ANNUAL REPORT 2017
TABLE OF CONTENTS
Co-Chief Executive Officers' Message
Management's Discussion and Analysis
2
4
Management's Report
38
Independent Auditors' Report
39
Consolidated Financial Statements
40
Notes to Consolidated Financial Statements 44
Shareholder Information
80
Corporate Information
Back Cover
KNOWLEDGE BASED - VALUE FOCUSED
CLAIRVEST IS ONE OF CANADA'S LEADING PROVIDERS
OF PRIVATE EQUITY FINANCING TO MID-MARKET
COMPANIES AND CURRENTLY HAS C$1.7 BILLION OF
CAPITAL UNDER MANAGEMENT.
CLAIRVEST MANAGES ITS OWN CAPITAL AND THAT OF
THIRD PARTIES, THROUGH THE CLAIRVEST EQUITY
PARTNERS LIMITED PARTNERSHIPS.
CLAIRVEST PARTNERS WITH MANAGEMENT TO INVEST IN
PROFITABLE, SMALL AND MID-SIZED COMPANIES WITH
THE GOAL OF HELPING TO BUILD VALUE IN THE BUSINESS
AND GENERATE SUPERIOR LONG TERM FINANCIAL
RETURNS FOR INVESTORS.
CO-CHIEF EXECUTIVE OFFICERS’ MESSAGE
CLAIRVEST DELIVERS SOLID RETURNS IN FISCAL 2017
FELLOW SHAREHOLDERS,
Fiscal 2017 was another active year for Clairvest. We completed two meaningful liquidity events and another
shortly after the fiscal year-end generating $270 million in proceeds for our shareholders and the Clairvest Equity
Partners fund investors. These transactions included the recapitalization of Rivers Casino in December 2016, the
sale of Cieslok Media in January 2017 and the sale of LSNE in April 2017. We are pleased to see that the sale of
Cieslok Media was recognized by our peers, and for the fifth time over the last ten years, we were named the
CVCA Private Equity Deal of the Year award winner, having generated a return of 8.4x invested capital and an
internal rate of return ("IRR") of 92% on this investment. This sale and the recapitalization of Rivers Casino brought
the gross returns on the realized investments of Clairvest Equity Partners IV to an impressive 5.4x invested capital.
While we delivered strong results during fiscal 2017, we are challenged with the latest investment which we made
shortly after year-end. That investment, Head Infotech, operates a skill-based online gaming platform in India. In
June 2017, a material adverse regulatory development occurred which impacted operations. As at the writing of
this letter, the impact to Clairvest’s book value is uncertain and potentially material. We are deeply engaged along
with our partners to deal with this situation.
For the 12 months ended March 31, 2017, Clairvest’s book value per share grew to $36.21, or by 14% including
dividends paid. Over the last 20 years, our book value has grown at a compounded annual growth rate of 10.5%,
after tax, despite an average cash balance of 35%. In contrast, the S&P500 has delivered 7.8%, pre-tax, reflecting
solid out-performance by Clairvest on an absolute and, particularly, on a risk-adjusted basis.
In terms of our industry, the themes of the past several years continue; fierce competition, rising valuation
multiples and more capital being allocated to the PE asset class. Private equity is cyclical and we have been here
before leading up to the financial crisis in 2009 when pricing was unreasonably high, and we responded with
investment sales, and very careful, judicious underwriting of new investments. When the inevitable correction
occurred, and many were consumed with troubles, we had few challenges and a full cheque book which permitted
us to invest in attractive opportunities such as Rivers Casino and Centaur Gaming, both of which are already home
runs.
The successful sale of Cieslok Media, the meaningful recapitalization of Rivers Casino and the sale of LSNE are
examples of our focus on monetizing the value built in the portfolio in the current sellers’ market. We know from
experience that it is during times like this that our discipline and proven investment strategy will serve us well.
Our track record speaks to our strategy best; the 30 realized deals originated by the current management team
have turned $593 million of equity investments into over $1.8 billion and generated a pooled IRR of 24%. Our plan
is to continue to execute and continually improve upon the same strategy that has worked in the past.
2
CO-CHIEF EXECUTIVE OFFICERS’ MESSAGE
As always, we express our gratitude to Clairvest’s shareholders and fund partners for their support, to our investee
company management for their entrepreneurship, to the Clairvest team for their hard work and to our board
members for their advice and counsel. Together, they provide the means to continue building shareholder value
in Clairvest Group.
Respectfully,
B. Jeffrey Parr
Co-Chief Executive Officer
Ken Rotman
Co-Chief Executive Officer
June 22, 2017
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
The Management's Discussion and Analysis ["MD&A"] of financial condition and results of operations analyzes significant
changes in Clairvest Group Inc.'s consolidated financial results, financial position, risks and opportunities. It should be read in
conjunction with the audited annual consolidated financial statements and related notes for the year ended March 31, 2017
["consolidated financial statements"].
The following MD&A is the responsibility of Management and is as at June 22, 2017. The Board of Directors carries
out its responsibility for review of this disclosure through its Audit Committee. The Audit Committee reviews the disclosure
and recommends its approval to the Board of Directors. The Board of Directors has approved this disclosure.
INTRODUCTION
Clairvest Group Inc. ["Clairvest" or the "Company"] is a private equity investor that specializes in partnering with management
teams and other stakeholders of both emerging and established companies. The Company's shares are traded on the Toronto
Stock Exchange under the stock symbol "CVG".
Clairvest invests its own capital, and that of third parties, through Clairvest Equity Partners III Limited Partnership
["CEP III"], Clairvest Equity Partners IV Limited Partnership ["CEP IV"] and Clairvest Equity Partners IV-A Limited Partnership
["CEP IV-A"], and Clairvest Equity Partners V Limited Partnership ["CEP V"] and Clairvest Equity Partners V-A Limited
Partnership ["CEP V-A"] [together, the "CEP Funds"] in carefully selected companies that have the potential to generate
superior returns.
Clairvest also manages third party capital through the CEP Funds and provides loans to and earns priority
distributions or management fees and carried interest from the CEP Funds, which meet the definition of structured entities
under International Financial Reporting Standards ["IFRS"]. The Company concluded that its ownership interests in the CEP
Funds do not meet the definition of control under IFRS. Accordingly, the financial positions and operating results of the CEP
Funds are not included in Clairvest’s consolidated financial statements.
The Company’s consolidated financial statements include those subsidiaries which provide investment-related
services and that the Company controls by having the power to govern the financial and operating policies of these entities.
Such entities would include those which earn priority distributions or management fees and carried interest from the CEP
Funds. The following entities, which are significant in nature, provide investment‐related services on behalf of the Company.
Clairvest GP Manageco Inc.
Clairvest GP [GPLP] Inc.
CEP MIP GP Corporation
Clairvest USA Limited
Clairvest General Partner Limited Partnership
Clairvest General Partner III Limited Partnership
Clairvest General Partner IV Limited Partnership
Clairvest General Partner V Limited Partnership
PGO Aviation LP
Clairvest employs various acquisition entities in structuring its investments, all of which are controlled by Clairvest. These
acquisition entities, which are accounted for at fair value in accordance with IFRS as described in the Critical Accounting
Estimates section of the MD&A, include the following:
2141788 Ontario Corporation ["2141788 Ontario"]
2486303 Ontario Inc. ["2486303 Ontario"]
CEP III Co-Investment Limited Partnership ["CEP III Co-Invest"]
MIP III Limited Partnership ["MIP III"]
CEP IV Co-Investment Limited Partnership ["CEP IV Co-Invest"]
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
MIP IV Limited Partnership ["MIP IV"]
CEP V Co-Investment Limited Partnership ["CEP V Co-Invest"]
MIP V Limited Partnership ["MIP V"]
2141788 Ontario, a limited partner of CEP III Co-Invest and CEP V Co-Invest, is a wholly-owned acquisition entity of Clairvest.
2486303 Ontario is a wholly-owned acquisition entity of Clairvest which purchased 100% of the limited partnership interest
of Clairvest Equity Partners Limited Partnership ["CEP"] and 50% interest of Clairvest General Partner Limited Partnership in
December 2015. CEP was an investment fund held by third party investors prior to being purchased by 2486303 Ontario.
Clairvest’s relationship with CEP III Co-Invest and MIP III, CEP IV Co-Invest and MIP IV, and CEP V Co-Invest and MIP V are
described in the Transactions with Related Parties and Off-Statement of Financial Position Arrangements sections of the
MD&A.
As at March 31, 2017, Clairvest, through these acquisition entities, had 16 core investments in 8 different industries
and 3 countries. Two were joint investments with CEP III, nine were joint investments with CEP IV and CEP IV-A [together, the
"CEP IV Fund"], and three were joint investments with CEP V and CEP V-A [together, the "CEP V Fund"]. Clairvest also held
investments in the Grey Eagle Casino and Wellington Financial.
The table below summarizes Clairvest’s direct and indirect investee companies ["investee companies"] as at
March 31, 2017:
5
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
SUMMARY OF CLAIRVEST'S INVESTEE COMPANIES AS AT MARCH 31, 2017
Investee
Company
Industry
Segment
Geographic
Segment
Ownership
Percentage[17]
Cost of
Investment
[millions]
Net Cash
Investment
[millions][18]
Fair Value of
Investment
[millions][19]
Description of Business
INVESTMENTS MADE BY CEP III CO-INVEST ALONGSIDE CEP III
Chilean Gaming
Holdings[1]
Gaming
Chile
36.8%
$ 28.8
$ 17.2
$ 48.8
Lyophilization
Services of New
England Inc.
["LSNE"][2]
Contract
Manufacturing
United
States
11.2%
$ 6.6
$ 6.1
$ 27.2
interest
An investment vehicle which holds an
equity
various gaming
in
entertainment complexes in Chile.
CEP III ownership: 37.7%
A Manchester, New Hampshire based
contract manufacturing organization
focused on providing
lyophilization
services to biotech, pharmaceutical and
medical device manufacturers.
CEP III ownership: 33.5%
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV/CEP IV-A
Centaur Gaming[3]
Gaming
United
States
Debt interest
with stapled
warrants
$ 34.7
$ 31.8
$ 111.2
County Waste of
Virginia, LLC
["County Waste"][4]
CRS Contractors
Rental Supply
Limited Partnership
["CRS"][5]
Davenport Land
Investments[6]
Waste
Management
United
States
12.5%
$ 7.5
$ 7.5
$ 18.0
Equipment
Rental
Canada
13.5%
$ 10.6
$ 8.7
$ 28.8
$ 2.2
$ 1.7
$ 3.0
Other
United
States
18.7%
[Davenport
North] &
13.4%
[Davenport
South]
Discovery Air Inc.
["Discovery Air"][7]
Specialty
Aviation
Canada
27.3% and
debt interest
$ 36.9
$ 32.8
$ 21.0
Momentum
Aerospace Group
["MAG"][8]
Specialty
Aviation
United
States
10.3% and
debt interest
$ 5.1
$ 5.1
$ 11.6
on
focused
The owner and operator of the Hoosier
Park Racing & Casino in Anderson, Indiana
and the Indiana Grand Casino and Indiana
Downs
["Indiana Grand
Racetrack
Casino"] in Shelbyville, Indiana.
CEP IV and CEP IV-A ownerships: debt
interests with stapled warrants
A private regional solid waste collection
company headquartered in Albany, New
York.
CEP IV and CEP IV-A ownerships:
29.5% and 4.7% respectively
An Ontario based equipment rental
provider
commercial,
industrial and infrastructure sectors.
CEP IV and CEP IV-A ownerships:
31.8% and 5.1% respectively
Comprised of two entities ["Davenport
North" and "Davenport South"] holding
real
casino
development in Davenport, Iowa.
CEP IV and CEP IV-A ownerships:
44.1% and 7.0% of Davenport North and
31.6% and 5.0% of Davenport South
respectively
A specialty aviation services business
delivering airborne
services
globally and commercial aviation services
primarily in Northern Canada.
CEP IV and CEP IV-A ownerships:
35.9% and 5.7% of Discovery Air
respectively and debt interest
A U.S.-based speciality aviation and
and
intelligence,
reconnaissance service provider.
CEP IV and CEP IV-A ownerships:
24.3% and 3.9% respectively
surrounding
surveillance
training
estate
a
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
Clairvest held 30,446,299 units of Chilean Gaming Holdings which holds a 50% interest in Casino Marina del Sol and a 73.8% interest in each of Casino Osorno and Casino
sol Calama.
Clairvest held 6,406,000 Series A 10% cumulative convertible preferred shares and 331,506 Series B 10% cumulative preferred shares.
Clairvest invested $34.7 million in Centaur Gaming by way of US$17.4 million in unsecured term loans with stapled warrants which, subject to regulatory approval, were
convertible upon exercise into 12.7% of Class A and Class B units of Centaur Gaming.
Clairvest held 6,942.64 Class B units in County Waste and 174.3 units in Spare Lots, LLC ["Spare Lots"], a company affiliated with County Waste.
Clairvest held 241,896 Class B and 10,572,805 Class C limited partnership units in CRS. Clairvest has the right to receive proceeds equal to an additional 2.2% economic
interest in CRS until Clairvest has received proceeds equal to three times its invested capital.
Clairvest held 1,408.81 units in Davenport North, 1,298.21 units in Davenport South and a US$0.6 million loan to a partner of Davenport Land Investments.
Clairvest held 22,384,024 common shares, $22.0 million in convertible debentures with a stated interest rate of 10% per annum and $6.6 million in secured loans advanced
to DA Defence, a wholly-owned subsidiary of Discovery Air with a stated interest rate of 12% per annum. Clairvest also advanced $2.3 million in promissory notes with a
stated rate of 8% per annum which was included in its loans receivable.
Clairvest held 33,736 Class A stock in MAG and advanced $1.1 million in the form of promissory notes from Discovery Air Fire Services, which had been acquired by MAG
during fiscal 2017, with a stated interest rate of 10% per annum.
6
Winters Bros. Waste
Systems of CT, LLC
["Winters Bros. of
CT"][11]
Accel Entertainment
Inc. ["Accel
Entertainment"][12]
Digital Media
Solutions, LLC
["Digital Media
Solutions"][13]
Winters Bros. Waste
Systems of Long
Island Holdings, LLC
["Winters Bros. of
LI"][14]
STANDALONE INVESTMENTS
Grey Eagle Casino[15]
Operates North America’s premier
standardbred horse racing track located
in East Rutherford, New Jersey.
CEP IV and CEP IV-A ownerships: debt
interests and equity investment rights
A gaming entertainment complex located
in Des Plains, Illinois.
CEP IV and CEP IV-A ownerships:
11.8% and 1.9% respectively
A
solid waste collection,
recycling and disposal company based in
Danbury, Connecticut.
CEP IV and CEP IV-A ownerships:
31.6% and 5.0% respectively
regional
lead generation engine
A
operator in Illinois.
CEP V and CEP V-A ownerships:
15.4% and 2.9% respectively
A digital media company which operates
as a
for
companies
in a variety of different
industries.
CEP V and CEP V-A ownerships:
27.3% and 5.2% respectively
A
solid waste
regional
management company based in Long
Island, New York.
CEP V and CEP V-A ownerships:
27.5% and 5.2% respectively
private
A charitable casino on Tsuu T'ina First
Nation reserve lands, located southwest
of the city of Calgary, Alberta.
Provides debt capital and operating lines
to venture capital backed technology,
biotechnology,
and
industrial product companies in Canada
and the United States.
communications
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
Investee
Company
Industry
Segment
Geographic
Segment
Ownership
Percentage[17]
Cost of
Investment
[millions]
Net Cash
Investment
[millions][18]
Fair Value of
Investment
[millions][19]
Description of Business
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV/CEP IV-A
Gaming
New Meadowlands
Racetrack LLC [the
"Meadowlands"][9]
United
States
Debt interest
and equity
investment
rights
$ 6.4
$ 5.3
$ 9.6
Rivers Casino [10]
Gaming
United
States
United
States
5.0%
$ 9.1
$ [34.1] $ 14.3
13.4%
$ 8.1
$ 8.1
$ 11.2
Waste
Management
Gaming
United
States
7.9%
$ 16.0
INVESTMENTS MADE BY CEP V CO-INVEST ALONGSIDE CEP V/CEP V-A
terminal
licensed video gaming
$ 20.6
$ 16.0
Marketing
Services
United
States
13.9%
$ 8.3
$ 7.5
$ 8.2
Waste
Management
United
States
14.0%
$ 10.6
$ 10.6
$ 11.2
Gaming
Canada
Equity
participation
$ 11.0
$ [0.1]
$ 12.6
Wellington
Financial[16]
Financial
Services
Canada
10.1%
$ 15.6
$ [15.6]
$ 22.1
OTHER
TOTAL
$ 1.0
$ 218.5
$ 1.0
$ 109.7
$ 1.0
$ 380.4
[9]
[10]
[11]
[12]
[13]
[14]
Clairvest invested US$5.4 million [C$5.6 million] in the Meadowlands in the form of secured convertible debentures with a stated interest rate of 15% per annum and an
additional US$0.7 million [C$0.9 million] in the form of preferred debt with a stated interest rate of 3% per annum. Clairvest also held warrants which entitle it to invest in
equity securities subject to certain conditions.
Clairvest held 9,021,917 units in Rivers Casino.
Clairvest held 76,284.8 Class C units of Winters Bros. of CT.
Clairvest held 283,478 Class D preferred shares of Accel Entertainment.
Clairvest held 6,150,000 Class B units of Digital Media Solutions.
Clairvest held 1,487,773 Class C units in Winters Bros. of LI. And 256,037 units in WBLI II, LLC, an affiliate to Winters Bros. of LI which is owned proportionately by the same
unitholders as Winters Bros. of LI.
[15] During fiscal 2016, Clairvest increased its equity participation interest in the Grey Eagle Casino, through the purchase of CEP by 2486303 Ontario, to between 11.25% to
38.25% of the earnings of Grey Eagle Casino until December 2022. Cost and fair value excludes $1.2 million which represent Clairvest’s direct entitlement through the
general partner of CEP ("CEP GP").
Clairvest has a $30.3 million limited partner commitment to Wellington Financial Fund V, $15.6 million of which had been funded as at March 31, 2017. Clairvest also held
a limited partner interest in Wellington Financial Fund III and Wellington Financial Fund IV and an interest in the general partner of the various Wellington Funds.
[16]
[17] Ownership percentage calculated on a fully diluted basis as at March 31, 2017.
[18] Net cash investment [proceeds] comprised cost net of dividends, interest and other distributions received but excludes advisory and other fees received, f oreign income
taxes incurred by acquisition entities and foreign exchange gains or losses on foreign exchange forward contracts entered into as economic hedges against Clairvest's
foreign denominated investments.
The determination of fair value incorporates the quoted market value of Clairvest's publicly-traded investments and an estimate of fair value for privately-held investments.
The fair value of foreign exchange forward contracts entered into as economic hedges against Clairvest's foreign denominated investments is not included in this fair value.
[19]
7
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
OVERVIEW OF FISCAL 2017
An overview of the significant events during fiscal 2017 and those which occurred subsequent to year-end follows:
Overall and Corporate
•
Clairvest's book value increased by $64.7 million, or $4.30 per share, to $550.2 million or $36.21 per share. The increase
was primarily due to net income and comprehensive income ["net income"] of $4.61 per share, net of $0.3191 per share
in dividends paid. During fiscal 2017, 20,000 common shares were purchased and cancelled under the Normal Course
Issuer Bid, reducing the number of common shares outstanding to 15,194,095.
For the year ended March 31, 2017, Clairvest recorded $131.5 million in total revenue, comprised $72.9 million in net
investment gains, $20.3 million in distributions and interest income, $35.6 million in net carried interest income from
the CEP Funds and $2.7 million in other income. Total revenue for the prior fiscal year was $75.9 million.
•
• Net income for the year ended March 31, 2017 was $70.1 million compared to $40.0 million in the prior fiscal year.
•
In December 2016, Clairvest closed on a new 5-year $100 million committed revolving credit facility with several Schedule
1 Canadian chartered banks. The new credit facility replaced $95 million in prior credit facilities. Further details are on
page 10 of the MD&A.
Clairvest filed a new normal course issuer bid enabling it to make market purchases of up to 760,627 of its common
shares in the 12-month period commencing March 7, 2017. No purchases have been made under this bid to
June 22, 2017. As at June 22, 2017, Clairvest had repurchased a total of 6,615,049 common and non-voting shares for
$68.9 million over the last thirteen years.
Clairvest paid an annual ordinary dividend of $0.10 per share and a special dividend of $0.2191 per share. The dividends
were paid on July 22, 2016 to common shareholders of record as of July 6, 2016. The dividends were eligible dividends
for Canadian income tax purposes.
•
•
Clairvest/CEP III Co-Invest and CEP III
•
In September 2016, CEP III Co-Invest and CEP III realized on Light Tower Rentals, Inc. ["LTR"], an oilfield equipment rental
company based in the U.S. The carrying value of LTR had been nil since December 2015. Over the 8-year investment
horizon, LTR generated 4.7 times invested capital, or a 29.8% internal rate of return ["IRR"] for Clairvest and CEP III on a
currency neutral basis. Further details are on page 13 of the MD&A.
CEP III Co-Invest and CEP III announced the sale of LSNE in March 2017 which was completed in April 2017. CEP III Co-
Invest realized proceeds of US$19.9 million [C$27.1 million] at closing and are entitled to additional proceeds in fiscal
2018 of up to US$0.3 million subject to certain conditions. Over the 9-year investment horizon, LSNE generated 2.9 times
invested capital, or a 13.3% IRR for Clairvest and CEP III on a currency neutral basis. In Canadian dollar terms, net of
foreign exchange hedges, CEP III Co-Invest received net proceeds of $26.2 million against an investment of $7.5 million,
or 3.5 times invested capital. As at March 31, 2017, LSNE is carried at the estimated sale proceeds substantially all of
which have since been received.
Subsequent to the sale of LSNE, CEP III has returned 2.25 times invested capital to its third-party investors, after
consideration of general partner priority distributions, carried interest and expenses. CEP III continues to hold one
investment as at June 22, 2017. Based on the fair value at March 31, 2017, CEP III is expected to generate approximately
2.5 times invested capital or an IRR of over 18% for its third-party investors after all expenses and carried interest over
the life of the fund.
Clairvest/CEP IV Co-Invest and the CEP IV Fund
•
In December 2016, Rivers Casino completed its second financing since it began operations in July 2011. As a result of the
financing, CEP IV Co-Invest and the CEP IV Fund received distributions totalling US$42.7 million [C$57.5 million], CEP IV
Co-Invest’s portion was US$11.0 million [C$14.8 million]. To March 31, 2017, CEP IV Co-Invest and the CEP IV Fund had
received distributions, interest and fees totaling 4.8 times invested capital from Rivers Casino.
In January 2017, CEP IV Co-Invest and the CEP IV Fund realized on Cieslok Media Inc. ["Cieslok Media"], an outdoor
advertising company operating large format digital and static billboards across major cities in Canada. CEP IV Co-Invest’s
•
•
•
8
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
portion of the proceeds was $33.3 million versus a cost of $4.0 million. Over the 3-year investment horizon, Cieslok
Media generated 8.4 times invested capital, or a 92% IRR for Clairvest and the CEP IV Fund.
• During fiscal 2017, CEP IV Co-Invest invested an additional $20 million in Centaur Gaming in the form of US$3.8 million
in term loans with stapled warrants. As at March 31, 2017, the investments in Centaur held by CEP IV Co-Invest were
convertible upon exercise into 12.7% of Class A and B units in Centaur Gaming, and with a carrying value of $111.2 million
at March 31, 2017 represented 20.2% of the book value of Clairvest.
• Also during fiscal 2017, CEP IV Co-Invest, the CEP IV Fund and other co-investors in Discovery Air [collectively the
"Discovery Air Investor Group"] invested an additional net $20.8 million to Discovery Air, CEP IV Co-Invest’s portion of
which was $4.6 million. As at March 31, 2017, CEP IV Co-Invest’s investment in Discovery Air had a carrying value of $21.0
million, compared to $30.7 million in the prior year. Subsequent to year-end, the Discovery Air Investor Group made
additional investments in Discovery Air totaling $12.5 million, $4.4 million of which was funded by CEP IV Co-Invest.
Further details are on page 14 of the MD&A.
In February 2017, MAG acquired Discovery Air Fire Services, Inc. ["DAFS"] from Discovery Air. Further details are on page
15 of the MD&A.
•
• As at March 31, 2017 and June 22, 2017, the CEP IV Fund had realized or partially realized 3 of its 11 investments, and
had returned 55% of capital invested by third-party investors.
•
Clairvest/CEP V Co-Invest and the CEP V Fund
• During fiscal 2017 and pursuant to a post-closing purchase price adjustment, CEP V Co-Invest and the CEP V Fund invested
an additional US$7.9 million in Accel Entertainment. CEP V Co-Invest’s portion of the investment in Accel Entertainment
was US$2.4 million.
Subsequent to year-end, CEP V Co-Invest, the CEP V Fund and other co-investors invested US$73.7 million [C$99.2
million] in Head InfoTech India Pvt. Ltd. ["Head Infotech"], which operates an online skill-based gaming platform in India
providing online experience of Rummy. CEP V Co-Invest invested US$41.6 million [C$56.0 million] in Head InfoTech,
which comprised US$17.0 million [C$22.9 million] in the form of compulsory convertible debentures which bear interest
at a rate of 16.0% per annum, and US$24.6 million [C$33.1 million] for a 33.6% equity interest in Head InfoTech. A foreign
exchange hedging strategy has not been implemented against this investment. Subsequent to the investment, a material
adverse regulatory development occurred with respect to this investment. The impact to the fair value of this investment
is currently uncertain and potentially material.
• As at June 22, 2017, the CEP V Fund had made 4 investments, or approximately 34% of its committed capital.
OUTLOOK
Clairvest's current management team has made 43 platform investments and has realized or partially realized on 30
investments which have in aggregate generated 3.1 times invested capital. From inception, the Company has invested its own
capital in every investment. Clairvest's team of professionals have all invested significant amounts of capital in the Company
which allows Clairvest to approach each investment as owners and shareholders.
As a long-term investor, Clairvest is focused on building value in its investee companies by contributing strategic
expertise, advising on operational improvment and helping its investee companies capitalize on new opportunities that arise.
As at March 31, 2017, Clairvest and its controlled acquisition entities had $714.4 million of capital available for future
acquisitions through its cash, cash equivalents and temporary investments ["treasury funds"], credit facilities and uncalled
capital in the CEP Funds.
9
June 22, 2017
Number of
Investments
Total
8
Currently
Held
1
9
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
The table below summarizes the status of the CEP Funds as at June 22, 2017:
Status of Clairvest Equity Partnerships
[$millions, except year of fund and number of investments]
Year of
Fund
Third Party
Capital
Clairvest
Commitment
Total Capital
Percentage
Drawn
Clairvest Equity Partners III ["CEP III"]
2006
225
75
300
79.8%
Clairvest Equity Partners IV ["CEP IV"]
2010
342
Clairvest Equity Partners V ["CEP V"]
2015
420
125
180
467
81.3%
11
600
34.0%
4
FINANCIAL CONDITION AND BOOK VALUE
The following table summarizes the Company’s financial position and book value as at March 31, 2017 and 2016:
Financial Position
As at, [$000's, except number of shares and per share amounts]
March 31, 2017
March 31, 2016
Cash, cash equivalents and temporary investments ["treasury funds"]
$ 122,169 $ 87,043
Carried interest receivable from the CEP Funds
Corporate investments, at fair value
Total assets
Management participation
Total liabilities
Book value
Book value per share
Dividends per share paid during the fiscal year ended
Number of common shares outstanding
98,322
410,102
671,951
67,050
121,747
550,204
36.21
0.3191
64,009
353,801
570,191
43,977
84,670
485,521
31.91
0.2958
15,194,095
15,214,095
As at March 31, 2017, Clairvest had total assets of $672.0 million, an increase of $101.8 million during fiscal 2017. The increase
was primarily due to net gains on realizations and a net increase in the fair value of Clairvest’s investee companies.
As at March 31, 2017, the Company’s treasury funds of $122.2 million were held in cash, money market savings
accounts rated not below R1-High, investment savings accounts and guaranteed investment certificates rated not below
BBB-. 2141788 Ontario also held $43.9 million in cash, investment savings accounts and guarantee investment certificates
with consistent ratings to the above. Clairvest also had access to $5.0 million in cash held in various other acquisition entities
which were controlled by Clairvest.
During the year ended March 31, 2017, Clairvest closed on a new 5-year, $100.0 million, committed revolving credit
facility with several Schedule 1 Canadian chartered banks. The credit facility, which has an initial expiry of December 2021
and is eligible for a one-year extension on each anniversary of the closing date, bears interest at the bank prime rate, which
was 2.7% per annum as at March 31, 2017, plus 1.25% per annum on drawn amounts and a standby fee of 0.70% per annum
on undrawn amounts. The amount available under the credit facility as at March 31, 2017 was $100.0 million, which is based
on debt covenants and certain restrictions within the banking arrangement. No amounts had been drawn on the facility
during the year and as at March 31, 2017. The new credit facility replaced a $75 million committed credit facility and a $20
million credit facility which were extinguished in December 2016. No amounts were drawn on those facilities during the year.
