2 0 1 3 A N N U A L R E P O R T
EXECUTIVE HEAD OFFICE:
1800 – 360 Main Street
The Commodity Exchange Tower
Winnipeg, Manitoba R3C 3Z3 Canada
REGISTERED OFFICE:
c/o McMillan LLP
181 Bay Street, Suite 4400
Toronto, Ontario M5J 2T3 Canada
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H I G H L I G H T S
YEAR ENDED AUGUST 31
2013
2012
2011
2010
Revenue
$32,892,159
$27,157,385
$24,274,990
$20,687,278
EBITDA before corporate costs
7,839,707
6,140,744
5,632,042
4,873,426
Adjusted EBITDA
$4,344,309
$2,710,379
$2,346,088
$1,937,215
Total assets
Total debt
Other liabilities
$53,736,277
$25,342,445
$24,994,058
$25,081,913
19,249,335
2,219,691
2,889,376
3,716,347
20,310,320
9,363,384
9,174,599
9,000,019
Shareholders’ equity
14,176,622
13,759,370
12,930,083
12,365,547
Total liabilities and shareholders’ equity
$53,736,277
$25,342,445
$24,994,058
$25,081,913
Cash, end of year
$2,449,169
$3,199,643
$1,287,741
$1,663,557
Repayment of long-term debt
$802,538
$853,910
$2,749,928
$1,311,953
Common shares outstanding at year end
33,027,193
32,970,527
32,970,527
32,970,527
REVENUE
(in $ millions)
EBITDA BEFORE
CORPORATE COSTS
(in $ millions)
ADJUSTED EBITDA
(in $ millions)
35
30
25
20
15
10
5
-
2009
2010
2011
2012
2013
9
8
7
6
5
4
3
2
1
-
2009
2010
2011
2012
2013
5
4
3
2
1
-
2009
2010
2011
2012
2013
C O R P O R AT E I N F O R M AT I O N
EXECUTIVE
Laurie Goldberg, Chief Executive Officer
MANAGEMENT TEAM:
John Gallivan, President
Bonnie Chwartacki, Executive Vice President
Brevan Canning, Vice President Finance
Glenn Pittman, Vice President Corporate Development
Paul Asmundson, Vice President Corporate Development
BOARD OF DIRECTORS: Laurie Goldberg, Chairman
Scott C. Anderson, Lead Director
Richard Leipsic
CORPORATE OFFICES: Executive Head Office:
1800 - 360 Main Street, The Commodity Exchange Tower
Winnipeg, Manitoba R3C 3Z3 Canada
Registered Office:
c/o McMillan LLP, 181 Bay Street, Suite 4400
Toronto, Ontario, M5J 2T3
LEGAL COUNSEL: Lang Michener LLP
Brookfield Place
181 Bay Street, Suite 2500
Toronto, Ontario M5J 2T7 Canada
AUDITORS: MNP LLP
701 - 85 Richmond Street West
Toronto, Ontario M5H 2C9 Canada
TRANSFER AGENT: TMX Equity Transfer Services
200 University Avenue, Suite 300
Toronto, Ontario M5H 4H1 Canada
LISTING: Stock Exchange: TSX-V
Symbol: PEO
ANNUAL
February 26, 2014
GENERAL MEETING:
3:00 PM Central Standard Time
Suite 1800, 360 Main Street
Winnipeg, Manitoba R3C 3Z3 Canada
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T O T H E S H A R E H O L D E R S O F P E O P L E C O R P O R AT I O N
As Canada’s economy continues to climb out of the challenges emanating from the world’s global economic
decline of only a few years ago, new industry leaders are emerging and some of our country’s previous superstars
don’t even make the list. This is normal. We can’t always predict who will be the winners, but one thing is certain -
when economies go through change, industry players and their relative market position usually change - for better
or for worse. Our industry - group benefits, retirement and HR is no different. It continues to go through change
and we plan on emerging at the top.
More specifically, as I said in my 2011 Chairman’s Message, the increasing cost of employee benefits, driven in
large part by the increased cost of healthcare and utilization rates combined with an aging demographic, results in
employers being faced with challenges around employee recruitment and retention, as well as cost containment.
As such, being client centric by providing powerful employee benefits and human resource consulting, products
and solutions remains good business. This trend continues to intensify, and employers increasingly seek advice to
solve for these challenges. We are focussed on being a client centric organization by delivering solutions to meet
these challenges by continuing to invest heavily in consulting expertise, client service best practices and unique
product offerings. We plan to continue to expand as the best benefit, retirement and consulting services firm in
the country. You may consider this to be an extremely lofty goal, perhaps, but no one rises to low expectations.
We have high expectations of ourselves, as do our clients and our prospective clients.
During this period of economic challenge and industry change, we increased our investments significantly in
organic and acquisition-related growth, and completed a variety of operational initiatives. At the same time, we
have balanced these long-term strategic investments with ensuring that we achieve our annual financial goals.
Ongoing evidence of the merits of our strategy and our team’s ability to execute on it can be seen by quarter-
over-quarter and year-over-year growth in our financial results. To that end, here are some of our fiscal 2013
accomplishments:
• We welcomed four new partner firms to the People Corporation group of companies as part of our acquisition-
related growth plan. In total, these acquisitions represented approximately $26 million in transaction value, and
will add significantly to the Company’s client base, revenue, profitability and cash flow on a future basis. JSL Inc.
and Prosure, both based in the Greater Toronto Area, represent a strong addition to our business in this region,
Bencom Financial Services Group adds a sizable, leading practice in the Southwestern Ontario region, and
Hamilton + Partners represents our largest acquisition to date, significantly expanding our national footprint with
a presence in the Calgary market, and adding some unique product expertise. These acquisitions are indicative
of the momentum of our acquisition-based growth strategy.
• Organic growth continues to be a cornerstone of our overall growth strategy. In fiscal 2013, we continued to
focus on a variety of organic growth initiatives. Much of this activity took place in our Shared Services division,
which seeks to provide internal resources to our consultants to provide them with a unique value proposition and
competitive edge to attract and retain new clients. For example, the Company continued to focus on expanding
its suite of proprietary products and services, including the launch of a new Wellness Solutions division and
continued expansion of our Group Retirement Solutions division.
• We also continued to form new strategic relationships related to the expansion of our product portfolio, billing
platforms and third party administration (TPA) platforms, thereby increasing the number of product offerings
available to clients. Specifically, the launch of preferred pricing arrangements in pharmacies, optical, and other
services have provided savings for our clients. We also further developed our TPA platform, adding more
insurance carrier choices for our clients and increased ability to create a customized solution by selecting
different benefit program components from different providers, but providing them through one seamless
interface with our clients.
• In PeopleFirst HR Services, our HR consulting division, the breadth of our offering was expanded both
geographically and through additional service offerings. We increased our service to the Saskatchewan
marketplace, gaining a number of new clients in that attractive market. We also rolled out a new HR outsourcing
services line, which experienced traction in the market, and has resulted in a growth area for this part of
our business.
