Sprott Inc. Annual Report 2013
25MAR201420550178
26MAR201401094189
Table of Contents
Letter to Shareholders
Management's Discussion and Analysis
Management's Responsibility for Financial Reporting
Independent Auditors' Report
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
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25MAR201420550178
March 27, 2013
Dear Shareholders,
In 2013, our investment and financial performance were negatively impacted by continued weakness in the natural resource sector. Gold and silver
prices fell dramatically during the year and precious metals equities traded at depressed valuations throughout most of 2013. As a result, our Assets
Under Management (“AUM”) declined from $9.9 billion to $7.0 billion as of December 31, 2013. Our financial results for the year were also negatively
impacted by a non-cash goodwill impairment charge of $88.0 million associated with our acquisition of the Global Companies. This charge has no
impact on our ongoing business, however it had a significant impact on the Company's financial results and was the main contributor to the $81.3
million loss recorded in 2013.
After a challenging two years for Sprott, I’m pleased to report that we have had an encouraging start to 2014. Our positioning has been rewarded in
the early months of the year, as gold and silver prices have posted strong gains year-to-date. This has had a positive impact on our returns, with all
of our funds delivering positive results in the first quarter of 2014, with our precious metals-focused strategies leading the way.
Going forward, we will work to advance our dual strategy of establishing Sprott as a global leader in precious metals and resource investing, while
continuing to diversify and grow our Canadian asset management platform. We have built a platform that is capable of managing a substantial increase
in AUM and, with approximately $350 million in investable capital, we have the financial strength necessary to seed and launch new products, while
also selectively pursuing strategic acquisition opportunities.
As we seek to more efficiently leverage our platform, one of our key priorities is building our institutional client base. In 2013, we signed two significant
mandates to manage investments for institutional investors in Asia. The first was a joint venture agreement to co-manage a global mining fund with
Zijin Mining Group Company Limited, the largest gold miner in China. The second was a mandate to co-manage a 10-year US$750 million private
equity fund for South Korea's National Pension Service and the state-owned Korean Electrical Power Company, the largest electric utility in Korea.
While these two initiatives are in their early stages, we are encouraged by the headway we have made in the Asian market and will continue to pursue
opportunities to expand our activities in the region.
We are also currently working on a number of new product initiatives, including the re-launch of our private resource lending strategy in an LP format
structured for institutional investors.
In Canada, we have begun to see the results of our diversification efforts. The growth of our Enhanced Products line, managed by John Wilson,
highlights our distribution capabilities and the strength of our sales team. In less than two years, these funds have grown from zero to more than $650
million in AUM and the Sprott Enhanced Equity Class is now our largest mutual fund.
In February of 2014, we entered an agreement to acquire three new real-assets focused funds. These funds will be managed by Capital Innovations
LLC, led by Michael Underhill, a proven portfolio manager with a strong track record of managing investments for both retail and institutional
investors.
We continue to move forward with the succession and transition planning process for Eric Sprott. Earlier this month, we announced that John Wilson
has been named Chief Executive Officer of Sprott Asset Management (“SAM”), taking over from Eric who will continue in his roles as Senior
Portfolio Manager at SAM and Chairman and Chief Investment Officer of Sprott.
While it was a difficult year, our view is that the fourth quarter of 2013 marked a bottom for the resource markets and we think the worst is now
behind us. We expect a strong recovery in the resource sector and have positioned the business to benefit from it through multiple strategies and
distribution systems. Looking ahead, we believe 2014 will be a transitional year for Sprott, as we move forward with a clear vision and strategy.
On behalf of our employees and the Board of Directors, I would like to thank you for your continued support and patience as we position the business
for future performance gains. We look forward to reporting to you on our progress throughout 2014.
Sincerely,
Peter Grosskopf
Chief Executive Officer
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MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion & Analysis (“MD&A”) of financial condition and results of operations, dated March 25, 2014, presents an analysis
of the financial condition of Sprott Inc. (the “Company”) and its subsidiaries as of December 31, 2013 compared with December 31, 2012, and
results of operations for the year ended December 31, 2013, compared with the year ended December 31, 2012. The Board of Directors approved
this MD&A on March 25, 2014. All note references in this MD&A are to the notes to the Company's 2013 audited consolidated financial statements,
unless otherwise noted.
The Company was incorporated under the Business Corporations Act (Ontario) on February 13, 2008.
FORWARD LOOKING STATEMENTS
This MD&A and, in particular, the “Outlook” section contains certain forward-looking information and statements (collectively referred to herein
as “Forward-Looking Statements”) within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", “continue”,
“estimate”, “may”, “will”, “project”, "should", "believe", "plans", “intends” and similar expressions are intended to identify Forward-Looking
Statements. In particular, but without limiting the forgoing, this MD&A contains Forward-Looking Statements pertaining to: (i) the Company’s
expectation that the resource sector will recover and the opportunities related thereto; (ii) the Company’s strategy as detailed in the “Outlook” section;
(iii) continued positive sales momentum for the Company’s Canadian investment funds; (iv) the Company building on the improved investment
performance in many of its funds; (v) expectations relating to the Company’s lending business; (vi) expectations relating to the redeployment of
capital from maturing loans; (vii) the anticipated structure of loans provided by Sprott Resource Lending Corp.; (viii) expectations related to product
and business line expansion; (ix) expectations related to recoverable amounts of both fund management contracts and carried interests; (x) the
declaration, payment and designation of dividends; (xi) expectations relating to liquidity and capital resources; and (xii) expectations with respect to
the recovery of legal costs.
Forward-Looking Statements are based on a number of expectations or assumptions, which have been used to develop such information and statements
but which may prove to be incorrect, including, but not limited to: (i) future exchange rates will remain consistent with the current environment; (ii)
the price of precious metals will increase; (iii) the resource sector will recover; (iv) the impact of increasing competition in each business in which the
Company operates will not be material; (v) quality management will be available; (vi) the effects of regulation and tax laws of governmental agencies
will be consistent with the current environment; and those assumptions disclosed herein under the heading “Critical Accounting Judgments and
Estimates”. Although the Company believes the expectations and assumptions reflected in such Forward-Looking Statements are reasonable, undue
reliance should not be placed on Forward-Looking Statements because the Company can give no assurance that such expectations and assumptions
will prove to be correct. The Forward-Looking Statements included in this MD&A are not guarantees of future performance and should not be
unduly relied upon. Such information and statements, including the assumptions made in respect thereof, involve known and unknown risks,
uncertainties and other factors, which may cause actual results or events to differ materially from those anticipated in such Forward-Looking Statements,
including, without limitation, (i) difficult market conditions; (ii) changes in the investment management industry; (iii) risks related to regulatory
compliance; (iv) failure to deal appropriately with conflicts of interest; (v) failure to continue to retain and attract quality staff; (vi) competitive pressures;
(vii) corporate growth may be difficult to sustain and may place significant demands on existing administrative, operational and financial resources;
(viii) failure to execute the Company’s succession plan; (ix) litigation risk; (x) employee errors or misconduct could result in regulatory sanctions or
reputational harm; (xi) failure to implement effective information security policies, procedures and capabilities; (xii) failure to develop effective business
resiliency plans; (xiii) failure to obtain or maintain sufficient insurance coverage on favourable economic terms; (xiv) foreign exchange risk relating to
the relative value of the U.S. dollar; (xv) historical financial information is not necessarily indicative of future performance; (xvi) the market price of
common shares of the Corporation may fluctuate widely and rapidly; (xvii) those risks listed under the heading "Risk Factors" in the Company’s
annual information form dated March 27, 2014; (xviii) those risks disclosed herein under the heading “Managing Risk”; and (xix) other risks, which
are beyond the control of the Company or its subsidiaries. Should one or more of these risks or uncertainties materialize, or should assumptions
underlying the Forward-Looking Statements prove incorrect, actual results, performance or achievements could vary materially from those expressed
or implied by the Forward-Looking Statements contained in this MD&A. In addition, the payment of dividends is not guaranteed and the amount
and timing of any dividends payable by the Company will be at the discretion of the Board of Directors of the Company and will be established on
the basis of the Company’s earnings, the satisfaction of solvency tests imposed by applicable corporate law for the declaration and payment of
dividends, and other relevant factors.
The Forward-Looking Statements contained in this MD&A speak only as of the date of this MD&A, and the Company does not assume any obligation
to publicly update or revise any of the included Forward-Looking Statements, whether as a result of new information, future events or otherwise,
except as may be expressly required by applicable securities laws.
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PRESENTATION OF FINANCIAL INFORMATION
The audited consolidated financial statements for the year ended December 31, 2013, including the required comparative information, have been
prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”).
Financial results, including related historical comparatives, contained in this MD&A, unless otherwise specified herein, are based on these audited
consolidated financial statements. The Canadian dollar is our functional and reporting currency for purposes of preparing the Company's audited
consolidated financial statements, given that we conduct most of our operations in that currency. Accordingly, all dollar references in this MD&A
are in Canadian dollars, unless otherwise specified herein.
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KEY PERFORMANCE INDICATORS (NON-IFRS FINANCIAL MEASURES)
We measure the success of our business using a number of key performance indicators that are not measurements in accordance with IFRS and
should not be considered as an alternative to net income (loss) or any other measure of performance under IFRS. Non-IFRS financial measures do
not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
Our key performance indicators include:
Assets Under Management
Assets Under Management or AUM refers to the total net assets of our public mutual funds, alternative investment strategies, offshore funds and
bullion funds (the “Funds”), managed accounts (“Managed Accounts”), which include the accounts managed by Sprott Asset Management LP
(“SAM”), Resource Capital Investment Corporation ("RCIC") and Sprott Asset Management USA Inc. ("SAM US") and managed companies
(“Managed Companies”) managed by Sprott Consulting LP (“SC”), and Toscana Capital Corporation (“TCC”) and Toscana Energy Corporation
("TEC") (collectively, “Sprott Toscana”) on which management fees (“Management Fees”), performance fees (“Performance Fees”) and/or carried
interests (“Carried Interests”) are calculated. We believe that AUM is an important measure as we earn Management Fees, calculated as a percentage
of AUM, and may earn Performance Fees or Carried Interests, calculated as a percentage of: (i) our Funds', Managed Accounts' and Managed
Companies' excess performance over a relevant benchmark; (ii) the increase in net asset values of our Funds over a predetermined hurdle, if any; or
(iii) the net profit in our Funds over the performance period. We monitor the level of our AUM because they drive our level of Management Fees.
The amount of Performance Fees and Carried Interests we earn is related to both our investment performance and our AUM.
Assets Under Administration
Assets Under Administration or AUA refers to client assets held in accounts at Sprott Private Wealth LP ("SPW") or Sprott Global Resource Investments,
Ltd. ("SGRIL"). AUA is a measure used by management to assess the performance of these broker-dealer companies within the group.
Investment Performance (Market Value Appreciation (Depreciation) of Investment Portfolios)
Investment performance is a key driver of AUM. Our investment track record through varying economic conditions and market cycles has been and
will continue to be an important factor in our success. Growth in AUM resulting from positive investment performance increases the value of the
assets that we manage for our clients and we, in turn, benefit from higher fees. Alternatively, poor absolute and/or relative investment performance
will likely lead to a reduction in our AUM and, hence, our fee revenue.
Net Sales
AUM fluctuates due to a combination of investment performance and net sales (gross sales net of redemptions). Net sales, together with investment
performance determine the level of AUM which, as discussed above, is the basis on which Management Fees are charged and to which Performance
Fees or Carried Interests may be applied.
EBITDA
Our method of calculating EBITDA is defined as earnings before interest expense, income taxes, amortization of property and equipment, amortization
and impairment of intangible assets and goodwill, gains and losses on our proprietary investments and loans (as if such gains and losses had not been
incurred) and non-cash stock-based compensation. Stock-based compensation relating to the Company's Employee Profit Sharing Plan ("EPSP") is
treated as a cash expense for the purposes of calculating EBITDA. EBITDA includes Performance Fees, Performance Fee related compensation and
other Performance Fee related expenses. We believe that EBITDA is an important measure as it allows us to assess our ongoing business without
the impact of interest expense, income taxes, amortization, gains and losses on proprietary investments and non-cash compensation, and is an indicator
of our ability to pay dividends, invest in our business and continue operations. EBITDA is a measure commonly used in the industry by management,
investors and investment analysts in understanding and comparing results by factoring out the impact of different financing methods, capital structures,
the amortization of deferred sales charges and income tax rates between companies in the same industry. While other companies may not utilize the
same method of calculating EBITDA as we do, we believe it enables a better comparison of the underlying operations of comparable companies
and we believe that it is an important measure in assessing our ongoing business operations. As an indicator of cash generating ability, certain non-
cash items such as impairment charges and recoveries, are excluded in the calculation of EBITDA.
We believe that these Key Performance Indicators are important for a more meaningful presentation of our results of operations.
With the acquisition of Sprott Resource Lending Corp. ("SRLC") in the quarter ended September 30, 2013, management will be introducing another
Key Performance Indicator to measure the success of our business. Beginning in fiscal 2014, management will begin measuring the return on invested
capital, which is predominantly made up of our cash and cash equivalents, proprietary investments and loans receivable.
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OVERVIEW
The Company operates primarily through six operating businesses, SAM, SPW, SC, Sprott Toscana, SRLC and Sprott U.S. Holdings Inc., the parent
of the Global Companies which consist of SGRIL, RCIC and SAM US. The Company is primarily an independent asset management company
dedicated to achieving superior returns for our clients over the long term. Our business model is based foremost on delivering excellence in investment
management services to our clients.
On July 23, 2013, the Company completed its acquisition of SRLC which is a lender to companies in the mining and energy sectors with a concentration
on later-stage resource property developers or early stage commodity or power producers. As a result, the Company now provides lending services
in addition to its core business of asset management. It is management's intention to continue providing these services either as a part of the Company's
invested capital and/or as professional services to new AUM expected to be raised in future lending vehicles to be managed by the Company.
Management also expects to redeploy capital from maturing loans into other ventures of the Company, either for acquisitions, seeding of new products
or organic expansion. Effective July 23, 2013, the accounts of SRLC have been consolidated with those of the Company.
On July 3, 2012, the Company completed its acquisition of Sprott Toscana. Sprott Toscana is based in Calgary. TCC manages the Toscana Financial
Income Trust (“TFIT”), a private mutual fund trust, which provides mezzanine debt financing to mid-sized private and public oil and gas companies.
TEC manages Toscana Energy Income Corporation ("TEIC"; formerly Toscana Resource Corporation), a public company, which is focused on
investing in medium and long-term oil and gas assets, unitized production interests and royalties along with acting as a technical advisor to and co-
manager of the Energy Income Fund limited partnerships. Effective July 3, 2012, the accounts of Sprott Toscana have been consolidated with those
of the Company.
SAM offers discretionary portfolio management, SPW provides broker-dealer services and SC offers consulting services. SAM is registered with the
Ontario Securities Commission (“OSC”) as an investment fund manager ("IFM"), portfolio manager (“PM”) and exempt market dealer (“EMD”).
SPW is an investment dealer and a member of the Investment Industry Regulatory Organization of Canada (“IIROC”). SC and Sprott Toscana
provide active management, consulting and administrative services to other companies. Currently, SC provides these services to Sprott Resource Corp.
(“SRC”) and Sprott Toscana offers these services to TFIT and TEIC.
SGRIL is a California-based limited partnership that operates as a securities broker-dealer and is registered with the Financial Industry Regulatory
Authority (“FINRA”). SAM US is registered with the U.S. Securities and Exchange Commission and provides discretionary investment management
services. RCIC is the general partner and discretionary asset manager to the Exploration Capital Partners and Resource Income Partners families of
limited partnerships.
The majority of the Company's revenues are earned through SAM in the form of Management Fees and Performance Fees earned from the management
of the Funds and Managed Accounts; SPW earns most of its revenues via intercompany trailer fee payments from SAM (these intercompany fees
are eliminated on consolidation) and from commissions earned on new and follow-on offerings of Funds managed by SAM and through various
private placements. SC and Sprott Toscana earn the majority of their revenues through the management of Managed Companies in the form of
Management Fees and Performance Fees. RCIC earns revenue in the form of Management Fees and Carried Interests in Funds it manages; SGRIL
earns commissions and other fees from the sale and purchase of stocks by its clients, new and follow-on offerings of limited partnerships managed
by RCIC and from the sale of private placements to its clients. SAM US earns revenue in the form of Management Fees from the management of
Managed Accounts.
SRLC earns revenue in the form of interest income and other fees on its lending activities ("Interest Income") as well as realizing on the upside
potential of bonus arrangements with resource borrowers which are generally tied to the revenue or the value of the common shares of the borrower.
SPW provides the Company with a competitive advantage by providing a unique distribution channel for its Fund products and other investment
opportunities that it is able to make available to its private clients. SPW also serves as a platform to brand and grow the Company's wealth management
business. SC and Sprott Toscana enable the Company to benefit from its expertise in managing other companies, both public and private. SC in
particular also provides the Company with a competitive advantage by providing SPW and SGRIL clients access to merchant banking and private
equity-style investments.
The Company operates through several operating companies as described above. SRLC is the operating company through which the Company's
invested capital is deployed in the form of a loan portfolio, whereas, the other operating entities are focused on prudent investing and growing of
AUM or AUA of the Funds, Managed Accounts and Managed Companies that are managed for the benefit of unitholders, shareholders and partners
of those entities and the AUA of clients, ultimately for the benefit of the Company's shareholders.
The most significant factor that drives business results continues to be the performance of assets the Company manages. Absolute returns generate
growth in AUM, and hence Management Fees while absolute and/or relative returns may result in the receipt of Performance Fees and/or Carried
Interests. While there are many factors that influence sales and redemptions of our Funds and Managed Accounts such as general investor sentiment
towards certain asset classes and the global economic environment, past investment returns play an important part in an investment decision to buy,
hold or sell a particular investment product.
The Company derives revenue primarily from Management Fees earned from the management of our Funds, Managed Accounts and Managed
Companies and from Performance Fees earned from the investment of the AUM of Funds, Managed Accounts and Managed Companies. Management
Fees are calculated as a percentage of AUM. Performance Fees are calculated as a percentage of the return earned by Funds, Managed Accounts and
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Managed Companies. Carried Interests are calculated as a percentage of profits earned by monetizing events at Funds managed by RCIC. Accordingly,
growth in fees is based on both the growth in AUM and the absolute or relative return, as applicable, earned by Funds, Managed Accounts and
Managed Companies. Commission and other income is generated from the sale and purchase of stocks by SGRIL's clients, and to a lesser extent
SPW, and from the sale of private placements to their clients. As at December 31, 2013, the Company managed approximately $7.0 billion in assets
among various Funds, Managed Accounts and Managed Companies. AUA in client assets totaled to approximately $2.3 billion. Beginning in the third
quarter of 2013, the Company's lending business acquired through its acquisition of SRLC generates Interest Income from its loan portfolio. Although
expected to continue for the foreseeable future, it is anticipated that as the loan portfolio monetizes that this capital will be redeployed into other
ventures of the Company, either for acquisitions, seeding of new products or organic expansion.
Management Fees are less variable and more predictable than Performance Fees and Carried Interests. Management Fees are generally closely correlated
with changes in AUM. However, the rate of change in our Management Fees may not mirror the rate of change in our AUM, primarily a result of
two factors. First, multi-series or multi-class structures are offered in some of our Funds whereby the Management Fee differs among the applicable
series or classes. Second, equity mutual Funds have the highest rate of Management Fees, followed by Alternative Investment Strategies and Offshore
Funds. We have introduced a suite of income Funds that have lower Management Fees than equity mutual Funds, Alternative Strategies and Offshore
Funds. In addition, we have a substantial amount of our total AUM in bullion Funds that have the lowest rate of Management Fees. Fees for managing
the various Managed Accounts and Managed Companies are negotiated on a case by case basis. Therefore, the weighting of AUM among our various
Funds, Managed Accounts and Managed Companies impacts Management Fees as a percentage of AUM.
Commission income is specific to SPW and SGRIL and is generated from the trading of securities by clients and from the sale of new and follow-
on offerings of products or companies managed by SAM, RCIC or SC, and through private placements of unrelated companies to clients of SPW
and SGRIL. Commission income is recorded in the financial statements in the month in which the service is rendered.
The majority of Performance Fees are determined as of December 31 each year. However, Performance Fees are accrued in the relevant underlying
Funds, Managed Accounts and Managed Companies, as applicable, to properly reflect the Performance Fee that would be payable, if any, based on
the Net Asset Value of that Fund, Managed Account or Managed Company. Where an investor redeems an Alternative Investment Strategy or an
offshore Fund, any Performance Fee attributable to those units redeemed is paid to SAM as manager of the Funds. These Crystallized Performance
Fees, as well as the related allocation to the employee bonus pool, are accrued for in the financial statements of SAM for the appropriate month. At
SC, Performance Fees are generated from time-to-time and are usually based on monetizing events at the Managed Companies. These Performance
Fees can be significant when realized. At RCIC, Carried Interests are accrued in the Funds, as applicable, to properly reflect the Carried Interest that
would be payable, if any, based on the Net Asset Value of that Fund. The Carried Interests are usually realized towards the end of the term of the
Fund and can be significant when realized. Carried Interests are only recorded in the financial statements of RCIC when realized.
Interest Income is most applicable to SRLC and is generated from its lending activities represented by its loan portfolio. SRLC provides financing in
various forms such as: (i) term and bridge loans whereby interest payments are determined through a prescribed interest rate. These loans may also
be subject to additional fees in the form of cash and/or securities of the borrower. Terms generally range from 12 to 36 months and the loans are
typically used for production expansion, working capital, construction, acquisitions and general corporate purposes; (ii) precious metals loans, generally
follow the same terms, structure and purposes as term and bridge loans, however loan interest and/or principal payments are based on predetermined
units of measurement of a stated precious metal; and (iii) other credit facilities, including convertible debt and standby lines of credit. In most cases,
loans are secured by first or second priority charges against the underlying mineral rights and related assets of the borrower. For certain qualified
borrowers, SRLC may provide a credit facility without having direct charges on collateral. SRLC generally aims to provide loans where the loan does
not exceed 50% of the security value. Additional security such as guarantees, general security agreements and assignments of contracts or sale
agreements may also be taken. The specific nature of the security granted by each borrower is largely dependent on the value of the resource pledged
as security, its value in relation to the loan and the nature of the resource or business, the income generated by the security and the financial strength
of the borrower.
Our most significant expenses include compensation and benefits and trailer fees. With respect to compensation and benefits, employees are paid
either a base salary and/or commissions which are based on sales, trading revenues or other measurable activities. In addition, employees may be
eligible to share in a bonus pool, with the size of such discretionary bonuses being tied to both individual performance and the overall financial
performance of the Company. Beginning in 2012, a portion of the bonus pool may be paid in equity of the Company through the Company's EPSP
and Equity Incentive Plan ("EIP") (see Note 9 of the audited consolidated financial statements). Trailer fees are paid to dealers that distribute units
of a Fund. Such dealers may receive a trailer fee (annualized but paid monthly or quarterly) of up to 1% of the value of the assets held in the respective
Fund by the dealer's clients. Both the employee bonus pool component of compensation and trailer fees are correlated with Management Fees
whereas only the employee bonus pool component of compensation is correlated with Interest Income, realized Performance Fees and Carried
Interests. Changes in levels of trailer fees are generally a reflection of changes in domestic Fund sales through the advisor and dealer channel as well
as changes in Management Fees.
