20132013
Annual Report
GUARDIAN CAPITAL GROUP LIMITED
TABLE OF CONTENTS
Message from the Chairman of the Board... p.3
Message from the President and Chief Executive Officer... p.4
Financial Highlights... p.5
Review of Operations... p.6
Management’s Discussion and Analysis... p.10
Ten Year Review... p.21
Management’s Statement on Financial Reporting... p.22
Independent Auditors’ Report... p.23
Consolidated Financial Statements... p.24
Notes to Consolidated Financial Statements... p.29
Directors and Principal Executives... p.48
Corporate Information... p.49
Message from the Chairman of the Board
Dear Fellow Shareholders,
On behalf of your Board of Directors, I am pleased to report to you that Guardian enjoyed
another successful year in 2013.
During the year, your Board approved the transition from annual to quarterly dividend
payments, starting in July, initially at an annual rate of 20 cents, an increase of 17.6%
over the 2012 rate of 17 cents. In the first quarter of 2014, the dividend was again
raised by 10% to 5.5 cents per quarter. Guardian returned to its shareholders $17.1
million in 2013, made up of dividends of $9.2 million and share purchases of $7.9 million.
The Board has confidence that Guardian’s leadership and strategy will enable its
businesses to continue the high level of performance that has been evidenced. Most of all, I want to
recognize the dedicated efforts of Guardian’s Associates across all of our businesses, who have contributed
to our successes. We congratulate all of them for their outstanding efforts and commitment.
Michel Sales has served your Board of Directors for almost 22 years, and has recently advised us that he
will not be standing for re-election at the upcoming Annual Meeting of Shareholders. We wish to thank
Michel for his wisdom, dedication and guidance to Guardian and the Board. We are very pleased to
recommend to the shareholders the election of a new member to the Board, Mr. Hans-Joerg Rudloff, who
has several decades of experience as a senior global financial serices executive and recently retired as the
Chairman of Barclays Capital. Additional information about Mr. Rudloff is included in the Management
Information Circular pertaining to the 2014 Annual Meeting, which will be available shortly.
I also thank the other members of your Board of Directors for their counsel throughout the year.
On behalf of the Board, we thank you for your ongoing support and trust. We look forward to reviewing
our progress further with you at the Annual Meeting.
Respectfully,
James Anas
Chairman of the Board
February 27, 2014
TABLE OF CONTENTS
Message from the Chairman of the Board... p.3
Message from the President and Chief Executive Officer... p.4
Financial Highlights... p.5
Review of Operations... p.6
Management’s Discussion and Analysis... p.10
Ten Year Review... p.21
Management’s Statement on Financial Reporting... p.22
Independent Auditors’ Report... p.23
Consolidated Financial Statements... p.24
Notes to Consolidated Financial Statements... p.29
Directors and Principal Executives... p.48
Corporate Information... p.49
Message from the President and Chief Executive Officer
Dear Shareholders,
I am pleased to report that 2013 was another successful year of growth for Guardian Capital.
For the second consecutive year, we have set new historical highs for such key financial metrics
as assets under management, assets under administration, net revenues, operating earnings,
cash flow from operations and shareholders’ equity. This annual report will highlight key
financial results, which provide evidence of the many areas in which we have achieved success
throughout the year. I would like to take just a short moment in this letter to provide some
qualitative narrative on the journey we have taken to accomplish these results.
Guardian has always been a company that invests for future growth, by sprinkling seeds across
the various business segments in which it operates. The serial yet conservative entrepreneur
in Guardian prefers organic growth, but this often requires patience and resolve, as it normally takes lon-
ger than most realize to build critical scale and deliver profitability. An important requirement with this
approach is that the shareholders understand the balance needed between striving for maximum current
earnings and investing for improved future earnings. The last few years of success have been in the making
for years, with significant investment across the various disciplines of our core institutional asset manage-
ment business. Through the recruitment and retention of the highest calibre of investment professional
teams, we have created competitive track records in a diversified offering of asset classes and investment
solutions. Additionally, by building the business development resources that focus on targeted client seg-
ments, we have provided an improved ability to prospect and acquire new clients. Our investment has,
however, extended beyond the core institutional asset management business, including our constant com-
mitment to invest in our private client and independent dealership services so that scale and efficiencies
would make us competitive. All of these areas, for the first time in our firm’s history, have been positive con-
tributors to the overall financial success this year. More importantly, the company is now more diversified
and better able to compete in the future.
We plan to largely continue with our preferred philosophy of organic growth. However, we have shown a
willingness to, and will continue to, accelerate some of these strategic plans by re-allocating some of our cap-
ital invested in securities to acquire operating businesses that will assist in accelerating the growth we wish
to achieve. Over the past year, we have initiated a number of new investment capabilities which we believe
with time will be additional contributors to our earnings, including our efforts to build a private real estate
capability, and our recent announcement related to acquiring an emerging markets equity team in London,
UK. With this new presence in a key financial centre such as London, we will be searching to selectively
attract other investment professionals to the organization, so that they will further broaden our investment
offerings at Guardian. As we work on diversifying our businesses, there will be periods, as has been the case
in the past, when growth in earnings may be slower than in the past couple of years. This should be expected
when increased expenditures are required in areas of strategic importance which may weigh on earnings
in the short term but, from a strategic management perspective, are necessary investments for future growth.
As we succeed in our execution of building our organization, we plan to share the rewards with our share-
holders, in the form of sustainable and growing dividend payments. This past year, we have successfully
transitioned from an annual dividend to quarterly dividends, and raised the dividend by an additional 10%
over the past year to $0.055/share per quarter, effective in January, 2014.
We are always thankful to the many clients who have honoured us with the responsibility to manage or
administer their assets, and never assume this privilege lightly. Shareholders have our assurances that the
entire management and associates at the Company are completely dedicated to making Guardian a success-
ful, independent and diversified financial services company. Our values of Trustworthiness, Integrity and
Stability are embodied by all, who serve with the best intentions our clients and shareholders.
Warmest regards,
George Mavroudis,
President and Chief Executive Officer
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February 27, 2014
Guardian Capital Group Limited
Financial Highlights
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Assets Under Management
As at December 31 ($ in millions)
Assets under management increased
18% in 2013, as a result of a combination
of the overall positive performance of
the financial markets and net new monies
received from new and existing clients.
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Value of the Company’s Corporate
Holdings of Securities,
per share, diluted1
As at December 31 (in $)
The fair value of the Company’s Corporate
Holdings of Securities, per share increased
18% in 2013, reflecting the growth in the fair
value of the Company’s investments, sub-
stantially the Bank of Montreal shares.
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Assets Under Administration
As at December 31 ($ in millions)
Assets under administration increased 17% in 2013, as
a result of market performance, the recruitment of new
advisors, and additional assets provided by clients, with
the additions coming from each of the
three financial advisory subsidiaries.
Shareholders’ Equity,
per share, diluted1
As at December 31 (in $)
The Company’s Shareholders’ Equity per share increased
17% in 2013, providing a broad reflection of the growth in
the net value of all of the Company’s recorded assets and
liabilities, reflecting both the increase in the value of its
Securities Holdings and the profitable operations, net of
amounts returned to shareholders during the year.
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Operating Earnings1
For the years ended December 31
($ in thousands)
Operating Earnings increased 34%
in 2013, reflecting substantial
improvements in the Company’s
Investment Management and
Financial Advisory businesses.
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Net Earnings available to
shareholders, per share, diluted1
For the years ended December 31 (in $)
Net Earnings per share increased
53% in 2013, reflecting the
improved Operating Earnings and
significant Net Gains on the sale
of Securities.
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Adjusted Cash Flow From Operations
available to shareholders,
per share, diluted1
For the years ended December 31 (in $)
Adjusted Cash Flow from Operations
increased 35% in 2013, reflecting the
improvements in Operating Earnings.
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EBITDA available to shareholders,
per share, diluted1
For the years ended December 31 (in $)
EBITDA Available to Shareholders
increased 33% in 2013, reflecting the
improvements in the Company’s
operations during the year.
(1) 2010 to 2013 numbers are in accordance with IFRS; 2009 is as reported under previous Canadian GAAP.
2013 Annual Report
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Institutional
Assets Under
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as at Dec. 31
($ mil)
Review of Operations
INSTITUTIONAL INVESTMENT MANAGEMENT
Institutional investment management services are
provided by Guardian Capital LP (“GCLP”), which
serves pension plan sponsors, broker dealer third-
party platforms, closed-end funds and mutual funds,
operating and endowment funds, and foundations.
GCLP’s capabilities span a range of asset classes,
geographic regions, and specialty mandates.
GCLP, one of the largest independent investment
management firms in Canada, is the successor to
our investment management business, which was
founded in 1962.
Assets under management (“AUM”) in GCLP were
$20.4 billion at the end of 2013, up from $17.3
billion at the end of 2012. The increase in assets
under management was due both to strong net new
monies from clients across the institutional and
retail intermediary client base, and overall positive
growth in equity markets. The S&P/TSX Composite
benchmark, in which a majority of our assets under
management are invested, rose 13.0% and provided
a healthy balance of growth in AUM. In addition,
continued stability in the investment team and
organization, and strong client service and business
development efforts, set the stage for overall growth.
Canadian Equity
In 2013, all of our Canadian equity strategies added
value relative to the main S&P/TSX Composite
benchmark, and this should continue to provide
support for further growth in 2014. We have
experienced continued investor interest in our
Canadian Growth Equity strategy, to the point of
having to decline new client appointments in 2013.
At the commencement of 2013, we had just over
$3 billion in this strategy, and felt that it was in the
best interests of our existing clients to limit future
growth in assets to the investment needs of those
clients. With strong flows of new money from existing
clients throughout the year into the strategy and
performance of more than 20% in 2013, we now
have $4 billion in total assets under management
and are close to imposing a hard capacity limit for
any new monies. Client demand for strategies with
a bias toward income generation continued to prove
to be strong in 2013, particularly among the retail
investors. Our leading expertise in managing Equity
Income and Growth & Income strategies for well over
15 years and our partnership with several leading
retail intermediaries resulted in significant net new
monies from our retail partners. We believe this theme
will continue to remain popular with retail investors,
and should support further growth in 2014. At times
when many institutional investors are shrinking their
allocation to Canadian equities, we are proud to have
experienced continued growth in this area, and intend
to continue providing the solutions that investors
desire. Guardian has one of the deepest Canadian
Equity investment teams in the industry, with eleven
investment professionals who have an average of 25
years of experience overseeing a total of approximately
$12.6 billion in assets under management.
Global Equity
The longer-term performance history of our Global
Dividend Equity strategy was instrumental in placing
us on several key retail intermediary platforms over
the past two years. This acquired shelf space, along
with a demand by retail investors for strategies with
a bias toward income generation and lower volatility,
continued to provide us with strong cash inflow
momentum in 2013, and was a large contributor to
the growth in AUM for the global equity team this
past year. As a result of these strong cash inflows for
the Global Dividend Equity strategy, the team at the
end of 2013 is reporting total global equity AUM
of $1.7 billion, representing growth of over 70%
during the year. Relative performance for several
of our global equity products trailed the strong
performance of the main MSCI World Composite
this past year, affecting the relative short to medium-
term performance history of these products. A return
to strong relative value-added performance will
be important to regain the confidence within the
consultant and institutional client channels. Despite
this relative underperformance for the team, we expect
to continue benefiting from retail investors’ increased
appetite for global equities, through the various retail
intermediaries who offer our strategies. As investors
gain greater confidence in the equity markets, stronger
markets may bring the risk that our “lower-volatility”
strategies may lag the general markets. However,
we believe that the structural needs for income by
investors will support the long-term demand for our
strategies which, by design, generate above-market
dividend yield for their investors at below-market risk.
Fixed Income
Again, in 2013, the fixed income team produced solid,
consistent investment returns across the spectrum
of strategies it manages on behalf of clients, ranging
from core bond to high yield bond products. Our
conservative style of management continues to appeal
to investors seeking safety in their bond allocations.
As well, the ongoing investor appetite for higher-
yielding securities supported continued growth in
our high yield bond strategies. However, we expect
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Guardian Capital Group Limited
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$4.5B
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Wrap Assets
Under
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as at Dec. 31
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bond yields to rise eventually, and therefore the
prospects of adding significant absolute returns from
core bond investments will be limited. This will be
a challenging environment for many strategies that
have performed well over the last 20 to 30 years. As
a result, we have initiated new strategies over the
last couple of years, including a short-duration bond
strategy focusing on high-quality corporate issues,
and a variation on this strategy incorporating an
allocation to high yield bonds. Earlier in the year, we
also launched a more benchmark-free fixed income
product, with a focus on producing a reliable income
payout of 5.75% per annum, while also attempting
to preserve capital in a changing rate environment
by allowing the portfolio manager to roam between
high yield, investment grade and government bonds,
as well as having the ability to both lever and short
any of these credits. Early performance has been
excellent through some difficult bond markets, and
we believe such a strategy will be a compelling choice
for investors. The product is being offered through
an offering memorandum, and represents our initial
efforts to carve a niche in alternative fixed income
strategy. We intend to be well-prepared to meet
investor needs in a changing fixed income landscape.
Balanced Funds
Balanced strategies have historically been a relatively
small component of our AUM, but have witnessed
increased momentum over the past two years.
Investors have started recognizing Guardian’s ability
to customize balanced funds, by selecting strategies
from its wide range of Canadian and foreign equity
solutions, combined with a solid fixed income
offering. We continued to add balanced fund clients
in 2013, and expect to continue the momentum
in 2014, particularly with smaller endowments,
foundations and First Nations accounts.
Investment Client Distribution
The composition of our client base remains broadly
diversified, with approximately 50% of assets from
institutional corporate and pension accounts,
and 50% from retail intermediary clients. Retail
intermediary includes sub-advisory relationships
with mutual funds and closed-end funds, and our
leading position in the separately-managed wrap
account programs with the top broker-dealers in
the country. The separately-managed wrap account
assets continued to deliver excellent growth in
net new assets over the 2013 calendar year, as we
finished the year with more than $4.5 billion in AUM
in this channel. Many of our existing broker-dealer
partners, in particular the big six Canadian banks,
consider us as a preferred provider of core investment
solutions on their managed account platforms.
Our independence as a wholesaler of diversified
investment solutions that deliver consistent returns
and our strong investment team continuity, coupled
with our excellence in servicing the advisors in these
large broker-dealer distribution channels, positions
us as a strong partner for their fast-growing managed
fee-based programs.
In 2011 and 2012 we experienced our highest levels of
requests for proposals and finalist opportunities for any
two year period. Over the past year, we received fewer
requests for proposals, partly attributable to a general
trend experienced by the overall market and partly
because searches that were in demand were in areas
that we currently do not serve, such as a host of private
assets in equity and infrastructure searches. Search
activity also tends to be slower in a relatively strong
market environment, as investors are less inclined or
pressured to initiate changes in their lists of managers.
Much of our growth in institutional assets over the
past year came from existing clients, who continue to
add net new inflows to their existing mandates with
us. We remain committed to serving the institutional
pension market and their consultants, as this channel
requires a constant connection with the key decision-
makers, so that when certain needs arise we are a
familiar alternative to meet their needs. Our broad
strength in relative performance for our domestic
equities is an area where we continue to have respect
as a top manager for consideration by the consultant
community. Unfortunately, barring any major
competitor setbacks, this is an asset class that involves
taking away market share from others, rather than
a segment of the market that is experiencing overall
growth. Global equity searches continue to be an area
where we can see overall market demand and growth,
once there is a return to strong relative value-added
performance.
We have historically demonstrated that long-term
relevance as an investment management firm
comes from the ability to constantly foster new
investment products and re-invest in existing and
new investment professional teams. To this end, in
2013 we successfully launched a core balanced direct
real estate fund, using a combination of Guardian
Capital’s corporate funds and funds allocated by a
select group of third party clients. The initial capital
raised in the first closing should be substantially
invested by the end of Q1 2014, and we plan to
target the institutional market for a second round of
capital this year, as we are focused on succeeding to
build a niche real estate asset management business.
This asset class, unlike the domestic equity market,
is highly in demand and a growing proportion of
institutional investors’ asset allocations. In addition
to direct real estate, we also announced in late
2013 that we have reached agreement to purchase
an emerging markets equity team in London, UK,
which we plan to market heavily upon closing in
2014. Despite the headline headwinds in developing
markets, this asset class is very much in demand by
institutional investors, and is an asset class for which
investors have experienced challenges in finding
managers with adequate capacity to serve their
2013 Annual Report
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Private Wealth
Assets Under
Management
as at Dec. 31
($ mil)
demands. Our institutional business development
team and the key decision makers within the
consultant community appear to be excited with our
foray into this asset class.
Fostering a stable investment environment for
professionals to meet their value-added targets over
full cycles is of paramount importance. We shall
complement this effort with our ongoing search
to deepen our investment teams and diversify our
strategies, so as to meet our goal of building a stable
but growing pool of assets and revenues.
PRIVATE WEALTH MANAGEMENT
Guardian Capital Advisors LP (“GCA”) provides
portfolio management services to private wealth
clients, foundations and endowments within Canada
and abroad. We assist our private clients to achieve
their investment objectives, by constructing tax-
efficient, fully-discretionary segregated or investment
fund solutions that are tailored to the individual
client. Our investment process combines a proprietary
global equity screening process with the experience
of dedicated private wealth client portfolio managers.
We work not only with the clients themselves, but
also with their financial, legal, accounting and other
advisors, to ensure that the services we provide are
properly integrated with the overall financial objectives
of our clients. Through offices in Vancouver, Calgary
and Toronto, clients and their advisors have local
direct access to experienced investment professionals,
supported by the vast intellectual resources of the firm,
to construct custom-designed solutions for each client.
A strong administrative and support team ensures that
client requirements are met in a timely manner.
GCA’s assets under management and supervision
were $1.8 billion at the end of 2013, compared to $1.4
billion at the end of 2012. We believe that a focus on
risk management, as well as on enhanced returns
over the long term, will provide the desired benefits
to our client base, which are protection against short-
term volatility, long-term growth and tax-efficient
cash flows. GCA continues to attract new clients, both
directly and through referrals from financial advisors.
