Clairvest Group Inc. (TSX:CVG) today reported results for the quarter and for
the year ended March 31, 2010. (All figures are in Canadian dollars unless
otherwise stated).
Highlights
-- March 31, 2010 book value of $292.3 million or $18.32 per share versus
$18.20 at December 31, 2009 and $17.89 at March 31, 2009. Cash or near
cash represents 52% of the March 31, 2010 book value, or $9.54 per share
-- Net income for the quarter and for the year was $1.9 million ($0.12 per
share) and $8.5 million ($0.53 per share) respectively
-- Clairvest Equity Partners IV received additional commitments bringing it
to $312 million, or 78%, of the $400 million target
-- Clairvest and Clairvest Equity Partners III invested a combined US$35.3
million in Hudson Valley Waste Holding, Inc.
-- Casino Marina del Sol was impacted by the Chilean earthquake. Insurance
claims and repairs are underway with a reopening expected by September
2010
-- Subsequent to quarter end, Clairvest closed on a new 10-year, $75.0
million, committed credit facility
-- Subsequent to quarter end, Clairvest, Clairvest Equity Partners IV and
CEP IV co-investors closed on a combined US$72 million investment to
build a casino in Des Plaines, Illinois
-- Subsequent to quarter end, Clairvest declared an annual dividend of $1.6
million, or $0.10 per share
Clairvest's book value increased to $292.3 million or $18.32 per share, compared
with $18.20 per share at December 31, 2009 and $17.95 at March 31, 2009. The
increase in book value per share was attributable to net income for the quarter
of $1.9 million, or $0.12 per share. Net income for the year was $8.5 million,
or $0.53 per share.
During the quarter, Clairvest continued marketing for its new private equity
vehicle, Clairvest Equity Partners IV Limited Partnership ("CEP IV"). The amount
of capital committed to date is $312 million, $100 million of which was provided
by Clairvest. Commitments to the new private equity investment pool are limited
by a cap of $500 million, and Clairvest has the right to increase its commitment
to $125 million prior to the end of the fundraising period.
As previously announced, Clairvest and Clairvest Equity Partners III Limited
Partnership ("CEP III") invested a combined US$35.3 million (C$36.9 million) for
a 33.3% ownership in Hudson Valley Waste Holding, Inc. ("Hudson Valley"). Hudson
Valley is a regional solid waste company which collects, processes and recycles
nonhazardous solid waste in the northeastern United States. Clairvest's portion
of the investment was US$8.2 million (C$9.2 million) for an 8.3% ownership in
Hudson Valley unless certain return thresholds are met, at which point
Clairvest's ownership interest would be reduced to 6.2%.
Also as previously announced, Casino Marina del Sol ("Casino del Sol"), a joint
investment by Clairvest and CEP III, was impacted by an earthquake which
occurred in Chile on February 27, 2010. Casino del Sol had purchased insurance
for property damage and for business interruption of up to twelve months. Casino
del Sol is preparing its insurance claims and is making the necessary repairs to
the property and expects the casino to reopen by September 2010.
Also as previously announced, subsequent to quarter end, Clairvest, Clairvest
Equity Partners IV Limited Partnership ("CEP IV") and CEP IV co-investors,
through various acquisition entities, invested a combined US$72.0 million for an
ultimate 40.0% ownership in Midwest Gaming Holdings, LLC ("Midwest Gaming") to
build a casino and amenities in Des Plaines, Illinois. In addition to this
investment, Clairvest, CEP IV and CEP IV co-investors advanced an additional
US$15.8 million loan to Midwest Gaming to bridge the raising of equity from
minority investors as required by the Illinois legislature. The loan will be
repaid as minority investors are approved by the Illinois Gaming Board with
final repayments expected prior to August 2011. The project is expected to open
by late summer 2011, and will be funded by US$295.0 million of total debt and
US$180.0 million of equity. The initial phase of the project will include 1,150
slot machines, 30 gaming tables and food and beverage amenities in a 147,000
square foot facility and a 1,500 space parking garage. The project is located
approximately 1 mile from O'Hare International Airport and 16 miles southwest of
downtown Chicago, the third largest city by population in the United States.
Clairvest's portion of the combined investments was US$11.7 million (C$11.7
million) for an ultimate 6.0% ownership in Midwest Gaming.
"In a challenging environment, the closing of promising investments in Hudson
Valley and Midwest Gaming reaffirms our belief in Clairvest's domain-based
origination strategy", said Jeff Parr, Co-Chief Executive Officer and Managing
Director of Clairvest Group Inc. "We are observing positive effects from the
recovery across all investments, and our team, in partnership with the
management of investee companies, is fully prepared to take advantage of new
opportunities that arise, for the benefit of our investors and limited
partners."
Also subsequent to quarter end, Clairvest closed on a new 10-year, $75 million,
committed credit facility. The credit facility is not expected to be drawn in
the next fiscal year and enhances Clairvest's available liquidity.
Clairvest filed a new normal course issuer bid enabling it to make market
purchases of up to 797,678 of its common shares in the 12-month period
commencing March 6, 2010. No purchases have been made under this bid to June 22,
2010. As at June 22, 2010, Clairvest had repurchased a total of 5,709,578 common
and non-voting shares over the last seven years.
Subsequent to quarter end, Clairvest declared an annual dividend of $0.10 per
share, which will be payable July 26, 2010 to common shareholders of record as
of July 9, 2010. This is an eligible dividend for Canadian income tax purposes.
About Clairvest
Clairvest Group Inc. is a private equity management firm which invests its own
capital, and that of third parties through the Clairvest Equity Partners limited
partnerships, in businesses that have the potential to generate superior
returns. In addition to providing financing, Clairvest contributes strategic
expertise and execution ability to support the growth and development of its
investee partners. Clairvest realizes value through investment returns and the
eventual disposition of its investments.
Forward-looking Statements
This news release contains forward-looking statements with respect to Clairvest
Group Inc., its subsidiaries and their investments. These statements are based
on current expectations and are subject to known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Clairvest, its subsidiaries and their investments to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include
general and economic business conditions, regulatory risks, the possibility that
Casino del Sol's insurance is insufficient or that the casino does not re-open
as anticipated and the possibility that the opening of the casino being built by
Midwest Gaming is delayed. Clairvest is under no obligation to update any
forward-looking statements contained herein should material facts change due to
new information, future events or otherwise.
CLAIRVEST GROUP INC. June 22, 2010
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE QUARTER ENDED MARCH 31, 2010
The Management's Discussion and Analysis ("MD&A") analyzes significant changes
in the unaudited consolidated financial statements of Clairvest Group Inc.
("Clairvest"). It should be read in conjunction with the accompanying unaudited
consolidated financial statements and notes of Clairvest for the quarter ended
March 31, 2010 and the attached news release.
All amounts are in Canadian dollars unless otherwise indicated.
CRITICAL ACCOUNTING ESTIMATES
Clairvest prepares its financial statements in accordance with Canadian
generally accepted accounting principles ("GAAP"). In accordance with Accounting
Guideline 18, "Investment Companies" ("AcG-18"), the Company designates its
temporary investments and corporate investments as held-for-trading and carries
them at fair value. Clairvest has also designated its receivables and payables
as held-for-trading in accordance with Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 3855. Accordingly, each of Clairvest's
financial assets and liabilities is fair valued on each consolidated balance
sheet date.
When a financial asset or liability is initially recognized, its fair value is
generally the value of consideration paid or received. Acquisition costs
relating to corporate investments are not included as part of the cost of the
investment. Subsequent to initial recognition, the fair value of an investment
quoted on an active market is generally the bid price on the principal exchange
the investment is traded on. Investments that are escrowed or otherwise
restricted on sale or transfer are recorded at fair values which take into
account the escrow terms or other restrictions. In determining the fair value
for such investments, the Company considers the nature and length of the
restriction, business risk of the investee company, its stage of development,
market potential, relative trading volume and price volatility, liquidity and
collateral of the security and the size of Clairvest's ownership block as well
as any other factors that may be relevant to the ongoing and realizable value of
the investments. The amounts at which Clairvest's publicly- traded investments
could be disposed of may differ from this fair value and the differences could
be material. Differences could arise as the value at which significant ownership
positions are sold is often different than the quoted market price due to a
variety of factors such as premiums paid for large blocks or discounts due to
illiquidity. Estimated costs of disposition are not included in the fair value
determination.
In the absence of an active market, the fair values are determined by management
using the appropriate valuation methodologies after considering the history and
nature of the business, operating results and financial conditions, the general
economic, industry and market conditions, capital market and transaction market
conditions, contractual rights relating to the investment, public market
comparables, private market transactions multiples and, where applicable, other
pertinent considerations. The process of valuing investments for which no active
market exists is inevitably based on inherent uncertainties and the resulting
values may differ from values that would have been used had an active market
existed. The amounts at which Clairvest's privately-held investments could be
disposed of may differ from the fair value assigned and the differences could be
material. Estimated costs of disposition are not included in the fair value
determination.
In determining the fair value of public company warrants, for which the
underlying security is traded on a recognized securities exchange, and if there
are sufficient and reliable observable market inputs, including exercise price
and term of the warrants, market interest rate, and current market price,
expected dividends and volatility of the underlying security, a valuation
technique is used. If market inputs are insufficient or unreliable, the warrants
are valued at intrinsic value, which is equal to the higher of the closing bid
price of the underlying security less the exercise price of the warrant, or nil.
For private company warrants, the underlying security for which is not traded on
a recognized securities exchange, the fair value is determined consistently with
other investments which do not have an active market as described above.
A change to an estimate with respect to Clairvest's corporate investments would
impact the carrying value of corporate investments and net unrealized gains
(losses) on corporate investments.
The process of determining future income tax assets and liabilities requires
management to exercise judgment while considering the anticipated timing of
disposal of corporate investments, and proceeds thereon, tax planning
strategies, changes in tax laws and rates, and loss carryforwards. Future income
tax assets are only recognized to the extent that in the opinion of management,
it is more likely than not that the future income tax asset will be realized. A
change to an accounting estimate with respect to future income taxes would
impact future tax asset or liability and future income tax expense.
OPERATING RESULTS
Net income for the fourth quarter of fiscal 2010 was $1.9 million compared with
net income of $3.8 million for the fourth quarter of fiscal 2009. The net income
for the fourth quarter of fiscal 2010 is comprised of $1.2 million of net
corporate investment gains, net of $0.3 million of net operating losses and $1.0
million of income tax expense recoveries. This compares with $98.5 million of
net corporate investment losses, $103.4 million of net operating income and $1.1
million of income tax expense for the fourth quarter of fiscal 2009.
The net corporate investment gains of $1.2 million for the fourth quarter of
fiscal 2010 comprised entirely of net unrealized gains on corporate investments.
The net corporate investment losses of $98.5 million for the fourth quarter of
fiscal 2009 resulted primarily from the $100.5 million loss realized on Gateway
Casinos Inc. ("Gateway Casinos") (offset by the dividends received from Gateway
Casinos discussed below).
Distributions and interest income for the quarter was $2.6 million, compared
with $3.0 million for the same quarter last year. Distributions and interest
income for the fourth quarter of fiscal 2010 included yield on cash, cash
equivalents and temporary investments of $0.3 million, net priority
distributions of $0.9 million from Clairvest Equity Partners III Limited
Partnership ("CEP III") and $0.8 million in income distributions from Wellington
Financial Fund II and Wellington Financial Fund III (the "Wellington Funds").
Distributions and interest income for the fourth quarter of fiscal 2009 included
yield on cash, cash equivalents and temporary investments of $0.7 million,
General Partner income distributions of $1.5 million from Clairvest Equity
Partners Limited Partnership ("CEP"), net priority distributions of $1.0 million
from CEP III, net of $0.6 million in clawback of general partner distributions
from the Wellington Funds.
Dividend income for the quarter was $47,000, compared with $103.6 million for
the same quarter last year. Dividend income for the fourth quarter of fiscal
2009 comprised primarily of $103.6 million in dividends received from Gateway
Casinos as part of the final distribution of assets from Gateway Casinos.
Clairvest earned $0.3 million in net management fees during the quarter for its
services in the administration of CEP's portfolio and $0.4 million in advisory
and other fees from its corporate investments, compared with $0.3 million and
$0.2 million, respectively, for the same quarter last year. The CEP management
fees are reduced to the extent of 75% of fees earned by Clairvest from joint
Clairvest/CEP corporate investments.
