
Recognized in
net income
$
Recognized
in other
comprehensive
income (loss)
$
Business
combination
$
As at
December 31, 2010
$
Deferred income tax liabilities
Fund contracts
Deferred sales commissions
Total deferred income tax liabilities
Deferred income tax assets
Equity-based compensation
Non-capital loss carryforwards
Provision for other liabilities
Other
Total deferred income tax assets
Net deferred income tax liabilities
255,662
142,817
398,479
14,444
17,481
3,073
8,880
43,878
354,601
1,169
(9,943)
(8,774)
(7,868)
(5,192)
(464)
(1,712)
(15,236)
6,462
—
—
—
—
—
—
(75)
(75)
75
8,000
—
8,000
20,363
—
—
20,363
(12,363)
264,831
132,874
397,705
6,576
32,652
2,609
7,093
48,930
348,775
The ultimate realization of deferred income tax assets is dependent upon future taxable income during the periods in which
those temporary differences become deductible. Management considers the expected reversal of deferred income tax
liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred income tax assets are deductible, management
believes it is probable that CI will realize the benefits of these deductible differences.
12. FINANCIAL INSTRUMENTS
Financial assets are classified into three categories, FVPL, loans and receivables and AFS. As at December 31, 2011, FVPL assets include
cash and cash equivalents carried at fair value and classified in the Level 1 fair value hierarchy of $122,550 [December 31, 2010 –
$216,537 and January 1, 2010 – $77,120]. The carrying amount of loans and receivables include client and trust funds on deposit
of $124,978 [December 31, 2010 – $108,726 and January 1, 2010 – $109,004], accounts receivable of $63,300 [December 31, 2010
– $82,121 and January 1, 2010 – $85,323] and other assets of $27,904 [December 31, 2010 – 41,568 and January 1, 2010 – $47,760].
AFS assets as at December 31, 2011 include CI’s marketable securities of $42,099 carried at fair value of which $25,798 have been
classified in the Level 1 fair value hierarchy and $16,301 in the Level 2 fair value hierarchy [December 31, 2010 – $16,773 and $16,527
in the Level 1 fair value hierarchy and Level 2 fair value hierarchy, respectively and January 1, 2010 – $1,109 and $5,351 in the Level 1
fair value hierarchy and Level 2 fair value hierarchy, respectively].
75
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Financial liabilities are classified into two categories, FVPL and other liabilities. Included in accounts payable and accrued
liabilities as at December 31, 2011 is $460 classified in the Level 1 fair value hierarchy [January 1, 2010 and December 31, 2010 – nil].
Other liabilities include accounts payable and accrued liabilities of $120,337 [December 31, 2010 – $131,917 and January 1, 2010
– $111,046], dividends payable of $42,526 [December 31, 2010 – $60,320 and January 1, 2010 – $35,096] and long-term debt of
$780,355 [December 31, 2010 – $870,362 and January 1, 2010 – $676,524].
For all other financial assets and financial liabilities, the carrying value approximates fair value due to the short-term nature of
these instruments.
13. RISK MANAGEMENT
Risk management is an integrated process with independent oversight. CI’s management and compliance group has established
a control environment that ensures risks are reviewed regularly and that risk controls throughout CI are operating in accordance
with regulatory requirements. CI’s senior management takes an active role in the risk management process by reviewing policies
and procedures within each business segment and assessing and mitigating the various financial risks that could impact CI’s
financial position and results of operations.
CI’s financial instruments bear the following financial risks:
[a] Market risk
Market risk is the risk of a financial loss resulting from adverse changes in underlying market factors, such as interest rates,
foreign exchange rates, and equity prices. Management of CI’s market risk is the responsibility of the Chief Financial Officer.
The corporate finance group reviews the exposure to interest rate risk, foreign exchange risk and equity risk by identifying,
monitoring and reporting potential market risks to the Chief Financial Officer. A description of each component of market risk
is described below:
•
•
•
Interest rate risk is the risk of gain or loss due to the volatility of interest rates.