Other expenses incurred by our business are general and administration costs, including sales and marketing costs, occupancy, regulatory and professional
fees, expenses absorbed by SAM on behalf of certain Funds that it manages, as well as amortization.
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BUSINESS HIGHLIGHTS AND GROWTH INITIATIVES
Investment Performance
The majority of our Funds, Managed Accounts and Managed Companies experienced negative investment performance for the year. As a result, net
market depreciation of all our AUM totaled to approximately $2.4 billion. In addition, we experienced net redemptions of $0.4 billion and removed
approximately $0.2 billion of AUM relating to assets that were previously managed under a management services agreement with SRLC and instead
are now included as net assets of the Company effective July 23, 2013. Overall, AUM decreased by approximately $3.0 billion (29.9%) to $7.0 billion
at December 31, 2013 from $9.9 billion at December 31, 2012. This decrease in AUM translated into weak annual results with EBITDA falling by
$22.4 million (39.1%) to $34.9 million ($0.17 per share) from $57.3 million ($0.34 per share) in 2012.
Nonetheless, during 2013 we executed on various growth and development initiatives across the organization:
Acquisition of Sprott Resource Lending Corp.
Effective July 23, 2013, the Company acquired all of the outstanding common shares of SRLC that it did not already own. The Company acquired
SRLC because it is expected that the capital acquired will be used to seed and launch new initiatives, while enabling us to continue to grow our private
lending business through one or more new lending partnerships expected to launch this year.
As consideration, the Company paid $20.8 million cash and issued 69.0 million common shares from treasury valued at $166.2 million, excluding
costs for total consideration of $187.0 million. For accounting purposes and as a result of the Company's prior equity ownership in SRLC, the total
purchase price is approximately $198.9 million. The common shares of the Company issued as consideration were valued at $2.41 per share using
the closing price of the Company's common shares on July 23, 2013.
Product and Business Line Expansion
Significant developments with respect to the expansion of our product and business lines include:
Subsequent to year end in February 2014, the Company announced that it entered into an exclusive sub-advisory agreement with Capital Innovations,
LLC to manage Exemplar Global Infrastructure Fund, Exemplar Timber Fund and Exemplar Agriculture Fund for the Company. The Company is
currently finalizing arrangements to purchase the fund management contracts from the existing portfolio manager. Pending unit holder and regulatory
approval, the "Exemplar" name will be changed to "Sprott" and the funds will be managed by SAM with Capital Innovations as the sub-advisor to
those funds. This initiative will diversify our existing product line and improve our ability to offer Canadian investors a broad range of investment
strategies.
In December 2013, the Company announced that SC was awarded the mandate to co-manage a 10 year US$375 million private equity fund by South
Korea's National Pension Service with a matching US$375 million co-investment commitment to be provided by the state-owned Korea Electrical
Power Company. SC will co-manage the fund with Woori Asset Management, the asset manager of Korea's largest bank, Woori Financial Group. The
mandate will be to make private equity investments in the global natural resources and power sectors.
In March 2013, the Company entered into a joint venture agreement with Zijin Mining Group ("Zijin") of China, one of the largest gold and copper
producers, to set up an offshore global mining fund. The fund focuses primarily on investment opportunities in equities and debt instruments of
precious metals producers. It is co-managed by affiliates of the Company and of Zijin. In September 2013, the Company invested US$10 million in
a new institutional focused Offshore Fund pursuant to its joint venture with Zijin.
In March 2013, the Company announced that its subsidiary, RCIC raised approximately US$34 million in a new fixed-term limited partnership for
the purpose of participating in equity arrangements to both public and private companies through both secondary offerings and in the open market
with an emphasis on natural resource equities and other securities.
We continue to develop new products and investment vehicles. The addition of these products may require us to make investments in technology,
infrastructure and other resources in order to continue to be able to provide effective and efficient service to our clients and to the Funds, Managed
Accounts and Managed Companies that we manage.
OUTLOOK
While 2013 was a challenging year for the performance of many of our investment strategies, that experience has necessitated that we focus on our
investment management processes. At the same time, in the cyclical business of resource investing, we believe that we have a great opportunity for
outstanding investment performance as the resource sector recovers. The acquisition of SRLC in mid-2013 has added to our existing capital resources,
such that we now have approximately $350 million in investable capital that we can use to launch new funds or for acquisitions.
Our strategy is clear and focused to:
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Build and expand our diversified Canadian asset management platform;
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•
•
Establish ourselves as leaders in global resource investing through the expansion of existing products, the launch of new products and
through acquisitions;
Allocate capital in a prudent manner to generate returns on capital, seed new funds and finance acquisitions.
We have positive sales momentum for our Canadian investment funds and we expect that to continue. Investment performance in many of our
funds has improved and we intend to build on that success through 2014. We are working on some innovative new products as well as exploring
some possible acquisitions and hope to be in a position to provide more information in the near future.
FINANCIAL HIGHLIGHTS
Financial highlights for the year ended December 31, 2013 are:
•
AUM at December 31, 2013 were $7.0 billion. This reflects a decrease of approximately $3.0 billion (29.9%) from $9.9 billion of AUM at
December 31, 2012. The decline in AUM was the result of: (i) a decrease in market values of $2.4 billion; (ii) net redemptions of $0.4 billion;
and (iii) the removal of approximately $0.2 billion of AUM relating to assets that were previously managed under a management services
agreement with SRLC and instead are now included as net assets of the Company effective July 23, 2013. Average AUM for the year ended
December 31, 2013 were $8.1 billion compared to $9.6 billion for the year ended December 31, 2012, a decrease of 16.5%.
• Management Fees as a percentage of average AUM for the year ended December 31, 2013 were 1.1% , a decrease from 1.2% , for the year
ended December 31, 2012. The decreases are due to the change in composition of the Company's AUM with lower fee products comprising
a greater percentage of AUM for the year ended December 31, 2013.
•
AUA at December 31, 2013 were $2.3 billion. This reflects a decrease of approximately $1.3 billion from $3.7 billion of AUA at December
31, 2012.
• Management Fees for the year ended December 31, 2013 were $84.7 million, representing a decrease of $33.8 million (28.5%) compared
to the year ended December 31, 2012.
• Gross Performance Fees for the year ended December 31, 2013 were $9.0 million, representing a decrease of $1.0 million (9.7%) compared
to the year ended December 31, 2012.
•
•
Commissions for the year ended December 31, 2013 were $6.2 million, representing a decrease of $7.3 million (53.9%) compared to the
year ended December 31, 2012.
Interest income increased substantially for the year ended December 31, 2013 to $9.8 million from $2.7 million for the year ended December
31, 2012. This is a result of the acquisition of SRLC whose business is lending to companies in the mining and energy sectors, which
generates monthly interest income for the Company.
• Unrealized and realized losses on proprietary investments and loans for the year ended December 31, 2013 were $14.5 million representing
a decrease of approximately $16.7 million from unrealized and realized gains of $2.3 million for the year ended December 31, 2012.
•
•
•
EBITDA for the year ended December 31, 2013 was $34.9 million, representing a decrease of $22.4 million (39.1%) compared with the
year ended December 31, 2012.
Excluding the impacts of Performance Fees and performance fee related expenses, EBITDA was $32.0 million for the year ended
December 31, 2013, compared to $52.5 million for the year ended December 31, 2012.
For the year ended December 31, 2013, goodwill resulting from the acquisition of Global Companies was assessed as being impaired and
a charge against earnings in the amount of $88.0 million was taken. During the year ended December 31, 2012, a goodwill impairment
charge in the amount of $8.9 million was taken against income relating to the Flatiron acquisition.
• Net loss for the year ended December 31, 2013 was $81.3 million ( -$0.39 per share) compared to net income of $32.0 million ($0.19 per
share) for the year ended December 31, 2012.
9
SUMMARY FINANCIAL INFORMATION
Key Performance Indicators
($ in thousands, except per share amounts)
Assets Under Management
Assets Under Administration
Net Sales (Redemptions)
EBITDA
EBITDA Per Share - basic and fully diluted
Summary Balance Sheets
($ in thousands)
Total Assets
Total Liabilities
Shareholders' Equity
Summary Statements of Operations and Reconciliation to EBITDA
($ in thousands, except per share amounts)
Total revenue
Total expenses
Income (loss) before income taxes
Provision (recovery) for income taxes
Net income / (loss)
Other expenses (1)
Unrealized and realized (gains) losses on proprietary investments and loans (2)
Provision (recovery) for income taxes
EBITDA
Earnings Per Share - basic
Earnings Per Share - fully diluted
EBITDA Per Share - basic and fully diluted
As at and for the year ended
December 31,
2013
2012
6,966,524
2,344,545
(386,905)
34,898
0.17
9,931,151
3,676,149
1,308,033
57,346
0.34
As at
December 31,
December 31,
2013
2012
455,720
35,422
420,298
362,492
44,783
317,709
For the year ended
December 31,
2013
2012
114,372
200,434
(86,062)
(4,801)
(81,261)
106,704
14,256
(4,801)
34,898
(0.39)
(0.39)
0.17
158,154
116,446
41,708
9,724
31,984
17,902
(2,266)
9,724
57,344
0.19
0.19
0.34
(1)
Includes amortization of property and equipment, amortization and impairment of goodwill and intangibles and non-cash stock-based
compensation expense other than stock-based compensation expense related to the EPSP offset by the bargain purchase gain related to the SRLC
acquisition included in other income.
(2)
Amount differs from the financial statements line item as it excludes any loan loss provision associated with the Company's lending activities.
10
RESULTS OF OPERATIONS
Year ended December 31, 2013 vs. year ended December 31, 2012
Overall Performance
AUM at December 31, 2013 of $7.0 billion represents a decrease of 29.9% when compared with $9.9 billion of AUM at December 31, 2012. Net
redemptions for the year ended December 31, 2013 were $0.4 billion and together with net market value depreciation of $2.4 billion and the removal
of approximately $0.2 billion of AUM relating to the SRLC acquisition resulted in decreased AUM of approximately $3.0 billion for the year. The
Company previously managed SRLC under a management services agreement and upon the acquisition of SRLC by the Company on July 23, 2013,
the management services agreement was canceled and those managed assets that were previously counted as AUM are instead now included as net
assets of the Company. Average AUM for the year ended December 31, 2013 were $8.1 billion, compared with $9.6 billion over the year ended
December 31, 2012.
Total revenues for the year ended December 31, 2013 decreased by $43.8 million (27.7%) to $114.4 million when compared with the year ended
December 31, 2012. Management Fees for the year ended December 31, 2013 were $84.7 million, representing a decrease of $33.8 million (28.5%)
from the corresponding year ended December 31, 2012. Gross Performance Fees for the year ended December 31, 2013 were $9.0 million, compared
to $10.0 million, in the year ended December 31, 2012. Commissions decreased by $7.3 million for the year ended December 31, 2013, when compared
with the year ended December 31, 2012. Interest income increased by $7.2 million for the year ended December 31, 2013, over the corresponding
year ended December 31, 2012. Unrealized and realized losses on proprietary investments and loans totaled $14.5 million for the year ended
December 31, 2013, compared to unrealized and realized gains of $2.3 million for the year ended December 31, 2012. Other income increased by
$7.9 million for the year ended December 31, 2013, when compared with the year ended December 31, 2012.
Expenses totaled $200.4 million for the year ended December 31, 2013, which is an increase of $84.0 million (72.1%), when compared with the year
ended December 31, 2012. Excluding the impairment of goodwill, total expenses increased by $5.0 million (4.6% ), when compared with the year
ended December 31, 2012.
Net loss of $81.3 million for the year ended December 31, 2013, was a decline in net income of $113.2 million (354.1%), from net income of $32.0
million for the year ended December 31, 2012.
Assets Under Management, Investment Performance and Net Sales
The breakdown of AUM by investment product type as at December 31, 2013 and December 31, 2012 was as follows:
Product Type
Bullion Funds
Mutual Funds
Alternative Investment Strategies
Offshore Funds
Managed Companies
Managed Accounts
Fixed Term Limited Partnerships
Total
December 31, 2013
December 31, 2012
$ (in millions)
% of AUM
$ (in millions)
% of AUM
3,542
1,483
765
173
521
122
361
6,967
50.7%
21.3%
11.0%
2.5%
7.6%
1.7%
5.2%
100%
4,920
1,991
1,410
190
802
190
428
9,931
49.6%
20.0%
14.2%
1.9%
8.1%
1.9%
4.3%
100%
11
The table below summarizes the changes in AUM for the relevant periods.
($ in millions)
AUM, beginning of period
Net sales (redemptions)
Business acquisition
Market value depreciation of portfolios
AUM, end of period
For the year ended
December 31,
2013
2012
9,931
(387)
(188)
(2,389)
6,967
9,137
1,308
428
(942)
9,931
For the year ended December 31, 2013, the majority of our Funds and Managed Accounts experienced negative performance resulting in an overall
market value depreciation of our AUM, partially offset by positive performance from a few Mutual Funds and alternative investment strategies.
Net redemptions for the year ended December 31, 2013 were $0.4 billion. Collectively, our Bullion Funds, Managed Accounts and Alternative
Investment Strategies experienced net redemptions of approximately $0.5 billion, for the year ended December 31, 2013. This includes approximately
$0.1 billion of Funds previously managed by Flatiron Capital Management Partners ("Flatiron"), a former subsidiary of the Company. Flatiron was
terminated in January 2013. Sales in enhanced strategies more than offset redemptions from other Mutual funds. During the year, the Company
launched two new Offshore Funds by seeding them with a total of $35 million and raising $103 million. Excluding the new seeded Offshore Funds,
our Offshore Funds collectively, had redemptions for the year ended December 31, 2013 of approximately $84 million or 44.4% of offshore AUM
at the beginning of the year.
Effective July 23, 2013 the Company acquired SRLC. Prior to this acquisition, the net assets of SRLC were categorized as AUM by the Company as
it was under a management services agreement with SRLC. Upon acquisition, the management services agreement was canceled and those managed
assets that were previously counted as AUM ($0.2 billion) are now included as net assets of the Company.
12
Revenues
Total revenue decreased by $43.8 million or 27.7% from $158.2 million in the year ended December 31, 2012 to $114.4 million in the year ended
December 31, 2013.
Management Fees decreased by $33.8 million or 28.5% from $118.5 million in the year ended December 31, 2012 to $84.7 million in the year ended
December 31, 2013, and average AUM decreased by approximately 16.5% over the same period. Management Fees as a percentage of average AUM
fell to 1.1% in the year ended December 31, 2013 from 1.2% in the year ended December 31, 2012. Decreases in Management Fees as a percentage
of average AUM are mainly due to an increase in the value of AUM of our fixed income Funds and bullion Funds that have lower average Management
Fees than most of our other Funds. Management Fees include fees earned from precious metal physical trusts in the amount of $15.1 million for
the year ended December 31, 2013, compared to $13.9 million during the year ended December 31, 2012.
Gross Performance Fees were $9.0 million for the year ended December 31, 2013 versus $10.0 million for the year ended December 31, 2012. Lower
Performance Fees were a result of greater than expected Performance Fees for the year ended December 31, 2012 received in the first quarter of
2013 from a Managed Company along with the inclusion of Performance Fees from SAM funds, Sprott Toscana, SRLC and Carried Interests from
RCIC (presented as Performance Fees) for the year ended December 31, 2013.
Commission revenue for the year ended December 31, 2013 was $6.2 million, compared to $13.5 million for the year ended December 31, 2012.
During the year ended December 31, 2013, SGRIL and SPW earned fewer commissions from the sale and purchase of stocks by its clients, particularly
private placements as junior resource companies were not as active in the equity capital markets. Also there were no new issuance of bullion Funds
to SGRIL and SPW clients during 2013.
Interest income for the year ended December 31, 2013, was $9.8 million, compared to $2.7 million, for the year ended December 31, 2012. The year
ended December 31, 2013, include interest income from SRLC since its acquisition on July 23, 2013. The majority of interest income earned by the
Company is generated by SRLC through resource-based loans.
Unrealized and realized losses from capital invested in proprietary investments and loans for the year ended December 31, 2013 totaled $14.5 million
compared with gains of $2.3 million for the year ended December 31, 2012. During the year ended December 31, 2013, sales of proprietary investments
resulted in net realized losses of $2.1 million and the market value of most of our remaining proprietary investments depreciated resulting in net
unrealized losses of $12.4 million.
Other income increased by $7.9 million from $11.2 million in the year ended December 31, 2012 to $19.1 million in the year ended December 31,
2013. For the year ended December 31, 2013, Other income primarily included the following items: (i) a $5.5 million gain on bargain purchase
recorded on the acquisition of SRLC; (ii) a break-fee of $7.5 million for the termination of the management services agreement with a Managed
Company; and (iii) a $1.2 million income from the sale of a secured note receivable. We also received $4.9 million of Other income related to the
early redemption of a loan receivable, other redemption fee revenue, expense recoveries from Managed Companies and Managed Accounts, dividend
income and foreign exchange gains and losses.
13
Expenses
Total expenses for the year ended December 31, 2013 were $200.4 million, an increase of $84.0 million or 72.1% compared with $116.4 million for
the year ended December 31, 2012.
Changes in specific categories are described below:
Compensation and Benefits
The table below summarizes the components of compensation and benefits for the relevant periods.
($ in millions)
Salaries and benefits
Discretionary bonus-cash component
Discretionary bonus-equity component (1)
Commissions
Transition expenses
One-time compensation expense (2)
For the year ended
December 31,
2013
2012
26,057
8,643
2,368
3,116
2,464
4,479
47,127
23,303
7,488
3,507
3,510
2,555
—
40,363
(1)
(2)
Discretionary bonus-equity component is included in stock-based compensation on the consolidated statement of operations.
One-time compensation expense is associated with the one-time break-fee received on termination of a management services agreement with a
managed company
Total compensation and benefits for the year ended December 31, 2013 was $44.8 million, which was $7.9 million or 21.4% higher than the year
ended December 31, 2012. The increase is primarily due to higher salaries and benefits and a one-time compensation expense. Salaries and benefits
increased as a result of: (i) inclusion of full year of compensation and benefits for Sprott Toscana, including the compensation accrual of $0.7 million
(2012- $nil) relating to the earn-out formula for the year ended December 31, 2013, whereas the year ended December 31, 2012 only included
compensation and benefits from Sprott Toscana since the acquisition date of July 3, 2012; and (ii) inclusion of salaries and benefits for SRLC since
its acquisition date of July 23, 2013. One-time compensation expense of $4.5 million related to the break-fee received on termination of a management
services agreement with a managed company. The increase in total discretionary bonus (inclusive of both cash and equity portions) was nominal.
Increases in the above noted items were partially offset by decreases in commissions and transition expenses.
Stock-based compensation
Stock-based compensation for the year ended December 31, 2013 was $10.3 million, a decrease of $0.8 million, compared to $11.1 million in the year
ended December 31, 2012. The decline is mainly due to lower equity-based compensation accrued for employees in 2013 as compared to 2012 which
is partially offset by the expensing of earn-out shares for Sprott Toscana. Stock-based compensation is composed of: (i) a portion of the discretionary
employee bonus pool that is equity-based, (ii) the expensing of earn-out shares relating to Global Companies and Sprott Toscana, and (iii) other stock-
based compensation relating to new hires.
Trailer Fees
Trailer fees are somewhat correlated with AUM and with Management Fees. For the year ended December 31, 2013 trailer fees were $11.9 million,
versus $19.0 million for the year ended December 31, 2012, a decrease of 37.5%. This decrease is a result of the reduction in trailer fee paying AUM
during 2013. Trailer fees as a percentage of Management Fees for the year ended December 31, 2013 have decreased to 14.0% from 16.1%, for the
year ended December 31, 2012. This decline is a result of the reduction in trailer fee paying AUM relative to total AUM which comprises a higher
proportion of AUM on which no or lower trailer fees are payable.
General and Administrative
General and administrative expenses increased by $0.6 million (2.1%) to $27.5 million for the year ended December 31, 2013 . General and administrative
expenses consist primarily of rent, marketing, regulatory fees, sub-advisory fees, fund expenses absorbed by SAM on behalf of certain Funds that it
manages, legal, insurance, trading costs, donations, directors fees and professional fees as well as miscellaneous costs such as quote and news services,
printing and systems maintenance. The increase in general and administrative expenses for the year ended December 31, 2013 is primarily due to
14
increases in sub-advisory fees (including $3.8 million in sub-advisory fees relating to gross Performance Fees earned for the year ended December
31, 2013), increase in professional fees as a result of the SRLC acquisition, higher regulatory fees, increases in rent as we took on additional leased
space during the third quarter of 2012, increases in quote and news services costs partially offset by decreases in transaction charges resulting from
the reduction in trading activities by SGRIL and SPW, decreases in Fund subsidies, decreases in donations and the reduction of several general and
administrative expenses, particularly marketing and general office expenses reflecting our efforts to reduce discretionary spending.
Amortization of Intangibles
Amortization of intangibles consists of (i) the amortization of deferred sales commissions and (ii) the amortization of fund management contracts
and carried interests. Amortization expense decreased by $1.0 million from $7.8 million for the year ended December 31, 2012 to $6.8 million for the
year ended December 31, 2013, mainly due to lower amortization of carried interests in 2013 as compared to 2012.
Impairment of Intangibles
During the year, the recoverable amount of fund management contracts aligned with their carrying value, therefore no impairment charge or impairment
charge reversal was recognized for the year ended December 31, 2013. In the prior year, the carrying value of fund management contracts were in
excess of their recoverable amount, leading to impairment charges net of reversals of $1.0 million for the year ended December 31, 2012.
During the year, the carrying value of carried interests were in excess of their recoverable amount, thereby necessitating an impairment charge of
$10.4 million for the year ended December 31, 2013. In the prior year, the carrying value of carried interests were in excess of their recoverable
amount, leading to a total impairment charge net of reversals of $3.7 million for the year ended December 31, 2012.
As a result of the acquisition of Sprott Toscana, indefinite life fund management contracts totaling $12.8 million were identified. These fund management
contracts are not amortized, but instead are tested for impairment at least annually. As at December 31, 2013, management determined that there was
no impairment.
The underlying inputs and assumptions that determine the recoverable amounts of fund management contracts and carried interests are related to
the resource sector and commodity prices which can exhibit significant volatility. As a result, the recoverable amounts of both fund management
contracts and carried interests may demonstrate significant fluctuations in value over the year. Management will continue to monitor the recoverable
amount of these intangible assets on a quarterly basis and, if appropriate, may record future impairment losses or reversals.
See Note 6 of the audited consolidated financial statements for further details.
Impairment of Goodwill
For the year ended December 31, 2013, goodwill resulting from the acquisition of Global Companies was assessed as being impaired and a charge
against earnings in the amount of $88.0 million was taken. During the year ended December 31, 2012, a goodwill impairment charge in the amount
of $8.9 million was taken against income relating to the Flatiron acquisition (see Note 6 of the audited consolidated financial statements for further
details). The charge was determined in relation to the revenues of the acquired assets, which were reduced primarily due to the protracted decline in
the junior resource sector between 2011 and the end of 2013. Management expects that a recovery in the natural resources sector will drive improving
revenues for the Global Companies.
Amortization of Property and Equipment
Amortization expense of $0.9 million for the year ended December 31, 2013 was slightly lower than the $1.1 million for the year ended December 31,
2012.
15
EBITDA and Net Loss
As discussed earlier, there are a number of non-IFRS measures we use to evaluate the success of our business.