10
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
As at March 31, 2017, Clairvest had corporate investments with a carrying value of $410.1 million, an increase of $56.3 million
during fiscal 2017, $380.4 million of which represented the fair value of Clairvest’s investee companies and the remaining
$29.7 million of which represented other net assets [liabilities] held by Clairvest’s acquisition entities.
Excluding net assets [liabilities] held by Clairvest’s acquisition entities, the aggregate carrying value of Clairvest’s
investee companies increased by $55.7 million during fiscal 2017, which primarily comprised the following:
- Net changes in unrealized gains on its investee companies of $35.3 million;
-
-
-
-
-
Follow-on investments net of return of capital totaling $30.6 million in existing investee companies;
Foreign exchange revaluations of investee companies totaling $7.0 million; partially offset by
The sale of Cieslok Media which had a carrying value of $10.6 million as at March 31, 2016;
Provisions for interest on debenture investments totaling $5.6 million; and
Interest payments on debenture investments totaling $1.7 million.
Clairvest has implemented a hedging strategy because it has, directly and indirectly, several investments outside of Canada.
In order to limit its exposure to changes in the value of these investments denominated in foreign currencies relative to the
Canadian dollar, Clairvest and its acquisition entities consider and if determined appropriate, enters into hedging positions
against these foreign denominated currencies as approved by the Board of Directors. For the year ended March 31, 2017, the
foreign exchange adjustments made in Clairvest’s valuation of its investee companies is primarily offset by the foreign
exchange adjustments made in the forward exchange forward contracts used to support its foreign exchange hedging
strategy, except for its foreign exchange exposure in the Chilean Pesos ["CLP"] which is unhedged. Forward exchange forward
contracts are described in the Derivative Financial Instruments section of the MD&A.
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
The table below details the cost and fair value of Clairvest’s investee companies as at March 31, 2017 and 2016:
March 31, 2017
March 31, 2016
Fair value
Cost
Difference
Fair value
Cost
Difference
CEP III CO-INVEST INVESTMENTS
Chilean Gaming Holdings[1]
$ 48,835 $ 28,754 $ 20,081 $ 43,674 $ 28,754
$ 14,920
Light Tower Rentals
—
—
—
—
LSNE
27,248
6,619
20,629
16,017
CEP IV CO-INVEST INVESTMENTS
Centaur Gaming
Cieslok Media
County Waste
CRS
Davenport Land Investments
Discovery Air
MAG
The Meadowlands
Rivers Casino
Winters Bros. of CT
CEP V CO-INVEST INVESTMENTS
Accel Entertainment
Digital Media Solutions
Winters Bros. of LI
Grey Eagle Casino[2]
Wellington Financial
111,170
34,657
76,513
—
17,999
28,758
3,009
21,037
11,557
9,563
14,307
11,160
20,639
8,179
11,190
12,613
22,101
—
7,533
10,573
2,196
—
10,466
18,185
813
36,860
[15,823]
5,068
6,444
9,058
8,053
15,978
8,254
10,636
11,017
15,640
6,489
3,119
5,249
3,107
4,661
[75]
554
1,596
6,461
68,672
10,640
11,981
22,009
2,858
30,685
5,600
8,551
26,202
9,907
12,646
7,987
10,927
14,076
20,852
2,403
7,077
[2,403]
8,940
14,644
54,028
4,015
7,308
10,573
2,196
32,243
3,838
5,580
9,058
8,053
12,910
8,254
10,636
11,017
14,631
6,625
4,673
11,436
662
[1,558]
1,762
2,971
17,144
1,854
[264]
[267]
291
3,059
6,221
379,365
217,340
162,025
323,284
193,190
130,094
Other investments
1,039
1,127
[88]
1,415
1,486
[71]
$ 380,404 $ 218,467 $ 161,937 $ 324,699 $ 194,676 $ 130,023
[1]
[2]
Comprised CEP III Co-Invest’s investment in Casino Marina del Sol, Casino Osorno and Casino Sol Calama.
Fair value included the portion owned directly by Clairvest and the portion owned indirectly through 2486303 Ontario. Fair value excluded the amount
of $1.0 million which represented Clairvest’s 50% entitlement of the carried interest of CEP as described in the Transactions with Related Parties
section of the MD&A.
The cost and fair value of these investee companies do not reflect foreign exchange gains or losses on the foreign exchange
forward contracts entered into as economic hedges against the Company's foreign-denominated investments. Details of each
investee company held as at March 31, 2017 and 2016 follows:
INVESTMENTS MADE BY CEP III CO-INVEST ALONGSIDE CEP III
Chilean Gaming Holdings
As at March 31, 2017 and 2016, CEP III Co-Invest held 30,446,299 limited partnership units in Chilean Gaming Holdings,
representing a 36.8% ownership interest on a fully diluted basis.
During fiscal 2017, CEP III Co-Invest earned dividends totaling $3.7 million through its interest in Chilean Gaming
Holdings, bringing total dividends earned to March 31, 2017 to $13.2 million.
12
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
Also during fiscal 2017, management determined that the fair value of Chilean Gaming Holdings should be adjusted upward
by $3.7 million. The fair value of $48.8 million as at March 31, 2017 compares to a fair value of $43.7 million at March 31,
2016 and a cost of $28.8 million. The fair value is adjusted for foreign exchange fluctuations.
Light Tower Rentals
As at March 31, 2016, CEP III Co-Invest held 3,985,604 common shares in Light Tower Rentals, representing a 6.7% ownership
interest on a fully diluted basis.
During fiscal 2017, CEP III Co-Invest realized on its investment in Light Tower Rentals which had a carrying value of
nil since December 2015. Over the life of this investment, CEP III Co-Invest received total proceeds of US$37.9 million [C$40.7
million] against its original investment of US$8.1 million [C$8.2 million] in Light Tower Rentals. In addition, Clairvest and CEP
III Co-Invest had incurred total costs of $4.6 million on the foreign exchange hedging strategy for the investment in Light
Tower Rentals.
LSNE
As at March 31, 2016, CEP III Co-Invest held 6,406,000 Series A 10% cumulative preferred shares and 1,250,000 Series B 10%
cumulative preferred shares in LSNE. The Series A 10% cumulative preferred shares were convertible into a 11.2% ownership
interest on a fully diluted basis and dividends would be forfeited on conversion. The Series B preferred shares were not
convertible.
During fiscal 2017, LSNE redeemed 918,494 Series B preferred shares held by CEP III Co-Invest at their fair market
value of US$0.6 million [C$0.8 million]. Subsequent to year-end, the remaining 331,506 Series B preferred shares were
redeemed at their fair market value of US$0.2 million [C$0.3 million]. Also subsequent to year-end, CEP III Co-Invest realized
its investment in LSNE and sold the Series A 10% cumulative preferred shares for US$19.9 million [C$27.1 million] in cash
proceeds at closing and is entitled to additional proceeds of US$0.3 million subject to the conditions of the purchase and sale
agreement. As at March 31, 2017, LSNE was carried at a value which approximated the sale proceeds received subsequent
to year-end.
As at June 22, 2017, CEP III Co-Invest had received total proceeds of US$21.6 million [C$29.0 million] against its
original investment of US$7.5 million [C$7.5 million] in LSNE. Clairvest and CEP Co-Invest III had also incurred total costs of
$2.8 million on the foreign exchange hedging strategy for the investment in LSNE.
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV
Centaur Gaming
As at March 31, 2016, CEP IV Co-Invest held US$13.6 million in term loans with stapled warrants which were convertible upon
exercise to 9.9% of Class A and B units in Centaur Gaming.
During fiscal 2017, CEP IV Co-Invest invested an additional $20.0 million in Centaur Gaming in the form of US$3.8
million in term loans with stapled warrants which were convertible upon exercise to 2.8% of Class A and Class B units of
Centaur Gaming. As at March 31, 2017, CEP IV Co-Invest held US$17.4 million in term loans with stapled warrants which were
convertible upon exercise to 12.7% of Class A and Class B units of Centaur Gaming.
Also during fiscal 2017, management determined that the fair value of Centaur Gaming should be adjusted upward
by $19.3 million. The fair value of $111.2 million as at March 31, 2017 compares to a fair value of $68.7 million at March 31,
2016 and a cost of $34.7 million. The increase in fair value was due to continuing growth in operating performance and
reduced debt levels. The fair value is adjusted for foreign exchange fluctuations.
Cieslok Media
As at March 31, 2016, CEP IV Co-Invest held 4,014,989 common shares in Cieslok Media, representing a 23.5% ownership
interest on a fully diluted basis.
During fiscal 2017, CEP IV Co-Invest completed the sale of Cieslok Media and received cash proceeds of $33.3 million
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
against its original investment of $4.0 million. During fiscal 2017, CEP IV Co-Invest realized a net gain of $22.7 million on the
sale of Cieslok Media.
County Waste
As at March 31, 2017 and 2016, CEP IV Co-Invest held 6,942.64 Class B units in County Waste, representing a 12.5% ownership
interest on a fully diluted basis.
During fiscal 2017, CEP IV Co-Invest invested US$0.2 million [C$0.2 million] for 174.3 units in Spare Lots, LLC ["Spare
Lots"], a company affiliated with County Waste and which is owned proportionately by the unitholders of County Waste.
Also during fiscal 2017, management determined that the fair value of County Waste should be adjusted upward by
$5.4 million. The fair value of $18.0 million as at March 31, 2017 compares to a fair value of $12.0 million at March 31, 2016
and a cost of $7.5 million. The increase in fair value was due to growth in operating performance. The fair value is adjusted
for foreign exchange fluctuations.
CRS
As at March 31, 2016, CEP IV Co-Invest held 226,902 Class B units and 10,572,805 Class C units in CRS.
During fiscal 2017, CEP IV Co-Invest exercised its right to purchase Class B limited partnership units in CRS from a
departing unitholder of CRS at a pre-determined price. CEP IV Co-Invest purchased 14,994 Class B units in CRS for
$21 thousand which was funded by a return of capital from CRS. As at March 31, 2017, CEP IV Co-Invest held 241,896 Class B
units and 10,572,805 Class C units in CRS, representing a 13.5% ownership interest and the right to receive sale proceeds
equal to an additional 2.2% economic interest until CEP IV Co-Invest has received three times its invested capital.
Also during fiscal 2017, management determined that the fair value of CRS should be adjusted upward by
$6.7 million. The fair value of $28.8 million as at March 31, 2017 compares to a fair value of $22.0 million at March 31, 2016
and a cost of $10.6 million. The increase in fair value was due to continuing growth in operating performance.
Also during fiscal 2017, CEP IV Co-Invest earned $0.6 million in distributions from CRS. As a result of CRS’ flow-
through status for tax purposes, Clairvest incurred income tax obligations totaling $0.6 million as a result of its investment in
CRS.
Davenport Land Investments
As at March 31, 2017 and 2016, CEP IV Co-Invest had invested $1.6 million in Davenport North and $0.9 million in Davenport
South. CEP IV Co-Invest had also advanced a US$0.6 million promissory note to a partner to help fund its 50% ownership in
Davenport North. Effective October 1, 2016, the promissory note bears interest at a rate of 10% per annum.
The fair value of $3.0 million as at March 31, 2017 compares to a fair value of $2.9 million at March 31, 2016 and a
cost of $2.2 million. The fair value is adjusted for foreign exchange fluctuations.
Discovery Air
As at March 31, 2016, CEP IV Co-Invest had invested $22.0 million in secured convertible debentures ["Debentures"] of
Discovery Air. The Debentures, which had a maturity date of March 22, 2017 and were extended to May 5, 2018 during fiscal
2017, accrue interest at a rate of 10% per annum and interest is paid in-kind and compounded on an annual basis. At March
31, 2016, the gross accrued value of the Debentures was $32.1 million, which included $10.1 million in accrued interest.
During fiscal 2017, $3.2 million in interest was accrued on the Debentures and $1.7 million in interest payment was made by
Discovery Air in conjunction with the sale transaction of Discovery Air Fire Services ["DAFS"] to MAG as described below. As
at March 31, 2017, the gross accrued value of the Debentures was $33.6 million. As at March 31, 2017, the carrying value of
the Debentures was $14.2 million, which excluded all interest accrued on the Debentures and an additional $7.8 million write-
down of the Debentures associated with the challenges experienced in the divisions providing commercial aviation services
in Northern Canada. As at March 31, 2017, the Debentures were convertible into 2,637,703 common shares of Discovery Air
at a conversion price of $12.73 per share. As at March 31, 2017, the closing quoted market price of a Discovery Air common
14
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
share was $0.20 per share.
June 22, 2017
As at March 31, 2016, CEP IV Co-Invest held 20,758,800 common shares of Discovery Air and Clairvest held 506,615
common shares of Discovery Air, which collectively represented a 25.9% ownership interest on a fully diluted basis. During
fiscal 2017, CEP IV Co-Invest invested an additional $0.2 million to acquire 1,118,609 common shares of Discovery Air. As at
March 31, 2017, Clairvest and CEP IV Co-Invest collectively held 22,384,024 common shares representing a 27.3% ownership
interest on a fully diluted basis. As at March 31, 2017 and 2016, the carrying value of the Discovery Air common shares was
nil. CEP IV Co-Invest had also committed to fund under a definitive agreement with amongst the Discovery Air Investor Group
to purchase all outstanding common shares of Discovery Air at a cash consideration of $0.20 per share. The transaction was
completed subsequent to year-end for total cash consideration of $1.5 million, $0.4 million of which was funded by CEP IV
Co-Invest.
As at March 31, 2016, Clairvest had advanced to Discovery Air $2.3 million in the form of a promissory note bearing
interest at 8.0% per annum and was repayable May 15, 2016. During fiscal 2017, the maturity date was extended to
September 15, 2017. Interest of $0.2 million was earned from this promissory note from Discovery Air during fiscal 2017. As
at March 31, 2017, the promissory note was included in loans receivable at the accrued value.
As at March 31, 2016, CEP IV Co-Invest had committed to advance up to $3.8 million to Discovery Air in the form of
a secured revolving credit facility with interest at 12% per annum on drawn amounts, $2.2 million of this facility had been
drawn. During fiscal 2017, an additional $0.9 million was advanced under this facility. In December 2016, the secured
revolving credit facility was extinguished at the maturity date and the $3.1 million was repaid in full. Interest of $0.2 million
was earned from the secured revolving credit facility during fiscal 2017.
Also during fiscal 2017, the Discovery Air Investor Group provided a $25.0 million secured revolving credit facility to
["Revolver"] to Discovery Air Defence Services Inc. [“DA Defence”] a subsidiary of Discovery Air, $20.0 million of which was
drawn at closing and was outstanding as at March 31, 2017. All drawn amounts bear interest at a rate of 12% per annum
which compounds quarterly and the Revolver matures on December 15, 2017. The Revolver provides the Discovery Air
Investor Group the option to convert the outstanding balance of the Revolver into common shares of DA Defence based on
an agreed market value of DA Defence. As at March 31, 2017, CEP IV Co-Invest’s portion of the drawn amounts under the
Revolver was $6.6 million. Interest of $0.2 million was earned by CEP IV Co-Invest from the Revolver during fiscal 2017. As
at March 31, 2017, the accrued value of the loans made under the Revolver by CEP IV Co-Invest was $6.9 million. Subsequent
to year-end, the Revolver was fully drawn, with CEP IV Co-Invest advancing an additional $1.4 million under the Revolver.
Also subsequent to year-end, the Discovery Air Investor Group provided an additional $13.0 million secured
revolving credit facility ["New Revolver"] to DA Defence which is in addition to the $25.0 million Revolver described above
but on the same economic terms. As at June 22, 2017, $6.0 million of the New Revolver had been funded, $2.2 million of
which was funded by CEP IV Co-Invest. CEP IV Co-Invest is committed to fund any shortfall of the other investors of the
Discovery Air Investor Group. The New Revolver provides the Discovery Air Investor Group the option to convert the
outstanding balance of the New Revolver into common shares of DA Defence on the same economic terms as the Revolver.
Concurrent with the New Revolver, Discovery Air and DA Defence granted the Discovery Air Investor Group an option to
exchange $18.4 million of the Debentures into $14.7 million of common shares in DA Defence, with the valuation of DA
Defence being the same as that used for the conversion of the Revolver and the New Revolver.
MAG
As at March 31, 2017 and 2016, CEP IV Co-Invest held 33,736 Class A stock in MAG, representing a 10.3% ownership interest
on a fully-diluted basis. The Class A stock have a stated dividend rate of 10% per annum and each Class A stock is convertible
into 1.0114 common stock of MAG at CEP IV Co-Invest’s discretion and dividends are forfeited on conversion.
During fiscal 2017, MAG acquired DAFS from Discovery Air. In support of this transaction, CEP IV Co-Invest advanced
$1.1 million to DAFS in the form of promissory notes bearing interest at 10.0% per annum with a maturity date of January 31,
2021. Interest of $21 thousand was earned from these promissory notes from DAFS during fiscal 2017.
Also during fiscal 2017, management determined that the fair value of MAG should be adjusted upward by $4.6
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
million. The fair value of $11.6 million as at March 31, 2017 compares to a cost of $5.1 million, with the increase being
attributable to growth in operating performance. The fair value is adjusted for foreign exchange fluctuations.
Additionally, Clairvest had advanced working capital loans to a Canadian subsidiary of MAG ["MAG Canada"], the outstanding
balance as at March 31, 2017 was $2.9 million which had been included in loans receivable. $1.0 million of the loans had
been repaid subsequent to year-end.
The Meadowlands
As at March 31, 2017 and 2016, CEP IV Co-Invest had funded US$5.4 million [C$5.6 million] to the Meadowlands in the form
of secured convertible debentures which accrue interest at a rate of 15% per annum, 10% of which was payable quarterly in
cash and 5% payable in-kind. Commencing January 1, 2016, CEP IV Co-Invest agreed to the entire 15% interest be payable in-
kind. CEP IV Co-Invest also held warrants which entitle it to invest in equity securities of the Meadowlands subject to certain
conditions. The 5% interest on the secured convertible debentures is forfeited in the event CEP IV Co-Invest exercises the
warrants.
As at March 31, 2016, the gross accrued value of the secured debentures was US$6.6 million [C$8.6 million], which
included US$1.2 million [C$1.5 million] in accrued interest. During fiscal 2017, US$1.0 million [C$1.3 million] in interest was
accrued on the Debentures and no interest payments were made by the Meadowlands. As at March 31, 2017, the gross
accrued value of the secured debentures was US$7.6 million [C$10.1 million]. As at March 31, 2017, the carrying value of the
secured debentures was US$6.5 million [C$8.7 million], which excluded US$1.1 million [C$1.4 million] in accrued interest on
the secured debentures.
Also during fiscal 2017, CEP IV Co-Invest invested an additional US$0.7 million [$0.9 million] in the form of preferred
debt, which is junior to the secured debentures. The preferred debt has a stated interest rate of 3% per annum and interest
is payable-in-kind.
The fair value of $9.6 million as at March 31, 2017 compares to a cost of $6.4 million. The fair value is adjusted for
foreign exchange fluctuations.
Rivers Casino
As at March 31, 2017 and 2016, CEP IV Co-Invest held 9,021,917 units in Rivers Casino representing a 5.0% ownership interest
on a fully diluted basis.
During fiscal 2017, Rivers Casino completed a financing and made a distribution to its owners. CEP IV Co-Invest
received $14.8 million from this distribution. CEP IV Co-Invest also earned quarterly distributions of $3.9 million and quarterly
fees of $0.6 million as an investor in Rivers Casino. As a result of CEP IV Co-Invest's investment in Rivers Casino requiring
certain acquisition entities in the United States, $1.2 million in U.S. income tax obligations were incurred during fiscal 2017.
Also during fiscal 2017, management determined that the fair value of Rivers Casino should be adjusted downward
by $12.4 million. The fair value of $14.3 million as at March 31, 2017 compares to a fair value of $26.2 million at March 31,
2016 and a cost of $9.1 million. The decrease in fair value was due to the distributions received during fiscal 2017. The fair
value is adjusted for foreign exchange fluctuations.
Winters Bros. of CT
As at March 31, 2017 and 2016, CEP IV Co-Invest held 76,284.8 Class C units in Winters Bros. of CT, representing a 13.4%
ownership interest on a fully diluted basis.
During fiscal 2017, management determined that the fair value of Winters Bros. of CT should be adjusted upward by
$1.0 million. The fair value of $11.2 million as at March 31, 2017 compares to a fair value of $9.9 million at March 31, 2016
and a cost of $8.1 million. The increase in fair value was due to growth in operating performance. The fair value is adjusted
for foreign exchange fluctuations.
16
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
INVESTMENTS MADE BY CEP V CO-INVEST ALONGSIDE CEP V
Accel Entertainment
As at March 31, 2017 and 2016, CEP V Co-Invest held 283,478 Class D preferred shares in Accel Entertainment, representing
a 7.9% ownership interest on a fully diluted basis. The Class D preferred shares are entitled to certain preference over all
other equity of Accel Entertainment.
During fiscal 2017, CEP V Co-Invest invested an additional US$2.4 million in Accel Entertainment pursuant to a post-
closing purchase price adjustment.
Also during fiscal 2017, management determined that the fair value of Accel Entertainment should be adjusted
upward by $4.6 million. The fair value of $20.6 million as at March 31, 2017 compares to a cost of $16.0 million. The fair value
is adjusted for foreign exchange fluctuations.
Digital Media Solutions
As at March 31, 2017 and 2016, CEP V Co-Invest held 6,150,000 Class B units in Digital Media Solutions, representing a 13.9%
ownership interest on a fully diluted basis. The Class B units are entitled to certain preference over all other equity units in
Digital Media Solutions.
During fiscal 2017, CEP V Co-Invest received distributions totaling $0.8 million from Digital Media Solutions.
The fair value of $8.2 million as at March 31, 2017 compares to a fair value of $8.0 million as at March 31, 2016 and
a cost of $8.3 million. The fair value is adjusted for foreign exchange fluctuations.
Winters Bros. of LI
As at March 31, 2017 and 2016, CEP V Co-Invest held 1,487,773 Class C units in Winters Bros. of LI and 256,037 units of WBLI
II, an affiliated company of Winters Bros. of LI which is owned proportionately by the same unitholders of Winters Bros. of LI,
representing a 14.0% ownership interest on a fully diluted basis in the respective entities.
The fair value of $11.2 million as at March 31, 2017 compares to a fair value of $11.0 million as at March 31, 2016
and a cost of $10.6 million. The fair value is adjusted for foreign exchange fluctuations.
OTHER INVESTMENTS
Grey Eagle Casino
As at March 31, 2017 and 2016, Clairvest held units in a limited partnership which operates Grey Eagle Casino, entitling
Clairvest between 2.8% and 9.6% of the earnings of the casino until December 18, 2022. Additionally, CEP is entitled to
between 8.5% and 28.7% of the earnings of the Grey Eagle Casino until December 18, 2022. During fiscal 2016, 2486303
Ontario invested $11.0 million for 100% of CEP’s limited partner interest and 50% of CEP’s general partner interest which in
aggregate represents a 90% interest in CEP. Clairvest holds a 10% interest in CEP through its carried interest entitlement in
CEP.
During fiscal 2017, Clairvest earned $0.7 million and CEP earned $2.2 million in equity distributions from Grey Eagle
Casino.
The aggregate fair value of $12.6 million as at March 31, 2017 compares to a fair value of $14.1 million as at March
31, 2016 and a cost of $11.0 million.
Wellington Financial
As at March 31, 2016, Clairvest had funded $14.6 million of its $30.3 million limited partner commitment in WF Fund V Limited
Partnership ["Wellington Fund V"], representing a 10.1% ownership interest in Wellington Fund V.
During fiscal 2017, Clairvest funded an additional $1.0 million to Wellington Fund V bringing total amount funded to
$15.6 million. Clairvest also has an interest in the general partner of various Wellington Financial funds and retained residual
limited partner interest in WF Fund III Limited Partnership ["Wellington Fund III"] and WF Fund IV Limited Partnership
["Wellington Fund IV"].
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
During fiscal 2017, Clairvest received distributions totaling $4.6 million from Wellington Financial. As at March 31, 2017,
Clairvest had received distributions from Wellington Financial totaling $31.2 million.
The fair value of $22.1 million as at March 31, 2017 compares to a cost of $15.6 million and reflects management's
estimated realizable value of Clairvest's entitlement as a limited partner of various Wellington Financial funds and general
partner interest in Wellington Financial.
LIABILITIES
As at March 31, 2017, Clairvest had $121.7 million in total liabilities, which included $8.3 million in accrued management and
director compensation, $21.7 million in share-based compensation, $67.1 million in management participation and
$20.7 million in deferred tax liability. $92.8 million of these liabilities were payable only upon the cash realization of certain
investments of Clairvest or the CEP Funds.
FINANCIAL RESULTS
Clairvest's operating results reflect revenue earned from its corporate investments and cash, cash equivalents and temporary
investments and realized gains and net changes in unrealized gains and losses on its corporate investments. These results
are net of all costs incurred to manage these assets.
Net income for the year ended March 31, 2017 was $70.1 million compared with net income of $40.0 million for the
year ended March 31, 2016. The following table summarizes the composition of net income for the years ended March 31:
Financial Results
Year ended March 31, [$000's, except per share amounts]
Net investment gains
2017
2016
Investee companies inclusive of foreign exchange hedging activities
$ 60,455 $ 32,674
-
-
Acquisition entities including distributions, interest, dividends and fees
received from investee companies and net of taxes payable by these
acquisition entities
Distributions, interest income, dividends and fees
-
-
-
-
CEP Funds
Investee companies
Treasury funds[1]
Acquisition entities and other
Net carried interest income – realized and unrealized changes
Total expenses
Income before income taxes
Income taxes
Net income and comprehensive income
Net income and comprehensive income per share
Net income and comprehensive income per share - fully diluted
[1]
Includes realized gains/losses and market value changes to Clairvest’s treasury funds
12,491
5,405
72,946
38,079
12,282
7,260
764
2,601
22,907
35,617
51,870
79,600
9,474
70,126
4.61
4.61
9,955
6,548
517
4,563
21,583
16,255
32,690
43,227
3,261
39,966
2.63
2.63
The Company fair values its acquisition entities which hold Clairvest’s investee companies as well as other assets and
liabilities. Distributions, interest, dividends and fees earned from and realized gains and net changes in unrealized gains on
18
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
the investee companies held by acquisition entities, including foreign exchange fluctuations and the hedging activities related
to managing the foreign currency exposure of these investments, and income taxes incurred by these acquisition entities, are
reflected in net investment gains until the proceeds are distributed out of these acquisition entities, at which point the
Company would record a distribution or a dividend from acquisition entities and reverse the net investment gains or losses
which had previously been recorded.
During fiscal 2017, CEP III Co-Invest realized its investment in Light Tower Rentals which had a fair value of nil since
December 2015. During fiscal 2017, CEP III Co-Invest made distributions totaling $3.1 million to its unitholders, $1.2 million
of which were to Clairvest and the remaining $1.9 million were to acquisition entities of Clairvest. During fiscal 2016, CEP III
Co-Invest completed the sale of Casino New Brunswick and distributed substantially all of the proceeds to its unitholders,
$3.7 million of which was received by Clairvest and $5.1 million of which was received by acquisition entities of Clairvest.
During fiscal 2017, CEP IV Co-Invest received $33.3 million in cash proceeds as a result of the sale of Cieslok Media and
received $14.8 million in distributions from the financing of Rivers Casino. During fiscal 2017, CEP IV Co-Invest made capital
distributions totaling $38.1 million to its unitholders, $37.5 million of which were to Clairvest and the remaining $0.6 million
were to acquisition entities of Clairvest.
19
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
The following tables summarize the net investment gains or losses of investee companies for the years ended March 31, 2017
and 2016. These net investment gains are inclusive of the foreign exchange hedging activities related to these investments:
Net investment gains [losses] on investee companies
Year ended March 31, 2017 [$000's]
Accel Entertainment
Centaur Gaming
Cieslok Media[1]
Chilean Gaming Holdings
County Waste
CRS
Davenport Land Investments
Digital Media Solutions
Discovery Air
Grey Eagle Casino
Light Tower Rentals[1]
LSNE
MAG
The Meadowlands
Rivers Casino[2]
Wellington Financial
Winters Bros. of CT
Winters Bros. of LI
Foreign
Exchange gains
(losses)
inclusive of
foreign
exchange
hedging
activities
Total
Net realized
gains (losses)
Net unrealized
gains (losses)
$ —
$ 4,560
$ [30]
$ 4,530
—
19,275
22,707
—
—
—
—
—
—
—
—
31
—
—
—
—
—
—
—
3,719
5,385
6,749
—
—
[8,097]
[1,424]
—
11,670
4,570
—
[12,375]
223
1,015
—
1,251
—
1,540
42
—
[21]
[16]
—
—
—
[73]
7
[89]
[147]
—
[9]
[8]
20,526
22,707
5,259
5,427
6,749
[21]
[16]
[8,097]
[1,424]
—
11,628
4,577
[89]
[12,522]
223
1,006
[8]
Net investment gains on investee companies
$ 22,738
$ 35,270
$ 2,447
$ 60,455
[1]
[2]
Cieslok Media and Light Tower Rentals were realized during fiscal 2017.