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CEO AND CHAIRMAN’S MESSAGE TO SHAREHOLDERS
FOR THE YEAR ENDED AUGUST 31, 2013
1
• We view our people as our strongest asset and an important differentiator. After all, our company name is People
Corporation. During 2013, we continued to invest significantly in our people talent. These investments span our
company – including client-facing benefits consultants, client service professionals, regional and product-based
management, and corporate management. The strong articulation of our vision, and our success to date, has
resulted in us being able to attract top talent from within the group benefits, group retirement and HR consulting
sectors, as well as adjacent industries. We believe strongly in positioning our people for success and career
growth by providing them with leading edge tools, resources and support to attract, retain and serve our clients.
We are committed to developing our people, through training and providing career paths second to none.
In fact, this year, we further invested in our training by launching the first ever People Corporation Academy
bringing new consultants from across the country together for technical training and awareness of our service
offerings and solutions so that they can bring the best resources to each client engagement.
And, we are proud that our people can and have chosen to participate in the firm’s financial success. Our firm
offers an Employee Stock Ownership Plan, which to date, has over 60% participation and continues to be an
attractive benefit offered by our Company.
Our footprint across Canada now stands at 28 offices and satellite offices across 7 provinces. We have over
200 professionals and support staff. We serve nearly 3,000 clients across the country, diversified by region,
sector and size.
• Our financial results indicate that we have the right strategy, are succeeding in its execution, and are making
accretive investments. For fiscal 2013, we posted record financial results, which include revenue growth of 21.1%
and Adjusted EBITDA growth of 60.3%. These growth rates, based on our published financial results, include
only a partial impact of recent acquisitions, given that they occurred throughout the fiscal year. If you are to
consider the full impact of recent acquisitions, our growth is even more significant.
The growth that we achieved during fiscal 2013 was dramatic. In June 2013, in recognition of our outstanding
growth, People Corporation was included in the PROFIT 500, a ranking of Canada’s fastest growing companies,
compiled by PROFIT Magazine based on five-year revenue growth.
The strategic and operational accomplishments noted above are critical in pursuing our vision to create the leading
provider of group benefits, group retirement and HR consulting products and services in Canada, with best-in-class
consultants delivering innovative and customized solutions. Our disciplined execution of strategic and operational
initiatives and the wise allocation of investment capital will be what drives our financial performance in the short
and long term. We are very pleased with our results for 2013 but, as I have said before – we’ve only just begun.
Our plans for fiscal 2014 are more exciting than ever. While we can see the momentum continuing and expect to
reap the benefits of past investments, we will continue to invest in the future, and continue to build our capabilities.
We will be unwavering in our focus on the client, while balancing financial prudence.
We, at People Corporation welcome and hope that you will continue to participate in this exciting journey, and as
our tag lines states, we invite you to “Experience the Benefits of People”.
Sincerely,
Laurie Goldberg
Chairman and CEO
2
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PEOPLE CORPORATION M A N A G E M E N T ’ S D I S C U S S I O N
& A N A LY S I S Q U A R T E R A N D
Y E A R E N D E D A U G U S T 3 1 , 2 0 1 3
TA B L E O F C O N T E N T S
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Group Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Third-Party Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Corporate Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Human Resource Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INDUSTRY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
OUTLOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
OVERVIEW OF OPERATIONAL PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
OVERVIEW OF FINANCIAL PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Selected Quarterly Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Personnel and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
General and Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Advertising and Promotion Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Finance and other income (costs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
NON-IFRS FINANCIAL MEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
EBITDA and Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
RISKS AND UNCERTAINTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CRITICAL ACCOUNTING POLICIES AND ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . 31
OFF-BALANCE-SHEET ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SEASONALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FINANCIAL INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013
4
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PEOPLE CORPORATION This Management’s Discussion and Analysis (“MD&A”) has been prepared with an
effective date of December 4, 2013 and provides an update on matters discussed
in, and should be read in conjunction with the audited annual consolidated financial
statements of the Company, including the notes thereto, as at and for the year ended
August 31, 2013, which were prepared in accordance with International Financial
Reporting Standards (“IFRS”), unless otherwise specified. All amounts contained
within this MD&A are in Canadian dollars unless otherwise specified. Amounts set
forth in this MD&A are stated in thousands of dollars except for per share, issued and
outstanding share data, and unless otherwise noted. Certain totals, subtotals and
percentages may not reconcile due to rounding.
ADDITIONAL INFORMATION
Additional information regarding the Company is available on SEDAR at www.sedar.
com and on the Company’s website at www.peoplecorporation.com.
FORWARD‑LOOKING STATEMENTS
This MD&A contains “forward-looking statements” within the meaning of applicable
securities laws, such as statements concerning anticipated future events, results,
circumstances, performance or expectations that are not historical facts. Use of
words such as “may”, “will”, “expect”, “believe”, or other words of similar effect
may indicate a “forward-looking” statement. These statements are not guarantees
of future performance and are subject to numerous risks and uncertainties, including
those described in the Company’s publicly filed documents (available on SEDAR at
www.sedar.com) and in this MD&A under the heading “Risks and Uncertainties”.
Those risks and uncertainties include the ability to maintain profitability and manage
organic or acquisition growth, reliance on information systems and technology,
reputation risk, dependence on key clients, reliance on key professionals and general
economic conditions. Many of these risks and uncertainties can affect the Company’s
actual results and could cause our actual results to differ materially from those
expressed or implied in any forward-looking statement made by the Company or
on its behalf. Given these risks and uncertainties, investors should not place undue
reliance on forward-looking statements as a prediction of actual results.
All forward-looking statements in this MD&A are qualified by these cautionary
statements. These statements are made as of the date of this MD&A and, except
as required by applicable law, the Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Additionally, the Company undertakes no
obligation to comment on analyses, expectations or statements made by third parties
in respect of the Company, its financial or operating results or its securities.
Readers are cautioned that net income before interest expense, tax expense,
depreciation and amortization (“EBITDA”) or EBITDA before non-recurring
acquisition and transaction costs (“Adjusted EBITDA”), Operating Income, Operating
Income before Corporate Costs, Corporate Costs, Adjusted Working Capital,
Operating Working Capital and other similar terms do not have standardized
meanings as prescribed by IFRS and may not be comparable to similar measures
presented by other companies. Further, readers are cautioned that EBITDA or
Operating Income should not replace Net income or loss or cash flows from
operating, investing and financing activities (as determined in accordance with IFRS),
as an indicator of the Company’s performance.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 People Corporation (the “Company”) is an employee benefit, pension and human
resource consulting firm in Canada. With a growing national footprint of twenty-eight
offices and satellite offices in seven provinces, the Company is bringing together
leading consultants in the industry, offering innovative and customized benefit,
pension and human resource solutions to its clients. The Company is listed on the TSX
Venture Exchange (“TSX‑V”) under the symbol “PEO”.