EBITDA allows us to assess our ongoing business without the impact of interest expense, gains and losses on proprietary investments and loans,
income taxes and certain non-cash expenses, such as amortization and stock-based compensation. EBITDA is an indicator of our ability to pay
dividends, invest in our business and continue operations. As an indicator of cash generating ability, certain non-cash items such as impairment charges
and recoveries, are excluded in the calculation of EBITDA.
For clarity and as a result of the acquisition of SRLC, loan loss provisions that are included in gains and losses on proprietary investments and loans
on the consolidated statements of operations, are not excluded from earnings when calculating EBITDA. Although these provisions are non-cash,
management believes that excluding them from the calculation of EBITDA would distort the results of the Company.
For the year ended December 31, 2013, EBITDA was $34.9 million, compared with $57.3 million, for the year ended December 31, 2012. This was
primarily due to lower Management Fees net of trailers. Basic and diluted EBITDA per share for the year ended December 31, 2013 was $0.17,
compared to $0.34 for the year ended December 31, 2012. For further clarity, EBITDA is reconciled to Net Income in the Summary Financial
Information table earlier in this MD&A.
Loss before taxes for the year ended December 31, 2013 was $86.1 million compared with income before tax of $41.7 million for the year ended
December 31, 2012. The effective tax rate for the year ended December 31, 2013 was lower compared to the year ended December 31, 2012 primarily
as a result of the impairment of goodwill in the amount of $88.0 million (which is not deducible for tax purposes), the implementation of certain
tax planning initiatives that resulted in the recognition of a deferred tax asset valued at $5.8 million, and losses in Global Companies that carry a
higher corporate tax rate than the Canadian operations.
Net loss for the year ended December 31, 2013 was $81.3 million compared to net income of $32.0 million for the year ended December 31, 2012.
The decrease in the year ended December 31, 2013 as compared with the year ended December 31, 2012 reflects the net effect of the changes
previously discussed in this MD&A. Basic and diluted earnings per share for the year ended December 31, 2013 was negative $0.39, versus $0.19 for
the year ended December 31, 2012.
Balance Sheet
Total assets at December 31, 2013 increased by $93.2 million to $455.7 million from $362.5 million at December 31, 2012 primarily as a result of the
assets acquired of SRLC valued at $227.5 million on July 23, 2013.
Cash and cash equivalents were $115.7 million, an increase of $38.3 million from December 31, 2012 primarily due to net cash acquired on the
acquisition of SRLC together with the issuance of shares from treasury for $24.5 million and offset partially by cash outflows relating to income tax
payments, dividend payments and the purchase of proprietary investments.
Fees receivable at December 31, 2013 were $13.8 million, which is a decrease of $3.5 million since December 31, 2012 primarily reflecting the
Company's reduced AUM.
Other assets consist primarily of proceeds receivable from the redemption of a Sprott fund, proceeds receivable on the sale of an investment by
SRLC, prepaid expenses of the Company and receivables from our Funds and Managed Companies for which the Company has incurred expenses
on their behalf.
Proprietary investments are comprised of investments in various Funds that we manage, including those managed by RCIC, fixed income securities,
foreclosed properties, equities and warrants, royalty interests and gold bullion.
Loans receivable consist of the loan portfolio acquired through the Company's acquisition of SRLC on July 23, 2013. The Company had 18 loans
outstanding as at December 31, 2013. The Company expects to continue making direct resource-based loans but at a declining rate as the monetization
of expiring loans is expected to be used to seed and launch new initiatives that will continue to grow our private lending business through one or
more new lending partnerships.
Intangible assets as at December 31, 2013 of $32.6 million consist of finite and indefinite life intangible assets. Intangible assets with indefinite useful
lives relate to: (i) costs incurred to create fund management contracts between SAM and certain Funds managed by SAM and (ii) fund management
contracts identified as a result of the acquisition of the Sprott Toscana (see note 3 of the audited consolidated financial statements). Intangible assets
with finite lives relate to: (i) the costs assigned to fund management contracts and carried interests as a result of the acquisition of the Global Companies
and, (ii) deferred sales commissions the Company pays to brokers and dealers on the sale of mutual Fund securities. Intangible assets decreased by
approximately $12.7 million during 2013 primarily as a result of the impairment of carried interests and the amortization of management contracts
and carried interests, offset partially by the additional carried interest rights relating to two new limited partnerships launched by RCIC.
Goodwill as at December 31, 2013 was $46.4 million, which declined by $79.3 million from the $125.7 million balance as at December 31, 2012.
During the year ended December 31, 2013, goodwill resulting from the acquisition of Global Companies was assessed as being impaired and a charge
16
against earnings in the amount of $88.0 million was taken. However the strengthening of the U.S. dollar against the Canadian dollar resulted in an
offsetting increase of $8.7 million in foreign exchange differences relating to the value of the Global Companies. During the year ended December 31,
2012, a goodwill impairment charge in the amount of $8.9 million was taken against income relating to the Flatiron acquisition (see Note 6 of the
audited consolidated financial statements for further details).
Deferred income tax assets at December 31, 2013 are valued at $17.5 million and are predominantly made up of: (i) non-capital losses that the Company
has instituted tax planning strategies to utilize, and (ii) unrealized losses in Global Companies that reflect taxable allocations of income for which the
Company has paid cash taxes but has not yet received the cash distributions on which it has been taxed.
Accounts payable and accrued liabilities were $13.2 million at December 31, 2013, which is a decrease of $0.6 million from December 31, 2012. The
decrease from December 31, 2012 is primarily a result of lower trailer fees payable, lower fund operating expenses payable by SAM on behalf of
certain Funds that it manages and lower year-end harmonized sales tax payable partially offset by higher year-end performance fees payable to a sub-
advisor of the Company.
Compensation and employee bonuses payable were $10.0 million at December 31, 2013 compared to $10.2 million at December 31, 2012. The slight
decrease from December 31, 2012 is primarily the result of lower severance payable at the end of the year partially offset by higher bonus and cash
based earn-out remuneration payable.
17
RESULTS OF OPERATIONS - REPORTABLE SEGMENTS
SAM Segment
The SAM segment provides asset management services to the Company's branded Funds and Managed Accounts.
Results of operations:
($ in thousands)
Revenue
Management fees
Performance fees
Interest income
Other
Total revenue
Expenses
General and administrative
Trailer fees
Amortization and impairment of intangibles, property and equipment
Impairment of goodwill
Total expenses
Income before income taxes for the period
EBITDA
Year ended December 31, 2013 vs. year ended December 31, 2012
Revenues
For the year ended
December 31,
2013
December 31,
2012
66,537
6,446
199
(2,952)
70,230
38,864
15,908
2,296
—
57,068
13,162
20,001
99,535
4,401
315
9,845
114,096
43,572
27,134
5,051
8,935
84,692
29,404
34,944
During the year ended December 31, 2013, total revenues decreased by $43.9 million (38.4%) from $114.1 million in the year ended December 31,
2012 to $70.2 million in the year ended December 31, 2013.
Revenues from Management Fees were $66.5 million for the year ended December 31, 2013, a decrease of $33.0 million from the year ended
December 31, 2012 mainly attributable to weaker AUM during the year, and to a lesser extent, the different composition of SAM's AUM year over
year.
Revenues from Gross Performance Fees were $6.4 million for the year ended December 31, 2013 versus $4.4 million for the year ended December 31,
2012 reflecting Performance Fees generated primarily from an alternative strategy fund.
Interest income decreased by $0.1 million to $0.2 million for the year ended December 31, 2013 when compared to the year ended December 31,
2012. Interest income is primarily generated from treasury bills and cash deposits with banks and brokerages.
Other revenues were negative $3.0 million for the year ended December 31, 2013, a decrease of $12.8 million from the year ended December 31,
2012. The decrease in other revenues was primarily due to higher unrealized losses from proprietary investments in 2013 compared to 2012. Other
income in 2012 also included approximately $9.1 million of mark-to-market adjustments relating to a portion of the acquisition consideration payable
net of the related contingent returnable consideration asset pertaining to the 2012 Flatiron acquisition. The largest components of other revenue are
unrealized gains and losses on proprietary investments, short term trading fees and early redemption fees.
18
Expenses
Total expenses for the year ended December 31, 2013 were $57.1 million, a decrease of approximately $27.6 million or 32.6%, compared with $84.7
million for the year ended December 31, 2012.
General and administrative expenses, which include compensation and benefits expenses for the year ended December 31, 2013 amounted to $38.9
million versus $43.6 million for the year ended December 31, 2012. The largest contributor to the decrease relates to lower stock-based compensation
and a decline in compensation and benefits and fund subsidies, partially offset by an increase in sub-advisory fees.
Trailer fees for the year ended December 31, 2013 were $15.9 million versus $27.1 million, a decrease of $11.2 million (41.4%) compared to 2012.
The decrease was attributable to the decline in average AUM of our Mutual Funds and Alternative Investment Strategies which are the primary
products to which trailer fees relate.
Amortization of intangibles, property and equipment decreased by $2.8 million for the year ended December 31, 2013 when compared to the year
ended December 31, 2012, primarily due to the fund management contract write offs of approximately $2.9 million relating to the Flatiron acquisition
in 2012.
The decrease in goodwill impairment charges in the year is due to there being no goodwill impairment charges taken in SAM for the year ended
December 31, 2013, compared to a goodwill impairment charge of $8.9 million relating to the Flatiron acquisition (fully written off).
EBITDA
For the year ended December 31, 2013, EBITDA was $20.0 million compared with $34.9 million for the year ended December 31, 2012. The decrease
in EBITDA in 2013 when compared to 2012 is mainly a result of lower Management Fees earned in the current year, partially offset by lower trailer
fees and lower general and administrative expenses in the current year.
Global Companies Segment
The Global Companies segment provides asset management services to the Company's Funds and Managed Accounts in the US and also provides
securities trading services to its clients and includes the operating results of SGRIL, RCIC and SAM USA.
Results of operations:
(in $ thousands)
Revenue
Management fees
Performance fees
Commissions
Interest income
Other
Total revenue
Expenses
General and administrative
Amortization and impairment of intangibles, property and equipment
Impairment of goodwill
Total expenses
Income (loss) before income taxes for the period
EBITDA
For the year ended
December 31,
2013
December 31,
2012
9,359
302
5,081
56
(1,095)
13,703
14,533
15,674
87,960
118,167
(104,464)
4,633
9,552
—
9,645
88
13
19,298
16,366
8,395
—
24,761
(5,463)
7,248
19
Year ended December 31, 2013 vs. year ended December 31, 2012
Revenues
Total revenues decreased by $5.6 million (29.0%) from $19.3 million during the year ended December 31, 2012 to $13.7 million during the year ended
December 31, 2013. The decrease is primarily due to a reduction in the volume of transactions that generate commission revenue (primarily private
placements) and to realized and unrealized losses on proprietary investments in 2013 compared to small realized and unrealized gains during the prior
year.
Revenue from Management Fees was $9.4 million for the year ended December 31, 2013 compared to $9.6 million for the year ended December 31,
2012. The slight decrease is due to lower Management Fees generated on a lower level of average AUM at RCIC.
During the year ended December 31, 2013, Carried Interests of $0.3 million were realized compared to $nil in the year ended December 31, 2012.
This Carried Interest was realized on the extension of the term of one of the Fixed Term Limited Partnerships for a further five years. For financial
statement presentation purposes, Carried Interests are included with Performance fees on the Company's annual consolidated financial statements.
Revenues from Commissions were $5.1 million for the year ended December 31, 2013, a decrease of approximately $4.6 million when compared to
$9.6 million in the year ended December 31, 2012. These commissions were generated by SGRIL from the trading of securities by clients and from
the sale to clients of new and follow-on offerings of products and through private placements of unrelated companies. The decrease is due to fewer
transactions that generated commission revenue (primarily private placements) in the year ended December 31, 2013 compared to the year ended
December 31, 2012.
Interest income was $56 thousand for the year ended December 31, 2013 compared to $88 thousand for the corresponding period of 2012. Interest
income is primarily generated from cash deposits with banks and brokerages.
Gains and losses from invested capital (realized and unrealized) make up the majority of the Other revenue category. For the year ended December 31,
2013, Other revenue was negative $1,095.0 thousand compared to income of $13.0 thousand for the year ended December 31, 2012.
Expenses
Total expenses were $118.2 million for the year ended December 31, 2013, which increased by $93.4 million (377.2%) from $24.8 million in the prior
year. The increase is primarily due to impairment charges of $98.4 million taken on goodwill and carried interests.
General and administrative expenses, which include compensation and benefits expenses for the year ended December 31, 2013 were $14.5 million
compared to $16.4 million for the year ended December 31, 2012, a decrease of approximately $1.8 million. The largest component of general and
administrative expenses is compensation and benefits followed by stock-based compensation relating to earn-out shares (see note 9 of the audited
consolidated financial statements) with other significant expenses consisting of rent, marketing, professional fees and expenses unique to Global
Companies' brokerage business. Compensation and benefits (including stock-based compensation) decreased during 2013 primarily as a result of
lower bonus accruals and lower variable compensation which is directly correlated to the lower commission revenue realized during the year ended
December 31, 2013. The decrease in professional fees, marketing and other office expenses were offset partially by higher sub-advisor fees paid in
2013 versus the prior year. Sub-advisor fees in the amount of $0.3 million were paid to SRLC for advisory services relating to Resource Income
Partners LP.
Amortization expense, excluding the effect of impairment related charges and reversals, decreased slightly. An impairment charge of $10.4 million
and amortization of $5.2 million on intangibles and $0.1 million on property and equipment was recorded in the year ended December 31, 2013,
compared to an impairment charge net of reversals of $1.9 million and amortization of $6.4 million on intangibles and $0.1 million on property and
equipment in the prior year. This resulted in total amortization and impairment expense on intangibles, property and equipment of $15.7 million for
the year ended December 31, 2013 compared to $8.4 million for the year ended December 31, 2012.
The underlying inputs and assumptions that determine the recoverable amounts of finite life fund management contracts and carried interests for
the Global Companies are related to the resource sector and commodity prices which can exhibit significant volatility. As a result, the recoverable
amounts of both the finite life fund management contracts and carried interests may demonstrate significant fluctuations in value over the year.
Management will continue to monitor the recoverable amount of these intangible assets on a quarterly basis and, if appropriate, record future
impairment losses or reversals.
As a result of the annual goodwill impairment test, it was determined that an impairment charge in the amount of $88.0 million (2012- $nil) was
necessary. The charge was determined in relation to the revenues of the acquired assets, which were reduced primarily due to the protracted decline
in the junior resource sector between 2011 and the end of 2013. Management expects that a recovery in the natural resources sector will drive improving
revenues for the Global Companies.
EBITDA
For the year ended December 31, 2013, EBITDA was $4.6 million compared with $7.2 million for the year ended December 31, 2012. The decrease
in EBITDA was mainly the result of a reduction in transaction volumes that generate commission revenue offset in part by a decrease in employee
compensation.
20
SRLC
The SRLC segment provides loans to companies in the mining and energy sectors.
SRLC was acquired by the Company effective July 23, 2013 and as a result, its operations are presented for the period July 23, 2013 to December 31,
2013 without comparative information.
Results of operations:
($ in thousands)
Revenue
Interest income
Other
Total revenue
Expenses
General and administrative
Amortization of property and equipment
Total expenses
Income before income taxes for the period
EBITDA
Period ended December 31, 2013
Revenues
For the Period ended
December 31,
2013
December 31,
2012
7,215
5,978
13,193
2,552
2
2,554
10,639
6,466
—
—
—
—
—
—
—
—
Revenues from interest income were $7.2 million for the period ended December 31, 2013. Interest income was earned primarily from resource sector
loans.
Other revenues were $6.0 million for the period ended December 31, 2013. The gain on bargain purchase of $5.5 million related to the SRLC
acquisition made up the majority of the Other revenue category. Gains on bargain purchase are recognized when the purchase price of an acquisition
target is below the fair value of the net identifiable assets of the acquisition target. Other income also includes gains and losses from our capital that
is invested in our proprietary investments (realized and unrealized) together with other loan-related revenues.
Expenses
General and administrative (including compensation and benefits) expenses for the period ended December 31, 2013 were $2.6 million. The largest
component of general and administrative expenses is compensation and benefits followed by professional fees and other expense items.
EBITDA
For the period ended December 31, 2013, the acquisition of SRLC contributed $6.5 million to EBITDA.
21
Corporate and Other Segment
The Corporate segment provides treasury and shared services to the Company's business units and includes the operating results of Sprott Inc. without
the effect of consolidating its subsidiaries. The Other segment includes the activities of SPW, the private wealth business of the Company.
Results of operations:
($ in thousands)
Revenue
Management fees
Commissions
Interest income
Other
Total revenue
Expenses
General and administrative
Amortization of property and equipment
Total expenses
Income (loss) before income taxes for the period
EBITDA
Year ended December 31, 2013 vs. year ended December 31, 2012
Revenues
For the year ended
December 31,
2013
December 31,
2012
170
1,139
2,344
(568)
3,085
15,402
65
15,467
(12,382)
(5,759)
5
3,861
2,268
11,723
17,857
11,294
127
11,421
6,436
3,784
During the year ended December 31, 2013, total revenues decreased by $14.8 million from $17.9 million in the year ended December 31, 2012 to $3.1
million in the year ended December 31, 2013.
Revenues from Management Fees were $170.0 thousand for the year ended December 31, 2013 compared to $5.0 thousand in the year ended
December 31, 2012. Management fees were earned by SPW on certain accounts it manages.
Commission revenue for the year ended December 31, 2013 was $1.1 million compared to $3.9 million during the year ended December 31, 2012.
The decrease in Commissions was mainly due to commissions earned by SPW on the sale of units of Sprott Physical Silver Trust, Sprott 2012 Flow-
Through Fund and other various private placements to its clients during the prior year. Commissions from similar sources were lower in 2013.
Interest income was $2.3 million for the year ended December 31, 2013 compared to $2.3 million for the corresponding period of 2012. The majority
of this interest income was earned from the Corporate segment's loan portfolio that was previously presented as proprietary investments along with
a lower amount of interest income generated from cash deposits with banks and brokerage.
Other income of negative $0.6 million declined by $12.3 million from $11.7 million in the prior year. Trailer fee income received from SAM is the
most significant recurring component of other income and is generated primarily by SPW on an intercompany basis. Intercompany revenues are
eliminated upon consolidation.The decline in other income was due to a significant decline in trailer fee income during the current period as a result
of the decrease in the average trailer paying AUA of SPW along with realized and unrealized losses on proprietary investments.
Expenses
Total expenses for the year ended December 31, 2013 were $15.5 million, an increase of approximately $4.0 million from $11.4 million for the year
ended December 31, 2012. General and administrative expenses increased mainly due to transition expenses associated with the departure of a senior
executive of the Company and higher regulatory and professional fees resulting from the acquisition of SRLC.
EBITDA
For the year ended December 31, 2013, EBITDA was negative $5.8 million compared with $3.8 million for the year ended December 31, 2012. The
decrease in EBITDA was mainly due to the decline in trailer fees and commissions offset partially by higher compensation and benefits expense.
22
Consulting Segment
The Consulting segment includes the operations of SC and Sprott Toscana, the consulting businesses of the Company.
Results of operations:
($ in thousands)
Revenue
Management fees
Performance fees
Interest income
Other
Total revenue
Expenses
General and administrative
Amortization of property and equipment
Total expenses
Income before income taxes for the period
EBITDA
Year ended December 31, 2013 vs. year ended December 31, 2012
Revenues
For the year ended
December 31,
2013
December 31,
2012
8,632
2,246
30
7,596
18,504
11,484
37
11,521
6,983
9,557
9,422
5,554
21
199
15,196
3,826
39
3,865
11,331
11,370
Total revenues were $18.5 million for the year ended December 31, 2013, an increase of $3.3 million (21.8%) from $15.2 million in the prior year.
Revenues from Management Fees were $8.6 million for the year ended December 31, 2013 compared to $9.4 million in the year ended December 31,
2012. The decrease is mainly attributable to lower Management Fees generated on lower average AUM at our Managed Companies, specifically as a
result of the removal of approximately $0.2 billion of AUM relating to assets that were previously managed under a management services agreement
with SRLC and instead are now included as net assets of the Company effective July 23, 2013.
Revenues from Performance Fees were $2.2 million for the year ended December 31, 2013 compared to $5.6 million in the year ended December 31,
2012. The majority of Performance Fees recognized during the year ended December 31, 2013 were a result of greater than expected Performance
Fees for the year ended December 31, 2012 received in 2013 from a Managed Company and from the inclusion of Performance Fees from Sprott
Toscana and SRLC upon its acquisitions.
Interest income was $30.0 thousand for the year ended December 31, 2013 compared to $21.0 thousand during the prior year. Interest income is
primarily generated from cash deposits with banks and brokerages.
Included in Other income during the year was a one-time break-fee of $7.5 million received on termination of a management services agreement
with a Managed Company.
Expenses
General and administrative expenses, which include compensation and benefits expenses for the year ended December 31, 2013 were $11.5 million,
an increase of $7.7 million from the prior year of $3.8 million. The largest contributor to the increase relates to $4.5 million of compensation and
benefits associated with the one-time break-fee received for the termination of the management services agreement with a Managed Company and
a stock-based compensation accrual of $1.9 million (2012- $nil) relating to the earn-out formula for the Sprott Toscana acquisition.
EBITDA
For the year ended December 31, 2013, EBITDA was $9.6 million compared with $11.4 million for the year ended December 31, 2012. The decrease
in EBITDA in 2013 when compared to 2012 is mainly due to the decline in performance fees previously described.
23
SUMMARY OF QUARTERLY RESULTS
($ in thousands)
31-Mar-12
30-Jun-12
30-Sept-12
31-Dec-12
31-Mar-13
30-Jun-13
30-Sept-13
31-Dec-13
As at
As at
As at
As at
As at
As at
As at
As at
Assets Under Management
9,683.283
8,485,400
10,302,652
9,931,151
9,109,951
7,146,770
7,335,625
6,966,524
($ in thousands, except per share amounts)
31-Mar-12
30-Jun-12
30-Sept-12
31-Dec-12
31-Mar-13
30-Jun-13
30-Sept-13
31-Dec-13
3 Months
ended
3 Months
ended
3 Months
ended
3 Months
ended
3 Months
ended
3 Months
ended
3 Months
ended
3 Months
ended
Income Statement Information
Revenue
Management fees
Performance fees
Commissions
Interest income
Unrealized and realized gains (losses) on proprietary
investments and loans
Other income
Total revenue
Net income (loss)
EBITDA
Basic earnings (loss) per share
Diluted earnings (loss) per share
Basic and diluted EBITDA per share
32,986
28,084
28,202
29,242
25,951
21,458
19,497
76
5,722
720
4,241
645
17
2,057
612
(3,984)
655
93
2,424
655
3,798
602
9,769
3,303
705
1,348
1,936
759
141
1,616
968
(1,789)
(3,049)
(9,466)
9,319
616
1,854
44,390
27,441
35,774
50,549
27,561
16,571
892
1,477
3,306
1,323
13,697
40,192
17,792
6,613
1,191
4,815
(3,286)
2,923
30,048
16,943
736
11,008
3,297
2,090
(6,710)
13,470
(90,111)
16,159
10,409
10,504
20,274
10,399
8,120
5,881
10,500
0.10
0.10
0.10
0.00
0.00
0.06
0.07
0.06
0.06
0.02
0.02
0.12
0.01
0.01
0.06
(0.04)
(0.04)
0.05
0.06
0.06
0.03
(0.37)
(0.37)
0.04
Performance Fees are typically earned on the last day of the fiscal year other than Funds managed by RCIC. As a result, quarters ending December
31 are significantly more variable than other quarters during the year.
