ANNUAL REPORT 2018
TABLE OF CONTENTS
Chief Executive Officer’s Message
Management's Discussion and Analysis
Management's Report
Independent Auditors' Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Shareholder Information
Corporate Information
2
4
34
35
36
40
76
Back Cover
KNOWLEDGE BASED - PARTNER FOCUSED
CLAIRVEST IS ONE OF CANADA'S LEADING PROVIDERS OF
PRIVATE
TO MID-MARKET
FINANCING
COMPANIES AND CURRENTLY HAS OVER C$1.7 BILLION
OF CAPITAL UNDER MANAGEMENT.
EQUITY
CLAIRVEST MANAGES ITS OWN CAPITAL AND THAT OF
THIRD PARTIES, THROUGH CLAIRVEST EQUITY PARTNERS
LIMITED PARTNERSHIPS.
CLAIRVEST PARTNERS WITH MANAGEMENT TO INVEST IN
PROFITABLE, SMALL AND MID-SIZED COMPANIES TO
BUILD VALUE
IN THE BUISINESS AND GENERATE
SUPERIOR LONG TERM FINANCIAL RETURNS FOR
INVESTORS.
CHIEF EXECUTIVE OFFICER'S MESSAGE
CLAIRVEST DELIVERS AN EXCEPTIONAL FISCAL 2018
FELLOW SHAREHOLDERS,
In so many ways, fiscal 2018 was an exceptional year for Clairvest. With the continued rise of valuation multiples,
Clairvest remained in the seller’s seat and completed three successful portfolio exits plus an agreement of sale for
a fourth exit. We closed on two new platform investments, supported our investment partners with 19 add-on
acquisitions and worked through several complex situations with our investment partners to position their
companies for better performance.
On the exit front, the last 12 months were marked by some of Clairvest’s best deals on a multiple of capital basis.
In the recent sale of MAG Aerospace, Clairvest generated a multiple of approximately 9.5x in Canadian dollar
terms (8.2x in USD), in the agreed sale of Centaur Gaming, Clairvest is expected to realize a multiple of
approximately 14.2x in Canadian dollars on its core fund investment (11.2x in USD), the sale of CRS generated a
multiple of 3.2x and the sale of Winters Bros. of CT had a 1.4x return, where we took our money and retained our
economic interest in the company. These exits bolstered our track record to a 3.6x multiple on capital invested
over 25 years with a pooled IRR of 24%. In addition to impressive returns, we are also proud of the fact that these
returns were achieved primarily from fundamental value creation and significant EBITDA growth during our
holding period, as opposed multiple expansion from the frothy market conditions that have predominated our
industry for the last few years.
In addition to portfolio sales, Clairvest also completed the sale of its General Partner position in Wellington
Financial, a venture loan provider to technology and life science companies across Canada and the United States.
We helped launch Wellington Financial in 2000 and since then Wellington Financial has become a leader in its
sector and has grown to finance well over one hundred North American-based growth companies.
Portfolio company exits and the Wellington Financial transaction drove a material lift to our book value. For the
12 months ended March 31, 2018, Clairvest’s book value per share grew to $44.01, or by 22% including dividends
paid. Over the past 10 years, our book value has grown at a compounded annual growth rate of 11.2%, after tax,
despite an average cash balance of 42%. In contrast, the S&P500 has delivered 7.2%, pre-tax, reflecting solid out-
performance by Clairvest on an absolute and, particularly, on a risk-adjusted basis.
Our team's continued emphasis on domain research for deal generation have led to the closing of two new
investment opportunities. The first is Clairvest’s participation in the Ontario Lottery and Gaming Corporation
privatization process of some of its assets and the award of the West GTA bundle to operate four properties in
the West Greater Toronto Area. We are excited to bring our gaming experience to Ontario and apply our
knowledge of industry best practices to grow the performance of these assets. We did this transaction in
partnership with Great Canadian Gaming, a group that we have known for many years.
2
CHIEF EXECUTIVE OFFICER'S MESSAGE
The second investment opportunity is Clairvest’s entry into the renewable energy space with an investment in
Also Energy, a leading provider of solar monitoring software and hardware, where we are contributing growth
capital to support the co-founders of the company through its next phase of growth.
As Clairvest continues to evolve, so does our investment team. Our team is deeper and stronger than it has ever
been. This year, we promoted Michael Wagman to President and Robbie Isenberg to Managing Director. We also
welcomed Michael Wagman to Clairvest’s Board of Directors and Joe Fluet, CEO of MAG Aerospace, will join in
August. Jeff Parr is moving from the Co-CEO role into the Vice Chairman role as he continues to support the growth
of the firm, while I continue to lead Clairvest as CEO.
For all the success that we have experienced to date, there is always more that can be done. In addition to
Clairvest’s ongoing work with our investment partners, we are expanding our industry research toward new
opportunities created by the rapid change in technology, changes in outsourcing trends and innovation. In fiscal
2018 we saw a continuation of the themes of the past several years with fierce competition, high valuation
multiples and increasing allocations to the Private Equity asset class. 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. We were not drawn in then and we are not drawn in now; we
remain focused on protecting and growing our own and our investors’ capital. We are taking our time to learn
about new industries and uncover unique situations where we can deploy capital wisely. Our track record to date
and the impressive results in fiscal 2018 speak to the fact that our discipline, patience and perseverance have
served us very well and will continue to do so.
As always, I would like to express my 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,
Ken Rotman
Chief Executive Officer
June 27, 2018
3
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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, 2018
("consolidated financial statements").
The following MD&A is the responsibility of Management and is as at June 27, 2018. 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 management firm 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"), Clairvest Equity Partners IV-A Limited Partnership ("CEP
IV-A"), Clairvest Equity Partners V Limited Partnership ("CEP V"), CEP V HI India Investment Limited Partnership ("CEP V India")
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
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")
MIP IV Limited Partnership ("MIP IV")
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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 together with Clairvest, directly and indirectly holds
a 100% interest in Clairvest Equity Partners Limited Partnership ("CEP"). CEP was an investment fund held by third-party
investors until 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 the Transactions with Related Parties and Off-Statement of Financial Position
Arrangements sections of the MD&A.
As at March 31, 2018, Clairvest, through these acquisition entities, had 17 core investments in 6 different industries
and 4 countries. One was a joint investment with CEP III, eight were joint investments with CEP IV and CEP IV-A (together, the
"CEP IV Fund"), and six were joint investments with CEP V, CEP V India 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, 2018:
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
SUMMARY OF CLAIRVEST'S INVESTEE COMPANIES AS AT MARCH 31, 2018
June 27, 2018
Investee
Company
Industry
Segment
Geographic
Segment
Ownership
Percentage(18)
Cost of
Investment
(millions)
Net Cash
Investment
(millions)(19)
Description of Business
Fair Value of
Investment
(millions)(20)
INVESTMENTS MADE BY CEP III CO-INVEST ALONGSIDE CEP III
Chilean Gaming
Holdings(1)
Gaming
Chile
36.8%
$
28.8
$
16.0
$
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV/CEP IV-A
Centaur Gaming(2)
Gaming United States Debt interest with
stapled warrants
(convertible upon
exercise into
12.7%, subject to
regulatory
approval)
$
34.7
$
31.8
$
County Waste of
Virginia, LLC ("County
Waste")(3)
Waste
Management
United
States
13.0%
$
11.3
$
11.3
$
Davenport Land
Investments(4)
Other
United
States
Discovery Air Inc.
("Discovery Air") / Top
Aces(5)
Defence
Services
Canada
18.7%
(Davenport
North) &
13.4%
(Davenport
South)
29.9% and
debt interest /
26.3%
$
2.2
$
1.9
$
$
55.5
$
37.9
$
Impero Waste
Systems, LLC ("Impero
Waste")(6)
Waste
Management
United
States
6.1%
$
3.0
$
(1.8)
$
MAG Aerospace
("MAG")(7)
Defence
Services
United
States
10.3% and
debt interest
$
5.1
$
5.1
$
New Meadowlands
Racetrack LLC (the
"Meadowlands")(8)
Gaming
United
States
Debt interest
and equity
investment
rights
$
6.4
$
5.3
$
60.1 An investment vehicle which holds an equity interest
in various gaming entertainment complexes in Chile.
CEP III ownership: 37.7%
192.4 The owner and operator of the Hoosier Park Racing &
Casino in Anderson, Indiana and the Indiana Grand
Casino and Indiana Downs Racetrack ("Indiana Grand
Casino") in Shelbyville, Indiana.
CEP IV and CEP IV-A ownerships: debt interests with
stapled warrants (convertible upon exercise into
16.5% and 2.6% respectively, subject to regulatory
approval).
19.8 A private regional solid waste collection company
servicing customers in the states of Virginia and
Pennsylvania.
CEP IV and CEP IV-A ownerships:
30.7% and 4.9% respectively
3.0 Comprised two entities ("Davenport North" and
"Davenport South") holding real estate surrounding a
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
44.9 Discovery Air is a specialty aviation services company
operating across Canada and in select locations
internationally. Top Aces is a supplier of advanced
adversary services across three continents.
CEP IV and CEP IV-A ownerships:
40.2% and 6.4% of Discovery Air and debt interest
respectively
32.5% and 5.2% of Top Aces respectively
4.1 A regional solid waste collection, recycling and
disposal company servicing customers in the states of
Connecticut and New York.
CEP IV and CEP IV-A ownerships:
14.4% and 2.3% respectively
21.2 A U.S.-based speciality aviation and intelligence,
surveillance and reconnaissance service provider.
CEP IV and CEP IV-A ownerships:
24.3% and 3.9% respectively
10.2 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
Rivers Casino(9)
Gaming
United
States
5.0%
$
9.1
$
(34.4)
$
23.8 A gaming entertainment complex located in Des
Plains, Illinois.
CEP IV and CEP IV-A ownerships:
11.8% and 1.9% respectively
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Clairvest held 30,446,299 units of Chilean Gaming Holdings, a partnership which held a 50% interest in Casino Marina del Sol and a 73.8% interest in each of Casino Osorno
and Casino sol Calama.
Clairvest held 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 7,374.67 Class B units and a US$1.7 million promissory note with a stated interest rate of 12% per annum from County Waste, and 174.3 units of Spare Lots,
LLC ("Spare Lots"), a company affiliated with County Waste.
Clairvest held 1,408.81 units of Davenport North, 1,298.21 units of Davenport South and a US$0.6 million promissory note from a partner of Davenport Land Investments.
Clairvest held 24,332,907 common shares of Discovery Air, $22.0 million in convertible debentures with a stated interest rate of 10% per annum and $4.9 million in debtor-
in-possession financing loans. Clairvest also held 611.4 common shares of Top Aces.
Clairvest held 4,817.86 Class A units of Impero Waste.
Clairvest held 33,736 Class A stock of MAG Aerospace and advanced $1.1 million in the form of promissory notes from MAG Aerospace Canada Corp., with a stated interest
rate of 10% per annum.
Clairvest invested US$5.4 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 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 limited liability company units of Rivers Casino.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
Investee
Company
Industry
Segment
Geographic
Segment
Ownership
Percentage(18)
Cost of
Investment
(millions)
Net Cash
Investment
(millions)(19)
Description of Business
Fair Value of
Investment
(millions)(20)
INVESTMENTS MADE BY CEP V CO-INVEST ALONGSIDE CEP V/CEP V-A
7.5%
$
16.0
$
16.0
$
27.3 A licensed video gaming terminal operator in Illinois.
Accel Entertainment
Inc. ("Accel
Entertainment")(10)
Gaming
United
States
Ace2Three(11)
Gaming
India
33.6% and debt
interest
$
56.0
$
56.0
$
Also Energy, Inc.
("Also Energy")(12)
Renewable
Energy
United States
14.3%
$
6.0
$
6.0
$
Digital Media
Solutions, LLC
("Digital Media
Solutions")(13)
Marketing
Services
United
States
13.9%
$
8.3
$
7.3
$
GTA Gaming(14)
Gaming
Canada
$
0.6
$
0.6
$
0.6%
(Ontario Gaming
GTA) &
13.5%
(Ontario Gaming
West GTA)
Waste
Management
United
States
14.0%
$
10.6
$
10.6
$
Winters Bros. Waste
Systems of Long
Island Holdings, LLC
("Winters Bros. of
LI")(15)
STANDALONE INVESTMENTS
Grey Eagle Casino(16)
Gaming
Canada
Equity
participation
$
11.0
$
(1.7)
$
Wellington
Financial(17)
Financial
Services
Canada
N/A
$
—
$
(24.7)
$
CEP V and CEP V-A ownerships:
14.6% and 2.8% respectively
40.2 An operater of an online, skilled based gaming
India providing an online rummy
in
platform
experience.
CEP V India and CEP V-A ownerships:
35.2% and 8.6% respectively
6.2 A provider of software and hardware solutions that
enable the monitoring and control of power
production and plant operations for commercial,
industrial, and utility-scale plants in the United States
and around the world.
CEP V and CEP V-A ownerships:
28.1% and 5.3% respectively
9.1 A digital media company which operates as a lead
generation engine for companies in a variety of
different industries.
CEP V and CEP V-A ownerships:
27.3% and 5.2% respectively
0.6 Comprised two partnerships which operate gaming
facilities in the Greater Toronto Area ("GTA") and the
West GTA.
CEP V and CEP V-A ownerships:
1.2% and 0.2% of Ontario Gaming GTA and
26.5% and 5.0% of Ontario Gaming West GTA
respectively
9.8 A regional solid waste collection, recylcing and
disposal company servicing customers in Long Island,
New York.
CEP V and CEP V-A ownerships:
27.5% and 5.2% respectively
11.3 A charitable casino on Tsuu T'ina First Nation reserve
lands, located southwest of the city of Calgary,
Alberta.
3.6 Provided debt capital and operating lines to venture
capital
biotechnology,
communications and industrial product companies in
Canada and the United States.
technology,
backed
OTHER
TOTAL
$
$
0.7
265.3
$
$
0.7
144.0
$
$
20.9
508.5
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
Clairvest held 283,478 Class D preferred shares of Accel Entertainment.
Claircest held 202,230 common shares of Ace2Three and advanced $22.9 million in the form of compulsory convertible debentures with a stated interest rate of 16% per
annum.
Clairvest held 1,013,062 Series A preferred stock of Also Energy.
Clairvest held 6,150,000 Class B units of Digital Media Solutions.
Clairvest held 1,254,000 limited partnership units of Ontario Gaming GTA Limited Partnership and 405,151.2 limited partnership units of Ontario Gaming West GTA Limited
Partnership.
Clairvest held 1,487,773 Class C units of Winters Bros. of LI. and 256,037 units of WBLI II, LLC, an affiliate to Winters Bros. of LI which is owned proportionately by the same
unitholders as Winters Bros. of LI.
Clairvest held an equity participation interest in the Grey Eagle Casino entitling to earnings between 11.25% to 38.25% of the earnings of Grey Eagle Casino until December
2022.
Clairvest held a limited partner interest in Wellington Financial Fund III, Wellington Financial Fund IV and Wellington Financial Fund V and an interest in the general partner
of the various Wellington Funds.
(17) Ownership percentage calculated on a fully diluted basis as at March 31, 2018.
(18) Net cash investment (proceeds) comprised cost net of dividends, interest and other distributions received but excludes advisory and other fees received, foreign 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, 2018
June 27, 2018
OVERVIEW OF FISCAL 2018
An overview of the significant events during fiscal 2018 and those which occurred subsequent to year-end follows:
Overall and Corporate
•
Clairvest's book value increased by $117.1 million, or $7.80 per share, to $667.3 million or $44.01 per share. The increase
was primarily due to net income and comprehensive income ("net income") of $8.15 per share, net of $0.3621 per share
in dividends paid. During fiscal 2018, 31,100 common shares were purchased and cancelled under the Normal Course
Issuer Bid at an average price of $37.27 per share, reducing the number of common shares outstanding to 15,162,995.
For the year ended March 31, 2018, Clairvest recorded $208.2 million in total revenue, comprised $107.7 million in net
investment gains, $51.2 million in distributions and interest income, $0.3 million in dividend income, $46.5 million in net
carried interest income from the CEP Funds and $2.5 million in fees earned from the CEP Funds and Clairvest's investee
companies. Total revenue for the prior fiscal year was $131.5 million.
•
•
• Net income for the year ended March 31, 2018 was $123.8 million compared to $70.1 million in the prior fiscal year.
•
Clairvest filed a new normal course issuer bid enabling it to make market purchases of up to 760,677 of its common
shares in the 12-month period commencing March 7, 2018. No purchases had been made under this bid to March 31,
2018 and 5,100 shares had been purchased and cancelled under this bid between April 1, 2018 to June 27, 2018.