During fiscal 2017, Rivers Casino completed a financing and distributed $14.8 million to CEP IV Co-Invest which resulted in a decrease to the fair value
of the investment.
20
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
Year ended March 31, 2016 [$000's]
Accel Entertainment
Casino New Brunswick[1]
Centaur Gaming
Cieslok Media
Chilean Gaming Holdings
County Waste
CRS
Davenport Land Investments
Digital Media Solutions
Discovery Air
Grey Eagle Casino
Light Tower Rentals
Linen King[1]
LSNE
MAG
The Meadowlands
Rivers Casino
Wellington Financial
Winters Bros. of CT
Winters Bros. of LI
June 22, 2017
Foreign
exchange gains
(losses)
inclusive of
foreign
exchange
hedging
activities
Total
Net realized
gains (losses)
Net unrealized
gains (losses)
$ —
$ —
$ [6]
$ [6]
1,474
—
—
—
—
—
—
—
—
—
—
[74]
—
—
—
—
—
—
—
—
17,251
3,228
10,433
3,069
5,025
223
—
[4,993]
378
—
121
—
[1,124]
124
—
[22]
[4]
—
—
1,474
17,372
3,228
9,309
3,193
5,025
201
[4]
[4,993]
378
[11,531]
[1,070]
[12,601]
—
6,277
483
—
165
2,528
—
—
[1]
798
18
1
[152]
—
25
30
[75]
7,075
501
1
13
2,528
25
30
Net investment gains on investee companies
$ 1,400
$ 32,536
$ [1,262] $ 32,674
[1] Casino New Brunswick and Linen King were realized during fiscal 2016.
The Company and its acquisition entities also receive distributions, interest, dividends or fees from various investee
companies. The following table summarizes these income earned by the Company and its acquisition entities for the years
ended March 31:
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
Distributions, Interest, Dividends, and Fees from Investee Companies
June 22, 2017
Year ended March 31, [$000's]
Distributions and interest income
2017
Earned
through
acquisition
entities
Earned
directly by
Clairvest
Earned
directly by
Clairvest
Total
2016
Earned
through
acquisition
entities
Total
Casino New Brunswick
$ — $ — $ — $ — $ 4,587 $ 4,587
Centaur Gaming
CRS
Davenport Land Investments
Digital Media Solutions
Discovery Air
Grey Eagle Casino
LSNE
MAG
The Meadowlands
Rivers Casino
Wellington Financial
—
—
—
—
183
729
—
245
—
—
4,773
5,930
121
622
82
819
395
121
622
82
819
578
2,187
2,916
—
21
866
18,691
—
23,804
—
266
866
18,691
4,773
29,734
—
—
—
—
253
849
74
69
—
—
3,375
4,620
59
465
378
—
—
59
465
378
—
253
1,108
1,957
122
—
1,203
4,896
—
196
69
1,203
4,896
3,375
12,818
17,438
Dividend income
Chilean Gaming Holdings
—
3,701
3,701
—
501
501
Advisory and other fees
Distributions, interest, dividends and
fees from investee companies
1,330
619
1,949
1,928
628
2,556
$ 7,260 $ 28,124 $ 35,384 $ 6,548 $ 13,947 $ 20,495
The Company and its acquisition entities also receive distributions, fees and interest from the CEP Funds as described in the
Transaction with Related Parties section of the MD&A. The following table summarizes the distributions, fees and interest
earned from the CEP Funds for the years ended March 31:
Distributions, Fees and Interest from the CEP Funds
Year ended March 31, [$000's]
Priority distributions
Management fees
Interest on loans advanced
Distributions, fees and interest from
the CEP Funds
2017
Earned
through
acquisition
entities
Earned
directly by
Clairvest
Earned
directly by
Clairvest
Total
2016
Earned
through
acquisition
entities
Total
$ 10,860 $ — $ 10,860 $ 7,760 $ — $ 7,760
1,311
111
—
74
1,311
185
835
1,360
—
902
835
2,262
$ 12,282 $ 74 $ 12,356 $ 9,955
$ 902 $ 10,857
22
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
Also included in distributions and interest income for the year ended March 31, 2017 was income on treasury funds of $0.8
million which included a net realized loss of $0.7 million on the US$7.5 million Light Tower Rentals corporate bonds purchased
under Clairvest’s treasury portfolio. During fiscal 2016, income on treasury funds of $0.5 million included net unrealized losses
of $1.8 million on these bonds. Acquisition entities of Clairvest earned interest from its treasury funds totaling $0.5 million
during fiscal 2017 compared to $0.4 million during fiscal 2016.
The Company also earns carried interest income from the CEP Funds, as described in the Transaction with Related
Parties section of the MD&A. The following table summarizes net carried interest income earned by the Company for the
years ended March 31:
Net carried interest income
Year ended March 31, [$000's]
Realized carried interest from CEP
Realized carried interest from the CEP Funds
Net change in unrealized carried interest from the CEP Funds
Net carried interest income[1]
2017
2016
$ 474
$ 439
830
34,313
5,395
10,421
$ 35,617 $ 16,255
[1]
Includes carried interest which are ultimately paid to non-Clairvest participants if and when they are payable, which are recorded as management
participation as described below
Total expenses for the year were $53.4 million, compared with $32.7 million for the year ended March 31, 2016. The following
table summarizes expenses incurred by the Company for the years ended March 31:
Total Expenses, excluding Income Taxes
Year ended March 31, [$000's]
Employee compensation and benefits
Share-based compensation expenses
Administration and other expenses
Domain and due diligence expenses[1]
Professional fees
Office and other expenses
Finance and foreign exchange expense
Interest and bank charges
Foreign exchange gain
Management participation
Total expenses, excluding income taxes
2017
2016
$ 11,342
$ 10,025
10,992
730
770
3,388
4,888
828
[14]
814
23,834
6,264
120
699
3,389
4,208
871
[432]
439
11,754
$ 51,870
$ 32,690
[1]
Domain and due diligence expenses with respect to investments made alongside CEP V and CEP V-A are allocated to CEP V Co-Invest. These expenses
are therefore included in the fair value determination of Clairvest’s acquisition entities.
Included in share-based compensation expenses for the year ended March 31, 2017 was $0.9 million for the Non-Voting
Option Plan as described in the Equity and Share Information section of the MD&A, $7.8 million for book value appreciation
rights ["BVARs"] and $2.7 million for Deferred Share Units ["DSUs"] and Appreciation Deferred Share Units ["ADSUs"],
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
compared to $0.8 million for the legacy stock option plan, $5.5 million for BVARs and $0.4 million for DSUs and ADSUs for the
year ended March 31, 2016. Refer to notes 2[h], 2[i], 2[j] and 12 to the consolidated financial statements for details of these
compensation plans.
Management participation is further described in the Transaction with Related Parties section of the MD&A.
SUMMARY OF QUARTERLY RESULTS
[$000's except per share information]
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
September 30, 2015
June 30, 2015
Gross
Revenue
$
33,443
52,368
20,354
25,305
28,156
18,956
8,072
20,733
Net
Income
$
17,268
30,764
10,520
11,574
17,265
11,930
2,882
7,889
Net Income
Per
Common Share*
$
1.14
Net Income
Per Common Share
Fully Diluted*
$
1.14
2.02
0.69
0.76
1.14
0.78
0.19
0.52
2.02
0.69
0.76
1.14
0.78
0.19
0.52
* The sum of quarterly net income [loss] per common share may not equal to the full year net income per common share due to rounding and the dilutive
effect on any quarters which may not be applicable for the full year.
Significant variations arise in the quarterly results due to net investment gains, net carried interest income and management
participation which are re-valued on a quarterly basis when conditions warrant an adjustment to the fair value of the
corporate investments and due to realizations, and share-based compensation due to the movement in the trading price and
book value of Clairvest's common shares.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of fiscal 2017 was $17.3 million compared with a net income of $17.3 million for the fourth
quarter of fiscal 2016. Gross revenue for the fourth quarter of fiscal 2017 was $33.4 million compared with $28.2 million for
the fourth quarter of fiscal 2016. Expenses before income tax for the fourth quarter of fiscal 2017 were $14.5 million
compared to $9.6 million for the fourth quarter of fiscal 2016. The Company incurred $1.6 million in tax expense during the
fourth quarter of fiscal 2017, compared to $1.3 million in tax expense for the same quarter last year.
Gross revenue for the fourth quarter of fiscal 2017 comprised $17.2 million in net investment gains, $5.8 million in
distributions, interest, dividends and fees, and $10.4 million in net carried interest income. This compares with net investment
gains in $14.5 million, $5.4 million in distributions, interest, dividends and fees and $8.2 million in net carried interest income
for the fourth quarter of fiscal 2016.
The net investment gains of $17.2 million for the fourth quarter of fiscal 2017 resulted from $18.5 million in net
unrealized gains from Clairvest’s investee companies inclusive of foreign exchange hedging activities and $1.3 million in net
unrealized losses from Clairvest’s acquisition entities. This compared with $15.0 million in net unrealized gains from
Clairvest’s investee companies and $0.5 million in net unrealized losses from Clairvest’s acquisition entities for the fourth
quarter of fiscal 2016. Distributions from acquisition entities are typically declared annually during the fourth quarter of each
fiscal year resulting in net unrealized losses from these acquisition entities.
Distributions, interest, dividends and fees for the quarter included income on treasury funds of $0.3 million, general
partner distributions and interest earned from the CEP Funds of $3.1 million, distributions and interest earned from investee
companies of $2.1 million and $0.3 million from acquisition entities. This compared with $0.7 million in income on treasury
24
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
funds, $3.0 million earned from the CEP Funds, $0.9 million earned from investee companies and $0.8 million in distributions
from Clairvest’s acquisition entities for the same quarter last year.
Net carried interest income of $10.4 million for the fourth quarter of fiscal 2017 comprised $0.1 million in realized
carried interest from CEP and $10.3 million in unrealized carried interest payable by the CEP Funds. Net carried interest
income of $8.2 million for the fourth quarter of fiscal 2016 comprised entirely of unrealized carried interest payable by the
CEP Funds. Net carried interest income from the CEP Funds is further described in the Transaction with Related Parties section
of the MD&A.
Expenses for the fourth quarter of fiscal 2017 included $6.8 million of management and director compensation
expenses, $6.4 million of management participation, $1.1 million in administrative and other expenses, and $0.2 million in
finance and foreign exchange expenses. This compares with $3.8 million of management and director compensation
expenses, $5.4 million of management participation, $0.6 million in administrative and other expenses, and $0.1 million in
finance and foreign exchange expenses recoveries for the fourth quarter of fiscal 2016. Management participation is further
described in the Transaction with Related Parties section of the MD&A.
EQUITY AND SHARE INFORMATION
As at March 31, 2017 and June 22, 2017, Clairvest had 15,194,095 common shares issued and outstanding.
During fiscal 2017, Clairvest purchased and cancelled 20,000 common shares under a previous normal course issuer
bid. No purchases had been made on the current normal course issuer bid to June 22, 2017. As at June 22, 2017, Clairvest
had repurchased a total of 6,615,049 common and non-voting shares for total consideration of $68.9 million over the last
thirteen years.
During fiscal 2017, the Board of Directors of the Company authorized the creation of Non-Voting Series 2 Shares
["Non-Voting Shares"] which have a two times preference over the common shares. The Non-Voting Shares were authorized
as part of the new stock option program as described below. No Non-Voting Shares had been issued as at March 31, 2017
and June 22, 2017.
Also during fiscal 2017, Company adopted a new stock option plan [the "Non-Voting Option Plan"]. Options granted
under the Non-Voting Option Plan are exercisable for Non-Voting Shares. Subsequent to the adoption of the Non-Voting
Option Plan, Clairvest granted 203,353 options under this plan. The Non-Voting Option Plan has a cash settlement feature.
Options granted under this plan vest at a rate of one-fifth of the grant at the end of each year over a five-year period. As at
March 31, 2017 and June 22, 2017, all 203,353 options were outstanding and none had vested.
In addition, during fiscal 2017 the Board of Directors of the Company approved an Employee Deferred Share Units
["EDSU"] Plan. The EDSU Plan provides, among other things, that participants may elect annually to receive all or a portion of
their annual bonus amounts that would otherwise be payable in cash in the form of EDSUs. EDSUs may be redeemed for
cash or for common shares of the Company in accordance with the terms of the plan. Subsequently, the EDSU Plan received
shareholders’ approval by ordinary resolution during fiscal 2017. Clairvest is required to reserve one common share for each
EDSU issued under the EDSU Plan. The maximum number of Clairvest common shares reserved for the EDSU Plan is 200,000
which represented approximately 1.3% of the outstanding number of common shares as at March 31, 2017 and June 22,
2017. As at March 31, 2017 and June 22, 2017, 18,445 EDSUs had been issued based on the terms and conditions of the EDSU
Plan, and none of which had been redeemed.
Clairvest paid an ordinary dividend of $0.10 per share on the common shares in each of fiscal 2017, fiscal 2016 and
fiscal 2015. During fiscal 2017, and 2016 and 2015, Clairvest also paid a special dividend of $0.2191 and, $0.1958 and $0.1492
per share respectively.
Subsequent to year-end, Clairvest declared an annual ordinary dividend of $0.10 per share, and a special dividend
of $0.2621 per share. The dividends will be payable to common shareholders of record as of July 6, 2017. The dividend will
be paid on July 24, 2017. Both dividends are eligible dividends for Canadian income tax purposes.
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
CRITICAL ACCOUNTING ESTIMATES
For a discussion of all significant accounting policies, refer to note 2 to the consolidated financial statements.
Fair value of financial instruments
When a financial asset or liability is initially recognized, its fair value is generally the value of consideration paid or received.
Acquisition costs relating to corporate investments are not included as part of the cost of the investment. Subsequent to
initial recognition, the fair value of an investment quoted on an active market, the fair value is generally the bid price on the
principal exchange on which the investment is traded. Investments that are escrowed or otherwise restricted on sale or
transfer are recorded at amounts at fair values which take into account the escrow terms or other restrictions. In determining
the fair value for such investments, the Company considers the nature and length of the restriction, business risk of the
investee company, its stage of development, market potential, relative trading volume and price volatility and any other
factors that may be relevant to the ongoing and realizable value of the investments. The amounts at which Clairvest’s publicly-
traded investments could be disposed of may differ from this fair value and the differences could be material. Differences
could arise as the value at which significant ownership positions are sold is often different than the quoted market price due
to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity. Estimated costs of disposition are
not included in the fair value determination.
In the absence of an active market, the fair values are determined by management using the appropriate valuation
methodologies after considering the history and nature of the business, operating results and financial conditions, the general
economic, industry and market conditions, capital market and transaction market conditions, contractual rights relating to
the investment, public market comparables, private market transactions multiples and, where applicable, other pertinent
considerations. The process of valuing investments for which no active market exists is inevitably based on inherent
uncertainties and the resulting values may differ from values that would have been used had an active market existed. The
amounts at which Clairvest's privately-held investments could be disposed of may differ from the fair value assigned and the
differences could be material. Estimated costs of disposition are not included in the fair value determination.
In determining the fair value of public company warrants, for which the underlying security is traded on a recognized
securities exchange, and if there are sufficient and reliable observable market inputs, including exercise price and term of the
warrants, market interest rate, and current market price, expected dividends and volatility of the underlying security, a
valuation technique is used. If market inputs are insufficient or unreliable, the warrants are valued at intrinsic value, which is
equal to the higher of the closing bid price of the underlying security less the exercise price of the warrant, or nil. For private
company warrants, the underlying security for which is not traded on a recognized securities exchange, the fair value is
determined consistently with other investments which do not have an active market as described above.
A change to an estimate with respect to Clairvest’s privately-held corporate investments or publicly-traded corporate
investments would impact corporate investments and net investment gains.
Recognition of carried interest and corresponding expenses
The Company records unrealized carried interest receivable on its consolidated statements of financial position which are
based on the fair values of the financial instruments held by the CEP Funds. As discussed previously, fair values of certain
financial instruments are determined using valuation techniques and by their nature, the use of estimates and assumptions.
Changes in the underlying estimates and assumptions could materially impact the determination of the fair value of these
financial instruments. Imprecision in determining fair value using valuation techniques may affect the calculation of
unrealized carried interest receivable and the resulting accrued liabilities for future payouts relating to these unrealized
carried interest at the statement of financial position date.
Deferred income taxes
The process of determining deferred income tax assets and liabilities requires management to exercise judgment while
considering the anticipated timing of disposal of corporate investments, and proceeds thereon, tax planning strategies,
26
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
changes in tax laws and rates, and loss carryforwards. Deferred income tax assets are only recognized to the extent that in
the opinion of management, it is more likely than not that the deferred income tax asset will be realized. A change to an
accounting estimate with respect to deferred income taxes would impact deferred tax liability and income tax expense.
TRANSACTIONS WITH RELATED PARTIES
The general partner of CEP ["CEP GP"], an entity which is controlled by Clairvest, is entitled to participate in distributions
equal to 20% of all net gains [a "20% carried interest"] of CEP as governed by its Limited Partnership Agreement. Effective
December 21, 2015, 10% of the carried interest is allocated to Clairvest and the other 10% is allocated to 2486303 Ontario,
which purchased the 10% carried interest from principals and employees of Clairvest during fiscal 2016 for $1.2 million. During
fiscal 2017, CEP GP earned $0.5 million in carried interest from CEP, 50% of which was ultimately paid to Clairvest, and the
other 50% was ultimately paid to 2486303 Ontario. As at March 31, 2017, CEP had declared and paid distributions to CEP GP
totaling $24.2 million, 50% of which or $12.1 million was ultimately paid to Clairvest, $11.8 million of which was ultimately
paid to the principals and employees of Clairvest and $0.3 million was ultimately paid to 2486303 Ontario.
As at March 31, 2017, if CEP were to sell all of its corporate investments at their current fair values, CEP GP would
receive up to $2.1 million in carried interest from CEP. In accordance with IFRS, Clairvest has recorded the $2.1 million as
carried interest receivable on the consolidated statements of financial position, with a $1.0 million payable owed to 2486303
Ontario.
As a general partner of CEP III, Clairvest is entitled to a priority distribution from CEP III. Effective January 13, 2011,
the priority distribution is calculated monthly as 0.1667% of invested capital net of write-downs of capital then invested. The
priority distribution is reduced to the extent of 75% of any fees earned by Clairvest from corporate investments of CEP III.
During fiscal 2017, CEP III declared to Clairvest priority distributions of $0.9 million. As per the Limited Partnership Agreement,
fees of $0.1 million from corporate investments of CEP III were netted against the priority distributions.
The general partners of CEP III ["CEP III GPs"] are entitled to a 20% carried interest in respect of CEP III as governed
by its Limited Partnership Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated
to MIP III, the general partner of which is Clairvest and the limited partners of which are principals and employees of Clairvest.
The limited partners of MIP III have purchased, at fair market value, units of MIP III. From time to time, additional units in
MIP III may be purchased by the limited partners of MIP III. During fiscal 2017, CEP III GPs earned $0.8 million in carried
interest from CEP III, 50% of which was ultimately paid to Clairvest, and the other 50% was ultimately paid to the limited
partners of MIP III which reduced the management participation liability. As at March 31, 2017, CEP III had declared and paid
distributions to the CEP III GPs totaling $39.5 million, 50% of which was ultimately paid to Clairvest and the other 50% was
ultimately paid to the limited partners of MIP III.
As at March 31, 2017, if CEP III were to sell all of its corporate investments at their current fair values, CEP III GPs
would receive up to $25.2 million in carried interest from CEP III. In accordance with IFRS, Clairvest had recorded the
$25.2 million as carried interest receivable on the consolidated statements of financial position, with the 50% entitlement
that will be ultimately paid to the limited partners of MIP III, or $12.6 million, recorded as a management participation liability
on the consolidated statements of financial position.
Clairvest is required to co-invest alongside CEP III in all investments undertaken by CEP III. CEP III Co-Invest was
established in fiscal 2007 as the investment vehicle for this purpose. CEP III Co-Invest has three limited partners, Clairvest,
2141788 Ontario and MIP III. MIP III had invested $1.1 million in CEP III Co-Invest and in addition is entitled to an 8.25% carried
interest in respect of CEP III Co-Invest via the general partner of CEP III Co-Invest, an entity controlled by Clairvest. Clairvest
is entitled to the first $0.2 million in carried interest received by MIP III, and the remaining carried interest represents the
entitlements of the limited partners of MIP III.
During fiscal 2017, CEP III Co-Invest paid $0.3 million to MIP III with respect to this carried interest entitlement. As
at March 31, 2017, CEP III Co-Invest had declared and paid distributions totaling $5.1 million with respect to this carried
interest entitlement, $0.2 million of which was received by Clairvest and $4.9 million was received by the limited partners of
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
MIP III. As at March 31, 2017, if CEP III Co-Invest were to sell its corporate investments at their current fair values, the limited
partners of MIP III would receive up to $5.9 million in carried interest from CEP III Co-Invest based on the terms described
above, the amount of which had been recorded as a management participation liability on the consolidated statements of
financial position.
Clairvest, as the general partner of MIP III, is also entitled to participate in distributions equal to the realizable value
on the $1.1 million invested by MIP III in CEP III Co-Invest. As at March 31, 2017, $1.9 million had been received by Clairvest.
As general partner of CEP IV, Clairvest is entitled to a priority distribution from CEP IV. Effective January 14, 2016,
the priority distribution is calculated monthly as 0.1667% of invested capital net of write-downs of capital then invested. The
priority distribution is reduced to the extent of 63.2% of any fees earned by Clairvest from corporate investments of CEP IV.
During fiscal 2017, CEP IV declared to Clairvest priority distributions of $3.0 million. As per the Limited Partnership Agreement,
fees of $0.5 million from corporate investments of CEP IV were netted against the priority distributions.
The general partners of CEP IV ["CEP IV GPs"] are entitled to a 20% carried interest in respect of CEP IV as governed
by its Limited Partnership Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated
to MIP IV, the general partner of which is Clairvest and the limited partners of which are principals and employees of Clairvest.
The limited partners of MIP IV have purchased, at fair market value, units of MIP IV. From time to time, additional units in
MIP IV may be purchased by the limited partners of MIP IV. No carried interest had been declared and paid by CEP IV to CEP
IV GPs as at March 31, 2017.
As at March 31, 2017, if CEP IV were to sell all of its corporate investments at their current fair values, CEP IV GPs
would receive up to $59.5 million in carried interest from CEP IV. In accordance with IFRS, Clairvest had recorded the
$59.5 million as carried interest receivable on the consolidated statements of financial position, with the 50% entitlement
that will be ultimately paid to the limited partners of MIP IV, or $29.8 million, recorded as a management participation liability
on the consolidated statements of financial position.
As manager of CEP IV-A, Clairvest is entitled to a management fee from CEP IV-A. Effective January 14, 2016, the
management fee is calculated monthly as 0.1667% of invested capital net of write-downs of capital then invested. The
management fee is reduced to the extent of 10.1% of fees earned by Clairvest from corporate investments of CEP IV-A and
other amounts as provided in the Limited Partnership Agreement. During fiscal 2017, Clairvest earned management fees of
$0.4 million as compensation for its services in the administration of the portfolio of CEP IV-A. As per the Limited Partnership
Agreement, fees of $0.1 million from corporate investments of CEP IV-A were netted against the management fees.
The general partner of CEP IV-A ["CEP IV-A GP"], an entity which is controlled by Clairvest, is entitled to a 20% carried
interest in respect of CEP IV-A as governed by its Limited Partnership Agreement. 10% of the carried interest is allocated to
Clairvest and the remaining 10% is allocated to MIP IV. No carried interest had been declared and paid by CEP IV-A to CEP
IV-A GP as at March 31, 2017.
As at March 31, 2017, if CEP IV-A were to sell all of its corporate investments at their current fair values, CEP IV-A GP
would receive up to $11.5 million in carried interest from CEP IV-A. In accordance with IFRS, Clairvest has recorded the
$11.5 million as carried interest receivable on the consolidated statements of financial position, with the 50% entitlement
that will be ultimately paid to the limited partners of MIP IV, or $5.7 million recorded as a management participation liability
on the consolidated statements of financial position.
Clairvest is required to co-invest alongside CEP IV and CEP IV-A in all investments undertaken by CEP IV and CEP IV-
A. CEP IV Co-Invest was established in fiscal 2010 as the investment vehicle for this purpose. CEP IV Co-Invest has two limited
partners, Clairvest and MIP IV. MIP IV has invested $1.6 million in CEP IV Co-Invest and in addition is entitled to an 8.25%
carried interest in respect of CEP IV Co-Invest via the general partner of CEP IV Co-Invest, an entity controlled by Clairvest.
Clairvest is entitled to the first $0.4 million in carried interest received by MIP IV, and the remaining carried interest represents
the entitlements of the limited partners of MIP IV.
As at March 31, 2017, if CEP IV Co-Invest were to sell all of its corporate investments at their current fair values, MIP
IV would receive up to $13.0 million in carried interest from CEP IV Co-Invest based on the terms described above, the amount
28
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
of which had been recorded as a management participation liability on the statements of financial position. To date, CEP IV
Co-Invest had not made any carried interest payments to MIP IV.
Clairvest, as general partner of MIP IV, is also entitled to participate in distributions equal to the realizable value on
the $1.6 million invested by MIP IV in CEP IV Co-Invest. As at March 31, 2017, $0.6 million had been received by Clairvest.
As general partner of CEP V, Clairvest is entitled to a priority distribution from CEP V. From January 14, 2016 to
January 13, 2021, the priority distribution is calculated monthly as 0.1667% of committed capital; and thereafter, 0.1667% of
invested capital net of write-downs of capital then invested. The priority distribution is reduced to the extent of 58.8% of any
fees earned by Clairvest from corporate investments of CEP V. During fiscal 2017, CEP V declared to Clairvest priority
distributions of $6.9 million. As per the Limited Partnership Agreement, fees of $0.1 million from corporate investments of
CEP V were netted against the priority distributions.
The general partners of CEP V ["CEP V GPs"] are entitled to a 20% carried interest in respect of CEP V as governed by
its limited partnership agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated to
MIP V, the general partner of which is Clairvest and the limited partners of which are principals and employees of Clairvest.
The limited partners of MIP V have purchased, at fair market value, units of MIP V. From time to time, additional units in MIP
V may be purchased by the limited partners of MIP V. No carried interest had been declared and paid by CEP V to CEP V GPs
as at March 31, 2017.
As manager of CEP V-A, Clairvest is entitled to a management fee from CEP V-A. From January 14, 2016 to January
13, 2021, the management fee is calculated monthly as 0.1667% of committed capital; and thereafter, 0.1667% of invested
capital net of write-downs of capital then invested. The management fee is reduced to the extent of 11.2% of fees earned by
Clairvest from corporate investments of CEP V-A and other amounts as provided in the limited partnership agreement. During
fiscal 2017, Clairvest earned management fees of $0.9 million as compensation for its services in the administration of the
portfolio of CEP V-A. As per the limited partnership agreement, fees of $0.3 million from corporate investments of CEP V-A
were netted against the management fees.
The general partner of CEP V-A ["CEP V-A GP"], an entity which is controlled by Clairvest, is entitled to a 20% carried
interest in respect of CEP V-A as governed by its limited partnership agreement. 10% of the carried interest is allocated to
Clairvest and the remaining 10% is allocated to MIP V. No carried interest had been declared and paid by CEP V-A to CEP V-
A GP as at March 31, 2017.
Clairvest is required to co-invest alongside CEP V and CEP V-A in all investments undertaken by CEP V and CEP V-A.
CEP V Co-Invest was established in fiscal 2015 as an investment vehicle for this purpose. CEP V Co-Invest has three limited
partners, Clairvest, 2141788 Ontario and MIP V. MIP V has invested $2.4 million in CEP V Co-Invest and in addition is entitled
to an 8.25% carried interest in respect of CEP V Co-Invest via the general partner of CEP V Co-Invest, an entity controlled by
Clairvest. Clairvest is entitled to the first $1.4 million in carried interest received by MIP V, and the remaining carried interest
represents the entitlements of the limited partners of MIP V. To date, CEP V Co-Invest had not made any carried interest
payments to MIP V.
Clairvest, as the general partner of MIP V, is also entitled to participate in distributions equal to the realizable value
on the $2.4 million invested by MIP V in CEP V Co-Invest. No amounts had been received by Clairvest as at March 31, 2017.
Key management at Clairvest are the Co-Chief Executive Officers ["Co-CEOs"] and its directors. The Co-CEOs are
entitled to annual discretionary cash bonuses of up to 175% of their individual annual salary based on individual performance.
There is also an annual objective cash bonus which is based on Clairvest’s Incentive Bonus Program, stock option plans and
the BVAR plan. Annual salaries and compensation under these plans paid to the Co-CEOs during fiscal 2017 was $2.0 million.