F I N A N C I A L H I G H L I G H T S
AUG 31, 2013
AUG 31, 2012
Revenue
Adjusted EBITDA
Adjusted EBITDA per share (Basic)
Net Income
Net income per share (Basic)
THREE MONTHS
ENDED
$ 9,074.6
$ 918.7
$ 0.028
$ (581.0)
$ (0.018)
YEAR
ENDED
$ 32,892.2
$ 4,344.3
$ 0.132
$ 260.1
$ 0.008
THREE MONTHS
ENDED
$ 6,710.7
$ 442.3
$ 0.013
$ 173.5
$ 0.005
YEAR
ENDED
$ 27,157.4
$ 2,710.4
$ 0.082
$ 726.2
$ 0.022
For the year ended August 31, 2013, the Company reported revenue growth of $5,735
or 21.1%. The increase in revenue reported for the year ended August 31, 2013 as
compared to the prior year is due to both acquired growth and organic growth.
Approximately one-third ($2.1 million or 7.7%) of the increase in revenue represents
organic growth in the business, attributable to the activities discussed below such, as
the expansion of the Company’s team of benefits consultants and the additions to the
Shared Services product/service offering, which has resulted in additional revenue
from existing clients as well as the addition of new clients. The balance of the
revenue growth, $3,653.1 or 13.5%, was generated through new acquisitions of
Hamilton + Partners, Bencom, Prosure, and JSL, all as herinafter defined. Revenue
growth from acquisitions represents the revenues of these entities only from the date
of the closing of the respective transactions, and therefore does not include a full
year of the transactions’ financial impact, or 1.7 months, 9 months, 10 months and 12
months of revenue, respectively.
Adjusted EBITDA for the fiscal year ended August 31, 2013 was $4,344.3 million,
representing an increase of 60.3% or $1,634.0, as compared to the same period in
2012. Adjusted EBITDA margin increased from 10.0% in fiscal 2012 to 13.2% in fiscal
2013. The growth in Adjusted EBITDA and margin improvements are a result of the
operating leverage in the business, as the revenue associated with past investments in
operations effectively increases operating earnings with limited additional incremental
investment or expense. Similar to revenue, Adjusted EBITDA discussed above
only reflects the financial results of the companies with which People Corporation
completed transactions from the closing date of the relevant transactions, and
therefore published financial results are not indicative of the current earnings power of
the business.
6
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PEOPLE CORPORATION Net Income decreased $466.1 or 64.1%. The decrease in net income is due to incremental
finance expense attributable to debt issued in connection with the transactions completed
during the year and $966.0 of non-recurring costs related to those transactions, and
also to various non-cash expenses related to the accounting entries for items such as
amortization of intangible assets. As with the other income statement items discussed
above, net income includes the financial results of companies with which transactions were
completed only from the date of closing of the associated transactions.
B U S I N E S S O V E R V I E W
The Company delivers employee group benefit consulting, third-party benefits
administration, group retirement consulting, strategic human resource consulting and
recruitment services to help companies attract, retain and reward employees. The Company
achieves this through its approximately 200 professionals and support staff with twenty-eight
offices and satellite offices in seven provinces and earns its revenues from a diverse base of
clients in various industries. The Company’s priority is the continued profitable expansion
of existing operations through a focus on organic growth and the acquisition of synergistic
companies with a view to maximize value for its stakeholders; i) shareholders, ii) clients, iii)
acquisition partners, and iv) employees.
The Company maintains a corporate strategic plan, a financial plan and an ongoing annual
planning process that enables the Company to continue to grow and execute on its vision.
The Company has a funnel of potential acquisitions in place and available financial and
management resources to execute such acquisitions in accordance with its corporate
strategic plan.
The Company is organized in order to emphasize integration of all of its practice areas,
which are as follows:
Experience the Benefits of People
Group
Benefits
Third Party
Administration
Shared
Services
Human Resource
Consulting
WHITE WILLOW
BENEFIT CONSULTANTS INCORPORATED
c o m e u n d e r o u r c a r e
Integrated
Solutions
Business
Development
Group
Retirement
Solutions
Concierge
Client Services
Wellness
Solutions
Product
Development
and Marketing
Support
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 People Corporation is a national provider of group benefits, group retirement, and
human resource services. The Company has offices across Canada; each led by a team
of experts and backed by the resources of a public company. The Company’s diverse
team of experienced consultants have industry-specific expertise and can provide
businesses with insight to customize an innovative suite of services specific for their
business requirements. The Company is committed to helping businesses attract, retain
and reward their people thereby assisting in the achievement of the client goals.
While the Company continues to go-to-market with the various brands acquired through
acquisition, the Company is organized in such a way as to leverage the capabilities of
the entire organization. People Corporation can help businesses attract the right talent
for the job and provide the right incentives to motivate employees to exceed, enabling
client businesses to prosper.
People Corporation helps businesses:
Attract
Reward
Prosper
The Company’s employee benefit, group retirement and
HR divisions are led by experts who understand a client’s
business and can help a client attract the best people for
their industry, helping position them as top employers.
Proprietary solutions offered by the Company’s benefit
consulting and, third-party administration platform ensures
that a client’s staff has access to health, wellness, dental, and
retirement plans that make financial sense for their families
as well as to the client’s business.
The Company can help make a client’s organization a place
where the best people will want to build their careers while
also ensuring cost containment for the client’s benefit, HR
and group retirement plans.
GROUP BENEFITS
Whether a client needs a simple benefits package or a comprehensive solution, The
Company’s experts can customize a program for its client’s unique needs.
Expertise
Custom Solutions
The Company’s consultants are recognized industry leaders
who can create unparalleled value for a client’s organization.
Through the experience of working with hundreds of clients,
the Company’s consultants have developed broad, as well
as specialized, product, insurance and industry expertise.
The Company’s broad range of innovative and proprietary
group benefit solutions can be tailored to suit organizations
of any size, in any sector. This is achieved through our
partner relationships, the ability to leverage our various
systems & platforms and through the expertise of
consultants and staff.
Industry Leading Pricing As a national provider, the Company’s buying power allows
it to offer clients the best products on the best terms.
Independent Guidance
The Company’s expert advice is unbiased and independent.
The Company works with all major insurers to provide clients
with the best customized solution for its client’s business and
people.
8
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PEOPLE CORPORATION National Servicing
With offices across the country, the Company can provide
clients with servicing on a localized basis.
Below is a summary of the Company’s various operating brands within group benefits:
GALLIVAN & ASSOCIATES
Gallivan & Associates (“Gallivan”), established in 1993, provides professional
advice and service infrastructure to post-secondary student organizations in order
to offer group benefit programs to students. Gallivan operates on a national basis
with offices and satellite offices across the country and provides Student Health
and Dental Plans to post-secondary student organizations representing over
250,000 students.
THE INVESTMENT GUILD
The Investment Guild (“TIG”), established in 1981, specializes in mid-market
corporate benefits, association plan benefits, group retirement solutions and
individual insurance products.
BUFFETT TAYLOR & ASSOCIATES
Buffett Taylor & Associates (“Buffett Taylor”), established in 1981, is a consulting
firm specializing in providing service to a predominately public sector and
not-for-profit clientele. Buffett Taylor is versed in all areas of group benefits
insurance and benefit plans. Using an integrated approach to the design and cost
management planning of group benefit programs, with a proven track record
in servicing clients across Ontario, has enabled Buffett Taylor to maximize the
investment that their clients have made in their employee benefit plan.