In January 2018, CIBC acquired the loan assets of Wellington Financial Fund V L.P. ("WF Fund V") and certain assets of
the general partner of WF Fund V. As a result of the sale, Clairvest received a full repayment of $17.3 million on its
investment in WF Fund V plus 194,876 CIBC common shares which are restricted for sale for 36 months subject to certain
conditions. Clairvest continues to participate in its pro-rata share of any profits realized from warrants previously granted
to various Wellington Financial funds and is eligible for additional payments on the sale of the general partner assets
subject to certain conditions. Further details are described on page 17 of the MD&A.
• During fiscal 2018, Clairvest paid an annual ordinary dividend of $0.10 per share and a special dividend of $0.2621 per
share. The dividends were paid on July 24, 2017 to common shareholders of record as of July 6, 2017. The dividends were
eligible dividends for Canadian income tax purposes.
Clairvest/CEP III Co-Invest and CEP III
•
Clairvest and CEP III completed the sale of Lyophilization Services of New England, Inc. ("LSNE") in April 2018, where
CEP III Co-Invest realized total sale proceeds of US$20.5 million (C$27.3 million). Over the 9-year investment horizon,
LSNE generated 2.9 times invested capital, or a 13% 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 total proceeds of $26.6 million against an
investment of $7.5 million, or 3.5 times invested capital. Further details are on page 13 of the MD&A.
• As at March 31, 2018 and June 27, 2018, CEP III had returned 2.3 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 27, 2018. Based on the fair value at March 31, 2018, CEP III is expected to generate approximately
2.5 times invested capital or an IRR of over 18% for its third-party investors after general partner priority distributions.
expenses and carried interest over the life of the fund.
Clairvest/CEP IV Co-Invest and the CEP IV Fund
•
In August 2017, Clairvest and the CEP IV Fund completed the sale of CRS Contractors Rental Supply Limited Partnership
("CRS"), which generated 3.2 times invested capital, or a 31% IRR over the 4.5-year holding period. CEP IV Co-Invest
received cash proceeds of $31.7 million on the sale and is entitled to additional proceeds subject to certain conditions.
Further details are described on page 13 of the MD&A.
In October 2017, Clairvest and the CEP IV Fund completed a partial realization of Winters Bros. Waste Systems of CT, LLC
("Winters Bros. of CT."). CEP IV Co-Invest received cash proceeds of US$7.9 million (C$10.1 million) and a 6.1% interest
in Impero Waste Services, LLC ("Impero Waste"), the acquirer of Winters Bros. of CT. Further details are described on
page 14 of the MD&A.
•
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
•
In November 2017, Clairvest and the CEP IV Fund announced the proposed sale of Centaur Gaming. The transaction is
anticipated to close during the second quarter of fiscal 2019. As at March 31, 2018, the investments in Centaur held by
CEP IV Co-Invest were convertible upon exercise into 12.7% of Class A and B units of Centaur Gaming, and with a carrying
value of $192.4 million at March 31, 2018, represented 28.8% of the book value of Clairvest. Should the transaction close
on anticipated terms, the sale of Centaur Gaming is expected to increase Clairvest's book value per share by
approximately $1.35 from the March 31, 2018 book value per share of $44.01. Further details are described on page 13
of the MD&A.
• Also during fiscal 2018, 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 $19.5 million into Discovery Air, CEP IV Co-Invest's portion of
which was $8.2 million. Subsequent to these investments, Discovery Air completed a series of corporate transactions
which included divesting substantially all of its interest in Top Aces to its secured debenture holders and other third-party
institutional investors, which resulted in $7.6 million of cash interest payments to CEP IV Co-Invest. As at March 31,
2018, CEP IV Co-Invest's investment in Discovery Air and Top Aces had a carrying value of $44.9 million, compared to
$30.7 million in the prior year. In March 2018, Discovery Air filed for creditor protection under the CCAA and CEP IV Co-
Invest advanced $4.9 million in support of these proceedings. Further details are described on page 14 of the MD&A.
• As at March 31, 2018, the CEP IV Fund had realized or partially realized 5 of its 11 investments, and had returned 100%
of capital invested by third-party investors. Based on the fair value at March 31, 2018, the CEP IV Fund is expected to
generate approximately 2.5 times invested capital or an IRR of approximately 22% for its third-party investors after
general partner priority distributions, expenses and carried interest over the life of the fund.
In June 2018, Clairvest and the CEP IV Fund completed the sale of MAG Aerospace. At closing, CEP IV Co-Invest and the
CEP IV Fund received aggregate proceeds of approximately US$110 million on the sale of their equity interest in MAG
Aerospace, which is approximately 8.2 times their invested capital, or a IRR of 57% on a currency neutral basis. In
Canadian dollar terms, net of foreign exchange hedges, and including the full repayment of notes from MAG Aerospace
Canada, CEP IV Co-Invest received proceeds of approximately $39 million against an equity investment of $4.0 million.
The sale of MAG Aerospace will add approximately $1.10 from the book value per share at March 31, 2018. Further
details are described on page 15 of the MD&A.
•
Clairvest/CEP V Co-Invest and the CEP V Fund
•
•
•
In April 2017, CEP V Co-Invest and the CEP V Fund invested US$73.7 million (C$99.2 million) in Ace2Three. CEP V Co-
Invest invested US$41.6 million (C$56.0 million) in Ace2Three, which comprised US$17.0 million (C$22.9 million) in the
form of compulsory convertible debentures denominated in Indian Rupee ("INR”) 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 Ace2Three. Further details are described
on page 16 of the MD&A.
In August 2017, CEP V Co-Invest and the CEP V Fund invested in US$16 million in Also Energy, Inc. ("Also Energy"). CEP
V Co-Invest invested US$4.8 million (C$6.0 million) in Also Energy in the form of 8% cumulative preferred shares. Further
details are described on page 16 of the MD&A.
In December 2017, the Ontario Lottery and Gaming Corporation announced that Ontario Gaming West GTA Limited
Partnership ("OWGTALP") was selected as the successful proponent to operate four gaming facilities in the West Greater
Toronto Area (the "West GTA Bundle"). In May 2018, OWGTALP completed the acquisition of the gaming assets in the
West GTA Bundle for a purchase price of $134 million. OWGTALP was capitalized with Clairvest and the CEP V Fund
owning 45% and Great Canadian Gaming Corporation owning 55%. CEP V Co-Invest invested $8.8 million in OWGTALP
for a 13.5% ownership. Further details are described on page 17 of the MD&A.
• As at June 27, 2018, the CEP V Fund had made 6 investments, representing approximately 43% of its committed capital.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
OUTLOOK
As at March 31, 2018, Clairvest and its controlled acquisition entities had $640.7 million of capital available for future
acquisitions through its cash, cash equivalents and temporary investments ("treasury funds"), credit facilities and uncalled
capital in the CEP Funds. The exit of MAG Aerospace subsequent to year end and the anticipated exit of Centaur Gaming will
significantly add to the treasury funds and meaningfully decrease the portion of capital which is deployed in our core
investment program. Notwithstanding this, valuations are high and competition is fierce for investments in our targeted
fields. The management team will continue to employ a disciplined approach to re-invest the treasury funds in new
investment opportunities and to further support our existing investee companies in carrying out their investment theses.
As at June 27, 2018, Clairvest's current management team has made 50 platform investments and has realized or
partially realized on 32 investments which have in aggregate generated 3.1 times invested capital. From inception, the
Company has invested its own capital in every investment. Clairvest's team of professionals have all invested significant
amounts of capital in the Company which allows Clairvest to approach each investment as owners and shareholders.
As a long-term investor, Clairvest is focused on building value in its investee companies by contributing strategic
expertise, advising on operational improvement and helping its investee companies capitalize on new opportunities that
arise.
The table below summarizes the status of the CEP Funds as at June 27, 2018:
Status of Clairvest Equity Partnerships
($millions, except year of fund and number of investments)
Clairvest Equity Partners III ("CEP III")
2006
225
75
300
79.8%
Year of
Fund
Third-Party
Capital
Clairvest
Commitment Total Capital
Percentage
Drawn
Clairvest Equity Partners IV ("CEP IV")
2010
342
Clairvest Equity Partners V ("CEP V")
2015
420
125
180
467
86.3%
600
43.3%
Number of
Investments
Total
8
11
6
Currently
Held
1
7
6
FINANCIAL CONDITION AND BOOK VALUE
The following table summarizes the Company's financial position and book value as at March 31, 2018 and 2017:
Financial Position
As at, ($000's, except number of shares and per share amounts)
Cash, cash equivalents, temporary investments and restricted cash ("treasury funds")
Carried interest receivable
Corporate investments, at fair value
Total assets
Management participation
Total liabilities
Book value
Book value per share
Number of common shares outstanding
March 31, 2018
March 31, 2017
$
147,924 $
127,900
515,172
834,889
91,267
167,568
667,321
44.01
15,162,995
122,169
98,322
410,102
671,951
67,050
121,747
550,204
36.21
15,194,095
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
As at March 31, 2018, Clairvest had total assets of $834.9 million, an increase of $162.9 million during fiscal 2018. The increase
was primarily due to net gains on investment realizations and a net increase in the fair value of Clairvest's investee companies.
As at March 31, 2018, the Company's treasury funds of $147.9 million were held in cash and money market savings
accounts rated not below R1-High, investment savings accounts and guaranteed investment certificates rated not below A-,
and other fixed income securities as permitted by the Company's treasury policy. 2141788 Ontario also held $34.3 million in
cash, investment savings accounts and guarantee investment certificates with consistent ratings to the above. Clairvest also
had access to $2.6 million in cash held in various other acquisition entities which were controlled by Clairvest.
Clairvest maintains a $100.0 million revolving credit facility which is participated in by several Schedule 1 Canadian
chartered banks. The credit facility, which has an expiry of December 2022 and is eligible for a one-year extension on each
anniversary date, bears interest at the bank prime rate 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, 2018 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, 2018.
As at March 31, 2018, Clairvest had corporate investments with a carrying value of $515.2 million, an increase of
$105.1 million during fiscal 2018, $508.5 million of which represented the fair value of Clairvest's investee companies and the
remaining $6.7 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 $128.1 million during fiscal 2018, which primarily comprised the following:
A $56.0 million investment in Ace2Three;
CIBC common shares received by way of distribution from Wellington Financial valued at $21.6 million;
- Net changes in unrealized gains on its investee companies of $98.3 million;
-
-
- Net follow-on investments in Discovery Air and Top Aces totalling $13.1 million;
-
Accrued interest on debt investments and dividends totalling $10.7 million;
-
A $6.0 million investment in Also Energy;
-
Follow-on investments net of return of capital totalling $3.8 million in other existing investee companies;
-
A $0.6 million investment in GTA Gaming; partially offset by
-
The sale of CRS which had a carrying value of $28.8 million as at March 31, 2017;
-
The sale of LSNE which had a carrying value of $27.2 million as at March 31, 2017;
-
A $15.6 million net return of capital from Wellington Financial;
-
The partial realization of Winters Bros. of CT, the realized portion of which had a carrying value of
$7.0 million as at March 31, 2017; and
Foreign exchange revaluations of investee companies totalling $3.4 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. For the year ended March 31, 2018, 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 approximately 35% of its Chilean Pesos ("CLP") balances and 100% of its Indian Rupees ("INR") balances which are
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, 2018
June 27, 2018
The table below details the cost and fair value of Clairvest’s investee companies as at March 31, 2018 and 2017:
CEP III CO-INVEST INVESTMENTS
Chilean Gaming Holdings(1)
LSNE
CEP IV CO-INVEST INVESTMENTS
Centaur Gaming
County Waste
CRS
Davenport Land Investments
Discovery Air / Top Aces
Impero Waste
MAG Aerospace
The Meadowlands
Rivers Casino
CEP V CO-INVEST INVESTMENTS
Accel Entertainment
Ace2Three
Also Energy
Digital Media Solutions
GTA Gaming
Winters Bros. of LI
Grey Eagle Casino(2)
Wellington Financial
Other investments(3)
March 31, 2018
March 31, 2017
Fair value
Cost
Difference
Fair value
Cost
Difference
$
60,113
—
$
28,754
—
$
31,359
—
$
48,835
27,248
$
28,754
6,619
$
20,081
20,629
192,394
19,776
—
3,018
44,926
4,100
21,164
10,237
23,787
27,258
40,228
6,189
9,126
602
9,764
11,331
3,626
487,639
20,866
$ 508,505
34,657
11,314
—
2,196
55,522
3,019
5,068
6,444
9,058
157,737
8,462
—
822
(10,596)
1,081
16,096
3,793
14,729
111,170
17,999
28,758
3,009
21,037
11,160
11,557
9,563
14,307
34,657
7,533
10,573
2,196
36,860
8,053
5,068
6,444
9,058
76,513
10,466
18,185
813
(15,823)
3,107
6,489
3,119
5,249
15,978
55,968
6,038
8,254
602
10,636
11,017
—
264,525
788
$ 265,313
11,280
(15,740)
151
872
—
(872)
314
3,626
223,114
20,078
$ 243,192
20,639
—
—
8,179
—
11,190
12,613
22,101
379,365
1,039
$ 380,404
15,978
—
—
8,254
—
10,636
11,017
15,640
217,340
1,127
$ 218,467
4,661
—
—
(75)
—
554
1,596
6,461
162,025
(88)
$ 161,937
(1)
(2)
(3)
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 $1.8 million which represented carried interest of CEP to be received by 2486303 Ontario as described in the Transactions with Related Parties
section of the MD&A.
Comprised primarily 194,876 CIBC common shares which were received on the Wellington Financial sale transaction.
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, 2018 and 2017 follows:
INVESTMENTS MADE BY CEP III CO-INVEST ALONGSIDE CEP III
Chilean Gaming Holdings
As at March 31, 2018 and 2017, CEP III Co-Invest held 30,446,299 limited partnership units of Chilean Gaming Holdings,
representing a 36.8% ownership interest on a fully diluted basis.
During fiscal 2018, CEP III Co-Invest earned dividends totalling $0.8 million through its interest in Chilean Gaming
Holdings, bringing total dividends earned to March 31, 2018 to $14.0 million.
Also during fiscal 2018, management determined that the fair value of Chilean Gaming Holdings should be adjusted
upward by $7.9 million. The fair value of $60.1 million as at March 31, 2018 compares to a fair value of $48.8 million at
March 31, 2017 and a cost of $28.8 million. The fair value is adjusted for foreign exchange fluctuations.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
LSNE
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. The Series A 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 2018, CEP III Co-Invest realized its investment in LSNE for total proceeds of US$20.5 million
(C$27.3 million) against a carrying value of $27.2 million as at March 31, 2017 for a net realized gain of $0.1 million.
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV
Centaur Gaming
As at March 31, 2018 and 2017, held US$17.4 million in term loans with stapled warrants which, subject to regulatory
approval, were convertible upon exercise to 12.7% of Class A and Class B units of Centaur Gaming.
During fiscal 2018, Clairvest announced the proposed sale of Centaur Gaming. The transaction is subject to
regulatory approvals and is anticipated to close during fiscal 2019. Accordingly, management determined that the fair value
of Centaur Gaming should reflect the economics of the proposed sale, but adjusted for the risk of closing. The fair value of
$192.4 million as at March 31, 2018 compares to a fair value of $111.2 million as at March 31, 2017 and a cost of $34.7 million.
The fair value is adjusted for foreign exchange fluctuations.
County Waste
As at March 31, 2017, CEP IV Co-Invest held 6,942.64 Class B units of County Waste and 174.3 units of Spare Lots, LLC ("Spare
Lots"), a company affiliated with County Waste, collectively representing a 12.5% ownership interest on a fully diluted basis.
During fiscal 2018, CEP IV Co-Invest invested an additional US$1.3 million (C$1.6 million) for 432.03 Class B units of
County Waste and advanced US$1.7 million (C$2.1 million) in promissory notes accruing interest at 12% per annum with a
maturity date of January 3, 2022. Interest of $43 thousand was earned from these promissory notes from County Waste
during fiscal 2018.
As at March 31, 2018, CEP IV Co-Invest held US$1.7 million in 12% promissory notes in addition to 7,374.67 Class B
units of County Waste and 174.3 units of Spare Lots, which represented a 13.0% ownership interest on a fully diluted basis.
The fair value of $19.8 million as at March 31, 2018 compares to a fair value of $18.0 million as at March 31, 2017 and a cost
of $11.3 million. The fair value is adjusted for foreign exchange fluctuations.
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.
During fiscal 2018, CEP IV Co-Invest earned distributions totalling $0.2 million from CRS. Subsequently,
CEP IV Co-Invest realized on its investment in CRS and received $31.7 million in cash proceeds against a carrying value of
$28.8 million as at March 31, 2017 for a net realized gain of $2.9 million.