Administration and other expenses for the quarter were $3.6 million, compared
with $2.3 million for the same quarter last year. Included in administration and
other expenses for the fourth quarter of fiscal 2010 were $0.2 million of
stock-based compensation expense as a result of an increase in the trading price
of Clairvest's common shares. Included in administration and other expenses for
the fourth quarter of fiscal 2009 was a $1.6 million recovery on stock based
compensation expense as a result of a decrease in the trading price of
Clairvest's common shares over that reporting period.
Finance and foreign exchange expense recovery of $29,000 for the fourth quarter
of fiscal 2010 included foreign exchange gains of $0.2 million as a result of
gains on foreign exchange forward contracts entered into in anticipation of
future investment gains. Finance and foreign exchange expense of $1.4 million
for the fourth quarter of fiscal 2009 included foreign exchange expense of $1.3
million.
Income tax expense recoveries of $1.0 million for the quarter were primarily the
result of changes in the Company's consolidated future income tax positions.
SUMMARY OF QUARTERLY RESULTS
---------------------------------
Net income
Quarterly results Net income (loss) per
($000's except Net income (loss) per common share
per share Gross revenue (loss) common share fully diluted(i)
information) $ $ $ $
----------------------------------------------------------------------------
March 31, 2010 4,476 1,875 0.12 0.11
December 31, 2009 8,747 2,268 0.14 0.14
September 30, 2009 5,520 3,692 0.23 0.23
June 30, 2009 6,003 662 0.04 0.04
----------------------------------------------------------------------------
March 31, 2009 8,643 3,822 0.24 0.23
December 31, 2008 1,658 (606) (0.04) (0.04)
September 30, 2008 5,406 2,558 0.16 0.16
June 30, 2008 29,726 20,314 1.27 1.23
(i) The sum of quarterly net income (loss) per common share may not equal to
the full year net income (loss) per common share due to rounding and the
anti-dilutive effect on any quarters where the Company reported a net loss.
Significant variations arise in the quarterly results due to realized gains
(losses) on corporate investments, unrealized gains (losses) on corporate
investments, which are re-valued on a quarterly basis when conditions warrant an
adjustment to the fair value of the corporate investment, and stock-based
compensation due to the movement in the trading price of Clairvest's common
shares.
FINANCIAL POSITION AND LIQUIDITY
With $152.2 million in cash, cash equivalents and temporary investments
("treasury funds") and $95.0 million in credit facilities, Clairvest has
sufficient capital to support its current and anticipated investments.
At March 31, 2010, the Company's treasury funds were held in cash and term
deposits, or in corporate bonds, guaranteed investment certificates and
investment savings accounts rated not below BBB, preferred shares rated not
below P-2, and other fixed income investments rated not below R1-high (see Notes
4 and 13 to the financial statements for a detailed discussion of the Company's
treasury funds).
Clairvest has a $20.0 million credit facility with a Canadian chartered bank.
The credit facility is unsecured and bears interest at the bank prime rate plus
0.5% per annum. The amount available under the credit facility at March 31, 2010
is $20.0 million and is based on debt covenants within the banking arrangement.
Subsequent to quarter end, Clairvest closed on a new 10-year, $75.0 million,
committed credit facility with a financial institution, bringing total available
credit to $95.0 million. The new credit facility is unsecured and bears interest
at the rate of 11.0% per annum on drawn amounts and 1.0% per annum on undrawn
amounts.
During the fourth quarter of fiscal 2010, Clairvest filed a normal course issuer
bid enabling it to purchase up to 797,678 common shares during the 12-month
period commencing March 6, 2010. No shares were purchased under the bid during
the quarter and up to June 22, 2010. As at June 22, 2010, Clairvest had
repurchased a total of 5,709,578 common and non-voting shares over the last
seven years.
At March 31, 2010, Clairvest had 15,953,566 common shares issued and
outstanding. At March 31, 2010, Clairvest had 1,082,000 stock options
outstanding, 837,000 of which were exercisable at March 31, 2010. Each option is
exercisable for one common share.
At March 31, 2010, Clairvest had corporate investments with a carrying value of
$118.9 million. Changes in the carrying value of Clairvest's corporate
investments during the fourth quarter of fiscal 2010 are primarily a result of
follow-on investments made, unrealized valuation changes on corporate
investments and foreign exchange revaluation on foreign-denominated investments.
Clairvest enters into foreign exchange forward contracts to manage the risks
arising from fluctuations in exchange rates on its foreign denominated
investments. Clairvest's corporate investments increased $6.8 million during the
fourth quarter of fiscal 2010. Significant events relating to Clairvest's
corporate investments, other than with respect to net unrealized gains and
foreign exchange revaluations, are described below.
Casino Marina del Sol ("Casino del Sol")
During the fourth quarter of fiscal 2010, Casino del Sol was impacted by an
earthquake which occurred in Chile on February 27, 2010. Casino del Sol had
purchased insurance for property damage and for business interruption of up to
twelve months. Casino del Sol is preparing its insurance claims and is making
the necessary repairs to the property and expects the casino to reopen by
September 2010.
Casino New Brunswick
During the fourth quarter of fiscal 2010, Clairvest funded an additional $0.5
million to Casino New Brunswick to cover additional costs associated with the
project. The investment was made in the form of debentures, which are
non-interest bearing until Casino New Brunswick opens and bear interest at a
rate of 6% per annum thereafter. At March 31, 2010, the total amount funded was
$8.7 million.
Subsequent to quarter end, the casino segment of the development commenced
operations with the hotel and entertainment facility expected to open in July
2010.
Hudson Valley Waste Holding, Inc. ("Hudson Valley")
During the fourth quarter of fiscal 2010, Clairvest invested $9.2 million to
acquire 8,750 Series A convertible preferred shares in Hudson Valley, a regional
solid waste company which collects, processes and recycles nonhazardous solid
waste in the northeastern United States.
Landauer Metropolitan Inc. ("Landauer")
During the fourth quarter of fiscal 2010, Clairvest advanced a $0.2 million
bridge loan to Landauer. The loan bears interest at a rate of 25% per annum,
payable monthly, and is repayable on April 16, 2010. Any unpaid interest will
accrue interest at the same rate. Clairvest has the option to convert the bridge
loan to common shares of Landauer if the loan is not repaid by April 16, 2010.
Subsequent to quarter end, the loan was due but has not been demanded or
converted and a portion of the loan was sold to Landauer management.
Light Tower Rentals Inc. ("Light Tower Rentals")
During the fourth quarter of fiscal 2010, Clairvest invested $0.3 million for
340,822 common shares of LTR Equipment Inc., a company affiliated with Light
Tower Rentals which supplies certain equipment to Light Tower Rentals.
TRANSACTIONS WITH RELATED PARTIES
A wholly owned subsidiary of Clairvest ("GP I") has entered into a Management
Agreement with the General Partner of CEP, appointing GP I as the Manager of
CEP. The General Partner is another wholly owned subsidiary of Clairvest. The
Management Agreement provides that a management fee be paid to GP I as
compensation for its services in the administration of the portfolio of CEP. The
fee was calculated annually as 2% of committed capital until August 21, 2006,
the fifth anniversary of the last closing of CEP, and thereafter at 2% of
contributed capital less distributions on account of capital and any write-downs
of capital invested. The management fee is reduced to the extent of 75% of fees
earned by Clairvest or GP I from corporate investments of CEP. During the fourth
quarter of fiscal 2010, GP I earned net management fees of $0.3 million as
compensation for its services in the administration of the portfolio of CEP. As
per the Management Agreement, fees of $0.1 million from corporate investments of
CEP were netted against the management fees.
The General Partner of CEP is entitled to participate in distributions made by
CEP equal to 20% of net gains of CEP. These distributions to the General Partner
will be determined based on the overall performance of CEP and no such
distributions are permitted until CEP's limited partners have received amounts
equal to the sum of their contributed capital and a return equal to 6% per annum
compounded annually. The distributions received by the General Partner of CEP
are allocated 50% to each of its limited partners, one of which is another
wholly owned subsidiary of Clairvest ("Clairvest Subsidiary"), and the other of
which is another limited partnership (the "Participation Partnership"). The
limited partners of the Participation Partnership are principals and employees
of Clairvest and GP I (the "Participation Investors"). The Participation
Investors have purchased, at fair market value, units of the Participation
Partnership. From time to time, additional units in the Participation
Partnership may be purchased by the Participation Investors. At March 31, 2010,
CEP had declared and paid distributions to the General Partner totaling $9.7
million, 50% of which, or $4.9 million, was allocated to Clairvest Subsidiary.
If CEP were to sell its corporate investments at their current fair values, the
General Partner would receive up to a further $15.3 million of distributions,
50% of which, or $7.6 million, would be payable to Clairvest Subsidiary.
Clairvest is also the parent company of the two General Partners of CEP III (GP
I and "GP II"). GP I is entitled to a priority distribution from CEP III. The
priority distribution is calculated monthly as 0.1667% of commitment capital
until August 2011, being the earlier of the fifth anniversary of the month in
which CEP III made its first investment, and the date on which CEP III is closed
to new investments, and thereafter 0.1667% of contributed capital net of any
distribution on account of capital and write-downs of capital invested. The
priority distribution is reduced to the extent of 75% of any fees earned by GP I
from corporate investments of CEP III. During the fourth quarter of fiscal 2010,
CEP III declared to GP I net priority distributions of $0.9 million. As per the
Limited Partnership Agreement, fees of $0.2 million from corporate investments
of CEP III were netted against the priority distributions. GP I is also entitled
to distributions made by CEP III equal to 2% of net gains of CEP III determined
as described below.
GP II, a limited partnership, the General Partner of which is a wholly owned
subsidiary of Clairvest, is entitled to participate in distributions made by CEP
III equal to 18% of net gains of CEP III. These distributions to GP II, and GP I
as noted above, will be determined based on the overall performance of CEP III.
No such distributions are permitted until CEP III's limited partners have
received amounts equal to the sum of their contributed capital and a return
equal to 8% per annum compounded annually. To date, CEP III has not made any
distributions to GP II. If CEP III were to sell its corporate investments at
their current fair values, GP I and GP II would not receive any distributions
other than the priority distributions described above. Any distributions
received by GP II will be allocated to each of its two limited partners, one of
which is Clairvest Subsidiary which will receive 44.4% of such distributions,
and the other of which is another limited partnership (the "Participation III
Partnership") which will receive 55.6% of such distributions. The limited
partners of the Participation III Partnership are principals and employees of
Clairvest and GP I (the "Participation III Investors"). The Participation III
Investors purchased, at fair market value, units of the Participation III
Partnership. From time to time, additional units in the Participation III
Partnership may be purchased by Participation III Investors. The General Partner
of the Participation III Partnership, a wholly owned subsidiary of Clairvest, is
entitled to participate in additional distributions equal to the exit value on
the first $1.1 million contributed by the Participation III Investors into the
Participation III Partnership, the amount of which was invested in Kubra Data
Transfer Ltd. ("Kubra"), plus the first $0.2 million received by the
Participation III Partnership as described above.
GP II is also entitled to a carried interest in respect of CEP III Co-Investment
Limited Partnership ("CEP III Co- Invest") of 10% to June 23, 2008 and 8.25%
thereafter. CEP III Co-Invest was established in 2006 as the investment vehicle
through which Clairvest would co-invest alongside CEP III. Distributions
received by GP II from CEP III Co-Invest will be allocated 100% to the
Participation III Partnership.
Clairvest is also the parent company of the two General Partners of Clairvest
Equity Partners IV Limited Partnership ("CEP IV") (GP I and "GP III"). GP I is
entitled to a priority distribution from CEP IV. The priority distribution is
calculated monthly as follows: i) from the month in which CEP IV makes its first
investment to the last day on which CEP III calculates its priority
distributions based on committed capital ("CEP III Termination Date"), 0.1667%
of capital allocated to specifically identifiable investments net of any
write-downs of capital invested; ii) from the CEP III Termination Date to the
fifth anniversary of the month of the earlier of the CEP III Termination Date
and the date of final closing of CEP IV, 0.1667% of committed capital; and iii)
thereafter 0.1667% of contributed capital net of distributions on account of
capital and any write-downs of capital invested. The priority distribution is
reduced to the extent of 63.8% of any fees earned by GP I from corporate
investments of CEP IV. During the fourth quarter of fiscal 2010, CEP IV did not
declare any priority distributions. GP I is also entitled to distributions made
by CEP IV equal to 2% of gains of CEP IV determined as described below. To date,
CEP IV has not made any distributions to GP I.