WHITE WILLOW BENEFITS CONSULTANTS
White Willow Benefit Consultants (“White Willow”), established in 1988, is a
boutique group benefits consulting firm that provides service to mid-market, to
large corporate clients with group benefit plans and group retirement solutions.
White Willow has special expertise in servicing legal firms and organizations within
the financial services sector.
LES ASSURANCE W.B.
Les Assurance W.B. (“LAWB”) provides group benefit advisory services to
clients based in the Québec city area and northern Québec. LAWB leverages
the HSP platform, hereinafter described, to provide its clients with third-party
administration of group benefit programs including billing services, client services,
employee data management and claims management. In addition to providing
third-party administration services, LAWB also provides traditional group benefit
programs to its clients.
JSL INC.
JSL Inc. (“JSL”), established in 1976, provides group benefit solutions to clients
based in southern Ontario and specializes in mid-market corporate clients and
has taken a partnership approach with clients to develop customized employee
benefits programs that meet the changing needs of their businesses and
employees.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 PROSURE GROUP ADMINISTRATORS INC. & PROSURE INSURANCE
AGENCIES INC.
Prosure Insurance Agencies Inc. & Prosure Insurance Agencies Inc. (collectively,
“Prosure”), established in 1987, provides employee benefits solutions, consulting
services and third-party administration services to over 300 mid-market corporate
clients, the majority of which are located in Ontario.
BENCOM FINANCIAL GROUP SERVICES INC.
Bencom Financial Services Group Inc. (“Bencom”), established in 1982, provides
group benefit, group retirement and individual benefit advisory services to
approximately 200 mid-market corporate clients located primarily in Ontario.
HAMILTON + PARTNERS
Hamilton + Partners’ consist of three operating companies, Employee Benefits
Inc. (“EBI”), Disability Concepts Inc. (“DCI”) and 6814409 Canada Incorporated
(“681”), (collectively “H+P”). EBI is a group benefits consulting firm that provides
service predominantly to Alberta based small to large corporate clients with group
benefit plans and group retirement solutions. DCI provides unique disability and
critical illness solutions designed to balance employer interests of cost savings
and product enhancements with employee concerns and adequate coverage.
681 provides specialized medical insurance products which expedites access to
medical imaging and rapid second opinion as well as coverage for private medical
treatments. Established in 1984, H+P operates primarily in Alberta.
THIRD PARTY ADMINISTRATION
The Company has several third-party administration (“TPA”) service platforms
allowing it to administer benefit plans on behalf of clients and insurance carrier
partners. These administration platforms allow the Company to develop
specialized, unique and customized benefit solutions for its clients. TPA services
include employee data management, billing services, consolidated billing services
where a client has multiple insurance carriers associated with its plan, customized
reporting, customized plan design services, underwriting services, communication
services and booklet printing services. In addition, through its various partners, the
TPA platforms also provide claims adjudication services and claims management.
HEALTHSOURCE PLUS
HealthSource Plus Inc (“HSP”), established in 1992, provides TPA of group benefit
programs including billing services, client services, employee data management
and claims management through a proprietary platform. As a TPA, HSP is able to
provide customized benefits solutions based on the needs of the client including
complex plan design, customized reporting, alternative funding models and
hybrid plans. HSP has offices in Toronto, Montreal, Niagara and Winnipeg.
HSP typically serves businesses with 25 to 5,000 employees.
PROSURE
In addition to providing group benefit advisory services, as discussed above,
Prosure operates a specialized TPA platform for the administration of Health
Spending Accounts and Cost-plus Accounts.
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PEOPLE CORPORATION CORPORATE SHARED SERVICES
Through our corporate shared service divisions, People Corporation helps its
subsidiaries and divisions by providing resources to attract clients and retain
clients. The corporate shared service divisions were created to ensure that the
Company’s subsidiaries and divisions have access to advanced product experts,
proprietary products and services not normally available to mid-size employee
benefit firms; thereby ensuring clients are receiving the best possible consulting
advice, and its subsidiaries have a unique value proposition allowing them a
competitive edge to attract and retain clients.
INTEGRATED SOLUTIONS
Integrated Solutions (“IS”) provides group benefit advisory services with a
focus on unique strategic and tax effective compensation solutions designed to
realign the competing needs of the business and the people in it. IS provides its
specific expertise through a network of third party insurance brokers who do not
traditionally serve group benefit needs.
CONCIERGE CLIENT SERVICES
The Company’s Concierge Client Service offering is designed to ensure proper
elements and commitments are in place to provide consistent service and delivery
to clients on an integrated basis. The standard service level agreements between
the Company and its clients provide for a common understanding about service,
expectations, priorities and responsibilities, the purpose of which is to maintain
quality of service and to ultimately have a positive effect on retention rates.
GROUP RETIREMENT SOLUTIONS
Group Retirement Solutions focuses on enhancing and expanding upon the
Company’s existing group retirement products and client service model. The
mandate of the division is to provide support services to the Company’s benefit
consultants, to facilitate and help them expand their service offering to clients by
adding Group Retirement Solutions.
WELLNESS SOLUTIONS
Wellness Solutions focuses on providing the Company’s corporate client with
a suite of proprietary products, and service offerings that will help manage
increasing costs of absenteeism, presenteeism, and loss of productivity. In
addition, the Company’s Wellness Solutions will serve to help the Company’s
clients attract, reward, and retain their employees.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 HUMAN RESOURCE SERVICES
Within its human resource service divisions the Company has deep expertise and
the ability to take advantage of the entire organizations resources to provide:
• Executive search and recruiting services
• Career management services
• Human resource consulting services
PEOPLE FIRST HR SERVICES
People First HR Services (“PFHR”), established in 2000, is Manitoba’s largest full
service human resource provider. PFHR through its various brands delivers high
quality leadership and organizational solutions and contributes to the success of
its clients by working with them to: recruit top talent; discover the full potential
of each of their employees; realize the collective strength of a highly engaged
workforce; and support employees and employers during times of change. They
leverage the experience base of the firm and the efficiency of its processes to
create workable and timely solutions that deliver great value for clients.
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PEOPLE CORPORATION
Saskatoon
Vancouver
Calgary
Winnipeg
Quebec City
Montreal
Stouffville
Markham
Waterloo
Niagara
Whitby
Toronto
Cambridge
Halifax
I N D U S T R Y
Resulting from recent economic downturns including ongoing financial crises
around the world, projected shortage of skilled employees, rapid technological
change in many industries, and increasing regulatory scrutiny, companies have
to rethink their approach to human resources. According to research conducted
by the Conference Board of Canada, companies will be faced with a shortfall of
1 million skilled workers by 2020. For every two workers leaving the workforce,
only one worker is entering and while this issue has been dampened by the recent
recession, it will become exacerbated as the economy recovers. The pending
“war for talent” will require companies and HR professionals to offer potential
employees with value propositions and to deliver on those value propositions
to attract and retain them. Innovative compensation programs with reward and
recognition programs – monetary and other, combined with work life balance,
fulfilling roles and flexible work arrangements will become increasingly important.