There is generally no other seasonality to our earnings and the trends in fees and expenses relate primarily to the level of our AUM.
During the fourth quarter of 2013, impairment charges on carried interests and goodwill were taken in the amount of $98.4 million.
The consolidated results shown in the table above include the results of SRLC from the date of its acquisition on July 23, 2013, the results of Flatiron
from the date of its acquisition on August 1, 2012 to its termination in January 2013, and the results of Sprott Toscana from the date of its acquisition
on July 3, 2012.
24
SUMMARY OF SELECTED ANNUAL INFORMATION
As at and for the year ended
December 31,
($ in thousands, except per share amounts)
2013
2012
2011
Total revenues
Net income (loss) for the year
Basic and fully diluted earnings (loss) per share
Total assets
Total long-term liabilities
Dividends declared per share
Special dividends declared per share
114,372
(81,261)
(0.39)
455,720
12,298
0.12
—
158,154
31,984
0.19
362,492
12,661
0.12
—
161,252
33,038
0.20
400,536
16,989
0.12
0.72
Dividends
On March 26, 2013, a dividend of $0.03 per common share was declared for the quarter ended December 31, 2012. This dividend was paid on April
23, 2013 to shareholders of record at the close of business on April 8, 2013.
On May 7, 2013, a dividend of $0.03 per common share was declared for the quarter ended March 31, 2013. This dividend was paid on May 31, 2013
to shareholders of record at the close of business on May 16, 2013.
On August 7, 2013, a dividend of $0.03 per common share was declared for the quarter ended June 30, 2013. This dividend was paid on August 30,
2013 to shareholders of record at the close of business on August 16, 2013.
On November 12, 2013, a dividend of $0.03 per common share was declared for the quarter ended September 30, 2013. This dividend was paid on
December 5, 2013 to shareholders of record at the close of business on November 21, 2013.
On March 25, 2014, a dividend of $0.03 per common share was declared for the quarter ended December 31, 2013. This dividend will be paid on
April 23, 2014 to shareholders of record at the close of business on April 8, 2014.
Unless indicated otherwise, all dividends on the shares of the Company will be designated as "eligible dividends" under the Income Tax Act (Canada).
Capital Stock
As at December 31, 2013, capital stock issued and outstanding stood at 245.9 million common shares (2012 - 169.0 million) for total equity of $420.3
million (2012 - $317.7 million). The 76.9 million increase in common shares was primarily the result of the issuance of 69.0 million common shares
related to the acquisition of SRLC (valued at $166.2 million).
Pursuant to the Share Purchase agreement relating to the Global Companies acquisition, an additional 532,500 common shares of the Company are
to be provided to employees of the Global Companies. In the first quarters of 2012 and 2013, a total of 355,000 of those common shares were
issued. In addition, the seller and certain current and future employees will be eligible to earn up to an additional 8 million common shares of the
Company with the achievement of certain earnings targets by the Global Companies over a period not exceeding five years from the date of the
acquisition of the Global Companies.
Pursuant to the Share Purchase agreement relating to the Sprott Toscana acquisition, the sellers will be eligible to earn up to an additional 0.9 million
common shares of the Company with the achievement of certain earnings targets by Sprott Toscana over a period not exceeding three years from
the acquisition date.
Earnings per share as at December 31, 2013 and December 31, 2012 have been calculated using the weighted average number of shares outstanding
during the respective periods. Basic and diluted earnings (loss) per share for the year ended December 31, 2013 was ($0.39) versus $0.19 for the year
ended December 31, 2012. For the year ended December 31, 2013, diluted earnings per share reflects the dilutive effect of in-the-money stock
options, shares held for the equity incentive plan, the remaining 0.2 million common shares relating to the additional purchase consideration to be
provided to employees of the Global Companies and outstanding restricted stock units.
25
A total of 2,650,000 stock options have been issued pursuant to our stock option plan. As at December 31, 2013, 2,650,000 of those stock options
were exercisable.
As at March 25, 2014, the Company had 248.1 million common shares outstanding.
Liquidity and Capital Resources
Management Fees and Interest Income can be projected and forecasted with a higher degree of certainty than Performance Fees and Carried Interests,
and are therefore used as a base for budgeting and planning by the Company. Management Fees are collected monthly or quarterly and Interest Income
collected monthly, which aids the Company's ability to manage cash flow. The Company believes that Management Fees and Interest Income will
continue to be sufficient to satisfy ongoing operational needs, including expenditures on our corporate infrastructure, business development and
information systems. In addition, the Company holds sufficient cash and liquid securities to meet any other operating and capital requirements, if
any, including its contractual commitments. The nature of the Company's operations ensures that the largest outflows, such as trailer fees and monthly
compensation, are correlated with cash inflows, in the form of Management Fees and Interest Income.
The Company does not have off-balance sheet contractual arrangements and no material contractual obligations other than our long-term lease
agreement and loan commitments of $1.9 million. During the year ended December 31, 2013, the Company renewed its credit facility with a major
Canadian chartered bank. The amount that may be borrowed under this facility is $35 million. Amounts may be borrowed under the facility through
prime rate loans, which bear interest at the bank's prime rate, or bankers' acceptances, which bear interest at bankers' acceptance rates plus 1.375%.
Amounts may also be borrowed in U.S. dollars through base rate loans, which bear interest at the greater of the bank's reference rate for loans made
by it in Canada in U.S. funds and the federal funds effective rate plus 1.00%, or LIBOR loans which bear interest at LIBOR plus 1.375%.
Loans are made by the bank under a two year revolving credit facility, the term of which may be extended annually at the bank's option. If the bank
elects not to extend the term, all outstanding principal, interest and fees are due at the maturity date.
The credit facility is fully and unconditionally guaranteed by SAM and contains financial covenants that require the Company to meet certain financial
ratio and financial condition tests. The Company has not drawn on the credit facility as at December 31, 2013. See Note 9 of the audited consolidated
financial statements for further details.
SPW is a member of IIROC and a registered investment dealer, SAM is an OSC registrant in the category of IFM, PM and EMD, and as such, each
of SPW and SAM is required to maintain a minimum amount of regulatory capital calculated in accordance with the rules of IIROC and of the OSC,
respectively. In addition, SGRIL is registered with FINRA in the United States and is required to maintain a minimum amount of regulatory capital
calculated in accordance with the rules of FINRA. During the year ended December 31, 2013, SAM, SPW and SGRIL were in compliance with
specified capital requirements.
Contingency
In June 2013, the Company and certain subsidiaries were named as defendants in a legal proceeding filed with the Ontario Superior Court of Justice
relating to the Flatiron Market Neutral Limited Partnership (the "Flatiron Fund") by Performance Diversified Fund, as plaintiff. The proceeding is in
respect of a claim relating to an investment by the plaintiff in the Flatiron Fund. The plaintiff was a limited partner in the Flatiron Fund from 2006
until February 2013. The Company indirectly acquired the shares of the manager of the Flatiron Fund in August 2012. The orderly liquidation of
the Flatiron Fund announced in November 2012 was completed in February 2013.
Performance Diversified Fund claims damages in the amount of $60 million from the Company and certain subsidiaries and $5 million in other
damages from the Company, certain subsidiaries and other defendants not related to the Company.
The Company denies any liability in connection with the claim and will vigorously defend the claim.
The Company has incurred nominal expenses in relation to this claim as at December 31, 2013 and expects most legal costs will be recoverable under
its insurance policies and other contractual arrangements.
Critical Accounting Judgments and Estimates
The audited consolidated financial statements were prepared in accordance with IFRS, using accounting policies the Company adopted in its audited
consolidated financial statements as at and for the year ended December 31, 2013. In preparing the Company's audited consolidated financial statements
under IFRS, the Company is required to use the standards in effect as at December 31, 2013.
The preparation of the audited consolidated financial statements in conformity with IFRS requires us to exercise judgment, make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results may vary. Items that require the use of
judgment, estimates and assumptions are described below.
26
Impairment of goodwill and intangible assets
All indefinite life intangible assets and goodwill are assessed for impairment. Finite life intangibles are only tested for impairment to the extent
indications of impairment exist at time of a quarterly assessment. In the case of goodwill and indefinite life intangibles, an annual test for impairment
augments the quarterly impairment indicator assessments. Values associated with goodwill and intangibles involve estimates and assumptions, including
those with respect to future cash inflows and outflows, discount rates, asset lives and the future stock price of the Company. These estimates require
significant judgment regarding market growth rates, fund flow assumptions, expected margins and costs which could affect the Company's future
results if estimates of future performance and fair value change.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be derived from active markets, they
are determined using a variety of valuation techniques and models. Model inputs are taken from observable markets where possible, but where this
is not feasible, unobservable inputs may be used. The use of unobservable inputs can involve significant judgment and materially affect the reported
fair value of financial instruments. The valuation of financial instruments is described in more detail in note 11 of the audited consolidated financial
statements.
Share-based payments
The Company measures the cost of share-based payments to employees by reference to the fair value of the equity instruments at the date on which
they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity
instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation
model including (in the case of options grants) the expected life of the option, volatility, and dividend yields, (and in the case of earn-out shares), the
probability of a subsidiary attaining certain earnings targets, the future stock price of the Company and the future employment of a senior employee
and making assumptions about them.
Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent it is probable that sufficient taxable profit will be generated in order to utilize
the losses. In addition, taxable income is subject to estimation as a portion of performance fee revenue is an allocation of partnership income. This
allocation consists of capital gains and losses, interest income, dividend income, carrying charges and other types of income and expenses. Such
allocations involve a certain degree of estimation and income tax estimates could change as a result of: changes in tax laws and regulations, both
domestic and foreign; an amendment to the calculation of partnership income allocation; or a change in foreign affiliate rules. Significant management
judgment is required to determine the amount of deferred tax assets that can be recognized based on the likely timing and the level of future taxable
profits together with future tax planning strategies.
Provisions, including provisions for loan losses
Due to the nature of provisions, a considerable part of their determination is based on estimates and judgments, including assumptions concerning
the likelihood of future events occurring. The actual outcome of these uncertain events may be materially different from the initial provision in the
Company's financial statements. With regard to loan losses, management exercises judgment to determine whether indicators of loan impairment
exist, and if so, management must estimate the timing and amount of future cash flows from loans receivable.
Investments in other entities
IFRS 10 - Consolidated Financial Statements ("IFRS 10") and IAS 28 - Investments in Associates and Joint Ventures ("IAS 28") provide for the use of judgment
in determining whether an investee should be included within the consolidated financial statements of the Company and on what basis (subsidiary,
joint venture or associate). Significant judgment is applied in evaluating facts and circumstances relevant to the Company and investee, including: the
extent of the Company's direct and indirect interests in the investee, the level of compensation to be received from the investee for management and
other services provided to it, kick out rights available to other investors in the investee and other indicators of the extent of power that the Company
has over the investee.
Valuation of foreclosed properties held for sale
Management exercises judgment to determine the timing and amount of future cash flows from foreclosed properties held for sale.
Alternative and policy choices under IFRS
A summary of the Company's significant accounting policies under IFRS are provided in note 2 to the audited consolidated financial statements.
These policies have been consistently applied to the audited consolidated financial statements.
27
Managing Risk
There are certain risks inherent in the activities of the Company, including risks related to general market conditions; changes in financial markets;
non-repayment by borrowers; failure to retain and attract qualified staff; poor investment performance; changes in the investment management
industry; competitive pressures; rapid growth; regulatory compliance; public company reporting and other regulatory obligations; historical financial
information not necessarily indicative of future performance; failure to execute our succession plan; conflicts of interest; litigation risk; employee
errors or misconduct; effectiveness of information security policies, procedures and capabilities; failure to develop effective business continuity plans;
entering new lines of business; fluctuations in Performance Fees and Carried Interests; rapid growth or decline in our AUM and AUA; insufficient
insurance coverage; possible volatility of Company's the share price; and significant influence by a principal shareholder. A full description of the
Company's risks are discussed in the Company's Annual Information Form and is available on SEDAR.
The Company has processes and procedures in place to monitor and mitigate risks to the extent reasonable and practicable within the framework of
the Company's overall strategic objectives of delivering excellence in investment performance. Certain key risks are managed as described below:
Market Risk
The Company monitors, evaluates and manages the principal risks associated with the conduct of its business. These risks include external market
risks to which all investors are subject and internal risks resulting from the nature of its business. In SAM, RCIC and SAM US, the Company will
manage risk at the investment product level through the selection, weighting and monitoring of individual investments based on stated investment
objectives and strategies. At SPW and SGRIL, risk is managed at the asset allocation level by focusing on mitigating risk through the appropriate
selection and weighting of portfolio investments for each client to reflect their suitability and risk tolerance.
Interest Rate Risk
In SRLC, where the majority of the Company's loan portfolio resides, interest rate risk is managed by lending for short terms, with terms at the
inception of the loan generally varying from nine months to three years, and by charging prepayment penalties and/or upfront commitment fees.
This mitigates earnings that are exposed to volatility as a result of sudden changes in interest rates. Note 15 to the annual consolidated financial
statements illustrates the Company's sensitivity to changes in interest rates.
Credit Risk
The Company's loan portfolio introduces the risk that a borrower will not honour its commitments and a loss to the Company may result. The
Company is further exposed to adverse changes in conditions which affect real estate values for its real estate loans and commodity and energy prices
for its resource loans as these assets are typically relied upon as collateral against the loan portfolio. These market changes may be regional, national
or international in nature and scope or may revolve around a specific asset. Any decrease in real estate values or commodity or energy prices may
delay the development of the underlying security or business plans of the borrower and will adversely affect the value of the Company's security.
Additionally, the value of the Company's underlying security in a resource loan can be negatively affected if the actual amount or quality of the
commodity proves to be less than that estimated or the ability to extract the commodity proves to be more difficult or more costly than estimated.
During the resource loan origination process, the Company takes into account a number of factors and is committed to several processes to ensure
that this risk is appropriately mitigated including: (i) emphasis on first priority and/or secured financings; (ii) investigation of the creditworthiness of
all borrowers; (iii) employment of qualified and experienced loan professionals; (iv) review of the sufficiency of the borrower's business plans including
plans which will enhance the value of the underlying security; (v) frequent and documented status updates provided on the business plans and if
applicable, progress thereon; (vi) engagement of qualified independent consultants and advisors such as lawyers, engineers and geologists dedicated
to protecting the Company's interests; and (vii) legal review which is performed to ensure that all due diligence requirements are met prior to funding.
The Board of Directors is ultimately responsible for credit risk management and has delegated much of this responsibility to the Executive Credit
Committee. The Board of Directors are provided with a detailed portfolio analysis including a report on all overdue and impaired loans, and meet at
a minimum on a quarterly basis, to review and assess the risk profile of the loan portfolio. The Executive Credit Committee is required to approve
all non-related party loan exposures up to $10 million. All non-related party loan exposures exceeding $10 million and up to $20 million shall be
approved unanimously by the Executive Credit Committee and by a majority of a sub-committee of the Board of Directors. All loan exposures
exceeding $20 million are required to be approved by the Board of Directors of the Company. Any related party loans shall be approved within the
limits noted above provided that any person who may have a conflict with such loan, shall abstain from voting.
Other Lending Risks
In providing resource loans, the Company may be exposed to other risks such as environmental and governmental risks. Environmental risks can
arise when the borrower fails to meet applicable environmental laws and regulations or the environmental laws or regulations are revised. This can
result in the borrower's licenses being revoked or suspended and thereby reducing the value of the underlying security of the loan or the borrower's
ability to repay its indebtedness.
The Company may enter into lending agreements with resource companies operating in various international locations. Any changes in regulations
in these foreign jurisdictions are beyond the Company's control and could potentially adversely affect the borrower's ability to repay its indebtedness
with the Company.
28
Internal Controls and Procedures
SAM, SPW, SGRIL and SAM US operate in regulated environments and are subject to business conduct rules and other rules and regulations. The
Company has internal control policies related to business conduct. They include controls required to ensure compliance with the rules and regulations
of relevant regulatory bodies including the OSC, IIROC, FINRA and the SEC.
Disclosure Controls and Procedures (“DC&P”) and Internal Control over Financial Reporting (“ICFR”)
Management is responsible for the design and operational effectiveness of DC&P and ICFR in order to provide reasonable assurance regarding
the disclosure of material information relating to the Company and information required to be disclosed in our annual filings, interim filings and
other reports filed under securities legislation, as well as the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
Consistent with National Instrument 52-109, the Company's CEO and CFO have evaluated the DC&P and ICFR as of December 31, 2013 and concluded
that the controls have been properly designed and are operating effectively.
During the year ended December 31, 2013, the Company acquired SRLC which required the Company to analyze and implement additional internal
controls over financial reporting to reflect the unique aspects associated with a lending business, including, but not limited to, loan portfolio valuation
and real estate valuation methodologies. There were no other changes in the Company's internal control over financial reporting that occurred during
the year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
Conflicts of Interest
The Company established a number of policies with respect to employee personal trading. Employees may not trade any of the securities held or
being considered for investment by any of the Company's Funds without prior approval. In addition, employees must receive prior approval before
they are permitted to buy or sell securities. Speculative trading is strongly discouraged. While employees are permitted to have investments managed
by third parties on a discretionary basis, they generally choose to invest in the Funds. All employees must comply with the Company's Code of Ethics.
This Code establishes strict rules for professional conduct and management of conflicts of interest.
Independent Review Committee
National Instrument 81-107 - Independent Review Committee for Investment Funds (“NI 81-107”) requires all publicly offered investment funds to establish
an independent review committee to whom all conflicts of interest matters must be referred for review or approval. The Company established an
independent review committee for public mutual Funds and other Funds. As required by NI 81-107, The Company established written policies and
procedures for dealing with conflict of interest matters, and maintains records in respect of these matters and provides assistance to the independent
review committee in carrying out its functions. The independent review committee is comprised of three independent members, and is subject to
requirements to conduct regular assessments and provide reports to the Company and to the holders of interests in public mutual Funds in respect
of its functions.
Confidentiality of Information
Confidentiality is essential to the success of the Company's business, and it strives to consistently maintain the highest standards of trust, integrity
and professionalism. Account information is kept under strict control in compliance with all applicable laws, and physical, procedural, and electronic
safeguards are maintained in order to protect this information from access by unauthorized parties. The Company keeps the affairs of its clients
confidential and does not disclose the identities of clients (absent express client consent to do so). If a prospective client requests a reference, the
Company will not furnish the name of an existing client before receiving permission from that client to do so.
Insurance
The Company maintains appropriate insurance coverage for general business and liability risks as well as insurance coverage required by regulation.
Insurance coverage is reviewed periodically to ensure continued adequacy.
Additional information relating to the Company, including the Company's Annual Information Form is available on SEDAR at www.sedar.com.
29
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements, which consolidate the financial results of Sprott Inc. (the "Company"), were prepared by
management, who are responsible for the integrity and fairness of all information presented in the consolidated financial statements and management's
discussion and analysis ("MD&A") for the year ended December 31, 2013. The consolidated financial statements were prepared by management in
accordance with International Financial Reporting Standards. Financial information presented in the MD&A is consistent with that in the consolidated
financial statements.
In management's opinion, the consolidated financial statements have been properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized in note 2 of the consolidated financial statements. Management maintains a system of
internal controls to meet its responsibilities for the integrity of the consolidated financial statements.
The board of directors (the "Board of Directors") of the Company appoints the Company's audit committee (the "Audit Committee") annually.
Among other things, the mandate of the Audit Committee includes the review of the consolidated financial statements of the Company on a quarterly
basis and the recommendation to the Board of Directors for approval. The Audit Committee has access to management and the auditors to review
their activities and to discuss the external audit program, internal controls, accounting policies and financial reporting matters.
Ernst & Young LLP performed an independent audit of the consolidated financial statements, as outlined in the auditors' report contained herein.
Ernst & Young LLP had, and has, full and unrestricted access to management of the Company, the Audit Committee and the Board of Directors to
discuss their audit and related findings and have the right to request a meeting in the absence of management at any time.
Peter Grosskopf
Chief Executive Officer
March 27, 2014
Steven Rostowsky
Chief Financial Officer
30
INDEPENDENT AUDITORS' REPORT
To the shareholders of Sprott Inc.
We have audited the accompanying consolidated financial statements of Sprott Inc. (the “Company”), which comprise the consolidated balance sheets
as at December 31, 2013 and 2012, and the consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and
cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December
31, 2013 and 2012, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting
Standards.
Toronto, Canada
March 25, 2014
Chartered Accountants
Licensed Public Accountants
31
CONSOLIDATED BALANCE SHEETS
As at
($ in thousands of Canadian dollars)
Assets
Current
Cash and cash equivalents
Fees receivable
Loans receivable
Other assets
Income taxes recoverable
Total current assets
Proprietary investments
Loans receivable
Other assets
Property and equipment, net
Intangible assets
Goodwill
Deferred income taxes
Total assets
Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities
Compensation and employee bonuses payable
Income taxes payable
Total current liabilities
Deferred income taxes
Total liabilities
Shareholders' equity
Capital stock
Contributed surplus
Retained earnings (deficit)
Accumulated other comprehensive income
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying notes
Events after the reporting period (Note 18)
December 31,
2013
December 31,
2012
(Note 7)
(Note 8)
(Note 4)
(Note 7)
(Note 8)
(Note 5)
(Note 6)
(Note 6)
(Note 10)
(Note 10)
(Note 9)
(Note 9)
115,670
13,793
54,402
17,071
3,545
204,481
93,420
50,698
3,613
7,010
32,597
46,378
17,523
251,239
455,720
13,151
9,973
—
23,124
12,298
35,422
410,420
45,664
(48,244)
12,458
420,298
455,720
77,400
17,301
—
3,919
—
98,620
60,602
16,122
—
7,260
45,253
125,740
8,895
263,872
362,492
13,712
10,242
8,168
32,122
12,661
44,783
215,474
42,808
58,609
818
317,709
362,492
32
Eric Sprott
Director, Chairman
James Roddy
Director, Chair of Audit Committee
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands of Canadian dollars, except for per share amounts)
For the year ended
For the year ended
December 31,
2013
December 31,
2012
Revenue
Management fees
Performance fees
Commissions
Interest income
Unrealized and realized gains (losses) on proprietary investments and loans
Other income
Total revenue
Expenses
Compensation and benefits
Stock-based compensation
Trailer fees
General and administrative
Amortization of intangibles
Impairment of intangibles
Impairment of goodwill
Amortization of property and equipment
Total expenses
Income (loss) before income taxes for the year
Provision (recovery) for income taxes
Net income (loss) for the year
Basic earnings (loss) per share
Diluted earnings (loss) per share
See accompanying notes
84,698
8,994
6,220
9,844
(14,478)
19,094
114,372
44,759
10,264
11,898
27,479
6,788
10,360
87,960
926
200,434
(86,062)
(4,801)
(81,261)
(0.39) $
(0.39) $
(Note 8)
(Note 9)
(Note 6)
(Note 6)
(Note 6)
(Note 5)
(Note 10)
(Note 9)
(Note 9)
$
$
118,514
9,955
13,506
2,691
2,266
11,222
158,154
36,856
11,107
19,030
26,906
7,782
4,726
8,935
1,104
116,446
41,708
9,724
31,984
0.19
0.19
33
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($ in thousands of Canadian dollars)
Net income (loss) for the year
Other comprehensive income (loss)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation gain (loss) on foreign operations (taxes of nil)
Total other comprehensive income (loss)
Comprehensive income (loss)
See accompanying notes
For the year ended
For the year ended
December 31,
2013
December 31,
2012
(81,261)
31,984
11,640
11,640
(69,621)
(4,315)
(4,315)
27,669
34
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R
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 ($ in thousands of Canadian dollars)
2013
2012
Operating Activities
Net income (loss) for the year
Add (deduct) non-cash items:
Losses (gains) on proprietary investments and loans
Stock-based compensation
Amortization of property, equipment and intangible assets
Impairment of intangible assets
Impairment of goodwill
Gain on bargain purchase
Deferred income tax recovery
Other items
Income taxes
Income taxes paid
Changes in:
Fees receivable and other assets
Loans receivable
Accounts payable, accrued liabilities, compensation and employee bonuses payable
Effect of foreign exchange on cash balances
Cash provided by (used in) operating activities
Investing Activities
Purchase of proprietary investments
Sale of proprietary investments
Purchase of property and equipment
Deferred sales commissions paid
Cash paid for acquisitions
Cash acquired on acquisition
Purchase of intangible assets
Cash provided by (used in) investing activities
Financing Activities
Acquisition of common shares for equity incentive plan
Shares issued from treasury
Dividends paid
Cash used in financing activities
Net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Cash and cash equivalents:
Cash
Short-term deposits
See accompanying notes
(81,261)
31,984
14,478
10,264
7,714
10,360
87,960
(5,457)
(8,806)
(8,447)
4,005
(15,605)
(8,699)
19,884
(22,731)
956
4,615
(62,925)
34,858
(635)
(1,969)
(20,806)
88,307
(828)
36,002
(1,255)
24,500
(25,592)
(2,347)
38,270
77,400
115,670
95,941
19,729
115,670
(2,266)
11,107
8,886
4,726
8,935
—
(8,860)
(326)
18,584
(47,252)
(6,574)
—
(21,804)
(93)
(2,953)
(36,598)
45,604
(3,127)
(1,208)
(13,030)
1,236
(1,609)
(8,732)
(10,008)
—
(20,413)
(30,421)
(42,106)
119,506
77,400
25,818
51,582
77,400
36
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
1. CORPORATE INFORMATION
Sprott Inc. (the “Company”) was incorporated under the Business Corporations Act (Ontario) on February 13, 2008. Its registered office is
at Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2700, Toronto, Ontario, M5J 2J2.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
These audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB").