Davenport Land Investments
As at March 31, 2018 and 2017, 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, 2017, the promissory note bears interest at a rate of 12% per annum.
The fair value of $3.0 million as at March 31, 2018 compares to a fair value of $3.0 million as at March 31, 2017 and
a cost of $2.2 million. The fair value is adjusted for foreign exchange fluctuations.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
Discovery Air / Top Aces
As at March 31, 2017, CEP IV Co-Invest had invested $22.0 million in secured convertible debentures ("Debentures") of
Discovery Air, which had a maturity date of May 5, 2018. The Debentures accrued interest at a rate of 10% per annum and
interest is paid in-kind and compounded on an annual basis. As at March 31, 2017, the gross accrued value of the Debentures
was $33.6 million, which included $11.6 million in accrued interest. During fiscal 2018, $3.1 million in interest was accrued
on the Debentures. During fiscal 2018, CEP IV Co-Invest exercised the swap option pusuant to a letter agreement dated June
5, 2017 between Discovery Air, Discovery Air Defence Services Inc. ("Top Aces") and Clairvest and its affiliates and exchanged
$5.8 million of the Debentures into common shares of Top Aces. Subsequent to these transactions, a third-party institutional
investor purchased $50 million of equity in Top Aces, half from Top Aces treasury and the other half from Discovery Air.
Subsequently, Discovery Air repaid $7.6 million of interest owing to CEP IV Co-Invest under the terms of the Debentures. As
at March 31, 2018, the gross accrued value of the Debentures was $23.3 million. As at March 31, 2018, the carrying value of
the Debentures was $1.3 million.
As at March 31, 2017, Clairvest and CEP IV Co-Invest collectively held 22,384,024 Class A common shares of Discovery
Air representing a 27.3% ownership interest on a fully diluted basis. During fiscal 2018, CEP IV Co-Invest purchased an
additional 1,948,883 Class A common shares of Discovery Air for $0.4 million as part of a take-private transaction. As at
March 31, 2018, Clairvest and CEP IV Co-Invest collectively held 24,332,907 common shares representing a 29.9% ownership
interest on a fully diluted basis. As at March 31, 2018 and, 2017, the carrying value of the Discovery Air common shares was
nil.
As at March 31, 2017, Clairvest had advanced to Discovery Air $2.3 million in the form of a promissory note bearing
interest at 8.0% per annum which had been included in loans receivable at the accrued value. During fiscal 2018, Discovery
Air repaid the promissory note in full. Interest of $0.1 million was earned on the promissory note during fiscal 2018.
In March 2018, Discovery Air commenced a restructuring under the Companies Creditors Arrangement Act ("CCAA")
to conduct a Court-supervised sale process of its equity interest in its wholly owned subsidiaries and its residual interest in
Top Aces (together, the "Assets"). CEP IV Co-Invest and other investors of the Debentures of Discovery Air (the "Discovery Air
Investor Group"), have submitted bids to purchase the Assets as stalking horse purchasers (the "Transactions"). In support of
CCAA proceedings, CEP IV Co-Invest has agreed to provide up to $12.6 million in debtor-in-possession ("DIP") financing,
$4.9 million of which had been drawn as at March 31, 2018. Subsequent to year end, the DIP financing was increased to
$15.0 million and was fully drawn.
As at March 31, 2017, the Discovery Air Investor Group had in place a $25.0 million secured revolving credit facility
("Revolver") to Top Aces, $20.0 million of which was drawn as at March 31, 2017. The Revolver provides the Discovery Air
Investor Group the option to convert the outstanding balance of the Revolver into common shares of Top Aces based on an
agreed market value of Top Aces. During fiscal 2018, a second secured revolving credit facility ("2nd Revolver") for
$13.0 million was provided under the same terms and conditions and both Revolvers were fully drawn. In total, CEP IV Co-
Invest funded $14.5 million under the Revolvers, $7.8 million of which was funded during fiscal 2018. Subsequently, the
Discovery Air Investor Group exercised the pre-existing optional conversion feature pursuant to the terms of the Revolvers
to convert all the outstanding amounts under both Revolvers into common shares of Top Aces. This occurred concurrent with
the above-mentioned exercise of the swap option for common shares of Top Aces. Interest of $0.9 million was earned from
the Revolvers during fiscal 2018. As at March 31, 2018, CEP IV Co-Invest held 611.4 common shares of Top Aces, representing
a 26.3% ownership interest on a fully diluted basis.
Impero Waste / Winters Bros. of CT
As at March 31, 2017, CEP IV Co-Invest held 76,284.8 Class C units of Winters Bros. of CT, representing a 13.4% ownership
interest on a fully diluted basis.
During fiscal 2018, CEP IV Co-Invest completed a partial realization of its investment in Winters Bros. of CT and
received cash proceeds of US$7.9 million (C$10.1 million) for a net realized gain of $3.3 million and 4,817.86 Class A units of
Impero Waste, the acquirer of Winters Bros. of CT, representing a 6.1% ownership interest in Impero Waste on a fully diluted
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
basis.
The fair value of $4.1 million as at March 31, 2018 compares to a cost of $3.0 million. The fair value is adjusted for
foreign exchange fluctuations.
MAG
As at March 31, 2018 and 2017, 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 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.
Also during fiscal 2018, management determined that the fair value of MAG should be adjusted upward by
$9.8 million. The fair value of $21.2 million as at March 31, 2018 compares to a fair value of $11.6 million at March 31, 2017
and a cost of $5.1 million. The increase in fair value was attributable to growth in operating performance. The fair value is
adjusted for foreign exchange fluctuations.
CEP IV Co-Invest also held $1.1 million in promissory notes from MAG Aerospace Canada (formerly Discovery Air Fire
Services) which bear interest at 10.0% per annum with a maturity date of January 31, 2021. Interest of $0.1 million was earned
from these promissory notes from MAG Aerospace Canada during fiscal 2018. Subsequent to year-end and in conjunction
with the sale of MAG as described below, the promissory notes and accrued interest were repaid in full.
Additionally, Clairvest had advanced working capital loans to a Canadian subsidiary of MAG ("Momentum Solutions")
which had been repaid in full during the year. During fiscal 2018, $0.2 million in interest was earned from these loans.
Subsequent to year-end, CEP IV Co-Invest realized its investment in MAG and sold the Class A stock for
US$29.5 million in proceeds at closing while retaining a 5% ownership interest in Momentum Solutions. Total proceeds for
CEP IV Co-Invest including the notes repayment was $39.2 million.
The Meadowlands
As at March 31, 2018 and 2017, CEP IV Co-Invest had invested 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 that 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. 5% of the 15% interest on the secured convertible debentures is forfeited in the event CEP IV Co-Invest
exercises the warrants.
As at March 31, 2017, the gross accrued value of the secured debentures was US$7.6 million (C$10.1 million), which
included US$2.2 million in accrued interest. During fiscal 2018, US$1.1 million (C$1.4 million) in interest was accrued on the
Debentures. As at March 31, 2018, the gross accrued value of the secured debentures was US$8.7 million (C$11.2 million)
and the carrying value of the secured debentures was US$7.3 million (C$9.4 million), which reflected US$1.4 million
(C$1.8 million) in accrued interest being provided for on the secured debentures.
CEP IV Co-Invest also invested US$0.7 million ($0.9 million) in the Meadowlands 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. During fiscal 2018, CEP IV Co-Invest earned $26 thousand in interest on the preferred debt, which was fully provided
for and presented on a net basis.
The fair value of $10.2 million as at March 31, 2018 compares to a fair value of $9.6 million as at March 31, 2017 and
a cost of $6.4 million. The fair value is adjusted for foreign exchange fluctuations.
Rivers Casino
As at March 31, 2018 and 2017, CEP IV Co-Invest held 9,021,917 units of Rivers Casino representing a 5.0% ownership interest
on a fully diluted basis.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
During fiscal 2018, CEP IV Co-Invest earned quarterly distributions totalling $1.3 million and quarterly fees totalling
$0.6 million from Rivers Casino. As a result of CEP IV Co-Invest's investment in Rivers Casino requiring certain acquisition
entities in the United States, $0.8 million in U.S. income tax obligations were incurred during fiscal 2018.
Also during fiscal 2018, management determined that the fair value of Rivers Casino should be adjusted upward by
$9.7 million. The fair value of $23.8 million as at March 31, 2018 compares to a fair value of $14.3 million at March 31, 2017
and a cost of $9.1 million. The increase in fair value was attributable primarily to an increase to the valuation multiple and
debt reduction. The fair value is adjusted for foreign exchange fluctuations.
INVESTMENTS MADE BY CEP V CO-INVEST ALONGSIDE CEP V
Accel Entertainment
As at March 31, 2018 and 2017, CEP V Co-Invest held 283,478 Class D preferred shares of Accel Entertainment, representing
a 7.5% ownership interest on a fully diluted basis. The Class D preferred shares are entitled to certain preference over all
other equity of Accel Entertainment.
Also during fiscal 2018, management determined that the fair value of Accel Entertainment should be adjusted
upward by $7.1 million. The fair value of $27.3 million as at March 31, 2018 compares to a fair value of $20.6 million as at
March 31, 2017 and a cost of $16.0 million. The increase in fair value was due to growth in operating performance. The fair
value is adjusted for foreign exchange fluctuations.
Ace2Three
During fiscal 2018, CEP V Co-Invest invested $56.0 million in Ace2Three. The investment comprised $22.9 million in the form
of compulsory convertible debentures which are denominated in INR and bear interest at a rate of 16% per annum, and
$33.1 million in 202,230 common shares representing a 33.6% ownership interest on a fully diluted basis.
In June 2017, Ace2Three experienced a material adverse development which resulted in a temporary shut-down of
operation and a material loss in revenue. Ace2Three has since resumed its operations in certain jurisdictions and the validity
of the regulatory developments is being challenged and the matter is before the courts. While Ace2Three remains profitable,
Clairvest has determined that there has been a negative impact on the fair value of this investment. Accordingly, the carrying
value of the equity investment made in Ace2Three was reduced by 50% or $15.8 million.
The fair value of $40.2 million as at March 31, 2018 compares to a cost of $56.0 million. The fair value is adjusted for
foreign exchange fluctuations.
Also Energy
During fiscal 2018, CEP V Co-Invest invested US$4.8 million (C$6.0 million) to acquire 1,013,062 Series A preferred stock of
Also Energy. The Series A preferred stock which accrue dividends at a rate of 8% compounded annually, are convertible into
common stock of Also Energy at CEP V Co-Invest's discretion. As at March 31, 2018, CEP V Co-Invest's ownership interest in
Also Energy was 14.3% on a fully diluted basis.
The fair value of $6.2 million as at March 31, 2018 compares to a cost of $6.0 million. The fair value is adjusted for
foreign exchange fluctuations.
Digital Media Solutions
As at March 31, 2018 and 2017, 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 2018, CEP V Co-Invest received distributions totalling $0.6 million from Digital Media Solutions.
Also during fiscal 2018, management determined that the fair value of Digital Media Solutions should be adjusted
upward by $1.2 million. The fair value of $9.1 million as at March 31, 2018 compares to a fair value of $8.2 million as at
March 31, 2017 and a cost of $8.3 million. The fair value is adjusted for foreign exchange fluctuations.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
GTA Gaming
In December 2017, the Ontario Lottery and Gaming Corporation announced that Ontario Gaming West GTA Limited
Partnership ("OWGTALP") was selected as the successful proponent to operate four gaming facilities in the West Greater
Toronto Area (the "West GTA Bundle"). As support for this bid, Clairvest had pledged $15.8 million to a Schedule 1 Canadian
chartered bank which remained restricted as at March 31, 2018. During fiscal 2018, CEP V Co-Invest invested $0.4 million for
405,151.2 units of OWGTALP representing a 13.5% ownership interest. Subsequent to year-end and in conjunction with the
final closing of the purchase of West GTA Bundle gaming assets, an additional $8.4 million was funded by CEP V Co-Invest for
an additional 8,370,000 units of OWGTALP and the restriction on the $15.8 million was released subsequently as the pledge
was no longer required upon completion of final closing.
Also during fiscal 2018, CEP V Co-Invest invested $0.2 million for 1,254,000 units of Ontario Gaming GTA Limited
Partnership (“OGTALP”) representing a 0.6% ownership interest. OGTALP operates 3 gaming assets in the Great Toronto
Area.
Winters Bros. of LI
As at March 31, 2018 and 2017, CEP V Co-Invest held 1,487,773 Class C units of 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.
During fiscal 2018, management determined that the fair value of Winters Bros. of LI should be adjusted downward
by $1.1 million. The fair value of $9.8 million as at March 31, 2018 compares to a fair value of $11.2 million at March 31, 2017
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, 2018 and 2017, Clairvest held units of 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. As described in the Transaction
with Related Parties section of the MD&A, 2486303 Ontario and Clairvest collectively holds a 100% interest in CEP.
During fiscal 2018, Clairvest earned $0.5 million and CEP earned $1.6 million in equity distributions from Grey Eagle
Casino.
The aggregate fair value of $11.3 million as at March 31, 2018 compares to a fair value of $12.6 million as at
March 31, 2017 and a cost of $11.0 million.
Wellington Financial
As at March 31, 2017, Clairvest had funded $15.6 million of its $30.3 million limited partner commitment in WF Fund V,
representing a 10.1% ownership interest in WF Fund V.
During fiscal 2018, Clairvest funded an additional $1.7 million to WF Fund V bringing total amount funded to
$17.3 million. Subsequently, CIBC acquired the loan portfolio of WF Fund V and certain assets of the general partner of WF
Fund V. Clairvest received a full return of capital on its investment of $17.3 million and 194,876 CIBC common shares which
subject to certain conditions are restricted for sale until January 7, 2021. As at March 31, 2018, the CIBC common shares were
valued at a discount to the closing price of $113.72 per share to reflect the sale restriction and had been included as other
investments. Clairvest continues to participate in its pro-rata share of any profits realized from warrants previously granted
to the various Wellington Funds (the "warrants") and is eligible for additional payments on the sale of the general partner
assets subject to certain conditions.
During fiscal 2018, Clairvest received distributions totalling $24.5 million from Wellington Financial, which includes
the CIBC common shares. As at March 31, 2018, Clairvest had received distributions totalling $55.7 million from current and
prior Wellington Funds.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
The fair value of $3.6 million as at March 31, 2018 reflects management's estimated realizable value of Clairvest's entitlement
of the warrants.
LIABILITIES
As at March 31, 2018, Clairvest had $167.6 million in total liabilities, which included $11.6 million in accrued management
and director compensation, $31.3 million in share-based compensation, $91.3 million in management participation and
$29.7 million in current and deferred tax liability. $137.1 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 treasury funds 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, 2018 was $123.8 million compared with net income of $70.1 million for
the year ended March 31, 2017. 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
2018
2017
- Investee companies inclusive of foreign exchange hedging activities
$
103,497
$
60,455
- Acquisition entities including distributions, interest,
dividends and fees received from investee companies and
net of taxes paid or payable by these acquisition entities
Distributions, interest income, dividends and fees
- CEP Funds
- Investee companies
- Treasury funds
- 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 - basic and fully diluted
(1)
Includes realized gains/losses and market value changes to Clairvest's treasury funds.
4,243
12,491
107,740
72,946
11,071
26,810
1,928
14,171
53,980
46,469
71,495
136,694
12,916
123,778
8.15
12,281
7,260
764
2,602
22,907
35,617
51,870
79,600
9,474
70,126
4.61
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
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.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
During fiscal 2018, CEP III Co-Invest realized its investment in LSNE and received cash proceeds totalling $27.3 million.
Subsequently, CEP III Co-Invest made distributions totalling $28.2 million, $9.6 million of which were to Clairvest, $16.3 million
were to acquisition entities of Clairvest and $2.3 million were paid as carried interest entitlements.
During fiscal 2018, CEP IV Co-Invest received $31.7 million in cash proceeds as a result of the sale of CRS and received
$10.1 million in cash proceeds from the partial realization of Winters Bros. of CT. During fiscal 2018, CEP IV Co-Invest made a
return of capital totalling $46.3 million to its unitholders, $45.6 million of which were to Clairvest and the remaining
$0.7 million were to acquisition entities of Clairvest.
The following tables summarize the net investment gains or losses of investee companies for the years ended
March 31, 2018 and 2017. These net investment gains are inclusive of the impact on the foreign exchange hedging activities
related to these investments:
Net investment gains (losses) on investee companies
Year ended March 31, 2018 ($000's)
Accel Entertainment
Ace2Three
Also Energy
Centaur Gaming
Cieslok Media(1)
Chilean Gaming Holdings
County Waste
CRS
Digital Media Solutions
Discovery Air / Top Aces
Grey Eagle Casino
Impero Waste (formerly "Winters Bros. of CT")
LSNE
MAG
The Meadowlands
Rivers Casino
Wellington Financial
Winters Bros. of LI
Other investments
Net investment gains on investee companies
(1)
Cieslok Media was realized during fiscal 2017.