GP III, a limited partnership, the General Partner of which is a wholly owned
subsidiary of Clairvest, is entitled to participate in distributions made by CEP
IV equal to 18% of net gains of CEP IV. These distributions to GP III, and GP I
as noted above, will be determined based on the overall performance of CEP IV.
No such distributions are permitted until CEP IV's limited partners have
received amounts equal to the sum of their contributed capital and a return
equal to 8% per annum compounded annually. To date, CEP IV has not made any
distributions to GP III. Any distributions received by GP III will be allocated
to each of its two limited partners, one of which is Clairvest Subsidiary which
will receive 44.4% of such distributions, and the other of which is another
limited partnership (the "Participation IV Partnership") which will receive
55.6% of such distributions. The limited partners of the Participation IV
Partnership are principals and employees of Clairvest and GP I (the
"Participation IV Investors"). The Participation IV Investors purchased, at fair
market value, units of the Participation IV Partnership. From time to time,
additional units in the Participation IV Partnership may be purchased by
Participation IV Investors. The General Partner of the Participation IV
Partnership, a wholly owned subsidiary of Clairvest, is entitled to participate
in additional distributions equal to the exit value on the first $1.6 million
contributed by the Participation IV Investors into the Participation IV
Partnership, the amount of which was invested in Midwest Gaming Holdings, LLC
("Midwest Gaming") subsequent to quarter end, plus the first $0.4 million
received by the Participation IV Partnership as described above.
GP III is also entitled to a carried interest in respect of CEP IV Co-Investment
Limited Partnership ("CEP IV Co- Invest") of 8.25%. CEP IV Co-Invest was
established in 2009 as the investment vehicle through which Clairvest would
co-invest alongside CEP IV. Distributions received by GP III from CEP IV
Co-Invest will be allocated 100% to the Participation IV Partnership.
At March 31, 2010, Clairvest had loans receivable from certain officers of
Clairvest and GP I (the "Officers") totaling $1.0 million. The loans are
interest bearing, have full recourse to the individual and are collateralized by
the common shares of Clairvest purchased by the Officers with a market value of
$1.0 million. At March 31, 2010, Clairvest also had loans receivable from
certain officers of a company affiliated with Clairvest totaling $0.5 million.
The loans are interest bearing and have full recourse to the individual.
Interest of $12,000 was earned during the fourth quarter of fiscal 2010.
Included in accounts receivable and other assets are receivables of $3.0 million
from Clairvest's investee companies, $0.7 million from CEP, $0.1 million from
CEP III and $4.6 million from CEP IV. Also included in accounts receivable and
other assets is a refundable deposit of $8.5 million paid to the State of Kansas
with respect to a gaming license application in Wichita, Kansas, the amount of
which was refunded in full subsequent to quarter end.
Loans totaling $0.6 million, bearing interest at the prime rate, made by the
Company to CEP during the fourth quarter of fiscal 2010, remain outstanding at
March 31, 2010. Interest of $1,000 was earned from loans to CEP during the
fourth quarter of fiscal 2010.
Loans totaling $34.3 million, bearing interest at the prime rate, made by the
Company to CEP III during the fourth quarter of fiscal 2010 were repaid in full
during the quarter. Interest of $33,000 was earned from loans to CEP III during
the fourth quarter of fiscal 2010.
During the fourth quarter of fiscal 2010, Clairvest earned $1.3 million in
distributions and interest income, and $0.4 million in fee income from its
investee companies.
OFF-BALANCE SHEET ARRANGEMENTS
Clairvest has committed to co-invest alongside CEP in all investments undertaken
by CEP. Clairvest's total co- investment commitment is $54.7 million, $3.5
million of which remains unfunded at March 31, 2010. Clairvest may only sell all
or a portion of a corporate investment that is a joint investment with CEP if
the manager of CEP, GP I, concurrently sells a proportionate number of
securities of that corporate investment held by CEP.
Clairvest has also committed to co-invest alongside CEP III in all investments
undertaken by CEP III. Clairvest's total co-investment commitment is $75.0
million, $15.2 million of which remains unfunded at March 31, 2010. Clairvest
may only sell all or a portion of a corporate investment that is a joint
investment with CEP III if the manager of CEP III, GP I, concurrently sells a
proportionate number of securities of that corporate investment held by CEP III.
Clairvest has also committed to co-invest alongside CEP IV in all investments
undertaken by CEP IV. Clairvest's total co-investment commitment is $100.0
million, all of which remains unfunded at March 31, 2010. Subsequent to quarter
end, Clairvest funded $13.2 million of this co-investment commitment reducing
the unfunded portion to $86.8 million. Clairvest may only sell all or a portion
of a corporate investment that is a joint investment with CEP IV if the manager
of CEP IV, GP I, concurrently sells a proportionate number of securities of that
corporate investment held by CEP IV.
Clairvest has committed $25.0 million to Wellington Financial Fund III
("Wellington Fund III"), $12.5 million of which remains unfunded to March 31,
2010.
At March 31, 2010, Clairvest has received profit distributions totaling $3.1
million through its ownership interest in the General Partners of the Wellington
Funds. Clairvest has guaranteed, up to the amounts received from the respective
General Partners, the clawback provisions (the "Clawback") entered into by the
General Partners in the event the limited partners of the Wellington Funds do
not meet their return threshold as specified in the respective Limited
Partnership Agreements. At March 31, 2010, there were no accruals made with
respect to the Clawback.
Clairvest has guaranteed up to $3.0 million of CEP's obligations to a Schedule 1
Canadian chartered bank under CEP's foreign exchange forward contracts with the
bank.
Clairvest and CEP III entered into a US$13.0 million credit facility agreement
with a Schedule 1 Canadian chartered Bank to allow Clairvest and CEP III to
enter into foreign exchange contracts. Clairvest and CEP III are jointly and
severally liable on this credit facility. Subsequent to the quarter, the joint
and several agreement was extinguished and Clairvest entered into a stand-alone
credit facility agreement.
Under Clairvest's Management Incentive Bonus Program (the "Program"), a bonus of
10% of after-tax cash income and realizations on certain Clairvest's corporate
investments would be paid to management annually as applicable. Amounts are
accrued under this Program to the extent that the cash income and investment
realizations have occurred and the bonus has become payable. At March 31, 2010,
$0.8 million has been accrued under the Program. If Clairvest were to sell its
corporate investments at their current fair values, an additional bonus of $1.4
million would be owing to management under this Program. As no such realizations
have occurred and the terms of the bonus plan with respect to these corporate
investments have not yet been fulfilled, the $1.4 million has not been accrued
at March 31, 2010. The Program does not apply to the income generated by
Clairvest through CEP III Co- Invest and CEP IV Co-Invest.
Clairvest enters into foreign exchange forward contracts to manage the risks
arising from fluctuations in exchange rates on its foreign denominated
investments. At March 31, 2010, Clairvest had entered into foreign exchange
forward contracts to sell US$62.8 million at an average rate of Canadian $1.0745
per U.S. dollar through to March 2011 and foreign exchange forward contracts to
sell Chilean Unidad de Fomento ("CLF") 0.7 million at an average rate of
Canadian $44.0993 per CLF through to January 2011. The fair value of these US
dollar contracts at March 31, 2010 is a gain of $3.7 million and the fair value
of the CLF contracts at March 31, 2010 is a gain of $2.2 million. These
contracts have been recognized on the consolidated balance sheet as derivative
instruments. US$2.3 million of these foreign exchange forward contracts were
entered into in anticipation of future growth in value of the Company's U.S.
denominated investments. The fair value of these contracts at March 31, 2010 is
a loss of $2,000 and the contracts were settled by entering into offsetting
contracts subsequent to quarter end.
During fiscal 2006, Clairvest and a wholly owned subsidiary sold their interests
in Signature Security Group Holdings Pty Limited ("Signature") and a related
company as part of a sale of 100% of Signature and the related company. As part
of the transaction, the subsidiary has indemnified the purchaser for various
potential claims which will reduce over time.
Clairvest, together with CEP, had guaranteed to fund any operating deficiencies
of the Tsuu T'ina charitable casino for a specified period of time. The
guarantee was extinguished during the fourth quarter of fiscal 2010 and no
amount subject to this guarantee had been funded.
Clairvest, together with CEP III, has guaranteed to fund 50% of any operating
deficiencies upon the opening of Casino del Sol for a specified period of time.
Amounts paid under the guarantee will be allocated 75% to CEP III to the extent
that the amounts paid thereunder are within the limits of the CEP III Limited
Partnership Agreement, with the remainder being allocated to Clairvest. Any
amounts paid under the guarantee will result in additional equity being granted
to Clairvest and CEP III, allocated on the same basis as the participation
between Clairvest and CEP III in the guarantee funding. As at March 31, 2010, no
amounts subject to this guarantee have been funded.
Clairvest, together with CEP III, has guaranteed to fund any cost overruns
during the construction of Casino New Brunswick, as well as any operating
deficiencies upon the opening of the casino for a specified period of time. The
amount of the guarantee is allocated 75% to CEP III, to the extent that the
amounts paid thereunder are within the limits of the CEP III Limited Partnership
Agreement, with the remainder being allocated to Clairvest. Any amounts paid
under the guarantee will result in additional debentures being granted to
Clairvest and CEP III, allocated on the same basis as the participation between
Clairvest and CEP III in the guarantee funding. As at March 31, 2010, $2.7
million of the cost overruns guarantee has been funded, $2.0 million of which
was allocated to CEP III, and no amounts subject to the operating deficiencies
guarantee have been funded.
As part of the holding structure of Casino del Sol, Clairvest, together with CEP
III, borrowed $32.1 million through an acquisition entity from an unrelated
financial institution, while another acquisition entity deposited $32.1 million
with the financial institution as security for the loan. Clairvest intends to
settle the loan, the deposit and related interest accruals simultaneously upon
the divestiture of the investment in Casino del Sol, and as a result, the
deposit and the loan, and the interest revenue and expense have been presented
on a net basis. Clairvest's ownership of both acquisition entities was 23.8% at
March 31, 2010, with CEP III owning 71.5% and the remainder owned by unrelated
third party investors.
As part of the holding structure of Latin Gaming Chile S.A. ("Latin Gaming"),
Clairvest borrowed $8.3 million through an acquisition entity from an unrelated
financial institution, while another acquisition entity deposited $8.3 million
with the financial institution as security for the loan. Clairvest intends to
settle the loan, the deposit and related interest accruals simultaneously upon
the divestiture of the investment in Latin Gaming, and as a result, the deposit
and the loan, and the interest revenue and expense have been presented on a net
basis. Clairvest's ownership of both acquisition entities was 100% at March 31,
2010.
As part of the holding structure of Latin Gaming Osorno S.A. ("Casino Osorno"),
Clairvest borrowed $15.0 million through an acquisition entity from an unrelated
financial institution, while another acquisition entity deposited $15.0 million
with the financial institution as security for the loan. Clairvest intends to
settle the loan, the deposit and related interest accruals simultaneously upon
the divestiture of the investment in Casino Osorno, and as a result, the deposit
and the loan, and the interest revenue and expense have been presented on a net
basis. Clairvest's ownership of both acquisition entities was 100% at March 31,
2010.
In connection with its normal business operations, Clairvest is from time to
time named as a defendant in actions for damages and costs allegedly sustained
by plaintiffs. While it is not possible to estimate the outcome of the various
proceedings at this time, Clairvest does not believe that it will incur any
material losses in connection with such actions.
OUTLOOK AND SUBSEQUENT EVENTS
While economic conditions continued to improve during the fourth quarter of
fiscal 2010 and beyond there continues to be volatility. Liquidity is a key
component of wealth creation and is increasingly important during periods of
economic decline and volatility. Subsequent to quarter end, Clairvest closed on
a new 10-year, $75.0 million, committed credit facility with a financial
institution, increasing total available credit facilities to $95.0 million. The
credit facility is not expected to be drawn in the next fiscal year and enhances
Clairvest's available liquidity. This additional liquidity, along with
Clairvest's capital on hand, will provide Clairvest with increased flexibility
to support the growth of its investee companies as appropriate, to take
advantage of the current economic environment, and to continue its active
pursuit of new investment opportunities to enhance shareholder value.