Foreign exchange risk is the risk of gain or loss due to the volatility of foreign exchange rates.
Equity risk is the risk of gain or loss due to the changes in the prices and the volatility of individual equity instruments and
equity indexes.
CI’s financial performance is indirectly exposed to market risk. Any decline in financial markets or lack of sustained growth in
such markets may result in a corresponding decline in the performance and may adversely affect CI’s assets under management
and financial results.
[i] Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments.
Fluctuations in interest rates have a direct impact on the interest payments CI makes on its long-term debt.
76
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Debt outstanding on CI’s credit facility of $33,000 [December 31, 2010 – $24,025 and January 1, 2010 – $129,025] is borrowed
at a floating interest rate. The existing credit facility provides CI with the option of fixing interest rates, should CI change
its view on its exposure to rising interest rates. As at December 31, 2011, CI also has $750,000 fixed interest rate Debentures
[January 1 and December 31, 2010 – $850,000 of which $100,000 is based on a floating interest rate and the remaining
$750,000 is based on fixed interest rates]. In 2009 CI entered into interest rate swap agreements with a Canadian chartered
bank to convert the fixed interest rates on $250,000 of the 2012 Debentures and $200,000 of the 2014 Debentures to
floating interest rates.
Based on the amount borrowed under the credit facility and Debentures outstanding as at December 31, 2011, each 0.50%
increase or decrease in interest rates would result in annual interest expense increasing or decreasing by $2.4 million
[December 31, 2010 – $2.8 million and January 1, 2010 – $3.4 million], respectively.
[ii] Foreign exchange risk
As at December 31, 2011, net financial assets of $7 million [December 31, 2010 – $5 million and January 1, 2010 – $4 million]
were denominated in U.S. currency. A 10% increase or decrease in U.S. exchange rates would result in a foreign exchange
gain or loss of $0.7 million [December 31, 2010 – $0.5 million and January 1, 2010 – $0.4 million], respectively. CI may enter
into forward contracts to manage its foreign exchange exposure.
[iii] Equity risk
CI’s marketable securities as at December 31, 2011 of $42,099 [December 31, 2010 – $33,300 and January 1, 2010 – $6,460] are
exposed to equity risk. Based on the carrying amount of these assets, an increase or decrease in equity market prices by 10%
would result in estimated gains or losses of $4.2 million [December 31, 2010 – $3.3 million and January 1, 2010 – $0.6 million],
respectively.
[b] Liquidity risk
Liquidity risk arises from the possibility that CI will encounter difficulties in meeting its financial obligations as they fall due.
CI manages its liquidity risk through a combination of cash received from operations as well as borrowings under its revolving
credit facility. Liquidity is monitored through a daily cash management process that includes the projection of cash flows to
ensure CI meets its funding obligations.
CI’s liabilities have contractual maturities, excluding interest payments, as follows:
Total
$
Accounts payable and accrued liabilities 120,797
42,526
Dividends payable
123,745
Client and trust funds payable
783,000
Long-term debt
1,070,068
Total
2012
$
120,797
42,526
123,745
258,250
545,318
2013
$
—
—
—
8,250
8,250
2014
$
—
—
—
216,500
216,500
2015
$
—
—
—
—
—
2016
$
—
—
—
300,000
300,000
77
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
[c] Credit risk
Credit risk arises from the potential that investors, clients or counterparties fail to satisfy their obligations.
As at December 31, 2011, financial assets of $216,181 [December 31, 2010 – $232,415 and January 1, 2010 – $242,087], represented by
client and trust funds on deposit of $124,978 [December 31, 2010 – $108,726 and January 1, 2010 – $109,004], accounts receivable
of $63,300 [December 31, 2010 – $82,121 and January 1, 2010 – $85,323] and other assets of $27,904 [December 31, 2010 – $41,568 and
January 1, 2010 – $47,760], were exposed to credit risk. CI does not have a significant exposure to any individual counterparty.