Companies now need to include ongoing recruitment practices that facilitate a
constant funnel of potential candidates, the nurturing of candidate relationships,
strategic interview processes, strong candidate selection processes combined
with candidate profiling, rapid response and candidate follow up. The recruiting
process needs to be continuous, rapid and highly responsive which creates an
administrative challenge. Furthermore, companies need to provide employees
with on boarding, training and career development programs to ensure that they
are successful. Small to mid-sized companies don’t have the skills, technology
and resources necessary to be effective or competent in these areas and will
increasingly need to outsource recruiting and other HR functions to expert
professional advisors.
Many companies have long used the employer sponsored benefits program as
one of the tools to help attract and retain employees. Companies have seen
significant cost increases in group insurance premiums resulting from increasing
healthcare costs, the entry of new drugs, aging demographics and related
consumer utilization. With an aging population that is both living and working
longer and taking advantage of more medical services and improvements in
drugs, cost and utilization are naturally increasing. This, combined with the
continued cost shifting from the public sector to the private sector through
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 reduced coverage under provincial healthcare programs and other public plans,
and the long term outlook for group insurance costs, suggest that such premiums
will continue to rise. This creates a double edged sword for companies – they
need to use benefits programs to attract and retain workers – but, the increasing
cost makes it difficult.
Human resource consulting and staffing services are dominated by many small
players and a few large multinational firms. Small and medium enterprise
group insurance and pension consulting is serviced by a large number of
small regional and local participants. The balance of the industry, which is
focused on large employers and government accounts, is serviced by a small
number of multinational consulting firms. The scope of their services generally
includes pension and benefits consulting, pension and benefits administration,
communication consulting, actuarial services and wellness consulting. The
multinational consulting firms primarily offer fee based consulting and
administrative services, while the balance of the marketplace operates primarily
on commission based compensation, with limited fee based services available
depending upon the client and the services required.
Management believes that the continued evolution and growth of the benefits,
pension, insurance and human resource industries combined with external factors
such as aging demographics, regulatory and legal changes, and technology
will continue to cultivate the need by clients for external expertise in consulting
and administrative matters in order to attract, retain and reward employees.
In addition, Management believes that consultant demographics and lack of
succession planning options is positioning the industry for consolidation. The
Company’s unique approach to provide these services within a one stop shop
approach positions the Company well within the overall human resources and
insurance distribution industry.
O U T L O O K
Management believes that the employee benefits and human resources industry
and the business of the Company are positioned for growth. The industry is poised
for growth as a result of rising health care costs and long term trend of tightening
labour markets. The industry is also ripe for consolidation as a result of the aging
demographics of regional consulting practices and the significant demand from
mid-market employers to manage the costs and requirements of providing
employee benefits to staff and while ancillary human resource services like
recruiting, career transition and human resource consulting services have suffered
decreased demand through the recent economic downturn, these service areas
are expected to grow significantly due to long term employment trends.
In order to take advantage of these industry trends and the opportunity for growth,
the Company has developed and implemented a strategic plan that focuses on
growth through acquisition combined with specific business plans for each of
its operating brands to enhance organic growth opportunities. The Company’s
Shared Services structure is designed to provide both significant revenue growth
opportunities to the existing operating brands as well as a value added recruiting
tool for new consultants and acquisition targets. Management expects that the
strategic plan supported by a focus on organic growth, acquisitions and its Shared
Services strategy will result in continued growth in coming years.
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PEOPLE CORPORATION O V E R V I E W O F O P E R AT I O N A L
P E R F O R M A N C E
As a result of a focus on executing its strategic plan, the Company has been
successful in building upon and growing operational capabilities by investing in
employees and the tools they need to provide responsive solutions which address
their client’s business challenges. The Company wants its clients to experience the
benefits which People Corporation professionals bring to the table, to experience
the benefits their people can deliver to them, and wants the client relationship to
be an experience, not a transaction.
2012 MILESTONES:
The Company continued its positive momentum and strong performance during
the fourth quarter. Corporately, our objectives continued to focus on:
i. promoting and recruiting leadership to execute our organic growth plans;
ii.
iii.
adding additional benefits consultants in order to expand our organic revenue
generating capabilities;
expanding product portfolio, billing platforms and TPA administration
platforms thereby increasing the number of product offerings available to
clients;
iv. enhancing the client service model; and
v. pursuing possible acquisitions which align with the Company’s strategic plan.
Results from the implementation of the above strategic initiatives, momentum
from past initiatives and the overall improvement in revenue growth can be seen
in the Company’s continued strong financial performance. The Company’s results
demonstrate operating leverage whereby increased revenue resulted in increased
profitability.
SPECIFIC MILESTONES IN THE CURRENT FISCAL YEAR INCLUDE:
• Completed four acquisitions: JSL, Prosure Group of Companies, Bencom and
Hamilton + Partners, providing scale, expanding the Company’s geographic
footprint and enhancing the Company’s third-party administration capabilities.
• Expansion of Management Team:
• Mr. David Young, Vice Chair Corporate Initiatives
• Ms. Debra Jonasson-Young, President, People First HR Solutions Ltd.
• Mr. Paul Asmundson, Vice President of Corporate Development
• Mr. Yacine Bara, National Director of Underwriting
• Ms. Dana Hurst, Wellness Specialist
• Hosted the first annual PC Academy, a program designed to set the culture and
expectations for new Benefits Consultants, to instill the Company’s teamwork
and core values to ensure organizational success. The PC Academy hosted
ten new Benefit Consultants who represented the Greater Toronto Area,
Kitchener/Waterloo, Montreal, Manitoba and Alberta regions;
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 • Launch of the Company’s Preferred Pharmacy Network, a partnership with
Loblaw pharmacy, DRUGStore PharmacyTM pharmacies and Loblaw optical and
Eyewear locations to assist clients with managing cost;
• Soft launch of a new administration platform technology which will enable
the Company to enhance its ability to develop and deliver innovative and
proprietary benefit solutions to its clients;
• Platinum Sponsor of Human Resource Management Association of Manitoba’s
(HRMAM) Connect Conference under the People Corporation, People First HR
Services, and HealthSource Plus brands; and
• Launch of new Wellness Solutions division designed to provide additional
value-added products to clients in connection with the hiring of a Wellness
Specialist;
A C Q U I S I T I O N S
The Company’s business plan, in addition to organically growing the Company
through client growth and product expansion, is to acquire additional businesses
which are complementary to the existing businesses. To date the Company has
completed eight acquisitions which includes ten operating entities. During the
past several years the Company has focused on strengthening its balance sheet,
has put in place acquisition financing and has developed and built several value
propositions to attract acquisitions. The Company recently went to market with
its renewed acquisition model and value propositions and has seen significant
traction from its efforts.
Effective July 9, 2013, The Company acquired 100% of the issued and outstanding
common shares of H+P Consulting Corporation which wholly owns EBI, DCI and
681, operating under the brand Hamilton + Partners. Established in 1984, H+P
is a group benefits and disability insurance consulting firm based in Calgary,
Alberta. H+P offers a diverse range of products designed to balance the employer
interests for cost savings and product enhancements with employee concerns and
adequate coverage.