The audited consolidated financial statements of the Company for the year ended December 31, 2013 were authorized for issue by a resolution
of the Board of Directors on March 25, 2014.
Basis of presentation
These audited consolidated financial statements have been prepared on a going concern basis and on a historical cost basis, except for financial
assets and financial liabilities classified as held-for-trading or designated as fair value through profit or loss, both of which have been measured
at fair value. These audited consolidated financial statements are presented in Canadian dollars and all values are rounded to the nearest
thousand ($000), except when otherwise indicated.
Principles of consolidation
These audited consolidated financial statements comprise those of the Company and its subsidiaries as well as four limited partnerships in
which the Company is the sole limited partner and general partner.
The four limited partnerships are Sprott Asset Management LP ("SAM"), Sprott Private Wealth LP ("SPW"), Sprott Consulting LP ("SC")
and Sprott Asia LP ("Asia"). Material wholly-owned subsidiaries are Sprott U.S. Holdings Inc., Sprott Resource Lending Corp. ("SRLC"),
Toscana Capital Corporation and Toscana Energy Corporation (Collectively, "Sprott Toscana"), Sprott Genpar Ltd. and SAMGENPAR Ltd.
Sprott U.S. Holdings Inc. is the parent company of: Rule Investments, Inc. (the owner of Sprott Global Resource Investments, Ltd. (“SGRIL”),
Sprott Asset Management USA Inc. (“SAM US”) and Resource Capital Investment Corporation (“RCIC”). Collectively, these interests of
Sprott U.S. Holdings Inc. are referred to as the “Global Companies”. These are entities over which the Company has control. Control exists
if the Company has power over the investee, exposure or rights to variable returns from its involvement with the investee and the ability to
use its power over the investee to affect the amount of the returns the Company receives. Generally, control is presumed to exist when the
Company owns more than one half of the voting rights of an entity. The Company does not control entities for which it owns less than one
half of the voting rights, other than the Sprott Inc. 2011 Employee Profit Sharing Plan Trust (the “Trust”), which the Company is deemed
to control.
Subsidiaries and limited partnerships are consolidated from the date the Company obtains control. All intercompany balances with subsidiaries
are eliminated upon consolidation. Subsidiary financial statements are prepared over the same reporting period as the Company and are
based on accounting policies consistent with that of the Company.
Investments in funds ("Fund" or "Funds") managed by the Company and included in proprietary investments, are assessed to determine
whether the Company has control, joint control or significant influence. This determination includes consideration of all facts and
circumstances relevant to a Fund, including the extent of the Company's direct and indirect interests in a Fund, the level of compensation
to be received from a Fund for management and other services provided to it, kick out rights available to other investors and other indicators
of power the Company has over a Fund. If a Fund is determined to be controlled, it will be consolidated by the Company. If a Fund is
determined to be subject to significant influence, the Company has designated the investment at fair value through profit or loss in accordance
with IAS 39 Financial Instruments: Recognition and Measurement as permitted by IAS 28 Investments in Associates and Joint Ventures.
The Company manages a range of public mutual funds, alternative investment strategies, offshore funds, bullion funds and physical trusts,
which meet the definition of structured entities under IFRS. The principal place of business of the Funds is Toronto, Ontario, which is
where the ultimate manager of all the funds resides. As at December 31, 2013, assets under management in public mutual funds was $1.5
billion (2012 - $2 billion); alternative investment strategies $765 million (2012 - $1.4 billion); offshore funds $173 million (2012 - $190 million);
bullion funds $239 million (2012 - $445 million); and physical trusts $3.3 billion (2012 - $4.5 billion). The Company had investments in 37
Funds (2012 - 33) with an average ownership interest of 7.6% (2012 - 3.3%). The Company provides no guarantees against the risk of
financial loss to the investors of these investment funds.
Recognition of income
The Company earns management fees from the funds, managed accounts and companies that it manages. Management fees are recognized
on an accrual basis over the period during which the related services are rendered and are collected monthly, quarterly or annually.
The Company also earns performance fees, calculated for each relevant fund, managed account and/or managed company as a percentage
of: (i) the fund's/managed account's excess performance over the relevant benchmark; (ii) the increase in net asset values over a predetermined
37
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
hurdle, if any; or (iii) the net profit in the fund over the performance period. Performance fee revenue is recognized when earned, according
to agreements in the underlying funds, managed accounts and managed companies which is predominantly on the last day of the fiscal year.
Fees arising from carried interest entitlements, and presented as performance fees, are recorded on an accrual basis following disposition of
underlying portfolio investments.
The Company, through SPW and SGRIL, primarily earns trailer fee income, fees and commissions from the sale of new and follow-on
offerings of products managed by the Company, through advisory services, through private placements to clients of SPW and SGRIL and,
particularly with respect to SGRIL, from trading in stocks by clients of SGRIL. Trailer fee income and commission income are recognized
on an accrual basis over the period during which the related service is rendered.
The Company, through SRLC, primarily earns interest income from resource loans. Interest income on these loans is recognized on an
accrual basis using the effective interest method. Under the effective interest method, the interest rate realized is not necessarily the same as
the stated rate in the loan documents. The effective interest rate is the rate required to discount the future value of all loan cash flows to
their present value and is adjusted for the receipt of cash and non-cash items in connection with the loan.
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit with banks and with carrying brokers, which are not subject to restrictions, and short-
term interest bearing notes and treasury bills with a term to maturity of less than three months from the date of purchase.
Proprietary investments
Public equities, fixed income securities and share purchase warrants are measured at fair value and are accounted for on a trade-date basis.
Mutual fund and alternative investment strategy investments are valued using net asset value per unit of the fund, which represents the
underlying net assets at fair values determined using closing market prices. The Company's investments in funds it manages through its
subsidiaries are included on the consolidated balance sheet as proprietary investments. These investments are generally made in the process
of launching a new fund and are sold as third party investors subscribe. The balance represents the Company's maximum exposure to loss
associated with investments.
Private holdings include interests in private companies and are fair valued based on the value of the Company's interests in the private
companies determined from financial information provided by management of the underlying companies, which may include operating
results, subsequent rounds of financing and other appropriate information. The values assigned are based on available information and do
not necessarily represent amounts which might reasonably be determined until the individual positions are liquidated. Private holdings also
include foreclosed properties held for sale.
Foreclosed properties held for sale include properties for which SRLC is entitled, through court order, to take title or to enforce the sale,
unconditionally. In accordance with IFRS 5 Non-current Assets Held For Sale and Discontinued Operations, (IFRS 5) foreclosed properties held for
sale that are in saleable condition and for which a sale is considered probable are classified as held for sale and are initially measured at the
lower of carrying value or fair value less estimated costs to sell. Subsequent changes in carrying values of foreclosed properties are reported
within Unrealized and realized gains (losses) on proprietary investments and loans. Amortization is not recorded on foreclosed properties
held for sale. An extension of the period required to complete the sale would not preclude the properties from being classified as held for
sale when the delay is caused by events or circumstances beyond the Company’s control and there is sufficient evidence that the Company
remains committed to its plan to sell the asset. The Company uses management's best estimate to determine the fair value of foreclosed
properties, which involves engaging realtors, valuation experts and other professionals as deemed necessary to obtain independent property
appraisals and assessments of market conditions. Costs to sell include property taxes and realtor commissions.
Investments in gold bullion are measured at fair value determined by reference to published price quotations, with unrealized and realized
gains and losses recorded in income in accordance with IAS 40 Investment Property (IAS 40) fair value model. Investment transactions in
physical gold bullion are accounted for on the business day following the date the order to buy or sell is executed.
Loans receivable
Precious metal loans
Precious metal loans are initially measured at fair value. After initial measurement, precious metal loans are designated as fair value through
profit or loss (FVTPL) or classified as held-to-maturity (HTM). All funds advanced to a borrower are first allocated to the value of any
shares, warrants, commitment fees, etc. and are recognized as part of proprietary investments on the Company's balance sheet. The remaining
funds are recognized as loan principal on the balance sheet. At each reporting period, precious metal loans are fair valued using published
futures contract prices for precious metal and discount rates to reflect the time value of money. Discount rates are reviewed at each reporting
period and adjusted as necessary for changes in credit risk of the borrower, or for changes in relevant market conditions. To assess market
changes, the Company reviews yields to maturity for a group of comparable loans or borrowings trading in the market based on similar
characteristics such as terms to maturity, security rankings and business risks.
38
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
Resource bridge loans and real estate loans
Resource bridge loans and real estate loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market.
Resource bridge loans and real estate loans are initially measured at fair value. After initial measurement, these loans are subsequently measured
at amortized cost using the effective interest method, less impairment, if any.
Fees received for originating loans are considered an integral part of the yield earned on the loan and are recognized in interest income over
the term of the loan using the effective interest method. Fees received may include cash payments and/or securities in the borrower.
Impairment of resource bridge loans and real estate loans
Loans are considered to be impaired when there is objective evidence that, as a result of one or more events that have occurred after the
initial recognition of the loan, the estimated future cash flows of the loan have been affected.
At each reporting date, management assesses whether there are indicators that specific loan loss provisions are required for each loan in the
Company’s loan portfolio based on factors that may include economic and market trends, the impairment status of loans, the quoted credit
rating of the borrower, market value of the asset, and appraisals, if any, of the security underlying loans receivable. If these factors indicate
that the carrying value of loans may not be recoverable, or the repayment of contractual amounts due may be delayed, management compares
the carrying value of the affected loans with the discounted present values of their estimated future cash flows which are discounted using
the original effective interest rate on the loan. To the extent that discounted estimated future cash flows are less than a loan's carrying value,
a specific loan loss provision is recorded. Any subsequent recognition of interest income on a loan for which a specific loan loss provision
exists is calculated at the discount rate used in determining the provision, which may differ from the contracted loan interest rate.
Should the cash flow assumptions used to determine the original specific loan loss provision change, the specific loan loss provision may be
reversed. A specific loan loss provision is reversed only to the extent that the revised carrying value of the loan does not exceed its amortized
cost that would have been recorded had no specific loan loss provision been recognized.
At each reporting date, management assesses the need for a collective provision for loan losses which have yet to be identified. Loans are
grouped on the basis of similar characteristics that are indicative of the debtors' ability to pay all amounts due according to the contractual
terms. Collective grouping is performed on the basis of a credit risk evaluation or a grading process that considers asset type, industry,
geographical location, collateral type, past-due status and other relevant factors. Management considers the security of a loan to be the most
appropriate determining factor in formulating a portfolio of loans. If the evaluation does not result in a group of assets with similar
characteristics, the loans are individually assessed for impairment. When a loan is required to be written off, the Company would apply a
loan loss provision against the entire carrying amount of the loan to write it down to a zero value.
When a group of loans is determined, certain factors are considered in determining the appropriate level of a collective provision. Such
factors include the length of the loan term, the current state of commodity markets and reviews of markets for information on the risks
associated with the debt or equity of the borrower.
Financial instruments
Financial instrument assets held by the Company are classified as held-for-trading (HFT), designated as FVTPL, HTM or as loans and
receivables. Financial instrument liabilities may be classified as either HFT or other. The Company does not currently hold available-for-sale
instruments (AFS). All financial instruments held by the Company are initially measured at fair value. After initial recognition, financial
instruments classified as HFT or those designated as FVTPL are measured at fair value using quoted market prices in active markets where
available or through the use of valuation techniques as appropriate. Precious metal loans are designated as FVTPL or classified as HTM.
Changes in fair value of the Company's financial instruments are reflected in net income, with the exception of financial instruments classified
as HTM, loans and receivables and other financial liabilities, which are measured at amortized cost using the effective interest rate method.
Transaction costs related to financial assets classified as HFT or designated as FVTPL are expensed as incurred.
The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets
classified as loans and receivables or HTM is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only
if, there is objective evidence of impairment as a result of one or more events that have occurred after initial recognition of the asset (an
incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial
assets and it can be reliably estimated.
Financial instruments included in the Company's accounts have the following classifications:
•
•
•
Cash and cash equivalents and all proprietary investments are classified as HFT;
Fees receivable, proceeds receivable (part of other assets) and loans receivable are classified as loans and receivables;
Precious metal loans are designated as FVTPL or classified as HTM;
39
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
•
Accounts payable and accrued liabilities and compensation and employee bonuses payable are classified as other financial
liabilities.
Fair value option
A financial instrument can be designated as FVTPL (the fair value option) on its initial recognition even if the financial instrument was not
acquired or incurred principally for the purpose of selling or repurchasing it in the near term. An instrument that is designated as FVTPL
by way of this fair value option must have a reliably measurable fair value and satisfy one of the following criteria: (i) it eliminates or significantly
reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities, or recognizing gains and
losses on them on a different basis; (ii) it belongs to a group of financial assets or financial liabilities or both that are managed, evaluated,
and reported to senior management on a fair value basis in accordance with the Company's documented investment or risk management
strategy, and information about the group is provided internally on that basis to the Company's key management personnel or (iii) there is
an embedded derivative in the financial or non-financial host contract and the embedded derivative can significantly modify the cash flows
required under the contract.
Financial instruments designated as FVTPL are recorded at fair value with any unrealized gain or loss being included with Unrealized and
realized gains (losses) on proprietary investments and loans. These financial instruments cannot be reclassified out of the FVTPL category
while they are held or issued. Certain of the Company's precious metal loans are currently designated as FVTPL.
Fair value hierarchy
All financial instruments recognized at fair value in the consolidated balance sheets are classified into three fair value hierarchy levels as
follows:
Level 1:
valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities;
Level 2:
valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model
that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by
correlation or other means;
Level 3:
valuation techniques with significant unobservable market inputs.
The Company will transfer financial instruments into or out of levels in the fair value hierarchy to the extent the instrument no longer satisfies
the criteria for inclusion in the category in question. See note 11.
Level 3 valuations are prepared by the Company and reviewed and approved by management at each reporting date. Valuation results,
including the appropriateness of model inputs, are compared to actual market transactions to the extent readily available. Valuations of level
3 assets are also discussed with the Audit Committee as deemed necessary by the Company as part of its quarterly review of the Company's
financial statements.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported on the consolidated balance sheets if, and only if, there is a
currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets
and settle the liabilities simultaneously.
Property and equipment
Property and equipment are recorded at cost and are amortized on a straight-line basis over the expected useful life which ranges from 1 to
5 years. Leasehold improvements are amortized on a straight-line basis over the term of the lease. Artwork is not amortized since it does
not have a determinable useful life.
The residual values, useful life and methods of amortization for property and equipment are reviewed at each reporting date and adjusted
prospectively, if necessary.
Deferred sales commissions
Sales commissions paid on the sale of mutual fund securities are recorded at cost and amortized on a straight-line basis over a maximum of
three years. When redemptions occur, the actual investment period is shorter than expected, and the unamortized deferred sales commission
related to the original investment in the funds is charged to net income and included in the amortization of deferred sales commissions.
Intangible assets
The useful life of an intangible asset is either finite or indefinite. Intangible assets other than goodwill are recognized when they are separable
or arise from contractual or other legal rights, and have fair values that can be reliably measured.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment at each reporting date, or more
frequently if changes in circumstances indicate that the carrying value may be impaired. Intangible assets with finite lives are only tested for
impairment if indicators of impairment exist at the time of an impairment assessment. The amortization period and the amortization method
40
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
for an intangible asset with a finite useful life is reviewed at each reporting date. Changes in the expected useful life or the expected pattern
of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization expense and any impairment losses on intangible assets
with finite lives are recognized in the consolidated statements of operations.
Intangible assets with indefinite useful lives are not amortized, but are assessed for impairment at each reporting date, or more frequently if
changes in circumstances indicate that the carrying value may be impaired. In addition to quarterly impairment indicator assessments, indefinite
life intangibles must be tested annually for impairment. The indefinite life of an intangible asset is reviewed annually to determine whether
the indefinite life continues to be supportable. If not, change in useful life from indefinite to finite are made prospectively.
Any loss resulting from impairment of intangible assets is expensed in the period the impairment is identified. Any gain resulting from an
impairment reversal of intangible assets is recognized in the period the impairment reversal is identified but cannot exceed the carrying
amount that would have been determined (net of amortization and impairment) had no impairment loss been recognized for the intangible
asset in prior periods.
Business combinations, goodwill and gain on bargain purchase
The purchase price of an acquisition accounted for under the acquisition method is allocated based on the fair values of the net identifiable
assets acquired. The excess of the purchase price over the values of such assets, including identifiable intangible assets, is recorded as goodwill.
A gain on bargain purchase occurs where the purchase price is less than the fair values of net identifiable assets acquired. Gain on bargain
purchase is recognized in the consolidated statements of operations on the date of acquisition and included in other income. Acquisition
costs incurred are expensed and included in general and administrative expenses.
Goodwill, which is measured at cost less any accumulated impairment losses, is not amortized, but rather, is assessed for impairment indicators
at each reporting date, or more frequently if changes in circumstances indicate that the carrying value may be impaired. In addition to quarterly
impairment indicator assessments, goodwill must be tested annually for impairment. For the purpose of impairment testing, goodwill is
allocated to each of the Company's cash generating units (CGUs) that are expected to benefit from the acquisition. The recoverable amount
of a CGU is compared to its carrying value plus any goodwill allocated to the CGU. If the recoverable amount of a CGU is less than its
carrying value plus allocated goodwill, an impairment charge is recognized, first against the carrying value of the goodwill, with any remaining
difference being applied against the carrying value of assets contained in the impacted CGUs. Impairment losses on goodwill are recorded
in the consolidated statements of operations and cannot be subsequently reversed.
Income taxes
Income tax is comprised of current and deferred tax.
Income tax is recognized in the consolidated statements of operations except to the extent that it relates to items recognized directly in other
comprehensive income, in which case, the related taxes are also recognized in the consolidated statements of comprehensive income (loss).
Deferred taxes are recognized using the liability method for temporary differences that exist between the carrying amounts of assets and
liabilities in the consolidated balance sheet and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax assets and
liabilities are determined based on the enacted or substantively enacted tax rates that are expected to apply when the differences related to
the assets or liabilities reported for tax purposes are expected to reverse in the future. Deferred tax assets are recognized only when it is
probable that sufficient taxable profits will be available or taxable temporary differences reversing in future periods against which deductible
temporary differences may be utilized.
Deferred taxes liabilities are not recognized on the following temporary differences:
•
•
•
Temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss;
Taxable temporary differences related to investments in subsidiaries, associates or joint ventures or joint operations to the
extent they are controlled by the Company and they will not reverse in the foreseeable future;
Taxable temporary differences arising on the initial recognition of goodwill.
The Company records a provision for uncertain tax positions if it is probable that the Company will have to make a payment to tax authorities
upon their examination of a tax position. This provision is measured at the Company's best estimate of the amount expected to be paid.
Provisions are reversed to income in the period in which management assesses they are no longer required or determined by statute.
The measurement of tax assets and liabilities requires an assessment of the potential tax consequences of items that can only be resolved
through agreement with the tax authorities. While the ultimate outcome of such tax audits and discussions cannot be determined with
certainty, management estimates the level of provisions required for both current and deferred taxes.
41
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
Share-based payments
The Company uses the fair value method to account for equity settled share-based payments with employees and directors. Compensation
holes option valuation model for stock options. Compensation expense for the share incentive
expense is determined using the Blac
program is determined based on the fair value of the benefit conferred on the employee (see note 9). Compensation expense for deferred
stock units ("DSU") is determined based on the value of the Company's common shares at the time of grant. Compensation expense for
earn-out shares are determined using appropriate valuation models (see note 9). Compensation expense for the Trust is determined based
on the value of the Company's common shares purchased by the Trust (see note 9). Compensation expense is recognized over the vesting
period with a corresponding increase to contributed surplus other than for the Company's DSUs where the corresponding increase is to
liabilities. Stock options and common shares held by the Trust vest in installments which require a graded vesting methodology to account
for these share-based awards. On the exercise of stock options for shares, the contributed surplus previously recorded with respect to the
exercised options and the consideration paid is credited to capital stock. On the issuance of the earn-out shares, the contributed surplus
previously recorded with respect to the issued earn-out shares is credited to capital stock. On the withdrawal of vested common shares from
the Trust, the contributed surplus previously recorded is credited to cash. On the exercise of DSUs, the liability previously recorded is credited
to cash.
Earnings per share
Basic and diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding
during the period.
The Company applies the treasury stock method to determine the dilutive impact, if any, of stock options and unvested shares purchased
for the Trust. The treasury stock method determines the number of incremental common shares by assuming that the number of dilutive
securities the Company has granted to employees have been issued.
Foreign currency translation
Accounts in the financial statements of the Company's subsidiaries are measured using their functional currency, being the currency of the
primary economic environment in which the entity operates. The Company's performance is evaluated and its liquidity is managed in Canadian
dollars. Therefore, the Canadian dollar is the functional currency of the Company. The Canadian dollar is also the functional currency of
all its subsidiaries, with the exception of Sprott U.S. Holdings Inc. and the Global Companies, which uses the US dollar as its functional
currency. Accordingly, the assets and liabilities of Sprott U.S. Holdings Inc. and the Global Companies are translated into Canadian dollars
using the rate in effect on the date of the consolidated balance sheets. Revenue and expenses are translated at the average rate over the
reporting period. Foreign currency translation gains and losses arising from the Company's translation of its net investment in Sprott U.S.