Credit risk is mitigated by regularly monitoring the credit performance of each individual counterparty and holding collateral,
where appropriate.
Client and trust funds on deposit consist mainly of cash deposits or unsettled trade receivables. CI may also extend amounts to
clients on a margin basis for security purchases. Collateral is provided in margin accounts by each client in the form of securities
purchased and/or other securities and cash balances. The credit extended is limited by regulatory requirements and by CI’s
internal credit policy. Credit risk is managed by dealing with counterparties CI believes to be creditworthy and by actively
monitoring credit and margin exposure and the financial health of the counterparties.
Credit risk associated with accounts receivable is limited as the balance primarily consists of trade receivables that are
outstanding for less than 90 days.
Other assets primarily represent loans granted under CI’s employee share purchase plan and loans extended to investment
advisors under CI’s hiring and incentive program. Employee loans are collateralized by CI shares and become due immediately
upon termination of the employee or upon the sale of the shares held as collateral. Commissions may be used to offset loan
amounts made to investment advisors in the event of default. Credit risk associated with other assets is limited given the nature
of the relationship with the counterparties.
14. CAPITAL MANAGEMENT
CI’s objectives in managing capital are to maintain a capital structure that allows CI to meet its growth strategies and build
long-term shareholder value, while satisfying its financial obligations and meeting its long-term debt covenants.
CI’s capital is comprised of shareholders’ equity and long-term debt [including current portion of long-term debt] and preferred
shares issued by subsidiary. CI’s senior management is responsible for the management of capital. CI’s Board of Directors is
responsible for reviewing and approving CI’s capital policy and management.
CI and its subsidiaries are subject to minimum regulatory capital requirements whereby sufficient cash and other liquid assets
must be on hand to maintain capital requirements rather than using them in connection with its business. Failure to maintain
required regulatory capital by CI may result in fines, suspension or revocation of registration by the relevant securities regulator.
As at December 31, 2011 and 2010 and as at January 1, 2010, CI met its capital requirements.
78
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
CI’s capital consists of the following:
Shareholders’ equity
Long-term debt
Preferred shares issued by subsidiary
Total capital
December 31, 2011 December 31, 2010
$
$
1,620,185
1,566,074
780,355
870,362
—
—
2,400,540
2,436,436
January 1, 2010
$
1,559,916
676,524
20,662
2,257,102
15. COMMITMENTS AND CONTINGENCIES
Lease commitments
CI has entered into leases relating to the rental of office premises and computer equipment. CI has the option to renew certain
leases. The approximate future minimum annual rental payments under such leases are as follows:
2012
2013
2014
2015
2016
2017 and thereafter
$
11,264
9,621
8,913
8,338
8,273
64,259
Shareholder advisor agreements
CI is a party to shareholder advisor agreements, which provide that the shareholder advisor has the option to require CI to
purchase a practice that cannot otherwise be transitioned to a qualified buyer. The purchase price would be in accordance with
a pre-determined formula contained in the shareholder advisor agreements.
Indemnities
CI has agreed to indemnify its directors and officers, and certain of its employees in accordance with its by-laws. CI maintains
insurance policies that may provide coverage against certain claims.
Litigation
CI is engaged in litigation arising in the ordinary course of business. CI has made provisions for the probable resolution of any
such proceedings and claims [Note 7]. Outside of these provisions, litigation is not expected to have a material effect on the
financial position or results of operations of CI.