As at March 31, 2017, the total amounts payable to the Co-CEOs under the aforementioned plans were $6.3 million.
Compensation paid to the directors of Clairvest under the DSU plan, the ADSU plan and the BVAR plan during fiscal 2017 was
$2.8 million. As at March 31, 2017, the total amounts payable to the directors of Clairvest under the DSU, ADSU and Non-
Voting Option plans was $10.3 million.
As at March 31, 2017, Clairvest had share purchase loans receivable from certain officers of Clairvest [the "Officers"]
totaling $3.0 million. The loans are interest bearing, have full recourse to the individual and are collateralized by the common
29
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
shares of Clairvest owned by the Officers with a market value of $4.8 million. None of these loans were made to key
management. As at March 31, 2017, Clairvest also had loans receivable from certain officers of a company affiliated with
Clairvest totaling $0.4 million. The loans to officers of the affiliated company bear interest which is paid quarterly. Loans are
repayable upon departure of the officer. Interest of $67 thousand was earned on these loans during fiscal 2017.
During fiscal 2017, the Company had advanced to CEP III $0.1 million in loans bearing interest at the prime rate in
accordance with CEP III’s limited partnership agreement. Interest of $1 thousand was earned from loans to CEP III during
fiscal 2017. Subsequent to year-end, the loans were repaid in full.
During fiscal 2017, the Company had advanced to CEP III Co-Invest $25 thousand in non-bearing interest loans.
Subsequent to year-end, the loans were repaid in full.
As at March 31, 2016, the Company had advanced to CEP IV $5.0 million in loans bearing interest at the Reference
Rate in accordance with CEP IV’s limited partnership agreement. During fiscal 2017, additional loans totaling $3.4 million
were made by the Company to CEP IV. The loans were repaid in full during fiscal 2017. Interest of $0.1 million was earned
from loans to CEP IV during fiscal 2017.
During fiscal 2017, the Company had advanced to CEP IV-A $0.1 million in loans bearing interest at the Reference
Rate in accordance with CEP IV-A’s limited partnership agreement. The loans were repaid in full during fiscal 2017.
As at March 31, 2016, the Company had advanced to CEP IV Co-Invest $10.8 million in non-bearing interest loans.
During fiscal 2017, additional loans totaling $36.5 million were made by the Company to CEP IV Co-Invest. The loans were
repaid in full during fiscal 2017.
During fiscal 2017, the Company had advanced to CEP V $6.5 million in loans bearing interest at the Reference Rate
in accordance with CEP V’s limited partnership agreement. The loans were repaid in full during fiscal 2017. Interest of $12
thousand was earned from loans to CEP V during fiscal 2017.
During fiscal 2017, the Company had advanced to CEP V-A $1.1 million in loans bearing interest at the Reference
Rate in accordance with CEP V-A’s limited partnership agreement. The loans were repaid in full during fiscal 2017. Interest of
$2 thousand was earned from loans to CEP V-A during fiscal 2017.
As at March 31, 2016, the Company had advanced to CEP V Co-Invest $0.5 million in non-bearing interest loans.
During fiscal 2017, additional loans totaling $3.7 million were made by the Company to CEP V Co-Invest. Also during fiscal
2017, $3.9 million of these loans were repaid such that $0.3 million remained outstanding as at March 31, 2017.
As at March 31, 2016, the Company had advanced to 2486303 Ontario $10.9 million in loans bearing interest at 10%
per annum. During fiscal 2017, $1.0 million of these loans were repaid such that $9.9 million remained outstanding as at
March 31, 2017. Interest of $1.0 million was earned from loans to 2486303 Ontario during fiscal 2017.
During fiscal 2017, Clairvest earned $5.9 million in distributions and interest income and $1.3 million in advisory and
other fees from its investee companies. Additionally, acquisition entities of Clairvest which were not consolidated in
accordance with IFRS earned $23.8 million in distributions and interest income, $3.7 million in dividend income and
$0.6 million in advisory and other fees from its investee companies.
As at March 31, 2017, Clairvest had accounts receivable from its investee companies totaling $1.6 million, from CEP
III totaling $0.2 million, from CEP IV totaling $0.3 million, from CEP IV-A totaling $44 thousand, from CEP V totaling $11.4
million and from CEP V-A totaling $2.2 million. Additionally, acquisition entities of Clairvest which were not consolidated in
accordance with IFRS held receivables from CEP III totaling $7 thousand, from CEP IV totaling $12 thousand, from CEP V
totaling $27 thousand and Clairvest’s investee companies totaling $1.8 million.
Clairvest, through PGO Aviation LP, has a 50% ownership in an aircraft where the other 50% ownership is held by a
related party of Clairvest. Clairvest received 100% of the incidental rental income of the aircraft and is responsible for 100%
of the operating expenses. The related party has the right to sell its portion of the ownership of the aircraft to Clairvest at the
fair market value determined at the time of sale. Accordingly, Clairvest has recognized 100% of the net book value of the
aircraft and a liability for the 50% ownership the Company does not own.
30
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
OFF-STATEMENT OF FINACIAL POSITION ARRANGEMENTS
CEP III Co-Invest has committed to co-invest alongside CEP III in all investments undertaken by CEP III. CEP III Co-Invest's co-
investment commitment is $75.0 million, $15.2 million of which remains unfunded as at March 31, 2017. In accordance with
the co-investment agreement, the proportion of the commitment amongst Clairvest, 2141788 Ontario and MIP III is at their
own discretion. CEP III Co-Invest may only sell all or a portion of a corporate investment that is a joint investment with CEP
III if it concurrently sells a proportionate number of securities of that corporate investment held by CEP III.
CEP IV Co-Invest has committed to co-invest alongside CEP IV and CEP IV-A in all investments undertaken by CEP IV
and CEP IV-A. CEP IV's total co-investment commitment is $125.0 million, $21.2 million of which remains unfunded as at
March 31, 2017. In accordance with the co-investment agreement, the proportion of the commitment between Clairvest and
MIP IV is at their own discretion. CEP IV Co-Invest may only sell all or a portion of a corporate investment that is a joint
investment with CEP IV and CEP IV-A if it concurrently sells a proportionate number of securities of that corporate investment
held by CEP IV and CEP IV-A.
CEP V Co-Invest has committed to co-invest alongside CEP V and CEP V-A in all investments undertaken by CEP V and
CEP V-A. CEP V Co-Invest's co-investment commitment is $180.0 million, $142.2 million of which remains unfunded as at
March 31, 2017. In accordance with the co-investment agreement, the proportion of the commitment between Clairvest,
2141788 Ontario and MIP V is at their own discretion. CEP V Co-Invest may only sell all or a portion of a corporate investment
that is a joint investment with CEP V and CEP V-A if it concurrently sells a proportionate number of securities of that corporate
investment held by CEP V and CEP V-A.
Clairvest has committed $25.2 million to Wellington Fund IV, all of which was unfunded at March 31, 2017. As
specified in the Limited Partnership Agreement, upon the closing of Wellington Fund V, Wellington Fund IV may no longer
invest in new investments.
Clairvest has also committed $30.3 million to Wellington Fund V, $14.6 million of which remained unfunded as at
March 31, 2017.
As at March 31, 2017, Clairvest has earned profit distribution totaling $0.9 million through its ownership interest in
the General Partners of Wellington Fund V. Clairvest has guaranteed to return up to amounts received in the event the limited
partners of Wellington Fund V do not meet their return threshold as specified in its Limited Partnership Agreement. As at
March 31, 2017 and 2016, there were no accruals made with respect to the clawback.
Clairvest had guaranteed up to US$10.0 million of CEP III's obligations to a schedule 1 Canadian chartered bank under
CEP III's foreign exchange forward contracts with the bank. Subsequent to year-end, the guarantee was extinguished.
Under Clairvest's Bonus Program, a bonus of 10% of after-tax cash income and realizations on certain Clairvest's
corporate investments would be paid to management annually as applicable [the "Realized Amount"]. As at March 31, 2017,
the Realized Amount under the Bonus Program was $0.2 million and had been accrued under accrued compensation expense
liability. In accordance with IFRS, Clairvest is also required to record a liability equal to a bonus of 10% of the after-tax cash
income and realizations which are applicable but which have yet to be realized. Accordingly, Clairvest also recorded a $5.0
million accrued compensation expense liability that would only be payable to management when the corresponding
realization events have occurred. The Bonus Program does not apply to the income generated from investments made by
Clairvest through CEP III Co-Invest, CEP IV Co-Invest and CEP V Co-Invest.
In conjunction with the sale of Casino New Brunswick, Clairvest had agreed to a net guarantee of $13.5 million to
fund any valid claims made by the purchaser under the indemnity provisions of the sale for a specified period of time. Any
funding pursuant to the guarantee will be allocated 25% to CEP III Co-Invest and 75% to CEP III. As at March 31, 2017, no
amounts with respect to this guarantee had been funded. Subsequent to year-end, the net guarantee was reduced to $2.2
million.
As part of the holding structure of Chilean Gaming Holdings, acquisition entities of CEP III Co-Invest had loans totaling
$41.9 million as at March 31, 2017 from an unrelated financial institution, while another acquisition entity of CEP III Co-Invest
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
held term deposits totaling $41.9 million as at March 31, 2017 with the same financial institution as security for these loans.
CEP III Co-Invest’s ownership of both acquisition entities was 36.8% as at March 31, 2017.
Clairvest had agreed to guarantee up to $10 million to support Discovery Air’s credit facility with its bank. The
guarantee is callable by the lender under certain circumstances and should it be called, Clairvest will assume the lender’s
security position that supports the loans provided by the lender. Clairvest intends to allocate any amounts called under this
guarantee to CEP IV Co-Invest, CEP IV and CEP IV-A on a pro-rata basis in accordance with their respective capital
commitments in the CEP IV fund pool. During fiscal 2017, in conjunction with the DAFS sale transaction as previously
described, Discovery Air repaid $5.0 million of its credit facility which reduced the guarantee provided by Clairvest. As at
March 31, 2017, the total contingent exposure under this guarantee was $2.4 million. Any additional guarantee is subject to
Clairvest’s consent in its sole discretion.
The Discovery Air Investor Group had entered into a definitive agreement to purchase all outstanding common
shares of Discovery Air at a cash consideration of $0.20 per share. The transaction was completed subsequent to year-end
for total cash consideration of $1.5 million, $0.4 million of which was funded by CEP IV Co-Invest.
As at March 31, 2017, the Company had future minimum annual lease payments under non-cancellable operating
leases for the use of office space of $0.5 million due within one year, $1.9 million due after one year but not more than five
years and $2.2 million due after five years.
In connection with its normal business operations, Clairvest is from time to time named as a defendant in actions
for damages and costs allegedly sustained by plaintiffs. While it is not possible to estimate the outcome of the various
proceedings at this time, Clairvest does not believe that it will incur any material loss in connection with such actions.
RISK MANAGEMENT
The private equity investment business involves accepting risk for potential return, and is therefore affected by a number of
risk factors. These factors, categorized as market risk, investing process risk and other risks, are described below. Additional
risks not currently known to us or that we currently believe to be immaterial may also have a material adverse effect on
future business of the Company.
Market risk
Fair Value risk
Fair value risk includes exposure to fluctuations in the fair market value of the Company’s investments. Included in corporate
investments are investee companies for which the fair values have been estimated based on assumptions that may not be
supported by observable market prices. The most significant unobservable input is the multiple of earnings before interest,
taxes, depreciation and amortization ["EBITDA"] used for each individual investee company. In determining the appropriate
multiple, Clairvest considers i] public company multiples for companies in the same or similar businesses; ii] where
information is known and believed to be reliable, multiples at which recent transactions in the industry occurred; and iii]
multiples at which Clairvest invested directly or indirectly in the company, or for follow-on investments or financings. The
resulting multiple is adjusted, if necessary, to take into account differences between the investee company and those the
Company selected for comparisons and factors include public versus private company, company size, same versus similar
business, as well as with respect to the sustainability of the company’s earnings and current economic environment. At March
31, 2017, 10 investee companies were valued using the earnings multiple approach. If the Company had used an earnings
multiple for each investee company that was higher or lower by 0.5 times, the potential effect would have been an increase
of $29.6 million or a decrease of $29.3 million to the carrying value of corporate investments and net investment gains, on a
pre-tax basis, for the year ended March 31, 2017. Earnings multiples used are based on public company valuations as well as
private market multiples for comparable companies.
32
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
Clairvest may also use information about recent transactions carried out in the market for valuations of private equity
investments. When fair value is determined based on recent transaction information, this value is the most representative
indication of fair value for a period of up to twelve months. The fair value of corporate bonds, debentures or loans is primarily
determined using discounted cash flow technique. This technique uses observable and unobservable inputs such as discount
rates that take into account the risk associated with the investment as well as future cash flows. For those investments valued
based on recent transactions and discounted cash flows, Clairvest has determined that there are no reasonable alternative
assumptions that would change the fair value materially as at March 31, 2017.
The Company's corporate investment portfolio was diversified across 16 investee companies in 8 industries and 3
countries as at March 31, 2017. The Company has considered current economic events and indicators in the valuation of its
investee companies.
Interest rate risk
Fluctuations in interest rates affect the Company's income derived from its treasury funds. For financial instruments which
yield a floating interest rate, the income received is directly impacted by the prevailing interest rate. The fair value of financial
instruments which yield a fixed interest rate would change when there is a change in the prevailing market interest rate. The
Company manages interest rate risk on its treasury funds by conducting activities in accordance with the fixed income
securities policy that is approved by the Audit Committee. Management's application of these policies is regularly monitored
by the Audit Committee.
If interest rates were higher or lower by 1%, the potential effect would have been an increase or decrease of $1.2
million to distributions and interest income on a pre-tax basis for the year ended March 31, 2017.
Certain of the Company's corporate investments are also held in the form of debentures and loans. Significant
fluctuations in market interest rates can have a significant impact on the carrying value of these investments.
Currency risk
The Company has implemented a hedging strategy because it has, directly and indirectly, several investments outside of
Canada, currently in the United States and in Chile. The Company has also advanced loans to investee companies which are
denominated in foreign currency. In order to limit its exposure to changes in the value of foreign denominated currencies
relative to the Canadian dollar, Clairvest and its acquisition entities entered into hedging positions against these foreign
denominated currencies as approved by the Board of Directors. In June 2016, the Company adopted a new foreign exchange
policy to not hedge the Chilean Pesos ["CLP"] as approved by the Board of Directors. As a result, at March 31, 2017, the
Company had foreign exchange exposure to the CLP totaling $48.8 million.
A number of investee companies are subject to foreign exchange risk. A significant change in foreign exchange rates
can have a significant impact on the profitability of these entities and in turn the Company's carrying value of these corporate
investments. The Company manages this risk through oversight responsibilities with existing investee companies and by
reviewing the financial condition of investee companies regularly.
Commodity price risk
Certain of Clairvest’s investee companies are subject to price fluctuations in commodities. For example, the price of oil had a
material adverse effect on Light Tower Rentals, an investment which Clairvest realized during fiscal 2017. In addition,
Discovery Air had been negatively impacted by the general downturn in the oil and gas and mining sectors. Clairvest
understands the risk of investing in cyclical industries which are largely tied to commodity prices and takes such risk into
account in making these investments. The Company manages this risk through oversight responsibilities with existing investee
companies and by reviewing the financial condition of investee companies regularly.
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
Investing process risk
June 22, 2017
Competition risk
Clairvest and the CEP Funds compete for acquisition of investments with many other investors, some of which may have
greater depth of investment experience in particular industries or segment or greater financial resources. There may be
intense competition for investments in which Clairvest intends to invest, and such competition may result in less favorable
investment terms than would otherwise be the case. There can, therefore, be no assurance that the investments ultimately
acquired by Clairvest will meet all the investment objectives of Clairvest, or that Clairvest will be able to invest all of the
capital it has committed to invest alongside the CEP Funds. The Company manages this risk through a disciplined approach
to investing its capital and that of the CEP Funds, and has strict investment policies where investments above a certain
threshold require the approval of the Board of Directors.
Uncompleted and unspecified investment risk
The due diligence of each specific investment opportunity that Clairvest looks at and the negotiation, drafting and execution
of the relevant agreements require substantial management time and attention and may incur substantial third-party costs.
In the event that Clairvest elects not to complete a specific investment, the costs incurred up to that point for the proposed
transaction are often not recoverable by Clairvest and the CEP Funds. Furthermore, in the event that Clairvest reaches an
agreement relating to a specific investment, it may fail to complete such an investment for any number of reasons, including
those beyond Clairvest’s control. Any such occurrence could similarly result in a financial loss to Clairvest and the CEP Funds
due to the inability to recoup any of the related costs incurred to complete a transaction. A shareholder must rely upon the
ability of Clairvest’s management in making investment decisions consistent with its investment objectives and policies.
Shareholders will not have the opportunity to evaluate personally the relevant economic, financial and other information
which is utilized by Clairvest in its selection of investments.
Minority investment risk
Clairvest and the CEP Funds may make minority equity investments in entities in which they do not legally control all aspects
of the business or affairs of such entities. As at March 31, 2017, 15 of the 16 investments made by Clairvest were minority
equity investments. In all investments, Clairvest monitors the performance of each investment, maintains an ongoing
dialogue with each investee’s management team and seeks board representation and negative controls as conditions of each
investment.
Gaming investment risk
As at March 31, 2017, Clairvest’s exposure to the gaming industry represented 39.7% of its net book value. These investments
are subject to the risks of any other investment but have heightened exposure to political and regulatory risk whereby a
change in the political or regulatory regime governing the gaming industry in a particular jurisdiction where Clairvest’s gaming
assets are located could have an impact on the ultimate returns of that investment. In addition, many of these investments
involve the construction of a gaming facility whereby not only is Clairvest underwriting the risk of completing the facility on
budget, but it is also relying on forecasted gaming revenue, versus historical results, which is only a best estimate. While a
project is in construction and for a specified period thereafter, the owners of a newly constructed gaming facility may have
to guarantee some or all of the bank facility or agree to fund any operating shortfall. The Company manages this risk through
oversight responsibilities with existing investee companies and by reviewing the financial condition of investee companies
regularly. Historically, Clairvest has been able to manage all of these risks but past performance of Clairvest provides no
assurance of future success.
34
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
Risks upon sale of investments
In connection with the disposition of an investee company, Clairvest and the CEP Funds may be required to make
representations about the business and financial affairs of the business. Clairvest and the CEP Funds may also be required to
indemnify the purchasers of such investee companies to the extent that any such representation turns out to be incorrect,
inaccurate or misleading.
Investment structure and taxation risks
Clairvest structures its investments in a manner that is intended to achieve its investment objectives. There can be no
assurance that the structure of any investment will be as tax efficient as designed or that any particular tax result will be
achieved, due to unanticipated tax law changes or unforeseen circumstances during the planning phase of the tax structuring.
Furthermore, Clairvest’s returns in respect of its investments may be reduced by withholding or other taxes imposed by
jurisdictions in which Clairvest’s investee companies are organized.
Other risks
Credit risk
Credit risk is the risk of a financial loss occurring as a result of default of a counterparty on its obligations to the Company.
For the year ended March 31, 2017, there were no material income effects on changes of credit risk on financial assets. The
Company manages credit risk on corporate investments through thoughtful planning, strict investment criteria, significant
due diligence of investment opportunities and oversight responsibilities with existing investee companies and by conducting
activities in accordance with investment policies that are approved by the Board of Directors. Management's application of
these policies is regularly monitored by the Board of Directors. Management and the Board of Directors review the financial
condition of its investee companies regularly.
The Company is also subject to credit risk on its accounts receivable and loans receivable, a significant portion of
which are with its investee companies and its CEP Funds. The Company manages this risk through its oversight responsibilities
with existing investee companies by reviewing their financial conditions regularly, and through its fiduciary duty as manager
of the CEP Funds and by maintaining sufficient uncalled capital for the CEP Funds to settle obligations as they come due.
The Company manages counterparty credit risk on derivative instruments by only contracting with counterparties
which are Schedule 1 Canadian chartered banks.
The Company manages credit risk on its treasury funds by conducting activities in accordance with the fixed income
securities policy which is approved by the Audit Committee. The Company also manages credit risk by contracting with
counterparties which are Schedule 1 Canadian chartered banks or through investment firms where Clairvest's funds are
segregated and held in trust for Clairvest's benefit. Management's application of these policies is regularly monitored by the
Audit Committee. Management and the Audit Committee review credit quality of cash equivalents and temporary
investments regularly.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. Financial
obligations arising from off-statement of financial position arrangements have been previously discussed. Accounts payable,
loans payable, and derivative instruments have maturities of less than one year. Management participation liability, share-
based compensation liability, and amounts accrued under the Bonus Program are only due upon cash realization or
completion of the respective vesting periods. Total unfunded commitments to co-invest alongside the CEP Funds, as
described were $178.5 million as at March 31, 2017. The timing of any amounts to be funded under these commitments is
dependent upon the timing of investment acquisitions, which are made at the sole discretion of the Company. In addition to
its commitments to co-invest alongside the CEP Funds, as at March 31, 2017, the Company had unfunded commitments of
$25.2 million and $14.6 million to Wellington Fund IV and Wellington Fund V respectively.
35
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
The Company manages liquidity risk by maintaining a conservative liquidity position that exceeds all liabilities payable on
demand. The Company invests treasury funds in liquid assets such that they are available to cover any potential funding
commitments and guarantees. In addition, the Company maintains a $100.0 million credit facility which was undrawn at
March 31, 2017.
As at March 31, 2017, Clairvest had treasury funds of $122.2 million and access to $100.0 million in credit to support
its obligations and current and anticipated corporate investments. Clairvest also had access to $48.9 million in treasury funds
held by its acquisition entities and $443.4 million in uncalled committed third-party capital through the CEP Funds at March
31, 2017 to invest along with Clairvest’s capital.
Conflicts of interest risk
Clairvest’s primary business is that of a private equity investor investing its own capital but it also manages third-party capital
through the CEP Funds. In accordance with the various fund agreements for the CEP Funds, Clairvest is required to invest
alongside the CEP Funds unless the relevant CEP Fund investor committee approves such an investment to be invested by
Clairvest without the CEP Funds’ participation. Accordingly, Clairvest shareholders may not realize the full benefit of Clairvest
investment opportunities as such opportunities are required to be shared with the CEP Funds.
Risk of CEP Fund Limited Partners’ failure to meet capital calls
The general partner of the CEP Funds is responsible to manage the affairs of the CEP Funds, which includes calling capital for
investments made by the CEP Funds. If a limited partner of the CEP Funds fails to make the required capital contribution
when due, Clairvest could be required to increase its investment under certain conditions. The general partner of the CEP
Funds manages this risk through designing the terms of the CEP Funds appropriately and due diligence of potential limited
partners of the CEP Funds prior to admitting them to the partnership.
Minority shareholder risks
As at March 31, 2017, Clairvest’s Board of Directors and employees owned over 90% of Clairvest’s common shares and
Kenneth B. Rotman owned or controlled over 50% of such shares. Accordingly, Mr. Rotman and other insider shareholders
have the ability to exercise substantial influence with respect to Clairvest’s affairs and can usually dictate the outcome of
shareholder votes and may have the ability to prevent certain fundamental transactions.
Accordingly, Clairvest shares may be less liquid and trade at a relative discount compared to circumstances where
such large shareholders did not have the ability to significantly influence or determine matters affecting Clairvest.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company and its acquisition entities entered into foreign exchange forward contracts as economic hedges against the
fair value of its foreign-denominated investments and loans unless specific exemption is approved by the Board of Directors.
During fiscal 2017, the Company received $0.5 million on the settlement of realized foreign exchange forward contracts.
As at March 31, 2017, Clairvest had entered into foreign exchange forward contracts to sell US$1.5 million at an
average rate of Canadian $1.3450 per U.S. dollar through to May 2017. The fair value of the forward contracts as at March
31, 2017 was a gain of $24 thousand. Additionally, acquisition entities of Clairvest had entered into foreign exchange forward
contracts to sell US$165.2 million at an average rate of Canadian $1.3145 per U.S. dollar through to February 2018. The fair
value of the contracts held by these acquisition entities as at March 31, 2017 was a loss of $2.3 million which had been
included in the fair value of Clairvest’s investments in these acquisition entities.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2017
June 22, 2017
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
In accordance with National Instrument 52-109, "Certification of Disclosure in Issuers' Annual and Interim Filings", issued by
the Canadian Securities Administrators ["CSA"], Management has evaluated the effectiveness of Clairvest's disclosure
controls and procedures as of March 31, 2017 and concluded that the disclosure controls and procedures were effective in
ensuring that information required to be disclosed by the Company in its corporate filings is recorded, processed, summarized
and reported within the required time period for the year then ended.
National Instrument 52-109 also requires certification from the Chief Executive Officers and Chief Financial Officer
to certify their responsibilities for establishing and maintaining internal controls with regards to the reliability of financial
reporting and the preparation of financial statements in accordance with IFRS. Management has evaluated Clairvest's design
and operational effectiveness of internal controls over financial reporting for the year ended March 31, 2017. Management
has concluded that the design of internal controls over financial reporting were effective and operated as designed as of
March 31, 2017 based on this evaluation. There were no changes in internal controls during the most recent interim period
that has materially affected, or is reasonably likely to materially affect, internal controls over financial reporting. The Company
has not identified any weakness that has materially affected or is reasonably likely to materially affect the Company's internal
control over financial reporting.
FORWARD-LOOKING STATEMENTS
A number of the matters discussed in this MD&A deal with potential future circumstances and developments and may
constitute "forward-looking" statements. These forward-looking statements can generally be identified as such because of
the context of the statements and often include words such as the Company "believes", "anticipates", "expects", "plans",
"estimates" or words of a similar nature.
The forward-looking statements are based on current expectations and are subject to known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements. Such factors include general and economic business conditions and regulatory risks. The impact of any one risk
factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon
other factors, and management's course of action would depend upon its assessment of the future, considering all
information then available.
All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by these cautionary statements. The Company assumes no obligation to
update forward-looking statements should circumstances, management’s estimates, or opinions change.
REGULATORY FILINGS
The Company's continuous disclosure materials, including interim filings, annual MD&A and audited consolidated financial
statements, Annual Information Form, Notice of Annual Meeting of Shareholders and Proxy Circular are available on the
Canadian System for Electronic Document Analysis and Retrieval ["SEDAR"] at www.sedar.com.
USE OF NON-IFRS MEASURES
This MD&A contains references to "book value" and "book value per share" which are non-IFRS financial measures. Book
value is calculated as the value of total assets less the value of total liabilities. Book value per share is calculated as book value
divided by the total number of common shares of the Company outstanding as at a specific date. The terms book value and
book value per share do not have any standardized meaning according to IFRS. There is no comparable IFRS financial measure
presented in the Company’s consolidated financial statements and thus no applicable quantitative reconciliation for such
non-IFRS financial measure. The Company believes that the measure provides information useful to its shareholders in
understanding our performance, and may assist in the evaluation of the Company’s business relative to that of its peers.
37
MANAGEMENT’S REPORT
The accompanying consolidated financial statements of Clairvest Group Inc. were prepared by management, which is
responsible for the integrity and fairness of the financial information presented. These consolidated financial statements are
prepared in accordance with International Financial Reporting Standards. The financial information contained elsewhere in
the annual report has been reviewed to ensure consistency with the consolidated financial statements.
Management maintains a system of internal accounting controls designed to provide reasonable assurance that
assets are safeguarded, that transactions are properly authorized and that financial records are properly maintained to
facilitate the preparation of financial statements in a timely manner. Under the supervision of management, an evaluation of
the effectiveness of the Company’s internal control over financial reporting was carried out for the year ended March 31,
2017. Based on that evaluation, management concluded that the Company’s internal control over financing reporting was
effective for the year ended March 31, 2017.
The Board of Directors carries out its responsibility for the consolidated financial statements in this annual report
principally through its Audit Committee. The Audit Committee, which comprised three non-management Directors during
the year ended March 31, 2017, meets periodically with management and with external auditors to discuss the scope and
results with respect to financial reporting of the Company. The Audit Committee has reviewed the consolidated financial
statements with management and with the independent auditors. The consolidated financial statements have been approved
by the Board of Directors on the recommendation of the Audit Committee.
Ernst & Young LLP, appointed external auditors by the shareholders, have audited the consolidated financial
statements and their report is included herewith.
B. Jeffrey Parr
Co-Chief Executive Officer
and Managing Director
Daniel Cheng
Chief Financial Officer
38
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF CLAIRVEST GROUP INC.