The majority of our client base arises from domestic
clients, divided almost equally between Eastern and
Western Canada. Our business development efforts
will continue to focus on promoting awareness in the
legal, accounting, family office and financial advisory
communities.
INTERNATIONAL PRIVATE BANKING
As an extension of our Private Wealth Management
business, our International Private Banking
subsidiaries service the wealth management needs
of our international clients.
Alexandria Trust Corporation (“ATC”) is a licensed and
regulated domestic trust company based in Barbados,
which provides fiduciary and corporate administration
services to international clients. Over the past year,
we acquired the net operating assets and client
relationships of a corporate management services
business, to increase our presence on the island and
solidify our offerings to existing and new clients. With
enhanced commitment to provide corporate and
trust management services to international clients in
Barbados, we expect to see immediate gains in new
clients who have historically refrained from retaining
us due to our limited presence.
Alexandria Bancorp Limited (“ABL”) is a private
bank based in the Cayman Islands, which was
established in 1990. ABL is licensed and regulated by
the Cayman Islands Monetary Authority to provide
investment management, fiduciary and banking
services to international clients. ABL has substantial
investment management capabilities, both through
its own Alexandria Fund and its managed segregated
account platform. In 2014, in coordination with our
expanded offering in Barbados through ATC, ABL
plans to continue to strengthen its international
referral network and to improve its pooled
investment alternatives.
FINANCIAL ADVISORY
Worldsource Wealth Management Inc.
(“Worldsource”) is an integrated financial advisory
platform, with independent financial advisors
offering mutual funds, securities and life insurance
products to Canadians from coast to coast. Assets
under administration (“AUA”) were $11.6 billion at
December 31, 2013, compared to $9.9 billion at the
end of 2012.
Worldsource is committed to being an independent
dealership platform for financial advisors who sell a
variety of financial products. Worldsource promotes
an open architecture, and thus provides advisors
with the independence to choose the best available
solutions for their clients. The advisors are further
supported with quality reporting and administration,
and a professional approach to sales compliance and
product suitability.
Worldsource Financial Management Inc. (“WFM”)
is a national mutual fund dealer with AUA of $7.7
billion at December 31, 2013, compared to $6.7
billion at the end of 2012. The increase in assets
was attributable to successful recruiting programs
and higher client portfolio valuations due largely
to market appreciation in equities. WFM’s sales
commission revenues continue to trend lower in
2013, due to a general move by advisors away from
deferred sales charge “rear-load” funds to lower
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Guardian Capital Group Limited
IDC Worldsource Insurance Network Inc. (“IDC
WIN”) is a Managing General Agency (“MGA”),
which is 79% owned by Worldsource and which
provides sales, marketing and administrative support
to licensed insurance advisors nationwide. IDC WIN
experienced strong growth in 2013, including the
first full year of results from the 2012 acquisition
of Strategic Brokerage Services (“SBS”), a strong
regional MGA in Western Canada, giving the firm a
national footprint, with offices in Western, Central
and Eastern Canada, to provide local service to its
advisors. IDC WIN is a leader in the MGA market in
Canada, and has a significant competitive advantage
for meaningful growth and profitability, as the
industry continues to consolidate. Segregated fund
and accumulation annuity AUA was $2.5 billion
as of December 31, 2013, up from $2.2 billion as of
the end of 2012. Led by the growth in premiums on
life insurance policies sold, IDC WIN has generated
more than 60% of the net commission revenue at
Worldsource in 2013, with net revenue of $14.1
million, compared to $10.4 million in 2012 and only
$2.3 million in 2010. IDC WIN will continue to build
on the strong practice management and recognition
programs it offers to its advisors, and focus on sales
growth through selective advisor recruitment and
increasing advisor productivity in 2014. In addition,
with the successful completion of the integration
of SBS this past year, we also feel that further con-
solidation opportunities may be considered going
forward, to extend our leading position as an MGA
and leverage the benefits of our current economies
of scale.
sales commission rate “front-load” funds. The
lower commission rate funds generally have higher
continuing or “trailer” fees, so that future periods
will benefit from the build-up of these continuing
commissions. We believe that the move toward
greater trailer fee revenue better aligns the advisors’
business with the clients’ interests. It also improves
the advisors’ and the dealership’s business models,
by providing for recurring revenue as opposed to
the historical reliance on active sales commission
activity. Despite a significant recovery in the equity
markets since the lows of 2009, WFM advisors and
their clients remain cautious, as they continue to
allocate a significant amount of their investments
into cash equivalent, fixed income and balanced
income strategies. As investor sentiment becomes
more confident, we expect to see an increase in
commission and trailer revenues, with higher
allocations toward equity products.
In 2013 we set out to have WFM work closely with its
independent advisors, to create an investment solu-
tions program where Guardian’s in-depth investment
management capabilities will be leveraged to convert
more Worldsource AUA into Guardian AUM. We
expect with the recent launch of a dedicated competi-
tive management fee share series, the “W” series, for
the family of Guardian funds sold by WFM advisors,
and the delivery of customized portfolio solutions for
its advisors, will improve our efforts to convert more
AUA into AUM and grow both the dealership and
the advisors’ revenues, as they improve their produc-
tivity in servicing the needs of their clients and in
building their books of business.
Worldsource Securities Inc. (“WSI”) is Worldsource’s
investment dealer or securities brokerage. WSI
operates its branch network on the Agency Model,
under which investment advisors are permitted
more independence than traditionally afforded.
WSI is focused on providing the highest possible
level of technological and administrative support
to its branch network. In 2013, WSI continued to
attract new financial advisors, adding new branches
and finishing the year with $1.4 billion in AUA. In
2014, management expects that WSI will continue
its success in recruiting advisors and adding new
branches to its growing network of brokers across
the country. As with WFM, an additional strategic
focus will be to improve the opportunities to assist
the advisors with managed solutions which enable
a greater degree of conversion of AUA into AUM.
In 2013, we launched a managed solution for our
investment advisors in WSI, which offers a variety
of Guardian managed investments, and plan to
continue to work with our advisors to expand this
offering going forward.
$11.6B
9
5
5
,
1
1
8
1
9
9
,
4
5
6
,
8
3
8
7
,
7
4
7
0
,
7
R
E
V
I
E
W
O
F
O
P
E
R
A
T
I
O
N
S
3
1
0
2
2
1
0
2
1
1
0
2
0
1
0
2
9
0
0
2
Total Assets
Under
Administration
as at Dec. 31
($ mil)
$2.5B
2
6
4
,
2
7
2
2
,
2
3
3
6
,
1
3
2
7
9
1
4
3
1
0
2
2
1
0
2
1
1
0
2
0
1
0
2
9
0
0
2
Insurance
Assets Under
Administration
as at Dec. 31
($ mil)
$38.5M
5
.
8
3
.
9
6
3
.
0
0
2
2
.
6
6
.
5
3
1
0
2
2
1
0
2
1
1
0
2
0
1
0
2
9
0
0
2
Premiums on
Life Insurance
Policies Sold
for the years
ended Dec. 31
($ mil)
2013 Annual Report
9
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Management’s Discussion and Analysis
In accordance with securities regulatory
requirements, the discussion and analysis which
follows for Guardian Capital Group Limited
(“Guardian”) pertains to the year ended December 31,
2013, with comparatives for the year 2012. Readers
are encouraged to refer to the discussions and
analyses contained in the 2013 Annual Report and
the First, Second and Third Quarter 2013 Reports.
This discussion and analysis has been prepared as of
February 27, 2014.
Additional information relating to Guardian and its
business, including Guardian’s Annual Information
Form, is available on “SEDAR” at www.sedar.com.
CAUTION CONCERNING
FORWARD-LOOKING STATEMENTS
Guardian may, from time to time, make “forward-
looking statements” in annual and quarterly reports,
and in other documents prepared for shareholders
or filed with securities regulators. These statements,
characterized by such words as “goal”, “outlook”,
“intends”, “expects”, “plan”, “prospects”, “are
confident”, “believe” and “anticipate”, are intended
to reflect Guardian’s objectives, plans, expectations,
estimates, beliefs and intentions.
By their nature, forward-looking statements involve
risks and uncertainties. There is a risk that these
forward-looking statements will not be achieved.
Undue reliance should not be placed on these
statements, as a number of factors could cause actual
results to differ from Guardian’s objectives, plans,
expectations and estimates reflected in the forward-
looking statements.
OVERVIEW OF GUARDIAN’S BUSINESS
Guardian is a diversified financial services company,
which serves the wealth management needs of a range
of clients through its various business segments. The
areas in which Guardian operates are: institutional
and private client investment management; financial
advisory, which includes a mutual fund dealer, securi-
ties dealer and an insurance managing general agency
(“MGA”); and corporate activities and investments. As
at December 31, 2013, Guardian had $22.2 billion of
assets under management (“AUM”) and $11.6 billion
of assets under administration (“AUA”). In addition,
Guardian has a diversified portfolio of securities which,
together with its investment in Bank of Montreal
shares, had a fair value of approximately $449 million
at the end of the year.
KEY EVENTS
Changes to executives
In August, 2013, Donald Yi, who had served as
Guardian’s Risk Management Officer since 2006,
was appointed to the position of Chief Financial
Officer. Vern Christensen, who had served as the
Chief Financial Officer of Guardian since 2001,
continues to serve as the Senior Vice-President and
Secretary of Guardian.
Changes to securities holdings
During the year, Guardian disposed of 160,000
common shares of Bank of Montreal for net proceeds
of $10.8 million, the first disposition by Guardian of
its Bank of Montreal investment. The disposition of
this investment resulted in the recording of net gains
of $5.0 million and a tax expense of $0.2 million. The
net proceeds were used to partially fund Guardian’s
$12.1 million investment in a real estate fund
managed by a subsidiary.
Acquisition of an Emerging Markets Equity investment
management firm
On November 25, 2013, Guardian entered into an
agreement to acquire all of the shares of Zephyr
Management (UK) Ltd. an emerging markets equity
investment management firm, based in London, UK.
This transaction is expected to provide Guardian with
approximately $110 million US in additional AUM,
and provide a bridge into new markets. Guardian will
pay $1 million US upon closing, and make a second
payment 4 years after closing, calculated based on the
level of AUM then achieved, to a maximum of $2.8
million US. The transaction is expected to close in
the first quarter of 2014, subject to certain term and
conditions.
USE OF NON-IFRS MEASURES
Guardian’s management uses certain measures to
evaluate and assess the performance of its business.
Two of the measures that Guardian uses, adjusted
cash flow from operations available to shareholders
and EBITDA available to shareholders, are not in
accordance with IFRS. Non-IFRS measures do not
have standardized meanings prescribed by IFRS,
and are therefore unlikely to be strictly comparable
to similar measures presented by other companies.
However, Guardian’s management believes that
most shareholders, creditors, other stakeholders and
investment analysts prefer to include the use of these
measures in analyzing Guardian’s results.
10
Guardian Capital Group Limited
Adjusted cash flow from operations available to shareholders
Adjusted cash flow from operations available to
shareholders is used by management to indicate the
amount of cash either provided by or used in Guardian’s
operating activities which is available to shareholders,
and many companies similar to Guardian use this
measure in a similar manner. The most comparable
IFRS measure is “Net cash from operating activities”,
which is disclosed in Guardian’s Consolidated
Statements of Cash Flow.
The following is a reconciliation of this non-IFRS measure to this IFRS measure:
For the years ended December 31 ($ in thousands)
Net cash from operating activities, as reported
Net change in non-cash working capital items
Cash flow from operations before changes in non-cash working capital items
Less: Available to non-controlling interests
Adjusted cash flow from operations available to shareholders
2013
30,669
(2,631)
28,038
(416)
27,622
$
$
2012
23,900
(1,697)
22,203
(923)
21,280
$
$
EBITDA available to shareholders
Guardian defines EBITDA as net earnings before
interest, income tax, amortization, stock-based
compensation, and any net gains or losses. We believe
this is an important measure, as it allows us to assess
the operating profitability of our business and to
compare it with other investment management
companies, without the distortion caused by
the impact of non-core business items, different
financing methods, levels of income taxes, and capital
expenditures. The most comparable IFRS measure
is “Net earnings”, which is disclosed in Guardian’s
Consolidated Statements of Operations.
The following is a reconciliation of this non-IFRS measure to this IFRS measure:
For the years ended December 31 ($ in thousands)
Net earnings, as reported
Add (deduct):
Net losses (gains) on securities held for sale
Income tax expense
Net (gains)
Stock-based compensation
Interest expense
Amortization
EBITDA
Less: Available to non-controlling interests
EBITDA available to shareholders
2013
2012
$
34,743
$
22,759
58
3,767
(11,637)
1,247
1,130
3,706
33,014
707
32,307
(4,559)
3,275
(1,337)
1,145
1,283
3,478
26,044
861
25,183
$
$
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2013 Annual Report
11
CONSOLIDATED FINANCIAL RESULTS
The comparative financial results of Guardian on a consolidated basis are summarized in the following table:
For the years ended December 31 ($ in thousands, except per share amounts)
Net revenue
Expenses
Operating earnings
Net gains
Earnings before income taxes and gains (losses) on securities held for sale
Income tax expense
Net earnings before net gains (losses) on securities held for sale
Net gains (losses) on securities held for sale
Net earnings
Available to shareholders
Net earnings
EBITDA
Adjusted cash flow from operations
Available to shareholders, per share, diluted
Net earnings
EBITDA
Adjusted cash flow from operations
As at December 31 ($ in millions, except per share amounts)
Assets under management
Assets under administration
Value of corporate holdings of securities
Shareholders’ equity
Per share, diluted
Value of corporate holdings of securities
Shareholders’ equity
2013
101,278
74,347
26,931
11,637
38,568
3,767
34,801
(58)
34,743
34,432
32,307
27,622
1.11
1.04
0.89
22,228
11,559
449
415
14.26
13.17
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012
% change
$
$
$
$
$
$
$
$
$
$
$
$
$
$
86,360
66,222
20,138
1,337
21,475
3,275
18,200
4,559
22,759
22,556
25,183
21,280
0.71
0.78
0.66
18,832
9,918
380
354
11.99
11.16
17 %
+
12 %
+
+
34 %
+ 770 %
+ 80 %
15 %
+
+
91 %
- 101 %
53 %
+
+
53 %
+ 28 %
+ 30 %
+
+
+
+
+
+
+
+
+
56 %
33 %
35 %
18 %
17 %
18 %
17 %
19 %
18 %
The operating earnings for 2013 were $26.9 million,
compared to $20.1 million in 2012, a 34% increase.
Each operating unit contributed positively to the
increase in Guardian’s operating earnings. A more
detailed discussion is provided under “Revenues and
Expenses” below.
Net earnings available to shareholders for 2013 were
$34.4 million, compared to $22.6 million in 2012,
a 53% increase. The higher net earnings available
to shareholders is largely due to significantly higher
operating earnings and net gains in 2013, offset by the
reduction in net gains on securities held for sale.
The net gains for the year increased significantly, with
approximately one-half of the net gains being from the
sale of a portion of the Bank of Montreal shares.
Higher income tax expense in 2013 was the result of
higher operating income and higher net gains realized
during the year, compared to 2012.
The reduction in net gains on securities held for sale
was due to a reclassification of certain mutual funds
from the held for sale category to securities holdings
during the year. This resulted in subsequent changes
in unrealized gains or losses being recorded in other
comprehensive income, rather than as net gains from
securities held for sale.
EBITDA available to shareholders for 2013 was $32.3
million, compared to $25.2 in 2012, a 28% increase.
The increase was caused by improvement in operating
results from all of Guardian’s operating segments.
Adjusted cash flow from operations available to
shareholders for the year amounted to $27.6 million,
compared to $21.3 million in 2012. The differences
between net earnings and adjusted cash flow from
operations available to shareholders arise primarily
due to the impact of future income taxes, amortization
expenses and stock-based compensation, as well as the
exclusion of gains or losses from the calculation of cash
flow from operations.
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2
Operating
Earnings
for the years
ended Dec. 31
($ mil)1
1) Note: results for 2010 to
2013 are in accordance with
IFRS; 2009 is as reported
under previous Canadian
GAAP.
12
Guardian Capital Group Limited
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REVENUES AND EXPENSES
Investment Management Revenues
The largest source of revenue at Guardian is manage-
ment fees received from clients, which vary as a result of
changes in the amounts of client assets managed, and
variations in the rates of management fees charged.
The following is a summary of the assets under management:
Years ended December 31 ($ in millions)
Assets under management, beginning of year
Net additions from clients during year
Market appreciation
Assets under management, end of year
Composed of:
Institutional
Private client
International
Total
Institutional AUM is composed of:
Canadian equities
Global equities
Fixed Income
Total institutional AUM
2013
18,832
1,699
1,697
22,228
20,393
1,763
72
22,228
12,556
1,720
6,117
20,393
$
$
$
$
$
$
2012
15,928
1,855
1,049
18,832
17,346
1,418
68
18,832
10,317
1,009
6,020
17,346
$
$
$
$
$
$
Guardian’s total AUM was $22.2 billion at December
31, compared to $18.8 billion in the prior year, an
18% increase. The increase in AUM was due to a
combination of continued success in attracting new
inflows of client assets and market appreciation.
Management fees, net of referral fees paid, for the
year 2013 were $50.9 million, 20% higher than the
$42.4 million for 2012. Institutional management fees
increased 22% to $40.3 million in 2013 from $33.0
million in 2012, as a result of increases in AUM and
the continuing growth in higher-margin AUM, offset
by a reduction of $1.2 million in performance fees.
Private client management fees, net of referral fees
paid, increased 18% during the year to $8.2 million
from $6.9 million in 2012, reflecting the continuing
increase in AUM in this area. Management fees
earned from international clients during the year, at
$2.4 million, were substantially unchanged from the
$2.5 million a year earlier.