Also subsequent to quarter end, Clairvest, CEP IV and CEP IV co-investors,
through various acquisition entities, invested a combined US$72.0 million for an
ultimate 40.0% ownership in Midwest Gaming to build a casino and amenities in
Des Plaines, Illinois. In addition to this investment, Clairvest, CEP IV and CEP
IV co-investors advanced an additional US$15.8 million loan to Midwest Gaming to
bridge the raising of equity from minority investors as required by the Illinois
legislature. The loan will be repaid as minority investors are approved by the
Illinois Gaming Board with final repayments expected prior to August 2011. The
project is expected to open by late summer 2011, and will be funded by US$295.0
million of total debt and US$180.0 million of equity. The initial phase of the
project will include 1,150 slot machines, 30 gaming tables and food and beverage
amenities in a 147,000 square foot facility and a 1,500 space parking garage.
The project is located approximately 1 mile from O'Hare International Airport
and 16 miles southwest of downtown Chicago, the third largest city by population
in the United States. Clairvest's portion of the combined investments was
US$11.7 million (C$11.7 million) for an ultimate 6.0% ownership in Midwest
Gaming.
RISK MANAGEMENT
The private equity investment business involves accepting risk for potential
return, and is therefore affected by a number of economic factors, including
changing economic environments, capital markets and interest rates. Clairvest
continually reviews and adjusts its investment strategy and its capital resource
allocation policies considering, amongst other factors, market conditions.
Clairvest considers the capital it manages to be the amounts it has in cash,
cash equivalents, temporary investments and corporate investments. Clairvest
also manages the third-party capital invested in CEP, CEP III and CEP IV
(together, the "CEP Funds"). At March 31, 2010, Clairvest had cash, cash
equivalents and temporary investments of $152.2 million, in addition to $118.9
million of corporate investments. Clairvest also had access to a $20.0 million
credit facility and $267.9 million of uncalled committed third-party capital for
acquisitions through CEP, CEP III and CEP IV at March 31, 2010. Clairvest's
objectives in managing capital are disclosed in Note 14 to the consolidated
financial statements.
Clairvest's current liquidity position allows the Company to support its
investee companies and acquisitions as appropriate. The Company maintains a
conservative liquidity position that exceeds all liabilities payable on demand.
The Company invests its cash equivalents and temporary investments in liquid
assets such that they are available to cover any potential funding commitments
and guarantees. In addition, the Company maintains a credit facility with a
Schedule 1 Canadian chartered bank and closed on a new credit facility with a
financial institution subsequent to quarter end.
As of March 31, 2010, Clairvest's corporate investment portfolio is diversified
across 13 companies in 9 industries and 3 countries. Concentration risk by
industry and by country is disclosed in Note 13 to the consolidated financial
statements. Certain industries may experience a significant negative impact to
their profitability and liquidity positions given the current economic
environment. The Company has considered these economic events and indicators in
the valuation of its corporate investments.
A number of investee companies may also be subject to foreign exchange risk. A
significant change in foreign exchange rates can have an impact to the
profitability of these entities and in turn the Company's fair value of these
corporate investments. Certain of the Company's corporate investments are also
held in the form of subordinated debentures. Significant fluctuations in market
interest rates can have a significant impact in the fair value of these
investments.
Clairvest also actively reviews its hedging strategy to ensure the values of all
foreign denominated investments are protected against currency fluctuations. The
Company manages counterparty credit risk on derivative financial instruments by
only contracting with counterparties which are Schedule 1 Canadian chartered
banks.
Clairvest is also subject to credit risk on its accounts receivables, a
significant portion of which is with its investee companies. The Company manages
this risk through its oversight responsibilities with existing investee
companies and by reviewing the financial condition of investee companies
regularly.
Clairvest is also subject to credit risk on its loans receivables, the majority
of which is with the CEP Funds. The Company manages this risk through its
fiduciary duty as Manager of the CEP Funds and by maintaining sufficient
uncalled capital for the CEP Funds to settle obligations as they come due.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
In accordance with National Instrument 52-109, "Certification of Disclosure in
Issuers' Annual and Interim Filings", issued by the Canadian Securities
Administrators ("CSA"), management has evaluated the effectiveness of
Clairvest's disclosure controls and procedures as of March 31, 2010. Management
has concluded that the disclosure controls and procedures are effective as of
March 31, 2010 based on this evaluation.
National Instrument 52-109 also requires certification from the Chief Executive
Officers and Chief Financial Officer to certify their responsibilities for
establishing and maintaining internal controls with regards to the reliability
of financial reporting and the preparation of financial statements in accordance
with Canadian Generally Accepted Accounting Principles ("GAAP"). Management has
evaluated Clairvest's design effectiveness of internal controls over financial
reporting for the quarter ended March 31, 2010. Management has concluded that
the design effectiveness of internal controls over financial reporting are
effective as of March 31, 2010 based on this evaluation. No changes were made to
internal controls over financial reporting during the quarter ended March 31,
2010 that have materially affected, or are reasonably likely to materially
affect, internal controls over financial reporting.
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
During fiscal 2008, the Canadian Accounting Standards Board ("AcSB") confirmed
the use of International Financial Reporting Standards ("IFRS") for all Canadian
publicly accountable enterprises for years beginning on or after January 1,
2011. Subsequent to year end, the AcSB proposed an amendment which would allow
Canadian companies that currently follow AcG-18 to continue to use existing
Canadian GAAP until fiscal years beginning on or after January 1, 2012.
Based on the Company's evaluation of the current IFRS and recent proposal by the
AcSB, the Company is optimistic that fair value accounting will continue to be
the method for which the Company accounts for its investee companies. The
Company has established a timeline to transition to IFRS effective April 1, 2011
based on this understanding and is working towards issuing IFRS-based financial
results for the first quarter ended June 30, 2011 with comparative data also on
an IFRS basis. The Company continues to monitor ongoing changes to IFRS, which
includes the aforementioned AcSB proposal, and will adjust its transition and
implementation plans accordingly. Formal communications with the Audit Committee
have been established to ensure timely decisions are made on key issues and
risks.
The Company will continue to evaluate the impact to its financial reporting
process and its financial statements if IFRS requires the Company to consolidate
certain of its investee companies, which would be expected to have a significant
impact to the Company's financial reporting process and financial statements.
Other significant items which may have a significant impact to the Company's
financial reporting and financial statements include the accounting for
share-based compensation, for contingent liabilities and for income taxes. The
Company is in the process of quantifying the impacts to the opening balance
sheet for the period for which the Company is required to report under IFRS. The
Company continues to monitor new developments to IFRS which may result in
additional significant accounting differences.
A number of the matters discussed in this MD&A deal with potential future
circumstances and developments and may constitute "forward-looking" statements.
These forward-looking statements can generally be identified as such because of
the context of the statements and often include words such as the Company
"believes", "anticipates", "expects", "plans", "estimates" or words of a similar
nature.
The forward-looking statements are based on current expectations and are subject
to known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward- looking statements. The impact of any one risk factor
on a particular forward-looking statement is not determinable with certainty as
such factors are interdependent upon other factors, and management's course of
action would depend upon its assessment of the future considering all
information then available.
All subsequent forward-looking statements, whether written or oral, attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements. The Company assumes no obligation to
update forward-looking statements should circumstances or management's estimates
or opinions change.
CLAIRVEST GROUP INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
$000's March 31 2010 March 31 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
Cash and cash equivalents (Notes 4, 10 and
13) $ 43,684 $ 112,272
Temporary investments (Notes 4 and 13) 108,544 72,140
Accounts receivable and other assets (Note
8i) 20,146 8,463
Income taxes recoverable 7,399 189
Loans receivable (Notes 8j and 8k) 698 8,549
Future tax asset 108 3,526
Derivative instruments (Note 11) 5,900 -
Corporate investments (Notes 6 and 13) 118,881 102,865
--------------------------------
$ 305,360 $ 308,004
--------------------------------
--------------------------------
Liabilities
Accounts payable and accrued liabilities
(Note 9) $ 7,417 $ 7,932
Income taxes payable - 2,025
Derivative instruments (Note 11) - 5,523
Future tax liability 1,455 4,049
Stock-based compensation (Note 9) 4,203 3,092
--------------------------------
13,075 22,621
--------------------------------
Contingencies, commitments and guarantees
(Notes 8, 11 and 12)
Shareholders' Equity
Share capital (Note 7) 82,823 82,823
Retained earnings 209,462 202,560
--------------------------------
292,285 285,383
--------------------------------
$ 305,360 $ 308,004
--------------------------------
--------------------------------
(see accompanying notes to interim consolidated financial statements)
CLAIRVEST GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter ended Year ended
March 31 March 31
$000's (except per share
information) 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net corporate investment gains
(losses)
Net realized gains (losses) on
corporate investments (Note
5) $ - $ (99,325) $ 153 $ (70,876)
Net unrealized gains (losses)
on corporate investments 1,153 812 7,880 (2,518)
----------------------------------------------
1,153 (98,513) 8,033 (73,394)
----------------------------------------------
Other income
Distributions and interest
income (Note 8) 2,606 3,030 14,459 11,586
Dividend income (Note 8l) 47 103,646 194 105,193
Management fees (Note 8a) 257 259 1,027 1,152
Advisory and other fees (Note
8l) 413 221 1,033 896
----------------------------------------------
3,323 107,156 16,713 118,827
----------------------------------------------
Expenses
Administration and other
expenses (Note 9) (3,615) (2,326) (18,077) (12,528)
Finance and foreign exchange
(expense) recovery 29 (1,379) 947 (1,787)
----------------------------------------------
(3,586) (3,705) (17,130) (14,315)
----------------------------------------------
Income before income taxes 890 4,938 7,616 31,118
Income tax (expense) recovery 985 (1,116) 881 (5,030)
----------------------------------------------
Net income $ 1,875 $ 3,822 $ 8,497 $ 26,088
----------------------------------------------
Basic net income per share $ 0.12 $ 0.24 $ 0.53 $ 1.64
----------------------------------------------
Fully diluted net income per
share $ 0.11 $ 0.23 $ 0.52 $ 1.59
----------------------------------------------
----------------------------------------------
(see accompanying notes to interim consolidated financial statements)
CLAIRVEST GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
Quarter ended Year ended
March 31 March 31
$000's 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, beginning
of period $ 207,587 $ 198,738 $ 202,560 $ 188,066
Net income 1,875 3,822 8,497 26,088
----------------------------------------------
209,462 202,560 211,057 214,154
Dividends declared - - (1,595) (11,594)
----------------------------------------------
Retained earnings, end of
period $ 209,462 $ 202,560 $ 209,462 $ 202,560
----------------------------------------------
----------------------------------------------
(see accompanying notes to interim consolidated financial statements)
CLAIRVEST GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Quarter ended Year ended
March 31 March 31
$000's 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating activities
Net income for the period $ 1,875 $ 3,822 $ 8,497 $ 26,088
Add (deduct) items not involving
a current cash outlay
Amortization of fixed assets 87 90 323 313
Stock-based compensation
expense (recovery) 166 (1,471) 1,111 (2,385)
Future income tax expense
(recovery) (1,229) (1,313) 824 (403)
Net realized losses (gains) on
investments - 99,325 (153) 70,876
Net unrealized losses (gains)
on investments (1,153) (812) (7,880) 2,518
Non-cash items relating to
foreign exchange forward
contracts (3,990) 5,294 (13,375) 9,505
Non-cash items relating to
corporate investments 4,719 (103,316) 12,167 (109,016)
------------------------------------------
475 1,619 1,514 (2,504)
Net change in non-cash working
capital balances related to
operations (Note 10) (1,646) 3,131 (21,756) (11,108)
------------------------------------------
Cash provided by (used in)
operating activities (1,171) 4,750 (20,242) (13,612)
------------------------------------------
Investing activities
Acquisition of corporate
investments (10,336) (806) (26,368) (30,520)
Proceeds on sale of corporate
investments - 12,407 4,779 40,532
Return of capital from
corporate investments - 5,486 1,439 5,546
Proceeds on (cost of) realized
foreign exchange forward
contracts 1,151 (3,203) 1,952 (5,387)
Net proceeds on sale
(acquisition) of temporary
investments (14,412) 60,796 (36,404) 55,748
Loans advanced (Notes 8j and
8k) (34,917) (8,334) (74,436) (19,192)
Receipt of loans advanced
(Note 8k) 34,401 4,668 82,287 30,118
------------------------------------------
Cash provided by (used in)
investing activities (24,113) 71,014 (46,751) 76,845
------------------------------------------
Financing activities
Issuance of share capital - - - 64
Cash dividends paid - - (1,595) (11,594)
Receipt of loans - - - 3,249
------------------------------------------
Cash used in financing activities - - (1,595) (8,281)
------------------------------------------
Net increase (decrease) in cash
and cash equivalents (25,284) 75,764 (68,588) 54,952
Cash and cash equivalents,
beginning of period 68,968 36,508 112,272 57,320
------------------------------------------
Cash and cash equivalents, end of
period (Note 10) $ 43,684 $ 112,272 $ 43,684 $ 112,272
------------------------------------------
------------------------------------------
Supplemental cash flow information
Income taxes paid $ 1,151 $ 747 $ 7,642 $ 7,866
Interest paid, on gross basis
(Note 12(m), 12(n) and 12(o)) $ 153 $ 3 $ 1,579 $ 256
------------------------------------------
------------------------------------------
(see accompanying notes to consolidated financial statements)
CLAIRVEST GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010 (Tabular Dollar Amounts in Thousands)
(unaudited)
1. NATURE OF ACTIVITIES AND BASIS OF PRESENTATION
The unaudited consolidated financial statements of Clairvest Group Inc.