Effective December 3, 2012, the Company acquired Bencom. Established in 1982,
Bencom provides group benefit, group retirement and individual benefit advisory
services to approximately 200 mid-market corporate clients located primarily in
Ontario.
Effective November 1, 2012, The Company acquired Prosure. Established in 1987,
Prosure provides employee benefits solutions, consulting services and TPA to over
300 mid-market corporate clients, the majority of which are located in Ontario.
Prosure’s unique product mix which includes cost plus arrangements and health
spending accounts, combined with its TPA platform and its client service model,
has allowed it to grow since its inception.
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PEOPLE CORPORATION Effective September 1, 2012, the Company acquired JSL. Established in 1976,
JSL provides employee benefits solutions, consulting services and practical health
management programs to its clients. JSL specializes in mid-market corporate
clients and has taken a unique partnership approach with clients to develop
customized employee benefits programs that meet the changing needs of their
businesses and employees.
Supported by acquired cash flows for servicing requirements, these acquisitions
are funded through vendor-take-back debt and by drawing on the Company’s
acquisition credit facility with CIBC and are therefore accretive to shareholders
over time with no shareholder dilution. As full service benefits and pension
advisory practices, each of H+P, Bencom, Prosure and JSL business models
are aligned with The Company’s strategic, operating and growth objectives.
To support the Company’s revenues and Adjusted EBITDA growth plans,
these acquisitions bring additional carrier relationships, product solutions and
administrative capabilities. The Company’s capabilities, resources, systems, tools,
business development team are expected to support the vendors to increase the
rates at which the acquired businesses grow.
In addition to the recently closed acquisitions, the Company continues to consider
a number of opportunities at various stages of the acquisition process.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 O V E R V I E W O F F I N A N C I A L P E R F O R M A N C E
SELECTED QUARTERLY FINANCIAL INFORMATION
The selected financial information provided below is derived from the Company’s unaudited quarterly
financial statements for each of the last eight quarters:
Revenue
Operating & corporate
expenses
2013
2012
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$ 9,074.6
$ 8,665.6
$ 8,138.3
$ 7,013.6
$ 6,710.7
$ 6,545.0
$ 7,274.8
$ 6,626.9
(8,155.9)
(7,340.6)
(6,930.2)
(6,121.3)
(6,268.4)
(5,984.9)
(6,350.9)
(5,842.9)
Adjusted EBITDA
918.7
1,325.1
1,208.2
Interest expense, net
(472.6)
(202.2)
(174.5)
892.3
(81.4)
442.3
(76.7)
560.1
(94.4)
923.9
(87.3)
784.0
(78.3)
Amortization and depreciation
(435.7)
(430.9)
(443.8)
(311.7)
(312.7)
(305.4)
(297.9)
(294.4)
Non-controlling interest
Share-based compensation
(37.4)
(23.7)
(37.9)
(37.8)
Income tax expense, net
63.2
(242.2)
(137.1)
(112.3)
(35.7)
156.3
-
(37.2)
(92.6)
-
(13.9)
(16.4)
(158.7)
(238.9)
-
-
Acquisition costs
Net income
Total Assets
(617.2)
(581.0)
(7.6)
(236.8)
(104.4)
418.5
178.1
244.7
173.5
30.5
366.1
156.0
53,736.3
31,101.9
32,560.1
25,778.4
25,342.4
24,460.3
24,378.0
24,317.0
Total loans and borrowings
19,249.3
6,905.2
7,132.6
2,972.9
2,219.7
2,380.3
2,705.5
2,775.2
Total other liabilities
Shareholders’ equity
Adjusted EBITDA per share
Earnings per share (basic)
Earnings per share (diluted)
20,310.3
9,476.6
11,169.7
8,763.7
9,363.4
8,529.8
8,192.7
8,442.2
14,176.6
14,720.2
14,257.7
14,041.8
13,759.4
13,550.2
13,479.7
13,099.7
0.028
(0.018)
(0.017)
0.040
0.013
0.012
0.037
0.014
0.014
0.027
0.007
0.007
0.013
0.007
0.006
0.017
0.001
0.001
0.028
0.011
0.011
0.024
0.005
0.005
REVENUE
Revenue from group benefit consulting is primarily earned as commissions which are paid by the
insurance carriers. Revenues from TPA services are earned as fees which are generally charged
to clients. The Company is a reseller of benefit products and services and therefore assumes no
underwriting risk as the insurance policy is underwritten by the insurance carrier.
Revenue from group retirement consulting is principally earned through commissions and fees
earned from pension assets under administration and is paid by the carrier which administers and
invests the funds.
The human resource consulting and recruitment services offered by the Company derive revenue
primarily from consulting fees. Fees for human resource consulting services are generally based on
hourly rates and depend on the nature of the project and skill set and experience of the consultant
engaged on the project. Fees for recruitment services are generally charged as a percentage of
projected compensation of the candidate being placed. Fees for career management services are
based on the level of the program selected by the client. Fees are established with the client prior to
the services or engagement starting.
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PEOPLE CORPORATION
FOR THE YEAR ENDED
AUG 31, 2013
AUG 31, 2012
$ VARIANCE
% VARIANCE
Commissions
$ 17,433.2
$ 12,829.8
Fees and other revenues
15,458.9
14,327.6
$ 4,603.4
1,131.3
$ 32,892.1
$ 27,157.4
$ 5,734.7
35.9%
7.9%
21.1%
During fiscal 2013, the Company increased its revenues by $5,734.7, or 21.1%, as
compared to the prior year resulting from:
Acquired growth generated through new acquisitions. The Company’s consolidated
financial statements include $3,653.1 of revenue reported by JSL, Prosure, Bencom and
H+P from their respective dates of acquisition to August 31, 2013, representing 13.5% of
incremental revenue. The acquired revenue reported for the year-ended August 31, 2013
does not include the full impact of the acquisition as only partial year’s worth of transactions
are reportable in the Company’s 2013 results
H+P
Bencom
Prosure
JSL
(effective July 9, 2013)
(effective December 3, 2012)
(effective November 1, 2012)
(effective September 1, 2012)
1.7 months
9 Months
10 Months
12 Months
$ 525,473
$ 1,750,241
$ 886,577
$ 490,823
The majority of revenues generated by the acquired companies in 2013 is commission
revenue.
Organic growth, which represented $2,081.6, or 7.75% increase in revenue resulting from
the addition of new clients from the Company’s existing and expanded Benefits Consulting
team and natural inflationary factors offset from declines in revenue of $245.7, or 25.3% of
human resource consulting and recruitment services.
PERSONNEL AND COMPENSATION
The largest operating expense of the Company is compensation and related costs which
includes salaries, commissions, bonuses, stock-based compensation, group benefits, and
payroll taxes.