Foreign
Exchange gains
(losses)
inclusive of
foreign
exchange
hedging
activities
(68) $
(2,807)
(4)
207
—
1,560
(98)
—
(40)
—
—
(115)
88
143
(34)
135
—
(100)
—
(1,133) $
Net realized
gains (losses)
—
—
—
—
69
—
—
2,950
—
(1,165)
—
3,311
146
—
—
—
—
—
—
5,311
$
$
Net unrealized
gains (losses)
7,137
(15,826)
—
82,691
—
7,928
(1,730)
—
1,196
5,214
(2,305)
21
—
9,831
—
9,711
(2,847)
(1,064)
(1,646)
98,311
$
$
$
$
Total
7,069
(18,633)
(4)
82,898
69
9,488
(1,828)
2,950
1,156
4,049
(2,305)
3,217
234
9,974
(34)
9,846
(2,847)
(1,164)
(1,646)
102,489
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
Foreign
exchange gains
(losses)
inclusive of
foreign
exchange
hedging
activities
$
(30) $
1,251
—
1,540
42
—
(21)
(16)
—
—
(9)
(73)
7
(89)
(147)
—
(8)
2,447
$
$
Total
4,530
20,526
22,707
5,259
5,427
6,749
(21)
(16)
(8,097)
(1,424)
1,006
11,628
4,577
(89)
(12,522)
223
(8)
60,455
Net realized
gains (losses)
Net unrealized
gains (losses)
—
—
22,707
—
—
—
—
—
—
—
—
31
—
—
—
—
—
22,738
$
$
4,560
19,275
—
3,719
5,385
6,749
—
—
(8,097)
(1,424)
1,015
11,670
4,570
—
(12,375)
223
—
35,270
$
$
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
Winters Bros. of CT
LSNE
MAG
The Meadowlands
Rivers Casino(2)
Wellington Financial
Winters Bros. of LI
Net investment gains on investee companies
(1)
(2)
Cieslok Media was 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.
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:
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
Distributions, Interest, Dividends, and Fees from Investee Companies
Year ended March 31, ($000's)
Distributions and interest income
Ace2Three
Centaur Gaming
County Waste
CRS
Davenport Land Investments
Digital Media Solutions
Discovery Air
Grey Eagle Casino
MAG
The Meadowlands
Rivers Casino
Wellington Financial
Dividend income
Chilean Gaming Holdings
Other investments
2018
Earned
through
acquisition
entities
Earned
directly by
Clairvest
Earned
directly by
Clairvest
Total
2017
Earned
through
acquisition
entities
Total
— $
$
— $
—
—
—
—
—
130
522
152
—
—
24,575
25,379
3,225 $
192
43
245
99
589
14,316
1,568
115
959
1,322
—
22,673
3,225 $
192
43
245
99
589
14,446
2,090
267
959
1,322
24,575
48,052
— $
—
—
—
—
—
183
729
245
—
—
4,773
5,930
121
—
622
82
819
395
2,187
21
866
18,691
—
23,804
—
121
—
622
82
819
578
2,916
266
866
18,691
4,773
29,734
—
259
259
849
—
849
849
259
1,108
—
—
—
3,701
—
3,701
3,701
—
3,701
Advisory and other fees
1,172
611
1,783
1,330
619
1,949
Distributions, interest, dividends and
fees from investee companies
$ 26,810 $ 24,133 $ 50,943 $
7,260 $ 28,124 $ 35,384
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
2018
Earned
through
acquisition
entities
Earned
directly by
Clairvest
Earned
directly by
Clairvest
Total
2017
Earned
through
acquisition
entities
Total
$
9,267 $
— $
9,267 $ 10,860 $
— $ 10,860
1,304
500
—
81
1,304
581
1,311
110
—
74
1,311
184
$ 11,071 $
81 $ 11,152 $ 12,281 $
74 $ 12,355
Also included in distributions and interest income for the year ended March 31, 2018 and 2017 was income on treasury funds
of $1.9 million and $0.8 million respectively. During fiscal 2017, income on treasury funds included a net realized loss of
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
$0.7 million on the US$7.5 million Light Tower Rentals corporate bonds purchased under Clairvest's treasury portfolio.
Acquisition entities of Clairvest earned interest from its treasury funds totalling $0.5 million during fiscal 2018 and 2017.
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 CEP and the CEP Funds
Net carried interest income(1)
(1)
2017
474
830
34,313
35,617
Includes carried interest which is ultimately received by non-Clairvest participants if and when they are receivable, which are recorded as management
participation as described below.
2018
301
16,590
29,578
46,469
$
$
$
$
Total expenses for the year were $71.5 million, compared with $51.9 million for the year ended March 31, 2017. 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 costs (gain)
Management participation
2018
$
13,108
$
17,105
797
618
4,118
5,533
878
23
901
34,848
2017
11,342
10,992
730
770
3,388
4,888
828
(14)
814
23,834
Total expenses, excluding income taxes
(1)
51,870
Domain and due diligence expenses with respect to investments made alongside CEP V, CEP V India 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.
71,495
$
$
Included in share-based compensation expenses for the year ended March 31, 2018 was $4.5 million for the Non-Voting
Option Plan, $7.8 million for book value appreciation rights ("BVARs"), and $5.3 million for Deferred Share Units ("DSUs"),
Appreciation Deferred Share Units ("ADSUs"), and Employee Deferred Share Units (“EDSUs”), compared to $0.9 million for
the Non-Voting Option Plan, $7.8 million for BVARs and $2.7 million for DSUs, ADSUs and EDSUs for the year ended March 31,
2017. 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.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
SUMMARY OF QUARTERLY RESULTS
June 27, 2018
($000's except per share information)
Gross
revenue
$
Net
income
(loss)
$
Net income (loss)
per
common share*
Net income (loss)
per common share
fully diluted*
$
$
1.23
26,845
March 31, 2018
4.88
121,671
December 31, 2017
2.80
63,504
September 30, 2017
(0.76)
(3,831)
June 30, 2017
1.14
33,361
March 31, 2017
2.02
52,368
December 31, 2016
0.69
20,436
September 30, 2016
0.76
25,305
June 30, 2016
* 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
18,626
74,103
42,609
(11,560)
17,268
30,764
10,520
11,574
1.23
4.88
2.80
(0.76)
1.14
2.02
0.69
0.76
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 2018 was $18.6 million compared with a net income of $17.3 million for the fourth
quarter of fiscal 2017.
Gross revenue for the fourth quarter of fiscal 2018 comprised $7.1 million in net investment losses, $26.8 million in
distributions, interest, dividends and fees, and $7.2 million in net carried interest income. This compares with $17.1 million
in net investment gains, $5.8 million in distributions, interest, dividends and fees and $10.4 million in net carried interest
income for the fourth quarter of fiscal 2017.
The net investment losses of $7.1 million for the fourth quarter of fiscal 2018 resulted from $5.8 million in net
unrealized losses 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 $18.5 million in net unrealized gains from
Clairvest's investee companies and $1.4 million in net unrealized losses from Clairvest's acquisition entities for the fourth
quarter of fiscal 2017. 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. The net unrealized loss of $5.8 million from
Clairvest’s investee companies resulted primarily from $21.6 million in distributions received from Wellington Financial as
described on page 17 of the MD&A.
Distributions, interest, dividends and fees for the quarter included income on treasury funds of $0.9 million, general
partner distributions and interest earned from the CEP Funds of $2.2 million, distributions and interest earned from investee
companies of $23.4 million and $0.3 million from acquisition entities. This compared with $0.3 million in income on treasury
funds, $3.1 million earned from the CEP Funds, $2.1 million earned from investee companies and $0.3 million in distributions
from Clairvest's acquisition entities for the same quarter last year.
Net carried interest income of $7.2 million for the fourth quarter of fiscal 2018 comprised $0.1 million in realized
carried interest from CEP and $7.1 million in unrealized carried interest receivable from the CEP Funds. 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 receivable from 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.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
Expenses for the fourth quarter of fiscal 2018 included $4.8 million in management and director compensation expenses,
$4.8 million in management participation, $1.6 million in administrative and other expenses, $0.1 million in finance and
foreign exchange expenses and $3.0 million in income tax recoveries. This compares with $6.8 million in management and
director compensation expenses, $6.4 million in management participation, $1.1 million in administrative and other
expenses, $0.1 million in finance and foreign exchange expenses recoveries, and $1.6 in income tax expense for the fourth
quarter of fiscal 2017. Management participation is further described in the Transaction with Related Parties section of the
MD&A.
EQUITY AND SHARE INFORMATION
As at March 31, 2018, Clairvest had 15,162,995 common shares issued and outstanding.
During fiscal 2018, Clairvest purchased and cancelled 31,100 common shares under the Company's normal course
issuer bids. An additional 5,100 common shares were purchased and cancelled between April 1, 2018 and June 27, 2018. As
at June 27, 2018, Clairvest had 15,157,895 common shares issued and outstanding.
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, 2018
and June 27, 2018.
Also during fiscal 2017, Company adopted a stock option plan (the "Non-Voting Option Plan"). Options granted under
the Non-Voting Option Plan are exercisable for Non-Voting Shares. 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, 2018 and June 27, 2018, 362,604 options were outstanding and 38,752 had vested.
In addition, during fiscal 2017 the Board of Directors of the Company approved an 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. 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, 2018 and June 27, 2018. As
at March 31, 2018 and June 27, 2018, 50,556 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 2018, fiscal 2017 and
fiscal 2016. During fiscal 2018, and 2017 and 2016, Clairvest also paid a special dividend of $0.2621 and, $0.2191 and $0.1958
per share respectively.
Subsequent to year-end, Clairvest declared an annual ordinary dividend of $0.10 per share, and a special dividend
of $0.3401 per share. The dividends will be payable to common shareholders of record as of July 6, 2018. The dividend will
be paid on July 25, 2018. Both dividends are eligible dividends for Canadian income tax purposes.
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
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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,
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
Clairvest, though its consolidated subsidiaries, is entitled to priority distributions, management fees and carried interest from
the CEP Funds. Clairvest is also entitled to other entitlements from CEP III Co-Invest, CEP IV Co-Invest, and CEP V Co-Invest
(the “CEP Co-Invest Partnerships”) as specified in the respective limited partnership agreements. MIP III, MIP IV and MIP V
are entitled to certain carried interest from the CEP Funds and the CEP Co-Invest Partnerships. Further details are described
in note 9 to the consolidated financial statements.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
As at March 31, 2018, Clairvest had accounts receivable from its investee companies totalling $2.4 million, from CEP IV
totalling $0.7 million, from CEP IV-A totalling $0.1 million, from CEP V totalling $17.1 million, from CEP V India totalling
$0.1 million and from CEP V-A totalling $3.3 million. Additionally, acquisition entities of Clairvest which were not consolidated
in accordance with IFRS held receivables from CEP IV totalling $0.1 million, from CEP V totalling $17 thousand, from CEP V-A
totalling $3 thousand and Clairvest's investee companies totalling $1.5 million.
In addition, the Company advances loans to its acquisition entities and the CEP Funds. During fiscal 2018, the
Company received net repayments of $2.1 million from these loans, such that $13.6 million in loans remained outstanding as
at March 31, 2018. Further details are described in note 9(l) to the consolidated financial statements.
As at March 31, 2018, Clairvest had share purchase loans receivable from certain officers of Clairvest (the "Officers")
totalling $3.0 million. The loans are interest bearing, have full recourse to the individual and are collateralized by the common
shares of Clairvest owned by the Officers with a market value of $6.5 million. None of these loans were made to key
management. During fiscal 2018, other loans made to officers of the affiliated company were repaid in full. Interest of
$68 thousand was earned on these loans during the year.
Key management at Clairvest includes the Chief Executive Officer ("CEO"), the Vice Chairman, the President and its
directors. The CEO and President are entitled to annual discretionary cash bonuses of up to 175% of their individual annual
salary based on individual performance. The Vice Chairman is entitled to annual discretionary cash bonuses of up to 100% of
annual salary based on individual performance. There is also an annual objective cash bonus which is based on Clairvest's
Incentive Bonus Program, the stock option plans, the BVAR Plan and the EDSU Plan. Annual salaries and compensation under
these plans paid to the CEO, Vice Chairman, and President during fiscal 2018 was $5.5 million. As at March 31, 2018, the total
amounts payable to the CEO, Vice Chairman, and President under the aforementioned plans were $11.8 million. During fiscal
2018, no compensation was paid to directors under the BVAR, DSU or ADSU plans. As at March 31, 2018, the total amounts
payable to the directors of Clairvest under the DSU, ADSU and Non-Voting Option plans was $15.5 million.
During fiscal 2018, Clairvest earned $25.4 million in distributions and interest income, $0.3 million in dividend
income and $2.2 million in advisory and other fees from its investee companies. Additionally, acquisition entities of Clairvest
which were not consolidated in accordance with IFRS earned $21.7 million in distributions and interest income, $0.8 million
in dividend income and $0.6 million in advisory and other fees from its investee companies.
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.
OFF-STATEMENT OF FINANCIAL 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, 2018. 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, 2018. 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, $103.6 million of which remains unfunded as at
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
March 31, 2018. 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 ("WF Fund IV"), all of which was unfunded as at
March 31, 2018. WF Fund IV may no longer invest in new investments.
Clairvest has also committed $30.3 million to WF Fund V. During fiscal 2018, Clairvest received a full return of capital
from WF Fund V upon the sale of its loan portfolio as described in note 6(s). As at March 31, 2018, $30.3 million remained
unfunded as at March 31, 2018. WF Fund V may no longer invest in new investments.
Clairvest, as a general partner of WF Fund V, had guaranteed to return up to amounts received in the event the
limited partners of WF Fund V do not meet their return threshold as specified in its Limited Partnership Agreement. During
fiscal 2018, WF Fund V sold its loan portfolio and the limited partners received a full return of capital and a return above the
threshold as specified in its Limited Partnership Agreement, and accordingly, the guarantee was extinguished with no
amounts funded or owing with respect to the clawback.
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, 2018,
the Realized Amount under the Bonus Program was $0.7 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
$7.8 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 $2.0 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, 2018, no amounts
with respect to this guarantee had been funded.
As part of the holding structure of Chilean Gaming Holdings, acquisition entities of CEP III Co-Invest had loans
totalling $41.9 million as at March 31, 2018 from an unrelated financial institution, while another acquisition entity of CEP III
Co-Invest held term deposits totalling $41.9 million as at March 31, 2018 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, 2018.
Clairvest had agreed to guarantee up to $10.0 million to support Discovery Air's credit facility with its bank. During
fiscal 2018, the guarantee was extinguished.
Clairvest had pledged $15.8 million to a Schedule 1 Canadian chartered bank which has provided debt financing to
OWGTALP. The pledge was made to support the debt financing and is held in a bank account belonging to Clairvest at the
Schedule 1 Canadian chartered bank which cannot be withdrawn without consent from the Schedule 1 Canadian chartered
bank. Accordingly, it has been classified as restricted cash on the consolidated statements of financial position. Subsequent
to year-end and in conjunction with the final closing of OWGTALP, the restriction on the cash was removed.
As at March 31, 2018, 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, $2.1 million due after one year, but not more than five
years and $1.8 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.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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, 2018, 9 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 $18.8 million or a decrease of $19.7 million to the carrying value of corporate investments and net investment
gains, on a pre-tax basis, for the year ended March 31, 2018. 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 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, Clairvest has determined that there are no reasonable alternative
assumptions that would change the fair value materially as at March 31, 2018.
The Company's corporate investment portfolio was diversified across 17 investee companies in 6 industries and 4
countries as at March 31, 2018. 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, 2018.
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.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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, Chile, and India. 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, subject to certain exceptions, entered into hedging
positions against these foreign-denominated currencies. As at March 31, 2018, the Company had net foreign exchange
exposure to the CLP totalling $17.5 million and the INR totalling $40.2 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. 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.
Investing process risk
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, 2018, 15 of the 17 investments made by Clairvest were minority
equity investments. In all investments, Clairvest monitors the performance of each investment, maintains an ongoing
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
dialogue with each investee company's management team and seeks board representation and negative controls as
conditions of each investment.
Gaming investment risk
As at March 31, 2018, Clairvest's exposure to the gaming industry represented 55% 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.
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, 2018, 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.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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 $140.0 million as at March 31, 2018. 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.
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, 2018.