("Clairvest" or the "Company") are based upon accounting principles consistent
with those used and described in the annual audited consolidated financial
statements. The disclosures contained in these unaudited consolidated financial
statements do not include all requirements of generally accepted accounting
principles for annual financial statements. As a result, the unaudited
consolidated financial statements should be read in conjunction with the annual
audited consolidated financial statements for the year ended March 31, 2010.
The comparative figures indicated in the notes to the consolidated financial
statements are as of March 31, 2009 unless otherwise indicated.
In accordance with National Instrument 51-102 released by the Canadian
Securities Administrators, the Company discloses that its auditors have not
reviewed the unaudited consolidated financial statements for the quarter ended
March 31, 2010.
In accordance with Accounting Guideline 18 ("AcG-18"), the Company designated
its temporary investments and its corporate investments as held-for-trading and
carries them at fair value. Clairvest has also designated its receivables and
payables as held-for-trading in accordance with the Canadian Institute of
Chartered Accountants ("CICA") Handbook Section 3855. Accordingly, each of
Clairvest's financial assets and liabilities is fair valued on each consolidated
balance sheet date.
When a financial asset or liability is initially recognized, its fair value is
generally the value of consideration paid or received. Acquisition costs
relating to corporate investments are not included as part of the cost of the
investment. Subsequent to initial recognition, the fair value of an investment
quoted on an active market is generally the bid price on the principal exchange
the investment is traded on. Investments that are escrowed or otherwise
restricted on sale or transfer are recorded at fair values which take into
account the escrow terms or other restrictions. In determining the fair value
for such investments, the Company considers the nature and length of the
restriction, business risk of the investee company, its stage of development,
market potential, relative trading volume and price volatility, liquidity and
collateral of the security and the size of Clairvest's ownership block as well
as any other factors that may be relevant to the ongoing and realizable value of
the investments. The amounts at which Clairvest's publicly-traded investments
could be disposed of may differ from this fair value and the differences could
be material. Differences could arise as the value at which significant ownership
positions are sold is often different than the quoted market price due to a
variety of factors such as premiums paid for large blocks or discounts due to
illiquidity. Estimated costs of disposition are not included in the fair value
determination.
In the absence of an active market, the fair values are determined by management
using the appropriate valuation methodologies after considering the history and
nature of the business, operating results and financial conditions, the general
economic, industry and market conditions, capital market and transaction market
conditions, contractual rights relating to the investment, public market
comparables, private market transactions multiples and, where applicable, other
pertinent considerations. The process of valuing investments for which no active
market exists is inevitably based on inherent uncertainties and the resulting
values may differ from values that would have been used had an active market
existed. The amounts at which Clairvest's privately-held investments could be
disposed of may differ from the fair value assigned and the differences could be
material. Estimated costs of disposition are not included in the fair value
determination.
In determining the fair value of public company warrants, for which the
underlying security is traded on a recognized securities exchange, and if there
are sufficient and reliable observable market inputs, including exercise price
and term of the warrants, market interest rate, and current market price,
expected dividends and volatility of the underlying security, a valuation
technique is used. If market inputs are insufficient or unreliable, the warrants
are valued at intrinsic value, which is equal to the higher of the closing bid
price of the underlying security, less the exercise price of the warrant, or
nil. For private company warrants, the underlying security for which is not
traded on a recognized securities exchange, the fair value is determined
consistently with other investments which do not have an active market as
described above.
2. ADOPTION OF NEW ACCOUNTING POLICIES
Effective fiscal 2010, the Company adopted the Emerging Issues Committee
Abstract 173 ("EIC-173"), "Credit Risk and the Fair Value of Financial Assets
and Financial Liabilities". EIC-173 requires the Company's own credit risk and
the credit risk of the counterparty to be taken into account in determining the
fair value of financial assets and financial liabilities, including derivative
instruments. The adoption of EIC 173 did not have a significant impact on the
consolidated financial statements.
Effective fiscal 2010, the Company adopted amendments to CICA Handbook Section
3862 to improve fair value and liquidity risk disclosures of its financial
instruments. Section 3862 now requires that all financial instruments be
categorized into one of three hierarchy levels a described below:
Level 1 - inputs are quoted prices in active markets for identical instruments.
Level 2 - inputs are other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3 - inputs for the asset or liability that are not based on observable
market data.
The Company's disclosure on the fair value hierarchy of its financial
instruments is included in Note 13 to the consolidated financial statements.
In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed
that the use of International Financial Reporting Standards ("IFRS") will be
required for Canadian publicly accountable enterprises for years beginning on or
after January 1, 2011. As a result, Clairvest is required to adopt IFRS
commencing April 1, 2011. Subsequent to year end, the AcSB proposed an amendment
which would allow Canadian companies currently follow AcG-18 to continue to use
existing Canadian Generally Accepted Accounting Principles until fiscal years
beginning on or after January 1, 2012.
Clairvest is currently evaluating the impact of adopting IFRS and the potential
delay in adoption as a result of the AcSB proposal.
3. CREDIT FACILITIES
Clairvest has a $20.0 million credit facility available, bearing interest at
prime plus 0.5%. The amount under the credit facility available at March 31,
2010 is $20.0 million (2009 - $20.0 million) and is based on debt covenants
within the banking arrangement. No amounts were drawn during the quarter.
Subsequent to quarter end, the Company closed on a new 10-year, $75.0 million,
committed credit facility with a financial institution. The credit facility may
be increased to $100.0 million on or before September 30, 2010 upon mutual
consent. The credit facility bears interest at 11% per annum on drawn amounts
and at 1% per annum on undrawn amounts. No amounts were drawn subsequent to year
end.
4. CASH EQUIVALENTS AND TEMPORARY INVESTMENTS
Cash equivalents consist of deposits in savings accounts, term deposits and
fixed income mutual funds which have maturities less than 90 days from the date
of acquisition.
Temporary investments have maturities greater than 90 days from the date of
acquisition and through to December 2012. Temporary investments consist of
guaranteed investment certificates, corporate bonds and preferred shares. The
yield on these investments ranges between 0.7% and 4.9% per annum (2009 -
between 2.7% and 5.6%) with a weighted average rate of pre-tax return of 2.7%
per annum (2009 - 3.7%).
March 31, 2010 March 31,
2009
-------------------------------------- -----------
-------------------------------------- -----------
Due in 1 year Due after 1
or less year Total Total
-------------------------------------- -----------
Guaranteed investment
certificates $ 20,073 $ 21,976 $ 42,049 $ 15,048
Corporate bonds 44,680 18,340 63,020 51,585
Preferred shares - 3,475 3,475 5,507
-------------------------------------- -----------
Total $ 64,753 $ 43,791 $ 108,544 $ 72,140
-------------------------------------- -----------
-------------------------------------- -----------
5. NET REALIZED GAINS (LOSSES) ON CORPORATE INVESTMENTS
Net realized gains (losses) on corporate investments for the quarters and years
ended March 31 comprised of the following:
Quarter ended March 31 Year ended March 31
$000's 2010 2009 2010 2009
----------------------- ------------------------
----------------------- ------------------------
Net realized gains (losses)
during the period $ - $ (20,871) $ (3,538) $ 6,460
Previously recognized net
unrealized (gains) losses - (78,454) 3,691 (77,336)
----------------------- ------------------------
$ - $ (99,325) $ 153 $ (70,876)
----------------------- ------------------------
----------------------- ------------------------
6. CORPORATE INVESTMENTS
March 31, 2010 March 31, 2009
------------------------------ ----------------------------
------------------------------ ----------------------------
Fair Fair
value Cost Difference value Cost Difference
------------------------------ ----------------------------
Casino Marina del
Sol $ 9,699 $ 9,911 $ (212) $ 11,571 $10,624 $ 947
Casino New
Brunswick 8,687 8,687 - 2,342 2,342 --
Hudson Valley
Waste Holding,
Inc. 8,952 9,221 (269) -- -- --
Kubra Data
Transfer Limited 6,573 2,150 4,423 5,962 2,150 3,812
Landauer
Metropolitan
Inc. 7,693 4,429 3,264 5,015 3,636 1,379
Latin Gaming
Chile S.A. 12,435 12,443 (8) 11,461 9,132 2,329
Latin Gaming
Osorno S.A. 16,942 16,618 324 18,830 16,618 2,212
Light Tower
Rentals Inc. 6,280 6,233 47 7,368 5,884 1,484
Lyophilization
Services of New
England Inc. 4,887 6,454 (1,567) 6,068 6,454 (386)
N-Brook Mortgage
LP 2,625 5,037 (2,412) 3,115 5,037 (1,922)
PEER 1 Network
Enterprises Inc. 5,494 6,291 (797) -- -- --
Tsuu T'ina Gaming
Limited
Partnership 8,631 5,625 3,006 7,603 5,625 1,978
Van-Rob Inc. 4,853 5,000 (147) 3,750 5,000 (1,250)
Wellington
Financial Fund
II 211 1 210 986 726 260
Wellington
Financial Fund
III 13,733 12,476 1,257 13,110 12,476 634
------------------------------ ----------------------------
117,695 110,576 7,119 97,181 85,704 11,477
Other investments 1,186 295 891 5,684 4,772 912
------------------------------ ----------------------------
$118,881 $110,871 $ 8,010 $102,865 $90,476 $12,389
------------------------------ ----------------------------
------------------------------ ----------------------------
The cost and fair value of corporate investments do not reflect foreign exchange
gains or losses on the foreign exchange forward contracts entered into as hedges
against these investments. Details of significant events are described below.
During the fourth quarter of fiscal 2010, Casino Marina del Sol ("Casino del
Sol") was impacted by an earthquake which occurred in Chile on February 27,
2010. Casino del Sol had purchased insurance for property damage and for
business interruption of up to twelve months. Casino del Sol is preparing its
insurance claims and repairing the facilities.
During the fourth quarter of fiscal 2010, Clairvest funded an additional $0.5
million to Casino New Brunswick to cover additional costs associated with the
project. The investment was made in the form of debentures, which are
non-interest bearing until Casino New Brunswick opens and bear interest at a
rate of 6% per annum thereafter. At March 31, 2010, the total amount funded was
$8.7 million. Subsequent to quarter end, the casino segment of the development
commenced operations.
During the fourth quarter of fiscal 2010, Clairvest invested $9.2 million to
acquire 8,750 Series A convertible preferred shares in Hudson Valley Waste
Holding, Inc. ("Hudson Valley"), a regional solid waste company which collects,
processes and recycles nonhazardous solid waste in the northeastern United
States. Clairvest's ownership interest in Hudson Valley is 8.3% unless certain
return thresholds are met, at which point Clairvest's ownership interest would
be reduced to 6.2%.
During the fourth quarter of fiscal 2010, Clairvest advanced a $0.2 million
bridge loan to Landauer Metropolitan Inc. ("Landauer"). The loan bears interest
at a rate of 25% per annum, payable monthly, and is repayable on April 16, 2010.
Any unpaid interest will accrue interest at the same rate. Clairvest has the
option to convert the bridge loan to common shares of Landauer if the loan is
not repaid by April 16, 2010. Subsequent to quarter end, the loan was due but
has not been demanded or converted and a portion of the loan was sold to
Landauer management at accrued cost.