FOR THE YEAR ENDED
AUG 31, 2013
AUG 31, 2012
$ VARIANCE
% VARIANCE
Compensation and benefits
$ 17,450.8
$ 14,190.3
Bonuses
Short-term benefits &
insurance premiums
Share-based payments
1,755.8
1,712.8
136.9
1,965.6
1,481.7
103.1
$ 3,260.5
(209.8)
231.1
33.8
$ 21,056.3
$ 17,740.7
$ 3,315.6
23.0%
(10.7)%
15.6%
32.8%
18.7%
For the year ended August 31, 2013, personnel and compensation costs represent 64.0%
of revenues (2012 - 65.3%). The Company believes that investment in its employees and
associate consultant networks is key to ensuring successful execution of its strategic plans.
The increase in salary expense for the year ended August 31, 2013 from $17,740.7 to
$21,056.3 is due to investments in new leadership positions, incremental commissions
directly resulting from organic growth in sales and to acquired growth generated through
new acquisitions of H+P, Bencom, Prosure, and JSL. The decrease in bonuses results from
the reclassification of certain commission payments which had historically been recorded as
bonuses in order to be more consistent and increase comparability.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 GENERAL AND ADMINISTRATIVE EXPENSES
The Company’s efforts on identifying and implementing cost reduction opportunities
where possible continue to generate cost savings. General and administrative
expenses are composed of expenditures identified in the following tables:
FOR THE YEAR ENDED
AUG 31, 2013
AUG 31, 2012
$ VARIANCE
% VARIANCE
Administration fees
$ 1,697.5
$ 1,573.5
$ 124.0
Depreciation of property
& equipment
Occupancy
Office Supplies &
communication
Other
Professional fees
Public company costs
Corporate Travel
380.0
1,718.2
1,176.2
329.9
886.4
246.6
328.5
309.3
1,315.7
1,123.7
303.5
793.0
285.9
252.4
70.7
402.5
52.5
26.4
93.4
(39.3)
76.1
$ 6,763.3
$ 5,957.0
$ 806.3
7.9%
22.9%
30.6%
4.7%
8.7%
11.8%
(13.7)%
30.2%
13.5%
This increase of $806.3 in general and administrative expenses for the year ended
August 31, 2013 is due to direct incremental costs related to acquired entities and
costs to meet servicing needs of the Company’s clients, specifically:
• An increase in administration fees due to increased volumes in claims adjudication
on the Company’s TPA;
• An increase in occupancy costs is primarily due to increased rates and space agreed
to on renewal of a lease agreement and incremental lease costs associated with the
acquired businesses; and
• An increase in corporate travel is directly related to corporate development
activities; and
• An increase in legal fees and other professional fees related to contract negotiations,
employment and corporate matters.
The increase of $453.4 in general and administrative expenses for the three months
ended August 31, 2013 is due to factors similar to those affecting the full year.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion expenses are composed of expenditures identified in the
following tables:
FOR THE YEAR ENDED
AUG 31, 2013
AUG 31, 2012
$ VARIANCE
% VARIANCE
Business Development
Travel
Advertising
$396.8
681.1
167.3
$349.2
603.1
209.4
$1,245.2
$1,161.7
$47.6
78.0
(42.1)
$83.5
13.6%
12.9%
(20.1)%
7.2%
The increase in advertising and promotion expense for the year ended August 31,
2013 is due to direct incremental costs from acquired entities, the expansion of the
Company’s sales force, and travel costs associated with acquisitions and securing new
clients.
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PEOPLE CORPORATION
FINANCE AND OTHER INCOME (COSTS)
Finance and other income and costs are as follows:
FOR THE YEAR ENDED
AUG 31, 2013
AUG 31, 2012
$ VARIANCE
% VARIANCE
Amortization of
intangible assets
Finance expenses
Acquisition costs
$ (1,242.1)
$ (901.1)
$ (341.0)
37.8%
(930.8)
(966.0)
(336.8)
-
(594.0)
(966.0)
$ (3,138.9)
$ (1,237.9)
$ (1,901.0)
176.4%
-%
153.6%
The increase in finance expenses for the year ended August 31, 2013 is due increased
interest expense related to incremental debt facilities incurred to fund the H+P,
Bencom and Prosure acquisitions.
Acquisition costs include professional fees and other direct incremental and
non-recurring costs specifically incurred by the Company to secure and complete the
H+P, Bencom, Prosure and JSL transactions.
N O N ‑ I F R S F I N A N C I A L M E A S U R E S
EBITDA AND ADJUSTED EBITDA
The Company reports EBITDA and Adjusted EBITDA as a key measure used by
management to evaluate performance of the business, to compensate its employees
and to facilitate a comparison of quarterly and annual results of ongoing operations.
EBITDA is also a concept utilized in measuring compliance with debt covenants.
EBITDA and Adjusted EBITDA are measures commonly reported and widely used
by investors and lending institutions as an indicator of a company’s operating
performance and ability to incur and service debt, and as a valuation metric. While
EBITDA is used to assist in evaluating the operating performance and debt servicing
ability of the Company, investors are cautioned that EBITDA and Adjusted EBITDA
as reported by the Company may not be comparable in all instances to EBITDA as
reported by other companies.
The CICA’s Canadian Performance Reporting Board defined standardized EBITDA to
foster comparability of the measure between entities. Standardized EBITDA represents
an indication of an entity’s capacity to generate income from operations before taking
into account management’s financing decisions and costs of consuming tangible
and intangible capital assets, which vary according to their vintage, technological
age and management’s estimate of their useful life. Accordingly, Standardized
EBITDA comprises sales less operating costs before interest expense, capital asset
depreciation, intangible asset amortization and impairment charges, and income
taxes. Adjusted EBITDA is calculated to exclude items of an unusual nature that do not
reflect normal or ongoing operations of the Company and should not be included in
assessment of ability to service or incur debt. Adjusted EBITDA excludes acquisition
and transaction costs which do not relate to the current operating performance of
the business but are typically costs incurred to expand operations. Acquisition and
transaction costs include non-recurring legal and professional fees, incremental
bonuses, and other direct incremental costs related to specific acquisitions. From time
to time, the Company may make other adjustments to its Adjusted EBITDA for items
that are not expected to recur.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 The following is a reconciliation of the Company’s Net Income to EBITDA and
Adjusted EBITDA:
FOR THE YEAR ENDED
Net income
Add:
Finance costs, net
Income taxes, net
Depreciation of capital assets
Amortization of intangible assets
EBITDA
Add:
Stock-based compensation
Acquisition costs
Adjusted EBITDA
AUG 31, 2013
AUG 31, 2012
$ 260.1
$ 726.2
930.8
428.4
380.0
1,242.1
3,241.4
136.9
966.0
336.8
333.9
309.3
901.1
2,607.3
103.1
-
$ 4,344.3
$ 2,710.4
Adjusted EBITDA for the year ended August 31, 2013 was $4,344.3, an increase of
$1,633.9, or 60.3% from $2,710.4 reported for the same period in the prior year.
Acquired Adjusted EBITDA through new acquisitions included in the the Company’s
consolidated financial statements is $833.4 reported by JSL, Prosure, Bencom and
H+P from their respective dates of acquisition to August 31, 2013, representing 30.7%
of growth. The acquired Adjusted EBITDA reported for the year-ended August 31,
2013 does not include the full impact of the acquisition as only partial year’s worth of
transactions are reportable in the Company’s 2013 results.