As at March 31, 2018, Clairvest had treasury funds of $147.9 million and access to $100.0 million in credit to support
its obligations and current and anticipated corporate investments. Clairvest also had access to $36.9 million in treasury funds
held by its acquisition entities and $355.9 million in uncalled committed third-party capital through the CEP Funds at
March 31, 2018 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, 2018, Clairvest's Board of Directors and employees owned approximatrely 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.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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 in accordance with its foreign exchange hedging policy as
approved by the Board of Directors. During fiscal 2018, the Company received $0.1 million on the settlement of realized
foreign exchange forward contracts.
As at March 31, 2018, acquisition entities of Clairvest had entered into foreign exchange forward contracts to sell
US$246.8 million at an average rate of C$1.2622 per U.S. dollar through to March 2019 and to sell 15.5 billion CLP at an
average rate of C$0.002098 per CLP through to April 2019. The fair value of the U.S. dollar contracts held by these acquisition
entities as at March 31, 2018 is a loss of $6.3 million and the fair value of the CLP contracts as at March 31, 2018 is a loss of
$1.8 million. These contracts have been included in the fair value of Clairvest's investments in these acquisition entities.
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, 2018 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 CEO, Vice Chairman 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, 2018. Management
has concluded that the design of internal controls over financial reporting were effective and operated as designed as at
March 31, 2018 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.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2018
June 27, 2018
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.
33
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,
2018. Based on that evaluation, management concluded that the Company’s internal control over financing reporting was
effective for the year ended March 31, 2018.
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, 2018, 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
Vice Chairman
Daniel Cheng
Chief Financial Officer
34
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, 2018 and 2017, 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, 2018 and 2017, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Toronto, Canada
June 27, 2018
35
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at March 31
$000s
ASSETS
Cash and cash equivalents (notes 3, 13 and 16)
Temporary investments (note 3)
Restricted cash (notes 6(p), 15(k) and 16)
Accounts receivable and other assets (notes 9(m) and 16)
Loans receivable (notes 6, 9(l) and 16)
Derivative instrument (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
Accounts payable and accrued liabilities (note 9(o))
Income taxes payable
Accrued compensation expense (notes 12 and 15(g))
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:
MICHAEL BREGMAN
Director
JOSEPH J. HEFFERNAN
Director
2018
2017
$
$
$
$
$
$
$
95,592
36,582
15,750
28,402
13,601
—
394
127,900
515,172
1,496
834,889
$
$
$
$
3,708
5,680
11,643
31,326
91,267
23,944
167,568
81,388
585,933
667,321
834,889
$
106,205
15,964
—
21,551
15,654
24
2,029
98,322
410,102
2,100
671,951
3,914
96
8,312
21,705
67,050
20,670
121,747
81,554
468,650
550,204
671,951
36
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31
$000s (except per share information)
REVENUE
Net investment gain (notes 4 and 6)
Distributions and interest income (notes 6 and 9)
Net carried interest income (note 5)
Dividend income
Management fees (notes 9(e) and 9(h))
Advisory and other fees (note 9(n))
EXPENSES
Employee compensation and benefits (notes 12 and 15(g))
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)
Net income and comprehensive income for the year
Basic and fully diluted net income and comprehensive income per share
(note 11)
See accompanying notes
2018
2017
$
107,740
51,245
46,469
259
1,304
1,172
208,189
13,108
17,105
5,533
901
34,848
71,495
136,694
12,916
123,778
$
72,946
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
70,126
8.15
$
4.61
$
$
$
37
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended March 31
$000s
Share capital Retained earnings
shareholders’
Total
As at April 1, 2017
Changes in shareholders' equity
Net income and comprehensive income for the year
Dividends declared ($0.3621 per share)
Purchase and cancellation of shares (note 11)
As at March 31, 2018
As at April 1, 2016
Changes in shareholders' equity
Net income and comprehensive income for the year
Dividends declared ($0.3191 per share)
Purchase and cancellation of shares (note 11)
As at March 31, 2017
See accompanying notes
$
81,554
$
468,650
$
550,204
equity
123,778
(5,502)
(993)
(166)
81,388
$
585,933
$
123,778
(5,502)
(1,159)
667,321
81,662
$
403,859
$
485,521
$
$
70,126
(4,855)
(480)
70,126
(4,855)
(588)
(108)
$
81,554
$
468,650
$
550,204
38
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
Deferred income tax expense
Net investment gain
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 (cost of acquisition) of temporary investments
(notes 6(i), 6(j) and 9)
Net loan advanced
Proceeds from settlement of realized foreign exchange
Increase in restricted cash
forward contracts (note 14)
Investments made in investee companies or acquisition entities
Return of capital from investee companies or acquisition entities
Settlement of share-based compensation liability (note 13)
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
Cash dividends paid
Purchase and cancellation of common shares (note 11)
Cash used in financing activities
Net increase (decrease) in cash during the year
Cash and cash equivalents, beginning of year (note 13)
Cash and cash equivalents, end of year
SUPPLEMENTAL CASH FLOW INFORMATION
Interest received
Distributions received
Income taxes paid
Interest paid
See accompanying notes
2018
2017
$
123,778
$
70,126
1,409
18,663
3,274
(107,740)
(5,361)
(59)
(21,824)
12,140
(20,618)
2,053
83
(15,750)
(38,709)
63,203
(9,042)
(18,780)
3,493
(3,147)
(805)
(805)
(5,502)
(1,159)
(6,661)
(10,613)
106,205
95,592
4,355
24,392
5,468
704
$
$
$
$
$
$
$
$
$
$
428
12,263
6,254
(72,946)
(11,240)
100
—
4,985
5,829
14,909
457
—
(21,110)
37,755
(7,364)
30,476
11,605
47,066
(668)
(668)
(4,855)
(588)
(5,443)
40,955
65,250
106,205
3,244
59,013
3,386
568
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
1. NATURE OF ACTIVITIES
Clairvest Group Inc. ("Clairvest" or the "Company") is a private equity management firm 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 the 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"), CEP V HI India Investment Limited Partnership ("CEP V India") 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,
2018 and 2017 ("consolidated financial statements") were authorized for issuance by the Board of Directors on June 27, 2018.
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.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
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
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, are 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 International Accounting Standard 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
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
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.
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
as at the consolidated statement of financial position dates. Non-monetary assets and liabilities that are measured at
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
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.
(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 as at the consolidated
statement 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 as at the
consolidated statement 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 as at the consolidated
statement 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.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
(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 closing price 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 closing price of a Clairvest common share on the redemption date. A participant may redeem his or her
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 closing price of a Clairvest common share on the redemption date and the closing price 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 ("EDSUs"). 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 interests in
unconsolidated subsidiaries in note 2 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
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
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.
(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
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
techniques may affect the calculation of unrealized carried interest receivable and the resulting accrued liabilities for
future payouts relating to the unrealized carried interest as at the consolidated statement of financial position dates.
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, 2018, the yield ranged between 0.9% and 2.0% (2017 – between 0.8%
and 0.9%) per annum with a weighted average rate of pre-tax return of 1.8% (2017 – 0.9%) per annum.
As at March 31, 2018, temporary investments comprised guaranteed investment certificates and other fixed income
securities as permitted by the Company's treasury policy which in aggregate may not exceed 10% of book value and with no
single issue greater than 1.5% of book value. Temporary investments have maturities greater than 90 days from the date of
acquisition and through to April 2020. The yield on these investments ranged between 1.5% and 9.2% (2017 – between 1.4%
and 1.7%) per annum, with a weighted average rate of pre-tax return of 3.8% (2017 – 1.5%) per annum. The composition of
Clairvest's temporary investments as at March 31 was as follows:
March 31, 2018
March 31, 2017
Due after 1 year
Total
Total
Due in 1 year
or less
$
$
19,074
5,751
24,825
$
$
203
11,554
11,757
$
$
19,277
17,305
36,582
$
$
15,964
—
15,964
Guaranteed investment certificates
Other fixed income securities
4. NET INVESTMENT GAINS
Net investment gains for the years ended March 31, 2018 and 2017 comprised entirely of net changes in unrealized gains.
5. NET CARRIED INTEREST INCOME
Net carried interest income for the years ended March 31, 2018 and 2017 comprised the following:
Realized carried interest income (note 9)
Net changes in unrealized carried interest (note 9(j))
$
$
2018
16,891
29,578
46,469
$
$
2017
1,304
34,313
35,617
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.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (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:
March 31, 2018
Acquisition
entity net
assets
(liabilities)
Investee
companies
Total
Investee
companies
March 31, 2017
Acquisition
entity net
assets
(liabilities)
Total
Held directly by Clairvest Group Inc.
$
27,325
$
—
$
27,325
$
26,549
$
—
$
26,549
Held through the following acquisition
entities:
2141788 Ontario
2486303 Ontario
CEP III Co-Invest
MIP III
CEP IV Co-Invest
MIP IV
CEP V Co-Invest
MIP V
Total
51,473
8,499
22,308
893
314,634
4,768
75,709
2,896
25,886
(9,253)
(1,313)
(12)
(7,120)
(53)
(1,398)
(70)
77,359
(754)
20,995
881
56,448
9,204
28,235
1,131
307,514
225,147
4,715
74,311
2,826
3,413
27,701
2,576
38,091
(9,866)
895
(5)
1,970
(48)
(1,274)
(65)
94,539
(662)
29,130
1,126
227,117
3,365
26,427
2,511
$
508,505
$
6,667
$
515,172
$
380,404
$
29,698
$
410,102
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 together with Clairvest holds a 100% interest in
Clairvest Equity Partners Limited Partnership ("CEP"). CEP was an investment fund held by third-party investors until
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, 2018, Clairvest made
additional investments totalling $1.0 million in 2486303 Ontario and $36.1 million in CEP V Co-Invest.
During fiscal 2018, CEP III Co-Invest received cash proceeds of $27.3 million as a result of the realization of
Lyophilization Services of New England Inc. as described in note 6(b). Subsequently, CEP III Co-Invest declared distributions
totalling $9.6 million to Clairvest, $15.9 million to 2141788 Ontario and $0.4 million to MIP III, respectively. CEP III Co-Invest
also declared $2.3 million to the general partner, all of which was received by the limited partners of MIP III as described in
note 9(c). Also during fiscal 2018, CEP IV Co-Invest received total cash proceeds of $42.0 million as a result of the realization
of CRS Contractors Rental Supply Limited Partnership as described in note 6(e) and the partial realization of Winters Bros.
Waste Systems of CT, LLC as described in note 6(h). Subsequently, CEP IV Co‐Invest made capital distributions totalling
$45.6 million to Clairvest and $0.7 million to MIP IV as described in note 9(f).
Also during fiscal 2018, MIP III declared distributions totalling $0.4 million to Clairvest as described in note 9(c) and
MIP IV declared distributions totalling $0.7 million to Clairvest as described in note 9(f).
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (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:
March 31, 2018
March 31, 2017
Assets
Cash and cash equivalents
Temporary investments
Accounts receivable and other assets
Loans receivable
Income taxes recoverable
Derivative instruments
Deferred income tax asset
Liabilities
Accounts payable and accrued liabilities
Loans payable
Income taxes payable
Derivative instruments
Deferred income tax liability
Net assets
$
$
$
$
$
$
25,945
10,942
1,657
—
63
168
142
38,917
$
2,293
12,656
967
8,241
8,093
32,250
6,667
$
$
$
41,430
7,464
1,890
423
1,030
83
—
52,320
2,135
10,283
753
2,371
7,080
22,622
29,698
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (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, 2018
March 31, 2017
Fair value
Cost
Difference
Fair value
Cost
Difference
Investments made by CEP III Co-Invest
alongside CEP III
Chilean Gaming Holdings(1)
$
60,113 $
28,754 $
31,359 $
48,835 $
28,754 $
20,081
Lyophilization Services of New England
Inc.
Investments made by CEP IV Co-Invest
alongside CEP IV
Centaur Gaming
County Waste of Virginia, LLC
CRS Contractors Rental Supply Limited
Partnership
Davenport Land Investments(2)
Discovery Air Inc. / Top Aces
Impero Waste Services, LLC (fomerly
Winters Bros. Waste System of CT, LLC)
MAG Aerospace
New Meadowlands Racetrack, LLC
Rivers Casino
Investments made by CEP V Co-Invest
alongside CEP V
Accel Entertainment Inc.
Ace2Three
Also Energy, Inc.
Digital Media Solutions, LLC
GTA Gaming
Winters Bros. Waste Systems of Long
Island Holdings, LLC
Grey Eagle Casino(3)
Wellington Financial(4)
Other investments(5)
—
—
—
27,248
6,619
20,629
192,394
19,776
—
3,018
44,926
4,100
21,164
10,237
23,787
27,258
40,228
6,189
9,126
602
9,764
11,331
3,626
487,639
20,866
34,657
11,314
—
2,196
55,522
3,019
5,068
6,444
9,058
15,978
55,968
6,038
8,254
602
10,636
11,017
—
264,525
788
157,737
8,462
—
822
(10,596)
1,081
16,096
3,793
14,729
11,280
(15,740)
151
872
—
(872)
314
3,626
223,114
20,078
111,170
17,999
28,758
3,009
21,037
11,160
11,557
9,563
14,307
20,639
—
—
8,179
—
11,190
12,613
22,101
379,365
1,039
34,657
7,533
10,573
2,196
36,860
8,053
5,068
6,444
9,058
15,978
—
—
8,254
—
10,636
11,017
15,640
217,340
1,127
76,513
10,466
18,185
813
(15,823)
3,107
6,489
3,119
5,249
4,661
—
—
(75)
—
554
1,596
6,461
162,025
(88)
$
508,505 $
265,313 $
243,192 $
380,404 $
218,467 $
161,937
(1)
(2)
(3)
(4)
(5)
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, 2018
excluded the amount of $1.8 million (2017 − $1.0 million) which represented the carried interest of CEP to be received by 2486303 Ontario as
described in note 9(a).
Comprised interest in various Wellington Financial limited partnership funds and their respective general partners.
Includes Clairvest's investment in common shares of Canadian Imperial Bank of Commerce ("CIBC") as discussed in note 6(s).
The fair value of each investee company reflected valuation methodologies as described in note 17, except for notes 6(f) and
6(s) 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.
(a) Chilean Gaming Holdings
Chilean Gaming Holdings is a limited partnership, which has 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
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
Calama, Chile. As at March 31, 2018 and 2017, CEP III Co-Invest held 30,446,299 limited partnership units of Chilean
Gaming Holdings, representing a 36.8% equity interest.
During fiscal 2018, CEP III Co-Invest earned dividends totalling $0.8 million (2017 – $3.7 million) through its
in Chilean Gaming Holdings, bringing dividends earned to March 31, 2018 to $14.0 million
investment
(2017 – $13.2 million).
(b) 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, 2017, CEP III Co-Invest held 6,406,000 Series A 10% cumulative preferred shares of LSNE which were
convertible into a 11.2% ownership interest on a fully diluted basis and 331,506 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 2018, CEP III Co-Invest realized its investment in LSNE for total proceeds of US$20.5 million
(C$27.3 million) against a carrying value of $27.2 million as at March 31, 2017, for a net realized gain of $0.1 million.
Over the life of this investment, CEP III Co-Invest received total proceeds of US$21.9 million (C$29.4 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.
(c) 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, 2018 and 2017, CEP IV Co-Invest held
US$17.4 million in term loans with stapled warrants which, subject to regulatory approval, were convertible upon exercise
to 12.7% of Class A and Class B units of Centaur Gaming.
During fiscal 2018, Clairvest announced the proposed sale of Centaur Gaming. The transaction is subject to
regulatory approvals and is anticipated to close during fiscal 2019. Clairvest holds its investment in Centaur Gaming
through CEP IV Co-Invest and its carrying value in Centaur Gaming as at March 31, 2018 reflects the economics of the
proposed sale, but adjusted for the risk of closing.
(d) County Waste of Virginia, LLC
County Waste of Virginia, LLC ("County Waste") is a private regional solid waste collection company servicing customers
in the states of Virgina and Pennsylvania. As at March 31, 2017, CEP IV Co-Invest held 6,942.64 Class B units of County
Waste and 174.3 units of Spare Lots, LLC ("Spare Lots"), a company affiliated with County Waste, collectively representing
a 12.5% ownership interest on a fully diluted basis.
During fiscal 2018, CEP IV Co-Invest invested an additional US$1.3 million (C$1.6 million) for 432.03 Class B units in
County Waste and advanced US$1.7 million (C$2.1 million) in promissory notes accruing interest at 12% per annum with
a maturity date of January 3, 2022. Interest of $43 thousand was earned from these promissory notes to County Waste
during fiscal 2018.
As at March 31, 2018, CEP IV Co-Invest held US$1.7 million in 12% promissory notes in addition to 7,374.67 Class B
units in County Waste and 174.3 units in Spare Lots, which collectively represented a 13.0% ownership interest on a fully
diluted basis.