We have audited the accompanying consolidated financial statements of Clairvest Group Inc., which comprise the
consolidated statements of financial position as at March 31, 2017 and 2016, and the consolidated statements of
comprehensive income, changes in shareholders' equity and cash flows for the years then ended, 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, 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 audits 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 Clairvest
Group Inc. as at March 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Toronto, Canada
June 22, 2017
39
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at March 31
$000s
ASSETS
Cash and cash equivalents [notes 3, 13 and 16]
Temporary investments [notes 3 and 16]
Accounts receivable and other assets [notes 9[m] and 16]
Loans receivable [notes 6, 9[l] and 16]
Derivative instruments [note 14]
Income taxes recoverable
Carried interest receivable [note 9[j]]
Corporate investments [notes 6 and 16]
Fixed assets [notes 7 and 9[o]]
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
2017
2016
$ 106,205 $ 65,250
15,964
21,551
15,654
24
2,029
98,322
410,102
2,100
21,793
27,446
30,563
581
4,888
64,009
353,801
1,860
$ 671,951
$ 570,191
Accounts payable and accrued liabilities [note 9[o]]
$ 3,914 $ 2,501
Income taxes payable
Accrued compensation expense [notes 12 and 15[h]]
Share-based compensation [note 12]
Management participation [note 9]
Deferred income tax liability [note 10]
Contingencies, commitments and guarantees [note 15]
Shareholders' equity
Share capital [note 11]
Retained earnings
See accompanying notes
On behalf of the Board:
96
8,312
21,705
67,050
20,670
110
6,860
17,083
43,977
14,139
$ 121,747
$ 84,670
$ 81,554
$ 81,662
468,650
550,204
403,859
485,521
$ 671,951
$ 570,191
MICHAEL BREGMAN
Director
JOSEPH J. HEFFERNAN
Director
40
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31
$000s [except per share information]
REVENUE
Net investment gains [notes 4 and 6]
Distributions and interest income [notes 6 and 9]
Net carried interest income [note 5]
Management fees [notes 9[e] and 9[h]]
Advisory and other fees [note 9[n]]
EXPENSES
Employee compensation and benefits [notes 12 and 15[h]]
Share-based compensation expenses [note 12]
Administration and other expenses
Finance and foreign exchange expenses [note 8]
Management participation [note 9]
Income before income taxes
Income tax expense [note 10]
2017
2016
$ 72,946
$ 38,079
20,266
35,617
1,311
1,330
131,470
11,342
10,992
4,888
814
23,834
51,870
79,600
9,474
18,820
16,255
835
1,928
75,917
10,025
6,264
4,208
439
11,754
32,690
43,227
3,261
Net income and comprehensive income for the year
Basic and fully diluted net income and comprehensive income per share
[note 11]
$ 70,126
$ 39,966
$ 4.61 $ 2.63
See accompanying notes
41
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended March 31
$000s
Share capital
Retained earnings
Total
shareholders’
equity
$ 81,662
$ 403,859
$ 485,521
As at April 1, 2016
Changes in shareholders' equity
Net income and comprehensive income for the year
Dividends declared [$0.3191 per share]
70,126
[4,855]
[480]
70,126
[4,855]
[588]
Purchase and cancellation of shares [note 11]
[108]
As at March 31, 2017
$ 81,554
$ 468,650
$ 550,204
As at April 1, 2015
Changes in shareholders' equity
Net income and comprehensive income for the year
Dividends declared [$0.2958 per share]
Issuance of shares on exercise of stock options
[note 12]
As at March 31, 2016
See accompanying notes
$ 79,314
$ 368,380
$ 447,694
39,966
[4,487]
39,966
[4,487]
2,348
2,348
$ 81,662
$ 403,859
$ 485,521
42
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31
$000s
OPERATING ACTIVITIES
Net income and comprehensive income for the year
Add [deduct] items not involving a current cash outlay
Amortization and impairment of fixed assets
Share-based compensation expense
Deferred income tax expense
Net investment gains
Unrealized carried interest income and management participation
Non-cash items relating to foreign exchange forward contracts
Non-cash items relating to corporate investments
Adjustments for:
Net proceeds on sale of temporary investments
Loans advanced [notes 6[i], 6[j] and 9]
Receipt of loans advanced [notes 6[i], 6[j] and 9]
Loans received
Repayment of loans received
Proceeds [cost] on settlement of realized foreign exchange forward contracts
[note 14]
Investments made in investee companies or acquisition entities
Proceeds on sale of investee companies
Return of capital from acquisition entities
Settlement of share-based compensation liability
Net change in non-cash working capital balances related to operations [note 13]
Cash provided by [used in] operating activities
INVESTING ACTIVITIES
Purchase of fixed assets, net of disposals
Cash used in investing activities
FINANCING ACTIVITIES
Cancellation of common shares
Cash dividends paid
Issuance of share capital [note 11]
Cash used in financing activities
2017
2016
$ 70,126
$ 39,966
428
11,986
6,531
[72,946]
[11,240]
100
268
5,253
5,829
[58,549]
73,458
—
—
457
[21,110]
—
37,487
[7,364]
30,208
11,605
47,066
[668]
[668]
[588]
[4,855]
—
[5,443]
658
4,608
6,075
[38,079]
[4,050]
[104]
1,819
10,893
36,718
[236,038]
216,926
146
[146]
[4,818]
[40,887]
13
14,754
[12,053]
[25,385]
[16,512]
[31,004]
[251]
[251]
—
[4,487]
2,348
[2,139]
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 [NOTE 13]
40,955
65,250
$ 106,205
[33,394]
98,644
$ 65,250
SUPPLEMENTAL CASH FLOW INFORMATION
Interest received
Distributions received
Income taxes paid
Interest paid
See accompanying notes
$ 3,244
$ 59,013
$ 3,386
$ 568
$ 2,564
$ 11,761
$ 1,941
$ 752
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
1. NATURE OF ACTIVITIES
Clairvest Group Inc. ["Clairvest" or the "Company"] is a private equity investor that specializes in partnering with management
teams and other stakeholders of both emerging and established companies. The Company’s shares are traded on the Toronto
Stock Exchange ["TSX"] under symbol CVG. The Company, which operates in only one business segment, actively seeks to form
mutually beneficial investments with entrepreneurial corporations. Clairvest invests its own capital, and that of third parties,
through Clairvest Equity Partners III Limited Partnership ["CEP III"], Clairvest Equity Partners IV Limited Partnership ["CEP IV"],
Clairvest Equity Partners IV-A Limited Partnership ["CEP IV-A"], Clairvest Equity Partners V Limited Partnership ["CEP V"] and
Clairvest Equity Partners V-A Limited Partnership ["CEP V-A"] [together, the "CEP Funds"]. Clairvest contributes financing and
strategic expertise to support the growth and development of its investee companies in order to create realizable value for all
shareholders. Clairvest is incorporated under the laws of the Province of Ontario.
The Company's head office is located at 22 St. Clair Avenue East, Suite 1700, Toronto, Ontario, Canada, M4T 2S3.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements of Clairvest are prepared in accordance with International Financial Reporting Standards
["IFRS"] as issued by the International Accounting Standards Board ["IASB"].
These audited annual consolidated financial statements and related notes of Clairvest for the years ended March 31,
2017 and 2016 ["consolidated financial statements"] were authorized for issuance by the Board of Directors on June 22, 2017.
The consolidated financial statements have been presented on a historical cost basis, except for certain financial
instruments that have been measured at fair value. The consolidated financial statements have been prepared on a going
concern basis and are presented in Canadian dollars, which is the functional currency of the Company. All values are rounded
to the nearest thousand dollars [$000s], except where otherwise indicated.
Basis of consolidation
The consolidated financial statements have been prepared in accordance with IFRS 10, Consolidated Financial Statements
["IFRS 10"], as issued by the IASB and include the accounts of the Company and its consolidated subsidiaries. As discussed
under critical accounting estimates and judgments, the Company has determined it meets the definition of an investment
entity.
Consolidated subsidiaries
In accordance with IFRS 10, subsidiaries are those entities that provide investment-related services and that the Company
controls by having the power to govern the financial and operating policies of the entity. Such entities would include those
which earn priority distributions or management fees and carried interest from the CEP Funds. All intercompany amounts
and transactions amongst these consolidated entities have been eliminated upon consolidation. The existence and effect
of potential voting rights that are currently exercisable and shareholder agreements are considered when assessing
whether the Company controls an entity. Subsidiaries are fully consolidated from the date on which control is obtained by
the Company and are subsequently deconsolidated from the consolidated financial statements on the date that control
ceases.
The following entities, which are significant in nature, do not meet the definition of an investment entity and provide
investment-related services on behalf of the Company.
Clairvest GP Manageco Inc.
Clairvest GP [GPLP] Inc.
CEP MIP GP Corporation
Clairvest USA Limited
Clairvest General Partner Limited Partnership
Clairvest General Partner III Limited Partnership
Clairvest General Partner IV Limited Partnership
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Clairvest General Partner V Limited Partnership
PGO Aviation Limited Partnership
Interests in unconsolidated subsidiaries ["acquisition entities"]
In accordance with the amendments for investment entities under IFRS 10, interests in subsidiaries other than those that
provide investment-related services are accounted for at fair value through profit or loss rather than through consolidation.
As discussed under critical accounting estimates and judgments, management exercised judgement when determining
whether subsidiaries are investment entities.
The following entities, which are significant in nature, are controlled by Clairvest either directly or indirectly and are
used as acquisition entities of the Company that are accounted for at fair value rather than consolidated. These entities'
principal place of business is in Canada.
2141788 Ontario Corporation ["2141788 Ontario"]
2486303 Ontario Inc. ["2486303 Ontario"]
CEP III Co-Investment Limited Partnership ["CEP III Co-Invest"]
MIP III Limited Partnership ["MIP III"]
CEP IV Co-Investment Limited Partnership ["CEP IV Co-Invest"]
MIP IV Limited Partnership ["MIP IV"]
CEP V Co-Investment Limited Partnership ["CEP V Co-Invest"]
MIP V Limited Partnership ["MIP V"]
The Company may also use intermediate subsidiaries whose sole purpose is to hold investments for the Company and
therefore not included in the list above.
Interests in the CEP Funds
Clairvest manages and invests alongside the CEP Funds, which meet the definition of structured entities under IFRS.
Clairvest provides loans to and earns priority distributions or management fees and carried interest from the CEP Funds,
which are further described in note 9. The Company concluded that its ownership interests in the CEP Funds do not meet
the definition of control under IFRS. Accordingly, the financial positions and operating results of the CEP Funds and other
funds it manages for certain co-investors are not included in Clairvest's consolidated financial statements.
[a] Classification and recognition of financial instruments
In accordance with IAS 39, Financial Instruments: Recognition and Measurement, financial assets and financial liabilities are
classified at initial recognition into the following categories:
Financial assets and liabilities at fair value through profit or loss ["FVTPL"]
This category is further divided into the following:
Financial instruments classified as held for trading: Financial assets and liabilities are classified as held for trading if
they are acquired for the purpose of selling and/or repurchasing in the near term, and are acquired principally for the
purpose of generating a profit from short-term fluctuations in price.
Financial instruments designated as FVTPL through inception: Cash equivalents, temporary investments, derivative
instruments, and corporate investments are designated as FVTPL upon initial recognition. These financial assets are
designated upon initial recognition on the basis that they are part of a group of financial assets that are managed and have
their performance evaluated on a fair value basis, in accordance with risk management and investment strategies of the
Company. The Company does not apply hedge accounting to its derivative instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. The Company includes in this category receivable balances relating to direct and indirect investee companies
["investee companies"] and the CEP Funds as well as other short-term receivables.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Other financial liabilities
This category includes all financial liabilities, other than those classified as FVTPL. The Company includes in this category
amounts relating to accounts payable, accrued liabilities and loans payable.
[b] Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three
months or less.
[c] Temporary investments and corporate investments
The Company carries its temporary investments and its corporate investments at fair value. When a financial instrument is
initially recognized, its fair value is generally the value of consideration paid or received. Acquisition costs relating to
corporate investments are not included as part of the cost of the investment. Subsequent to initial recognition, for the fair
value of an investment quoted on an active market, the fair value is generally the closing bid price on the principal exchange
on which the investment is traded. Investments that are escrowed or otherwise restricted as to sale or transfer are recorded
at a value which takes into account the escrow terms or other restrictions. In determining the fair value for such
investments, the Company considers the nature and length of the restriction, business risk of the investee company, its
stage of development, market potential, relative trading volume and price volatility and any other factors that may be
relevant to the ongoing and realizable value of the investments. The amounts at which Clairvest's publicly traded
investments could be disposed of may differ from this fair value and the differences could be material. Differences could
arise as the value at which significant ownership positions are sold is often different from the quoted market price due to
a variety of factors such as premiums paid for large blocks or discounts due to illiquidity. Estimated costs of disposition are
not included in the fair value determination.
In the absence of an active market, the fair values are determined by management using the appropriate valuation
methodologies after considering the history and nature of the business, operating results and financial conditions, the
general economic, industry and market conditions, capital market and transaction market conditions, contractual rights
relating to the investment, public market comparables, private company transactions multiples and, where applicable,
other pertinent considerations. The process of valuing investments for which no active market exists is inevitably based on
inherent uncertainties and the resulting values may differ from values that would have been used had an active market
existed. The amounts at which Clairvest's privately held investments could be disposed of may differ from the fair value
assigned and the differences could be material. Estimated costs of disposition are not included in the fair value
determination.
In determining the fair value of public company warrants, the underlying security of which is traded on a recognized
securities exchange, if there are sufficient and reliable observable market inputs, including exercise price and term of the
warrants, market interest rate, and current market price, expected dividends and volatility of the underlying security, a
valuation technique is used. If market inputs are insufficient or unreliable, the warrants are valued at intrinsic value, which
is equal to the higher of the closing bid price of the underlying security, less the exercise price of the warrant, or nil. For
private company warrants, the underlying security of which is not traded on a recognized securities exchange, the fair value
is determined consistently with other investments which do not have an active market as described above.
[d] Foreign currency translation
Income and expenses denominated in foreign currencies are translated into Canadian dollars at exchange rates prevailing
at the transaction date. Monetary assets and liabilities are translated into Canadian dollars using exchange rates in effect
at the consolidated statements of financial position dates. Non-monetary assets and liabilities that are measured at
historical cost are translated into Canadian dollars using the exchange rate at the date of transaction. Non-monetary assets
and liabilities that are carried at fair value are translated into Canadian dollars using exchange rates at the date the fair
value was determined. Exchange gains and losses are included in income in the period in which they occur. Foreign currency
transaction gains and losses on financial instruments classified as FVTPL are included in the consolidated statements of
comprehensive income as part of net investments gains.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
[e] Derivative instruments
The Company and its acquisition entities enter into foreign exchange forward contracts to hedge their exposure to
exchange rate fluctuations on their foreign currency denominated investments and loans. These foreign exchange forward
contracts and their underlying investments and loans are valued at exchange rates in effect at the consolidated statements
of financial position dates.
Foreign exchange forward contracts entered into by the Company are included in the consolidated statements of
financial position as derivative instruments and are valued at fair value representing the estimated amount that the
Company would have been required to pay, or received, had the Company settled the outstanding contracts at the
consolidated statements of financial position dates. Any unrealized gains or losses are included in finance and foreign
exchange expense in the consolidated statements of comprehensive income.
Foreign exchange forward contracts entered into by the Company's acquisition entities are included in the fair value
determination of these acquisition entities.
[f] Income recognition
Realized gains or losses on disposition of corporate investments and change in unrealized gains or losses in the value of
corporate investments are calculated based on weighted average cost and are included in net investment gains in the
consolidated statements of comprehensive income. Management fees and advisory and other fees are recorded as income
on an accrual basis when earned. Distributions and interest income are recognized on an accrual basis and dividend income
is recognized on the ex-dividend date. Carried interest from the CEP Funds are recognized on an accrual basis when
estimated fair values of the underlying investments can be measured reliably.
[g] Income taxes
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from
or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date in the countries where the Company and its acquisition entities operate and
generate taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations
in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax
The Company records deferred income tax expense or recovery using the asset and liability method. Under this method,
deferred income taxes reflect the expected deferred tax consequences of temporary differences between the carrying
amounts of assets and liabilities and their respective income tax bases, as well as certain carryforward items. Deferred
income tax assets and liabilities are determined for each temporary difference based on the income tax rates that are
expected to be in effect when the asset or liability is settled. Deferred income tax assets are only recognized to the extent
that, in the opinion of management, the most probable outcome is that the deferred income tax asset will be realized.
[h] Stock-based compensation plans
The Company's stock option plans allow for a cash settlement of stock options. As the economics to choose cash or shares
as settlement is the same for all holders, compensation expense is recognized over the applicable vesting period and a
corresponding liability is recorded based on the fair value of the outstanding stock options at the consolidated statements
of financial position dates. Fair value is measured by use of an appropriate option-pricing model. On the exercise of stock
options for shares, the liability recorded with respect to the options and consideration paid by the employees is credited
to share capital. On the exercise of stock options for cash, the liability recorded is reduced and any difference between the
liability accrued and the amount paid is charged to share-based compensation expense.
[i] Deferred share unit plans
Directors of the Company may elect annually to receive all or a portion of their compensation in deferred share units
["DSUs"] based on the market value of a Clairvest common share on the date directors fees are payable. Upon redemption
of DSUs, the Company pays to the participant a lump sum cash payment equal to the number of DSUs to be redeemed
multiplied by the market value of a Clairvest common share on the redemption date. A participant may redeem his or her
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
DSUs only following termination of board service. Under the Company's DSU plan, a change to the fair value of the DSUs
is charged to share-based compensation expense and recorded as a liability.
Certain directors were also granted Appreciation Deferred Share Units ["ADSUs"]. Upon redemption of the ADSUs,
the Company pays to the participant a lump sum cash payment equal to the number of ADSUs to be redeemed multiplied
by the difference between the market value of a Clairvest common share on the redemption date and the market value of
a Clairvest common share on the grant date. A participant may redeem his or her ADSUs only following termination of
board service. Under the Company's ADSU plan, a change to the fair value of the ADSUs is charged to share-based
compensation expense and recorded as a liability.
Certain employees of the Company may elect annually to receive all or a portion of their annual bonuses in employee
deferred share units ["EDSU"]. The number of EDSUs granted to a participant is determined by dividing the amount of the
elected bonuses to be received by way of EDSUs by the five-day volume-weighted average closing price of the Clairvest
common shares. EDSUs may be redeemed for cash or for common shares of the Company. A participant may redeem his
or her EDSUs only following termination of employment. Under the Company's EDSU plan, a change to the fair value of the
EDSUs is charged to share-based compensation expense and recorded as a liability.
[j] Book value appreciation rights plan
The Company may elect to issue all or a portion of a participant's stock option grant by way of book value appreciation
rights units ["BVARs"]. Upon redemption of BVARs, the Company pays to the participant a lump sum cash payment equal
to the number of BVARs to be redeemed multiplied by the increase in book value per share between the grant date and
the redemption date, and grossed up such that the participant's after-tax proceeds equate to an amount as if the proceeds
were taxed at the capital gains rate. The BVARs vest over a five-year period and the participant may only redeem his or her
BVARs at the earlier of [i] five years from the grant date or [ii] cessation of employment with the Company.
Fair value of the BVARs is calculated based on the latest book value per share published at the time the value is being
determined. As the Company's BVAR plan is a cash-settled plan, a change to the fair value of the BVARs is charged to share-
based compensation expense and recorded as a liability.
[k] Entitlements of partners of a limited partnership
The Company consolidates acquisition entities which include various limited partnerships as described in note 2[I] and the
entitlements of partners of these limited partnerships that are external to the consolidated group of the Company are
recorded as a liability and an expense of the Company. Accordingly, that portion of the carried interest from the CEP Funds
which are ultimately paid to the limited partners of MIP III, MIP IV and MIP V which are external to the consolidated group
are recorded as a management participation liability and a management participation expense on the consolidated
financial statements.
[l] Fixed assets
Fixed assets are accounted for at cost less accumulated amortization. Leasehold improvements are amortized on a straight-
line basis over the lease term including reasonably assured renewal options. All other fixed assets are amortized on a
straight-line basis at the following rates per year:
Aircraft
Computer equipment
Computer software
Furniture, fixtures and equipment
Leasehold improvements
10%
30%
50%
20%
Term of lease
The Company assesses, at each reporting date, whether there is an indication that a fixed asset may be impaired. If any
indication exists, the Company estimates the fixed asset's recoverable amount. The recoverable amount is the higher of its
fair value less costs of disposal and its value in use. When the carrying amount exceeds its recoverable amount, the fixed
asset is considered impaired and is written down to its recoverable amount.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
[m] Net income and comprehensive income per share
Basic net income and comprehensive income per share ["net income"] are determined by dividing net income and
comprehensive income attributable to common shareholders by the weighted average number of common shares
outstanding during the year. Fully diluted net income and comprehensive income per share are determined in accordance
with the treasury stock method and are based on the weighted average number of common shares and dilutive common
share equivalents outstanding during the year.
[n] Critical accounting estimates, assumptions and judgments
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates,
assumptions and judgments that affect the reported amounts. Estimates and judgments are continually evaluated and are
based on historical experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting
estimates could materially differ from the related actual results. The following estimates, assumptions and judgments have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal
year:
Determination of investment entity
Judgment is required when making the determination that the Company or its various subsidiaries meet the definition of
an investment entity under IFRS. In accordance with IFRS 10, an investment entity is an entity that: "obtains funds from
one or more investors for the purpose of providing them with investment management services, commits to its investors
that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both, and
measures and evaluates the performance of substantially all of its investments on a fair value basis." In addition, IFRS 10
clarifies that an investment entity may earn fee income from the provision of investment-related services to external
parties. The Company has historically co-invested alongside third-party capital in the CEP Funds that it manages. In
determining its status as an investment entity, the Company has determined that fair value is the primary measurement
attribute used to monitor and evaluate its investments.
Fair value of financial instruments
Certain financial instruments are recorded in the Company’s consolidated statements of financial position at values that
are representative of or approximate fair value. The fair value of a financial instrument that is traded in active markets at
each reporting date is determined by reference to its quoted market price or dealer price quotations. The fair values of
certain other financial instruments are determined using valuation techniques. By their nature, these valuation techniques
require the use of estimates and assumptions. Changes in the underlying estimates and assumptions could materially
impact the determination of the fair value of a financial instrument. Imprecision in determining fair value using valuation
techniques may affect net investment gains reported in a particular period.
The Company assesses, at each reporting date, whether there is any objective evidence to revise the fair values of its
financial instruments. The assessment of the fair value of a financial instrument requires significant judgment, where
management evaluates, among other factors, the financial health and business outlook of their investees. Fair value
information is presented in note 17.
Recognition of carried interest and corresponding expenses
The determination of the Company's unrealized carried interest receivable recorded on the consolidated statements of
financial position is based on the fair values of the financial instruments held by the CEP Funds. As discussed previously,
fair values of certain financial instruments are determined using valuation techniques and by their nature, the use of
estimates and assumptions. Changes in the underlying estimates and assumptions could materially impact the
determination of the fair value of these financial instruments. Imprecision in determining fair value using valuation
techniques may affect the calculation of unrealized carried interest receivable and the resulting accrued liabilities for future
payouts relating to the unrealized carried interest at the consolidated statements of financial position dates.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Income taxes
The determination of the Company's income and other tax liabilities requires interpretation of complex laws and
regulations often involving multiple jurisdictions. Judgment is required in determining whether deferred income tax assets
should be recognized on the consolidated statements of financial position. Deferred income tax assets are recognized to
the extent that the Company believes it is probable that the assets can be recovered. Furthermore, deferred income tax
balances are recorded using enacted or substantively enacted future income tax rates. Changes in enacted income tax rates
are not within the control of management. However, any such changes in income tax rates may result in actual income tax
amounts that may differ significantly from estimates recorded in deferred tax balances.
3. CASH EQUIVALENTS AND TEMPORARY INVESTMENTS
Cash equivalents consist of deposits in investment and money market savings accounts which have maturities of less than 90
days from the date of acquisition. As at March 31, 2017, the yield ranged between 0.8% and 0.9% per annum [2016 – between
0.8% and 0.9%] with a weighted average rate of pre-tax return of 0.9% per annum [2016 – 0.9%].
As at March 31, 2017, temporary investments comprised guaranteed investment certificates which have maturities
greater than 90 days from the date of acquisition and through to March 2018. The yield on these investments ranged between
1.4% and 1.7% per annum [2016 – between 1.6% and 7.8%], with a weighted average rate of pre-tax return of 1.5% per annum
[2016 – 3.6%]. The composition of Clairvest's temporary investments as at March 31 was as follows:
March 31, 2017
Due after 1 year
March 31, 2016
Total
Total
Due in 1 year
or less
Guaranteed investment certificates
$ 15,964
$ −
$ 15,964 $ 16,336
Corporate bonds and loans
−
−
−
5,457
$ 15,964
$ −
$ 15,964 $ 21,793
4. NET INVESTMENT GAINS
Net investment gains for the years ended March 31, 2017 and 2016 comprised the following:
Net realized gains
Net changes in unrealized gains during the year
2017
2016
$ −
$ 13
72,946
38,066
$ 72,946 $ 38,079
5. NET CARRIED INTEREST INCOME
Net carried interest income for the years ended March 31, 2017 and 2016 comprised the following:
Realized carried interest income [note 9]
$ 1,304
$ 5,834
Net changes in unrealized carried interest [notes 9[j]]
34,313
10,421
2017
2016
$ 35,617
$ 16,255
6. CORPORATE INVESTMENTS
In accordance with IFRS 10, the fair value of the Company’s corporate investments includes the fair value of the net assets of
its acquisition entities that are controlled by the Company. Accordingly, Clairvest's direct corporate investments comprise
these acquisition entities, which invest directly or indirectly in various investee companies and other investee companies
where Clairvest made an investment directly.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
The following table details the fair value of Clairvest’s direct investments and acquisition entities, which are controlled by
Clairvest but which are not part of the consolidated group:
Investee
companies
March 31, 2017
Acquisition
entity net
assets
[liabilities]
Total
Investee
companies
March 31, 2016
Acquisition
entity net
assets
[liabilities]
Total
Held directly by Clairvest Group Inc.
$ 26,549
Held through the following acquisition
entities:
$ —
$ —
$ 26,549
$ 26,071
$ 26,071
2486303 Ontario
2141788 Ontario
CEP III Co-Invest
MIP III
CEP IV Co-Invest
MIP IV
CEP V Co-Invest
MIP V
Total
9,204
56,448
28,235
1,131
225,147
3,413
27,701
2,576
[9,866]
23,741
14,598
585
1,893
29
[1,173]
[109]
[662]
80,189
42,833
1,716
10,272
40,223
22,152
886
[10,424]
27,060
16,486
660
[152]
67,283
38,638
1,546
227,040
193,458
[2,917]
190,541
3,442
26,528
2,467
3,649
25,607
2,381
[55]
[1,563]
[145]
3,594
24,044
2,236
$ 380,404
$ 29,698
$ 410,102
$ 324,699
$ 29,102
$ 353,801
2141788 Ontario, a limited partner of CEP III Co-Invest and CEP V Co-Invest, is a wholly owned acquisition entity of Clairvest.
2486303 Ontario is a wholly owned acquisition entity of Clairvest which is the sole limited partner of Clairvest Equity Partners
Limited Partnership ["CEP"] and a 50% partner of Clairvest General Partner Limited Partnership. CEP was an investment fund
held by third party investors prior to being purchased by 2486303 Ontario in December 2015. Clairvest's relationship with CEP
III Co-Invest and MIP III, CEP IV Co-Invest and MIP IV, and CEP V Co-Invest and MIP V are described in notes 9[c], 9[f] and 9[i],
respectively. During the year ended March 31, 2017, Clairvest made additional investments totaling $20.1 million in CEP IV Co-
Invest.
During fiscal 2017, CEP IV Co-Invest received total cash proceeds of $33.3 million as a result of the realization events
involving Cieslok Media Ltd. as described in note 6[e] and US$11.0 million [C$14.8 million] in distributions from Rivers Casino
subsequent to the completion of a financing as described in note 6[l]. Subsequently, CEP IV Co‐Invest repaid $12.0 million in
loans from Clairvest and returned a total of $37.5 million of capital to Clairvest and $0.6 million of capital to MIP IV as described
in note 9[f]. Also during fiscal 2017, CEP III Co-Invest declared distributions totaling $1.2 million to Clairvest, $1.9 million to
2141788 Ontario and $46 thousand to MIP III, respectively. CEP III Co-Invest also declared and paid $0.3 million to the general
partner, all of which was then declared and paid to the limited partners of MIP III as described in note 9[c].
Also during fiscal 2017, MIP III declared and paid distributions totaling $46 thousand to Clairvest as described in
note 9[c] and MIP IV declared and paid distributions totaling $0.6 million to Clairvest as described in note 9[f].
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
The following table details the assets and liabilities included in the determination of the fair value of the net assets of
acquisition entities excluding the investee companies held by these acquisition entities:
Assets
Cash
Temporary investments
Accounts receivable and other assets
Loans receivable
Income taxes recoverable
Derivative instruments
Deferred income tax asset
Liabilities
March 31, 2017
March 31, 2016
$ 41,430
$ 34,901
7,464
1,890
423
1,030
83
—
10,501
2,426
3,095
2,184
6,165
92
$ 52,320
$ 59,364
Accounts payable and accrued liabilities
$ 2,135
$ 3,736
Loans payable
Income taxes payable
Derivative instruments
Deferred income tax liability
Net assets
10,283
753
2,371
7,080
22,223
37
—
4,266
$ 22,622
$ 30,262
$ 29,698
$ 29,102
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Excluding the net assets from acquisition entities summarized in the table above, the difference between the cost and the fair
value of the Company's investee companies, are summarized below.