During the fourth quarter of fiscal 2010, Clairvest invested $0.3 million for
340,822 common shares of LTR Equipment Inc. ("LTR Equipment"), a company
affiliated with Light Tower Rentals Inc. ("Light Tower Rentals") which supplies
certain equipment to Light Tower Rentals. Clairvest's ownership interest in LTR
Equipment is 11.0%.
7. SHARE CAPITAL
During the fourth quarter of fiscal 2010, the Company filed a normal course
issuer bid enabling it to make purchases of up to 797,678 common shares in the
12-month period commencing March 6, 2010. The Company has made no purchases
under this issuer bid. In total 2,544,424 common shares at a cost of $21.9
million have been purchased under previous normal course issuer bids as of March
31, 2010. An additional 934,200 common and 2,230,954 non-voting shares have been
purchased for cancellation from a financial institution outside of the normal
course issuer bid.
15,953,566 common shares were outstanding at March 31, 2010.
8. RELATED PARTY TRANSACTIONS
(a) A wholly owned subsidiary of Clairvest ("GP I") has entered into a
Management Agreement with the General Partner of Clairvest Equity Partners
Limited Partnership ("CEP"), appointing GP I as the Manager of CEP. The General
Partner is another wholly owned subsidiary of Clairvest. The Management
Agreement provides that a management fee be paid to GP I as compensation for its
services in the administration of the portfolio of CEP. The fee was calculated
annually as 2% of committed capital until August 21, 2006, the fifth anniversary
of the last closing of CEP, and thereafter at 2% of contributed capital less
distributions on account of capital and any write-downs of capital invested. The
management fee is reduced to the extent of 75% of fees earned by Clairvest or GP
I from corporate investments of CEP. During the fourth quarter of fiscal 2010,
GP I earned net management fees of $0.3 million (2009 - $0.3 million) as
compensation for its services in the administration of the portfolio of CEP. As
per the Management Agreement, fees of $0.2 million (2009 - $0.1 million) from
corporate investments of CEP were netted against the management fees.
(b) The General Partner of CEP is entitled to participate in distributions made
by CEP equal to 20% of net gains of CEP. These distributions to the General
Partner will be determined based on the overall performance of CEP and no such
distributions are permitted until CEP's limited partners have received amounts
equal to the sum of their contributed capital and a return equal to 6% per annum
compounded annually. The distributions received by the General Partner of CEP
will be allocated 50% to each of its limited partners, one of which is another
wholly owned subsidiary of Clairvest ("Clairvest Subsidiary"), and the other of
which is another limited partnership (the "Participation Partnership"). The
limited partners of the Participation Partnership are principals and employees
of Clairvest and GP I (the "Participation Investors"). The Participation
Investors have purchased, at fair market value, units of the Participation
Partnership. From time to time, additional units in the Participation
Partnership may be purchased by the Participation Investors. At March 31, 2010,
CEP had declared and paid distributions to the General Partner totaling $9.7
million, 50% of which, or $4.9 million, was allocated to Clairvest Subsidiary.
If CEP were to sell its corporate investments at their current fair values, the
General Partner would receive up to a further $15.3 million (2009 - $19.2
million) of distributions, 50% of which, or $7.6 million (2009 - $9.9 million),
would be payable to Clairvest Subsidiary.
(c) Clairvest is also the parent company of the two General Partners of
Clairvest Equity Partners III Limited Partnership ("CEP III") (GP I and "GP
II"). GP I is entitled to a priority distribution from CEP III. The priority
distribution is calculated monthly as 0.1667% of committed capital until August
2011, being the earlier of the fifth anniversary of the month in which CEP III
made its first investment, and the date on which CEP III is closed to new
investments, and thereafter 0.1667% of contributed capital net of any
distribution on account of capital and write-downs of capital invested. The
priority distribution is reduced to the extent of 75% of fees earned by GP I
from corporate investments of CEP III. During the fourth quarter of fiscal 2010,
CEP III declared to GP I net priority distributions of $0.9 million (2009 - $1.0
million). As per the Limited Partnership Agreement, fees of $0.2 million (2009 -
$0.1 million) from corporate investments of CEP III were netted against the
priority distributions. GP I is also entitled to distributions made by CEP III
equal to 2% of gains of CEP III determined as described in Note 8(d) below. To
date, CEP has not made any distributions to GP I other than priority
distributions.
(d) GP II, a limited partnership, the general partner of which is a wholly owned
subsidiary of Clairvest, is entitled to participate in distributions made by CEP
III equal to 18% of net gains of CEP III. These distributions to GP II, and GP I
as noted in Note 8(c) above, will be determined based on the overall performance
of CEP III. No such distributions are permitted until CEP III's limited partners
have received amounts equal to the sum of their contributed capital and a return
equal to 8% per annum compounded annually. To date, CEP III has not made any
distributions to GP II. If CEP III were to sell its corporate investments at
their current fair values, GP I and GP II would not receive any distributions
other than the priority distributions described in Note 8(c) above. Any
distributions received by GP II will be allocated to each of its two limited
partners, one of which is Clairvest Subsidiary which will receive 44.4% of such
distributions, and the other of which is another limited partnership (the
"Participation III Partnership") which will receive 55.6% of such distributions.
The limited partners of the Participation III Partnership are principals and
employees of Clairvest and GP I (the "Participation III Investors"). The
Participation III Investors have purchased, at fair market value, units of the
Participation III Partnership. From time to time, additional units in the
Participation III Partnership may be purchased by Participation III Investors.
The General Partner of the Participation III Partnership, a wholly owned
subsidiary of Clairvest, is entitled to participate in additional distributions
equal to the exit value on the first $1.1 million contributed by the
Participation III Investors into the Participation III Partnership, the amount
of which was invested in Kubra Data Transfer Ltd. ("Kubra"), plus the first $0.2
million received by the Participation III Partnership as described above.
(e) GP II is also entitled to a carried interest in respect of CEP III
Co-Investment Limited Partnership ("CEP III Co-Invest") of 10% to June 23, 2008
and 8.25% thereafter. CEP III Co-Invest was established in 2006 as the
investment vehicle through which Clairvest would co-invest alongside CEP III.
Distributions received by GP from CEP III Co-Invest will be allocated 100% to
the Participation III Partnership.
(f) Clairvest is also the parent company of the two General Partners of
Clairvest Equity Partners IV Limited Partnership ("CEP IV") (GP I and "GP III").
GP I is entitled to a priority distribution from CEP IV. The priority
distribution is calculated monthly as follows: i) from the month in which CEP IV
makes its first investment to the last day on which CEP III calculates its
priority distributions based on committed capital ("CEP III Termination Date"),
0.1667% of capital allocated to specifically identifiable investments net of any
write-downs of capital invested; ii) from the CEP III Termination Date to the
fifth anniversary of the month of the earlier of the CEP III Termination Date
and the date of final closing of CEP IV, 0.1667% of committed capital; and iii)
thereafter 0.1667% of contributed capital net of distributions on account of
capital and any write-downs of capital invested. The priority distribution is
reduced to the extent of 63.8% of fees earned by GP I from corporate investments
of CEP IV. During the fourth quarter of fiscal 2010, CEP IV did not declare any
priority distributions. GP I is also entitled to distributions made by CEP IV
equal to 2% of gains of CEP IV determined as described in Note 8(g) below. To
date, CEP IV has not made any distributions to GP I.
(g) GP III, a limited partnership, the general partner of which is a wholly
owned subsidiary of Clairvest, is entitled to participate in distributions made
by CEP IV equal to 18% of net gains of CEP IV. These distributions to GP III,
and GP I as noted in Note 8(f) above, will be determined based on the overall
performance of CEP IV. No such distributions are permitted until CEP IV's
limited partners have received amounts equal to the sum of their contributed
capital and a return equal to 8% per annum compounded annually. To date, CEP IV
has not made any distributions to GP III. Any distributions received by GP III
will be allocated to each of its two limited partners, one of which is Clairvest
Subsidiary which will receive 44.4% of such distributions, and the other of
which is another limited partnership (the "Participation IV Partnership") which
will receive 55.6% of such distributions. The limited partners of the
Participation IV Partnership are principals and employees of Clairvest and GP I
(the "Participation IV Investors"). The Participation IV Investors have
purchased, at fair market value, units of the Participation IV Partnership. From
time to time, additional units in the Participation IV Partnership may be
purchased by Participation IV Investors. The General Partner of the
Participation IV Partnership, a wholly owned subsidiary of Clairvest, is
entitled to participate in additional distributions equal to the exit value on
the first $1.6 million contributed by the Participation IV Investors into the
Participation IV Partnership, the amount of which was invested in Midwest Gaming
Holdings, LLC ("Midwest Gaming") subsequent to quarter end, plus the first $0.4
million received by the Participation IV Partnership as described above.
(h) GP III is also entitled to a carried interest in respect of CEP IV
Co-Investment Limited Partnership ("CEP IV Co-Invest") of 8.25%. CEP IV
Co-Invest was established in 2009 as the investment vehicle through which
Clairvest would co-invest alongside CEP IV. Distributions received by GP III
from CEP IV Co-Invest will be allocated 100% to the Participation IV
Partnership.
(i) Included in accounts receivable and other assets are share purchase loans
made to certain officers of the Company and GP I totaling $1.0 million (2009 -
$0.7 million). The share purchase loans bear interest fixed at the prime rate on
the date of drawdown less 1%, interest is paid annually, and the loans have full
recourse and are collateralized by the common shares of the Company purchased by
the officers with a market value of $1.0 million (2009 - $0.5 million). Also
included in accounts receivable and other assets are other loans made to certain
officers of a company affiliated with Clairvest totaling $0.5 million (2009 -
$0.6 million). The loans to officers of a company affiliated with Clairvest bear
interest at rates commensurate with prime, and interest is paid quarterly. Loans
are repayable upon departure of the officer. Interest of $12,000 was earned on
the loans during the quarter. Also included in accounts receivable and other
assets are receivables of $3.0 million (2009 - $2.2 million) from Clairvest's
investee companies, from CEP totaling $0.7 million (2009 - 1.8 million), from
CEP III totaling $0.1 million (2009 - $1.2 million) and from CEP IV totaling
$4.6 million. Also, included in accounts receivable and other assets is a
refundable deposit of $8.5 million paid to the State of Kansas with respect to a
gaming license application in Wichita, Kansas, the amount of which was refunded
in full subsequent to quarter end.
(j) Loans totaling $0.6 million (2009 - nil), bearing interest at the prime
rate, made by the Company to CEP during the fourth quarter of fiscal 2010,
remain outstanding at March 31, 2010. Interest of $1,000 (2009 - nil) was earned
from loans to CEP during the fourth quarter of fiscal 2010.
(k) Loans totaling $34.3 million (2009 - $8.3 million), bearing interest at the
prime rate, made by the Company to CEP III during the fourth quarter of fiscal
2010 were repaid in full during the quarter. Interest of $33,000 (2009 -
$11,000) was earned from loans to CEP III during the fourth quarter of fiscal
2010.
(l) During the fourth quarter of fiscal 2010, Clairvest earned $1.3 million
(2009 - $1.2 million) in distributions and interest income, $0.4 million in fee
income (2009 - $0.2 million) and nil in dividends (2009 - $103.6 million) from
its investee companies.
9. STOCK-BASED COMPENSATION AND OTHER COMPENSATION PLANS
No options were issued or exercised during the fourth quarter of fiscal 2010. At
March 31, 2010, a total of 1,082,000 options were outstanding under Clairvest's
stock option plan.
As a result of a cash settlement feature in Clairvest's stock option plan,
Clairvest recognizes compensation expense based upon the intrinsic value of the
outstanding stock options at the balance sheet date, and the proportion of their
vesting periods that have elapsed. For the quarter ended March 31, 2010,
Clairvest recognized a stock-based compensation expense of $0.2 million (2009 -
$1.6 million recovery). As at March 31, 2010, $4.2 million (2009 - 3.1 million)
has been accrued under the Company's stock option plan.
As at March 31, 2010, a total of 155,135 (2009 - 123,636) Deferred Share Units
were held by directors of the Company, the accrual in respect of which was $2.0
million (2009 - $1.4 million) and has been included in accounts payable and
accrued liabilities. For the quarter ended March 31, 2010, Clairvest recognized
an expense of $0.1 million (2009 - $0.2 million recovery) with respect to
Deferred Share Units.