(e) CRS Contractors Rental Supply Limited Partnership
CRS Contractors Rental Supply Limited Partnership ("CRS") was a provider of equipment rental services and related
merchandise across Ontario, Canada.
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.
During fiscal 2018, CEP IV Co-Invest earned distributions totalling $0.2 million (2017 – $0.6 million) from CRS.
Subsequently, CEP IV Co-Invest realized on its investment in CRS and received $31.7 million in cash proceeds against a
carrying value of $28.8 million as at March 31, 2017, for a net realized gain of $2.9 million.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
Over the life of this investment, CEP IV Co-Invest received total proceeds of $33.8 million against its original investment
of $10.6 million in CRS.
(f) 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, 2018 and 2017, 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, 2017, bears interest at a rate of 12% per annum (2017 – 10% per annum).
(g) Discovery Air Inc. / Top Aces
Discovery Air Inc. ("Discovery Air") is a specialty aviation services company operating across Canada and in select locations
internationally. Top Aces (formerly Discovery Air Defence Services Inc.), which was a wholly owned subsidiary of Discovery
Air until December 2017, is a supplier of advanced adversary services across three continents.
As at March 31, 2017, CEP IV Co-Invest had invested $22.0 million in secured convertible debentures ("Debentures")
of Discovery Air which had a maturity date of May 5, 2018. The Debentures accrued interest at a rate of 10% per annum
and interest is paid in-kind and compounded on an annual basis. As at March 31, 2017, the gross accrued value of the
Debentures was $33.6 million, which included $11.6 million in accrued interest. During fiscal 2018, $3.1 million
(2017 – $3.2 million) in interest was accrued on the Debentures. During fiscal 2018, CEP IV Co-Invest exercised the swap
option pursuant to a letter agreement dated June 5, 2017 between Discovery Air, Top Aces and Clairvest and its affiliates
and exchanged $5.8 million of the Debentures into common shares of Top Aces. Subsequent to these transactions, a
third-party institutional investor purchased $50 million of equity in Top Aces, half from Top Aces treasury and the other
half from Discovery Air. Subsequently, Discovery Air repaid $7.6 million of interest owing to CEP IV Co-Invest under the
terms of the Debentures. As at March 31, 2018, the gross accrued value of the Debentures was $23.3 million. As at
March 31, 2018, the carrying value of the Debentures was $1.3 million (2017 – $14.2 million).
As at March 31, 2017, Clairvest and CEP IV Co-Invest collectively held 22,384,024 Class A common shares of Discovery
Air representing a 27.3% ownership interest on a fully diluted basis. During fiscal 2018, CEP IV Co-Invest purchased an
additional 1,948,883 Class A common shares of Discovery Air for $0.4 million as part of a take-private transaction. As at
March 31, 2018, Clairvest and CEP IV Co-Invest collectively held 24,332,907 common shares of Discovery Air representing
a 29.9% ownership interest on a fully diluted basis. As at March 31, 2018 and 2017, the carrying value of the Discovery
Air common shares was nil.
As at March 31, 2017, Clairvest had advanced to Discovery Air $2.3 million in the form of a promissory note bearing
interest at 8.0% per annum which had been included in loans receivable at the accrued value. During fiscal 2018, Discovery
Air repaid the promissory note in full. Interest of $0.1 million (2017 – $0.2 million) was earned on this promissory note
during fiscal 2018.
In March 2018, Discovery Air commenced a restructuring under the Companies Creditors Arrangement Act ("CCAA")
to conduct a Court-supervised sale process of its equity interest in its wholly owned subsidiaries and its residual interest
in Top Aces (together, the "Assets"). CEP IV Co-Invest and other investors of the Debentures of Discovery Air (the
"Discovery Air Investor Group"), have submitted bids to purchase the Assets as stalking horse purchasers (the
"Transactions"). In support of CCAA proceedings, CEP IV Co-Invest has agreed to provide up to $12.6 million in debtor-in-
possession ("DIP") financing, $4.9 million of which had been drawn as at March 31, 2018. Subsequent to year end, the DIP
facility was increased to $15.0 million and was fully drawn.
As at March 31, 2017, the Discovery Air Investor Group had in place a $25.0 million secured revolving credit facility
("Revolver") to Top Aces, $20.0 million of which was drawn as at March 31, 2017. The Revolver provides the Discovery
Air Investor Group the option to convert the outstanding balance of the Revolver into common shares of Top Aces based
on an agreed market value of Top Aces. During fiscal 2018, a second secured revolving credit facility ("2nd Revolver") for
$13.0 million was provided under the same terms and conditions and both Revolvers were fully drawn. In total,
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
CEP IV Co-Invest funded $14.5 million under the Revolvers, $7.8 million of which was funded during fiscal 2018.
Subsequently, the Discovery Air Investor Group exercised the pre-existing optional conversion feature pursuant to the
terms of the Revolvers to convert all the outstanding amounts under both Revolvers into common shares of Top Aces.
This occurred concurrent with the above-mentioned exercise of the swap option for common shares of Top Aces. Interest
of $0.9 million (2017 – $0.2million) was earned from the Revolvers during fiscal 2018. As at March 31, 2018,
CEP IV Co-Invest held 611.4 common shares in Top Aces, representing a 26.3% ownership interest on a fully diluted basis.
(h) Impero Waste Systems, LLC / 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 servicing customers in the states of Connecticut and New York. As at March 31, 2017, 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.
During fiscal 2018, CEP IV Co-Invest completed a partial realization of its investment in Winters Bros. of CT and
received cash proceeds of US$7.9 million (C$10.1 million) for a net realized gain of $3.3 million and 4,817.86 Class A units
of Impero Waste Systems, LLC ("Impero Waste"), the acquirer of Winters Bros. of CT, representing a 6.1% ownership
interest in Impero Waste on a fully diluted basis.
(i) MAG Aerospace
MAG Aerospace ("MAG") is a U.S.-based specialty aviation and intelligence, surveillance and reconnaissance service
provider. As at March 31, 2018 and 2017, 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 had a stated dividend rate of 10% per annum and each Class A
stock was convertible into 1.0114 common stock of MAG at CEP IV Co-Invest's discretion and dividends would be forfeited
on conversion.
As at March 31, 2018 and 2017, CEP IV Co-Invest also held $1.1 million in promissory notes from MAG Aerospace
Canada (formerly Discovery Air Fire Services) which bear interest at 10.0% per annum with a maturity date of January 31,
2021. Interest of $0.1 million was earned from these promissory notes from MAG Aerospace Canada during fiscal 2018
(2018 − $21 thousand). Subsequent to year-end and in conjunction with the sale of MAG as described in note 20, the
promissory notes and accrued interest were repaid in full.
As at March 31, 2017, Clairvest had provided $2.9 million in loans to Momentum Logistics, a Canadian subsidiary of
MAG, in support of its operations. During fiscal 2018, Clairvest advanced an additional $6.0 million (2017 − $7.0 million)
to Momentum Logistics. Also during fiscal 2018, Momentum Logistics repaid the loans in full (2017 − $5.1 million was
repaid). Interest of $0.2 million (2017 – $0.2 million) was earned from loans to Momentum Logistics during fiscal 2018.
(j) New Meadowlands Racetrack, LLC
New Meadowlands Racetrack, LLC (the "Meadowlands") operates a standardbred horse racing track located in East
Rutherford, New Jersey.
As at March 31, 2018 and 2017, CEP IV Co-Invest had invested 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 that 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. 5% of the 15% interest on the secured convertible debentures would be
forfeited in the event Clairvest exercises the warrants.
As at March 31, 2017, the gross accrued value of the secured debentures was US$7.6 million (C$10.1 million), which
included US$2.2 million in accrued interest. During fiscal 2018, US$1.1 million (C$1.4 million) (2017 – US$1.0 million;
C$1.3 million) in interest was accrued on the Debentures. As at March 31, 2018, the gross accrued value of the secured
debentures was US$8.7 million (C$11.2 million) and the carrying value of the secured debentures was US$7.3 million
(C$9.4 million)
(C$1.8 million)
C$8.7 million), which
(2017 – US$1.1 million; C$1.4 million) in accrued interest being provided for on the secured debentures.
reflected US$1.4 million
– US$6.5 million;
(2017
CEP IV Co-Invest also invested US$0.7 million (C$0.9 million) in the Meadowlands 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
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
payable in-kind. During fiscal 2018, CEP IV Co-Invest earned $26 thousand (2017 – $16 thousand) in interest on the
preferred debt, which was fully provided for and presented on a net basis.
(k) Rivers Casino
Rivers Casino is a gaming entertainment complex located in Des Plaines, Illinois.
As at March 31, 2018 and 2017, CEP IV Co-Invest held 9,021,917 units of Rivers Casino, representing a 5.0%
ownership interest on a fully diluted basis.
During fiscal 2018, CEP IV Co-Invest earned quarterly distributions totalling $1.3 million (2017 – $3.9 million) and
quarterly fees totalling $0.6 million (2017 – $0.6 million) from Rivers Casino.
As a result of CEP IV Co-Invest's investment in Rivers Casino requiring certain acquisition entities in the United States,
$0.8 million (2017 – $1.2 million) in U.S. income tax obligations were incurred during fiscal 2018.
(l) Accel Entertainment Inc.
Accel Entertainment Inc. ("Accel Entertainment") is a licensed video gaming terminal operator in Illinois.
As at March 31, 2018, CEP V Co-Invest held 283,478 Class D preferred shares of Accel Entertainment
(2017 – 283,478), representing a 7.5% ownership interest on a fully diluted basis (2017 – 7.9%). The Class D preferred
shares are entitled to certain preference over all other equity of Accel Entertainment.
(m) Ace2Three
Ace2Three operates an online, skilled-based gaming platform in India providing an online rummy experience.
During fiscal 2018, CEP V Co-Invest invested $56.0 million in Ace2Three. The investment comprised $22.9 million in
the form of compulsory convertible debentures which are denominated in Indian Rupees ("INR") and bear interest at a
rate of 16.0% per annum, and $33.1 million in 202,230 common shares representing a 33.6% ownership interest on a fully
diluted basis. In June 2017, Ace2Three experienced a material adverse development which resulted in a temporary shut-
down of operation and a material loss in revenue. Ace2Three has since resumed its operations in certain jurisdictions and
the validity of the regulatory developments is being challenged and the matter is before the courts. While Ace2Three
remains profitable, Clairvest has determined that there has been a negative impact on the fair value of this investment.
Accordingly, the carrying value of the equity investment made in Ace2Three was reduced by 50% or $15.8 million. As at
March 31, 2018, the compulsory convertible debentures were carried at the accrued value of $24.6 million.
(n) Also Energy, Inc.
Also Energy, Inc. ("Also Energy") is a provider of software and hardware solutions that enable the monitoring and control
of power production and plant operations for commercial, industrial, and utility-scale plants in the United States and
around the world.
During fiscal 2018, CEP V Co-Invest invested US$4.8 million (C$6.0 million) to acquire 1,013,062 Series A preferred
stock of Also Energy. The Series A preferred stock which accrue dividends at a rate of 8% compounded annually, are
convertible into common stock at CEP IV Co-Invest's discretion. As at March 31, 2018, CEP V Co-Invest's ownership interest
in Also Energy was 14.3% on a fully diluted basis.
(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, 2018 and 2017, 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 2018, CEP V Co-Invest earned distributions totalling $0.6 million (2017 – $0.8 million) from Digital Media
Solutions, bringing distributions earned to March 31, 2018 to $1.4 million (2017 – $0.8 million).
(p) GTA Gaming
GTA Gaming comprised investments in two limied partnerships which operates various gaming assets in the Province of
Ontario: Ontario Gaming GTA Limited Partnership ("OGTALP") and Ontario Gaming West GTA Limited Partnership
("OWGTALP").
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
In December 2017, the Ontario Lottery and Gaming Corporation announced that OWGTALP was selected as the successful
proponent to operate four gaming facilities in the West Greater Toronto Area (the "West GTA Bundle"). As support for
this bid, Clairvest had pledged $15.8 million to a Schedule 1 Canadian chartered bank which remained restricted as at
March 31, 2018. During fiscal 2018, CEP V Co-Invest invested $0.4 million for 405,151.2 units of OWGTALP reprsenting a
13.5% ownership interest. Subsequent to year-end and in conjunction with the final closing of the purchase of West GTA
gaming assets, an additional $8.4 million was funded by CEP V Co-Invest for an additional 8,370,000 units of OWGTALP
and the restriction on the $15.8 million was released as the pledge was no longer required upon completion of final
closing.
Also during fiscal 2018, the Ontario Lottery and Gaming Corporation announced that OGTALP was selected as the
successful proponent to operate three gaming facilities in the Greater Toronto Area. During fiscal 2018, CEP V Co-Invest
invested $0.2 million for 1,254,000 units of OGTALP representing a 0.6% ownership interest.
(q) 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 servicing customers in Long Island, New York. WBLI II, LLC ("WBLI II"), is a company
affiliated with Winters Bros. of LI and owned proportionately by the same unitholders of Winters Bros. of LI.
As at March 31, 2018 and 2017, 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.
(r) 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, 2018 and 2017, 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 9(a), 2486303 Ontario and Clairvest collectively holds a 100% interest in CEP.
During
fiscal 2018, Clairvest earned $0.5 million
(2017 – $0.7 million) and CEP earned $1.6 million
(2017 – $2.2 million) in equity distributions from Grey Eagle Casino.
(s) Wellington Financial
Wellington Financial, through various Wellington Funds, provided debt capital and operating lines to technology,
biotechnology, communications and industrial product companies across Canada and the United States. Clairvest had
made commitments to various Wellington Funds as described in notes 15(d) and 15(e), as well as entitlements to
participate in the profits received by the general partners of these Wellington Funds.
As at March 31, 2017, Clairvest had funded $15.6 million to Wellington Fund V. During fiscal 2018, Clairvest funded
an additional $1.7 million (2017 – $1.0 million) to Wellington Fund V, bringing total amount funded to $17.3 million.
Subsequently, CIBC acquired the loan portfolio of Wellington Fund V and certain assets of the general partner of
Wellington Fund V. Clairvest received a full return of capital on its investment of $17.3 million and 194,876 CIBC common
shares which are restricted for sale subject to certain conditions until January 7, 2021. As at March 31, 2018, the CIBC
common shares were valued at a discount to the closing price of $113.72 per share to reflect the sale restriction and had
been included as other investments. Clairvest continues to participate in its pro rata share of any profits realized from
warrants previously granted to the various Wellington Funds and is eligible for additional payments on the sale of the
general partner assets subject to certain conditions.
During fiscal 2018, Clairvest received distributions totalling $24.5 million (2017 – $4.6 million) from Wellington
Financial, which includes the fair market value of the CIBC common shares received on the sale. As at March 31, 2018,
Clairvest had received distributions totalling $55.7 million (2017 – $31.2 million) from Wellington Financial.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
7. FIXED ASSETS
The composition of Clairvest's fixed assets was as follows:
At cost
Balance as at April 1, 2017
Additions
Disposals
Balance as at March 31, 2018
Accumulated amortization
Balance as at April 1, 2017
Amortization expense
Disposals
Balance as at March 31, 2018
Carrying amount as at March 31, 2018
At cost
Balance as at April 1, 2016
Additions
Disposals
Balance as at March 31, 2017
Accumulated amortization
Balance as at April 1, 2016
Amortization expense
Disposals
Balance as at March 31, 2017
Carrying amount as at March 31, 2017
(1) Comprised computer equipment and computer software.
Aircraft IT equipment (1)
Furniture,
fixtures and
equipment
Leasehold
improvements
3,603
—
—
3,603
2,359
356
—
2,715
$
$
$
$
72
—
(56)
16
62
5
(56)
11
$
$
$
$
248
32
—
280
186
17
—
203
$
$
$
$
816
773
(881)
708
32
150
—
182
$
$
$
$
Total
4,739
805
(937)
4,607
2,639
528
(56)
3,111
888
$
5
$
77
$
526
$
1,496
3,603
—
—
3,603
$
$
90
—
(18)
72
$
$
248
—
—
248
$
$
130
686
—
816
$
$
4,071
686
(18)
4,739
$
$
$
$
$
$
$
$
2,004
$
355
—
56
24
(18)
$
165
$
21
—
2,359
$
62
$
186
$
4
28
—
32
$
2,229
428
(18)
$
2,639
1,244
$
10
$
62
$
784
$
2,100
$
$
8. CREDIT FACILITIES
As at March 31, 2018 and 2017, Clairvest maintained a $100.0 million revolving credit facility which is participated in by
several Schedule 1 Canadian chartered banks. The credit facility, which had an initial expiry of December 2021 and is eligible
for a one-year extension on each anniversary date, bears interest at the prime rate plus 1.25% per annum on drawn amounts
and a standby fee of 0.70% per annum on undrawn amounts. During fiscal 2018, the credit facility was extended to December
2022 under the same terms and conditions. The prime rate as at March 31, 2018 was 3.45% (2017 – 2.70%) per annum. The
amount available under the credit facility as at March 31, 2018 and 2017 was $100.0 million. No amounts had been drawn
on the facility during the fiscal 2018 and as at March 31, 2018.