Financial Advisory Commission Revenues
Net commission revenue earned from the financial
advisory business is generated from the sale of
mutual funds, other securities and life insurance
products, as well as from continuing fees related to
AUA and life insurance policies, net of commissions
paid to advisors.
Total AUA at Guardian at the end of 2013 amounted
to $11.6 billion, 17% higher than the $9.9 billion at the
end of 2012. The increase in AUA was due to successes
in recruiting new advisors into the financial advisory
subsidiaries, together with the positive effects of
market performance.
The total premiums on life insurance policies sold
in 2013 by the life insurance MGA subsidiary were
$38.5 million, compared to $36.9 million in 2012.
The policies sold generate sales commissions in the
year they are sold, and add continuing service fees in
subsequent years.
Net sales commission revenue amounted to $23.1 million
in 2013, 22% higher than the $18.9 million in 2012. This
increase is due to the inclusion of the full year’s results of
SBS Brokerage Services LP (“SBS”), which was acquired
in November of 2012, successful recruitment efforts in
the mutual fund and securities dealers and continued
growth from our existing advisors.
Administrative Services Income
Administrative services income in 2013 was composed
of $6.2 million of registered plan and other fees
earned in the financial advisory area, $2.0 million in
fund administration revenue earned from Guardian’s
proprietary mutual funds and $1.5 million of trust,
corporate administration and other fees earned
mainly in the international area, for a total of $9.7
million, compared with $8.5 million in 2012. The
increase resulted from growth in the number of client
accounts in the financial advisory area and in the
AUM in our mutual funds, offset by a reduction in
client activities offshore.
2013 Annual Report
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Dividend and Interest Income
The following is a summary of Guardian’s dividend and interest income:
For the years ended December 31 ($ in thousands)
Dividend income
Interest income
Total dividend and interest income
2013
16,720
840
17,560
$
$
2012
% change
$
$
15,292
1,315
16,607
+
-
+
9 %
36 %
6 %
Dividend income increased by 9% in the year, due to
increased investments in the corporate portfolio of
securities and the effects of the increased dividend
rates on the Bank of Montreal shares. The decrease
in interest income resulted from the disposition of
promissory notes during the second half of 2012.
Expenses
Guardian’s operating expenses, excluding
commissions, referral fees, amortization and interest,
were $69.5 million in 2013, compared with $61.5
million in 2012, an increase of 13%. Included in the
increased expenses for 2013 were $1.8 million of
additional expenses due to the inclusion of the full
year of expenses relating to the SBS acquisition in
late 2012. Excluding the expenses related to SBS, the
increase in the operating expenses in 2013 would
have been 10%. Increased operating expenses also
resulted from additional business development costs
incurred in bringing on the additional AUM during
the year and additional investment professionals
added, to provide for the management and servicing
of this additional AUM.
The increase in amortization in 2013, from $3.5 million
to $3.7 million, was largely a result of the full year’s
amortization of the intangible assets acquired as part
of the SBS aquisition, offset by certain intangible assets
being fully amortized in the second quarter of 2013.
Interest expense reduced to $1.1 million in 2013, com-
pared to $1.3 million in 2012, a reduction of 12%, as a
result of lower interest rates renegotiated in late 2012.
NET GAINS
For the years ended December 31 ($ in thousands)
Net gains (losses) in consolidated mutual funds
Net gains on securities directly held
Net gains on repayment of promissory notes
Net gains on securities
Net gains on disposal of intangible assets
Net foreign exchange (losses) gains
Net gains
Net gains (losses) on securities held for sale
2013
137
11,939
–
12,076
312
(751)
11,637
(58)
$
$
$
2012
$
(196)
348
963
1,115
189
33
$
1,337
$ 4,559
Net gains in 2013 increased significantly compared
to 2012, with approximately one-half of the gains
for the year realized on the sale of 160,000 of the
Bank of Montreal shares. The net losses on foreign
exchange mainly relate to exchange losses on Canadian
dollars held by the international subsidiary whose
functional currency is the US dollar. On translation
of this subsidiary’s results to Canadian dollars upon
consolidation, Guardian recorded equal but offsetting
gains in other comprehensive income.
LIQUIDITY AND CAPITAL RESOURCES
The strength of Guardian’s balance sheet has enabled
Guardian to attract Associates, provide clients
with a high comfort level, make appropriate use of
borrowings, and develop its businesses. It has also
allowed Guardian to maintain the appropriate levels
of working capital in each of its areas of operation. The
strong cash flow enables Guardian to meet all of its
financial commitments, to finance the expansion of its
businesses and to purchase the capital assets necessary
for the development of those businesses.
Guardian’s total bank borrowings at December 31,
2013 amounted to $55.9 million, compared with
$52.2 million at December 31, 2012. The bulk of the
bank borrowings have been converted to bankers’
acceptances at attractive borrowing rates. The total
credit available, under three borrowing arrangements,
amounts to $81 million.
As mentioned under “Key Events” above, during the
year, Guardian disposed of 160,000 common shares of
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Bank of Montreal for net proceeds of $10.8 million.
These proceeds funded the bulk of the $12.1 mil-
lion investment in a real estate fund managed by a
subsidiary. Guardian’s borrowing facilities plus its
strong cash flow from operations allowed Guardian,
during 2013, to repurchase shares under its issuer
bid for $7.9 million, make its annual and two quar-
terly dividend payments in the total amount of $9.2
million, purchase additional shares in a subsidiary
for $4.3 million, and make payments on other busi-
ness acquisitions of $2.4 million.
We are confident that the strength of Guardian’s
balance sheet will continue to provide benefits in
the future. Guardian’s holdings of securities as at
December 31, 2013 had a fair value of $449 million,
or $14.26 per share, diluted, compared with $380
million, or $11.99 per share, diluted, as at December
31, 2012.
The following is a summary of Guardian’s securities holdings:
SECURITIES HOLDINGS
As at December 31 ($ in thousands, except per share amounts)
2013
2012
Securities at fair value:
Short-term securities
Bonds
Mutual funds
Bank of Montreal common shares
Other equity securities
Real estate funds
Total securities holdings
Securities held for sale
Total securities
Total securities per share, diluted
$
1,850
1,030
34,441
339,754
54,187
12,492
443,754
5,425
$ 449,179
14.26
$
$
2,187
2,007
8,729
301,626
39,037
352
353,938
26,018
$ 379,956
11.99
$
CONTRACTUAL OBLIGATIONS
Guardian has contractual commitments for the
payment of certain obligations over a period of time.
A summary of those commitments, including a
As at December 31, 2013 ($ in thousands)
Bank loans and borrowings
Client deposits
Accounts payable and other
Payable to clients
Investment commitment – real estate fund
Operating lease obligations
Total contractual obligations
$
$
Total
55,929
57,312
28,500
42,215
12,864
18,027
214,847
summary of the periods during which they are
payable, is shown in the following table:
Within
one year
55,929
57,312
28,500
42,215
12,864
1,683
198,503
$
$
Payments due by period
One to
three years
$
$
–
–
–
–
–
3,905
3,905
Three to
five years
–
–
–
–
–
2,992
2,992
$
$
After
five years
$
–
–
–
–
–
9,447
$ 9,447
Guardian’s contractual commitments are supported
by its strong financial position, including its securi-
ties holdings, referred to above under the heading
“Liquidity and Capital Resources”. The Payable to
clients, in Guardian’s securities dealer subsidiary,
which can fluctuate with client activities, is offset by
the Receivable from clients and broker. Client deposits,
which grew by $53 million in the past year from new
banking clients in the offshore banking subsidiary, are
supported by Interest-bearing deposits with banks.
Guardian has committed to invest $25 million into a
real estate limited partnership which is managed by a
subsidiary, of which $12.1 million has been invested to
date. The balance is expected to be invested as appro-
priate real estate product becomes available to the
limited partnership, at which time Guardian’s man-
agement will decide on the appropriate strategy for
funding this commitment.
Not included in the above table is a conditional
commitment of $1 million US to make the initial
payment on the purchase of a London, UK-based
investment management company, as described
under “Key Events”.
2013 Annual Report
15
SELECTED ANNUAL INFORMATION
Years ended December 31 ($ in thousands, except per share amounts)
Net revenue
Net earnings available to shareholders
Per share
Net earnings
Basic
Diluted
Dividends paid
As at December 31
Total assets
$
$
$
$
2013
101,278
34,432
1.13
1.11
0.30
2013
2012
86,360
22,556
2011
$ 73,693
10,003
0.72
0.71
0.17
2012
$
0.31
0.31
0.16
2011
$ 645,060
$
510,752
$ 469,508
The increases in Total assets over the past two
years substantially reflect the changes in the value
of the corporate holdings of securities, increases in
interest-bearing deposits and the additional assets
received on the purchase of an MGA in 2012.
SUMMARY OF QUARTERLY RESULTS
The following table summarizes Guardian’s financial results for the past eight quarters.
Quarters ended
($ in thousands)
Dec.31,
2013
Sep 30,
2013
Jun 30,
2013
Mar 31,
2013
Dec.31,
2012
Sep 30,
2012
Jun 30,
2012
Mar 31,
2012
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Net revenue
Operating earnings
Net gains
Net earnings before net gains
(losses) on securities held
for sale
Net gains (losses) on securities
held for sale
Net earnings (loss) available
$ 27,907 $ 25,173 $ 25,041 $ 23,157 $ 24,146 $ 21,370 $ 20,415 $ 20,429
4,840
8,564
(16)
7,218
4,860
(548)
6,390
666
4,647
2,045
6,898
3,183
5,079
570
5,791
(144)
14,879
8,602
6,255
5,065
4,938
6,045
2,838
4,379
238
432
(1,243)
515
1,084
2,849
(2,961)
3,587
to shareholders
Shareholders’ equity
(in $)
Per average Class A and Common Share
Net earnings before net gains
14,980
414,985
8,946
393,670
4,963
354,622
5,543
366,519
5,915
353,756
8,750
336,362
(114)
323,690
8,005
340,096
(losses) on securities held for sale:
- Basic
- Diluted
$
Net earnings (loss) available to shareholders:
0.48 $ 0.28 $ 0.20 $
0.47
0.20
0.27
0.16 $
0.16
0.16 $
0.15
0.19 $ 0.09 $ 0.14
0.14
0.09
0.18
- Basic
- Diluted
Shareholders’ equity
- Basic
- Diluted
$
$
0.49 $ 0.29 $
0.48
0.29
0.16 $
0.16
0.18 $
0.18
0.19 $
0.19
0.28 $ (0.00) $ 0.25
0.25
(0.00)
0.27
13.68 $ 12.94 $
13.17
12.51
11.64 $
11.27
11.97 $
11.59
11.44 $ 10.78 $ 10.29 $ 10.72
10.48
11.16
10.06
10.54
Management fees earned in the investment
management segment are highly correlated to
the growth in AUM and generally not subject to
seasonal fluctuations. The seasonality which in
the past existed in the financial advisory segment,
with some concentration of commissions in the
traditional “RSP season” in the first quarter of each
year, has now largely dissipated. This change is due
to the overriding influence of worldwide market
movements, which can affect client and advisor
behavior throughout the year, together with the
increasing significance of life insurance sales in
Guardian’s financial advisory business, and the
continuing move toward “trailer” fees and away
from “front-load” commissions.
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The steady increase in net revenue during the periods
shown above have generally resulted from two
influences. Firstly, reflecting the growth in AUM,
management fees in the investment management
business have increased steadily and substantially
throughout 2012 and 2013, including the earning
of a performance fee of $1.4 million in December,
2012. Secondly, there has been significant growth
in commissions earned in the financial advisory
business, as a result of the life insurance MGA
business purchases made in 2011 and 2012, together
with continuing growth in the traditional mutual
fund and securities dealerships.
Since gains and losses are recorded on disposal of
available for sale securities or other assets when
realized, and on changes in the value of held for trading
securities, and such amounts can vary from quarter to
quarter, the amounts included in “Net gains” and “Net
gains (losses) on securities held for sale” each quarter
have fluctuated, as shown in the quarterly results above.
The significant net gains and net gains on securities
held for sale recorded in the first and third quarters of
2012, and the third and fourth quarters of 2013 were
largely responsible for the increases in Net earnings in
those quarters.
The net earnings available to shareholders for the
quarter ended June 30, 2012 were reduced because
of the net losses on securities held for sale, and the
increase in deferred income taxes resulting from
increased Ontario income taxes substantively enacted
in June, 2012. This increase in taxes amounted to
$1.1 million ($0.03 per share, diluted). The quarterly
fluctuations in shareholders’ equity shown above have
been caused largely by changes in the value of
Guardian’s investment in the Bank of Montreal com-
mon shares, less this provision for future income taxes.
RISK FACTORS
Guardian applies many of the same risk management
principles to its business as a whole, as it does to the
management of risks on behalf of its clients. One
of the principles is that risk can pose challenges, as
well as provide opportunities, depending upon the
effectiveness of the way in which it is managed. Readers
are encouraged to refer to note 21 to the Consolidated
Financial Statements, contained in Guardian’s 2013
Annual Report, for additional information on financial
risk management.
Market Risk
Market fluctuations can have a significant effect on
the value of both clients’ portfolios and our earnings,
since management fees are generally based on
market values. Additionally, market fluctuations
have a significant impact on the amounts being
invested by the clients of our financial advisory
businesses, increasing or reducing our commission
revenues. We manage the risk of market fluctuations
by having a diversified client base with different
investment needs, and by having a variety of
products and services, which may be attractive in
different market environments and which have
different correlations to equity and other financial
markets and to each other. Guardian’s holdings of
securities are managed independently of clients’
assets, except for those of our assets that are invested
in Guardian’s investment funds.
Portfolio Value and Concentration Risk
Guardian’s corporate holdings of securities are
subject to price fluctuation risk. Guardian manages
this risk through professional in-house investment
management expertise, which takes a disciplined
approach to investment management. All securities
are held by well-known independent custodians
chosen by Guardian. With the exception of the
investment of $339.8 (2012 - $301.6) million in the
Bank of Montreal shares, which is a significant portion
of Guardian’s securities holdings, the holdings are
diversified, from both an asset class and a geographical
perspective. Guardian has accepted the concentration
risk associated with its holding of Bank of Montreal
shares, as the bank is a diversified company, with a
history of steady dividend payments.
Foreign Currency Risk
Guardian’s investments in its foreign subsidiaries,
which use US dollars as their functional currency,
are subject to the risk of foreign currency exchange
rate fluctuations. The effects of changes in foreign
currency exchange rates on the values of these
investments are not included in Net earnings, but
are recorded as changes in the “foreign currency
translation adjustment” in Guardian’s Statements of
Comprehensive Income, and the cumulative effect
is included in Accumulated other comprehensive
income in the Shareholders’ Equity section of the
Consolidated Balance Sheets. This foreign currency
exposure is not actively managed, due to the long-term
nature of these investments, but is closely monitored
by the Company. From time to time, the foreign
subsidiaries hold unhedged Canadian dollars, which
can result in foreign exchange gains or losses being
recorded by the subsidiaries. Upon translation of their
results on consolidation, Guardian recognizes equal
and offsetting gains or losses in Other comprehensive
income. This is not considered to be a currency risk as
there is no economic risk to Guardian.
Credit Risk
Guardian’s credit risk is generally considered to be
low. Because of the nature of Guardian’s business,
receivables are mainly from large institutions, which
are considered to pose a relatively low credit risk, or
from individuals, which are secured by marketable
securities. On an ongoing basis, Guardian reviews
the financial strength of all of its counterparties, and
reduces its exposure where appropriate.
2013 Annual Report
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Interest Rate Risk
Guardian manages interest rate risk in its international
banking operations, through matching the interest
rates and maturity dates of client deposit liabilities
with the assets, interest-bearing deposits with banks.
Liquidity Risk
Guardian manages liquidity risk through the
monitoring and managing of cash flows from various
segments of the business, and by establishing
sufficient borrowing facilities with major Canadian
banks, which currently total $81 million through
three credit facilities. The maturities of Guardian’s
contractual commitments are outlined under
“Contractual Commitments” in this discussion and
analysis. The combination of the cash flows from
operations and the borrowing facilities provides
sufficient resources to manage its liquidity risk.
Regulatory Change Risk
Changes to government regulations, including
those related to income taxes, can have an effect on
Guardian’s business. Examples are the changes in
future income tax rates, which have had significant
effects on Guardian’s income tax expense, and net
earnings, in 2006, 2007, 2009 and 2012. Because
there had been a downward trend in income tax
rates prior to 2012, the effects on earnings in earlier
years had been positive, but they were negative in
2012, and further negative effects could result if tax
rates increase again in the future. Another area in
which regulation affects Guardian’s business is in
the regulatory requirements of the government and
self-regulatory agencies under which our regulated
subsidiaries operate. Through a combination of
in-house expertise and external advisors, when
appropriate, these subsidiaries are able to react to
changes in these regulatory requirements.
Performance Risk
Product performance presents another risk. It is a
relative, as well as an absolute measure, because the
risk is that we will not perform as well as the market,
our peers, or in line with our clients’ expectations.
We manage this risk by having a disciplined
approach to investment management, and by
ensuring that our compliance capabilities are strong.
With respect to clients’ expectations, we also ensure
that we are fully aware of all of those expectations,
and that we properly communicate with our clients
to develop, report on and comply with client
mandates on a continuous basis.
Financial Advisory Risk
Because of the number of agents who publicly
represent each of the Worldsource operating entities,
there are risks associated in their dealings with
their clients. These risks are mitigated by the strong
compliance and product review capabilities of the
Worldsource organization, significant management
oversight and insurance coverage carried by both
Worldsource and the agents.
Competition Risk
Another risk is competition. Our ability to compete
is enhanced by the high quality of our management
team, substantial depth in personnel and resources
and a strong balance sheet, which provides us with
the flexibility to make the changes necessary to be
competitive. In addition, we manage competition
risk by tailoring our product and service offerings to
market conditions and client needs.
As a result of this risk related to its clients, Guardian
has the risk of a reduction in its revenue due to the
possible loss of clients, including the possible loss of
Worldsource advisors, who could bring their clients
to another mutual fund or securities dealer. This risk
is managed by having strong marketing efforts to
replace lost revenue with new client revenues, and by
continuing to offer competitive benefits to advisors.