As at March 31, 2010, 120,000 (2009 - 105,000) Appreciation Deferred Share Units
were held by directors of the Company, the accrual in respect of which is
$19,000 (2009 - nil) and has been included in accounts payable and accrued
liabilities. For the quarter ended March 31, 2010, Clairvest recognized an
expense of $9,000 (2009 - $2,000 recovery) with respect to Appreciation Deferred
Share Units.
As at March 31, 2010, a total of 541,000 (2009 - 432,000) Book Value
Appreciation Rights Units were held by employees of Clairvest, GP I and a
company affiliated with Clairvest, the accrual in respect of which was $3.2
million (2009 - $1.5 million) and has been included in accounts payable and
accrued liabilities. For the quarter ended March 31, 2010, Clairvest recognized
an expense of $0.3 million (2009 - $0.2 million) with respect to Book Value
Appreciation Rights Units.
10. CONSOLIDATED STATEMENTS OF CASH FLOWS
Net change in non-cash working capital balances related to operations for the
quarters ended March 31 are detailed as follows:
2010 2009
--------------------------
--------------------------
Accounts receivable and other assets $ (1,532) $ (425)
Income taxes receivable 317 768
Accounts payable and accrued liabilities 687 1,570
Income taxes payable (1,118) 1,218
--------------------------
$ (1,646) $ 3,131
--------------------------
--------------------------
Cash and cash equivalents at the balance sheet dates comprised of the following:
March 31 March 31
2010 2009
--------------------------
--------------------------
Cash $ 3,843 $ 61,134
Cash equivalents 39,841 51,138
--------------------------
$ 43,684 $ 112,272
--------------------------
--------------------------
11. DERIVATIVE INSTRUMENTS
As at March 31, 2010, the Company had entered into foreign exchange forward
contracts as hedges against its foreign investments as follows:
Foreign exchange forward contracts to sell US$62.8 million (2009 - US$36.1
million) at an average rate of Canadian $1.0745 per U.S. dollar (2009 - $1.1722)
through to March 2011. The fair value of these contracts at March 31, 2010 is a
gain of $3.7 million (2009 - $3.2 million loss) and has been recognized on the
consolidated balance sheet as derivative instruments. US$2.3 million (2009 -
US$7.1 million) of these foreign exchange forward contracts were entered into in
anticipation of future growth in the value of Clairvest's U.S. denominated
investments, as described in Note 13. These contracts were settled by entering
into offsetting contracts subsequent to quarter end.
Foreign exchange forward contracts to sell Chilean Unidad de Fomento ("CLF") 0.7
million (2009 - CLF0.7 million) at an average rate of Canadian $44.0993 per CLF
(2009 - $41.8148) through to January 2011. The fair value of these contracts at
March 31, 2010 is a gain of $2.2 million (2009 - $2.3 million) and has been
recognized on the consolidated balance sheet as derivative instruments.
12. CONTINGENCIES, COMMITMENTS AND GUARANTEES
(a) Clairvest has committed to co-invest alongside CEP in all investments
undertaken by CEP. Clairvest's total co-investment commitment is $54.7 million,
$3.5 million (2009 - $4.0 million) of which remains unfunded at March 31, 2010.
Clairvest may only sell all or a portion of a corporate investment that is a
joint investment with CEP if the manager of CEP, GP I, concurrently sells a
proportionate number of securities of that corporate investment held by CEP.
(b) Clairvest has also committed to co-invest alongside CEP III in all
investments undertaken by CEP III. Clairvest's total co-investment commitment is
$75.0 million, $15.2 million (2009 - $39.8 million) of which remains unfunded at
March 31, 2010. Clairvest may only sell all or a portion of a corporate
investment that is a joint investment with CEP III if the manager of CEP III, GP
I, concurrently sells a proportionate number of securities of that corporate
investment held by CEP III.
(c) Clairvest has also committed to co-invest alongside CEP IV in all
investments undertaken by CEP IV. Clairvest's total co-investment commitment is
$100.0 million, all of which remains unfunded at March 31, 2010. Subsequent to
quarter end, Clairvest funded $13.2 million of this co-investment commitment
reducing the unfunded portion to $86.8 million. Clairvest may only sell all or a
portion of a corporate investment that is a joint investment with CEP IV if the
manager of CEP IV, GP I, concurrently sells a proportionate number of securities
of that corporate investment held by CEP IV.
(d) Clairvest has also committed $25.0 million to Wellington Financial Fund III
("Wellington Fund III"), $12.5 million (2009 - $12.5 million) of which remains
unfunded at March 31, 2010.
(e) At March 31, 2010, Clairvest has received profit distributions totaling $1.6
million (2009 - $1.4 million) through its ownership interest in the General
Partner of Wellington Fund II and $1.5 million (2009 - $1.0 million) through its
ownership in the General Partner of Wellington Fund III. Clairvest has
guaranteed, up to the amounts received from the respective General Partners, the
clawback provisions (the "Clawback") entered into by the General Partners in the
event the limited partners of the Wellington Fund II and Wellington Fund III do
not meet their return threshold as specified in the respective Limited
Partnership Agreements. At March 31, 2010, there were no accruals made with
respect to the Clawback (2009 - $0.4 million).
(f) Clairvest has guaranteed up to $3.0 million of CEP's obligations to a
Schedule 1 Canadian chartered bank under CEP's foreign exchange forward
contracts with the bank.
(g) Clairvest and CEP III entered into a US$13.0 million credit facility
agreement with a Schedule 1 Canadian chartered bank to allow Clairvest and CEP
III to enter into foreign exchange contracts. Clairvest and CEP III are jointly
and severally liable on this credit facility. Subsequent to the quarter, the
joint and several agreement was extinguished and Clairvest entered into a
stand-alone credit facility agreement.
(h) Under Clairvest's Incentive Bonus Program (the "Program"), a bonus of 10% of
after-tax cash income and realizations on certain Clairvest's corporate
investments would be paid to management annually as applicable. Amounts are
accrued under this Program to the extent that the cash income and investment
realizations have occurred and the bonus has become payable. At March 31, 2010,
$0.8 million (2009 - $2.8 million) has been accrued under the Program. If
Clairvest were to sell its corporate investments at their current fair values,
an additional bonus of $1.4 million (2009 - $1.4 million) would be owing to
management under this Program. As no such realizations have occurred and the
terms of the Program with respect to these corporate investments have not yet
been fulfilled, the $1.4 million (2009 - $1.4 million) has not been accrued at
March 31, 2010. The Program does not apply to the income generated by Clairvest
through CEP III Co- Invest and CEP IV Co-Invest.
(i) During fiscal 2006, Clairvest and a wholly owned subsidiary sold their
interests in Signature Security Group Holdings Pty Limited ("Signature") and a
related company as part of a sale of 100% of Signature and the related company.
As part of the transaction, the wholly owned subsidiary has indemnified the
purchaser for various potential claims which will reduce over time.
(j) Clairvest, together with CEP, had guaranteed to fund any operating
deficiencies of the Tsuu T'ina charitable casino for a specified period of time.
The guarantee was extinguished during the fourth quarter of fiscal 2010 and no
amount subject to this guarantee had been funded.
(k) Clairvest, together with CEP III, has guaranteed to fund 50% of any
operating deficiencies upon the opening of Casino del Sol for a specified period
of time. Amounts paid under the guarantee will be allocated 75% to CEP III, to
the extent that the amounts paid thereunder are within the limits of the CEP III
Limited Partnership Agreement, with the remainder being allocated to Clairvest.
Any amounts paid under the guarantee will result in additional equity being
granted to Clairvest and CEP III, allocated on the same basis as the
participation between Clairvest and CEP III in the guarantee funding. As at
March 31, 2010, no amounts subject to this guarantee have been funded.
(l) Clairvest, together with CEP III, has guaranteed to fund any cost overruns
during the construction of Casino New Brunswick, as well as any operating
deficiencies upon the opening of the casino for a specified period of time. The
amount of the guarantee is allocated 75% to CEP III, to the extent that the
amounts paid thereunder are within the limits of the CEP III Limited Partnership
Agreement, with the remainder being allocated to Clairvest. Any amounts paid
under the guarantee will result in additional debentures being granted to
Clairvest and CEP III, allocated on the same basis as the participation between
Clairvest and CEP in the guarantee funding. As at March 31, 2010, $2.7 million
of the cost overruns subject to the operating deficiencies guarantee have been
funded, $2.0 million of which was allocated to CEP III, and no amounts subject
to the operating deficiencies guarantee have been funded.
(m) As part of the holding structure of Casino del Sol, Clairvest, together with
CEP III, borrowed $32.1 million through an acquisition entity from an unrelated
financial institution, while another acquisition entity deposited $32.1 million
with the financial institution as security for the loan. Clairvest intends to
settle the loan, the deposit and related interest accruals simultaneously upon
the divestiture of the investment in Casino del Sol, and as a result, the
deposit and the loan, and the interest revenue and expense have been presented
on a net basis. Clairvest's ownership of both acquisition entities was 23.8% at
March 31, 2010, with CEP III owning 71.5% and the remainder owned by unrelated
third party investors.
(n) As part of the holding structure of Latin Gaming Chile S.A. ("Latin
Gaming"), Clairvest borrowed $8.3 million through an acquisition entity from an
unrelated financial institution, while another acquisition entity deposited $8.3
million with the financial institution as security for the loan. Clairvest
intends to settle the loan, the deposit and related interest accruals
simultaneously upon the divestiture of the investment in Latin Gaming, and as a
result, the deposit and the loan, and the interest revenue and expense have been
presented on a net basis. Clairvest's ownership of both acquisition entities was
100% at March 31, 2010.
(o) As part of the holding structure of Latin Gaming Osorno S.A. ("Casino
Osorno"), Clairvest borrowed $15.0 through an acquisition entity from an
unrelated financial institution, while another acquisition entity deposited
$15.0 million with the financial institution as security for the loan. Clairvest
intends to settle the loan, the deposit and related interest accruals
simultaneously upon the divestiture of the investment in Casino Osorno, and as a
result, the deposit and the loan, and the interest revenue and expense have been
presented on a net basis. Clairvest's ownership of both acquisition entities was
100% at March 31, 2010.
(p) In connection with its normal business operations, the Company is from time
to time named as a defendant in actions for damages and costs allegedly
sustained by plaintiffs. While it is not possible to estimate the outcome of the
various proceedings at this time, the Company does not believe that it will
incur any material loss in connection with such actions.
13. RISK MANAGEMENT
The private equity investment business involves accepting risk for potential
return, and is therefore affected by a number of economic factors, including
changing economic environments, capital markets and interest rates. As a result,
the Company faces various risk factors, inherent in its normal business
activities. These risk factors and how the Company manages these risk factors
are described below.
Credit risk
Credit risk is the risk of a financial loss occurring as a result of default of
a counterparty on its obligations to the Company. For the quarter ended March
31, 2010, there were no material income effects on changes of credit risk on
financial assets. The carrying values of financial assets subject to credit
exposure at March 31, 2010 and 2009, net of any allowances for losses, were as
follows:
March 31 March 31
2010 2009
--------------------------
--------------------------
Cash and cash equivalents $ 43,684 $ 112,272
Temporary investments 108,544 72,140
Accounts receivable 18,445 6,719
Loans receivable 698 8,549
Derivative instruments 5,900 -
Corporate investments 118,881 102,865
--------------------------
$ 296,152 $ 302,545
--------------------------
--------------------------
The Company manages credit risk on corporate investments through thoughtful
planning, strict investment criteria, significant due diligence of investment
opportunities and oversight responsibilities with existing investee companies
and by conducting activities in accordance with investment policies that are
approved by the Board of Directors. Management's application of these policies
is regularly monitored by the Board of Directors. Management and the Board of
Directors review the financial condition of investee companies regularly.
The Company is also subject to credit risk on its accounts receivables, a
significant portion of which is with its investee companies. The Company manages
this risk through its oversight responsibilities with existing investee
companies and by reviewing the financial condition of investee companies
regularly.
The Company is also subject to credit risk on its loans receivables, the
majority of which is with the CEP Funds (see Note 14). The Company manages this
risk through its fiduciary duty as Manager of the CEP Funds and by maintaining
sufficient uncalled capital for the CEP Funds to settle obligations as they come
due.
The Company manages counterparty credit risk on derivative financial instruments
by only contracting with counterparties which are Schedule 1 Canadian chartered
banks. At March 31, 2010, the Company's derivative instruments have an accrued
gain and a fair value of $5.9 million. The Company believes the counterparty
risk with respect to its derivative instruments is nominal.