9. RELATED PARTY DISCLOSURES
Investments in acquisition entities and investment-related transactions with acquisition entities are further described in
note 6.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
(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. 10% of
the carried interest was allocated to Clairvest and the other 10% was allocated to principals and employees of Clairvest
until December 21, 2015, when 2486303 Ontario purchased the 10% carried interest from principals and employees of
Clairvest for $1.2 million. On January 1, 2018, 2486303 Ontario purchased substantially all of the remaining 10% carried
interest from Clairvest for $0.9 million. During fiscal 2018, CEP GP earned $0.3 million (2017 − $0.5 million) in carried
interest from CEP, $0.1 million (2017 – $0.3 million) was ultimately received by Clairvest, and the other $0.2 million
(2017 – $0.2 million) was ultimately received by 2486303 Ontario. As at March 31, 2018, CEP had declared carried interest
to CEP GP totalling $24.5 million (2017 – $24.2 million), $12.2 million (2017 – $12.1 million) of which was ultimately
received by Clairvest, $11.8 million (2017 – $11.8 million) of which was ultimately received by the principals and
employees of Clairvest and $0.5 million (2017 – $0.3 million) was ultimately received by 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. As
per the Limited Partnership Agreement, the priority distribution is reduced to the extent of 75% of fees earned by Clairvest
from corporate investments of CEP III. During fiscal 2018, CEP III declared to Clairvest priority distributions of $0.6 million
(2017 – $0.9 million). There were no fees from corporate investments of CEP III netted against the priority distributions
(2017 – $0.1 million).
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 2018, CEP III GPs earned $16.6 million
(2017 – $0.8 million) in carried interest from CEP III, 50% of which, or $8.3 million (2017 – $0.4 million), was ultimately
received by Clairvest, and the other 50% or $8.3 million (2017 – $2.7 million) was ultimately received by the limited
partners of MIP III, which reduced the management participation
liability. During fiscal 2018, $3.4 million
(2017 − $0.2 million) of the carried interest declared by CEP III was ultimately received by key management. As at
March 31, 2018, CEP III had declared carried interest to the CEP III GPs totalling $56.1 million (2017 – $39.5 million), 50%
of which was ultimately received by Clairvest and the other 50% was ultimately received by the limited partners of MIP III.
(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 2018, CEP III Co-Invest declared $2.3 million (2017 – $0.3 million) to MIP III with respect to this carried
interest entitlement, all of which were the entitlements of the limited partners of MIP III. During fiscal 2018, $1.0 million
(2017 − $0.1 million) of the carried interest declared by CEP III Co-Invest was ultimately received by key management. As
at March 31, 2018, CEP III Co-Invest had declared carried interest totalling $7.4 million (2017 – $5.1 million), $0.2 million
(2017 – $0.2 million) of which was received by Clairvest and $7.2 million (2017 – $4.9 million) was received by the limited
partners of MIP III.
Clairvest, as the general partner of MIP III, is entitled to participate in distributions equal to the realizable value on the
$1.1 million
III distributed $0.4 million
(2017 – $46 thousand) to Clairvest. As at March 31, 2018, $2.3 million (2017 – $1.9 million) has been received by Clairvest
through this entitlement.
III Co-Invest. During fiscal 2018, MIP
invested by MIP
in CEP
III
(d) 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
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
priority distribution is reduced to the extent of 63.2% of any fees earned by Clairvest from corporate investments of
CEP IV. During fiscal 2018, CEP IV declared to Clairvest priority distributions of $2.4 million (2017 – $3.0 million). As per
the Limited Partnership Agreement, fees of $0.5 million (2017 – $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
by CEP IV to CEP IV GPs as at March 31, 2018 and 2017.
(e) 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 2018, Clairvest earned management
fees of $0.4 million (2017 – $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 (2017 – $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 by CEP IV-A to CEP IV-A
GP as at March 31, 2018 and 2017.
(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 by
CEP IV Co-Invest as at March 31, 2018 and 2017.
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. During fiscal 2018, CEP IV Co-Invest distributed $0.7 million
(2017 – $0.6 million) to Clairvest. As at March 31, 2018, $1.3 million (2017 – $0.6 million) had been received by Clairvest
through this entitlement.
(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: 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 priority distribution is reduced to the extent of 58.8%
of any fees earned by Clairvest from corporate investments of CEP V. During fiscal 2018, CEP V declared to Clairvest priority
distributions of $5.7 million (2017 – $6.9 million). As per the Limited Partnership Agreement, fees of $0.1 million
(2017 – $0.1 million) from corporate investments of CEP V were netted against the priority distributions.
In April 2017, CEP V India was formed to facilitate investment in Ace2Three by certain limited partners of CEP V as
governed by the CEP V limited partnership agreement. As general partner of CEP V India, Clairvest is entitled to a priority
distribution from CEP V India. The priority distribution is calculated monthly as follows: from May 1, 2017 to January 13,
2021, 0.1667% of committed capital, and thereafter, 0.1667% of invested capital net of write-downs of capital then
invested. During fiscal 2018, CEP V India declared to Clairvest priority distributions of $0.6 million (2017 – nil).
The general partners of CEP V and CEP V India ("CEP V GPs") are entitled to a 20% carried interest in respect of CEP V
and CEP V India 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
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
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 by CEP V and CEP V India to CEP V GPs as at March 31, 2018 and 2017.
(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: 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 2018, Clairvest earned management fees of $0.9 million (2017 – $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
(2017 – $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 by CEP V-A to CEP V-A GP
as at March 31, 2018 and 2017.
(i) As described in note 15(c), Clairvest is required to co-invest alongside CEP V, CEP V India and CEP V-A in all investments
undertaken by CEP V, CEP V India 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 by CEP V Co-Invest as at March 31, 2018 and 2017.
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, 2018
and 2017.
(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) follows 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, 2018, 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.
March 31, 2018
March 31, 2017
CEP(1)
CEP III
CEP IV
CEP IV-A
CEP V
CEP V-A
(1)
2,093
25,249
59,527
11,453
—
—
98,322
A corresponding $1.8 million (2017 ― $1.0 million) in payable to 2486303 Ontario had been recorded to reflect the carried interest entitled to by
2486303 Ontario as at March 31, 2018. Also see note 6(r).
1,812
11,044
97,796
17,248
—
—
127,900
$
$
$
$
(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
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
ultimately received by 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, 2018
March 31, 2017
$
$
5,522
48,898
8,624
—
—
63,044
4,464
23,759
—
91,267
$
$
12,625
29,763
5,727
—
—
48,115
5,945
12,990
—
67,050
(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).
(l) Changes in loans receivable for the years ended March 31, 2018 and 2017 were as follows:
April 1, 2017 Net loan advanced (repaid)
March 31, 2018
CEP III(1)
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
$
140
$
(140) $
—
—
25
—
326
9,932
10,423
5,206
25
794
151
(25)
2,700
79
(381)
3,178
(5,206)
(25)
—
794
151
—
2,700
405
9,551
13,601
—
—
$
15,654
$
(2,053) $
13,601
April 1, 2016 Net loan advanced (repaid)
March 31, 2017
$
$
CEP III(1)
CEP IV(2)
CEP III Co-Invest(3)
CEP IV Co-Invest(3)
CEP V Co-Invest(3)
2486303 Ontario(4)
140
—
25
—
326
9,932
10,423
5,206
25
15,654
(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
140
(5,008)
25
(10,780)
(216)
(969)
(16,808)
1,899
—
(14,909) $
—
5,008
—
10,780
542
10,901
27,231
3,307
25
30,563
Clairvest investee companies(5)
Other
$
$
$
(2017 – $1 thousand) was earned from loans advanced to CEP III during fiscal 2018.
(2) Loans advanced to CEP IV, CEP IV-A, CEP V, CEP V India and CEP V-A bear interest at the reference rate in accordance with the respective Limited
Partnership Agreements. Interest of $0.3 million (2017 – $0.1 million) was earned from loans advanced to these partnerships during fiscal 2018.
(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 ((2017 – $1.0 million) was earned from these loans
during fiscal 2018.
(5) Comprised loans advanced to Discovery Air and Momentum Solutions. See notes 6(g) and 6(i).
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
(m) Accounts receivable and other assets comprised the following:
March 31, 2018
March 31, 2017
Clairvest’s investee companies
$
1,436
$
CEP III
CEP IV
CEP IV-A
CEP V
CEP V India
CEP V-A
Other accounts receivable and prepaid expenses
Share purchase loans and loans to officers of affiliated company
—
736
55
17,074
118
3,250
22,669
2,465
3,268
$
28,402
$
1,612
166
305
44
11,388
—
2,155
15,670
2,168
3,713
21,551
Included in accounts receivable and other assets as at March 31, 2018 were share purchase loans made to certain
officers of the Company totalling $3.0 million (2017 − $3.0 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 $6.5 million (2017 – $4.8 million) as at March 31, 2018. None of these loans were made to key
management. During fiscal 2018, other loans made to certain officers of a company affiliated with Clairvest were repaid
in full (2017 − $0.4 million outstanding). Interest of $68 thousand (2017 – $67 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 IV totalling $0.1 million (2017 – $12 thousand), from CEP V totalling $17 thousand
(2017 – $27 thousand), from CEP V-A totalling $3 thousand (2017 – nil) and from Clairvest's investee companies totalling
$1.5 million (2017 – $1.8 million).
(n) During fiscal 2018, Clairvest earned $25.4 million (2017 – $5.9 million) in distributions and interest income, $0.3 million
(2017 – nil) in dividend income and $1.2 million (2017 – $1.3 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 $22.7 million
income, $0.8 million
(2017 – $3.7 million) in dividend income and $0.6 million (2017 – $0.6 million) in advisory and other fees from its
investee companies.
(2017 – $23.8 million)
in distributions and
interest
(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.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
10. INCOME TAXES
Income tax expense for the years ended March 31, 2018 and 2017 comprised the following:
Current income tax expense
Deferred income tax expense
$
$
2018
9,642
3,274
12,916
$
$
2017
2,943
6,531
9,474
A reconciliation of the income tax expense for the years ended March 31, 2018 and 2017 based on the Federal and Ontario
statutory rate and the effective rate was as follows:
2018
2017
$
%
$
%
Income before income taxes
Statutory Federal and Ontario income tax rate
Statutory Federal and Ontario income taxes
136,694
79,600
36,224
26.50
26.50
21,094
Non-taxable portion of net investment gains and distributions
(20,251)
(14.82)
(12,120)
Non-taxable portion of carried interest net of management participation
Non-deductible portion of other expenses
Foreign income tax rate differences
Tax recoveries regarding prior year
Other
(1,932)
1,115
(14)
(1,142)
(1,084)
12,916
(1.41)
0.82
(0.01)
(0.84)
(0.79)
9.45
(1,596)
891
451
(612)
1,366
9,474
26.50
26.50
(15.23)
(2.01)
1.12
0.57
(0.77)
1.72
11.90
In addition to the income tax expense recorded by Clairvest, acquisition entities of Clairvest recorded $4.6 million
(2017 – $5.4 million) in income tax expense during fiscal 2018, 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:
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, 2018 March 31, 2017
$
$
24,023
—
(8,360)
2,136
4,995
1,150
23,944
$
$
18,065
3
(5,204)
1,412
4,144
2,250
20,670
All deferred income tax expenses (recoveries) were recognized in net income during fiscal 2018 and 2017.
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
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
10,000,000 non-voting shares (series 1)
1,000,000 non-voting shares (series 2)
Issued and outstanding
March 31, 2018
March 31, 2017
Common shares, beginning of year
15,194,095
$
81,554
15,214,095
$
81,662
Purchased and cancelled under normal course issuer bid
(31,100)
(166)
(20,000)
(108)
Common shares, end of year
15,162,995
$
81,388
15,194,095
$
81,554
Shares
Amount
Shares
Amount
During fiscal 2018, the Company filed a normal course issuer bid enabling it to make market purchases of up to 760,677
(2017 – 760,627) of its common shares in the 12-month period ending March 6, 2019. During fiscal 2018, the Company made
no purchases under the current normal course issuer bid and purchased and cancelled 31,100 common shares under a
previous normal course issuer bid for an aggregate cost of $1.2 million.
Common shares of 15,162,995 (2017 − 15,194,095) were outstanding as at March 31, 2018. The weighted average
number of common shares outstanding during fiscal 2018 was 15,182,212 (2017 − 15,202,669).
The basic and fully diluted net income per share computations for 2018 and 2017 were as follows:
Net income and
comprehensive
income
(000s)
Weighted
average
number of
shares
2018
Per share
amount
Net income and
comprehensive
income
(000s)
Weighted
average
number of
shares
2017
Per share
amount
Basic and fully diluted
$
123,778
$ 15,182,212
8.15
$
70,126
$ 15,202,669
4.61
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, 2018 and 2017.
12. SHARE-BASED COMPENSATION
The Company has a stock option plan (the "Legacy Option Plan") in place which had no options outstanding as at March 31,
2018 and 2017. As at March 31, 2018 and 2017, 558,856 options under the Legacy Option Plan are available for future grants
and 558,856 common shares of the Company have been made available for issuance to eligible participants.
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. 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. During fiscal 2018, Clairvest granted
168,829 options under the Non-Voting Option Plan (2017 – 203,353). Also during fiscal 2018, 1,916 options were exercised
(2017 - nil) and 7,662 options were forfeited (2017 - nil). As at March 31, 2018, 362,604 (2017 – 203,353) options were
outstanding, 38,752 (2017 – none) of which had vested.
Clairvest recognized stock-based compensation expense based upon the fair value of the outstanding stock options
as at March 31, 2018 using the Black-Scholes option pricing model with the following assumptions:
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
June 30, 2016
June 30, 2017
193,775
56.48
168,829
71.90
As at March 31, 2018
Grant
Number of options granted
Price ($)(1)
Black-Scholes assumptions used
Expected volatility
Expected forfeiture rate
Expected dividend yield
Risk-free interest rate
Expected life (years)
Value using Black-Scholes (000s)(2)
(1)
10%
5%
1.00%
2.37%
4.25
1,228
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.
Share price for a Clairvest common share as at March 31, 2018 was $45.49 (TSX: CVG).
10%
5%
1.00%
2.31%
3.25
4,213
$
$
(2)
During fiscal 2018, Clairvest recognized a share-based compensation expense of $4.5 million (2017 - $0.9 million) with respect
to the Non-Voting Option Plan.
During fiscal 2017, the Board of Directors of the Company approved an 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. 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, 2018. During fiscal 2018, 32,111
(2017 – 18,445) EDSUs were issued based on the terms and conditions of the EDSU Plan. As at March 31, 2018, a total of
50,556 (2017 – 18,445) EDSUs were outstanding, the accrual in respect of which was $2.3 million (2017 – $0.6 million) had
been included in share-based compensation liability. During fiscal 2018, Clairvest recognized an expense of $0.6 million
(2017 – $0.1 million) with respect to EDSUs.
As at March 31, 2018, a total of 684,920 (2017 – 1,091,081) BVARs were outstanding, the accrual in respect of which
was $8.7 million (2017 – $10.0 million) and had been included in share-based compensation liability, and an additional
$6.3 million (2017 – $5.9 million) not accrued as those BVARs had not vested. During fiscal 2018, 95,965 (2017 – 283,861)
BVARs were granted and 502,126 (2017 – 312,128) BVARs were exercised. For the year ended March 31, 2018, Clairvest
recognized an expense of $7.8 million (2017 – $7.8 million) with respect to BVARs.
Compensation paid and payable to key management
In addition to the directors, key management at Clairvest are the Chief Executive Officer ("CEO"), the Vice Chairman and the
President. The CEO and President are entitled to annual discretionary cash bonuses of up to 175% of their individual annual
salary based on individual performance. The Vice Chairman is entitled to annual discretionary cash bonuses of up to 100% of
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(g), the stock option plans, the BVAR Plan and the EDSU Plan. Aggregate
compensation paid for the years ended March 31 to the CEO, Vice Chairman, and the President was as follows:
2018
2017
Paid
Salaries
Annual incentive plans
Book value appreciation rights
$
$
698
1,158
3,687
5,543
$
$
652
1,377
—
2,029
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
Compensation payable to the CEO, Vice Chairman and President as at the consolidated statement of financial position dates
was as follows:
Payable
Annual incentive plans
Stock options
Book value appreciation rights
Employee deferred share units
March 31, 2018
March 31, 2017
$
$
$
4,849
1,803
4,350
755
11,757
$
2,500
99
3,668
—
6,267
As at March 31, 2018, 247,807 (2017 – 235,516) DSUs were held by directors of the Company, the accrual in respect of which
was $11.6 million (2017 – $8.2 million) and had been included in share-based compensation liability. During fiscal 2018,
12,291 (2017 – 16,210) DSUs were granted. For the year ended March 31, 2018, Clairvest recognized an expense of
$3.4 million (2017 – $2.0 million) with respect to DSUs.