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements
in conformity with IFRS requires management to
make estimates and assumptions which affect the
reported amounts of assets, liabilities, contingencies,
revenues and expenses. These estimates and
assumptions are listed in note 2 (c) to Guardian’s
2013 Consolidated Financial Statements. The most
significant accounting estimates are related to the
annual impairment assessment of goodwill and the
determination of fair value of securities classified as
level 3 within the fair value hierarchy.
The annual impairment assessment of goodwill
includes a comparison of the carrying value and the
recoverable amount of each business unit to verify that
the recoverable amount of the business unit is greater
than its carrying value. In 2013 and 2012, the recover-
able amounts were estimated using the fair value less
cost method for each of the business units. Guardian
used valuation approaches based on a multiple of
AUA and a multiple of annual service fee revenues to
determine fair value. These multiples are developed
by management based on recent transactions and
research reports by independent research analysts.
These valuation approaches are most sensitive to the
levels of AUA and annual service fees.
A financial instrument is classified as level 3 when
the fair value of the instrument is determined using
valuation techniques based on inputs which are not
observable in the market. The fair values of securities
classified as level 3 in note 4 (e) to Guardian’s 2013
Consolidated Financial Statements were based on a
valuation approach using a multiple of AUM. The
multiple was developed based on recent research
reports by independent research analysts for similar
types of business. This valuation approach is most
sensitive to the level of AUM.
18
Guardian Capital Group Limited
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CHANGES IN ACCOUNTING POLICIES
As disclosed in note 3 to the Consolidated Financial
Statements contained in Guardian’s 2013 Annual
Report, Guardian has adopted IFRS 13, Fair Value
Measurement (“IFRS 13”), which establishes
a framework for measuring fair value, sets out
related disclosure requirements when fair value
measurement is required or permitted under other
standards, and replaces the requirements which had
been previously contained in several other standards.
IFRS 13 is effective for annual periods beginning on
or after January 1, 2013. Guardian has incorporated
the measurement requirements of IFRS 13 in the
2013 Consolidated Financial Statements. The
measurement requirements of IFRS 13 did not have
a significant effect on its Consolidated Financial
Statements.
INTERNAL CONTOL OVER FINANCIAL
REPORTING AND DISCLOSURE CONTROL
Management is responsible for establishing and
maintaining adequate internal controls over
financial reporting, to provide reasonable assurance
regarding the reliability of financial reporting and
the preparation of financial statements for external
purposes in accordance with IFRS. There have been no
changes in Guardian’s internal control over financial
reporting during the quarter ended December 31, 2013
that have materially affected, or are reasonably likely
to materially affect, Guardian’s internal control over
financial reporting.
Management of Guardian has evaluated the
effectiveness of its disclosure controls and procedures
and internal controls over financial reporting (as
defined under National Instrument 52-109) as of
December 31, 2013, under the supervision of the
Chief Executive Officer and the Chief Financial
Officer. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer have
concluded that the design and operation of those
disclosure controls and procedures and internal
controls over financial reporting were effective.
OUTLOOK
In last year’s annual report, we indicated that we
believed that, despite global macro and geopolitical
concerns, the overall trend for equity markets in
2013 would be toward the upside, as investors would
continue to accept greater equity risk allocation
in their portfolios. As it turned out, in 2013 equity
markets did deliver broadly positive returns, due
largely to the continued program of bond buying
by the Federal Reserve. This quantitative easing
continued at a slightly slower pace in the fourth
quarter as the Fed attempted to prepare the markets
for an eventual withdrawal of these purchases.
However, we don’t see a complete withdrawal
occurring until 2015. Developing markets delivered
solid results in 2013, with investors moving back
into risk assets. The major economies of the
developed world – the U.S., Euro-zone, Japan and
the U.K. – all appear to be experiencing some level
of growth, while emerging economies appear to be
facing some headwinds. All in all, this is good news
for the global economy. There is definitely still a
lot of fragility in the system – U.S. growth is weak
by historical standards; the Euro-zone is hardly
growing and exposed to potential derailment from
weak countries on the periphery; Japan’s growth is
the result of massive liquidity injection and could
be short-lived; and China continues to have its
structural issues. Markets overall have nevertheless
welcomed the subtle economic improvements, even if
they are humble and fragile.
In 2014, we expect global monetary easing to
continue, although a continuously improving
economy in the U.S. will limit the need for the
relatively high levels of accommodating quantitative
easing by the Fed, and there will eventually be calls
for greater level of tightening by the Fed. The rest
of the developed world’s growth is still too low for
other large central banks to quickly follow suit.
The only significant tightening activity currently
taking place is limited to some emerging economies
that are fighting the flight of capital triggered
by rising yields in the U.S. and the depreciation
pressure on their currencies. With global central
banks continuing their coordinated commitment
to further monetary easing in the near term, and
any interest rate increases likely to take longer
to materialize, investors are likely to continue
increasing their equity risk appetites, and thus we
expect positive support for global equity markets.
Guardian is highly geared toward the equity
markets, across its main business segments and its
corporate investment portfolio. An environment
which will reward greater equity risk will be
positive for Guardian’s overall performance, as our
largest revenue sources, commission revenue and
management fees, are aligned toward higher levels
of AUM and AUA.
Guardian’s AUM increased over the past year
by $3.4 billion dollars, ending the year with
approximately $22.2 billion, due in part to the
positive Canadian and global equity markets and
our relative value-added performance across several
of our equity and fixed income strategies. We
continued to witness strong growth with very large
net client inflows from both institutional and retail
intermediary distribution channels. The year ahead
may prove to be more challenging regarding strong
growth from client net inflows, as one of our most
successful strategies, Canadian Growth Equity, is
no longer taking any new monies from new clients
and is getting closer to limiting all new inflows
from existing clients. Although relative returns in
2013 were strong across our equity strategies, there
2013 Annual Report
19
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is one exception with our systematic equity team,
where several of the global and international equity
strategies lagged their benchmarks. This may limit
near-term new business opportunities, particularly
in the institutional segment. However, we still
believe that asset inflows will be positive in 2014
for these strategies, as our success in being included
in certain retail intermediary shelf space provides
us the opportunity to capture some increased flows
into this asset class.
Guardian’s financial advisory business, through
its subsidiary Worldsource Wealth Management,
reported its first annual positive contribution
to operating earnings in 2013, with a positive
total of $1.7 million, compared to the prior year’s
operating loss of $0.9 million. The improved
operating earnings were due to continued strong
commission growth from new life insurance sales
in its Managing General Agency, particularly in the
second half of the year, and multi-year efforts to
improve revenue and expense management in its
Mutual Fund and Securities dealerships. We expect
to continue our efforts toward improving operating
earnings from our financial advisory business, with
the continued delivery of strong life insurance sales
and the recruitment of additional independent
advisors across our Worldsource platform. The
improved synergies we have driven among our
various financial advisory businesses, coupled with
greater equity risk appetite from the retail investor,
are expected to result in further improvements to
operating profits in 2014.
We are pleased to have delivered more meaningful
overall operating profits in the past year. However,
in order to improve the likelihood of repeatable
improved operating earnings, we expect to continue
to invest in new initiatives, which will be a trade-
off by management of some current earnings for
expected greater future earnings. We are planning
to continue to invest in the development of our
Real Estate investment team, as we gather more
assets under management and a greater number of
properties to be acquired and managed. As such,
this unit will likely be operating at a loss for the
near term. The same can be said for our efforts to
build out broader investment capabilities in our
new presence in the UK, the purchase of which is
expected to close in the first quarter of 2014. It is
important, with the stronger operating platform
that Guardian has achieved over the past few years,
that we leverage our positive momentum to attract
new talent and capabilities where we expect client
demand to be structurally strong in the future.
A successful execution of these growth plans will be
instrumental to Guardian’s efforts to deliver consistent
growth in dividends and shareholders’ equity.
20
Guardian Capital Group Limited
Ten Year Review
Notes (a), (g)
($ in millions)
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
Assets under management
Assets under administration
22,228
11,559
18,832
9,918
15,928
8,654
16,266
7,783
13,986
7,074
11,764
6,005
16,885
6,303
17,305
5,677
18,444
4,837
16,085
3,708
($ in thousands)
Net revenue
Operating expenses (b)
Operating earnings
Net gains (losses)
Net gains (losses) on securities
held for sale
Net earnings available
to shareholders
Shareholders’ equity (e)
Securities holdings (at fair value)
(In dollars)
101,278
74,347
26,931
11,637
86,360
66,222
20,138
1,337
73,693
56,560
17,133
(131)
64,928
51,389
13,539
2,982
61,147
52,419
8,728
1,217
66,918
58,665
8,253
(4,484)
69,607
51,617
17,990
4,215
66,247
48,159
18,088
4,134
58,908
44,162
14,746
1,597
49,585
38,930
10,655
1,236
(58)
4,559
(5,493)
6,443
–
–
–
–
–
–
34,432
414,985
449,179
22,556(f) 10,003
322,618
353,756
364,182
379,956
23,015
331,856
383,604
14,274(c)
317,784 204,051 334,696
380,433
241,549
362,512
7,299(d) 26,492(c) 22,959(c) 12,821
212,016 192,240
407,117
443,108
10,559
196,273
364,318
T
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E
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R
E
V
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W
Per average common and Class A share
Net earnings available
to shareholders for the year
Basic
Diluted
Per common and Class A share
Dividends paid
Shareholders’ equity(e)
Basic
Diluted
Share prices
Common high
low
high
low
Class A
(In thousands)
Year end common and Class A
shares outstanding
Basic
Diluted
NOTES:
1.13
1.11
0.72(f)
0.71(f)
0.31
0.31
0.70
0.69
0.41(c)
0.41(c)
0.19(d)
0.19(d)
0.69(c)
0.68(c)
0.60(c)
0.58(c)
0.33
0.32
0.27
0.26
0.300
0.170
0.160
0.150
0.150
0.150
0.135
0.120
0.105
0.0875
13.68
13.17
18.00
11.50
16.82
10.40
11.44
11.16
11.65
9.41
10.55
9.00
10.12
9.90
12.75
9.49
11.63
8.70
10.16
10.01
9.75
7.90
9.00
7.35
9.37
9.19
9.97
4.65
8.25
3.00
5.69
5.65
11.10
4.26
11.02
3.02
8.79
8.67
15.50
10.65
13.50
10.33
5.48
5.36
14.00
11.25
13.13
10.12
5.04
4.87
13.00
9.63
12.13
9.00
4.98
4.89
11.01
7.37
12.00
6.75
30,333
31,510
30,917
31,696
31,890
32,604
32,652
33,162
33,932
34,563
35,874
36,104
38,095
38,605
38,669
39,576
38,149
39,492
39,552
40,538
(a) Comparative figures reflect the May, 2006 2-for-1 stock split.
(b) Excluding commissions paid, referral fees and income taxes.
(c) Net earnings available to shareholders reflect a reduction in future income taxes, resulting from the reduced income tax rates enacted during the year,
as follows: 2009 - $2.0 million, $0.06 per share diluted; 2007 - $6.6 million, $0.16 per share diluted; 2006 - $3.3 million, $0.08 per share diluted.
(d) Net earnings available to shareholders in 2008 reflect a $1.3 million ($0.03 per share) reduction in future income taxes, resulting from the reversal of future
income taxes relating to Guardian’s foreign subsidiaries, as well as the recording of restructuring costs of $2.3 million ($0.06 per share).
(e) Shareholders’ equity in 2007 and subsequent years reflects the recording of the corporate holdings of securities at fair value, in accordance with required new
accounting policies adopted effective January 1, 2007.
(f) Net earnings available to shareholders in 2012 reflect a $1.1 million ($0.03 per share) increase in future income taxes, resulting from increased income tax rates
enacted during the year.
(g) Results in 2010 to 2013 are in accordance with IFRS; 2009 and previous years are as reported under previous Canadian GAAP.
2013 Annual Report
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Management’s Statement on Financial Reporting
The following financial statements, which consolidate the financial results of Guardian Capital Group Limited, its
subsidiaries and other controlled entities, and the Company’s interest in a joint venture, and all other information
in this annual report, are the responsibility of management.
The financial statements have been prepared in accordance with International Financial Reporting Standards.
Financial information presented elsewhere in this annual report is consistent with that in the financial statements.
In management’s opinion, the financial statements have been properly prepared within reasonable limits of
materiality and within the framework of the accounting policies summarized on pages 29 to 33. Management
maintains a system of internal controls over the financial reporting process designed to provide reasonable
assurance that relevant and reliable financial information is produced. Management also administers a program
of ethical business conduct compliance.
KPMG LLP, the Company’s independent auditors, have audited the accompanying financial statements. Their
report follows. The Audit Committee of the Board of Directors, composed of independent directors, meets
regularly with management and KPMG LLP to review their activities and to discuss the external audit process,
internal controls, accounting policies and financial reporting matters. KPMG LLP has unrestricted access to the
Company, the Audit Committee and the Board of Directors.
The Audit Committee has reviewed the financial statements and Management’s Discussion and Analysis and
recommended their approval to the Board of Directors. Based on this recommendation, the financial statements
and Management’s Discussion and Analysis have been approved by the Board of Directors.
George Mavroudis,
President and Chief Executive Officer
Donald Yi,
Chief Financial Officer
February 27, 2014
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Independent Auditors’ Report
TO THE SHAREHOLDERS OF GUARDIAN CAPITAL GROUP LIMITED
We have audited the accompanying consolidated financial statements of Guardian Capital Group Limited, which
comprise the consolidated balance sheets as at December 31, 2013 and December 31, 2012, the consolidated
statements of operations, comprehensive income, equity and cash flow for the years ended December 31,
2013 and December 31, 2012, and notes, comprising 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’ RESPONIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our 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, we consider internal control relevant to the Company’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 Company’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 consolidated
financial position of Guardian Capital Group Limited as at December 31, 2013 and December 31, 2012, and its
consolidated financial performance and its consolidated cash flow for the years ended December 31, 2013 and
December 31, 2012 in accordance with International Financial Reporting Standards.
Chartered Professional Accountants,
Licensed Public Accountants,
Toronto, Canada
February 27, 2014
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Consolidated Balance Sheets
As at December 31 ($ in thousands)
Assets
Current Assets
Cash
Interest-bearing deposits with banks
Accounts receivable and other
Receivables from clients and broker
Prepaid expenses
Securities (note 4)
Securities holdings
Securities held for sale
Other Assets
Deferred tax assets (note 11c)
Intangible assets (note 5)
Equipment (note 6)
Goodwill (note 7)
Investment in associate (note 23d)
Other
Total Assets
Liabilities
Current liabilities
Bank loans and borrowings (note 8)
Client deposits
Accounts payable and other
Income taxes payable
Payable to clients
Other liabilities
Deferred tax liabilities (note 11c)
Total Liabilities
Equity
Shareholders’ Equity
Capital stock (note 12)
Treasury stock (note 13a)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Non-Controlling Interests
Total Equity
Total Liabilities and Equity
2013
2012
$
28,446
57,285
25,986
42,215
1,577
155,509
443,754
5,425
449,179
3,757
20,611
3,674
11,111
333
886
40,372
$ 645,060
$
55,929
57,312
27,408
1,092
42,215
183,956
43,316
227,272
21,679
(18,700)
9,583
245,961
156,462
414,985
2,803
417,788
$ 645,060
$
$
$
$
26,993
3,884
23,547
36,820
1,419
92,663
353,938
26,018
379,956
3,835
19,594
2,464
11,111
333
796
38,133
510,752
52,235
3,884
21,821
818
36,820
115,578
37,424
153,002
22,113
(17,750)
8,636
231,040
109,717
353,756
3,994
357,750
510,752
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Barry J. Myers,
Director
George Mavroudis,
Director
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Consolidated Statements of Operations
For the years ended December 31 ($ in thousands, except per share amounts)
2013
2012
Revenue
Gross commission revenue
Commissions paid to advisors
Management fee income, net (note 14)
Administrative services income
Dividend and interest income (note 15)
Net revenue
Expenses
Employee compensation and benefits (note 16)
Amortization
Interest
Other expenses
Operating earnings
Net gains (note 17)
Earnings before income taxes and net gains (losses) on securities held for sale
Income tax expense (note 11a)
Net earnings before net gains (losses) on securities held for sale
Net gains (losses) on securities held for sale (note 17)
Net earnings
Net earnings before net gains (losses) on securities held for sale, available to:
Shareholders
Non-controlling interest
Net earnings before net gains (losses) on securities held for sale
Net earnings before net gains (losses) on securities held for sale,
available to shareholders per Class A and Common share (note 18):
Basic
Diluted
Net earnings available to:
Shareholders
Non-controlling interest
Net earnings
Net earnings available to shareholders per Class A and Common share (note 18):
Basic
Diluted
See accompanying notes to consolidated financial statements.
$
84,824
(61,735)
23,089
50,940
9,689
17,560
101,278
$
71,926
(53,071)
18,855
42,397
8,501
16,607
86,360
46,758
3,706
1,130
22,753
74,347
26,931
11,637
38,568
3,767
34,801
(58)
34,743
34,490
311
34,801
1.13
1.11
34,432
311
34,743
1.13
1.11
$
$
$
$
$
$
$
41,912
3,478
1,283
19,549
66,222
20,138
1,337
21,475
3,275
18,200
4,559
22,759
17,997
203
18,200
0.57
0.57
22,556
203
22,759
0.72
0.71
$
$
$
$
$
$
$
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Consolidated Statements of Comprehensive Income
For the years ended December 31 ($ in thousands)
2013
2012
Net earnings
Other comprehensive income
Available for sale securities:
Net change in fair value
Income tax provision
Transfer to net earnings of unrealized (gains) upon disposal
Reversal of income taxes
Changes in foreign currency translation adjustment on foreign subsidiary
Other comprehensive income
Comprehensive income
Comprehensive income available to:
Shareholders
Non-controlling interests
Comprehensive income
See accompanying notes to consolidated financial statements.