The Company manages credit risk on cash, cash equivalents and temporary
investments by conducting activities in accordance with the fixed income
securities policy that is approved by the Audit Committee. The Company also
manages credit risk by contracting with counterparties which are Schedule 1
Canadian chartered banks or through investment firms where Clairvest's funds are
segregated and held in trust for Clairvest's benefit. Management's application
of these policies is regularly monitored by the Audit Committee. Management and
the Audit Committee review credit quality of cash equivalents and temporary
investments regularly. The credit ratings, based on the Dominion Bond Rating
Services ("DBRS") rating scale, for the Company's cash, cash equivalents and
temporary investments were as follows:
March 31 March 31
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and term deposits 30,572 61,216
Guaranteed income certificates and savings accounts
AA+ 5,025 -
AA 37,942 15,048
AA- 6,980 -
Corporate bonds
AA 21,543 8,194
AA- 25,466 19,291
A+ 7,025 8,100
A 2,001 10,999
A- 6,976 5,001
BBB 5,166 -
Preferred shares
P-1 low 1,954 1,982
P-2 - 421
P-2 low 1,521 -
P-3 high - 2,004
P-3 - 801
P-4 - 299
Other fixed income investments
R1-High 49 841
Other non-rated securities 8 50,215
----------------------------------------------------------------------------
Total cash, cash equivalents and temporary
investments 152,228 184,412
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Market risk
Market risk includes exposure to fluctuations in the market value of the
Company's investments, currency rates and interest rates. The following table
presents the financial instruments measured at fair value classified by the fair
value hierarchy set out in CICA Handbook Section 3862 as described in Note 2:
2010 2009
-------------------------------------------- ------------
-------------------------------------------- ------------
Fair value measurements using
------------------------------
Assets
Assets /liabilities
/liabilities at fair
Level 1 Level 2 Level 3 at fair value value
-------------------------------------------- ------------
Financial assets
Cash $ 3,843 $ - $ - $ 3,843 $ 61,134
Cash equivalents
Investment
savings accounts 7,898 - - 7,898 -
Term deposits 26,728 - - 26,728 145
Corporate bonds 5,166 - - 5,166
Fixed income
mutual funds 49 - - 49 50,993
-------------------------------------------- ------------
39,841 - - 39,841 51,138
-------------------------------------------- ------------
Temporary
investments
Guaranteed
investment
certificates - 42,049 - 42,049 15,048
Corporate bonds 63,020 - - 63,020 51,585
Preferred shares 3,475 - - 3,475 5,507
-------------------------------------------- ------------
66,495 42,049 - 108,544 72,140
-------------------------------------------- ------------
Accounts receivable - - 18,445 18,445 6,719
Loans receivable - - 698 698 8,549
Derivative
instruments - 5,900 - 5,900 -
Corporate
investments 5,564 - 113,317 118,881 102,865
-------------------------------------------- ------------
$ 115,743 $ 47,949 $ 132,460 $ 296,152 $ 302,545
-------------------------------------------- ------------
Financial
liabilities
Accounts payable
and accrued
liabilities $ - $ - $ 23 $ 23 $ 268
Derivative
instruments - - - - 5,523
-------------------------------------------- ------------
$ - $ - $ 23 $ 23 $ 5,791
-------------------------------------------- ------------
The following table presents the changes in fair value measurements for
instruments included in Level 3 of the fair value hierarchy set out in CICA
Handbook Section 3862 as described in Note 2:
---------------------------------------------
---------------------------------------------
Total realized
/unrealized
gains (losses)
and foreign
exchange Purchases of
Fair value revaluations assets
January 1 included in /issuances of
,2010 earnings liabilities
---------------------------------------------
Financial assets
Accounts receivable $ 16,907 $ - $ 5,370
Loans receivable 182 - 34,917
Corporate investments 106,738 (3,757) 10,336
---------------------------------------------
$ 123,827 $ (3,757) $ 50,623
---------------------------------------------
Financial liabilities
Accounts payable $ - $ - $ 41
---------------------------------------------
$ - $ - $ 41
---------------------------------------------
---------------------------------------------
----------------------------------------------
----------------------------------------------
Unrealized gains
(losses) and
foreign exchange
revaluations
included in
earnings for
assets and
liabilities for
the quarter
ended March 31,
Sales of assets Fair value 2010 for
/settlements of March 31, positions still
liabilities 2010 held
----------------------------------------------
Financial assets
Accounts receivable $ (3,832) $ 18,445 $ -
Loans receivable (34,401) 698 -
Corporate investments - 113,317 (3,757)
----------------------------------------------
$ (38,233) $ 132,460 $ (3,757)
----------------------------------------------
Financial liabilities
Accounts payable $ (18) $ 23 $ -
----------------------------------------------
$ (18) $ 23 $ -
----------------------------------------------
----------------------------------------------
As at March 31, 2010, approximately 4.7% of the fair value of the Company's
corporate investments was in publicly-traded companies. If market prices were
higher or lower by 5% as at March 31, 2010, the potential effect would be an
increase or decrease of $0.3 million to the carrying value of corporate
investments and net unrealized gains (losses) on corporate investments on a
pre-tax basis for the quarter ended March 31, 2010.
Included in corporate investments are investments for which the fair values have
been estimated based on assumptions that may not be supported by observable
market prices. The most significant unobservable input is the multiple of
earnings used for each individual investment. In determining the appropriate
multiple, Clairvest considers i) public company multiples for companies in the
same or similar businesses; ii) where information is known and believed to be
reliable, multiples at which recent transactions in the industry occurred; and
iii) multiples at which Clairvest invested in the company, or for follow-on
investments or financings. The resulting multiple is adjusted, if necessary, to
take into account differences between the investee company and those the Company
selected for comparisons and factors include public versus private company,
company size, same versus similar business, as well as with respect to the
sustainability of the company's earnings and current economic environment.
Investments which are valued using the earnings multiple approach include Hudson
Valley, Kubra, Landauer, Light Tower Rentals, Lyophilization Services of New
England Inc. and Van-Rob Inc. If the Company had used an earnings multiple for
each investment that was higher or lower by 0.5 times, the potential effect
would be an increase of $3.9 million or decrease of $4.2 million to the carrying
value of corporate investments and net unrealized gains or losses on corporate
investments, on a pre-tax basis for the quarter ended March 31, 2010. Earnings
multiples used are based on public company valuations as well as private market
multiples for comparable companies.
The Company's corporate investment portfolio is diversified across 13 companies
in 9 industries and 3 countries as of March 31, 2010. Concentration risk by
industry and by country is as follows:
March 31, 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
United
Canada States Chile Fair value
----------------------------------------------------------------------------
Automotive related $ 4,853 $ - $ - $ 4,853
Business services 1,035 6,573 - 7,608
Contract manufacturing - 4,887 - 4,887
Financial services 16,569 - - 16,569
Gaming 17,318 - 39,076 56,394
Health and medical related - 7,693 - 7,693
Information technology - 5,494 - 5,494
Oil field service - 6,280 - 6,280
Waste management - 8,952 - 8,952
Other 151 - - 151
----------------------------------------------------------------------------
Total $ 39,926 $ 39,879 $ 39,076 $118,881
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
United
Canada States Chile Fair value
----------------------------------------------------------------------------
Automotive related $ 3,750 $ - $ - $ 3,750
Business services 5,062 5,962 - 11,024
Contract manufacturing - 6,068 - 6,068
Financial services 17,211 - - 17,211
Gaming 9,945 - 41,862 51,807
Health and medical related - 5,015 - 5,015
Information technology - - - -
Oil field service - 7,368 - 7,368
Waste management - - - -
Other 90 532 - 622
----------------------------------------------------------------------------
Total $ 36,058 $ 24,945 $ 41,862 $102,865
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Certain industries, particularly the automotive related industry, the oil field
service industry and the financial services industry, may experience significant
negative impact to their profitability and liquidity positions given the current
economic environment. The Company has considered these economic events and
indicators in the valuation of its corporate investments.
The company held $3.5 million in preferred shares of corporations in its
temporary investments portfolio at March 31, 2010. Fluctuations between par
value and market price did not exceed 2% during the period the shares were held.
A sensitivity analysis on market risk is therefore not disclosed due to the
Company's minimal exposure to market risk.
The Company has implemented a hedging strategy because it has, directly and
indirectly, several investments outside of Canada, currently in the United
States and in Chile. In order to limit its exposure to changes in the value of
foreign denominated currencies relative to the Canadian dollar, at March 31,
2010, Clairvest hedged 100% of the carrying value of its foreign investments. In
addition, the Company has entered into foreign exchange forward contracts in
anticipation of future growth in the value of its U.S. denominated investments.
These contracts had notional values totaling US$2.3 million and a fair value of
a loss of $2,000 at March 31, 2010. These contracts were settled by entering
into offsetting contracts subsequent to quarter end. During the fourth quarter
of fiscal 2010, the Company recognized $0.2 million in foreign exchange expense
recovery (2009 - $1.4 million in foreign exchange expense) as a result of the
Company's hedging strategy.
A number of investee companies are subject to foreign exchange risk. A
significant change in foreign exchange rates can have a significant impact to
the profitability of these entities and in turn the Company's fair value of
these corporate investments. The Company manages this risk through oversight
responsibilities with existing investee companies and by reviewing the financial
condition of investee companies regularly.
Certain of the Company's corporate investments are also held in the form of
subordinated debentures. Significant fluctuations in market interest rates can
also have a significant impact on the fair value of these investments.
Fluctuations in market interest rates affect the Company's income derived from
cash, cash equivalents, and temporary investments. For financial instruments
which yield a floating interest income, the interest received is directly
impacted by the prevailing market interest rate. The fair value of financial
instruments which yield a fixed interest income would change when there is a
change in the prevailing market interest rate. The Company manages interest rate
risk on cash, cash equivalents and temporary investments by conducting
activities in accordance with the fixed income securities policy that is
approved by the Audit Committee. Management's application of these policies is
regularly monitored by the Audit Committee.
If interest rates were higher or lower by 1% per annum, the potential effect
would be an increase or decrease of $0.2 million to distributions and interest
income on a pre-tax basis for the quarter ended March 31, 2010.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they come due. See Note 12 which describes the
Company's contingencies, commitments and guarantees.
The Company maintains a conservative liquidity position that exceeds all
liabilities payable on demand. The Company invests its cash equivalents and
temporary investments in liquid assets such that they are available to cover any
potential funding commitments and guarantees. In addition, The Company maintains
a credit facility with a Schedule 1 Canadian chartered bank and closed on a new
credit facility subsequent to quarter end.
14. CAPITAL DISCLOSURES
Clairvest considers the capital it manages to be the amounts it has in cash,
cash equivalents, temporary investments and corporate investments. Clairvest
also manages the third-party capital committed or invested in CEP, CEP III and
CEP IV (together, the "CEP Funds"). At March 31, 2010, Clairvest had cash, cash
equivalents and temporary investments of $152.2 million (March 2009 - $184.4
million), in addition to $118.9 million (March 2009 - $102.9 million) of
corporate investments. Clairvest also had access to a $20.0 million (2009 -
$20.0 million) credit facility and $267.9 million (March 2009 - $131.2 million)
of uncalled committed third-party capital for acquisitions through CEP, CEP III
and CEP IV at March 31, 2010.
Clairvest's objectives in managing capital are to:
-- Preserve a financially strong company with substantial liquidity such
that funds are available to pursue new acquisitions and growth
opportunities as well as to support its operations and the growth of its
existing corporate investments;
-- Achieve an appropriate risk adjusted return on capital;
-- Build the long-term value of its corporate investments; and
-- Have appropriate levels of committed third-party capital available to
invest along with Clairvest's capital. The management of third-party
capital also provides management fees and/or priority distributions to
Clairvest and the ability to enhance Clairvest's returns by earning a
carried interest.
15. SUBSEQUENT EVENTS
Subsequent to the quarter, the Company, through various acquisition entities,
invested US$9.3 million (C$9.3 million) in Midwest Gaming to build a casino and
related amenities in Des Plains, Illinois. In addition to this investment,
Clairvest advanced an additional US$2.4 million (C$2.4 million) loan to Midwest
Gaming to bridge the raising of equity from minority investors as required by
the Illinois legislature. The Company's ownership interest in Midwest Gaming is
6.0%.
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