79
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
16. RELATED PARTY TRANSACTIONS
The Bank of Nova Scotia [“Scotiabank”] owns approximately 36.5% of the common shares of CI, and is therefore considered a
related party. CI has entered into transactions related to the advisory and distribution of its mutual funds with Scotiabank and
its related parties. These transactions are in the normal course of operations and are recorded at the agreed upon exchange
amounts. During the year ended December 31, 2011, CI incurred charges for deferred sales commissions of $4,896 and trailer fees
of $19,978 [2010 – $2,514 and $6,960, respectively] which were paid or payable to Scotiabank and its related parties. The balance
payable to Scotiabank and its related parties as at December 31, 2011 of $1,681 [December 31, 2010 – $640 and January 1, 2010 –
$602] is included in accounts payable and accrued liabilities.
Scotiabank was the provider of and administrative agent for CI’s revolving credit facility during the period January 1, 2011 to
March 17, 2011 and for the year ended December 31, 2010. As at December 31, 2010, CI had drawn long-term debt of $24,025 in
the form of bankers’ acceptances [January 1, 2010 – $129,025]. During the period January 1, 2011 to March 17, 2011, interest and
stamping fees of $389 [2010 – $2,782] were recorded as interest expense.
During, 2010, Scotiabank acted as an agent in offering CI’s Debentures for sale and received $263. This amount has been netted
against long-term debt and will be amortized using the effective interest rate method over the term of the Debentures. Also,
on December 16, 2009, CI entered into an interest rate swap agreement with Scotiabank as described in Note 6.
17. SEGMENTED INFORMATION
CI has two reportable segments: Asset Management and Asset Administration. These segments reflect CI’s internal financial
reporting and performance measurement.
The Asset Management segment includes the operating results and financial position of CI Investments, Castlerock which
amalgamated with CI Investments on June 30, 2011 and CI Private Counsel LP which derive their revenues principally from the
fees earned on the management of several families of mutual and segregated funds.
The Asset Administration segment includes the operating results and financial position of AWM and its subsidiaries, including
Assante Capital Management Ltd. and Assante Financial Management Ltd. These companies derive their revenues principally
from commissions and fees earned on the sale of mutual funds and other financial products, and ongoing service to clients.
80
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Segmented information as at and for the year ended December 31, 2011 is as follows:
Management fees
Administration fees
Other revenue
Total revenue
Selling, general and administrative
Trailer fees
Investment dealer fees
Amortization of deferred sales
commissions and intangibles
Other expenses
Total expenses
Income before income taxes
and non-segmented items
Interest expense
Provision for income taxes
Net income for the year
Identifiable assets
Indefinite life intangibles
Goodwill
Fund contracts
Total assets
Asset
management
$
1,302,773
—
45,558
1,348,331
Asset
administration
$
—
226,179
15,690
241,869
Intersegment
eliminations
$
—
(93,907)
—
(93,907)
235,938
394,059
—
169,665
4,178
803,840
54,838
—
179,529
1,504
2,749
238,620
—
(14,605)
(75,776)
(4,352)
—
(94,733)
544,491
3,249
826
Total
$
1,302,773
132,272
61,248
1,496,293
290,776
379,454
103,753
166,817
6,927
947,727
548,566
(27,496)
(144,171)
376,899
731,810
246,536
(12,372)
965,974
927,344
999,082
2,658,236
192,582
—
439,118
—
—
(12,372)
1,119,926
999,082
3,084,982
81
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Segmented information as at and for the year ended December 31, 2010 is as follows:
Management fees
Administration fees
Other revenue
Total revenue
Selling, general and administrative
Trailer fees
Investment dealer fees
Amortization of deferred sales
commissions and intangibles
Other expenses
Total expenses
Income before income taxes
and non-segmented items
Interest expense
Provision for income taxes
Net income for the year
Identifiable assets
Indefinite life intangibles
Goodwill
Fund contracts
Total assets
Asset
management
$
1,192,991
—
44,481
1,237,472
Asset
administration
$
—
219,255
15,414
234,669
Intersegment
eliminations
$
—
(92,394)
—
(92,394)
210,492
360,325
—
172,608
5,358
748,783
53,148
—
172,505