$
34,743
$
22,759
57,660
6,478
51,182
(10,793)
150
(10,643)
40,539
6,206
46,745
81,488
81,177
311
81,488
$
$
$
28,475
4,148
24,327
(546)
134
(412)
23,915
(1,618)
22,297
45,056
44,853
203
45,056
$
$
$
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Consolidated Statements of Equity
For the years ended December 31 ($ in thousands)
Total equity, beginning of year
Shareholders’ equity, beginning of year
Capital stock
Balance, beginning of year
Acquired and cancelled (note 12c)
Capital stock, end of year
Treasury stock
Balance, beginning of year
Acquired
Disposed
Treasury stock, end of year
Contributed surplus
Balance, beginning of year
Stock-based compensation expense
Equity-based entitlements redeemed
Contributed surplus, end of year
Retained earnings
Balance, beginning of year
Net earnings available to shareholders
Dividends declared and paid (note 12e)
Capital stock acquired and cancelled (note 12c)
Acquisition of non-controlling interests (note 25)
Other
Retained earnings, end of year
Accumulated other comprehensive income
Balance, beginning of year
Unrealized gains on available for sale securities, net of income taxes
Balance, beginning of year
Net change during year
Balance, end of year
Foreign currency translation adjustment on a self-sustaining foreign subsidiary
Balance, beginning of year
Net change during year
Balance, end of year
Accumulated other comprehensive income, end of year
Shareholders’ equity, end of year
Non-controlling interests
Balance, beginning of year
Net earnings available to non-controlling interests
Net subscriptions to mutual fund subsidiaries
De-consolidation of mutual fund subsidiaries
Acquisition of non-controlling interests (note 25)
Non-controlling interests, end of year
Total equity, end of year
See accompanying notes to consolidated financial statements.
2013
2012
$
357,750
$
327,008
353,756
322,618
22,113
(434)
21,679
(17,750)
(1,644)
694
(18,700)
8,636
1,247
(300)
9,583
231,040
34,432
(9,211)
(7,464)
(2,831)
(5)
245,961
109,717
115,072
40,539
155,611
(5,355)
6,206
851
156,462
414,985
3,994
311
–
–
(1,502)
2,803
417,788
$
22,717
(604)
22,113
(16,063)
(1,687)
–
(17,750)
7,491
1,145
–
8,636
221,053
22,556
(5,392)
(7,177)
–
–
231,040
87,420
91,157
23,915
115,072
(3,737)
(1,618)
(5,355)
109,717
353,756
4,390
203
108
(707)
–
3,994
357,750
$
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Consolidated Statements of Cash Flow
For the years ended December 31 ($ in thousands)
2013
2012
Operating activities
Net earnings
Adjustments for:
Income taxes paid
Income tax expense
Net gains
Net loss (gains) on securities held for sale
Amortization of intangible assets
Amortization of equipment
Stock-based compensation
Net change in non-cash working capital items (note 20)
Net cash from operating activities
Investing activities
Net acquisition of securities
Acquisition of securities held for sale
Proceeds from sale of securities held for sale
Acquisition of intangible assets
Proceeds from disposition of intangible assets
Acquisition of equipment
Business acquisitions (note 24)
Net cash from (used in) investing activities
Financing activities
Dividends
Acquisition of capital stock
Acquisition of treasury stock
Disposition of treasury stock
Net proceeds of bank loans and borrowings
Acquisition of non-controlling interest (note 25)
Net subscriptions from non-controlling interests in mutual fund subsidiaries
Disposition of mutual fund subsidiary
Net cash (used in) financing activities
Foreign exchange
Net effect of foreign exchange rate changes on cash balances
Net change in net cash
Net cash, beginning of year
Net cash, end of year
Net cash represented by:
Cash
Bank indebtedness
See accompanying notes to consolidated financial statements.
$
34,743
$
22,759
(3,966)
3,767
(11,637)
178
2,819
887
1,247
28,038
2,631
30,669
(371)
(9,970)
4,126
(4,378)
1,798
(2,109)
(356)
(11,260)
(9,211)
(7,898)
(1,644)
760
11,737
(4,333)
–
–
(10,589)
676
9,496
18,221
27,717
28,446
(729)
27,717
$
$
$
(2,558)
3,275
(1,337)
(4,559)
2,826
652
1,145
22,203
1,697
23,900
(6,167)
(2,640)
25,247
(2,825)
1,040
(956)
(7,388)
6,311
(5,392)
(7,781)
(1,687)
–
500
–
108
(707)
(14,959)
(41)
15,211
3,010
18,221
26,993
(8,772)
18,221
$
$
$
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Notes to Consolidated Financial Statements
1. REPORTING ENTITY
These consolidated financial statements include the accounts of Guardian Capital Group Limited and its subsidiaries (the “Company”). The Company
is incorporated under the laws of the Province of Ontario, and its principal business office is located at Suite 3100, 199 Bay Street, Toronto, Ontario.
The Company provides investment management and financial advisory services to a wide range of clients in Canada and abroad, and maintains and
manages a proprietary investment portfolio.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), which com-
prises standards and interpretations approved by either the International Accounting Standards Board (“IASB”), the IFRS Interpretations Committee
or their predecessors.
These financial statements were authorized for issuance by the Board of Directors of the Company on February 27, 2014.
(b) Basis of presentation
These consolidated financial statements have been prepared on a going concern basis and the historical cost basis, except for certain financial instru-
ments that have been measured at fair value.
These financial statements are presented in Canadian dollars, which is the Company’s functional currency. In these notes, all dollar amounts and num-
bers of shares are stated in thousands. Per share amounts and option exercise prices are stated in dollars and cents.
Certain reclassifications have been made to the 2012 comparative financial information in order to conform to the current year’s presentation.
(c) Estimates and judgments
The preparation of these consolidated financial statements necessitates the use of judgments, estimates and assumptions, which affect the reported
amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. Management believes that the significant areas
where judgment is necessarily applied are those which relate to the:
(i) Determination of when control of another entity exists;
(ii) Valuation of certain securities that do not have quoted market prices;
(iii) Assessment of goodwill and available for sale securities for impairments;
(iv) Assessment of provisions; and
(v) Measurement of share-based payments.
(d) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies
of the other entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial state-
ments from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when
necessary to align them with the policies adopted by the Company.
The Company considers several factors in determining whether it has power over another entity which it will be able to use to obtain benefits.
When voting rights are relevant in determining power over an entity, the Company considers its: existing voting rights; potential voting rights that are cur-
rently exercisable and have no substantive barriers to exercise; agreements with other vote holders; rights from other contractual arrangements; economic
interests; or a combination of the foregoing. Offsetting these factors, the Company considers matters which prevent it from the exercise of power.
When voting rights are not relevant in determining power over an entity the Company considers: evidence of its practical ability to direct the activities
of the entity for the Company’s benefit; indications of a special relationship between it and the entity; and whether it has a significant exposure to vari-
ability of returns. In evaluating these three factors, the Company gives greater weight to evidence of its ability to direct the activities of the entity.
The Company from time to time has seed capital investments in a number of funds where it controls those funds. These funds are consolidated unless
they meet the criteria set out in the accounting policy in respect of non-current assets held for sale to be categorized as being held for sale, in which
case they are classified and accounted for in accordance with that policy.
(ii) Transactions eliminated on consolidation
All inter-company transactions, balances, income and expenses between the consolidated entities are eliminated on consolidation. Non-controlling
interests in the equity of subsidiaries are shown as a component of the equity section of the consolidated balance sheet.
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(e) Joint ventures
Joint ventures are those entities over which the Company has joint control, established by contractual agreement and requiring unanimous consent for
strategic financial and operating decisions. Joint ventures are accounted for using the equity method. The investments are carried in the balance sheet
at cost as adjusted by post-acquisition changes in the Company’s share of the net assets of the joint venture.
(f) Foreign currency translation
Amounts denominated in foreign currencies included in these consolidated financial statements are translated into Canadian dollars as follows:
(i) Foreign currency denominated monetary items and non-monetary items measured at fair value are translated at the reporting date exchange
rates, and purchases and sales of securities and revenues and expenses are translated at the rates of exchange prevailing on the respective dates
of such transactions. Foreign exchange gains and losses, if any, resulting from the foregoing, are included in the statements of operations.
(ii) The accounts of certain subsidiaries of the Company are maintained in foreign currencies. Assets and liabilities have been translated into
Canadian dollars at exchange rates prevailing at the reporting date and revenues and expenses at average monthly rates. Adjustments resulting
from the exchange gains and losses on the translation of balance sheets of the Company’s foreign operations are recorded as a foreign currency
translation adjustment in the statements of comprehensive income, and the cumulative balance is included in accumulated other comprehensive
income in the shareholders’ equity section of the consolidated balance sheets.
(g) Financial instruments
The Company’s financial assets may be classified as held-for-trading (“Held for Trading”), available for sale (“Available for Sale”) or loans and receiv-
ables (“Loans & Receivables”). Financial liabilities are classified as either Held for Trading or other financial liabilities (“Other Financial Liabilities”).
(i) Measurement of financial instruments
All of the Company’s financial instruments are initially measured at fair value. Subsequent to initial recognition, financial instruments classified as
Held for Trading or Available for Sale are measured:
a. at fair value using quoted bid prices in an active market;
b. where there is no active market, but the fair value can be reliably measured, the fair value is determined using valuation techniques; or
c. otherwise, they are measured at cost.
(ii) Changes in fair value
During each reporting period, changes in the fair value of financial assets classified as Available for Sale are reflected in other comprehensive
income, and changes in fair value of financial assets classified as Held for Trading are reflected in net earnings. All other financial instruments,
which include Loans & Receivables and Other Financial Liabilities, are measured at amortized cost using the effective interest rate method.
(iii) Classification of the Company’s financial instruments
The Company’s financial instruments are classified as follows:
a.
Interest-bearing deposits with banks, accounts receivable and other, loans receivable, receivables from clients and broker and securities at
amortized cost are classified as Loans & Receivables.
b. Substantially all of the securities holdings are classified as Available for Sale.
c. Cash, equity and debt securities held by mutual funds which are consolidated, due on securities sold short by consolidated mutual funds,
securities meeting the criteria of non-current assets held for sale, and derivative contracts, if any, held directly by the Company, are classified
as Held for Trading.
d. Bank loans and borrowings, client deposits, accounts payable and other, and payable to clients are classified as Other Financial Liabilities.
(iv) Fair value hierarchy
Financial assets and liabilities measured at fair value are classified using a fair value hierarchy which reflects the significance of the inputs used in
making the fair value measurements. The fair value hierarchy is as follows:
a. Level 1 – Quoted market prices: financial instruments with quoted prices for identical instruments in active markets.
b. Level 2 – Valuation technique using observable inputs: financial instruments with quoted prices of similar instruments in active markets
or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant
inputs are observable.
c. Level 3 – Valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or
more significant inputs are unobservable.
(v) Offsetting financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset
the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
(h) Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale or deemed sale transaction, rather than
through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its
present condition. The Company must be committed to the sale which should be expected to qualify for recognition as a completed sale within one
year from the date of the classification, except for circumstances beyond management’s control. Non-current assets are classified as held for sale and
measured at the lower of their carrying value and fair value less costs to sell.
(i) Impairment of securities and other financial assets
For securities and other financial assets other than those classified as Held for Trading, an assessment is made each period by management as to whether
there is any objective evidence of impairment. Factors considered in determining whether an objective evidence of impairment exists include the length
of time and the extent of unrealized loss, the financial condition and near-term prospects of the issuer and the Company’s ability and intent to hold the
investment for a period of time sufficient to allow for any anticipated recovery. If it is determined that the security is impaired, the carrying value of the
security is written down to its fair value, and any cumulative loss amount recognized in other comprehensive income is reclassified to net income.
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For securities and other financial assets carried at amortized cost, if, in subsequent periods, the amount of the loss decreases and the decrease can be
objectively related to an event occurring after the impairment was recognized, the loss is reversed in the statement of operations. The reversal is lim-
ited to what the amortized amount of the security or financial asset would have been if no impairment loss had been recognized in a prior period.
(j) Intangible assets
Intangible assets represent new business costs (costs pertaining mainly to new advisors and branches joining the Company’s mutual fund dealer
and securities dealer subsidiaries, and account transfer costs), computer software and the Company’s rights to future revenues (substantially in the
Company’s life insurance managing general agency subsidiary). Intangible assets are carried at cost less accumulated amortization and accumulated
impairment losses. They are amortized on a straight-line basis over their estimated useful lives, as outlined below:
(i) New business costs – They are amortized over a number of years, ranging from three to ten years;
(ii) Computer software – The initial cost of the main computer processing system used by the mutual fund dealer subsidiary is amortized over ten
years, with subsequent improvements to this system being amortized over five years, and other computer software being amortized over three to
five years; and
(iii) Rights to future revenues – They are amortized over fifteen years.
Amortization methods and useful lives of the intangible assets are reviewed annually and adjusted, if appropriate. Intangible assets are derecog-
nized upon disposal or when they are fully amortized and no longer in use.
(k) Equipment
Equipment is carried at cost less accumulated amortization, and accumulated impairment losses, and is amortized over its expected useful life, as
outlined below:
(i) Computer hardware – The majority of computer hardware is amortized on a straight-line basis over three to five years;
(ii) Furniture and equipment – The majority of furniture and equipment is amortized on a diminishing balance basis at a rate of 20% per annum,
and works of art included within furniture and equipment are not amortized; and
(iii) Leasehold improvements – Leasehold improvements are amortized on a straight-line basis over the remaining terms of the leases.
Amortization rates and the useful life of equipment is reviewed annually and adjusted, if appropriate. Equipment is derecognized upon disposal or
when it no longer has any residual value.
(l) Goodwill
Goodwill represents the excess of the cost of acquisition of a consolidated entity over the fair value of the net identifiable tangible and intangible
assets of the subsidiary at the date of acquisition. Goodwill is not amortized, but is carried at cost less accumulated impairment losses. Goodwill is
allocated to the appropriate cash-generating units for the purpose of impairment testing.
(m) Impairment of non-financial assets
The Company reviews non-financial assets, including intangible assets, equipment and goodwill, annually for impairment. If the net carrying amount
of an asset which is considered impaired exceeds the estimated recoverable amount, the excess is charged to the statement of operations as an impair-
ment loss.
Management also assesses annually whether there is any indication that an impairment loss recognized in a prior period may no longer exist or
may have decreased. If such indication exists, the estimated recoverable amount is compared to the carrying amount and, if the recoverable amount
exceeds the carrying amount, the prior impairment loss is reversed, to bring the carrying amount to a maximum of the carrying amount that would
have been determined (net of amortization) had no impairment loss been recognized in a prior period.
(n) Bank loans and borrowings
(i) Bank indebtedness – Bank indebtedness is a financial liability owed on lines of credit to banks. Bank indebtedness may also consist of bank
indebtedness net of cash in bank, when the Company has a legal right of offset and intends to settle on a net basis or realize the asset and settle the
liability simultaneously.
(ii) Bank loan and bankers’ acceptances payable – Bank loan and bankers’ acceptances are financial liabilities and are initially recorded at fair value
and subsequently at amortized cost, which approximates fair value.
(o) Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an out-
flow of economic benefits will be required to settle the obligation. The amount recognized as a provision is the best estimate of the obligation at the
reporting date. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability. Future events that may affect the amount
required to settle an obligation are reflected in the amount of a provision where there is sufficient objective evidence that they will occur. Where some
or all of the expenditure is expected to be reimbursed by insurance or some other party, and it is virtually certain, the reimbursement is recognized as
a separate asset on the balance sheet, and the net amount is recorded in the statements of operations. Provisions are reviewed at each reporting date
and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic benefits will be required to settle the obliga-
tion, the provision is reversed.
(p) Treasury stock
The Company provides stock-based entitlements to certain senior employees through an Employee Profit Sharing Plan Trust (the “EPSP Trust”). The
EPSP Trust purchases shares of the Company, which are allocated to senior employees and are financed by a bank loan facility with a major chartered
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bank, which is secured by the shares held by the EPSP Trust and guaranteed by the Company. The Company consolidates the EPSP Trust in these
financial statements, and accounts for the shares owned by the EPSP Trust as treasury stock.
(q) Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.
The various types of revenues and the associated accounting policies adopted by the Company are as follows:
(i) Gross commission revenue earned and commissions paid to advisors are recorded on a trade date basis.
(ii) Management fees – The Company provides investment management and investment advisory services to clients, in consideration for manage-
ment fees, which are generally calculated based on the fair value of the assets managed, in accordance with the agreements with the clients. The
fees are earned over the time during which the assets are managed or advised on by the Company. Certain clients also pay performance fees, if
the performance of such clients’ assets under management exceeds that of certain performance benchmarks by an agreed level over a stated time
period. Such fees are recorded when the services have been provided, the amount of the fees can be reliably measured, and it is probable that the
fees will be received. Management fees are presented net of referral fees paid to third party agents.
(iii) Administrative services income – The Company earns income from certain clients and advisors, associated with the maintenance of accounts
with the Company, and the provision of general corporate, trust or other services. Such income is recognized, on an accrual basis, as the services
continue to be performed on an ongoing basis, as based on agreements with the clients or advisors. When the Company holds assets or liabilities
on a fiduciary basis in providing these services, those assets and liabilities and the income and expenses associated with them are excluded from
these consolidated financial statements.
(iv) Dividend and interest income is recorded as follows:
a. Dividends are recognized when the Company’s right to receive payment is established.
b. Interest is recorded as earned over the period of time during which the interest-paying investment is held, on an effective yield basis.
(r) Employee compensation and benefits
Wages, salaries, profit sharing, bonuses, payroll taxes and levies and paid annual leaves are accrued in the year in which the associated services are
rendered by employees and when a reliable estimate of the obligation can be made.
(s) Stock-based compensation
Stock-based compensation is accounted for under the fair value method, under which compensation cost is measured at the fair value of equity
instruments granted and is expensed over the vesting period of the equity instruments. Fair value is determined on the grant date using appropriate
valuation models, taking into account the terms and conditions upon which the equity instruments were granted.