Holdings Inc., including goodwill and the identified intangible assets, are included in accumulated other comprehensive income or loss as a
separate component within shareholders' equity until there has been a realized reduction in the value of the underlying investment.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to management. Management is responsible
for allocating resources and assessing performance of the operating segments to make strategic decisions.
Significant accounting judgments and estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. The
Company based its assumptions and estimates on parameters available when the annual consolidated financial statements were prepared.
Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the
control of the Company. Such changes are reflected in the assumptions and estimates as they occur.
Impairment of goodwill and intangible assets
All indefinite life intangible assets and goodwill are assessed for impairment. Finite life intangibles are only tested for impairment to the
extent indications of impairment exist at time of a quarterly assessment. In the case of goodwill and indefinite life intangibles, an annual
test for impairment augments the quarterly impairment indicator assessments. Values associated with goodwill and intangibles involve
estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates, asset lives and the future stock
price of the Company. These estimates require significant judgment regarding market growth rates, fund flow assumptions, expected margins
and costs which could affect the Company's future results if estimates of future performance and fair value change.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be derived from active
markets, they are determined using a variety of valuation techniques and models. Model inputs are taken from observable markets where
possible, but where this is not feasible, unobservable inputs may be used. The use of unobservable inputs can involve significant judgment
and materially affect the reported fair value of financial instruments. The valuation of financial instruments is described in more detail in
note 11 of the audited consolidated financial statements.
42
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
Share-based payments
The Company measures the cost of share-based payments to employees by reference to the fair value of the equity instruments at the date
on which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a
grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate
inputs to the valuation model including (in the case of options grants) the expected life of the option, volatility, and dividend yields, (and in
the case of earn-out shares), the probability of a subsidiary attaining certain earnings targets, the future stock price of the Company and the
future employment of a senior employee and making assumptions about them.
Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent it is probable that sufficient taxable profit will be generated in order
to utilize the losses. In addition, taxable income is subject to estimation as a portion of performance fee revenue is an allocation of partnership
income. This allocation consists of capital gains and losses, interest income, dividend income, carrying charges and other types of income
and expenses. Such allocations involve a certain degree of estimation and income tax estimates could change as a result of: changes in tax
laws and regulations, both domestic and foreign; an amendment to the calculation of partnership income allocation; or a change in foreign
affiliate rules. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized based on
the likely timing and the level of future taxable profits together with future tax planning strategies.
Provisions, including provisions for loan losses
Due to the nature of provisions, a considerable part of their determination is based on estimates and judgments, including assumptions
concerning the likelihood of future events occurring. The actual outcome of these uncertain events may be materially different from the
initial provision in the Company's financial statements. With regard to loan losses, management exercises judgment to determine whether
indicators of loan impairment exist, and if so, management must estimate the timing and amount of future cash flows from loans receivable.
Investments in other entities
IFRS 10 - Consolidated Financial Statements ("IFRS 10") and IAS 28 - Investments in Associates and Joint Ventures ("IAS 28") provide for
the use of judgment in determining whether an investee should be included within the consolidated financial statements of the Company
and on what basis (subsidiary, joint venture or associate). Significant judgment is applied in evaluating facts and circumstances relevant to
the Company and investee, including: the extent of the Company's direct and indirect interests in the investee, the level of compensation to
be received from the investee for management and other services provided to it, kick out rights available to other investors in the investee
and other indicators of the extent of power that the Company has over the investee.
Valuation of foreclosed properties held for sale
Management exercises judgment to determine the timing and amount of future cash flows from foreclosed properties held for sale.
Accounting policies adopted during the year
Amendment to IAS 1, Presentation of Financial Statements (IAS 1)
As part of the annual improvements 2009-2011 cycle (comparative information), the IASB amended IAS 1 to clarify requirements for
comparative information. The amendments were effective for annual periods beginning on or after July 1, 2013. The adoption of this amended
standard did not have a material impact on the Company's results of operations, financial position or disclosures.
Amendment to IAS 36, Recoverable Amount Disclosures for Non-financial Assets (IAS 36)
After IFRS 13 was issued, the IASB was made aware that one of the amendments to IAS 36 made in conjunction with the issuance of IFRS
13 resulted in disclosure requirements that were more broadly applicable than the IASB had intended. The May 2013 amendments to IAS
36 correct the disclosure requirements but the effective date of the amendment is for annual periods beginning on or after January 1, 2014
with early adoption permitted. The Company has early adopted the amendments with no significant impact to the Company's disclosures.
IFRS 10, Consolidated Financial Statements (IFRS 10)
IFRS 10, a new standard issued by the IASB, establishes principles for the presentation and preparation of consolidated financial statements
when an entity controls one or more other entities. IFRS 10 establishes control as the basis for consolidation and defines the principle of
control. An investor controls an investee if the investor has power over the investee, exposure or rights to variable returns from its involvement
with the investee and the ability to use its power over the investee to affect the amount of the investor's returns. IFRS 10 was effective for
annual periods beginning on or after January 1, 2013 and must be applied retrospectively. The adoption of IFRS 10 did not have a material
impact on the Company's results of operations, financial positions and disclosures.
43
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
IFRS 11, Joint Arrangements (IFRS 11)
IFRS 11 was effective for the Company on January 1, 2013. The adoption of IFRS 11 did not have a material impact on the Company’s
results of operations, financial positions and disclosures as the Company did not have any jointly controlled arrangements over the fiscal
period.
IFRS 12, Disclosure of Interests in Other Entities (IFRS 12)
IFRS 12 was issued in May 2011 and was effective for the Company on January 1, 2013. IFRS 12 contains all disclosure requirements related
to an entity's interests in subsidiaries, joint arrangements, associated and structured entities, including a number of new disclosures. The
adoption of IFRS 12 did not have a material impact on the Company’s disclosures.
IFRS 13, Fair Value Measurement (IFRS 13)
IFRS 13 was effective for the Company on January 1, 2013 and specifies how to measure fair value when fair value (and measures based on
fair value) are required or permitted by another IFRS. The adoption of IFRS 13 did not have a material impact on the Company’s results of
operations and financial positions but did lead to changes to certain disclosures. See Note. 11.
Future changes in accounting policies
IFRS 9, Financial Instruments (IFRS 9)
IFRS 9 is expected to replace IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). However, the IASB removed the previous mandatory
effective date of January 1, 2015 and has not proposed a future effective date.
There are no other IFRS interpretations that are not yet effective that would be expected to have a material impact on the financial statements.
3. BUSINESS ACQUISITION
Toscana Companies
On July 3, 2012, the Company acquired all of the outstanding common shares of the Toscana Companies. As consideration, the Company
paid $5.2 million cash and issued 1,564,500 common shares from treasury valued at $7.7 million, excluding costs, for total consideration of
$12.9 million. The common shares of the Company issued as consideration were valued at $4.92 per share using the closing price of the
Company's common shares on the TSX on July 3, 2012. In addition, the sellers will be eligible to earn up to an additional $5.3 million in
cash and common shares of the Company with the achievement of certain financial targets by the Toscana Companies over a period of up
to 3 years.
The Company accounted for the acquisition using the acquisition method and the results of operations have been consolidated from the
date of the transaction.
Fund management contracts were acquired as part of the Toscana Companies business acquisition and are recognized as intangible assets
with indefinite lives. The goodwill acquired of $3.2 million, which is not tax deductible, relates to the expected synergies and/or intangible
assets that do not qualify for separate recognition. The acquisition is expected to provide benefits across the organization through the sharing
of intellectual capital and the development of new products.
Flatiron Capital Management Partners ("Flatiron")
On August 1, 2012, the Company acquired all of the outstanding common shares of Flatiron. As consideration, the Company paid $1.7
million cash, invested $4.9 million in a fund on behalf of the Flatiron vendors and had an obligation to issue common shares from treasury
valued at $4.8 million, excluding costs, for total consideration of $11.4 million. In addition, the seller was eligible to earn up to an additional
$4.5 million in common shares of the Company with the achievement of certain financial targets by Flatiron over a period of up to 3 years.
The Company accounted for the acquisition using the acquisition method and the results of operations have been consolidated from the
date of the transaction.
Effective January 11, 2013, the Company and the Flatiron vendors entered into agreements to release the Company from the remaining
purchase price to be paid as contemplated by the acquisition on August 1, 2012. The accounting for these agreements was reflected as at
December 31, 2012 as follows:
•
•
•
the acquisition consideration payable of $8.4 million reflected the fair value of the legal obligation by the Company to pay the
Flatiron vendors;
the contingent returnable consideration asset of $8.4 million reflected the fair value of management's best estimate as to the
amount the Company expects not to pay the Flatiron vendors;
the contingent returnable consideration asset of $8.4 million was netted against the acquisition consideration payable of $8.4
million on the consolidated balance sheets;
44
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
•
•
•
the effect of the fair value adjustments to the acquisition consideration payable and the contingent returnable consideration asset
resulted in other income of $9.1 million and was included in other income on the consolidated statements of income (loss);
management's estimate as to the value of the goodwill was written down to $nil with a charge of $8.9 million to the consolidated
statements of operations; and,
management's estimate of the value of finite life fund management contracts was written down to $nil with a charge of $3.0
million to the consolidated statements of operations.
There were nominal impacts to the consolidated statements of operations for the year ended December 31, 2013 as a result of the agreements
entered into by the Company and the Flatiron vendors effective January 11, 2013.
Sprott Resource Lending Corp. ("SRLC")
On July 23, 2013, the Company acquired all of the outstanding common shares of SRLC that it did not already own. As consideration, the
Company paid $20.8 million cash and issued 69.0 million common shares from treasury valued at $166.2 million, excluding costs for total
consideration of $187.0 million. For accounting purposes and as a result of the Company's prior equity ownership in SRLC, the total purchase
price is approximately $198.9 million. The common shares of the Company issued as consideration were valued at $2.41 per share using the
closing price of the Company's common shares on July 23, 2013.
The Company accounted for the acquisition using the acquisition method and the results of operations have been consolidated from the
date of the transaction.
Details of the net assets acquired, at fair value, are as follows ($ in thousands):
Net assets acquired
Cash and cash equivalents
Fees receivable and other assets
Proprietary investments
Loans receivable
Property and equipment
Deferred tax assets
Accounts payable and accrued liabilities
Deferred tax liabilities
Consideration paid
Cash consideration
Common shares - newly issued
Common shares - prior ownership
Gain on bargain purchase
Additional Disclosures
Revenues earned since acquisition date
Income before taxes since acquisition date
July 23, 2013
88,307
4,568
23,573
108,015
40
2,958
(21,912)
(1,145)
204,404
20,806
166,201
11,940
198,947
5,457
13,193
10,639
A gain on bargain purchase of $5.5 million was recognized upon acquisition as a result of the consideration paid being less than the fair
value of net identifiable assets acquired. The gain on bargain purchase is included in other income in the consolidated statements of operations.
45
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
The Company's revenues and net loss would have been approximately $102.1 million and $94.8 million, respectively, should the acquisition
have happened on January 1, 2013.
Included in general and administrative expenses are approximately $1.2 million of costs relating to the acquisition of SRLC.
4.
PROPRIETARY INVESTMENTS
Proprietary investments consist of the following ($ in thousands):
Gold bullion
Public equities and share purchase warrants
Mutual funds and alternative investment strategies
Fixed income securities
Private holdings
Total proprietary investments
December 31, 2013
December 31, 2012
6,532
4,097
70,215
7,223
5,353
93,420
8,548
17,979
29,126
—
4,949
60,602
Investments in mutual funds and alternative investment strategies are primarily managed by SAM or RCIC.
As at December 31, 2013, the underlying investments related to the Company’s investments in mutual funds and alternative investment
strategies primarily consisted of cash and short-term investments of $25 million (2012 - $2 million), equities of $23 million (2012 - $10
million), short equity positions of $3 million (2012 - $4 million), fixed income securities of $18 million (2012 - $16 million) and bullion $4
million (2012 - $6 million). The underlying securities of these funds are classified as held for trading and recognized at fair value through
profit or loss.
46
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
5.
PROPERTY AND EQUIPMENT
Property and equipment consist of the following ($ in thousands):
Cost
At December 31, 2011
Business acquisition
Additions, net of disposals
December 31, 2012
Business acquisitions
Additions
December 31, 2013
Accumulated amortization
At December 31, 2011
Business acquisition
Disposals
Charge for the period
Net exchange differences
December 31, 2012
Charge for the period
Net exchange differences
December 31, 2013
Net Book Value at:
December 31, 2012
December 31, 2013
Artwork
Furniture and
fixtures
Computer
hardware and
software
Leasehold
improvements
Total
1,691
6
310
2,007
38
—
2,045
—
—
—
—
—
—
—
—
—
2,007
2,045
2,557
189
156
2,902
—
34
2,936
1,773
171
105
2,049
2
71
2,122
4,739
72
2,469
7,280
—
576
7,856
(1,879)
(1,458)
(2,297)
(120)
—
(291)
8
(2,282)
(240)
(19)
(2,541)
620
395
(161)
—
(311)
5
(1,925)
(131)
(23)
(2,079)
124
43
(45)
72
(502)
1
(2,771)
(555)
(3)
(3,329)
4,509
4,527
10,760
438
3,040
14,238
40
681
14,959
(5,634)
(326)
72
(1,104)
14
(6,978)
(926)
(45)
(7,949)
7,260
7,010
47
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following ($ in thousands):
Fund
management
contracts -
indefinite
life
Fund
management
contracts -
finite life
Goodwill
Carried
interests
Deferred
sales
commissions
Total
Cost
At December 31, 2011
Business acquisitions
Net additions
Net exchange differences
December 31, 2012
Net additions
Net exchange differences
At December 31, 2013
125,730
12,140
—
(3,195)
1,370
12,817
140
—
21,001
2,997
—
(534)
134,675
14,327
23,464
—
8,474
—
—
143,149
14,327
—
1,415
24,879
Accumulated amortization and impairment
losses
At December 31, 2011
Amortization charge for the year
Net impairment charge for the year
Net exchange differences
December 31, 2012
Amortization charge for the year
Net impairment charge for the year
Net exchange differences
At December 31, 2013
—
—
(8,935)
—
(8,935)
—
(87,960)
124
(96,771)
—
—
—
—
—
—
—
—
—
(4,789)
(2,922)
(999)
78
(8,632)
(3,025)
—
(485)
29,671
—
1,469
(754)
30,386
828
2,130
33,344
(9,492)
(3,615)
(3,727)
416
(16,418)
(2,198)
(10,360)
(1,366)
3,133
—
1,207
—
4,340
1,970
—
6,310
(969)
(1,245)
—
—
(2,214)
(1,565)
—
—
180,905
27,954
2,816
(4,483)
207,192
2,798
12,019
222,009
(15,250)
(7,782)
(13,661)
494
(36,199)
(6,788)
(98,320)
(1,727)
(12,142)
(30,342)
(3,779)
(143,034)
Net Book Value at:
December 31, 2012
December 31, 2013
Net Book Value
Intangibles
Goodwill
125,740
46,378
14,327
14,327
14,832
12,737
13,968
3,002
2,126
2,531
170,993
78,975
December 31, 2013
December 31, 2012
32,597
46,378
78,975
45,253
125,740
170,993
48
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
For the year ended December 31, 2013, the Company incurred an impairment charge of $88.0 million (December 31, 2012 - $8.9 million)
relating to goodwill and a $10.4 million impairment charge on carried interests (both impairment charges discussed below). There were no
impairment charges on finite or indefinite life fund management contracts for the year ended December 31, 2013 compared with a $3.7
million impairment charge on carried interests and an impairment charge of $1.0 million for finite life fund management contracts for the
year ended December 31, 2012.
As a result of the acquisition of the Global Companies by the Company in 2011, intangible assets consisting of fund management contracts
with a finite life and carried interests were identified. Amortization is computed on a straight-line basis over the estimated useful lives of
these assets, which is 7 years for both fund management contracts and carried interests (4 years remaining).
As a result of the acquisition of the Toscana Companies in 2012, intangible assets consisting of fund management contracts with indefinite
lives were identified.
Cash-generating units
The Company identified six CGUs for goodwill impairment assessment and testing purposes: SAM, Global Companies, SRLC, Corporate,
SC and SPW. Operating segments of the Company are a separate but related concept under IFRS and are described in note 16.
i.
Impairment testing of goodwill
As at December 31, 2013, the Company had goodwill allocated across its CGUs as follows ($ in thousands):
CGU
SAM
Global Companies
SRLC
Corporate
SC
SPW
Allocated Goodwill
December 31, 2013
December 31, 2012
20,400
22,800
—
—
3,200
—
46,400
19,300
95,600
—
—
3,200
7,600
125,700
Goodwill is tested for impairment at least annually, which for the Company is in December of each year.
The recoverable amount of goodwill for each of the CGUs was calculated in the fourth quarter of fiscal 2013 at fair value less
costs to sell, using a valuation multiple applied to a measure of earnings, other than the SPW and Global Companies CGUs
which used a discounted cash flow valuation technique.
There was no impairment of goodwill for the SAM and SC CGUs upon completion of the annual impairment test. However,
there was goodwill impairment for the Global Companies and SPW CGUs. As a result, an impairment charge of $88.0 million
was calculated and included in the consolidated statements of operations for the year ended December 31, 2013. Of the total
goodwill impaired, $80.1 million related to the Global Companies CGU and the remaining $7.9 million related to the SPW CGU.
The recoverable amount of the Global Companies CGU and SPW CGU as at December 31, 2013 was $44.3 million and $5.4
million, respectively.
The key assumptions adopted by management in its cash flows for determining the recoverable amount of the Global Companies'
goodwill are as follows:
•
•
•
creation of approximately $50 million per year over the next 10 years of finite life funds, each with a fixed 10-year
term without the possibility of asset redemptions, consistent with current and historical asset raises and terms;
approximately 56% of existing finite life funds extend their respective terms for another 5 years. The Global Companies
have been successful in extending 100% of historical expiring finite life funds for at least 5 years;
annual rates of return for the finite life funds of 4.8% to 7.3%, consistent with recent historical returns of similar
existing products;
49
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
•
•
growth in assets under administration of approximately $45 million per year over the next 5 years with a terminal
growth rate of 3% based on management's current forecast using recent experience and projections for the finite life
funds mention above;
annual rates of return (net of a historical redemption rate) of 2%, consistent with historical net returns of existing
broker client accounts and discount rates ranging between 12% and 27.5%.
Cash flow projections for the broker business use approved 3-year internal forecasts and extrapolate the next 2 years before
determining a terminal value. For the finite life funds, a 20-year cash flow projection is necessary as each fund launched has a
10-year life and a calculated terminal value under this set of facts would be misleading.
Goodwill identified as part of the 2012 Flatiron acquisition and included in the SAM CGU (see note 3) of $8.9 million was
determined to be fully impaired and charged against income on the consolidated statements of operations for the year ended
December 31, 2012.
ii.
Impairment testing of indefinite life fund management contracts
As at December 31, 2013 the Company had indefinite life fund management contracts within the SAM CGU of $1.5 million
(December 31, 2012 - $1.5 million) and within the SC CGU of $12.8 million (December 31, 2012 - $12.8 million). These are
contracts for the management of exchange listed vehicles which have no expiry or termination provisions and for the fund
management contracts identified as a result of the acquisition of the Toscana Companies.
The recoverable amount of indefinite life intangibles for the SAM CGU was calculated in the fourth quarter of fiscal 2013 using
a value-in-use calculation, by discounting, at 10%, a perpetuity based on the most recent estimated pre-tax cash flows to the
Company by the applicable exchange listed funds.
The recoverable amount of indefinite life intangibles for the SC CGU was calculated in the fourth quarter of fiscal 2013 using
a value in use calculation, by discounting, at 11.5%, a perpetuity based on the most recent estimated pre-tax cash flows to the
Company by the applicable underlying fee-producing products.
Upon completion of the annual impairment tests for indefinite life fund management contracts, there was no impairment as at
December 31, 2013 and December 31, 2012.
iii.
Impairment testing of finite life fund management contracts
As at December 31, 2013, the Company had finite life fund management contracts of $12.7 million within the Global Companies
CGU (December 31, 2012 - $14.8 million). These are contracts for the management of funds that have a fixed termination date.
Management completed its assessment of indicators of impairment for the Company's finite life fund management contracts
and noted potential indicators of impairment, which necessitated a formal impairment test. The impairment test was used to
determine a recoverable amount through a value in use technique. The value-in-use was determined by discounting at 13.5%, the
most recent estimated net cash flows to the Company by these funds. Upon completion of the impairment test, no impairment
was determined as the recoverable amount of the fund management contracts continued to exceed their carrying value.
In 2012, finite life fund management contracts of $3.0 million were identified as part of the Flatiron acquisition and allocated
to the SAM CGU. Subsequent to the acquisition, management concluded that there were indicators of impairment that required
management to reassess the recoverable amount of finite life fund management contracts allocated to the SAM CGU. As a result,
the finite life fund management contracts identified as part of the Flatiron acquisition of $3.0 million were determined to be
fully impaired and charged against income on the consolidated statements of operations for the year ended December 31, 2012.
iv.
Impairment testing of carried interests
As at December 31, 2013, the Company had carried interests of $3.0 million within the Global Companies CGU (December 31,
2012 - $14.0 million). These are rights to participate in the profits of the funds managed by the Global Companies that have a
fixed termination date. The recoverable amount of these carried interests as at December 31, 2013 has been determined from a
value-in-use calculation, by discounting, at 27.5%, the most recent estimated net cash flows to the Company by these funds.
The calculated recoverable amount of these finite life carried interests led to the recognition of an impairment charge of $10.4
million for the year ended December 31, 2013 (December 31, 2012 - $3.7 million) as the calculated recoverable amount resulted
in a value greater than its carrying value. Management has assumed annual return rates of 4.8% to 7.3% for these funds to
determine value-in-use.
50
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
The underlying inputs and assumptions that determine the recoverable amount of carried interests are related to the resource
sector and commodity prices which can exhibit significant volatility. As a result, the recoverable amount of carried interests may
demonstrate significant fluctuations in value year over year.
7.
LOANS RECEIVABLE
i.
Components of loans receivable
Loans receivable are reported at their amortized cost using the effective interest method, other than precious metal loans that are
designated as FVTPL which are reported at fair value.
The carrying value of the Company’s loan portfolio comprises the following components ($ in thousands):
December 31, 2013
December 31, 2012
Resource bridge loans
Loan principal
Accrued interest
Deferred revenue
Amortized cost, before loan loss provisions
Loan loss provisions
Carrying value of resource bridge loans receivable
Less: current portion
Total non-current resource bridge loans receivable
Real estate loans
Loan principal
Accrued interest
Amortized cost, before loan loss provision
Loan loss provision
Carrying value of real estate loans receivable
Less: current portion
Total non-current real estate loans receivable
Precious metal loans
Precious metal loan - FVTPL
Precious metal loan - HTM
Carrying value of precious metal loans
Less: current portion
Total non-current precious metal loans
Total carrying value of loans receivable
Less: current portion
Total carrying value of non-current loans receivable
88,778
62
(3,668)
85,172
—
85,172
(45,890)
39,282
5,237
222
5,459
(222)
5,237
(4,389)
848
11,658
3,033
14,691
(4,123)
10,568
105,100
(54,402)
50,698
12,000
—
(284)
11,716
—
11,716
—
11,716
—
—
—
—
—
—
—
—
4,406
4,406
—
4,406
16,122
—
16,122
51
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
ii.