1,504
3,537
230,694
—
(14,092)
(74,261)
(3,951)
—
(92,304)
488,689
3,975
(90)
Total
$
1,192,991
126,861
59,895
1,379,747
263,640
346,233
98,244
170,161
8,895
887,173
492,574
(18,011)
(145,995)
328,568
902,782
199,186
(14,542)
1,087,426
927,344
999,082
2,829,208
192,582
—
391,768
—
—
(14,542)
1,119,926
999,082
3,206,434
18. COMPENSATION OF KEY MANAGEMENT
The remuneration of directors and other key executive personnel of CI during the year ended December 31, is as follows:
Salaries
Equity-based compensation
82
2011
$
9,230
1,365
10,595
2010
$
9,050
1,362
10,412
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
19. TRANSITION TO IFRS
CI adopted IFRS effective January 1, 2011 with a transition date of January 1, 2010. Prior to the adoption of IFRS, CI prepared its
financial statements in accordance with Canadian Generally Accepted Accounting Principles [“Canadian GAAP”]. CI’s financial
statements for the year ending December 31, 2011 is the first annual financial statements that comply with IFRS. CI has prepared
its opening statement of financial position and financial statements for 2010 and 2011 by applying existing IFRS with an effective
date of December 31, 2011 or prior.
[a] Elected exemptions from full retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1, First-time Adoption of International Financial
Reporting Standards [“IFRS 1”], CI has applied certain of the optional exemptions from full retrospective application of IFRS. The
optional exemptions applied are described as follows:
[i] Business combinations
CI has applied the business combinations exemption in IFRS 1 to not apply IFRS 3, Business Combinations, retrospectively to past
business combinations. Accordingly, CI has not restated business combinations that took place prior to the transition date.
[ii] Share-based payment transactions
CI has elected to apply IFRS 2, Share-based payments [“IFRS 2”] to equity instruments granted after November 7, 2002 that
had not vested by the transition date. CI applied IFRS 2 for all liabilities arising from share-based payment transactions that
existed at the transition date.
[b] Mandatory exemptions from full retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1, CI has applied certain mandatory exemptions
from full retrospective application of IFRS. The mandatory exemptions applied from full retrospective application of IFRS are
described as follows:
[i] Hedge accounting
Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge
accounting criteria in IAS 39, Financial Instruments: Recognition and Measurement, at that date. CI’s swap arrangements
satisfied the hedge accounting criteria as of the transition date.
[ii] Estimates
Hindsight was not used to create or revise estimates and accordingly, the estimates made by CI under Canadian GAAP are
consistent with their application under IFRS.
83
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
[c] Reconciliations of Canadian GAAP to IFRS
IFRS employs a conceptual framework that is similar to Canadian GAAP. However, significant differences exist in certain matters
of recognition, measurement and disclosure. IFRS 1 requires a reconciliation of equity, comprehensive income and cash flows for
prior periods. These reconciliations along with the explanation of the differences are presented as follows:
Reconciliation of equity as reported under Canadian GAAP to IFRS:
Shareholders’ equity under Canadian GAAP
Differences increasing (decreasing) reported shareholders’ equity:
[i] Deferred sales commissions
[ii] Equity-based compensation
[iii] Provision for other liabilities
[iv] Business combinations
[v] Income taxes
Shareholders’ equity under IFRS
Reconciliation of net income as reported under Canadian GAAP to IFRS:
Net income under Canadian GAAP
Differences increasing (decreasing) reported net income:
[i] Deferred sales commissions
[ii] Equity-based compensation
[iii] Provision for other liabilities
[iv] Business combinations
[v] Income taxes
Net income under IFRS
As at
December 31, 2010
$
As at
January 1, 2010
$
1,613,640
1,610,935
(54,675)
(2,346)
(9,954)
6,733
12,676
1,566,074
(59,156)
(3,886)
(12,098)
14,461
9,660
1,559,916
Year ended
December 31, 2010
$
330,815
4,481
1,540
2,144
(7,728)
(2,684)
(2,247)
328,568
84
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Reconciliation of comprehensive income as reported under Canadian GAAP to IFRS:
Comprehensive income under Canadian GAAP
Differences in net income
Comprehensive income under IFRS