Vesting conditions are not taken into account in the initial estimate of the fair value at the grant date. They are taken into account by adjusting the
number of equity instruments included in the measurement of the transaction, so that the amount recognized for services received as consideration
for the equity instruments granted is based on the estimated number of equity instruments that eventually vest.
Where a grant has been modified, as a minimum the expense of the original grant continues to be recognized as if it had not been modified. Where
the effect of the modification is to increase the fair value of a grant or increase the number of equity instruments, the incremental fair value of the
grant or incremental fair value of the additional equity instruments is recognized in addition to the value of the original grant, measured at the date of
the modification, over the modified vesting period.
(t) Interest expense
Interest expense comprises interest payable on borrowings recognized using the effective interest rate method.
(u) Pensions
The Company operates a defined contribution pension plan and a group registered retirement savings plan. Payments to the plans are charged as
expenses as they are incurred. The Company has no legal or constructive obligation to pay further contributions if the plans do not hold sufficient
assets to pay all employees the benefits relating to employee service in the current and prior periods.
(v) Net gains or losses
Gains or losses include any gains or losses related to changes in the fair value of Held for Trading securities, or on disposal of Available for Sale secu-
rities or other assets, and adjustments to record any impairment in value, recognized on a trade date basis.
(w) Income tax
Income tax on net earnings for the year comprises current tax and deferred tax. Income tax is recognized in the statements of operations, except to the
extent that it relates to items recognized in other comprehensive income or directly in equity, in which case it is also recognized in other comprehen-
sive income or directly in equity.
Current tax is the tax expected to be payable on the taxable net earnings for the year, calculated using tax rates enacted or substantively enacted by the
reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset when the Company intends
to settle on a net basis and the legal right of offset exists.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the balance sheet and the amount attrib-
uted to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred
tax assets are recognized to the extent that it is probable that future taxable profits will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated using the tax rates expected to apply in the periods in which assets will be realized or the liabilities settled.
Deferred tax assets and liabilities are offset when they arise in the same tax reporting entities, relate to income taxes levied by the same taxation
authority and a legal right to set off exists.
32
Guardian Capital Group Limited
(x) Earnings per share
The calculation of basic earnings per share is based on the weighted average of Class A and common shares outstanding during the year and on earn-
ings available to the holders of the Class A and common shares. Diluted earnings per share are calculated by adjusting for the effect of outstanding
dilutive instruments, such as stock options or stock-based entitlements, using the treasury stock method.
(y) Related parties
For the purposes of these financial statements, a party is considered related to the Company if such party or the Company has the ability to, directly or
indirectly, control or exercise significant influence over the other entity’s financial and operating decisions, or if the Company and such party are subject to
common significant influence. Related parties may be individuals or other entities. All material transactions with related parties are recorded at fair value.
3. CHANGES IN ACCOUNTING POLICIES
A number of new standards, and amendments to existing standards, have been issued by IASB, which are effective for the Company’s consolidated
financial statements either in the current year or in certain future periods. The following is a description of these new standards and amendments, with
indications of how they may affect the Company’s consolidated financial statements.
(a) Current changes in accounting policies
Fair Value Measurements
IFRS 13, Fair Value Measurements, (“IFRS 13”) as issued by IASB, establishes a framework for measuring fair value, sets out related disclosure
requirements when fair value measurement is required or permitted under other standards, and replaces the requirements which had been previously
contained in several other standards. IFRS 13 is effective for annual periods beginning on or after January 1, 2013. The Company has incorporated the
measurement and disclosure requirements of IFRS 13 in these consolidated financial statements. The measurement requirements of IFRS 13 did not
have a significant effect on these consolidated financial statements.
(b) Future changes in accounting policies
Financial instruments
The IASB has issued several installments of IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9 is to replace IAS 39, Financial Instruments: Recognition
and Measurement (“IAS 39”) with an improved standard for financial instruments that is principle-based and less complex.
The main changes to the requirements of IAS 39 that may have an effect on the Company’s consolidated financial statements are as follows:
•
•
•
All financial assets that are currently within the scope of IAS 39 will be classified as either amortized cost or fair value. The Available for Sale and
Loans & Receivables categories will no longer exist.
The above classification will be based on an entity’s business model for managing the financial assets and the contractual cash flow character-
istics of the financial assets. Reclassifications between amortized cost and fair value will be prohibited, unless there is a change in the entity’s
business model.
Changes in the fair value of financial assets classified at fair value are recorded in net earnings, except that an entity may choose to designate
certain equity securities at fair value to be recorded in other comprehensive income. If this option is chosen, all subsequent changes in those
securities must be recorded in other comprehensive income, and no transfer to net earnings of gains or losses on disposal will be permitted.
The issued installments of IFRS 9 do not currently have a mandatory effective date. When the entire IFRS 9 project is closer to completion, the IASB
will decide on a mandatory effective which will allow entities sufficient time to prepare to apply the new standard. The Company continues to evaluate
the impact of IFRS 9 on its consolidated financial statements, particularly with regard to the recording of its securities.
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4. SECURITIES
An analysis of the Company’s securities is as follows:
As at December 31
Securities holdings
Available for sale securities
Short-term securities (a)
Bonds
Mutual funds
Bank of Montreal common shares
Other equity securities
Real estate funds (b)
Held for trading securities
Equity securities (c)
Total securities holdings
Securities held for sale (d)
Total securities (e)
2013
2012
$
1,850
1,030
34,441
339,754
52,931
12,492
442,498
1,256
443,754
5,425
449,179
$
2,187
2,007
8,729
301,626
38,037
352
352,938
1,000
353,938
26,018
379,956
(a) Short-term securities shown above include securities of non-controlled mutual funds that hold short-term securities, as well as directly held short-
term securities that are continually reinvested by the Company and therefore are included in securities holdings.
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(b) During the year, the Company made a commitment to invest $25,000 in real estate, through a real estate limited partnership managed by a subsid-
iary of the Company. As at December 31, 2013, the Company had invested $12,136.
(c) Held for trading equity securities consist of securities held by consolidated mutual funds which meet the criteria for this classification. Changes in
fair value are included in net gains.
(d) Certain of the securities of mutual funds, which were previously deemed to be controlled by the Company, had been classified as securities held
for sale. During the year, the Company reassessed its investment in these securities and concluded that it no longer controls certain of these mutual
funds. As a result, these securities have been reclassified from securities held for sale to securities holdings.
(e) The Company’s securities have been categorized based upon a fair value hierarchy, as follows:
As at December 31
Level 1
Level 2
Level 3
Total securities
During 2013 and 2012, there have been no transfers of securities between Levels.
An analysis of the movement in Level 3 securities is as follows:
For the years ended December 31
Level 3 securities, beginning of year
Additions
Increase in estimated fair value, recognized in other comprehensive income
2013
$
$
431,133
12,136
5,910
449,179
$
2013
4,091
–
1,819
$
$
$
2012
375,865
–
4,091
379,956
2012
3,377
30
684
Level 3 securities, end of year
$
5,910
$
4,091
The valuation methods the Company uses and the factors incorporated into those methods are the same methods and factors that market participants
would use in valuing the various securities. The Company reviews and updates the methods and factors for new information on at least an annual basis.
5. INTANGIBLE ASSETS
For the years ended December 31
2013
2012
New
business
costs
Computer
software
Rights to
future
revenue
New
business
costs
Computer
software
Rights to
future
revenue
Total
Cost:
Balance, beginning of year
Purchases
Arising on acquisition (note 24)
Disposals
Foreign exchange translation adjustments
Balance, end of year
$
$ 8,064
1,740
863
(158)
40
10,549
Accumulated amortization:
Balance, beginning of year
Amortization expense
Disposals
Foreign exchange translation adjustments
Balance, end of year
6,323
1,068
(10)
2
7,383
3,351
304
–
–
4
3,659
1,899
470
–
4
2,373
$ 20,000
2,334
–
(1,540)
–
20,794
$ 31,415
4,378
863
(1,698)
44
35,002
$ 7,533
531
–
–
–
8,064
$ 2,865
487
–
–
(1)
3,351
$ 13,978
1,807
5,150
(935)
–
20,000
Total
$ 24,376
2,825
5,150
(935)
(1)
31,415
3,599
1,281
(245)
–
4,635
11,821
2,819
(255)
6
14,391
4,904
1,419
–
–
6,323
1,479
421
–
(1)
1,899
2,696
986
(83)
–
3,599
9,079
2,826
(83)
(1)
11,821
Carrying value, end of year
$ 3,166
$ 1,286
$ 16,159
$ 20,611
$
1,741
$
1,452
$ 16,401
$ 19,594
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6. EQUIPMENT
For the years ended December 31
Cost:
Balance, beginning of year
Purchases
Arising on acquisition of subsidiaries (note 24)
Disposals
Foreign exchange translation adjustments
Balance, end of year
Accumulated amortization:
Balance, beginning of year
Amortization expense
Disposals
Foreign exchange translation adjustments
Balance, end of year
2013
2012
Office
equipment
Leasehold
improvements
Total
Office
equipment
Leasehold
improvements
Total
$
$ 5,847
548
–
(143)
57
6,309
3,754
712
(117)
26
4,375
1,827
1,561
–
(310)
5
3,083
1,456
175
(293)
5
1,343
$ 7,647
2,109
–
(453)
62
9,392
$ 4,968
795
102
–
(18)
5,847
$ 1,668
161
–
–
(2)
1,827
5,210
887
(410)
31
5,718
3,353
409
–
(8)
3,754
1,215
243
–
(2)
1,456
$ 6,636
956
102
–
(20)
7,674
4,568
652
–
(10)
5,210
Carrying value, end of year
$
1,934
$ 1,740
$ 3,674
$ 2,093
$
371
$ 2,464
7. GOODWILL
For the years ended December 31
Balance, beginning and end of year
2013
2012
$
11,111
$
11,111
Goodwill acquired in a business acquisition is allocated to the cash generating units (“CGUs”) that are expected to benefit from that business acquisi-
tion. The carrying amount of goodwill has been allocated to the relevant CGUs as follows:
As at December 31
Financial advisory:
Mutual fund distributor
Life insurance managing general agency
Total goodwill
2013
4,227
6,884
11,111
$
$
2012
4,227
6,884
11,111
$
$
Goodwill is not amortized, but is subject to annual impairment testing, as described below.
Impairment tests were performed upon the goodwill associated with each CGU in both 2013 and 2012, in each year based upon each of the CGU’s esti-
mated fair value, less estimated cost to sell. Management used a multi-factor model to determine fair value, with the principal assumptions being values
assigned as multiples of key business analytics pertaining to each CGU. Management considers that the key business analytics are client assets under
administration in both CGUs and annual net service fees and net first year commissions in the Life insurance managing general agency CGU. It is man-
agement’s opinion that estimating fair value based on these analytics is in accordance with established industry practice, and that the multiples used are
consistent with market transactions. Based on the results of this testing, there were no indications that the goodwill was impaired in 2013 or 2012.
The most sensitive assumptions used in the above testing were:
As at December 31
Mutual fund distributor:
Multiple of assets under administration
Life insurance managing general agency:
Multiple of annual net service fee revenue
2013
2012
1.00%
6
1.25%
6
The following table shows for each CGU the amount by which the fair value less the estimated costs to sell referred to above exceeds its carrying value.
As at December 31
Mutual fund distributor
Life insurance managing general agency
2013
63,445
23,727
$
2012
$
69,849
10,688
The fair value estimated above would be considered to be Level 3 under the fair value hierachy as defined in accounting policy note 2 (g)(iv).
Management believes that a reasonable possible change in key assumptions would not cause the carrying value in either CGUs to exceed its estimated fair value.
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8. BANK LOANS AND BORROWINGS
As at December 31
Bank indebtedness (a)
Bankers’ acceptances payable (b)
Bank loan (b)
Total bank loans and borrowings
2013
729
55,100
100
55,929
$
$
2012
8,772
28,500
14,963
52,235
$
$
(a) Bank indebtedness
Bank indebtedness consists of overdraft borrowing under a line of credit from a major Canadian chartered bank, which is available to a maximum of
$11,000 (2012 - $11,000), due on demand, secured by a General Security Agreement and securities valued at $56,624 (2012 - $48,648), and bearing
interest at the bank prime rate plus 0.25%.
(b) Bank loan and bankers’ acceptances payable
Under written loan agreements, the Company has $70,000 (2012 - $70,000) in lending facilities from a major Canadian chartered bank. Borrowings
under these facilities may be in the form of either demand loans bearing a rate of bank prime (2012 – bank prime) or bankers’ acceptances for periods
ranging from 30 to 270 days, at rates negotiated in the bankers’ acceptance market plus 0.50% (2012 – 0.50%). These facilities are secured by the
deposit of treasury stock held by the EPSP Trust valued at $33,043 at December 31, 2013 (2012 - $22,113), and other securities valued at $90,174 at
December 31, 2013 (2012 - $77,536).
9. PROVISIONS
From time to time in connection with its operations, the Company is named as a defendant in actions for damages and costs allegedly sustained by
the plaintiffs. While it is often not possible to estimate the outcome of the various proceedings at any time, the Company has made provisions, where
possible, for the estimated outcome of such proceedings. As at December 31, 2013 and 2012, there were no material provisions recorded. Should any
additional loss result from the resolution of such claims, such loss will be accounted for as a charge to income in the year in which it is identified.
10. OPERATING LEASES
The Company has non-cancellable operating leases for premises and equipment with initial terms in excess of one year and which expire on various dates after
year end. Future minimum payments required under these non-cancellable operating leases are as follows:
As at December 31
Payable within one year
Payable after one year and within five years
Payable after five years
Total lease obligations
2013
1,683
6,897
9,447
18,027
$
$
2012
1,897
5,688
9,060
16,645
$
$
During the year ended December 31, 2013, the Company recognized $2,043 (2012 - $1,597) of base rental costs in respect of these non-cancellable leases.
11. INCOME TAXES
(a) The components of the income tax expense are as follows:
For the years ended December 31
Current tax expense
Tax on profits for the current year
Adjustments in respect of prior periods
Deferred tax expense
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Change in future periods’ income tax rates
Income tax expense
2013
4,190
(28)
4,162
(370)
(27)
2
(395)
3,767
$
$
2012
2,599
15
2,614
(454)
28
1,087
661
3,275
$
$
(b) The income tax expense in the consolidated statements of operations is less than the combined Federal and Provincial statutory income tax rates of
26.5% (2012 – 26.50%) of the current year for the following reasons:
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For the years ended December 31
Tax at the combined Federal and Provincial statutory income tax rate for the current year
Increase (decrease) in the expense due to:
Tax exempt income from securities
Lower average tax rate applicable to foreign subsidiaries
Adjustments to deferred tax assets and liabilities for changes in temporary differences
Non-taxable portion of capital gains
Non-deductible expenses
Change in future periods’ income tax rates
Other
Income tax expense
2013
2012
$
10,221
$
5,691
(3,880)
(1,313)
2
(1,271)
254
–
(246)
3,767
$
(3,699)
(250)
(2)
(83)
387
1,087
144
3,275
$
The combined statutory income tax rate is the aggregate of the Federal income tax rate of 15.0% (2012 – 15.0%) and the Provincial income tax rate of
11.5% (2012 – 11.5%). During 2012, the province of Ontario enacted legislation which reversed previously enacted rate reductions and set the income
tax rate applicable to future periods at 11.5%.
(c) Deferred tax assets and liabilities are recognized as follows:
For the year ended December 31, 2013
Securities
Bank of
Montreal
shares
Capital
loss
carryforwards
Non-capital
loss
carryforwards
Equipment
and
intangibles
Other
temporary
differences
Other
Total
Deferred tax assets
Balance at beginning of year
Recognized in net earnings
Balance at end of year
Deferred tax liabilities
Balance at beginning of year
Recognized in net earnings
Recognized in other comprehensive income
Balance at end of year
$
$
–
–
–
$
36,371
–
6,298
$ 42,669
$
$
$
$
–
–
–
187
(50)
30
167
$
$
$
$
–
–
–
$ 2,968
92
$ 3,060
$
$
491
16
507
$
$
376
(186)
190
$
$
3,835
(78)
3,757
(227)
9
–
(218)
$
$
(13)
–
–
(13)
$ 2,130
(208)
–
1,922
$
$ (1,024)
(187)
–
(1,211)
$
$ 37,424
(436)
6,328
$ 43,316
For the year ended December 31, 2012
Securities
Bank of
Montreal
shares
Capital
loss
carryforwards
Non-capital
loss
carryforwards
Equipment
and
intangibles
Other
temporary
differences
Other
Total
Deferred tax assets
Balance at beginning of year
Recognized in net earnings
Balance at end of year
Deferred tax liabilities
Balance at beginning of year
Recognized in net earnings
Recognized in other comprehensive income
Balance at end of year
$
$
$
$
–
–
–
31,224
1,220
3,927
36,371
$
$
$
$
–
–
–
30
70
87
187
$
$
$
$
–
–
–
$ 2,559
409
$ 2,968
$
$
597
(106)
491
$
$
324
52
376
$ 3,480
355
3,835
$
(156)
(71)
–
(227)
$
$
–
(13)
–
(13)
$ 2,199
(69)
–
$ 2,130
$
(903)
(121)
–
$ (1,024)
$ 32,394
1,016
4,014
$ 37,424
(d) Analysis of tax recognized on securities held for sale:
For the years ended December 31
Net gains (losses) on securities held for sale before tax
Current tax expense
Deferred tax expense
Net gains (losses) on securities held for sale after tax
2013
28
49
37
(58)
2012
4,559
–
–
4,559
$
$
$
$
The difference between the Company’s statutory income tax rate and the effective tax rate on securities held for sale in the current year is due to the
combination of the non-taxable portion of net gains and the lower average tax rate applicable to foreign subsidiaries and in the prior year entirely due
to the lower average tax rate applicable to foreign subsidiaries.