March 31, 2017
March 31, 2016
Fair value
Cost
Difference
Fair value
Cost
Difference
Investments made by CEP III Co-Invest
alongside CEP III
Chilean Gaming Holdings[1]
$ 48,835
$ 28,754
$ 20,081
$ 43,674
$ 28,754
$ 14,920
Light Tower Rentals Inc.
—
—
—
—
Lyophilization Services of New England
Inc.
Investments made by CEP IV Co-Invest
alongside CEP IV
Centaur Gaming
Cieslok Media Inc.
County Waste of Virginia, LLC
CRS Contractors Rental Supply Limited
Partnership
Davenport Land Investments[2]
Discovery Air Inc.
Momentum Aerospace Group
New Meadowlands Racetrack, LLC
Rivers Casino
Winters Bros. Waste Systems of CT, LLC
Investments made by CEP V Co-Invest
alongside CEP V
Accel Entertainment Inc.
Digital Media Solutions, LLC
Winters Bros. Waste Systems of Long
Island Holdings, LLC
Grey Eagle Casino[3]
Wellington Financial[4]
27,248
6,619
20,629
16,017
111,170
34,657
76,513
—
17,999
28,758
3,009
21,037
11,557
9,563
14,307
11,160
20,639
8,179
11,190
12,613
22,101
—
7,533
10,573
2,196
36,860
5,068
6,444
9,058
8,053
15,978
8,254
10,636
11,017
15,640
—
10,466
18,185
813
[15,823]
6,489
3,119
5,249
3,107
4,661
[75]
554
1,596
6,461
68,672
10,640
11,981
22,009
2,858
30,685
5,600
8,551
26,202
9,907
12,646
7,987
10,927
14,076
20,852
2,403
7,077
[2,403]
8,940
14,644
54,028
4,015
7,308
10,573
2,196
32,243
3,838
5,580
9,058
8,053
12,910
8,254
10,636
11,017
14,631
6,625
4,673
11,436
662
[1,558]
1,762
2,971
17,144
1,854
[264]
[267]
291
3,059
6,221
Other investments
1,039
1,127
[88]
1,415
1,486
[71]
379,365
217,340
162,025
323,284
193,190
130,094
$ 380,404
$ 218,467
$ 161,937
$ 324,699
$ 194,676
$ 130,023
[1]
[2]
[3]
[4]
Comprised CEP III Co-Invest’s investment in Casino Marina del Sol, Casino Osorno and Casino Sol Calama.
Comprised two entities which hold real estate surrounding a casino in Davenport, Iowa ["Davenport North" and "Davenport South"].
Fair value included the portion owned directly by Clairvest and the portion owned indirectly through 2486303 Ontario. Fair value as at March 31, 2017
excluded the amount of $1.0 million [2016 − $1.2 million] which represented Clairvest’s 50% entitlement of the carried interest of CEP as described in
note 9[a].
Comprised interest in WF Fund III Limited Partnership ["Wellington Fund III"], WF Fund IV Limited Partnership ["Wellington Fund IV"] and WF Fund V
Limited Partnership ["Wellington Fund V"] and their respective general partners.
The fair value of each investee company reflected valuation methodologies as described in note 17, except for notes 6[c], 6[h],
6[i], 6[k], 6[q] and 6[r] as described below. The cost and fair value of investee companies do not reflect foreign exchange gains
or losses on the foreign exchange forward contracts entered into as economic hedges against these investments [note 14]. For
those investments which are hedged by acquisition entities, the fair value of these foreign exchange forward contracts was
included in the net assets [liabilities] of these acquisition entities. Details of each investee company are described below.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
[a] Chilean Gaming Holdings
Chilean Gaming Holdings is a limited partnership which had a 50% ownership interest in Casino Marina del Sol in
Concepcion, Chile, and a 73.8% ownership interest in each of Casino Osorno in Osorno, Chile, and Casino Sol Calama in
Calama, Chile. As at March 31, 2017 and 2016, CEP III Co-Invest held 30,446,299 limited partnership units of Chilean Gaming
Holdings, representing a 36.8% equity interest.
During fiscal 2017, CEP III Co-Invest earned dividends totaling $3.7 million [2016 – $0.5 million] through its investment
in Chilean Gaming Holdings, bringing dividends earned to March 31, 2017 to $13.2 million [2016 – $9.5 million].
[b] Light Tower Rentals Inc.
Light Tower Rentals Inc. ["Light Tower Rentals"] is an oilfield equipment rental company operating in major oil and gas
drilling basins in the United States.
As at March 31, 2016, CEP III Co-Invest held 3,985,604 common shares of Light Tower Rentals representing a 6.7%
ownership interest on a fully diluted basis.
During fiscal 2017, CEP III Co-Invest realized on its investment in Light Tower Rentals which had a carrying value of nil
since December 2015. Over the life of this investment, CEP III Co-Invest received total proceeds of US$37.9 million
[C$40.7 million] against its original investment of US$8.1 million [C$8.2 million] in Light Tower Rentals. Clairvest and
CEP III Co-Invest had also incurred total costs of $4.6 million on the foreign exchange hedging strategy for the investment
in Light Tower Rentals.
[c] Lyophilization Services of New England Inc.
Lyophilization Services of New England Inc. ["LSNE"] is a Manchester, New Hampshire-based contract manufacturing
organization focused on providing lyophilization services to biotech, pharmaceutical and medical device manufacturers. As
at March 31, 2016, CEP III Co-Invest held 6,406,000 Series A 10% cumulative preferred shares which were convertible into
a 11.2% ownership interest on a fully diluted basis and 1,250,000 Series B 10% cumulative preferred shares which were not
convertible. Each Series A preferred share was convertible into one common share at CEP III Co-Invest's discretion and
dividends would be forfeited on conversion.
During fiscal 2017, LSNE redeemed 918,494 Series B preferred shares held by CEP III Co-Invest at their fair market
value of US$0.6 million [C$0.8 million]. As at March 31, 2017, CEP III Co-Invest held 6,406,000 Series A 10% cumulative
preferred shares and 331,506 Series B 10% cumulative preferred shares of LSNE.
Subsequent to year-end, the remaining 331,506 Series B preferred shares were redeemed for additional proceeds of
US$0.2 million [C$0.3 million]. Also subsequent to year-end, CEP III Co-Invest realized its investment in LSNE and received
US$19.9 million [C$27.1 million] in cash proceeds at closing and is entitled to additional proceeds of US$0.3 million subject
to the conditions of the purchase and sale agreement. As at March 31, 2017, LSNE was carried at a value which
approximated the sale proceeds and which had been substantially received subsequent to year-end.
Over the life of this investment, CEP III Co-Invest received total proceeds of US$21.6 million [C$29.0 million] against
its original investment of US$7.5 million [C$7.5 million] in LSNE. Clairvest and CEP III Co-Invest had also incurred total costs
of $2.8 million on the foreign exchange hedging strategy for the investment in LSNE.
[d] Centaur Gaming
Centaur Gaming is the owner and operator of Hoosier Park Racing & Casino in Anderson, Indiana, and Indiana Grand Casino
and Indiana Downs Racetrack in Shelbyville, Indiana. As at March 31, 2016, CEP IV Co-Invest held US$13.6 million in term
loans with stapled warrants which were convertible upon exercise to 9.9% of Class A and Class B units of Centaur Gaming.
During fiscal 2017, CEP IV Co-Invest invested an additional $20.0 million in Centaur Gaming in the form of
US$3.8 million in term loans with stapled warrants which are convertible upon exercise to 2.8% of Class A and Class B units
of Centaur Gaming. As at March 31, 2017, CEP IV Co-Invest held US$17.4 million in term loans with stapled warrants which
were convertible upon exercise to 12.7% of Class A and Class B units of Centaur Gaming.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
[e] Cieslok Media Inc.
Cieslok Media Inc. ["Cieslok Media"] was a Canadian outdoor advertising firm which operates large format digital and static
billboards throughout major cities in Canada.
As at March 31, 2016, CEP IV Co-Invest held 4,014,989 common shares of Cieslok Media representing a 23.5%
ownership on a fully diluted basis.
During fiscal 2017, CEP IV Co-Invest completed the sale of Cieslok Media and received cash proceeds of $33.3 million
against a carrying value of $10.6 million as at March 31, 2016 and its original investment of $4.0 million. Subsequently,
CEP IV Co-Invest distributed the net proceeds to its unitholders in accordance with its Limited Partnership Agreement.
[f] County Waste of Virginia, LLC
County Waste of Virginia, LLC ["County Waste"] is a private regional solid waste collection company headquartered in
Albany, New York. As at March 31, 2016, CEP IV Co-Invest held 6,942.64 Class B units of County Waste representing a
12.5% ownership interest on a fully diluted basis at a cost of $7.3 million.
During fiscal 2017, CEP IV Co-Invest invested an additional US$0.2 million [C$0.2 million] for 174.3 units in Spare
Lots, LLC ["Spare Lots"], a company affiliated with County Waste. As at March 31, 2017, CEP IV Co-Invest held 6,942.64
Class B units in County Waste and 174.3 units in Spare Lots, which collectively represented a 12.5% ownership interest on
a fully diluted basis.
[g] CRS Contractors Rental Supply Limited Partnership
CRS Contractors Rental Supply Limited Partnership ["CRS"] is a provider of equipment rental services and related
merchandise across Ontario, Canada.
As at March 31, 2016, CEP IV Co-Invest held 226,902 Class B units and 10,572,805 Class C units of CRS, representing a
13.6% ownership interest and the right to receive proceeds equal to an additional 2.2% economic interest until it has
received three times its invested capital.
During fiscal 2017, CEP IV Co-Invest exercised its right to purchase Class B units of CRS from a departing unitholder of
CRS at a pre-determined price. CEP IV Co-Invest, via an acquisition entity, purchased 14,994 Class B units of CRS at
$21 thousand, which was funded by a return of capital from CRS. As at March 31, 2017, CEP IV Co-Invest held 241,896 Class
B units and 10,572,805 Class C units of CRS, representing a 13.5% ownership interest and the right to receive proceeds
equal to an additional 2.2% economic interest until it has received three times its invested capital.
Also during fiscal 2017, CEP IV Co-Invest earned distributions totaling $0.6 million [2016 – $0.5 million] from CRS,
bringing distributions earned to March 31, 2017 to $2.0 million [2016 – $1.4 million].
[h] Davenport Land Investments
Davenport Land Developments comprises two entities holding real estate surrounding a casino development in Davenport,
Iowa ["Davenport North" and "Davenport South"].
As at March 31, 2017 and 2016, CEP IV Co-Invest had invested US$1.4 million [C$1.6 million] for an 18.7% ownership
in Davenport North and US$0.8 million [C$0.9 million] for a 13.4% ownership interest in Davenport South. Additionally,
CEP IV Co-Invest had advanced a US$0.6 million promissory note to a partner to help fund its 50% ownership in Davenport
North, which effective October 1, 2016, bears interest at a rate of 10% per annum.
[i] Discovery Air Inc.
Discovery Air Inc. ["Discovery Air"] is a specialty aviation services company operating across Canada and in select locations
internationally.
As at March 31, 2016, CEP IV Co-Invest had invested $22.0 million in secured convertible debentures ["Debentures"].
The Debentures, which had a maturity date of March 22, 2017 and were extended to May 5, 2018 during fiscal 2017, accrue
interest at a rate of 10% per annum and interest is paid in-kind and compounded on an annual basis. At March 31, 2016,
the gross accrued value of the Debentures was $32.1 million, which included $10.1 million in accrued interest. During fiscal
2017, $3.2 million [2016 – $2.9 million] in interest was accrued on the Debentures and $1.7 million [2016 – nil] in interest
payment was made by Discovery Air in conjunction with the sale transaction of Discovery Air Fire Services ["DAFS"] to
Momentum Aerospace Group ["MAG"] as described in note 6[j]. As at March 31, 2017, the gross accrued value of the
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Debentures was $33.6 million. As at March 31, 2017, the carrying value of the Debentures was $14.2 million [2016 –
$28.5 million], which excluded $11.5 million [2016 – $3.6 million] in accrued interest on the Debentures and an additional
$7.8 million [2016 – nil] write-down of the Debentures associated with the challenges experienced in the divisions providing
commercial aviation services in Northern Canada. As at March 31, 2017, the Debentures were convertible into 2,637,703
[2016 – 2,775,824] common shares of Discovery Air at a conversion price of $12.73 [2016 – $11.56] per share. As at March
31, 2017, the closing quoted market price of a Discovery Air common share was $0.20 [2016 – $0.21] per share.
As at March 31, 2016, CEP IV Co-Invest held 20,758,800 common shares of Discovery Air and Clairvest held 506,615
common shares of Discovery Air, which collectively represented a 25.9% ownership interest on a fully diluted basis. During
fiscal 2017, CEP IV Co-Invest invested an additional $0.2 million to acquire 1,118,609 common shares of Discovery Air. As
at March 31, 2017, Clairvest and CEP IV Co-Invest collectively held 22,384,024 common shares representing a 27.3%
ownership interest on a fully diluted basis. As at March 31, 2017 and 2016, the carrying value of the Discovery Air common
shares was nil. CEP IV Co-Invest had also committed to fund under a definitive agreement with a group of investors [the
“Discovery Air Investor Group”] to purchase all outstanding common shares of Discovery Air at a cash consideration of
$0.20 per share. The transaction was completed subsequent to year-end for total cash consideration of $1.5 million, $0.4
million of which was funded by CEP IV Co-Invest.
As at March 31, 2016, Clairvest had advanced to Discovery Air $2.3 million in the form of a promissory note bearing
interest at 8.0% per annum and was repayable May 15, 2016. During fiscal 2017, the maturity date was extended to
September 15, 2017. Interest of $0.2 million [2016 – $0.2 million] was earned from this promissory note from Discovery
Air during fiscal 2017. As at March 31, 2017 and 2016, the promissory note was included in loans receivable at the accrued
value.
As at March 31, 2016, CEP IV Co-Invest had committed to advance up to $3.8 million to Discovery Air in the form of a
secured revolving credit facility with interest at 12% per annum on drawn amounts, $2.2 million of this facility had been
drawn. During fiscal 2017, an additional $0.9 million was advanced under this facility and $3.1 million was repaid. In
December 2016, the secured revolving credit facility was extinguished at the maturity date. Interest of $0.2 million [2016
– nil] was earned from the secured revolving credit facility during fiscal 2017.
Also during fiscal 2017, CEP IV Co-Invest and other investors of Discovery Air [the "Discovery Air Investor Group"]
provided a $25.0 million secured revolving credit facility ["Revolver"] to Discovery Air Defence Services Inc. ["DA Defence"]
a subsidiary of Discovery Air, $20.0 million of which was drawn at closing and was outstanding as at March 31, 2017. All
drawn amounts bear interest at a rate of 12% per annum which compounds quarterly and the Revolver matures on
December 15, 2017 subject to acceleration in the event of certain refinancing transactions. The Revolver provides the
Discovery Air Investor Group the option to convert the outstanding balance of the Revolver into common shares of DA
Defence based on an agreed market value of DA Defence. As at March 31, 2017, CEP IV Co-Invest’s portion of the drawn
amounts under the Revolver was $6.6 million. Interest of $0.2 million was earned from the Revolver to DA Defence during
fiscal 2017. As at March 31, 2017, the loans made by CEP IV Co-Invest under the Revolver were carried at the accrued value
of $6.9 million. Subsequent to year-end, the Revolver was fully drawn, with CEP IV Co-Invest advancing an additional $1.4
million under the Revolver.
[j] Momentum Aerospace Group
MAG is a U.S.-based specialty aviation and intelligence, surveillance and reconnaissance service provider. As at March 31,
2017 and 2016, CEP IV Co-Invest held 33,736 Class A stock of MAG, representing a 10.3% ownership interest on a fully
diluted basis. The Class A stock has a stated dividend rate of 10% per annum and each Class A stock is convertible into
1.0114 common stock of MAG at CEP IV Co-Invest’s discretion and dividends are forfeited on conversion.
During fiscal 2017, MAG acquired DAFS from Discovery Air. In support of this transaction, CEP IV Co-Invest advanced
$1.1 million to DAFS in the form of promissory notes bearing interest at 10.0% per annum with a maturity date of January
31, 2021. Interest of $21 thousand was earned from these promissory notes to DAFS during fiscal 2017.
As at March 31, 2016, Clairvest had provided $1.0 million in loans to MAG Canada, a Canadian subsidiary of MAG, in
support of its operations. During fiscal 2017, Clairvest advanced an additional $7.0 million [2016 − $6.9 million] to MAG
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Canada, and $5.1 million [2016 − $6.8 million] of these loans were repaid such that $2.9 million [2016 − $1.0 million]
remained outstanding as at March 31, 2017 and had been included in loans receivable at the accrued value. Interest of
$0.2 million [2016 – $69 thousand] was earned from loans to MAG Canada during fiscal 2017. An additional $1.0 million of
the loans were repaid subsequent to year-end.
[k] New Meadowlands Racetrack, LLC
New Meadowlands Racetrack, LLC [the "Meadowlands"] operates a standardbred horseracing track located in East
Rutherford, New Jersey.
As at March 31, 2017 and 2016, CEP IV Co-Invest had funded US$5.4 million [C$5.6 million] to the Meadowlands in
the form of secured convertible debentures, which accrue interest at a rate of 15% per annum, 10% of which was payable
quarterly in cash and 5% was payable-in kind. Commencing January 1, 2016, CEP IV Co-Invest agreed to the entire 15%
interest be payable in-kind. CEP IV Co-Invest also holds warrants which entitle it to invest in equity securities of the
Meadowlands subject to certain conditions. The 5% interest on the secured convertible debentures is forfeited in the event
Clairvest exercises the warrants.
As at March 31, 2016, the gross accrued value of the secured debentures was US$6.6 million [C$8.6 million], which
included US$1.2 million [C$1.5 million] in accrued interest. During fiscal 2017, US$1.0 million [C$1.3 million] [2016 –
US$0.9 million; C$1.2million] in interest was accrued on the Debentures and no interest payments [2016 – US$0.6 million;
C$0.8 million] were made by the Meadowlands. As at March 31, 2017, the gross accrued value of the secured debentures
was US$7.6 million [C$10.1 million]. As at March 31, 2017, the carrying value of the secured debentures was US$6.5 million
[C$8.7 million] [2016 – US$6.6 million; C$8.6 million], which excluded US$1.1 million [C$1.4 million] [2016 – nil] in accrued
interest on the secured debentures.
Also during fiscal 2017, CEP IV Co-Invest invested an additional US$0.7 million [C$0.9 million] in the form of preferred
debt, which is junior to the secured debentures. The preferred debt has a stated interest rate of 3% per annum and interest
is payable-in-kind.
[l] Rivers Casino
Rivers Casino is a gaming entertainment complex located in Des Plaines, Illinois.
As at March 31, 2017 and 2016, CEP IV Co-Invest held 9,021,917 units of Rivers Casino, representing a 5.0% ownership
on a fully diluted basis.
During fiscal 2017, Rivers Casino completed a financing and made a distribution to its owners. CEP IV Co-Invest
received distributions from Rivers Casino of US$11.0 million [C$14.8 million]. CEP IV Co-Invest also earned quarterly
distributions and fees as an investor in Rivers Casino. During fiscal 2017, CEP IV Co-Invest earned $3.9 million [2016 – $4.9
million] in quarterly distributions and $0.6 million [2016 – $0.6 million] in quarterly fees from Rivers Casino.
As a result of CEP IV Co-Invest's investment in Rivers Casino requiring certain acquisition entities in the United States,
$1.2 million [2016 – $1.8 million] in U.S. income tax obligations were incurred during fiscal 2017.
[m] Winters Bros. Waste Systems of CT, LLC
Winters Bros. Waste Systems of CT, LLC ["Winters Bros. of CT"] is a regional solid waste collection, recycling and disposal
company based in Danbury, Connecticut.
As at March 31, 2017 and 2016, CEP IV Co-Invest held 76,284.8 Class C units of Winters Bros. of CT, representing 13.4%
ownership interest on a fully diluted basis.
[n] Accel Entertainment Inc.
Accel Entertainment Inc. ["Accel Entertainment"] is a licensed video gaming terminal operator in Illinois.
During fiscal 2016, CEP V Co-Invest invested US$9.7 million [C$12.9 million] to acquire 283,478 Class D preferred
shares of Accel Entertainment, representing a 7.9% ownership interest in Accel Entertainment on a fully diluted basis. The
Class D preferred shares are entitled to certain preference over all other equity of Accel Entertainment.
During fiscal 2017, CEP V Co-Invest invested an additional US$2.4 million [C$3.1 million] in Accel Entertainment
pursuant to a post-closing purchase price adjustment.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
[o] Digital Media Solutions, LLC
Digital Media Solutions, LLC ["Digital Media Solutions"] operates as a lead generation engine for companies in a variety of
different industries.
As at March 31, 2017 and 2016, CEP V Co-Invest held 6,150,000 Class B units of Digital Media Solutions, representing
a 13.9% ownership interest on a fully diluted basis. The Class B units are entitled to certain preference over all other equity
units in Digital Media Solutions.
During fiscal 2017, CEP V Co-Invest earned distributions totaling $0.8 million [2016 – nil] from Digital Media Solutions,
bringing distributions earned to March 31, 2017 to $0.8 million [2016 – nil].
[p] Winters Bros. Waste Systems of Long Island Holdings, LLC
Winters Bros. Waste Systems of Long Island Holdings, LLC ["Winters Bros. of LI"] is a regional solid waste collection, recycling
and disposal company based in Long Island, New York. WBLI II, LLC ["WBLI II"], an affiliated company of Winters Bros. of LI
which is owned proportionately by the same unitholders of Winters Bros. of LI.
During fiscal 2016, CEP V Co-Invest invested an additional US$0.5 million [C$0.7 million] to acquire 89,266 Class C
units of Winters Bros. of LI. Also during fiscal 2016, CEP V Co-Invest invested US$0.3 million [C$0.3 million] for 256,037
units of WBLI II.
As at March 31, 2017 and 2016, CEP V Co-Invest held 1,487,773 Class C units of Winters Bros. of LI and 256,037 units
of WBLI II, representing a 14.0% ownership on a fully diluted basis in the respective entities.
[q] Grey Eagle Casino
Grey Eagle Casino is a charitable casino on Tsuu T'ina First Nation reserve lands, located southwest of the City of Calgary,
Alberta. As at March 31, 2017 and 2016, Clairvest held units of a limited partnership which operates Grey Eagle Casino,
entitling Clairvest to between 2.8% and 9.6% of the earnings of the casino until December 18, 2022. Additionally, CEP is
entitled to between 8.5% and 28.7% of the earnings of the Grey Eagle Casino until December 18, 2022. As described
previously in note 6, 2486303 Ontario owns a 90% interest in CEP, and Clairvest owns a 10% interest in CEP through its
carried interest entitlement.
During fiscal 2017, Clairvest earned $0.7 million [2016 – $0.9 million] and CEP earned $2.2 million
[2016 – $1.1 million] in equity distributions from Grey Eagle Casino.
[r] Wellington Financial
Wellington Financial, through various Wellington Funds, provides debt capital and operating lines to technology,
biotechnology, communications and industrial product companies across Canada and the United States. Clairvest, as a
limited partner, committed to fund $25.2 million representing a 12.6% interest in Wellington Fund IV and another $30.3
million representing a 10.1% interest in Wellington Fund V as at March 31, 2017 and 2016. Clairvest continues to own an
interest in the residual of Wellington Fund III and is also entitled to participate in the profits received by the general partner
of Wellington Fund III, Wellington Fund IV and Wellington Fund V.
During fiscal 2017, Clairvest funded an additional $1.0 million [2016 – $14.6 million] to Wellington Fund V, bringing
total amount funded to $15.6 million [2016 – $14.6 million] against the $30.3 million commitment as at March 31, 2017.
During fiscal 2017, Clairvest received distributions totaling $4.6 million [2016 – $3.3 million] from Wellington
Financial, bringing total distributions received from current and prior Wellington Funds to $31.2 million [2016 –
$26.6 million].
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
7. FIXED ASSETS
The composition of Clairvest's fixed assets was as follows:
Aircraft
IT equipment [1]
Furniture,
fixtures and
equipment
Leasehold
improvements
Total
At cost
Balance as at April 1, 2016
$ 3,603
$ 801
$ 460
$ 2,585
$ 7,449
Additions
Disposals
—
—
—
[18]
—
—
686
—
686
[18]
Balance as at March 31, 2017
$ 3,603
$ 783
$ 460
$ 3,271
$ 8,117
Accumulated amortization
Balance as at April 1, 2016
$ 2,004
$ 749
$ 377
$ 2,459
$ 5,589
Amortization expense
355
24
21
28
428
Balance as at March 31, 2017
$ 2,359
$ 773
$ 398
$ 2,487
$ 6,017
Carrying amount as at March 31, 2017
$ 1,244
$ 10
$ 62 $ 784
$ 2,100
At cost
Balance as at April 1, 2015
$ 3,603
$ 724
$ 391 $ 2,480
$ 7,198
Additions
—
77
69
105
251
Balance as at March 31, 2016
$ 3,603
$ 801
$ 460
$ 2,585
$ 7,449
Accumulated amortization
Balance as at April 1, 2015
$ 1,648
$ 638
$ 368 $ 2,277
$ 4,931
Amortization expense
356
111
9
182
658
Balance as at March 31, 2016
$ 2,004
$ 749
$ 377
$ 2,459
$ 5,589
Carrying amount as at March 31, 2016
$ 1,599
$ 52
$ 83 $ 126
$ 1,860
[1] Comprised computer equipment and computer software.
8. CREDIT FACILITIES
As at March 31, 2016, Clairvest had a $75.0 million committed credit facility with a maturity date of April 30, 2020. The credit
facility bore interest at 11% per annum on drawn amounts and at 1% per annum on undrawn amounts. The Company also had
a $20.0 million credit facility available, which was subject to annual renewals and bore interest at the prime rate plus 0.5% per
annum. The prime rate as at March 31, 2017 and 2016 was 2.70% per annum. No amounts were drawn under both credit
facilities during fiscal 2017 and 2016 and both credit facilities were extinguished and replaced by a new credit facility in
December 2016.
During fiscal 2017, Clairvest closed on a new 5-year, $100.0 million committed revolving credit facility with several
Schedule 1 Canadian chartered banks. The credit facility, which has an initial expiry of December 2021 and is eligible for a one-
year extension on each anniversary of the closing date, bears interest at the prime rate plus 1.25% per annum on drawn
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
amounts and a standby fee of 0.70% per annum on undrawn amounts. The amount available under the credit facility as at
March 31, 2017 was $100.0 million. No amounts had been drawn on the facility during the fiscal 2017 and as at March 31,
2017.
9. RELATED PARTY DISCLOSURES
Investments in acquisition entities and investment-related transactions with acquisition entities are further described in
note 6.
[a] The general partner of CEP ["CEP GP"], an entity which is controlled by Clairvest, is entitled to participate in distributions
equal to 20% of all net gains [a "20% carried interest"] of CEP as governed by its Limited Partnership Agreement. Effective
December 21, 2015, 10% of the carried interest is allocated to Clairvest and the other 10% is allocated to 2486303 Ontario,
which purchased the 10% carried interest from principals and employees of Clairvest during fiscal 2016 for $1.2 million.
During fiscal 2017, CEP GP earned $0.5 million [2016 − $0.4 million] in carried interest from CEP, 50% of which was
ultimately paid to Clairvest, and the other 50% was ultimately paid to 2486303 Ontario. As at March 31, 2017, CEP had
declared and paid distributions to CEP GP totaling $24.2 million [2016 – $23.6 million], $12.1 million [2016 – $11.8 million]
of which was ultimately paid to Clairvest, $11.8 million [2016 – $11.8 million] of which was ultimately paid to the principals
and employees of Clairvest and $0.3 million [2016 – nil] was ultimately paid to 2486303 Ontario.
[b] As general partner of CEP III, Clairvest is entitled to a priority distribution from CEP III. Effective January 13, 2011, the
priority distribution is calculated monthly as 0.1667% of invested capital net of write-downs of capital then invested. The
priority distribution is reduced to the extent of 75% of fees earned by Clairvest from corporate investments of CEP III.
During fiscal 2017, CEP III declared to Clairvest priority distributions of $0.9 million [2016 – $1.2 million]. As per the Limited
Partnership Agreement, fees of $0.1 million [2016 – $0.2 million] from corporate investments of CEP III were netted against
the priority distributions.