Past due loans that are not impaired
Loans are considered past due once the borrower has failed to make payments within 30 days of the contractual due date. All past
due loans are classified as impaired.
iii.
Impaired loans and loan loss provisions
When a loan is classified as impaired, the original expected timing and amount of future cash flows may be revised to reflect new loan
circumstances. These revised cash flows are discounted using the original effective interest rate to determine the net realizable value
of the loan. Interest income is thereafter recognized on this net realizable value using the effective interest rate. Additional changes
to the amount or timing of future cash flows could result in further loan losses, or the reversal of previous loan losses, which would
also impact the amount of subsequent interest income recognized.
As at December 31, 2013, the Company performed a comprehensive review of each loan measured at amortized cost in its loan
portfolio to determine the requirement for specific loan loss provisions. The carrying values of the Company’s impaired loans and
specific loan loss provisions are as follows:
December 31, 2013
December 31, 2012
Number of Loans
($ in thousands)
Number of Loans
($ in thousands)
Resource bridge loans
Carrying value of impaired loans
Loan loss provisions
Total carrying value of impaired
loans, net of loan loss provisions
Real estate loans
Carrying value of impaired loan
Loan loss provision
Total carrying value of impaired
loan, net of loan loss provision
Total carrying value of impaired
loans, net of loan loss provisions
—
—
—
1
—
1
1
—
—
—
4,611
(222)
4,389
4,389
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Interest income on the Company’s impaired real estate loan and the changes in the Company’s loan loss provision on real estate loans
are as follows ($ in thousands):
Interest on impaired loans
Loan loss provision on real estate loans
Balance, beginning of year
Loan loss expense on real estate loan
Balance, end of year
iv.
Loan commitments
For the year ended
December 31, 2013
December 31, 2012
222
—
222
222
—
—
—
—
As at December 31, 2013, subject to certain funding conditions, the Company is committed to providing up to $1.9 million in credit
facilities on resource loans (December 31, 2012 - $5.0 million).
52
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
v.
Property sector distribution of loan principal
The following table summarizes the distribution of all of the Company’s outstanding loan principal balances by sector:
December 31, 2013
December 31, 2012
Number of Loans
($ in thousands) Number of Loans
($ in thousands)
Resource bridge loans
Metals and mining
Energy and other
Total resource bridge loan principal
Precious metal loans
Metals and mining *
Total precious metal loan principal
Real estate loans
Land under development
Residential
Total real estate loan principal
Total loan principal
9
5
14
2
2
1
1
2
18
76,419
12,359
88,778
14,691
14,691
4,389
848
5,237
108,706
1
—
1
1
1
—
—
—
2
12,000
—
12,000
4,406
4,406
—
—
—
16,406
*
$11.7 million of the precious metal loans as at December 31, 2013 were designated as FVTPL which includes principal and interest while the
remaining $3.0 million were classified as HTM. As at December 31, 2012, $4.4 million of the precious metal loans were classified as HTM.
vi. Geographic distribution of loan principal
The following table summarizes the distribution of all of the Company’s outstanding loan principal balances by principal
geographic location of the underlying security:
December 31, 2013
December 31, 2012
Number of Loans
($ in thousands) Number of Loans
($ in thousands)
Resource bridge loans
Canada
United States of America
Mexico
Australia
Chile
Total resource bridge loan principal
Precious metal loans
Canada *
Total precious metal loan principal
Real estate loans
Canada
Total real estate loan principal
Total loan principal
7
3
1
2
1
14
2
2
2
2
18
27,000
24,831
17,800
14,872
4,275
88,778
14,691
14,691
5,237
5,237
108,706
1
—
—
—
—
1
1
1
—
—
2
12,000
—
—
—
—
12,000
4,406
4,406
—
—
16,406
*
$11.7 million of the precious metal loans as at December 31, 2013 were designated as FVTPL which includes principal and interest while the
remaining $3.0 million were classified as HTM. As at December 31, 2012, $4.4 million of the precious metal loans were classified as HTM.
vii.
Priority of security charges
All of the Company's loans are senior secured with the exception of one resource bridge loan, with a carrying value of $4.6 million,
which is unsecured.
53
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
8. OTHER ASSETS AND OTHER INCOME
Other assets
Other assets consist primarily of proceeds receivable from the sale of a Sprott fund, proceeds receivable on the sale of an investment by
SRLC, prepaid expenses of the Company and receivables from the funds and managed companies managed by the Company for which the
Company has incurred expenses on their behalf ($ in thousands).
Prepaid expenses and other receivables
Due from broker
Proceeds receivable
Total other assets
Included in long-term other assets
Other income
December 31, 2013
December 31, 2012
3,710
13,478
3,496
20,684
3,613
17,071
3,919
—
—
3,919
—
3,919
Other income consists primarily of foreign exchange gains and losses, dividend income and redemption fee revenue on a recurring basis.
For the year ended December 31, 2013, other income primarily includes the one-time inclusions of: (i) the gain on bargain purchase of $5.5
million resulting from the acquisition of SRLC; and (ii) a break-fee of $7.5 million for the termination of the management services agreement
with a managed company.
54
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
9.
SHAREHOLDERS' EQUITY
a.
Capital stock and contributed surplus
The authorized and issued share capital of the Company consists of an unlimited number of common shares, without par value.
At December 31, 2011
Additional purchase consideration
Issuance of share capital on business acquisition (Note 3)
Acquired for equity incentive plan
At December 31, 2012
Additional purchase consideration
Issuance of share capital from private placement, net of costs and taxes
Issuance of share capital on conversion of RSU
Issuance of share capital on business acquisition (Note 3)
Acquired for equity incentive plan
Released on vesting of equity incentive plan
At December 31, 2013
Number of shares
Stated value
($ in thousands)
169,082,077
177,500
1,564,500
(1,774,400)
169,049,677
177,500
7,575,758
1,401
68,962,896
(448,500)
627,125
245,945,857
208,413
1,551
7,698
(2,188)
215,474
1,090
24,632
6
166,201
(697)
3,714
410,420
Contributed surplus consists of: stock option expense; earn-out shares expense; equity incentive plans' expense; and additional purchase
consideration.
At December 31, 2011
Expensing of Sprott Inc. stock options over the vesting period
Expensing of EPSP / EIP shares over the vesting period
Expensing of earn-out shares over the vesting period
Deferred tax asset on earn-out shares
Issuance of shares relating to additional purchase consideration
Excess on repurchase of common shares for equity incentive plan *
At December 31, 2012
Expensing of Sprott Inc. stock options over the vesting period
Expensing of EPSP / EIP shares over the vesting period
Expensing of earn-out shares over the vesting period
Write-down of deferred tax asset on earn-out shares
Issuance of shares relating to additional purchase consideration
Issuance of share capital on conversion of RSU
Excess on repurchase of common shares for equity incentive plan *
Released on vesting of common shares for equity incentive plan
At December 31, 2013
Stated value
($ in thousands)
40,857
98
6,667
4,342
336
(1,671)
(7,821)
42,808
30
3,922
6,312
(1,904)
(1,234)
(5)
(558)
(3,707)
45,664
* The excess on repurchase of common shares represents amounts paid to shareholders by the Company on repurchase of their shares in excess of the book
value of those shares.
55
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
Stock option plan and share incentive program
Stock option plan
On June 2, 2011, the Company adopted an amended and restated option plan (the “Plan”) to provide incentives to directors, officers,
employees and consultants of the Company and its wholly-owned subsidiaries. The aggregate number of shares issuable upon the exercise
of all options granted under the Plan and under all other securities based compensation arrangements (including the EPSP and the EIP
as defined below) shall not exceed 10% of the issued and outstanding shares of the Company as at the date of such grant. The options
may be granted at a price that is not less than the market price of the Company's common shares at the time of the grant. The options
vest annually over a three-year period and may be exercised during a period not to exceed 10 years from the date of grant.
There were no stock options issued during the year ended December 31, 2013 (nil - December 31, 2012).
For valuing share option grants, the fair value method of accounting is used. The fair value of option grants is determined using the
Black-Scholes option-pricing model, which takes into account the exercise price of the option, the current share price, the risk-free
interest rate, the expected volatility of the share price over the life of the option and other relevant factors. Compensation expense is
recognized over the three-year vesting period, assuming an estimated forfeiture rate, with an offset to contributed surplus. When exercised,
amounts originally recorded against contributed surplus as well as any consideration paid by the option holder is credited to capital stock.
A summary of the changes in the Plan is as follows:
Options outstanding, December 31, 2011
Options exercisable, December 31, 2011
Options outstanding, December 31, 2012
Options exercisable, December 31, 2012
Options outstanding, December 31, 2013
Options exercisable, December 31, 2013
Options outstanding and exercisable as at December 31, 2013 are as follows:
Number of options
(in thousands)
Weighted average
exercise price
($)
2,650
2,517
2,650
2,583
2,650
2,650
9.71
9.90
9.71
9.80
9.71
9.71
Exercise price ($)
10.00
4.85
6.60
4.85 to 10.00
Equity incentive plan
Number of
outstanding options
(in thousands)
Weighted average
remaining
contractual life
(years)
Number of options
exercisable
(in thousands)
2,450
50
150
2,650
4.3
6.0
6.9
4.5
2,450
50
150
2,650
On June 2, 2011, the Company adopted the Trust for Canadian employees and an Equity Incentive Plan (“EIP”) for its US employees.
For employees in Canada, the Trust has been established and the Company will fund the Trust with cash, which will be used by the
trustee to purchase (a) on the open market, common shares of the Company that will be held in the Trust by the trustee until the awards
vest and are distributed to eligible members or (b) from treasury, common shares of the Company that will be held in trust by the trustee
until the awards vest and are distributed to eligible members. For employees in the US, the Company will allot common shares of the
Company as either (i) restricted stock, (ii) unrestricted stock or (iii) restricted stock units (“RSUs”), the resulting common shares of which
will be issued from treasury.
56
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
There were no RSUs issued during the year ended December 31, 2013 (4 thousand - during the year ended December 31, 2012). The
Trust purchased 0.4 million common shares for the year ended December 31, 2013 (1.8 million - December 31, 2012).
Common shares held by the Trust, December 31, 2011
Acquired
Released on vesting
Unvested common shares held by the Trust, December 31, 2012
Acquired
Released on vesting
Unvested common shares held by the Trust, December 31, 2013
Number of common shares
385,423
1,774,400
—
2,159,823
448,500
(627,125)
1,981,198
Earn-out shares
In connection with the acquisition of the Global Companies (see note 2), up to an additional 8 million common shares of the Company
may be issued with the achievement of certain earnings targets by the Global Companies. In accordance with IFRS 2 Share-based Payment,
this potential award carries a service condition without a performance condition of equal term. As a result, the accounting guidance
under IFRS 2 required the Company to estimate the fair value of the potential share-based award on the business acquisition date. The
fair value determined by the Company of $13.0 million was determined using an acceptable valuation model that utilized several significant
assumptions including the probability of continued employment of a senior employee on or after February 4, 2014, the stock price of
the Company on February 4, 2016 and the cumulative earnings of the Global Companies for the five year period ending February 4,
2016. The fair value of this share-based award is being charged to the consolidated statements of operations equally over the period of
the service condition, being 3 years.
In connection with the acquisition of the Toscana Companies (see note 3), up to an additional 0.9 million common shares of the Company
may be issued with the achievement of certain earnings targets by the Toscana Companies. In accordance with IFRS 2 Share-based Payment,
this potential award carries a service condition with a market performance condition of equal term. As a result, the accounting guidance
under IFRS 2 required the Company to initially estimate the number of equity instruments expected to ultimately vest and to assess the
fair value of the equity instrument on the grant date. The fair value for each equity instrument was determined to be $3.99 using an
acceptable valuation model that utilized several significant assumptions including the probability of future dividends, options pricing and
discounts for lock-up restrictions. In addition, the valuation model contemplated cash flow assumptions related to future AUM levels
and cumulative earnings. The fair value of this share-based award is being charged to the consolidated statements of operations over
the period of the service condition, being 3 years and is adjusted each reporting period to reflect the best available estimate of the number
of equity instruments expected to ultimately vest.
Additional purchase consideration
In connection with the acquisition of the Global Companies, an additional 532,500 common shares of the Company were committed
for issuance to employees of the Global Companies. The common shares were not considered compensation but formed part of the
business acquisition. This additional consideration was recorded at fair value based on the market price of the Company's common
shares as at February 4, 2011. Upon issuance of the common shares, the amount originally recorded against contributed surplus will be
credited to capital stock. On each of February 6, 2012, and February 4, 2013, 177,500 common shares of the Company were issued to
employees of the Global Companies.
For the year ended December 31, 2013, the Company recorded share-based compensation expense of $10.3 million, (2012 - $11.1
million ) with a corresponding increase to contributed surplus ($ in thousands).
Earn-out shares
Stock option plan
EPSP / EIP
For the year ended
December 31, 2013 December 31, 2012
6,312
30
3,922
10,264
4,342
98
6,667
11,107
57
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
b.
Basic and diluted earnings (loss) per share
The following table presents the calculation of basic and diluted earnings per common share:
Numerator ($ in thousands):
Net income (loss) - basic and diluted
Denominator (Number of shares in
thousands):
Weighted average number of common
shares
Weighted average number of unvested
shares purchased by the Trust
Weighted average number of common
shares - basic
Weighted average number of dilutive stock
options *
Weighted average number of additional
purchase consideration
Weighted average number of unvested
shares purchased by the Trust
Weighted average number of outstanding
Restricted Stock Units
Weighted average number of common
shares - diluted
Net income per common share
Basic
Diluted
For the year ended
December 31, 2013 December 31, 2012
(81,261)
31,984
207,872
(1,742)
206,130
—
—
—
—
170,402
(1,683)
168,719
—
372
1,683
4
206,130
170,778
$
$
(0.39) $
(0.39) $
0.19
0.19
* The determination of the weighted average number of common shares - diluted excludes 2.7 million shares related to stock options that were
anti-dilutive for the year ended December 31, 2013 (2.6 million for the year ended December 31, 2012).
c.
Capital management
The Company's objectives when managing capital are:
•
•
•
•
•
To meet regulatory requirements and other contractual obligations;
To safeguard the Company's ability to continue as a going concern so that it can continue to provide returns for shareholders;
To provide financial flexibility to fund possible acquisitions;
To provide adequate seed capital for the Company's new product offerings; and
To provide an adequate return to shareholders through growth in assets under management, growth in management fees and
performance fees and return on the Company's invested capital that will result in dividend payments to shareholders.
The Company's capital is comprised of equity, including capital stock, contributed surplus, retained earnings (deficit) and accumulated other
comprehensive income. SPW is a member of the Investment Industry Regulatory Organization of Canada (“IIROC”), SAM is a registrant
of the Ontario Securities Commission (“OSC”) and the US Securities and Exchange Commission, SAM US is registered with the U.S.
Securities and Exchange Commission and SGRIL is a member of the Financial Industry Regulatory Authority (“FINRA”); as a result, all
of these entities are required to maintain a minimum level of regulatory capital. To ensure compliance, senior management monitors regulatory
and working capital on a regular basis. For the year ended December 31, 2013, all entities were in compliance with their respective capital
requirements.
Effective January 15, 2013, Flatiron voluntarily surrendered its registrations with the OSC.
58
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
In the normal course of business, the Company, through its limited partnerships and wholly-owned subsidiaries, generates adequate operating
cash flow and has limited capital requirements.
Effective September 10, 2013, the Company amended its revolving credit facility with a Canadian chartered bank (the "Bank"). The amount
that may be borrowed under this facility is $35 million. Amounts may be borrowed under the facility through prime rate loans, which bear
interest at the Bank's prime rate, or bankers' acceptances, which bear interest at bankers' acceptance rates plus 1.375%. Amounts may also
be borrowed in U.S. dollars through base rate loans, which bear interest at the greater of the Bank's reference rate for loans made by it in
Canada in U.S. funds and the federal funds effective rate plus 1.00%, or LIBOR loans which bear interest at LIBOR plus 1.375%.
Loans are made by the Bank under a two year revolving credit facility, the term of which may be extended annually at the Bank's option. If
the Bank elects not to extend the term, all outstanding principal, interest and fees are due at the maturity date.
The credit facility is fully and unconditionally guaranteed by SAM, a wholly-owned subsidiary of the Company. The credit facility contains
a number of financial covenants that require the Company to meet certain financial ratios and financial condition tests. The Company is
within its financial covenants with respect to its credit facility, which require that the funded debt to Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) ratio remain below 2:1, the funded debt to SAM EBITDA ratio remain below 1.5:1 and that the
Company's AUM not fall below $5.5 billion, calculated on the last day of each calendar month. There can be no assurance that future
borrowings or equity financing will be available to the Company or available on acceptable terms.
The Company has not drawn on the credit facility as at December 31, 2013.
59
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
10.
INCOME TAXES
The major components of income tax expense are as follows ($ in thousands):
For the year ended
Current income tax expense
Based on taxable income of the current period
Adjustments in respect of previous years
Deferred income tax expense (recovery)
Origination and reversal of temporary differences
Impact of change in tax rates
Income tax expense (recovery) reported in the statements of operations
December 31, 2013
December 31, 2012
5,196
(1,191)
4,005
(9,185)
379
(8,806)
(4,801)
20,075
(1,491)
18,584
(9,105)
245
(8,860)
9,724
The tax on the Company's earnings before tax differs from the theoretical amount that would arise using the weighted average tax rate
applicable to earnings of the Company as follows ($ in thousands):
For the year ended
Income before income taxes
Tax calculated at domestic tax rates applicable to profits and (losses) in the
respective countries
Tax effects of:
Non-deductible stock-based compensation
Non-deductible capital gains or (losses) and unrealized gains or (losses)
Non-taxable foreign affiliate income
Goodwill impairment
Adjustments in respect of previous years
Write-down of deferred tax asset
Non-capital losses not previously benefited
Rate differences and other
Tax charge (recovery)
December 31, 2013
December 31, 2012
(86,062)
(36,729)
965
1,610
—
35,038
(813)
2,034
(7,259)
353
(4,801)
41,708
10,270
1,144
(131)
(446)
—
—
—
—
(1,113)
9,724
The weighted average applicable tax rate was 42.7% (2012 - 24.6%). The decrease is caused primarily due to the recognition of previously
unrecognized deductible temporary differences and to a lesser extent by a change in the profitability of the Company's subsidiaries in the
respective countries because of the addition of the Global Companies resident in the US.
60
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The movement in significant components of the Company's deferred
income tax assets and liabilities is as follows ($ in thousands):
For the year ended December 31, 2013
At December
31, 2012
Recognized in
income
Recognized in
other
comprehensive
income
Recognized in
contributed
surplus
Business
acquisition
At December
31, 2013
Deferred income tax liabilities
Fund management contracts
Carried interests
Deferred sales commissions
Unrealized gains
Transitional partnership income
Proceeds receivable
Other
Total deferred income tax
liabilities
Deferred income tax assets
9,646
5,093
564
679
9,645
—
(208)
(1,232)
(4,948)
107
(917)
—
78
972
25,419
(5,940)
379
190
—
(3)
—
—
(246)
320
Unrealized losses
15,481
(2,012)
1,068
Additional purchase consideration
Earn-out shares
Other stock-based compensation
Non-capital losses
Other
Total deferred income tax assets
Net deferred income tax assets
(liabilities)
1,258
1,799
1,769
—
1,346
21,653
—
—
1,032
4,751
(905)
2,866
48
56
1
—
114
1,287
(3,766)
8,806
967
(2,595)
—
—
—
—
—
—
—
—
—
(634)
(1,855)
—
—
(106)
(2,595)
—
—
—
—
—
1,145
—
1,145
—
—
—
—
2,958
—
2,958
1,813
8,793
335
671
(241)
9,645
1,223
518
20,944
14,537
672
—
2,802
7,709
449
26,169
5,225
61
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
For the year ended December 31, 2012
Deferred income tax liabilities
Fund management contracts
Carried interests
Deferred sales commissions
Unrealized gains
Transitional partnership income *
Other
Total deferred income tax
liabilities
Deferred income tax assets
Unrealized losses
Additional purchase consideration
Earn-out shares
Other stock-based compensation
Other
Total deferred income tax assets
Net deferred income tax assets
(liabilities)
At December
31, 2011
Recognized in
income
Recognized in
other
comprehensive
income
Recognized in
contributed
surplus
Business
acquisition
December 31,
2012
6,947
8,223
562
1,257
10,563
—
(1,191)
(2,992)
2
(578)
(918)
(208)
(145)
(138)
—
—
—
—
27,552
(5,885)
(283)
14,684
1,936
1,528
—
618
18,766
(8,786)
1,092
(634)
—
1,769
748
2,975
8,860
(295)
(44)
(43)
—
(20)
(402)
(119)
—
—
—
—
—
—
—
—
—
314
—
—
314
314
4,035
—
—
—
—
—
9,646
5,093
564
679
9,645
(208)
4,035
25,419
—
—
—
—
—
—
15,481
1,258
1,799
1,769
1,346
21,653
(4,035)
(3,766)
* The balance at December 31, 2011 has been adjusted by $10,563 to reflect the change in tax policy issued by the Ministry of Finance that eliminated the
Company's ability to defer tax payable on earnings of its operating limited partnerships. This amount was previously included in the Company's income
taxes payable at December 31, 2011.
Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future
taxable profits is probable. The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the future
profitability of operations in the jurisdictions in which the tax losses arose. At December 31, 2013, the Company recognized a deferred tax
asset of $5.8 million reflecting management's tax strategy to utilize previously non-accessible tax losses. Management expects to monetize
this deferred tax asset over the next two to three years.
62
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
11. FAIR VALUE MEASUREMENTS
The following tables present the level within the fair value hierarchy for the Company's recurring and non-recurring fair value measurements
($ in thousands):
December 31, 2013
Level 1
Level 2
Level 3
Total
Recurring measurements:
Cash and cash equivalents
Gold bullion
Public equities
Private holdings
Common share purchase warrants
Fixed income securities
Mutual funds
Alternative investment strategies
Precious metal loans
Total recurring fair value measurements
115,670
6,532
3,503
—
—
—
16,132
—
—
141,837
—
—
236
—
358
7,223
—
53,296
—
61,113
—
—
—
5,353
—
—
—
—
11,658
17,011
115,670
6,532
3,739
5,353
358
7,223
16,132
53,296
11,658
219,961
December 31, 2012
Level 1
Level 2
Level 3
Total
Recurring measurements:
Cash and cash equivalents
Gold bullion
Public equities
Private holdings
Common share purchase warrants
Mutual funds
Alternative investment strategies
Contingent returnable consideration *
Acquisition consideration payable *
Total recurring measurements:
* These amounts are netted on the consolidated balance sheets.