Reconciliation of cash flow activities as reported under Canadian GAAP to IFRS:
Year ended
December 31, 2010
$
331,229
(2,247)
328,982
For the year ended December 31, 2010
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
[i] Deferred sales commissions
As reported
under Canadian
GAAP
$
576,685
(313,910)
(123,358)
Ref
[ii]
[ii]
IFRS
adjustments
$
(68)
68
—
As reported
under IFRS
$
576,617
(313,842)
(123,358)
Under both IFRS and Canadian GAAP, deferred sales commissions have been amortized on a straight-line basis over the
expected investment period of 36 to 84 months. Under IFRS, the unamortized deferred sales commissions related to
redemptions occurring prior to the end of the expected investment period are immediately charged to net income and
included in the amortization of deferred sales commissions. Under Canadian GAAP, the amortization of deferred sales
commissions was not adjusted for redemptions. Accordingly, the transition to IFRS has resulted in a general acceleration to
the amortization of deferred sales commissions.
[ii] Equity-based compensation
Share option plan
Prior to July 1, 2010, CI’s share option plan included a cash settlement option and the related awards were reflected on the
statement of financial position as a liability. Under Canadian GAAP, the liability was measured based upon the intrinsic value
of the outstanding share options with changes in intrinsic value recorded through earnings. Under IFRS, the liability has been
measured based upon the fair value of the outstanding share options with changes in fair value recorded through earnings.
Deferred equity plans
Awards granted under the deferred equity plans vest in instalments. Such vesting conditions are often referred to as
graded-vesting. IFRS requires that each instalment be treated as a separate award for purposes of calculating fair value and
amortizing the expense into income. Under Canadian GAAP, CI treated the entire award as a single pool and determined
fair value using the average life of the instrument, recognizing compensation expense on a straight-line basis.
85
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
Additionally, under IFRS, a non-compete condition is considered to be a non-vesting condition and awards of equity having
only non-vesting conditions must be expensed immediately at grant date with no reversal of the expense for forfeitures.
Under Canadian GAAP, CI recognized compensation expense straight-line over the vesting period of 36 months.
These differences have resulted in a general acceleration of the recognition of compensation expense upon transition to IFRS.
[iii] Provision for other liabilities
Under IFRS, a provision is recognized when it is probable (50% certain) that an outflow of resources will be required to settle
the obligation, whereas, under Canadian GAAP a provision was recognized when it was more likely than not (75% certain)
that an outflow of resources would be required to settle the obligation. CI has several litigation related matters where the
probability of loss was assessed at between 50 and 70 percent as at the transition date, therefore some additional amounts
have been recognized upon adoption of IFRS. The provision for other liabilities accrual has also increased due to certain
measurement differences between Canadian GAAP and IFRS.
[iv] Income taxes
Deferred income taxes are impacted by the change in temporary differences resulting from the effect of the IFRS reconciling
items described in [i] to [iii] above.
Under IFRS, when an entity acquires another entity whose primary asset is a loss carry-forward, IAS 12, Income taxes, requires
a deferred income tax asset be recognized to the extent probable that future taxable income will be available against which
the unused tax losses and tax credits can be utilized. Canadian GAAP required that a deferred income tax asset be set up
with a corresponding deferred credit for the excess of the future tax asset over its cost. CI reversed a deferred credit related
to acquired tax losses to deficit on transition to IFRS.
[v] Presentation reclassifications
The presentation in accordance with IFRS differs from the presentation in accordance with Canadian GAAP as follows:
Deferred income taxes
Under IFRS, deferred income tax assets and liabilities must be classified as non-current whereas under Canadian GAAP,
deferred income tax assets and liabilities were classified as current or non-current as appropriate.