The general partners of CEP III ["CEP III GPs"] are entitled to a 20% carried interest in respect of CEP III as governed by
its Limited Partnership Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated
to MIP III, the general partner of which is Clairvest and the limited partners of which are principals and employees of
Clairvest. The limited partners of MIP III have purchased, at fair market value, units of MIP III. From time to time, additional
units in MIP III may be purchased by the limited partners of MIP III. During fiscal 2017, CEP III GPs earned
$0.8 million [2016 – $5.4 million] in carried interest from CEP III, 50% of which, or $0.4 million [2016 – $2.7 million], was
ultimately paid to Clairvest, and the other 50% or $0.4 million [2016 – $2.7 million] was ultimately paid to the limited
partners of MIP III, which reduced the management participation liability. As at March 31, 2017, CEP III had declared and
paid distributions to the CEP III GPs totaling $39.5 million [2016 – $38.7 million], 50% of which was ultimately paid to
Clairvest and the other 50% was ultimately paid to the limited partners of MIP III. During fiscal 2017, $0.2 million [2016 −
$1.1 million] of the carried interest paid by CEP III was ultimately paid to key management.
[c] As described in note 15[a], Clairvest is required to co-invest alongside CEP III in all investments undertaken by CEP III.
CEP III Co-Invest was established in fiscal 2007 as the investment vehicle for this purpose. CEP III Co-Invest has three limited
partners, Clairvest, 2141788 Ontario and MIP III. MIP III has invested $1.1 million in CEP III Co-Invest and in addition is
entitled to an 8.25% carried interest in respect of CEP III Co-Invest via the general partner of CEP III Co-Invest, an entity
controlled by Clairvest. Clairvest is entitled to the first $0.2 million in carried interest received by MIP III, and the remaining
carried interest is the entitlement of the limited partners of MIP III.
During fiscal 2017, CEP III Co-Invest paid $0.3 million [2016 – $0.7 million] to MIP III with respect to this carried interest
entitlement. As at March 31, 2017, CEP III Co-Invest had declared and paid distributions totaling $5.1 million
[2016 – $4.8 million] with respect to this carried interest entitlement, $0.2 million [2016 – $0.2 million] of which was
received by Clairvest and $4.9 million [2016 – $4.6 million] was received by the limited partners of MIP III. During fiscal
2017, $0.1 million [2016 − $0.3 million] of the carried interest paid by CEP III Co-Invest was ultimately paid to key
management.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Clairvest, as the general partner of MIP III, is entitled to participate in distributions equal to the realizable value on the $1.1
million invested by MIP III in CEP III Co-Invest. As at March 31, 2017, $1.9 million [2016 – $1.9 million] has been received
by Clairvest.
[d] As general partner of CEP IV, Clairvest is entitled to a priority distribution from CEP IV. Up to January 13, 2016, the priority
distribution was calculated monthly as 0.1667% of committed capital and thereafter is calculated monthly as 0.1667% of
invested capital net of write-downs of capital then invested. The priority distribution is reduced to the extent of 63.2% of
any fees earned by Clairvest from corporate investments of CEP IV. During fiscal 2017, CEP IV declared to Clairvest priority
distributions of $3.0 million [2016 – $4.8 million]. As per the Limited Partnership Agreement, fees of $0.5 million [2016 –
$0.6 million] from corporate investments of CEP IV were netted against the priority distributions.
The general partners of CEP IV ["CEP IV GPs"] are entitled to a 20% carried interest in respect of CEP IV as governed by
its Limited Partnership Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated
to MIP IV, the general partner of which is Clairvest and the limited partners of which are principals and employees of
Clairvest. The limited partners of MIP IV have purchased, at fair market value, units of MIP IV. From time to time, additional
units in MIP IV may be purchased by the limited partners of MIP IV. No carried interest had been declared and paid by CEP
IV to CEP IV GPs as at March 31, 2017 and 2016.
[e] As manager of CEP IV-A, Clairvest is entitled to a management fee from CEP IV-A. Up to January 13, 2016, the management
fee was calculated monthly as 0.1667% of committed capital and thereafter is calculated monthly as 0.1667% of invested
capital net of write-downs of capital then invested. The management fee is reduced to the extent of 10.1% of fees earned
by Clairvest from corporate investments of CEP IV-A and other amounts as provided in the Limited Partnership Agreement.
During fiscal 2017, Clairvest earned management fees of $0.4 million [2016 – $0.6 million] as compensation for its services
in the administration of the portfolio of CEP IV-A. As per the Limited Partnership Agreement, fees of $0.1 million [2016 –
$0.3 million] from corporate investments of CEP IV-A were netted against the management fees.
The general partner of CEP IV-A ["CEP IV-A GP"], an entity which is controlled by Clairvest, is entitled to a 20% carried
interest in respect of CEP IV-A as governed by its Limited Partnership Agreement. 10% of the carried interest is allocated
to Clairvest and the remaining 10% is allocated to MIP IV. No carried interest had been declared and paid by CEP IV-A to
CEP IV-A GP as at March 31, 2017 and 2016.
[f] As described in note 15[b], Clairvest is required to co-invest alongside CEP IV and CEP IV-A in all investments undertaken
by CEP IV and CEP IV-A. CEP IV Co-Invest was established in fiscal 2010 as the investment vehicle for this purpose. CEP IV
Co-Invest has two limited partners, Clairvest and MIP IV. MIP IV has invested $1.6 million in CEP IV Co-Invest and in addition
is entitled to an 8.25% carried interest in respect of CEP IV Co-Invest via the general partner of CEP IV Co-Invest, an entity
controlled by Clairvest. Clairvest is entitled to the first $0.4 million in carried interest received by MIP IV, and the remaining
carried interest is the entitlement of the limited partners of MIP IV. No carried interest had been declared and paid by CEP
IV Co-Invest as at March 31, 2017 and 2016.
Clairvest, as general partner of MIP IV, is also entitled to participate in distributions equal to the realizable value on the
$1.6 million invested by MIP IV in CEP IV Co-Invest. As at March 31, 2017, $0.6 million [2016 – nil] had been received by
Clairvest.
[g] As general partner of CEP V, Clairvest is entitled to a priority distribution from CEP V. The priority distribution is calculated
monthly as follows: [i] from March 2, 2015 to January 13, 2016, 0.1667% of capital allocated to specifically identifiable
investments net of any write-downs of capital invested, [ii] from January 14, 2016 to January 13, 2021, 0.1667% of
committed capital, and [iii] thereafter, 0.1667% of invested capital net of write-downs of capital then invested. The priority
distribution is reduced to the extent of 58.8% of any fees earned by Clairvest from corporate investments of CEP V. During
fiscal 2017, CEP V declared to Clairvest priority distributions of $6.9 million [2016 – $1.8 million]. As per the Limited
Partnership Agreement, fees of $0.1 million [2016 – $27 thousand] from corporate investments of CEP V were netted
against the priority distributions.
The general partners of CEP V ["CEP V GPs"] are entitled to a 20% carried interest in respect of CEP V as governed by its
Limited Partnership Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated to
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
MIP V, the general partner of which is Clairvest and the limited partners of which are principals and employees of Clairvest.
The limited partners of MIP V have purchased, at fair market value, units of MIP V. From time to time, additional units in
MIP V may be purchased by the limited partners of MIP V. No carried interest had been declared and paid by CEP V to CEP
V GPs as at March 31, 2017 and 2016.
[h] As manager of CEP V-A, Clairvest is entitled to a management fee from CEP V-A. The management fee is calculated monthly
as follows: [i] from March 2, 2015 to January 13, 2016, 0.1667% of capital allocated to specifically identifiable investments
net of any write-downs of capital invested, [ii] from January 14, 2016 to January 13, 2021, 0.1667% of committed capital,
and thereafter, 0.1667% of invested capital net of write-downs of capital then invested. The management fee is reduced
to the extent of 11.2% of fees earned by Clairvest from corporate investments of CEP V-A and other amounts as provided
in the Limited Partnership Agreement. During fiscal 2017, Clairvest earned management fees of $0.9 million [2016 –
$0.3 million] as compensation for its services in the administration of the portfolio of CEP V-A. As per the Limited
Partnership Agreement, fees of $0.3 million [2016 – $0.1 million] from corporate investments of CEP V-A were netted
against the management fees.
The general partner of CEP V-A ["CEP V-A GP"], an entity which is controlled by Clairvest, is entitled to a 20% carried
interest in respect of CEP V-A as governed by its Limited Partnership Agreement. 10% of the carried interest is allocated to
Clairvest and the remaining 10% is allocated to MIP V. No carried interest had been declared and paid by CEP V-A to
CEP V-A GP as at March 31, 2017 and 2016.
[i] As described in note 15[c], Clairvest is required to co-invest alongside CEP V and CEP V-A in all investments undertaken by
CEP V and CEP V-A. CEP V Co-Invest was established in fiscal 2015 as an investment vehicle for this purpose.
CEP V Co-Invest has three limited partners, Clairvest, 2141788 Ontario and MIP V. MIP V has invested $2.4 million in
CEP V Co-Invest and in addition is entitled to an 8.25% carried interest in respect of CEP V Co-Invest via the general partner
of CEP V Co-Invest, an entity controlled by Clairvest. Clairvest is entitled to the first $1.4 million in carried interest received
by MIP V, and the remaining carried interest is the entitlement of the limited partners of MIP V. No carried interest had
been declared and paid by CEP V Co-Invest as at March 31, 2017 and 2016.
Clairvest, as the general partner of MIP V, is also entitled to participate in distributions equal to the realizable value
on the $2.4 million invested by MIP V in CEP V Co-Invest. No amounts had been received by Clairvest as at March 31, 2017
and 2016.
[j] The entitlement of carried interest from the CEP Funds as described in notes 9[b], 9[d], 9[e], 9[g] and 9[h] follow a
distribution allocation which is governed by the Limited Partnership Agreement of the respective CEP Funds, and which
requires the limited partners of the respective CEP Funds to first receive back the aggregate amount of their capital
contribution and a specified preferred rate of return prior to a payment of carried interest to the General Partner. As at
March 31, 2017, if CEP and the CEP Funds were to sell all of their corporate investments at their current fair values and
distribute all proceeds in accordance with the respective limited partnership agreements, the respective general partners
would receive the following in carried interest from CEP and the CEP Funds. As described in note 2[f], Clairvest has recorded
these as carried interest receivable on the consolidated statements of financial position.
CEP[1]
CEP III
CEP IV
CEP IV-A
CEP V
CEP V-A
March 31, 2017
March 31, 2016
$ 2,093
$ 2,377
25,249
59,527
11,453
―
―
17,938
36,212
7,482
―
―
$ 98,322
$ 64,009
[1]
A corresponding $1.0 million [2016 ― $1.2 million] in payable to 2486303 Ontario had been recorded to reflect the carried interest entitled by
2486303 Ontario as at March 31, 2017. Also see note 6[q].
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
[k] If the CEP Funds were to sell all of their corporate investments, CEP III Co-Invest, CEP IV Co-Invest and CEP V Co-Invest [the
"CEP Co-Invest Partnerships"] would be required to sell all of their corporate investments at their current fair values and
as such, MIP III, MIP IV and MIP V would receive carried interest based on the terms previously described. The following
details the carried interest entitlements from the CEP Funds and the CEP Co-invest Partnerships that will be ultimately paid
to non-Clairvest participants, which were recorded as a management participation liability on the consolidated statements
of financial position.
CEP III
CEP IV
CEP IV-A
CEP V
CEP V-A
CEP III Co-Invest[1]
CEP IV Co-Invest[1]
CEP V Co-Invest[1]
March 31, 2017
March 31, 2016
$ 12,625
$ 8,969
29,763
5,727
―
―
48,115
5,945
12,990
―
18,106
3,741
―
―
30,816
4,467
8,694
―
[1]
Represents the entitlements of the limited partners of MIP III, MIP IV and MIP V, respectively, as described in notes 9[c], 9[f] and 9[i].
$ 67,050
$ 43,977
[l] Changes in loans receivable for the years ended March 31, 2017 and 2016 were as follows:
CEP III[1]
CEP IV[2]
CEP IV-A[2]
CEP V[2]
CEP V-A[2]
CEP III Co-Invest[3]
CEP IV Co-Invest[3]
CEP V Co-Invest[3]
2486303 Ontario[4]
Clairvest investee companies[5]
Other
April 1, 2016
Loans advanced
Loans repaid
March 31, 2017
$ ―
$ 140 $ ―
$ 140
5,008
―
―
―
―
10,780
542
10,901
27,231
3,307
25
3,403
86
6,480
1,142
25
36,497
3,736
―
51,509
7,040
―
[8,411]
[86]
[6,480]
[1,142]
―
[47,277]
[3,952]
[969]
[68,317]
[5,141]
―
―
―
―
―
25
―
326
9,932
10,423
5,206
25
$ 30,563
$ 58,549
$ [73,458]
$ 15,654
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
CEP III[1]
CEP IV[2]
CEP IV-A[2]
CEP V[2]
CEP V-A[2]
CEP III Co-Invest[3]
CEP IV Co-Invest[3]
CEP V Co-Invest[3]
MIP III[3]
2486303 Ontario[4]
Clairvest investee companies[5]
Other
April 1, 2015
Loans advanced
Loans repaid
March 31, 2016
$ ―
$ 9,388
$ [9,388]
$ ―
3,428
567
―
―
―
4,684
―
35
―
8,714
2,622
115
45,655
6,049
67,719
17,485
3,756
20,183
39,152
―
11,016
220,403
14,309
1,326
[44,075]
[6,616]
[67,719]
[17,485]
[3,756]
[14,087]
[38,610]
[35]
[115]
[201,886]
[13,624]
[1,416]
5,008
―
―
―
―
10,780
542
―
10,901
27,231
3,307
25
$ 11,451
$ 236,038
$ [216,926]
$ 30,563
[1] Loans advanced to CEP III bear interest at the prime rate in accordance with CEP III’s Limited Partnership Agreement. Interest of $1 thousand [2016
– $1 thousand] was earned from loans advanced to CEP III during fiscal 2017. Subsequent to year-end, these loans were repaid.
[2] Loans advanced to CEP IV, CEP IV-A, CEP V and CEP V-A bear interest at the Reference Rate in accordance with the respective Limited Partnership
Agreements. Interest of $0.1 million [2016 – $1.3 million] was earned from loans advanced to these partnerships during fiscal 2017.
[3] Loans advanced to these acquisition entities are non-interest bearing loans.
[4] Loans advanced to 2486303 Ontario bear interest at 10.0% per annum. Interest of $1.0 million [2016 – $0.3 million] was earned from these loans
during fiscal 2017.
[5] Comprised loans advanced to Discovery Air and a Canadian subsidiary of MAG. See notes 6[i] and 6[j].
[m] Accounts receivable and other assets comprised the following:
Clairvest's investee companies
CEP III
CEP IV
CEP IV-A
CEP V
CEP V-A
Other accounts receivable and prepaid expenses
Share purchase loans and loans to officers of affiliated company
March 31, 2017
March 31, 2016
$ 1,612
$ 1,644
166
305
44
11,388
2,155
15,670
2,168
3,713
432
12,942
109
4,984
988
21,099
3,159
3,188
$ 21,551
$ 27,446
Included in accounts receivable and other assets as at March 31, 2017 were share purchase loans made to certain officers
of the Company totaling $3.0 million [2016 − $2.3 million]. The share purchase loans bear interest which is paid annually,
have full recourse and are collateralized by the common shares of the Company purchased by the officers with a market
value of $4.8 million [2016 – $2.9 million] as at March 31, 2017. None of these loans were made to key management.
Also included in accounts receivable and other assets as at March 31, 2017 were other loans made to certain officers of
a company affiliated with Clairvest totaling $0.4 million [2016 − $0.9 million]. The loans to officers of the affiliated
company bear interest which is paid quarterly. Loans are repayable upon departure of the officer. Interest of $67
thousand [2016 – $62 thousand] was earned on these loans during the year.
Additionally, acquisition entities of the Company which were not consolidated by the Company as described in
note 6 held receivables from CEP III totaling $7 thousand [2016 – $1 thousand], from CEP IV totaling $12 thousand
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
[2016 – $0.5 million], from CEP IV-A totaling $2 thousand [2016 – nil], from CEP V totaling $27 thousand [2016 – $0.1
million] and from Clairvest's investee companies totaling $1.8 million [2016 – $1.7 million].
[n] During fiscal 2017, Clairvest earned $5.9 million [2016 – $4.6 million] in distributions and interest income and $1.3 million
[2016 – $1.9 million] in advisory and other fees from its investee companies. Additionally, acquisition entities of the
Company which were not consolidated by the Company as described in note 6 earned $23.8 million [2016 – $12.8 million]
in distributions and interest income, $3.7 million [2016 – $0.5 million] in dividend income and $0.6 million
[2016 – $0.6 million] in advisory and other fees from its investee companies.
[o] Clairvest, through PGO Aviation LP, has a 50% ownership in an aircraft where the other 50% ownership is held by a related
party of Clairvest. Clairvest received 100% of the incidental rental income of the aircraft and is responsible for 100% of
the operating expenses. The related party has the right to sell its portion of the ownership of the aircraft to Clairvest at
the fair market value determined at the time of sale. Accordingly, Clairvest has recognized 100% of the net book value of
the aircraft and a liability for the 50% ownership the Company does not own.
10. INCOME TAXES
Income tax expense for the years ended March 31, 2017 and 2016 comprised the following:
Current income tax expense [recovery]
Deferred income tax expense
2017
2016
$ 2,943
$ [2,814]
6,531
6,075
$ 9,474
$ 3,261
A reconciliation of the income tax expense for the years ended March 31, 2017 and 2016 based on the Federal and Ontario
statutory rate and the effective rate follows:
2017
2016
Income before income taxes
Statutory Federal and Ontario income tax rate
Statutory Federal and Ontario income taxes
$
79,600
21,094
%
$
%
26.50
26.50
43,227
11,455
[5,128]
26.50
26.50
[11.86]
Non-taxable portion of net investment gains and distributions
[12,120]
[15.23]
Non-taxable portion of carried interest net of management
participation
Non-deductible portion of foreign exchange cost
Non-deductible portion of other expenses
Foreign income tax rate differences
Tax recoveries regarding prior year
Other
[1,596]
[2.01]
[1,285]
[2.97]
―
891
451
―
1.12
0.57
[612]
[0.77]
1,366
1.72
9,474
11.90
128
22
[276]
[778]
[877]
3,261
0.29
0.05
[0.64]
[1.80]
[2.03]
7.54
In addition to the income tax expense recorded by Clairvest, acquisition entities of Clairvest recorded $5.4 million
[2016 – $3.2 million] in income tax expense during fiscal 2017, which had been included in the fair value determination of these
acquisition entities.
Deferred income tax liabilities relate to temporary differences on corporate and temporary investments, derivative
instruments, accounts payable and accrued liabilities, income, and unrealized carried interest income. The composition was as
follows:
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Temporary differences on corporate and temporary investments
Temporary differences on derivative instruments
Temporary differences on accrued compensation and share-based compensation
Temporary differences on income
Temporary differences on unrealized carried interest net of management participation
Other
March 31, 2017
March 31, 2016
$ 18,065
$ 13,699
3
[5,204]
1,412
4,144
2,250
77
[4,565]
1,534
2,654
740
$ 20,670
$ 14,139
All deferred income tax expenses [recoveries] were recognized in net income during fiscal 2017 and 2016.
11. SHARE CAPITAL
Authorized
Unlimited number of preference shares issuable in series, with the designation, rights, privileges, restrictions, and conditions
to be determined by the Board of Directors prior to the issue of the first shares of a series.
Unlimited number of common shares
10,000,000 non-voting shares (series 1)
1,000,000 non-voting shares (series 2)
Issued and outstanding
March 31, 2017
March 31, 2016
Common shares, beginning of year
Issued on exercise of stock options
[note 12]
Purchased and cancelled under normal course
issuer bid
Shares
Amount
Shares
Amount
15,214,095
$ 81,662
15,134,095
$ 79,314
—
[20,000]
—
[108]
80,000
—
2,348
—
Common shares, end of year
15,194,095
$ 81,554
15,214,095
$ 81,662
During fiscal 2017, the Company filed a normal course issuer bid enabling it to make market purchases of up to 760,627
[2016 – 760,704] of its common shares in the 12-month period ending March 6, 2018. During fiscal 2017, the Company made
no purchases under the current normal course issuer bid and purchased and cancelled 20,000 common shares under a previous
normal course issuer bid for an aggregate cost of $0.6 million. In total, 3,449,895 [2016 – 3,429,895] common shares at a cost
of $35.9 million [2016 – $35.3 million] had been purchased under current and all previous normal course issuer bids as at
March 31, 2017. An additional 934,200 common and 2,230,954 non-voting shares had been purchased for cancellation outside
of the normal course issuer bid for an aggregate cost of $33.0 million.
Common shares of 15,194,095 [2016 − 15,214,095] were outstanding as at March 31, 2017. The weighted average
number of common shares outstanding during fiscal 2017 was 15,202,669 [2016 − 15,179,547].
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
The basic and fully diluted net income per share computations for 2017 and 2016 were as follows:
Net income and
comprehensive
income
[000s]
Weighted
average
number of
shares
2017
Per share
amount
Net income and
comprehensive
income
[000s]
Weighted
average
number of
shares
2016
Per share
amount
Basic and fully diluted
$ 70,126 15,202,669
$ 4.61
$ 39,966 15,179,547
$ 2.63
During fiscal 2017, the Board of Directors of the Company authorized the creation of Non-Voting Series 2 Shares ["Series 2
Shares"] which have a two times preference over the common shares. The Series 2 Shares were authorized as part of the new
stock option program as described in note 12. No Series 2 Shares had been issued as at March 31, 2017.
12. SHARE-BASED COMPENSATION
The Company has a stock option plan [the "Legacy Option Plan"] in place which had 555,000 options outstanding as at
March 31, 2015. During fiscal 2016, 555,000 options were exercised, 80,000 of which were exercised for shares, increasing
share capital by $2.3 million. The remaining 475,000 options were exercised under the cash settlement plan and had no impact
on share capital. As at March 31, 2017 and 2016, no options were outstanding under the plan, and an additional 558,856 are
available for future grants. As at March 31, 2017 and 2016, 558,856 [2016 – 558,856] common shares of the Company have
been made available for issuance to eligible participants.
A summary of the status of the Company's Legacy Option Plan as at March 31, 2016 and changes during the year
ended March 31, 2016 are presented below:
Options outstanding, April 1, 2015
Options exercised
Options outstanding, March 31, 2016
[1] Adjusted for special dividends where applicable.
Number of options
Weighted average exercise price
per share[1]
555,000
[555,000]
─
$ 10.36
10.36
$ ─
During fiscal 2017, the Company adopted a new stock option plan [the "Non-Voting Option Plan"]. Options granted under the
Non-Voting Option Plan are exercisable for Series 2 Shares as described in note 11. Subsequent to the adoption of the
Non-Voting Option Plan, Clairvest granted 203,353 options under this plan. Option granted under this plan vest at a rate of
one-fifth of the grant at the end of each year over a five-year period. As at March 31, 2017, all 203,353 options were
outstanding and none had vested.
Clairvest recognized stock-based compensation expense based upon the fair value of the outstanding stock options
as at March 31, 2017 using the Black-Scholes option pricing model with the following assumptions:
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
As at March 31, 2017
Grant
# of options granted
# of options vested
Price ($)[1]
Black-Scholes assumptions used
Expected volatility
Expected forfeiture rate[2]
Expected dividend yield
Risk-free interest rate
Expected life [years]
Value using Black-Scholes [000s][3]
March 31, 2017
203,353
—
57.00
10%
0%
1.00%
0.95%
4.25
$ 937
[1]
[2]
[3]
Based on two times the five-day weighted average closing price of Clairvest common shares at date of grant and is adjusted for any special dividends
paid by the Company.
Assumed a 0% forfeiture rate as a result of a cash settlement feature in Clairvest’s stock option plan and historical forfeiture rates of individuals included
in the previous stock option plan.
Share price for a Clairvest common share as at March 31, 2017 was $33.60 [TSX: CVG].
During fiscal 2017, the Board of Directors of the Company approved an Employee Deferred Shared Units ["EDSU"] Plan. The
EDSU Plan provides, among other things, that participants may elect annually to receive all or a portion of their annual bonus
amounts that would otherwise be payable in cash in the form of EDSUs. EDSUs may be redeemed for cash or for common
shares of the Company in accordance with the terms of the plan. The EDSU Plan received shareholders’ approval by ordinary
resolution during fiscal 2017. Clairvest is required to reserve one common share for each EDSU issued under the EDSU Plan.
The maximum number of Clairvest common shares reserved for the EDSU Plan is 200,000, which represented approximately
1.3% of the outstanding number of common shares as at March 31, 2017. During fiscal 2017, 18,445 EDSUs were issued based
on the terms and conditions of the EDSU Plan. Accordingly, an accrual of $0.6 million [2016 – nil] had been included in share-
based compensation liability. During fiscal 2017, Clairvest recognized an expense of $0.1 million with respect to EDSUs.
As at March 31, 2017, a total of 1,091,081 [2016 – 1,119,348] BVARs were outstanding, the accrual in respect of which
was $10.0 million [2016 – $8.5 million] and had been included in share-based compensation liability, and an additional $5.9
million [2016 – $5.7 million] not accrued as those BVARs had not vested. During fiscal 2017, 283,861 [2016 – 241,664] BVARs
were granted, 312,128 [2016 – 204,994] BVARs were exercised and none [2016 – 23,014] were forfeited. For the year ended
March 31, 2017, Clairvest recognized an expense of $7.8 million [2016 – $5.5 million] with respect to BVARs.
Compensation paid and payable to key management
Key management at Clairvest are the Co-Chief Executive Officers ["Co-CEOs"] and its directors. The Co-CEOs are entitled to
annual discretionary cash bonuses of up to 175% of their individual annual salary based on individual performance. There is
also an annual objective cash bonus which is based on Clairvest's Incentive Bonus Program as described in note 15[h], the
stock option plans, the BVAR Plan and the EDSU Plan. Aggregate compensation paid for the years ended March 31 to the Co-
CEOs was as follows:
Paid
Salaries
Annual incentive plans
Stock options
2017
2016
$ 652 $ 652
1,377
─
1,649
9,903
$ 2,029 $ 12,204
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Compensation payable to the Co-CEOs at the consolidated statements of financial position dates was as follows:
Payable
Annual incentive plans
Stock options
Book value appreciation rights
March 31, 2017
March 31, 2016
$ 2,500 $ 2,261
99
3,668
─
1,100
$ 6,267 $ 3,361
As at March 31, 2017, 235,516 [2016 – 243,402] DSUs were held by directors of the Company, the accrual in respect of which
was $8.2 million [2016 – $6.9 million] and had been included in share-based compensation liability. During fiscal 2017, 16,210
[2016 – 14,299] DSUs were granted and 24,096 DSUs [2016 – nil] were exercised for $0.7 million. For the year ended March
31, 2017, Clairvest recognized an expense of $2.0 million [2016 – $0.4 million] with respect to DSUs.
As at March 31, 2017, 105,000 [2016 – 120,000] ADSUs were held by directors of the Company, the accrual in respect
of which is $2.0 million [2016 – $1.6 million] and had been included in share-based compensation liability. During fiscal 2017,
no ADSUs [2016 – 15,000] were granted and 15,000 ADSUs [2016 – nil] were exercised for $0.3 million. For the year ended
March 31, 2017, Clairvest recognized an expense of $0.7 million [2016 – recovery of $2 thousand] with respect to ADSUs.
During fiscal 2017, compensation paid to directors under the BVAR, DSU and ADSU plans were $2.8 million [2016 –
nil]. In addition to the DSU and ADSU plans previously discussed, compensation payable to the directors of Clairvest included
$0.1 million [2016 – nil] under the Non-Voting Option Plan.
13. CONSOLIDATED STATEMENTS OF CASH FLOWS
The net change in non-cash working capital balances related to operations was as follows:
Accounts receivable and other assets
Income taxes recoverable
Accounts payable and accrued liabilities
Income taxes payable
Accrued compensation expense
Cash and cash equivalents as at March 31, 2017 and 2016 comprised the following:
Cash
Cash equivalents
2017
2016
$ 5,895
$ [12,391]
2,859
1,413
[14]
1,452
[4,768]
681
41
[75]
$ 11,605 $ [16,512]
March 31, 2017
March 31, 2016
$ 88,026
$ 2,704
18,179
62,546
$ 106,205 $ 65,250
14. DERIVATIVE INSTRUMENTS
The Company and its acquisition entities enters into foreign exchange forward contracts as economic hedges against the fair
value of its foreign-denominated investments and loans unless a specific exemption is approved by the Board of Directors.
During fiscal 2017, the Company received $0.5 million [2016 – paid $4.8 million] on the settlement of realized foreign exchange
forward contracts.
As at March 31, 2017, the Company had entered into foreign exchange forward contracts as economic hedges against
its foreign-denominated investments and loans as follows:
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Foreign exchange forward contracts to sell US$1.5 million [2016 – US$7.6 million] at an average rate of Canadian $1.3450 per
U.S. dollar [2016 – $1.3751] through to May 2017. The fair value of the forward contracts as at March 31, 2017 was a gain of
$24 thousand [2016 – $0.6 million].