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e) The aggregate amount of temporary differences between costs for accounting purposes and costs for income tax purposes because of earnings
accumulated in certain subsidiaries is $105,204 (2012 - $84,370), which amount may be subject to income tax if such subsidiaries are disposed of or
the earnings are otherwise distributed. Deferred tax has not been provided on these temporary differences, as the Company does not intend to dispose
of such subsidiaries or distribute such earnings.
12. CAPITAL STOCK
(a) Authorized
i) Unlimited preferred shares, without par value, may be issued in an unlimited number of series, the designation, rights, privileges, conditions and
other provisions of which are to be determined by the Board of Directors.
ii) Unlimited Class A non-voting shares without par value, convertible into common shares on a one-for-one basis, under certain terms and conditions,
the highlights of which are as follows: if any person other than an insider of the Company acquires ownership, control or direction over in excess of 50%
of the common shares, or makes an offer to all common shareholders to buy common shares, the Class A shares may be converted into common shares,
unless holders of over 50% of the outstanding common shares do not accept the offer, or an equivalent offer is made to the holders of Class A shares.
iii) Unlimited common shares, without par value, convertible on a one-for-one basis into Class A non-voting shares.
(b) Issued and Outstanding
For the years ended December 31
i) Class A shares
Outstanding, beginning of year
Acquired and cancelled
Converted from Common
Outstanding, end of year
ii) Common shares
Outstanding, beginning of year
Converted from Common
Outstanding, end of year
Total outstanding, end of year
(c) Issuer Bid
A summary of the Company’s activity under its Normal Course Issuer Bid is as follows:
For the years ended December 31
Class A shares purchased and cancelled
Consideration paid
Average issue price, charged to share capital
Excess consideration charged to retained earnings
2013
2012
Shares
Amount
Shares
Amount
28,072
(574)
36
27,534
$ 20,913
(434)
8
20,487
28,872
(800)
–
28,072
$ 21,517
(604)
–
20,913
4,971
(36)
4,935
1,200
(8)
1,192
4,971
–
4,971
1,200
–
1,200
32,469
$ 21,679
33,043
$ 22,113
2013
574
7,898
434
7,464
$
$
2012
800
7,781
604
7,177
$
$
(d) Stock Option Plan
The Company maintains a Stock Option Plan for designated officers, directors and employees. Each stock option entitles the holder to purchase one
class A share, subject to certain predetermined vesting arrangements and other conditions. A summary of the changes in the Company’s outstanding
stock options is as follows:
For the years ended December 31
Outstanding, beginning of year
Expired
Outstanding, end of year
2013
Weighted
average
exercise
price
2012
Weighted
average
exercise
price
Number of
options
Number of
options
–
–
–
$
$
–
–
–
36
(36)
–
$
$
10.50
10.50
–
38
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(e) Dividends
During the year, dividends of $0.30 per share (2012 - $0.17 per share) were declared and paid on the common and class A shares outstanding. The
Company also declared dividends of $0.055 per share payable on January 17, 2014 on the common and class A shares outstanding. This dividend,
which will be recognized on the record date, has not been reflected in these financial statements.
13. TREASURY STOCK
The Company purchases and holds shares in its capital stock through the EPSP Trust, which are accounted for as treasury stock. These shares are
deposited as collateral against a bank loan, which is used to finance the purchase of the shares.
(a) A summary of the changes in the Company’s treasury stock is as follows:
For the years ended December 31
Balance, beginning of year
Acquired
Disposed
Balance, end of year
2013
2012
Shares
Amount
Shares
Amount
2,126
121
(111)
2,136
$ 17,750
1,644
(694)
$ 18,700
1,954
172
–
2,126
$ 16,063
1,687
–
$ 17,750
During the year the Company disposed of 81 (2012 – nil) of its class A shares and 30 (2012 – nil) of its common shares, for net proceeds of $760 (2012 - nil).
The shares disposed of had a total cost of $694 (2012 – nil), and the excess has been credited to retained earnings.
As at December 31, 2013, the treasury stock was composed of 63 common shares (2012 – 63) and 2,073 class A shares (2012 – 2,063 shares).
(b) EPSP Trust – Stock-based entitlements
The stock-based entitlements provided by the Company to certain employees through the EPSP Trust are in the form of either an option-like entitle-
ment or an equity-based entitlement, as described below.
i) Option-like entitlements
The option-like entitlements allow the employees to purchase shares from the EPSP Trust at prices equal to the amount of the bank loan per share
pertaining to those shares, subject to predetermined vesting arrangements and other conditions. Due to the nature of these entitlements and the con-
ditions attached to them, the contractual life of the entitlement is indeterminable.
A summary of the changes in the option-like entitlements is as follows:
For the years ended December 31
2013
2012
Option-like entitlements, beginning of year
Entitlements provided
Entitlements exercised
Option-like entitlements, end of year
Weighted
average
exercise
price
$
$
8.86
–
6.50
8.95
Number of
shares
1,402
150
–
1,552
Weighted
average
exercise
price
$
$
8.76
9.78
–
8.86
Number of
shares
1,552
–
55
1,497
As at December 31, 2013, there were outstanding option-like entitlements for 33 common shares (2012 – 63) and 1,464 class A shares (2012 – 1,489).
Option-like entitlements provided during 2012 had a fair value of $420. Because these entitlements have option-like characteristics, they are accounted
for as options and valued using the Black-Scholes option pricing model. The value of the entitlements provided is recorded as compensation cost over
the vesting period of the entitlements, and is credited to contributed surplus. On exercise of an entitlement, treasury stock is reduced for the value of the
entitlement exercised. The following are the key assumptions used in the valuation of the entitlements granted during the year:
For the year ended December 31
Average purchase price per share
Vesting period in years
Average expected term to exercise in years
Risk-free interest rate
Expected price volatility
Expected dividends per share, per annum
2012
9.78
5.00
10.00
2.45%
23.17%
0.17
$
$
2013 Annual Report
39
The following table summarizes information about option-like entitlements outstanding.
As at December 31, 2013
$5.01 - $7.50
$7.51 - $10.00
$10.01 - $12.50
As at December 31, 2012
$2.51 - $5.00
$5.01 - $7.50
$7.51 - $10.00
$10.01 - $12.50
Weighted
average
exercise
Number of
price shares vested
Weighted
average
exercise
price
Number of
shares
355
878
264
1,497
20
355
913
264
1,552
$
$
$
$
6.15
9.35
11.36
8.95
2.62
6.15
9.33
11.36
8.86
344
471
265
1,080
20
339
363
246
968
$
$
$
$
6.17
9.10
11.36
8.72
2.62
6.18
8.92
11.31
8.43
ii) Equity-based entitlements
Equity-based entitlements allow the employees to purchase shares from the EPSP Trust at zero cost, subject to predetermined vesting arrangements and
other conditions. When such purchases by employees occur, the Company pays to the EPSP Trust the amount of the bank loan attributable to the shares
purchased. Due to the nature of these entitlements and the conditions attached to them, the contractual life of the entitlement is indeterminable.
A summary of the changes in the number of shares under equity-based entitlements is as follows:
For the years ended December 31
Equity-based entitlements, beginning of year
Entitlements provided
Entitlements exercised
Entitlements forfeited
Equity-based entitlements, end of year
2013
574
121
(47)
(9)
639
2012
552
22
–
–
574
Equity-based entitlements are valued at the fair market value of the shares purchased by the EPSP Trust on the date of the provision of the entitlement.
This value is recorded by the Company as compensation cost over the vesting period, and is credited to contributed surplus. On exercise of an entitle-
ment, treasury stock and contributed surplus are reduced for the value of the entitlement exercised.
Equity-based entitlements provided during the year ended December 31, 2013 had a fair value of $1,644 (2012 - $220).
14. MANAGEMENT FEE INCOME, NET
Management fee income is presented net of referral fees which are paid to referring agents, amounting to $2,549 for the year ended December 31, 2013 (2012 - $2,078).
15. DIVIDEND AND INTEREST INCOME
Dividend and interest income is composed of the following:
For the years ended December 31
Dividend income
Interest income
Total dividend and interest income
16. EMPLOYEE COMPENSATION AND BENEFITS
Employee compensation and benefits are composed of the following:
For the years ended December 31
Salaries and other compensation, payroll taxes and benefits
Contributions to defined contribution pensions plans
Stock-based compensation
2013
16,720
840
17,560
2013
44,937
574
1,247
46,758
$
$
$
$
2012
15,292
1,315
16,607
2012
40,257
510
1,145
41,912
$
$
$
$
Guardian Capital Group Limited
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17. NET GAINS
Net gains are composed of the following:
For the years ended December 31
Held for trading securities (a)
Foreign exchange (b)
Available for sale securities (c)
Securities at amortized cost (d)
Net gains on securities
Gains on disposition of equipment and intangible assets
Net gains
2013
137
(751)
11,939
–
11,325
312
11,637
$
$
2012
(196)
33
348
963
1,148
189
1,337
$
$
(a) Net gains (losses) on held for trading securities include net gains or losses on securities both owned by consolidated mutual funds.
(b) Net losses on foreign exchange in the current year mainly relates to exchange losses on Canadian dollars held by the international banking subsid-
iary which uses US dollars as its functional currency. On translation of this subsidiary results to Canadian dollars for the purpose of consolidating it to
the Company’s results an equal and offsetting gain is recorded in other comprehensive income.
(c) Included in net gains on available for sale securities are gains of $5,049 from the sale of 160 shares of Bank of Montreal. A tax expense of $188 was
recorded in income tax expenses in the Consolidated statements of operations.
(d) During 2012, the issuer of the promissory notes recorded at amortized cost exercised its option and repaid the full face value of the notes, which
resulted in the recognition of a gain.
Net gains (losses) on securities held for sale are composed of the following:
For the years ended December 31
Net increase (decrease) in fair value
Other income
Income tax expense
Net gains (losses) on securities held for sale
2013
(178)
206
86
(58)
2012
4,559
–
–
4,559
$
$
$
$
Net gains (losses) on securities held for sale include the net change in fair value of those securities, income and expenses from the mutual funds held in this category.
18. NET EARNINGS PER SHARE
The calculations of net earnings per share are based on the following number of shares and net earnings.
For the years ended December 31
Weighted average number of class A and common shares outstanding
Basic
Effect of outstanding entitlements and options from stock based compensation plans
Diluted
Net earnings available to shareholders of class A and common shares
Basic
Effect of outstanding entitlements and options from stock based compensation plans
Diluted
2013
2012
30,532
1,050
31,582
31,496
713
32,209
$
$
34,432
494
34,926
$
$
22,556
317
22,873
The effects of 1,111 (2012 -1,388) entitlements and options from the Company’s stock-based compensation arrangements were excluded from the calcu-
lation of the diluted number of shares as those entitlements and options were anti-dilutive.
19. BUSINESS SEGMENTS
The Company operates in the following three main business segments: a) the investment management segment, which involves the earning of
management fees relating to investment management services provided to clients; b) the financial advisory segment which relates to the earning of
sales commissions and administrative services revenue from assets under administration; and c) the corporate activities and investments segment,
which relates substantially to the investment of the Company’s securities holdings, as well as corporate management and development activities. The
allocation of costs to individual business segments is undertaken to provide management information on the cost of providing services and a tool to
manage and control expenditures. The Company’s business segments do not have any material intra-segment revenues. The following table discloses
certain information about these segments:
2013 Annual Report
41
For the years end December 31
2013
2012
2013
2012
2013
2012
2013
2012
Investment
Management
Financial
Advisory
Corporate
Activities and
Investments
Consolidated
N
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S
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O
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A
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T
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Revenue
Gross commission revenue
Commissions paid to advisors
Management fee income, net
Administrative services income
Dividend and interest income
Net revenue
Expenses
Employee compensation and benefits
Amortization
Interest
Other expenses
Operating earnings
Net gains
Earnings before income taxes and net gains (losses)
on securities held for sale
Income tax expense
Net gains (losses) on securities held for sale
Net earnings (loss)
Net earnings available to:
Shareholders
Non-controlling interests
Capital expenditures on segment assets:
Intangible assets
Equipment
As at December 31
Segment assets and liabilities:
Assets
Liabilities
$
– $
–
–
50,940
3,509
–
54,449
– $ 84,824 $ 71,926 $
–
–
42,397
3,119
154
45,670
(53,071)
18,855
–
5,382
507
24,744
(61,735)
23,089
–
6,180
715
29,984
– $
–
–
–
–
16,845
16,845
– $ 84,824 $ 71,926
(53,071)
–
18,855
–
42,397
–
8,501
–
16,607
15,946
86,360
15,946
(61,735)
23,089
50,940
9,689
17,560
101,278
25,810
213
282
14,621
40,926
13,523
–
22,975
104
281
11,900
35,260
10,410
–
13,786
2,744
163
11,575
28,268
1,716
312
12,184
2,945
74
10,429
25,632
(888)
189
7,162
749
685
(3,443)
5,153
11,692
11,325
6,753
429
928
(2,780)
5,330
10,616
1,148
46,758
3,706
1.130
22,753
74,347
26,931
11,637
41,912
3,478
1,283
19,549
66,222
20,138
1,337
13,523
3,076
10,447
–
10,410
2,416
7,994
–
$ 10,447 $ 7,994
2,028
553
1,475
–
(699)
7
(706)
–
$ 1,475 $ (706)
23,017
138
22,879
(58)
11,764
852
10,912
4,559
$ 22,821 $ 15,471
38,568
3,767
34,801
(58)
21,475
3,275
18,200
4,559
$ 34,743 $ 22,759
$ 10,447 $ 7,994
–
$ 10,447 $ 7,994
–
$ 1,164 $ (1,032) $ 22,821 $ 15,594 $ 34,432 $ 22,556
203
$ 1,475 $ (706) $ 22,821 $ 15,471 $ 34,743 $ 22,759
(123)
326
311
311
–
$
821 $
18
– $ 4,267 $ 7,688 $
8
1,970
287
174 $
121
287 $ 5,262 $ 7,975
1,067
772
2,109
$ 102,292
68,654
$ 43,538 $ 97,494 $ 85,652 $ 445,274 $ 381,562 $ 645,060 $ 510,752
153,002
102,774
25,987
77,196
49,819
55,844
227,272
The following table discloses certain information about the Company’s activities, segmented geographically
For the years end December 31
Net revenue
As at December 31
Segment non-current assets
Intangible assets
Equipment
Goodwill
Canada
2013
2012
Rest of the World
2012
2013
Consolidated
2013
2012
$ 96,007
$ 81,157
$
5,271
$ 5,203
$ 101,278
$ 86,360
$ 19,778
3,219
11,111
$ 19,593
1,995
11,111
$
833
455
–
$
1
469
–
$ 20,611
3,674
11,111
$ 19,594
2,464
11,111
42
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20. NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
For the years ended December 31
Decrease (increase) in non-cash working capital assets
Interest-bearing deposits with banks
Accounts receivable and other
Loan receivable
Receivables from clients and broker
Prepaid expenses
Increase (decrease) in non-cash working capital liabilities
Client deposits
Accounts payable and other
Payable to clients
Net change
21. FINANCIAL RISKS MANAGEMENT
2013
2012
$
$
(51,311)
(2,158)
–
(5,395)
(200)
51,344
4,956
5,395
2,631
$
$
4,027
(4,422)
6,349
(4,776)
(281)
(3,523)
(453)
4,776
1,697
The Company’s goal in managing financial risk is to evaluate the risks being taken against the benefits that are targeted to be achieved and, where
those risks are deemed acceptable, to mitigate those risks, where practicable. A discussion on the Company’s risk management practices is included
under the heading “Risk Factors” in the Management’s Discussion and Analysis, on pages 17 to 18 of the Company’s 2013 Annual Report. The follow-
ing are the more significant risks associated with financial instruments to which the Company is subject:
(a) Concentration Risk
The Company is exposed to concentration risk associated with the $339,754 (2012 - $301,626) investment in the Bank of Montreal shares, which is a
significant portion of the Company’s securities holdings. The Company monitors the investment in the Bank of Montreal shares on a continuous basis.
A change in the price of the Bank of Montreal shares by 10% would result in an unrealized gain or loss of $33,975 (2012 - $30,163) being recorded in
other comprehensive income.
(b) Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk
comprises three types of risk: price risk, currency risk, and interest rate risk.
(i) Price Risk
The Company is exposed to price risk with its securities. Unrealized changes in the values of its securities are recognized in net earnings (for held for trad-
ing securities and securities held for sale) and in other comprehensive income (for available for sale securities). This risk is managed through the use of
professional in-house portfolio management expertise, which takes a disciplined approach to investment management. The securities holdings, excluding
the Bank of Montreal shares, are also diversified by asset class and, as shown in the chart below, by geographical region. The chart also indicates the gain
or loss which would be recognized in net earnings and other comprehensive income as a result of a 10% change in the market prices:
As at December 31, 2013
Canada
United States
Rest of the World
As at December 31, 2012
Canada
United States
Rest of the World
Fair value of held for
trading securities and
securities held for sale
Unrealized gain
or loss recognized
in net earnings
from 10% market
change in region
Fair value of available for
sale securities, excluding
Bank of Montreal
shares, short-term
securities and bonds
Unrealized gain or
loss recognized in
other comprehensive
income from
10% market
change in region
$
$
$
$
6,682
–
–
6,682
5,905
4,458
16,655
27,018
±$
±$
±$
±$
668
–
–
668
590
446
1,666
2,702
$
$
$
$
28,046
11,222
60,596
99,864
4,838
3,579
38,701
47,118
±$
±$
±$
±$
2,805
1,122
6,059
9,986
484
358
3,870
4,712
(ii) Currency Risk
The Company’s main exposure to currency risk is on its investments in its foreign subsidiaries, amounting to $97,688 as at December 31, 2013 (2012 -
$82,096). Changes in the values of these investments caused by changes in the US dollar exchange rate are reflected in other comprehensive income
in the period in which the change occurs. From time to time, the foreign subsidiaries hold unhedged Canadian dollars, which can result in foreign
exchange gains or losses being recorded by the subsidiaries. Upon translation of their results on consolidation, the Company recognizes equal and
offsetting gains or losses in other comprehensive income. This is not considered to be a currency risk as there is no economic risk to the Company.