Provision for other liabilities
Under IFRS, provisions are presented as a separate line item under current and non-current liabilities. Under Canadian
GAAP, CI presented provisions under accounts payable and accrued liabilities.
Other intangibles
Under IFRS, acquired software and trademarks are presented as an intangible asset, whereas under Canadian GAAP, software
and trademarks were included as part of capital assets.
86
Notes to Consolidated Financial Statements
[in thousands of dollars, except per share amounts]
December 31, 2011 and 2010
20. FUTURE ACCOUNTING CHANGES
CI is currently evaluating the impact the following new standards issued or amended by the IASB will have on its financial
statements. CI has not yet determined whether to early adopt any of the new or amended standards.
International Accounting Standard
IAS 1 – Presentation of Financial Statements
IFRS 10 – Consolidated Financial Statements
IFRS 12 – Disclosures of Interests in Other Entities
IFRS 13 – Fair Value Measurement
IFRS 9 – Financial Instruments
Issue Date /Amendment Date
June 16, 2011
May 12, 2011
May 12, 2011
May 12, 2011
November 12, 2009
Effective Date
July 1, 2012
January 1, 2013
January 1, 2013
January 1, 2013
January 1, 2015
IAS 1, Presentation of Financial Statements, was amended to require entities to group together items within other comprehensive
income (loss) that may be reclassified to net income (loss).
IFRS 10, Consolidated Financial Statements [“IFRS 10”], replaces the consolidation requirements in SIC-12, Consolidation – Special
Purpose Entities and IAS 27, Consolidated and Separate Financial Statements. IFRS 10 builds on existing principles by identifying
the concept of control as the determining factor in whether an entity should be included within the consolidated financial
statements of the parent company.
IFRS 12, Disclosures of Interests in Other Entities, establishes disclosure requirements for interests in other entities, including
subsidiaries, joint arrangements, associates and unconsolidated structured entities. The standard carries forward existing
disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated
with, an entity’s interest in other entities.
IFRS 13, Fair Value Measurements, establishes the definition of fair value and sets out a single IFRS framework for measuring fair
value and the required disclosures.
IFRS 9, Financial Instruments [“IFRS 9”], will replace IAS 39, Financial Instruments: Recognition and Measurement [“IAS 39”]. IFRS 9
uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple
rules presently in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of
its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single
impairment method to be used, replacing the multiple impairment methods in IAS 39.
This Report contains forward-looking statements with respect to CI, including its business operations and strategy and financial
performance and condition. Although management believes that the expectations reflected in such forward-looking statements
are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things,
general economic and market factors, including interest rates, business competition, changes in government regulations or in
tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time.
87
Corporate Directory
CI Financial
DIRECTORS
Ronald D. Besse
President,
Besseco Holdings Inc.;
Lead Director
Toronto, Ontario
G. Raymond Chang
President,
G. Raymond Chang Ltd.;
Director
Toronto, Ontario
Paul W. Derksen
Corporate Director;
Director
Clarksburg, Ontario
William T. Holland
Chairman;
Director
Toronto, Ontario
Clay Horner
Partner,
Osler, Hoskin & Harcourt
LLP;
Director
Toronto, Ontario
Stephen A. MacPhail
President and
Chief Executive Officer,
CI Financial;
Director
Toronto, Ontario
Stephen T. Moore
Managing Director,
Newhaven Asset
Management Inc.;
Director
Toronto, Ontario
Tom P. Muir
Co-Managing Director,
Muir Detlefsen &
Associates Limited;
Director
Toronto, Ontario
A. Winn Oughtred
Corporate Director;
Director
Toronto, Ontario
David J. Riddle
President,
C-Max Capital Inc.;
Director
Vancouver, B.C.