Additionally, acquisition entities of Clairvest had entered into foreign exchange forward contracts as economic hedges
against its foreign-denominated investments as follows:
Foreign exchange forward contracts to sell US$165.2 million [2016 – US$133.1 million] at an average rate of Canadian
$1.3145 per U.S. dollar [2016 – $1.3451] through to February 2018. The fair value of the forward contracts as at March 31,
2017 was a loss of $2.3 million [2016 – gain of $6.2 million].
The fair value of the foreign exchange forward contracts entered into by these acquisition entities had been included
in the fair value of Clairvest’s investment in these acquisition entities on the consolidated statements of financial position. No
collateral was funded to the counterparties for Clairvest’s foreign exchange forward contracts and those of its acquisition
entities as at March 31, 2017 and 2016.
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES
[a] CEP III Co-Invest has committed to co-invest alongside CEP III in all investments undertaken by CEP III. CEP III Co-Invest's
co-investment commitment is $75.0 million, $15.2 million [2016 – $15.2 million] of which remained unfunded as at
March 31, 2017. In accordance with the co-investment agreement, the proportion of the commitment amongst Clairvest,
2141788 Ontario and MIP III is at their own discretion. CEP III Co-Invest may only sell all or a portion of a corporate
investment that is a joint investment with CEP III if it concurrently sells a proportionate number of securities of that
corporate investment held by CEP III.
[b] CEP IV Co-Invest has committed to co-invest alongside CEP IV and CEP IV-A in all investments undertaken by CEP IV and
CEP IV-A. CEP IV Co-Invest's co-investment commitment is $125.0 million, $21.2 million [2016 – $28.4 million] of which
remained unfunded as at March 31, 2017. In accordance with the co-investment agreement, the proportion of the
commitment between Clairvest and MIP IV is at their own discretion. CEP IV Co-Invest may only sell all or a portion of a
corporate investment that is a joint investment with CEP IV and CEP IV-A if it concurrently sells a proportionate number of
securities of that corporate investment held by CEP IV and CEP IV-A.
[c] CEP V Co-Invest has committed to co-invest alongside CEP V and CEP V-A in all investments undertaken by CEP V and
CEP V-A. CEP V Co-Invest's co-investment commitment is $180.0 million, $142.2 million [2016 – $146.7 million] of which
remained unfunded as at March 31, 2017. In accordance with the co-investment agreement, the proportion of the
commitment between Clairvest, 2141788 Ontario and MIP V is at their own discretion. CEP V Co-Invest may only sell all or
a portion of a corporate investment that is a joint investment with CEP V and CEP V-A if it concurrently sells a proportionate
number of securities of that corporate investment held by CEP V and CEP V-A.
[d] Clairvest has committed $25.2 million to Wellington Fund IV [2016 – $25.2 million], all of which was unfunded at
March 31, 2017. As specified in the Limited Partnership Agreement, upon the closing of Wellington Fund V, Wellington
Fund IV may no longer invest in new investments.
[e] Clairvest has also committed $30.3 million to Wellington Fund V, $14.6 million [2016 – $15.7 million] of which remained
unfunded as at March 31, 2017.
[f] As at March 31, 2017, Clairvest had earned profit distribution totaling $0.9 million [2016 – nil] through its ownership
interest in the General Partners of Wellington Fund V. Clairvest has guaranteed to return up to amounts received in the
event the limited partners of Wellington Fund V do not meet their return threshold as specified in the respective Limited
Partnership Agreements. As at March 31, 2017 and 2016, there were no accruals made with respect to the clawback.
[g] Clairvest had guaranteed up to US$10.0 million of CEP III's obligations to a schedule 1 Canadian chartered bank under
CEP III's foreign exchange forward contracts with the bank. Subsequent to year-end, the guarantee was extinguished.
[h] Under Clairvest's Bonus Program, a bonus of 10% of after-tax cash income and realizations on certain of Clairvest's
corporate investments would be paid to management annually as applicable [the "Realized Amount"]. As at March 31,
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
2017, the Realized Amount under the Bonus Program was $0.2 million [2016 − $0.6 million] and had been accrued under
accrued compensation expense liability.
In accordance with IFRS, Clairvest is also required to record a liability equal to a bonus of 10% of the after-tax cash
income and realizations which are applicable but which have yet to be realized. Accordingly, Clairvest also recorded a
$5.0 million [2016 − $3.5 million] accrued compensation expense liability that would only be payable to management when
the corresponding realization events have occurred. The Bonus Program does not apply to the income generated from
investments made by Clairvest through CEP III Co-Invest, CEP IV Co-Invest and CEP V Co-Invest.
[i] In conjunction with the sale of Casino New Brunswick, Clairvest had agreed to a net guarantee of $13.5 million to fund any
valid claims made by the purchaser under the indemnity provisions of the sale for a specified period of time. Any funding
pursuant to the guarantee will be allocated 25% to CEP III Co-Invest and 75% to CEP III. As at March 31, 2017 and 2016, no
amounts with respect to this guarantee have been funded. Subsequent to year-end, the net guarantee was reduced to
$2.2 million.
[j] As part of the holding structure of Chilean Gaming Holdings, acquisition entities of CEP III Co-Invest had loans totaling
$41.9 million as at March 31, 2017 [2016 − $41.9 million] from an unrelated financial institution, while another acquisition
entity of CEP III Co-Invest held term deposits totaling $41.9 million as at March 31, 2017 [2016 − $41.9 million] with the
same financial institution as security for these loans. CEP III Co-Invest's ownership of both acquisition entities was 36.8%
as at March 31, 2017 and 2016.
[k] Clairvest had agreed to guarantee up to $10.0 million to support Discovery Air’s credit facility with its bank. The guarantee
is callable by the lender under certain circumstances and should it be called, Clairvest will assume the lender’s security
position that supports the loans provided by the lender. Clairvest intends to allocate any amounts called under this
guarantee to CEP IV Co-Invest, CEP IV and CEP IV-A on a pro-rata basis in accordance with their respective capital
commitments in CEP IV. During fiscal 2017, in conjunction with the DAFS sale transaction as previously described in
note 6[i], Discovery Air repaid $5.0 million of its credit facility which reduced the guarantee provided by Clairvest. As at
March 31, 2017, the total contingent exposure under this guarantee was $2.4 million [2016 − $7.4 million], $0.6 million
[2016 − $2.0 million] of which would be assumed by CEP IV Co-Invest if called. Any additional guarantee is subject to
Clairvest’s consent in its sole discretion.
[l] The Discovery Air Investor Group had also entered into a definitive agreement to purchase all outstanding common shares
of Discovery Air at a cash consideration of $0.20 per share. The transaction was completed subsequent to year-end for
total cash consideration of $1.5 million, $0.4 million of which was funded by CEP IV Co-Invest.
[m] As at March 31, 2017, the Company had future minimum annual lease payments under non-cancellable operating leases
for the use of office space of $0.5 million due within one year [2016 − $0.4 million], $1.9 million due after one year but not
more than five years [2016 − $1.3 million] and $2.2 million due after five years [2016 − nil].
[n] In connection with its normal business operations, the Company is from time to time named as a defendant in actions for
damages and costs allegedly sustained by plaintiffs. While it is not possible to estimate the outcome of the various
proceedings at this time, the Company does not believe that it will incur any material loss in connection with such actions.
16. RISK MANAGEMENT
The private equity investment business involves accepting risk for potential return, and is therefore affected by a number of
risk factors.
Fair value risk
Fair value risk includes exposure to fluctuations in the fair market value of the Company’s investments as described in note 17.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
The Company's corporate investment portfolio was diversified across 16 investee companies in 8 industries and 3 countries as
at March 31, 2017. Concentration risk by industry and by country as at March 31, 2017 and 2016 was as follows:
Contract manufacturing
$ — $ 27,248 $ — $ 27,248 $ — $ 16,016 $ — $ 16,016
Canada
United States
Chile
Total
Canada
United States
Chile
Total
March 31, 2017
March 31, 2016
Defence services
Equipment rental
Financial services
Gaming
Marketing services
Specialty aviation
Other
Total
10,519
28,758
22,101
11,557
—
—
—
—
—
22,076
28,758
22,101
15,343
22,009
20,852
5,601
—
—
—
—
—
20,944
22,009
20,852
12,613
155,679
48,835
217,127
14,076
116,070
43,674
173,820
—
8,179
10,518
—
1,038
3,009
—
—
—
—
8,179
10,518
40,350
4,047
10,641
15,342
7,987
—
—
32,815
1,415
2,858
—
—
—
—
18,628
15,342
32,815
4,273
$ 85,547 $ 246,022 $ 48,835 $ 380,404 $ 99,678 $ 181,347 $ 43,674 $ 324,699
Waste management
—
40,350
The Company has considered current economic events and indicators in the valuation of its investee companies.
Interest rate risk
Fluctuations in interest rates affect the Company's income derived from its cash, cash equivalents and temporary investments
["treasury funds"]. For financial instruments which yield a floating interest rate, the income received is directly impacted by
the prevailing interest rate. The fair value of financial instruments which yield a fixed interest rate would change when there
is a change in the prevailing market interest rate. The Company manages interest rate risk on its treasury funds by conducting
activities in accordance with the fixed income securities policy that is approved by the Audit Committee. Management's
application of these policies is regularly monitored by the Audit Committee.
If interest rates were higher or lower by 1% per annum, the potential effect would have been an increase or decrease
of $1.2 million [2016 – $0.8 million] to distributions and interest income on a pre-tax basis for the year ended March 31, 2017.
Certain of the Company's investments in the investee companies are also held in the form of debentures and loans.
Significant fluctuations in market interest rates can have a significant impact on the carrying value of these investments as
described in note 17.
Currency risk
The Company has implemented a hedging strategy because it has, directly and indirectly, several investments outside of
Canada, currently in the United States and in Chile. The Company has also advanced loans to investee companies which are
denominated in foreign currency. In order to limit its exposure to changes in the value of foreign denominated currencies
relative to the Canadian dollar, Clairvest and its acquisition entities entered into hedging positions against these foreign
denominated currencies as approved by the Board of Directors. In June 2016, the Board of Directors of the Company approved
to remove the hedge on the Chilean Pesos ["CLP"]. As a result, at March 31, 2017, the Company had foreign exchange exposure
to the CLP totaling $48.8 million.
A number of investee companies are subject to foreign exchange risk. A significant change in foreign exchange rates
can have a significant impact on the profitability of these entities and in turn the Company's carrying value of these investee
companies. The Company manages this risk through oversight responsibilities with existing investee companies and by
reviewing the financial condition of investee companies regularly.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Credit risk
Credit risk is the risk of a financial loss occurring as a result of default of a counterparty on its obligations to the Company. For
the years ended March 31, 2017 and 2016, there were no material income effects on changes of credit risk on financial assets.
The carrying values of financial assets subject to credit exposure as at March 31, 2017 and 2016, net of any allowances for
losses, were as follows:
Financial assets
Cash and cash equivalents
Temporary investments
Accounts receivable[1]
Loans receivable[2]
Derivative instruments
Corporate investments[3]
March 31, 2017
March 31, 2016
$ 106,205 $ 65,250
15,964
19,662
5,371
24
380,404
21,793
24,287
8,340
581
324,699
$ 527,630 $ 444,950
[1] Excludes prepaid expenses and receivables from acquisition entities.
[2] Excludes loans receivable from acquisition entities.
[3] Excludes net assets [liabilities] from acquisition entities.
The Company manages credit risk on corporate investments through thoughtful planning, strict investment criteria, significant
due diligence of investment opportunities and oversight responsibilities with existing investee companies and by conducting
activities in accordance with investment policies that are approved by the Board of Directors. Management's application of
these policies is regularly monitored by the Board of Directors. Management and the Board of Directors review the financial
condition of its investee companies regularly.
The Company is also subject to credit risk on its accounts receivable and loans receivable, a significant portion of
which are with its investee companies and its CEP Funds. The Company manages this risk through its oversight responsibilities
with existing investee companies by reviewing their financial conditions regularly, and through its fiduciary duty as Manager
of the CEP Funds and by maintaining sufficient uncalled capital for the CEP Funds to settle obligations as they come due.
The Company manages counterparty credit risk on derivative instruments by only contracting with counterparties
which are Schedule 1 Canadian chartered banks. As at March 31, 2017, the Company’s derivative instruments had a fair value
of $24 thousand [2016 – $0.6 million]. Additionally, the Company’s acquisition entities held derivative instruments which had
mark-to-market losses totaling $2.3 million [2016 – gains totaling $6.2 million]. The Company believes the counterparty risk
with respect to its and its acquisition entities’ derivative instruments is nominal.
The Company manages credit risk on its treasury funds by conducting activities in accordance with the fixed income
securities policy which is approved by the Audit Committee. The Company also manages credit risk by contracting with
counterparties which are Schedule 1 Canadian chartered banks or through investment firms where Clairvest's funds are
segregated and held in trust for Clairvest's benefit. Management's application of these policies is regularly monitored by the
Audit Committee. Management and the Audit Committee review credit quality of cash equivalents and temporary investments
regularly.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
The credit ratings, based on the Dominion Bond Rating Services rating scale, with the exception of corporate bonds and loans
which are based on Standard & Poor's rating scale, were as follows:
Cash
Money market savings accounts
R1-High
Guaranteed investment certificates and investment savings accounts
March 31, 2017
March 31, 2016
$ 88,026
$ 2,704
17,209
39,023
AA
A+
A
BBB+[1]
BBB[1]
BBB-[1]
Not rated[1]
Corporate bonds and loans
B-[2]
16,126
—
—
—
202
101
505
—
36,683
2,570
202
101
101
101
101
5,457
Total cash, cash equivalents, temporary investments and restricted temporary
investments
[1] Principal protected by the Canada Deposit Insurance Corporation.
[2] Pertains to Clairvest's treasury investments in Light Tower Rentals Inc.
$ 122,169
$ 87,043
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. Financial
obligations arising from off-statement of financial position arrangements have been previously discussed. Accounts payable,
loans payable, and derivative instruments have maturities of less than one year. Management participation liability, share-
based compensation liability, and amounts accrued under the Bonus Program are only due upon cash realization or completion
of the respective vesting periods. Total unfunded commitments to co-invest alongside the CEP Funds, as described were
$178.5 million [2016 – $190.3 million] as at March 31, 2017. The timing of any amounts to be funded under these commitments
is dependent upon the timing of investment acquisitions, which are made at the sole discretion of the Company. In addition
to its commitments to co-invest alongside the CEP Funds, the Company has unfunded commitments of $25.2 million and
$14.6 million to Wellington Fund IV and Wellington Fund V, respectively, as described in notes 15[d] and 15[e].
The Company manages liquidity risk by maintaining a conservative liquidity position that exceeds all liabilities payable
on demand. The Company invests treasury funds in liquid assets such that they are available to cover any potential funding
commitments and guarantees. In addition, the Company maintains a $100.0 million [2016 – $95.0 million] credit facility which
was undrawn at March 31, 2017.
As at March 31, 2017, Clairvest had treasury funds of $122.2 million [2016 – $87.0 million] and access to $100.0 million
[2016 – $95.0 million] in credit to support its obligations and current and anticipated corporate investments. Clairvest also had
access to $48.9 million [2016 – $45.4 million] in treasury funds held by its acquisition entities and $443.4 million [2016 –
$465.7 million] in uncalled committed third-party capital through the CEP Funds at March 31, 2017 to invest along with
Clairvest’s capital.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, cash equivalents, temporary investments, corporate investments, and derivative instruments are carried at fair value in
accordance with the Company's accounting policy as described in note 2[c] to the consolidated financial statements. All other
financial instruments, including receivables and payables, are short-term in nature.
[a] Fair value hierarchy
The Company classifies financial instruments measured at FVTPL according to the following hierarchy, based on the lowest
level of significant input used in measuring fair value.
Level
Level 1
Level 2
Fair value input description
Financial instruments
Quoted prices [unadjusted] from active markets
Quoted equity instruments
Inputs other than quoted prices included in Level 1
that are observable either directly [i.e., as prices] or
indirectly [i.e., derived from prices]
Quoted corporate bonds
Money market and investment savings accounts
Quoted equity instruments which are not actively traded
Guaranteed investment certificates
Quoted corporate bonds or loans which are not actively
traded
Level 3
Inputs that are not based on observable market data Unquoted equity instruments or partnership units
Corporate bonds, debentures or loans not traded
The following table presents the financial instruments measured at fair value classified by the fair value hierarchy:
March 31, 2017
Fair value measurements using
Level 1
Level 2
Level 3
Assets/liabilities
at fair value
Financial assets
Cash equivalents
Money market savings accounts
$ 17,209
$ —
$ —
$ 17,209
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Derivative instruments
Corporate investments
970
18,179
—
—
—
—
—
—
15,964
15,964
24
—
—
—
—
—
—
970
18,179
15,964
15,964
24
410,102
410,102
$ 18,179
$ 15,988
$ 410,102
$ 444,269
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
March 31, 2016
Fair value measurements using
Level 1
Level 2
Level 3
Assets/liabilities at
fair value
Financial assets
Cash equivalents
Money market savings accounts
$ 39,023
$ —
$ —
$ 39,023
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Corporate bonds and loans
Derivative instruments
Corporate investments
23,523
62,546
—
—
—
—
—
—
—
16,336
5,457
21,793
581
—
—
—
—
—
—
23,523
62,546
16,336
5,457
21,793
581
—
353,801
353,801
$ 62,546
$ 22,374
$ 353,801
$ 438,721
For financial instruments that are recognized at fair value on a recurring basis, the Company determines whether transfers
have occurred between levels in the hierarchy by re-assessing categorization based on the lowest level input that is
significant to the fair value measurement as a whole at the end of each reporting period. Transfers between levels of fair
value hierarchy are deemed to have occurred at the date of event.
During the year ended March 31, 2016, the Company transferred its investment in Discovery Air common shares from
Level 2 to Level 3 as a result of the market for the shares becoming inactive following the additional purchases made by
Clairvest together with its co-investors as discussed in note 6[i]. There were no other transfers between the various levels
of the fair value hierarchy for the years ended March 31, 2017 and 2016.
[b] Level 3: Reconciliation between opening and closing balances
The following table presents the changes in fair value measurements for instruments included in Level 3 of the fair value
hierarchy set out in IFRS 13:
Total realized /
unrealized gains
and foreign
exchange
revaluations
included in
earnings
Fair value
April 1, 2016
Purchases of
assets / issuances
of liabilities
Sales of assets /
settlements of
liabilities
Fair value
March 31, 2017
Unrealized gains
and foreign
exchange
revaluations
included in
earnings for assets
and liabilities for
the year ended
March 31, 2017
for positions still
held
Financial assets
Corporate
investments
$ 353,801
$ 72,678
$ 21,110
$ [37,487]
$ 410,102
$ 72,678
$ 353,801
$ 72,678
$ 21,110
$ [37,487]
$ 410,102
$ 72,678
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
Total realized /
unrealized gains
and foreign
exchange
revaluations
included in
earnings
Fair value
April 1, 2015
Purchases of
assets / issuances
of liabilities
Sales of assets /
settlements of
liabilities
Fair value
March 31, 2016
Unrealized gains
and foreign
exchange
revaluations
included in
earnings for assets
and liabilities for
the year ended
March 31, 2016 for
positions still held
$ 291,312
$ 36,366
$ 40,877
$ [14,754]
$ 353,801
$ 36,353
$ 291,312
$ 36,366
$ 40,877
$ [14,754]
$ 353,801
$ 36,353
Financial assets
Corporate
investments
[c] Level 3: Fair value measurement based on reasonably possible alternative assumptions
While Clairvest considers its fair value measurements to be appropriate, the use of reasonably possible alternative
assumptions could result in different fair values. On a given measurement date, it is possible that other market participants
could measure a same financial instrument at a different fair value, with the valuation techniques and inputs used by these
market participants still meeting the definition of fair value. The fact that different fair value measurements exist reflects
the judgment, estimates and assumptions applied as well as the uncertainty involved in determining the fair value of these
financial instruments.
Included in corporate investments are investee companies [refer to note 6] for which the fair values have been
estimated based on assumptions that are not supported by observable inputs. The following tables present quantitative
information on the primary valuation techniques and unobservable inputs based on the form of investment:
March 31, 2017
Valuation techniques
Significant
unobservable input
Unquoted equity instruments [including
warrants] or partnership units
Public company
comparables
Recent transactions
(a) EBITDA multiples
(b)
(a) n/a
Range
(c) 5.0x to 7.7x
(b) n/a
Corporate bonds, debentures or loans not
traded or other finite set of cash flows
Discounted cash flows
Discount rates
(c) 8.0% to 19.0%
March 31, 2016
Valuation techniques
Significant
unobservable input
Unquoted equity instruments [including
warrants] or partnership units
Public company
comparables
Recent transactions
(d) EBITDA multiples
(e)
(d) n/a
Range
(f) 5.1x to 7.7x
(e) n/a
Corporate bonds, debentures or loans not
traded or other finite set of cash flows
Discounted cash flows
Discount rates
(f) 8.0% to 19.0%
The most significant unobservable input for fair value measurement is the multiple of earnings before interest, taxes,
depreciation and amortization ["EBITDA"] used for each individual investee company. In determining the appropriate
multiple, Clairvest considers [i] public company multiples for companies in the same or similar businesses; [ii] where
information is known and believed to be reliable, multiples at which recent transactions in the industry occurred; and [iii]
multiples at which Clairvest invested directly or indirectly in the company, or for follow-on investments or financings. The
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
resulting multiple is adjusted, if necessary, to take into account differences between the investee company and those the
Company selected for comparisons and factors include public versus private company, company size, same versus similar
business, as well as with respect to the sustainability of the company’s earnings and current economic environment. As at
March 31, 2017, 10 investee companies were valued using the earnings multiple approach. If the Company had used an
earnings multiple for each investee company that was higher or lower by 0.5 times, the potential effect would be an
increase of $29.6 million or decrease of $29.3 million to the carrying value of corporate investments and net changes in
unrealized gains or losses on corporate investments, on a pre-tax basis for the year ended March 31, 2017 [2016 – increase
of $20.3 million or decrease of $20.0 million]. Earnings multiples used are based on public company valuations as well as
private market multiples for comparable companies.
Clairvest may also use information about recent transactions carried out in the market for valuations of private equity
investments. When fair value is determined based on recent transaction information; this value is the most representative
indication of fair value for a period of up to twelve months. The fair value of corporate bonds, debentures or loans is
primarily determined using a discounted cash flow technique. This technique uses observable and unobservable inputs
such as discount rates that take into account the risk associated with the investment as well as further cash flows. For those
investments valued based on recent transactions or discounted cash flows, Clairvest has determined that there are no
reasonable alternative assumptions that would change the fair value materially as at March 31, 2017 and 2016.
18. CAPITAL DISCLOSURES
Clairvest considers the capital it manages to be shareholders' equity. Clairvest also manages capital held in acquisition entities,
the third-party capital committed or invested in the CEP Funds and co-investments made by other investors.
Clairvest's objectives in managing capital are to:
-
-
-
-
Preserve a financially strong company with substantial liquidity to pursue new acquisitions and growth
opportunities as well as to support its operations and the growth of its existing corporate investments;
Achieve an appropriate risk adjusted return on capital;
Build long-term value in its investee companies to generate superior returns; and
Have appropriate levels of committed third-party capital available to invest alongside Clairvest's capital. The
management of third-party capital also provides management fees and/or priority distributions to Clairvest and
the ability to enhance Clairvest's returns by offsetting a portion of its operating costs and by earning a carried
interest.
As at March 31, 2017 and 2016, Clairvest had no external capital requirements, other than as disclosed in note 16.
19. FUTURE CHANGES IN ACCOUNTING POLICIES
IFRS 9, Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments, which reflects all phases of the financial
instruments project and replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of
IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective
application is required, but comparative information is not compulsory. The Company is currently assessing the impact of
IFRS 9 and plans to adopt the new standard on the required effective date.
IFRS 15, Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all
current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017 and 2016 [tabular dollar amounts in thousands, except per share information]
periods beginning on or after January 1, 2018 with early adoption permitted. The Company is currently assessing the impact
of IFRS 15, which could be material on unrealized carried interest. The Company plans to adopt the new standard on the
required effective date.
20. SUBSEQUENT EVENTS
Subsequent to year-end, CEP V Co-Invest made an investment in Head InfoTech India Pvt. Ltd ["Head InfoTech"], which
operates an online, skill-based gaming platform in India providing online experience of Rummy. CEP V Co-Invest invested
US$41.6 million [C$56.0 million] in Head InfoTech, which comprised US$17.0 million [C$22.9 million] in the form of compulsory
convertible debentures which bear interest at a rate of 16.0% per annum, and US$24.6 million [C$33.1 million] for a 33.6%
equity interest in Head InfoTech. A foreign exchange hedging strategy has not been implemented against this investment.
Subsequently, a material adverse regulatory development occurred with respect to this investment. The impact to the fair
value of this investment is currently uncertain and potentially material.
Also subsequent to year-end, CEP IV Co-Invest, and the Discovery Air Investor Group provided an additional $13.0
million secured revolving credit facility ["New Revolver"] to DA Defence which is in addition to the $25.0 million Revolver
described in note 6[i] but on the same economic terms, $6.0 million of which was drawn at closing, $2.2 million of which was
funded by CEP IV Co-Invest. CEP IV Co-Invest is committed to fund any shortfall of the other investors of the Discovery Air
Investor Group. The New Revolver provides the Discovery Air Investor Group the option to convert the outstanding balance of
the New Revolver into common shares of DA Defence on the same economic terms as the Revolver. Concurrent with the New
Revolver, Discovery Air and DA Defence granted the Discovery Air Investor Group an option to exchange $18.4 million of the
Debentures into $14.7 million of common shares in DA Defence, with the valuation of DA Defence being the same as that used
for the conversion of the Revolver and the New Revolver.
21. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified from statements previously presented to conform
to the presentation of the fiscal 2017 consolidated financial statements.
79
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2017
SHAREHOLDER COMMUNICATION
Clairvest has both the obligation and desire to provide its shareholders with full and continuous disclosure, on a timely basis,
throughout the fiscal year. Annual and quarterly reports are provided as part of this process and the company releases
information on material events through the press, as required. Further disclosure can be found on the company’s website,
www.clairvest.com, and on the SEDAR website, www.sedar.com.
VALUATION MEASURES
Clairvest’s focus is on building long-term value of its corporate investments. Accordingly, the results reflected the fair value
of our investments. The fair value method, however, is not without its limitations. Clairvest’s investments are often carried
at values which may vary from actual realizations.
Common Shares[3]
OUTSTANDING SECURITIES
Share structure
Common shares outstanding
Less holders of 10% or more
Public float[1,2]
Market capitalization[1]
Market value of public float[1,2]
Stock market
Stock symbol
Toronto Stock Exchange
CVG
[1]
[2]
[3]
As at June 5, 2017.
Excludes holders of 10% or more of the outstanding common shares.
During the year, Clairvest filed a new Normal Course Issuer Bid.
BOOK VALUE PER SHARE[1] AT MARCH 31
15,194,095
9,656,380
5,537,715
$ 573,577,086
$ 209,048,741
$38
$36
$34
$32
$30
$28
$26
$24
$22
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$-
[1]
Book value per share presented under Part V "Pre-changeover accounting standards" of the Handbook for Chartered Professional Accountants Canada
["Canadian GAAP"] for all periods up to March 31, 2014.
80
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2017
SHARE PRICE VS BOOK VALUE PER SHARE[1]
[1]
Book value per share presented under Part V "Pre-changeover accounting standards" of the Handbook for Chartered Professional Accountants
Canada ["Canadian GAAP"] for all periods up to March 31, 2014.
SHARE TRADING VOLUME FISCAL 2017 & 2016
Common shares
Year to March 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year to March 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
SHAREHOLDER INQUIRIES
Maria Klyuev, Director, Investor Relations & Marketing
416.925.9270
tel:
fax:
416.925.5753
email: mariak@clairvest.com
High
Low
Close
Volume
29.12
29.50
30.00
33.87
29.49
30.11
29.90
28.30
27.25
28.75
28.75
30.00
27.76
29.26
28.26
26.76
29.12
29.12
29.75
33.60
29.49
29.55
28.30
27.25
17,600
38,200
35,700
24,200
16,700
29,300
75,400
75,400
81
TRANSFER AGENT AND REGISTRAR
Investors are encouraged to contact
CST Trust Company for information
regarding their security holdings.
Information can be obtained at:
P.O. Box 700, Station B
Montreal, Québec H3B 3K3
Answerline: 1.800.387.0825
Web: www.canstockta.com
Email: inquiries@canstockta.com
CORPORATE INFORMATION
CORPORATE OFFICE
22 St. Clair Avenue East, Suite 1700
Toronto, Ontario M4T 2S3
Tel: 416.925.9270 Fax: 416.925.5753
Web: www.clairvest.com
AUDITORS
Ernst & Young LLP
THE ANNUAL MEETING OF SHAREHOLDERS
August 14, 2017
St. Andrews Club & Conference Centre,
150 King Street West, 27th Floor
Toronto, Ontario Canada
All Shareholders are encouraged to attend.