2013 Annual Report
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(iii) Interest Rate Risk
The Company is exposed to interest rate risk through its bank loans and borrowings of $55,929 (2012 - $52,235). The interest rates on these borrow-
ings are short-term and, if short-term rates increase, the Company’s interest expense would increase and net earnings would decrease. If interest rates
had been 2% higher throughout 2013, with all other variables held constant, the Company’s interest expense would have increased by approximately
$1,082(2012 - $1,020). The Company is also exposed to interest rate risk in its international banking operation, through the assets interest-bearing
deposits with banks of $57,285 (2012 - $3,884), and the client deposits liability of $57,312 (2012 – $3,884). This risk is low, as it is managed through the
matching of interest rates and maturities on these balances.
(c) Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The
Company’s total credit risk exposure, without consideration of any collateral or other credit enhancements, is as outlined below:
As at December 31
Cash
Interest-bearing deposits with banks
Accounts receivable and other
Receivable from clients and broker
Short-term securities
Bonds
Loan guarantee
2013
28,446
57,285
25,986
42,215
1,850
1,030
–
156,812
$
$
2012
26,993
3,884
23,547
36,820
2,187
2,007
482
95,920
$
$
The Company considers its credit risk to be low. The interest-bearing deposits with banks and the majority of the accounts receivable are due from major
institutions. The Company reviews the credit worthiness of any banks with which it places deposits, and does not deal with a bank if it is not satisfied with the
bank’s financial strength. The credit exposure on receivables from clients is offset with securities, which are held in the client margin accounts of the securities
dealer subsidiary. There are controls on the amounts that these clients may borrow, depending upon the securities that are pledged. The short-term securities
and bonds are short-duration investment quality securities. Offsetting the credit exposure on the loan guarantee are marketable securities pledged by the bor-
rower, the market values of which the Company actively monitors on a continuous basis.
(d) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities, which are substantially
all due within one year. The Company manages this financial risk by maintaining a portfolio of securities, and by arranging for significant borrowing
facilities with major Canadian banks, at attractive rates.
22. CAPITAL MANAGEMENT
The Company considers the following to be its capital: capital stock, contributed surplus, retained earnings, accumulated other comprehensive income
and bankers’ acceptances payable. The Company’s objectives in managing its capital are to:
(a) maintain a strong capital base to provide investor, creditor, regulator and client confidence; and
(b) provide returns to shareholders by the payment of dividends, the repurchase of the Company’s shares, and the enhancement of long-term value.
The allocation of capital to, and the return from, the Company’s businesses are monitored by senior management. Certain of the Company’s operating
subsidiaries are subject to various types of capital requirements imposed by the regulatory authorities to which they report. During the year, and at
year end, the subsidiaries complied with those requirements. As at December 31, 2013, the Company’s regulated businesses had total regulatory capital
amounting to $106,925 (2012 - $92,461). These amounts are, in all cases, in excess of the regulatory requirements, and are adjusted by the Company
as necessary from time to time. The Company’s borrowing facility, through which bankers’ acceptances are issued, is subject to certain terms and con-
ditions. During the year, and at year end, the Company complied with those terms and conditions.
23. RELATED PARTIES
(a) Parent company
Minic Investments Limited (“Minic”) is a corporation of which A. Michael Christodoulou, a director and officer of the Company, is currently President.
Minic is owned by The Christodoulou 2004 Family Trust, a discretionary trust of which the children of the late John Christodoulou are possible ben-
eficiaries. As at December 31, 2013, Minic beneficially owned 48.2% (2012 – 48.2%) of the Company’s outstanding common shares. In 2013 and 2012,
there were no transactions between Minic and the Company.
(b) Key management personnel
Key management personnel are persons having authority and responsibility for planning, directing and controlling the activities of the Company, either
directly or indirectly. The Company has determined that its key management personnel include the Board of Directors of the Company and certain
senior executives of the Company. The following summarizes transactions with key management personnel:
44
Guardian Capital Group Limited
For the years ended December 31
Short-term employment benefits
Post-employment benefits
Stock-based compensation
$
2013
3,167
14
575
3,756
$
The Company provides investment management services to key management personnel at reduced fee rates, which are available to all employees of the
Company. The following is a summary of the fees paid for these services.
2012
2,929
14
501
3,444
2012
32
2013
$
35
$
For the years ended December 31
Investment management services
(c) The Company’s significant subsidiaries are as follows:
As at December 31
Guardian Capital LP
Guardian Capital Advisors LP
Guardian Capital Enterprises Limited
Guardian Capital Real Estate Inc.
Worldsource Wealth Management Inc.
Worldsource Financial Management Inc.
Worldsource Securities Inc.
IDC Worldsource Insurance Network Inc.(i)
Guardian Capital International Limited
Alexandria Bancorp Ltd.
Alexandria Global Investment Management Ltd.
Alexandria Trust Corporation
Guardian Capital Group Limited Employee Profit Sharing Plan (ii)
Guardian Growth & Income Fund
Guardian Strategic Income Fund (iii)
The Alexandria Fund Ltd.(iv)
Country of organization
Voting ownership interest
2013
2012
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Bermuda
Cayman Islands
Cayman Islands
Barbados
Canada
Canada
Canada
Cayman Islands
100%
100%
100%
75%
100%
100%
100%
79%
100%
100%
100%
100%
0%
97%
63%
40%
100%
100%
100%
n/a
100%
100%
100%
67%
100%
100%
100%
100%
0%
100%
n/a
40%
(i) The principal place of business for IDC Worldsource Insurance Network Inc. (“IDC WIN”), the Company’s managing general agency subsidiary, is located
at Suite 700, 625 Cochrane Drive, Markham, Ontario. The non-controlling interests have a 21% ownership and voting interest in IDC WIN.
The accumulated non-controlling interest in the Company’s accounts related to IDC WIN is as follows:
For the years ended December 31
Non-controlling interest, beginning of year
Arising on acquisition
Acquisition of non-controlling interests
Net earnings available to non-controlling interests
Non-controlling interest, end of year
The following is summarized financial information about IDC WIN before consolidation adjustments:
As at December 31
Cash
Other current assets
Intangible assets
Other non-current assets
Current liabilities
For the years ended December 31
Revenue
Net earnings
Comprehensive income
2013 Annual Report
$
$
$
$
$
$
2013
3,994
–
(1,502)
311
2,803
2013
1,623
2,775
9,590
1,726
15,714
2,559
2013
14,104
2,309
2,309
$
$
$
$
$
$
2012
3,668
–
–
326
3,994
2012
482
1,689
8,548
906
11,625
6,244
2012
11,567
1,905
1,905
N
O
T
E
S
T
O
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
45
N
O
T
E
S
T
O
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
(ii) The Company does not hold any ownership interest in Guardian Capital Group Limited Employee Profit Sharing Plan (the “EPSP Trust”). However, the
EPSP Trust is consolidated because the Company has power over the activities of the EPSP Trust, which are conducted on behalf of the Company, and the
Company remains exposed to the risks of the EPSP Trust, which are described in note 8, Bank Loans and Borrowings, and note 13, Treasury Stock.
The Company does not control Guardian Strategic Income Fund, as the Company intends to dispose of control of the fund either through a sale or deemed
sale transaction, which meets the criteria as established under its policy for Non-current assets held for sale. As at December 31, 2013, the Company’s
holdings in the fund, were valued at $5,425 (2012 – $nil) and the fund’s total net asset value was $8,645 (2012 – $nil).
The Company disposed of control of The Alexandria Fund Ltd. during the year through a deemed sale transaction. As at December 31, 2012, the Company’s
holdings in the fund, through investments in certain of its sub-funds, were valued at $26,018 and the fund’s total net asset value was $68,455.
(iii)
(iv)
(d) The Company’s significant joint venture is as follows:
As at December 31
Guardian Ethical Management Inc.
Country of organization
Canada
2013
Voting ownership interest
2012
50%
50%
Guardian Ethical Management Inc. (“GEM”) is an investment fund manager specializing in socially responsible investing mandates, which comple-
ments the Company’s existing investment management businesses. Management of GEM is shared equally with the other partner in the joint venture.
The Company accounts for its investment in GEM using the equity method. The following is summarized financial information about GEM:
As at December 31
Cash
Other current assets
Current liabilities
For the years ended December 31
Net revenue
Net earnings
Comprehensive income
$
$
$
$
2013
1,123
526
1,649
983
2013
1,819
–
–
$
$
$
$
2012
1,167
574
1,741
1,075
2012
2,140
–
–
(e) Interest in unconsolidated structured entities
The Company sponsors and manages a number of collective investment vehicles for the purpose of efficiently investing monies on behalf of the
Company’s clients, who are the primary investors in these vehicles. These collective investment vehicles, which are separate legal entities, are financed
by investments made by clients and, to a limited extent, the Company. The Company is paid for the investment management services it provides to the
vehicles either directly from the vehicles or from the investors. The following tables summarize the size of the unconsolidated collective investment
vehicles managed by the Company, and the Company’s interests in and transactions with those collective investment vehicles:
As at December 31
Net assets of unconsolidated collective investment vehicles
Company’s interests in unconsolidated investment vehicles
Securities holdings
Securities held for sale
2013
2012
$
1,578,474
$ 1,156,885
$
$
45,521
5,425
50,946
$
$
8,331
26,019
34,350
For the years ended December 31
2013
2012
Net revenues earned directly from unconsolidated collective investment vehicles
$
3,215
$
2,440
The Company’s maximum exposure to loss from its interest in these collective investment vehicles is limited to the amount of its investment.
24. ACQUISITIONS
(a) Purchase of corporate management services business (“ATC”)
On March 31, 2013, the Company, through its Barbados subsidiary Alexandria Trust Corporation “ATC”, acquired the net operating assets and client relation-
ships of a corporate management services business (the “Acquiree”) located in Barbados. This acquisition provides greater scale to ATC’s existing business
and strengthens ATC’s presence as a provider of corporate and trust management services to international clients in Barbados. The consideration paid by the
46
Guardian Capital Group Limited
Company for the acquisition was $884, consisting of a cash payment of $356 on closing, with the balance due over a period of five years. The future payments
may be reduced based on revenues earned from the client relationships acquired. The Company has determined, based on the nature of the relationships
acquired, that the maximum payment will be made.
The accounting for the consideration paid for the acquisition is as follows:
Fair value of consideration paid:
Cash on closing
Payment to be made over a period of five years after closing
Total consideration paid
Fair value of identifiable net assets acquired:
Intangible assets
Accounts receivable and other
Accounts payable and other
Net value of net assets acquired
Goodwill
$
$
356
528
884
863
29
(8)
884
Nil
Subsequent to its acquisition, the Acquiree has contributed net revenue of $310 and net earnings of $125 to the Company’s 2013 results. If the acquisi-
tion had occurred on January 1, 2013, management estimates that the Acquiree would have earned net revenue of $407 and net earnings of $160 and,
as a result, the Company’s reported net revenue and net earnings for the year ended December 31, 2013 would have been approximately $101,375 and
$34,778, respectively. In determining these amounts, management has assumed that the fair value adjustments determined above, which arose on the
date of acquisition, would have been the same if the acquisition had occurred on January 1, 2013. Management has also assumed the amortization of
intangible assets of $66 and a provision for income taxes of $nil for the year 2013.
(b) Strategic Brokerage Services LP (“SBS”)
On November 30, 2012, the Company acquired the operating net assets of the life insurance Managing General Agency (an “MGA”) business of SBS through
its MGA subsidiary, IDC Worldsource Insurance Network Inc. (“IDC WIN”). The acquisition of SBS augment IDC WIN’s existing business by providing greater
scale and strengthening its presence in Western Canada. The cash consideration paid by the Company for the acquisition is $5,261, of which $3,157 was paid on
closing and the balance was paid in 2013.
The accounting for the consideration paid for the acquisition is as follows:
N
O
T
E
S
T
O
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Fair value of consideration paid:
Cash on closing
Cash paid over a period of one year after closing
Total consideration paid
Fair value of identifiable net assets acquired:
Intangible assets, rights to future revenue
Equipment
Other
Net value of net assets acquired
Goodwill
$
$
3,157
2,104
5,261
5,150
102
9
5,261
Nil
Subsequent to its acquisition, SBS has contributed net revenue of $302 and net earnings of $87 to the Company’s 2012 results. If the acquisition had
occurred on January 1, 2012, management estimates that SBS would have earned net revenue of $2,800 and net earnings of $330 and, as a result,
the Company’s reported net revenue and net earnings for the year ended December 31, 2012 would have been approximately $87,830 and $23,089,
respectively. In determining these amounts, management has assumed that the fair value adjustments determined above, which arose on the date of
acquisition, would have been the same if the acquisition had occurred on January 1, 2012. Management has also assumed the amortization of intan-
gible assets of $340 and a provision for income taxes of $130 for the year 2012.
(c) Zephyr Management UK Ltd. (“Zephyr”)
On November 25, 2013, the Company entered into an agreement to acquire all the shares of a London, UK based emerging markets equity investment
firm, Zephyr. This transaction is expected to add approximately $110,000 US in AUM and provide a bridge into new markets. The consideration to be
paid is expected to be $1,000 US on closing, and a second payment in 4 years after closing, calculated based on the level of AUM achieved then to a
maximum of $2,750 US. The transaction is expected to close by the end of the first quarter in 2014, subject to certain terms and conditions.
25. ACQUISITION OF NON-CONTROLLING INTERESTS
On April 1, 2013, the Company purchased, for cash consideration of $4,333, a portion of the non-controlling interest in its MGA subsidiary, thereby increas-
ing the Company’s interest from 67% to 79.3%. As this transaction is between owners, this payment has been recognized in the equity accounts as follows:
Consideration paid
Carrying value of non-controlling interests
Excess consideration charged to retained earnings
$
$
4,333
1,502
2,831
2013 Annual Report
47
Directors
Principal Executives
GUARDIAN CAPITAL
GROUP LIMITED
George Mavroudis
President and
Chief Executive Officer
C. Verner Christensen
Senior Vice-President
and Secretary
A. Michael Christodoulou
Senior Vice-President,
Strategic Planning
and Development
Matthew D. Turner
Senior Vice-President
and Chief Compliance
Officer
Donald Yi
Chief Financial Officer
Leslie Lee
Vice-President,
Human Resources
Ernest B. Dunphy
Vice -President and
Controller
GUARDIAN
CAPITAL LP
George Marvoudis
Chief Executive Officer
C. Verner Christensen
Senior Vice-President
and Secretary
Robert G. Broley
Senior Vice-President,
Investment Services
Brian P. Holland
Senior Vice-President,
Client Service
Hugh M. MacFarlane
Senior Vice-President,
Investment Services
Darryl M. Workman
Vice-President,
Operations and
Administration
Matthew D. Turner
Chief Compliance Officer
Ernest B. Dunphy
Controller
Portfolio Managers:
Denis Larose
Chief Investment Officer
Gary M. Chapman
Managing Director
Kevin R. Hall
Managing Director
Robert K. Hammill
Managing Director
Peter A. Hargrove
Managing Director
Srikanth G. Iyer
Managing Director
Stephen D. Kearns
Managing Director
D. Edward Macklin
Managing Director
John G. Priestman
Managing Director
Michele J. Robitaille
Managing Director
Michael P. Weir
Managing Director
BOARD OF
DIRECTORS
James S. Anas •*
A. Michael Christodoulou
Harold W. Hillier •
George Mavroudis
Barry J. Myers •
Michel Sales •
Edward T. McDermott •
Committees
Governance
Barry J. Myers •
A. Michael Christodoulou
Michel Sales •*
Edward T. McDermott •
Compensation
James S. Anas •
Harold W. Hillier •*
Michel Sales •
Edward T. McDermott •
Audit
James S. Anas •
Harold W. Hillier •
Barry J. Myers •*
* Chairman
• Unrelated Directors
48
Guardian Capital Group Limited
GUARDIAN CAPITAL
ADVISORS LP
WORLDSOURCE WEALTH
MANAGEMENT INC.
ALEXANDRIA BANCORP
LIMITED
Robert F. Madden
General Manager
ALEXANDRIA TRUST
CORPORATION
Robert F. Madden
Director
A. Michael Christodoulou
Managing Director
Paul Brown
Managing Director
C. Verner Christensen
Vice-President
and Secretary
Simon Bowers
Vice-President,
Private Client Trading
Darryl M. Workman
Vice-President,
Operations and
Administration
John T. Hunt
Managing Director
Linda Kenny
Chief Financial Officer
Paige Wadden
Head of Compliance
Katharine Baran
Vice-President, Head
of Operations and
Technology
Matthew D. Turner
Chief Compliance Officer
Areef Samji
Controller
Ronald Madzia
President, IDC
Worldsource Insurance
Network Inc.
Ernest B. Dunphy
Controller
Private Client
Portfolio Managers:
Michael E. Barkley
Senior Vice-President
George E. Crowder
Senior Vice-President
Douglas G. Farley
Senior Vice-President
Michael G. Frisby
Senior Vice-President
J. Matthew Baker
Vice-President
Thierry Di Nallo
Vice-President
Christie F. Rose
Vice-President
Corporate Offices
Commerce Court West
Suite 3100, P.O. Box 201
Toronto, Ontario M5L 1E8
Telephone: (416) 364-8341
Fax: (416) 364-2067
Website: www.guardiancapital.com
Investor Relations
George Mavroudis
email: info@guardiancapital.com
Auditors
KPMG LLP
Bankers
Canadian Imperial Bank of Commerce
Bank of Montreal
Toronto Stock Exchange Listing
Shares
Common GCG
Class A GCG.A
Symbol
Annual Meeting
May 22, 2014
11:00 a.m.
King Gallery,
The Suites at One King West
1 King Street West
Toronto, Ontario
Custodian and Fund Administrator
RBC Investor Services Trust
Registrar and Transfer Agent
Computershare Investor Services Inc.
2013 Annual Report
49