OFFICERS
Stephen A. MacPhail
President and
Chief Executive Officer
Peter W. Anderson
Executive Vice-President
and Chief Investment
Officer
Sheila A. Murray
Executive Vice-President,
General Counsel and
Secretary
Douglas J. Jamieson
Senior Vice-President and
Chief Financial Officer
David C. Pauli
Executive Vice-President
and Chief Operating
Officer
CI Investments
ExECUTIVES
Derek J. Green
President
Douglas J. Jamieson
Senior Vice-President and
Chief Financial Officer
David C. Pauli
Executive Vice-President
and
Chief Operating Officer
Chris von Boetticher
Vice-President,
General Counsel and
Secretary
Assante Wealth Management
ExECUTIVES
Steven J. Donald
President
James E. Ross
Senior Vice-President,
Wealth & Estate Planning
Robert J. Dorrell
Senior Vice-President,
Distribution Services
88
Corporate Information
Head Office
2 Queen Street East
Twentieth Floor
Toronto, Ontario M5C 3G7
Telephone: 416-364-1145
Toll Free: 1 800 268-9374
www.cifinancial.com
Administration Office
15 York Street
Second Floor
Toronto, Ontario M5J 0A3
Investor Relations
Contact: Douglas J. Jamieson, Senior Vice-President and
Chief Financial Officer
Telephone: 416-364-1145
Toll Free: 1 800 268-9374
E-mail: investorrelations@ci.com
Trading Symbol
CI Financial trades on the Toronto Stock Exchange under the
symbol “CIx”.
Auditors
Ernst & Young LLP
Chartered Accountants
Toronto-Dominion Centre
P.O. Box 251
Toronto, Ontario M5K 1J7
Registrar and Transfer Agent
Computershare Investor Services Inc.
9th Floor, 100 University Avenue
Toronto, Ontario M5J 2Y1
Telephone: 1 800 564-6253
E-mail: caregistry@computershare.com
Normal Course Issuer Bid
Effective May 29, 2011, the Toronto Stock Exchange accepted CI’s
notice of intention to commence a normal course issuer bid (the
“Notice”) through the facilities of the Toronto Stock Exchange.
Under the bid, which was amended on November 24, 2011, CI may
purchase up to 10,000,000 Shares at the prevailing market price.
Purchases under the bid will terminate no later than May 28, 2012.
As of March 31, 2012, CI has acquired an aggregate of 5,030,700
Shares under the normal course issuer bid at an average price of
$20.21 per Share. Shareholders may obtain a copy of the Notice,
without charge, by contacting the Corporate Secretary of CI.
The Corporation intends to renew its Normal Course Issuer Bid
effective May 29, 2012, subject to receipt of approval from the
Toronto Stock Exchange.
Shareholder rights plan
The Corporation entered into an agreement (the “Rights Plan
Agreement”) dated as of January 1, 2009 with Computershare
Investor Services Inc., as rights agent, in connection with the
adoption of a shareholder rights plan (the “Rights Plan”). The
Rights Plan Agreement supersedes and replaces the rights
plan agreement dated as of October 28, 2008 and was ratified
and approved at a meeting of voting unitholders of the Fund
held December 19, 2008. The Rights Plan required that the
Independent Shareholders (as that term is defined in the Rights
Plan) of the Corporation be asked to ratify the continuation of
the Rights Plan at the annual meeting of the shareholders held
in 2011. The Corporation obtained the approval to continue the
Rights Plan for a further term of three years, at the annual and
special meeting of shareholders held on June 1, 2011. Accordingly,
the Rights Plan will terminate at the close of the annual meeting
of shareholders in 2013. The Notice of Meeting and Management
Information Circular of the Corporation dated May 2, 2011
includes a summary of the Amended and Restated Rights Plan
approved by the shareholders. The complete text may be found
on SEDAR at www.sedar.com.
Digital Report
This Annual Report can be downloaded from CI’s website at
www.cifinancial.com under “Reports”.
89
1202-0182_E (04/12)