As at March 31, 2018, 105,000 (2017 – 105,000) ADSUs were held by directors of the Company, the accrual in respect
of which is $3.3 million (2017 – $2.0 million) and had been included in share-based compensation liability. For the year ended
March 31, 2018, Clairvest recognized an expense of $1.3 million (2017 – $0.7 million) with respect to ADSUs.
During fiscal 2018, no compensation was paid to directors under the BVAR, DSU or ADSU plans (2017 – $2.8 million).
In addition to the DSU and ADSU plans previously discussed, compensation payable to the directors of Clairvest included
$0.6 million (2017 – $0.1 million) 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
$
$
2018
(6,851) $
1,635
(206)
5,584
3,331
3,493
$
2017
5,895
2,859
1,413
(14)
1,452
11,605
Cash and cash equivalents as at March 31, 2018 and 2017 comprised the following:
Cash
Cash equivalents
March 31, 2018
March 31, 2017
$
$
93,893
1,699
95,592
$
$
88,026
18,179
106,205
14. DERIVATIVE 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 in accordance with its foreign exchange hedging policy as
approved by the Board of Directors. During fiscal 2018, the Company received $0.1 million (2017 – $0.5 million) on the
settlement of realized foreign exchange forward contracts.
As at March 31, 2018, the Company had no unexpired foreign exchange forward contracts (2017 – to sell
US$1.5 million at an average rate of Canadian $1.3450 per U.S. dollar at a fair value of $24 thousand).
As at March 31, 2018, acquisition entities of Clairvest had unexpired foreign exchange forward contracts as follows:
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
Foreign exchange forward contracts to sell US$246.8 million (2017 – US$165.2 million) at an average rate of C$1.2622 per
U.S. dollar (2017 – $1.3145) through to March 2019. The fair value of the forward contracts as at March 31, 2018 was a loss
of $6.3 million (2017 – $2.3 million).
Foreign exchange forward contracts to sell 15.5 billion Chilean Pesos ("CLP") (2017 – nil) at an average rate of
C$0.002098 per CLP (2017 – nil) through to April 2019. The fair value of these contracts as at March 31, 2018 is a loss of
$1.8 million (2017 – nil).
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, 2018 and 2017.
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 (2017 – $15.2 million) of which remained unfunded as at
March 31, 2018. 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 (2017 – $21.2 million) of which
remained unfunded as at March 31, 2018. 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, $103.6 million (2017 – $142.2 million) of which
remained unfunded as at March 31, 2018. 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 (“WF Fund IV”) (2017 – $25.2 million), all of which was
unfunded as at March 31, 2018. As specified in the Limited Partnership Agreement, WF Fund IV may no longer invest in
new investments.
(e) Clairvest has also committed $30.3 million to WF Fund V. During fiscal 2018, Clairvest received a full return of capital from
WF Fund V upon the sale of its loan portfolio as described in note 6(s). As at March 31, 2018, $30.3 million
(2017 – $14.6 million) remained unfunded as at March 31, 2018. WF Fund V may no longer invest in new investments.
(f) Clairvest, as general partner of WF Fund V, had guaranteed to return up to amounts received in the event the limited
partners of WF Fund V do not meet their return threshold as specified in its Limited Partnership Agreement. During fiscal
2018, WF Fund V sold its loan portfolio and the limited partners received a full return of capital and a return above the
threshold as specified in its Limited Partnership Agreement, and accordingly, the guarantee was extinguished. As at
March 31, 2018 and 2017, no amounts had been funded or owing with respect to the clawback.
(g) 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,
2018, the Realized Amount under the Bonus Program was $0.7 million (2017 − $0.2 million) and had been accrued under
accrued compensation expense liability.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
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 recorded a $7.8 million
(2017 − $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.
(h) In conjunction with the sale of Casino New Brunswick, Clairvest had agreed to a net guarantee of $2.0 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, 2018 and 2017,
no amounts with respect to this guarantee have been funded.
(i) As part of the holding structure of Chilean Gaming Holdings, acquisition entities of CEP III Co-Invest had loans totalling
$41.9 million as at March 31, 2018 (2017 − $41.9 million) from an unrelated financial institution, while another acquisition
entity of CEP III Co-Invest held term deposits totalling $41.9 million as at March 31, 2018 (2017 − $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, 2018 and 2017.
(j) Clairvest had agreed to guarantee up to $10.0 million to support Discovery Air's credit facility with its bank. During fiscal
2018, the guarantee was extinguished.
(k) Clairvest had pledged $15.8 million to a Schedule 1 Canadian chartered bank which has provided debt financing to
OWGTALP. The pledge was made to support the debt financing and is held in a bank account belonging to Clairvest at the
Schedule 1 Canadian chartered bank. Accordingly, it has been classified as restricted cash on the consolidated statements
of financial position. Subsequent to year-end and in conjunction with the final closing of OWGTALP, the restriction on the
cash was removed.
(l) As at March 31, 2018, 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 (2017 − $0.5 million), $2.1 million due after one year, but
not more than five years (2017 − $1.9 million) and $1.8 million due after five years (2017 − $2.2 million).
(m) 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.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
The Company's corporate investment portfolio was diversified across 17 investee companies in 6 industries and 4 countries
as at March 31, 2018. Concentration risk by industry and by country as at March 31, 2018 and 2017 was as follows:
March 31, 2018
March 31, 2017
Canada
United States
Chile
India
Total
Canada
United States
Chile
Total
Contract manufacturing
$
— $
— $
— $
— $
— $
— $
27,248 $
— $
27,248
Defence services
Equipment rental
Financial services
Gaming
Marketing services
Renewable energy
Waste management
Other investments
44,926
21,164
—
23,804
11,933
—
—
—
688
—
—
—
—
—
—
—
—
66,090
—
23,804
253,676
60,113
40,228
365,950
9,126
6,189
33,640
3,018
—
—
—
—
—
—
—
—
9,126
6,189
33,640
3,706
21,037
28,758
22,101
12,613
—
—
—
1,039
11,557
—
—
—
—
—
32,594
28,758
22,101
155,679
48,835
217,127
8,179
—
40,349
3,009
—
—
—
—
8,179
—
40,349
4,048
Total
$
81,351 $
326,813 $
60,113
40,228 $
508,505 $
85,548 $
246,021 $
48,835 $
380,404
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 (2017 – $1.2 million) to distributions and interest income on a pre-tax basis for the year ended March 31, 2018.
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 may also advance 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, subject to certain exceptions, entered into hedging
positions against these foreign-denominated currencies. As at March 31, 2018, the Company had foreign exchange exposure
to the CLP totalling $17.5 million (2017 – $48.8 million) and the INR totalling $40.2 million (2017 – nil).
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.
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, 2018 and 2017, there were no material income effects on changes of credit risk on financial
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
assets. The carrying values of financial assets subject to credit exposure as at March 31, 2018 and 2017, net of any allowances
for losses, were as follows:
March 31, 2018
Acquisition
entities
Clairvest
Total
Clairvest
March 31, 2017
Acquisition
entities
$
$
121,537
Financial assets
Cash and cash equivalents
Temporary investments
Restricted cash
Accounts receivable(1)
Loans receivable(2)
Derivative instruments
Corporate investments(3)
95,592
36,582
15,750
26,223
945
–
508,505
683,597
(1) Account receivable from investee companies or the CEP Funds. Excludes prepaid expenses and other assets.
(2) Loans receivable from investee companies or the CEP Funds.
(3) Comprised debt investments made in investee companies.
47,524
15,750
27,880
945
168
568,541
782,345
25,945
10,942
–
1,657
–
168
60,036
98,748
106,205
15,964
–
19,662
5,371
24
380,404
527,630
$
$
41,430
7,464
–
1,890
423
83
56,157
107,447
Total
147,635
23,428
–
21,552
5,794
107
436,561
635,077
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, 2018, the Company had not entered into any derivative
instruments (2017 – fair value of $24 thousand). Additionally, the Company's acquisition entities held derivative instruments
which had mark-to-market losses totalling $6.3 million (2017 – $2.3 million). The Company believes the counterparty risk with
respect to 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.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (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 and restricted cash
Money market savings accounts
R1-High
Guaranteed investment certificates and investment savings accounts
AA
A
A-
BBB(1)
BBB-(1)
Not rated(1)
Other fixed income securities
Not rated(2)
March 31, 2018
March 31, 2017
$
109,643
$
88,026
759
14,988
5,026
203
—
—
—
17,209
16,126
—
—
202
101
505
17,305
147,924
$
—
122,169
Total cash, cash equivalents, temporary investments and restricted cash
$
(1) Principal protected by the Canada Deposit Insurance Corporation.
(2) Comprised other fixed income securities as permitted by the Company’s treasury policy which in aggregate may not exceed 10% of book value and
with no single issue greater than 1.5% of book value.
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 $140.0 million (2017 – $178.5 million) as at March 31, 2018. 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.
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 (2017 – $100.0 million) credit
facility which was undrawn at March 31, 2018.
As at March 31, 2018, Clairvest had treasury funds of $147.9 million (2017 – $122.2 million) and access to
$100.0 million (2017 – $100.0 million) in credit to support its obligations and current and anticipated corporate investments.
Clairvest also had access to $36.9 million (2017 – $48.9 million) in treasury funds held by its acquisition entities and
$355.9 million (2017 – $443.4 million) in uncalled committed third-party capital through the CEP Funds at March 31, 2018
to invest along with Clairvest's capital.
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.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
(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
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 equity instruments
Quoted corporate bonds
Money market and investment savings accounts
Quoted equity instruments which are not actively traded
(i.e. significant ownership positions)
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:
Financial assets
Cash equivalents
Money market savings accounts
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Other fixed income securities
March 31, 2018
Fair value measurements using
Level 1
Level 2
Level 3
Assets/liabilities
at fair value
$
759
$
940
1,699
—
—
—
$
—
—
—
19,277
17,305
36,582
$
—
—
—
—
—
—
759
940
1,699
19,277
17,305
36,582
Corporate investments
$
—
1,699
$
20,178
56,760
$
494,994
494,994
$
515,172
553,453
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
Financial assets
Cash equivalents
Money market savings accounts
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Derivative instruments
Corporate investments
March 31, 2017
Fair value measurements using
Level 1
Level 2
Level 3
Assets/liabilities at
fair value
$
17,209
$
970
18,179
—
—
—
$
—
—
—
15,964
15,964
24
$
—
—
—
—
—
—
17,209
970
18,179
15,964
15,964
24
$
—
18,179
$
—
15,988
$
410,102
410,102
$
410,102
444,269
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, 2018 and 2017, there were no transfers between the various levels of the fair value
hierarchy.
(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, 2017
Purchases of
assets / issuances
of liabilities
Sales of assets /
settlements of
liabilities
Fair value
March 31, 2018
Financial assets
Unrealized gains
and foreign
exchange
revaluations
included in
earnings for assets
and liabilities for
the year ended
March 31, 2018
for positions still
held
Corporate investments
$
$
410,102 $
410,102 $
109,386 $
109,386 $
38,709 $
38,709 $
(63,203) $
(63,203) $
494,994 $
494,994 $
109,386
109,386
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
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
Financial assets
Unrealized gains
and foreign
exchange
revaluations
included in
earnings for assets
and liabilities for
the year ended
March 31, 2017
for positions still
held
Corporate investments
$
$
353,801 $
353,801 $
72,946 $
72,946 $
21,110 $
21,110 $
(37,755) $
(37,755) $
410,102 $
410,102 $
72,946
72,946
(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, 2018
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) 3.5x to 8.5x
(b) n/a
Corporate bonds, debentures or loans not
traded or other finite set of cash flows
Discounted cash flows
Discount rates
(c) 10.0% to 20.0%
March 31, 2017
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) 5.0x 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
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, 2018, 9 investee companies were valued using the earnings multiple approach. If the Company had used an
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
earnings multiple for each investee company that was higher or lower by 0.5 times, the potential effect would be an
increase of $18.8 million or decrease of $19.7 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, 2018 (2017 – increase
of $29.6 million or decrease of $29.3 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, Clairvest has determined that there are no reasonable
alternative assumptions that would change the fair value materially as at March 31, 2018 and 2017.
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 investee companies;
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, 2018 and 2017, Clairvest had no external capital requirements, other than as disclosed in note 16.
19. FUTURE CHANGES IN ACCOUNTING POLICIES
Financial Instruments ("IFRS 9")
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 has assessed the impact of IFRS 9 on
its consolidated financial statements and has determined there are no significant changes to the classification or
measurement of its financial instruments resulting from the adoption of this new standard on the required effective date.
Revenue from Contracts with Customers ("IFRS 15")
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
periods beginning on or after January 1, 2018, with early adoption permitted. The Company is currently in the process of
completing its evaluation of IFRS 15. Based on the analysis performed, the Company does not anticipate any significant
transition adjustment to its consolidated financial statements from adoption of IFRS 15.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018 and 2017 (tabular dollar amounts in thousands, except per share information)
Leases ("IFRS 16")
IFRS 16 was issued in January 2016 and will replace the previous lease standard, IAS 17 Leases, and related
interpretations. Under IFRS 16, lessees are required to recognize assets and liabilities for most leases. IFRS 16 is effective for
annual periods beginning on or after January 1, 2019. The Company is currently evaluating the impact of IFRS 16 and plans
to adopt the new standard on the required effective date.
20. SUBSEQUENT EVENTS
Subsequent to year-end, CEP IV Co-Invest realized its investment in MAG and sold its 33,736 Class A stock for US$29.5 million
in proceeds at closing and retaining a 5% ownership interest in Momentum Solutions. The promissory notes from MAG
Aerospace Canada were also repaid in full. Total proceeds for CEP IV Co-Invest including the notes repayment was
$39.2 million.
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 2018 consolidated financial statements.
74
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2018
(unaudited)
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.
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
(1)
(2)
(3)
As at May 28, 2018.
Excludes holders of 10% or more of the outstanding common shares.
During the year, Clairvest filed a new Normal Course Issuer Bid.
Common Shares(3)
Toronto Stock Exchange
CVG
15,157,895
9,679,480
5,478,415
685,894,749
247,898,279
$
$
BOOK VALUE PER SHARE(1) AT MARCH 31
$46
$44
$42
$40
$38
$36
$34
$32
$30
$28
$26
$24
$22
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$-
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
(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.
75
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2018
(unaudited)
SHARE PRICE VS BOOK VALUE PER SHARE
$48.00
$46.00
$44.00
$42.00
$40.00
$38.00
$36.00
$34.00
$32.00
$30.00
$28.00
$26.00
$24.00
$22.00
4
1
-
r
a
M
4
1
-
n
u
J
4
1
-
p
e
S
4
1
-
c
e
D
5
1
-
r
a
M
5
1
-
n
u
J
5
1
-
p
e
S
5
1
-
c
e
D
6
1
-
r
a
M
6
1
-
n
u
J
6
1
-
p
e
S
6
1
-
c
e
D
7
1
-
r
a
M
7
1
-
n
u
J
7
1
-
p
e
S
7
1
-
c
e
D
8
1
-
r
a
M
Book Value
Share Price
SHARE TRADING VOLUME FISCAL 2018 AND 2017
Common shares
Year to March 31, 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year to March 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
SHAREHOLDER INQUIRIES
Maria Shkolnik, Director of Corporate Relations
tel:
416.925.9270
416.925.5753
fax:
email: marias@clairvest.com
High
Low
Close
Volume
37.71
35.61
48.53
47.00
28.68
29.28
30.25
33.35
33.25
34.29
35.38
39.36
26.84
28.53
28.53
29.77
34.24
35.49
47.00
45.49
28.68
29.17
30.25
33.34
30,300
104,200
86,300
25,100
29,800
58,800
91,500
29,000
76
TRANSFER AGENT AND REGISTRAR
Investors are encouraged to contact
AST Trust Company (Canada) 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.astfinancial.com
Email: inquiries@astfinancial.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 13, 2018
Vantage Venues,
150 King Street West, 27th Floor
Toronto, Ontario Canada
All Shareholders are encouraged to attend.