77,400
8,548
17,179
—
—
16,009
—
3,918
(3,918)
119,136
—
261
—
539
—
13,117
4,456
(4,456)
13,917
—
—
4,949
—
—
—
—
—
4,949
77,400
8,548
17,440
4,949
539
16,009
13,117
8,374
(8,374)
138,002
63
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
The following tables provides a summary of changes in the fair value of Level 3 financial assets ($ in thousands):
Changes in the fair value of Level 3 measurements - December 31, 2013
December
31, 2012
Purchases and
reclassifications Settlements
Net
unrealized
gains (losses)
included in
net income
Net realized
gains (losses)
included in
net income
Net realized
gains (losses)
included in
other income
Net realized
gains (losses)
included in
interest
income
December
31, 2013
Private holdings
Precious metal
loans
4,949
—
4,949
9,216
(8,277)
(1,165)
13,018
22,234
(2,317)
(10,594)
585
(580)
630
—
630
—
237
237
—
135
135
5,353
11,658
17,011
Changes in the fair value of Level 3 measurements - December 31, 2012
December
31, 2011
Purchases
Settlements
Net
unrealized
gains
included in
net income
Net realized
gains and
losses
included in
net income
Net realized
gains (losses)
included in
other income
Net realized
gains (losses)
included in
interest
income
December
31, 2012
Private holdings
2,400
2,550
—
(1)
—
—
—
4,949
During the year ended December 31, 2013, $0.2 million of financial assets was transferred from Level 2 to Level 1. This transfer represented
the expiry of the trading restriction on the common shares of certain proprietary investments.
Financial instruments not carried at fair value
For fees receivable, other assets (except proceeds receivable), accounts payable and accrued liabilities and compensation and employee
bonuses payable, the carrying amount represents a reasonable approximation of fair value due to their short term nature.
Loans receivable (excluding precious metal loans) had a carrying value of $90.4 million and a fair value of $92.5 million. Loans receivable
(excluding precious metal loans) lack an available trading market, are not typically exchanged, and have been recorded at amortized cost.
The fair value of the Company's resource loans is measured based on changes in the market price of a comparable emerging markets
benchmark bond since the average date that the loans were originated. The fair value of the Company's real estate loan is based on discounted
expected future cash flows at current market rates for loans with similar terms and risks. The Company adjusts the fair value of loans to
take into account any significant changes in credit risks using observable market inputs in determining the counterparty credit risks of loans,
net of loan loss provisions on the loans. The fair value of loans are not necessarily representative of the amounts realizable upon immediate
settlement of the loans. The valuation techniques used for these amortized cost loans for which a fair value has been disclosed would fall
under Level 3 of the fair value hierarchy.
64
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
12. RELATED PARTY TRANSACTIONS
The remuneration of directors and other key management personnel of the Company for employment services rendered are as follows ($
in thousands):
Fixed salaries and benefits
Variable incentive-based compensation
Termination benefits
Share-based compensation
For the year ended
December 31, 2013 December 31, 2012
5,794
4,302
2,700
925
13,721
3,597
10,179
—
1,123
14,899
On May 8, 2012, the Company adopted a deferred stock unit ("DSU") plan for the independent directors of the Company. The DSUs vest
annually over a three-year period and may only be settled in cash upon retirement. There were no DSUs issued during the year ended
December 31, 2013 (December 31, 2012 - 225,000 DSUs issued at a price of $4.64 per DSU). The resulting expense from the DSUs issued
in the second quarter of 2012 is included in general and administrative costs and is recognized over the three-year vesting period with an
offset to accrued liabilities.
13. DIVIDENDS
The following dividends were declared and paid by the Company during the year ended December 31, 2013:
Record date
April 8, 2013 - regular dividend Q4 - 2012
May 16, 2013 - regular dividend Q1 - 2013
August 16, 2013 - regular dividend Q2 - 2013
November 21, 2013 - regular dividend Q3 - 2013
Dividends paid
Payment Date
Cash dividend per
share ($) *
Total dividend
amount ($ in
thousands)
April 23, 2013
May 31, 2013
August 30, 2013
December 5, 2013
0.03
0.03
0.03
0.03
5,361
5,361
7,429
7,441
25,592
* Dividends have been designated as eligible dividends by the Company pursuant to the guidelines issued by the Canada Revenue Agency.
14. COMMITMENTS
Future minimum annual rental payments under non-cancellable leases, including operating costs, are as follows ($ thousands):
2014
2015
2016
2017
2018
Thereafter
The Company's loan commitments are disclosed in note 7.
3,955
3,975
4,231
4,251
4,231
19,480
40,123
65
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
15. RISK MANAGEMENT ACTIVITIES
The Company's financial instruments present a number of specific risks as identified below.
(a) Market risk
Market risk refers to the risk that a change in the level of one or more of market prices, interest rates, foreign exchange rates, indices,
volatilities, correlations or other market factors, such as liquidity, will result in a change in the fair value of a financial instrument. The
Company's financial instruments are classified as HFT, designated as FVTPL, HTM or as loans and receivables. Therefore, changes
in fair value or permanent impairment, if any, affect reported earnings as they occur. The maximum risk resulting from financial
instruments is determined by the fair value of the financial instruments. The Company manages market risk through regular monitoring
of its proprietary investments and loans receivable. The Company separates market risk into three categories: price risk, interest rate
risk and foreign exchange risk.
Price risk
Price risk arises from the possibility that changes in the price of the Company's proprietary investments will result in changes in
carrying value. If the market values of proprietary investments classified as HFT increased by 5%, with all other variables held
constant, this would have increased net income by approximately $3.8 million for the year ended December 31, 2013 (December 31,
2012 - $2.3 million); conversely, if the value of proprietary investments decreased by 5%, this would have decreased net income
by a similar amount. For more details about the Company's proprietary investments, refer to note 4.
The Company's revenues are also exposed to price risk since management fees, performance fees and carried interests are correlated
with assets under management, which fluctuates with changes in the market values of the assets in the funds and managed accounts
managed by SAM, SC, Sprott Toscana, RCIC and SAM US.
Commodity price risk refers to uncertainty of the future market values and the amount of future income caused by the fluctuation
in the price of specific commodities. The Company may, from time to time: (i) hold certain investments linked to the market
prices of metals; and (ii) enter into certain precious metal loans, where the repayment is notionally tied to a specific commodity
spot price at the time of the loan and downward changes to the price of the commodity can reduce the value of the loan and the
amounts ultimately repaid to the Company.
At December 31, 2013, the Company held precious metal loans with a carrying value of $14.7 million (December 31, 2012 - $4.4
million). The fair value of the Company's loans is dependent on future gold prices. A 5% increase or decrease in the future price
of gold, with all other variables held constant, would have resulted in an increase or decrease in net income of approximately $0.6
million for the year ended December 31, 2013 (December 31, 2012 - $0.2 million). As a mitigating factor, the Company may from
time-to-time implement certain hedging strategies such as imposing a minimum internal rate of return on a precious metal loan
or fixing the loan payments at a predetermined price of gold over the full term of the loan.
At December 31, 2013, the Company held gold bullion with a carrying value of $6.5 million (December 31, 2012 - $8.5 million).
If the market value of gold bullion increased by 5%, with all other variables held constant, this would have increased net income
by approximately $0.3 million for the year ended December 31, 2013 (December 31, 2012 - $0.4 million); conversely, if the value
of gold bullion decreased by 5%, this would have decreased net income by a similar amount.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The Company’s
earnings, particularly through its SRLC subsidiary are exposed to volatility as a result of sudden changes in interest rates. This
occurs, in most circumstances, when there is a mismatch between the maturity (or re-pricing characteristics) of loans and the
liabilities used to fund the loans. In the past, the Company has, in some cases, set minimum rates or an interest rate floor in its
variable rate loans. None of the Company's current lending is based on variable interest rates. The Company is also exposed to
changes in the value of a loan when that loan’s interest rate is at a rate other than current market rates. The Company mitigates
this risk by lending for short terms, with terms at the inception of the loan generally varying from nine months to three years, and
by charging prepayment penalties and/or upfront commitment fees.
As at December 31, 2013, the Company had 14 fixed-rate resource-based loans and 2 fixed-rate real estate loans with an aggregate
carrying value of $90.4 million (December 31, 2012 - $11.7 million). The Company's 14 fixed rate resource loans range in maturity
dates from less than 6 months to 4 years and it has one real estate loan that is considered non-performing.
As part of its cash management program, the Company primarily invests in short-term debt securities issued by the Government
of Canada with maturities of less than three months.
66
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
The carrying amounts of the Company's assets and liabilities in the following table are presented in the periods in which they next
reprice to market rates or mature based on the earlier of contractual repricing and maturity dates, as at December 31, 2013 ($ in
thousands):
December 31, 2013
Floating
Rate
Within 6
Months
6 to 12
Months
1 to 3 years
Over 3
years
Non-
Interest
Sensitive
Total
Total assets
115,670
10,664
41,273
37,209
9,944
240,960
455,720
Total liabilities and equity
—
—
—
—
—
(455,720)
(455,720)
Difference
115,670
10,664
41,273
37,209
9,944
(214,760)
Cumulative difference
115,670
126,334
167,607
204,816
214,760
Cumulative difference as a
percentage of total assets
Foreign exchange risk
25.4%
27.7%
36.8%
44.9%
47.1%
—
—
—
—
—
Foreign exchange risk arises from the possibility that changes in the price of foreign currencies will result in changes in carrying
value. The Company holds assets denominated in currencies other than the Canadian dollar, such as the United States dollar
("USD"). In these circumstances, the Company may employ certain hedging strategies in order to mitigate its exposure to this type
of risk. In addition, the Global Companies' assets are all denominated in USD. The Company is therefore exposed to currency
risk, as the value of investments denominated in other currencies will fluctuate due to changes in exchange rates.
Excluding the impact of the Global Companies, as at December 31, 2013, approximately $46.8 million or 8.7% (December 31,
2012 - $16.1 million or 4.5%) of total Canadian assets were invested in proprietary investments priced in USD. Furthermore, a
total of $17.4 million (December 31, 2012 - $2.1 million) of cash, $1.4 million (December 31, 2012 -$0.2 million) of accounts
receivable, $5.8 million (December 31, 2012- $0.0 million) of loans receivable and $0.6 million (December 31, 2012 - $0.4 million)
of other assets were denominated in USD. As at December 31, 2013, had the exchange rate between the USD and the Canadian
dollar increased or decreased by 5%, with all other variables held constant, the increase or decrease, respectively, in net income for
the year ended December 31, 2013 would have amounted to approximately $2.7 million (December 31, 2012 - $0.8 million).
(b) Credit risk
Credit risk is the risk that a borrower will not honor its commitments and a loss to the Company may result.
Proprietary investments
The Company incurs credit risk when entering into, settling and financing various proprietary transactions. As at December 31,
2013, the Company's most significant counterparty is National Bank Correspondent Network Inc. ("NBCN"), the carrying broker
of SPW, which also acts as a custodian for most of the Company's proprietary investments (other than foreclosed properties).
NBCN is registered as an investment dealer subject to regulation by the IIROC; as a result, it is required to maintain minimum
levels of regulatory capital at all times.
Loans receivable
The Company incurs credit risk as it is exposed to adverse changes in conditions which affect real estate values for its real estate
loan and commodity and energy prices for its resource loans. These market changes may be regional, national or international in
nature and scope or may revolve around a specific asset. Risk is increased if the values of the underlying assets securing the
Company's loans decline to levels approaching or below the loan amounts. Any decrease in real estate values or commodity or
energy prices may delay the development of the underlying security or business plans of the borrower and will adversely affect
the value of the the Company's security. Additionally, the value of the Company's underlying security in a resource loan can be
negatively affected if the actual amount or quality of the commodity proves to be less than that estimated or the ability to extract
the commodity proves to be more difficult or more costly than estimated.
During the resource loan origination process, senior management takes into account a number of factors and is committed to
several processes to ensure that this risk is appropriately mitigated.
These include:
•
•
•
emphasis on first priority and/or secured financings;
the investigation of the creditworthiness of all borrowers;
the employment of qualified and experienced loan professionals;
67
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
•
•
•
a review of the sufficiency of the borrower’s business plans including plans which will enhance the value of the underlying
security;
frequent and documented status updates provided on the business plans and if applicable, progress thereon;
the engagement of qualified independent consultants and advisors such as lawyers, engineers and geologists dedicated to
protecting the Company's interests; and
•
a legal review which is performed to ensure that all due diligence requirements are met prior to funding.
The Board of Directors has the responsibility of ensuring that credit risk management is adequate. They have delegated much of
this responsibility to the Executive Credit Committee. The Board of Directors are provided with a detailed portfolio analysis
including a report on all overdue and impaired loans, and meet at a minimum on a quarterly basis, to review and assess the risk
profile of the loan portfolio. The Executive Credit Committee is required to approve all non-related party loan exposures up to
$10 million. All non-related party loan exposures exceeding $10 million and up to $20 million must be approved unanimously by
the Executive Credit Committee and by a majority of a sub-committee of the Board of Directors. All loan exposures exceeding
$20 million are required to be approved by the Board of Directors of the Company. Any related party loans must be approved
within the limits noted above provided that any person who may have a conflict with such loan, must abstain from voting.
At December 31, 2013, the Company’s exposure to credit risk on the consolidated balance sheet as it relates to its loan receivables
is the carrying value of its loans receivable of $105.1 million (December 31, 2012 - $16.1 million) and its loan commitments of
$1.9 million (December 31, 2012 - $5.0 million). As at December 31, 2013, the largest loan in the Company’s loan portfolio was
a resource loan with a carrying value of $17.5 million or 16.6% of the Company’s loans receivable (December 31, 2012 - $11.7
million or 72.7% of the Company’s loan receivable). The Company will syndicate loans in certain circumstances if it wishes to
reduce its exposure to a borrower or comply with loan exposure maximums. The Company reviews its policies regarding its lending
limits on an ongoing basis. For precious metal loans, the Company performs the same due diligence procedures as it would for
its resource bridge loans.
Other
Credit risk is also managed by dealing with counterparties that the Company believes to be creditworthy and by actively monitoring
credit exposure and the financial health of the counterparties. The majority of accounts receivable relate to management and
performance fees receivable from the funds, managed accounts and managed companies managed by the Company.
The Global Companies incur credit risk when entering into, settling and financing various proprietary transactions. As at
December 31, 2013, the Global Companies' most significant counterparty is RBC Capital Markets LLC (“RBCCM”), the carrying
broker of SGRIL and custodian of the net assets of the funds managed by RCIC. RBCCM is registered as a broker dealer and
registered investment advisor subject to regulation by the FINRA and the SEC; as a result, it is required to maintain minimal levels
of regulatory capital at all times.
(c)
Liquidity risk
Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due.
The Company's exposure to liquidity risk is minimal as it maintains sufficient levels of liquid assets to meet its obligations as they
come due. As at December 31, 2013, the Company had $115.7 million or 25.4% of its total assets in cash and cash equivalents. The
majority of current assets reflected on the consolidated balance sheets are highly liquid. In addition, approximately $45.6 million or
48.8% of proprietary investments held by the Company are readily marketable and are recorded at their fair value.
The Company's exposure to liquidity risk as it relates to loans receivable arises from fluctuations in cash flows from making loan
advances and receiving loan repayments. The Company manages its loan commitment liquidity risk by the ongoing monitoring of
scheduled loan fundings and repayments. As at December 31, 2013, subject to certain funding conditions, the Company is committed
to providing up to $1.9 million in resource loan advances (December 31, 2012 - $5.0 million). Financial liabilities, including accounts
payable and accrued liabilities and compensation and employee bonuses payable, are short-term in nature and are generally due within
a year.
The Company's management is responsible for reviewing liquidity resources to ensure funds are readily available to meet its financial
obligations as they come due, as well as ensuring adequate funds exist to support business strategies and operations growth. The
Company manages liquidity risk by monitoring cash balances on a daily basis. To meet any liquidity shortfalls, actions taken by the
Company could include: syndicating a portion of its loans; slowing its lending activities; drawing on available debt facilities; liquidating
proprietary investments; and/or issuing common shares.
(d) Concentration risk
The majority of the Company's AUM as well as its proprietary investments and loans are focused on the natural resource sector.
68
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
16. SEGMENTED INFORMATION
For management purposes the Company is organized into business units based on its products, services and geographical location and has
five reportable segments, as follows:
•
•
•
•
SAM, which provides asset management services to the Company's branded Funds and Managed Accounts.
Global Companies, which provides asset management services to the Company's branded Funds and Managed Accounts in the US
and also provides securities trading services to its clients.
SRLC, which provides loans to companies in the mining and energy sectors.
Corporate and Other. The Corporate segment provides treasury and shared services to the Company's business units and includes
the operating results of Sprott Inc. without the effect of consolidating its subsidiaries. The Other segment includes the activities of
SPW, the private wealth business of the Company.
•
The Consulting segment includes the operations of SC and Sprott Toscana, the consulting businesses of the Company.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation
and performance assessment. Segment performance is evaluated based on earnings before interest expense, income taxes, amortization and
impairment of intangible assets and goodwill, gains and losses on proprietary investments (as if such gains and losses had not been incurred)
and stock-based non-cash compensation (EBITDA). Income taxes are managed on a consolidated basis and are not allocated to operating
segments.
Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.
EBITDA is not a measurement in accordance with IFRS and should not be considered as an alternative to net income or any other measure
of performance under IFRS.
69
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
The following tables present the operations of the Company's reportable segments ($ in thousands):
For the year ended
December 31, 2013
SAM
Global
Companies
SRLC
Corporate
and Other
Consulting
Adjustments
and
Eliminations Consolidated
Revenue
Management fees
Performance fees
Commissions
Interest income
Other
Total revenue
Expenses
General and administrative
Trailer fees
Amortization and impairment
of intangibles, property and
equipment
Impairment of goodwill
Total expenses
Income (loss) before income
taxes for the year
Provision for income taxes
Net income for the year
Income (loss) before income
taxes for the year, from
above
EBITDA adjustments
EBITDA
66,537
6,446
—
199
(2,952)
70,230
38,864
15,908
2,296
—
57,068
9,359
302
5,081
56
(1,095)
13,703
14,533
—
15,674
87,960
118,167
—
—
—
7,215
5,978
13,193
2,552
—
2
—
170
—
1,139
2,344
(568)
3,085
8,632
2,246
—
30
7,596
18,504
15,402
11,484
—
65
—
—
37
—
—
—
—
—
(4,343)
(4,343)
(333)
(4,010)
—
—
84,698
8,994
6,220
9,844
4,616
114,372
82,502
11,898
18,074
87,960
2,554
15,467
11,521
(4,343)
200,434
13,162
(104,464)
10,639
(12,382)
6,983
—
13,162
6,839
20,001
(104,464)
109,097
4,633
10,639
(4,173)
6,466
(12,382)
6,623
(5,759)
6,983
2,574
9,557
—
—
—
(86,062)
(4,801)
(81,261)
(86,062)
120,960
34,898
70
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
For the year ended
December 31, 2012
SAM
Global
Companies
SRLC
Corporate
and Other
Adjustments
and
Consulting
Eliminations Consolidated
Revenue
Management fees
Performance fees
Commissions
Interest income
Other
Total revenue
Expenses
General and administrative
Trailer fees
Amortization and impairment
of intangibles, property and
equipment
Impairment of goodwill
Total expenses
Income before income taxes
for the period
Provision for income taxes
Net income for the period
Income before income taxes
for the period, from above
EBITDA adjustments
EBITDA
99,535
4,401
—
315
9,845
114,096
43,572
27,134
5,051
8,935
84,692
9,552
—
9,645
88
13
19,298
16,366
—
8,395
—
24,761
29,404
(5,463)
29,404
5,540
34,944
(5,463)
12,711
7,248
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
3,861
2,268
11,723
17,857
11,294
—
127
—
9,422
5,554
—
21
199
15,196
3,826
—
39
—
—
—
—
—
(8,293)
(8,293)
(189)
(8,104)
—
—
118,514
9,955
13,506
2,692
13,487
158,154
74,869
19,030
13,612
8,935
11,421
3,865
(8,293)
116,446
6,436
11,331
—
6,436
(2,652)
3,784
11,331
39
11,370
—
—
—
41,708
9,724
31,984
41,708
15,638
57,346
Inter-segment revenues are eliminated upon consolidation and reflected in the "Adjustments and Eliminations" column.
Included in Other revenue is trailer fee income of $4.0 million for the year ended December 31, 2013, (December 31, 2012 - $8.1 million)
which reflects substantially all of the Company's inter-segment revenue.
Included in General and administrative are compensation and benefits, stock-based compensation and general and administrative expenses
on the audited consolidated statements of operations.
For geographic reporting purposes, transactions are primarily recorded in the location that corresponds with the entity's country of domicile
that generates the revenue. The following table presents the revenue of the Company by geographic location ($ in thousands):
Canada
United States
For the year ended
December 31,
2013
December 31,
2012
100,669
13,703
114,372
138,856
19,298
158,154
71
SPROTT INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2013 and 2012
17. PROVISIONS
The Company is engaged in litigation arising in the ordinary course of business relating to claims for additional compensation by former
employees. The Company has made provisions based on current information and the probable resolution of any such proceedings and
claims.
18. EVENTS AFTER THE REPORTING PERIOD
On March 25, 2014, a dividend of $0.03 per common share was declared for the quarter ended December 31, 2013.
72
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended December 31 ($ in thousands of Canadian dollars, except for per share amounts)
2013
2012
Revenue
Management fees
Performance fees
Commissions
Interest income
Unrealized and realized losses on proprietary investments
Other income
Total revenue
Expenses
Compensation and benefits
Stock-based compensation
Trailer fees
General and administrative
Amortization of intangibles
Impairment of goodwill and intangibles
Impairment of goodwill
Amortization of property and equipment
Total expenses
Income before income taxes for the period
Provision for (recovery of) income taxes
Net income for the period
Basic and diluted earnings per share
17,792
6,613
1,191
4,815
(3,286)
2,923
30,048
9,322
2,842
2,781
9,851
1,617
4,998
87,960
214
119,585
(89,537)
574
(90,111)
$
(0.37) $
29,242
9,769
3,303
245
(1,789)
9,779
50,549
7,616
2,807
4,628
9,218
1,936
10,687
8,935
275
46,102
4,447
1,150
3,297
0.02
73
CORPORATE INFORMATION
Head Office
Sprott Inc.
Royal Bank Plaza, South Tower
200 Bay Street
Suite 2700, P.O. Box 27
Toronto, Ontario M5J 2J1
Telephone: 416.362.7172
Toll Free: 1.888.362.7172
Directors & Officers
Eric S. Sprott, Chairman
Peter Grosskopf, Chief Executive Officer and Director
Jack C. Lee, Lead Director
Rick Rule, Director
James T. Roddy, Director
Marc Faber, Director
Paul Stephens, Director
Steven Rostowsky, Chief Financial Officer
Transfer Agent & Registrar
Equity Transfer & Trust Company
200 University Avenue, Suite 400
Toronto, Ontario M5H 4H1
Toll Free: 1.866.393.4891
www.equitytransfer.com
Legal Counsel
Baker & McKenzie LLP
Brookfield Place, Suite 2100
181 Bay Street, P.O. Box 874
Toronto, Ontario, Canada M5J 2T3
Auditors
Ernst & Young LLP
Ernst & Young Tower
P.O. Box 251, 222 Bay Street
Toronto-Dominion Centre
Toronto, Ontario M5K 1J7
Investor Relations
Shareholder requests may be directed to
Investor Relations by e-mail at ir@sprott.com
or via telephone at 416.203.2310
or toll free at 1.877.403.2310
Stock Information
Sprott Inc. common shares are traded on the
Toronto Stock Exchange under the symbol ‘‘SII’’
Annual General Meeting
Wednesday, May 14, 2014, 4:00PM
Toronto Board of Trade
77 Adelaide Street West
First Canadian Place, Suite 350
Toronto, Ontario M5X 1C1
25MAR201420550178
www.sprottinc.com