Continued improvement in Adjusted EBITDA from organic initiatives illustrates the
effectiveness of measures the Company has adopted to generate additional revenue
while minimizing controllable costs. Specifically, the increase in Adjusted EBITDA is
comprised of a combination of increases in revenue from organic growth and additions
to the Company’s client base offset with increases in related operating costs.
EBITDA BEFORE CORPORATE COSTS
The Company monitors EBITDA before corporate costs in order to assess the results
of operations before consideration of the ongoing corporate investments required
to position the Company for future growth. The following is a reconciliation of the
Company’s EBITDA before corporate costs:
FOR THE YEAR ENDED
AUG 31, 2013
AUG 31, 2012
Revenue
Operating costs
EBITDA before corporate costs
Corporate costs
Adjusted EBITDA
$ 32,892.2
$ 27,157.4
25,052.5
21,016.6
7,839.7
3,495.4
6,140.8
3,430.4
$ 4,344.3
$ 2,710.4
Corporate Costs, which represent expenses incurred at the corporate head office,
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PEOPLE CORPORATION for the year ended August 31, 2013 were $3,495.4 versus $3,430.4 incurred in the
prior period. The increase of $65.0 is due to incremental costs for public company
compliance, travel expenditures for corporate development, offset by reductions
in personnel and compensation costs, office space for the reimbursement of rent
expense due to a sublease, and professional fees.
For the year ended August 31, 2013, EBITDA before corporate costs was $7,839.7,
which represents an increase of $1,698.9, or 27.7%, over the prior fiscal year. The
Company also strengthened the EBITDA before corporate costs margin from 22.6% in
fiscal 2012 to 23.8% in fiscal 2013.
L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S
CASH FLOWS
The following table summarizes the Company’s cash flows for the year ended August
31, 2013: (amounts derived from the unaudited interim financial statements).
FOR THE YEAR ENDED
AUG 31, 2013
AUG 31, 2012
$ VARIANCE
% VARIANCE
Net income for the
period
Add non-cash items, net
Changes in non-cash
working capital
Operating activities
Investing activities
Financing activities
Net increase (decrease)
$ 260.1
1,765.9
(559.0)
1,467.0
(14,585.2)
12,367.7
$ (750.5)
$ 726.2
$ (466.1)
1,192.5
573.4
(64.2)%
48.1%
902.8
(1,461.8)
(161.9)%
2,821.5
(165.1)
(744.6)
(1,354.5)
(14,420.1)
(48.0)%
8,734.2%
13,112.3
(1,761.0)%
$ 1,911.8
$ (2,662.3)
(139.3)%
Cash generated from operating activities for the year ended August 31, 2013 was
$1,467.0, a decrease of $1,354.5 or 48.0% from the $2,821.5 of cash generated in
the same period in the prior year. Significant influences of cash inflows and outflows
related to operating activities for 2013 versus 2012 include:
• Increase in Adjusted EBITDA of $1,633.9, as compared to the prior year.
Management believes Adjusted EBITDA is a valuable indicator of the Company’s
ability to generate liquidity by producing operating cash flow to fund working capital
needs, service debt obligations, and fund capital expenditures.
• Non-recurring cash outflows of $966.0 for direct costs are related to the four
acquisitions closed in 2013;
• Increase in cash interest expense (net) of $307.5 is related to debt assumed to
finance acquisition activity
• Decrease in cash resulting from changes in working capital accounts of $1,720.7
including the effect of accounts receivable, accounts and other payables and
deferred revenue. Changes in deferred revenue and other working capital accounts
are the result of timing differences in when funds are received and in the underlying
nature of the revenue.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 Cash used by investing activities for the year ended August 31, 2013 of $14,585.2
was largely comprised of loan proceeds and operating cash used to fund the four
acquisitions closed during the fiscal year. In addition to acquisition costs, the Company
used $841.8 of operating cash, net of acquired cash, to fund a portion of the funds
due on the close of each of the acquired companies.
Cash generated by financing activities for the year ended August 31, 2013, was
$12,367.7, as compared to $744.6 used in the prior year. Cash outflows related to
repayment of long-term debt and finance lease liabilities of $802.5 (2012 - $853.9)
were offset by proceeds of long-term financing of 13,150.0 (2012 - $109.3) used to
fund acquistions and proceeds from the exercise of stock options of $20.3 (2012 - nil).
CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s
ability to continue as a going concern in order to provide opportunities for growth to
shareholders and benefits for other stakeholders and to maintain financial flexibility
in, or to take advantage of, organic growth and new acquisition opportunities as they
arise.
In the management of capital, the Company includes cash, bank financing,
vendor-take-back debt and shareholders’ equity in the definition of capital. The
Company manages its capital structure and can adjust it in light of changes in
economic conditions and the risk characteristics of the underlying assets. In order to
maintain or adjust capital structure, the Company may issue new shares, issue new
debt, renegotiate vendor-take-back debt or issue new debt to replace existing debt
with different characteristics. The Company’s acquisition strategy includes the issuance
of debt and shares. The Company has the opportunity to use its operating line of
credit during the year to finance cash flows related to seasonal changes in non-cash
working capital items. The Company did not made use of its operating line of credit
during year.
WORKING CAPITAL
The Company’s working capital (defined as current assets less current liabilities) at
August 31, 2013 is set forth in the table below. The Company defined "Available
Working Capital" as current assets less current liabilities, with an exclusion of certain
current liabilities (the "Excluded Items") from such calculation. The Excluded Items
include:
DEFERRED REVENUE
Deferred revenue represents the excess of retainer amounts billed over costs
incurred and revenue earned on service contracts. The amount is amortized into
income as services are rendered, in accordance with the revenue recognition
policies described in the Company’s financial statements. Group benefit
commission revenue from clients where advisory services and plan administration
services are provided by the Company is generally received in advance and
recorded as deferred revenue. Fee revenue that is contingent on certain criteria
being met is included in deferred revenue until the criteria has been met.
Deferred revenue is a non-cash liability and therefore management believes that
adding back the deferred revenue provides a more accurate reflection of the
liquidity and working capital position of the Company.
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PEOPLE CORPORATION LOANS AND BORROWINGS RELATED TO ACQUISITIONS
The Company anticipates cashflows required to service the incremental debt are
to be generated through incremental cashflows earned from the existing entities,
as well as, the new entities acquired during the most recent fiscal year.
The table below reconciles the differences in the calculation of working capital and
Available Working Capital.
Current assets
less:
Current liabilities
Working capital
Add back:
Current portion of loans and borrowings related to acquisitions
Operating working capital
Add back:
Deferred revenue
Available operating working capital
AUG 31, 2013
AUG 31, 2012
$ 5,734.2
$ 6,203.6
12,230.9
(6,496.7)
3,405.9
(3,090.8)
8,475.2
(2,271.6)
-
(2,271.6)
3,792.3
$ 701.5
4,098.5
$ 1,826.9
Available operating working capital has decreased by $1,125.4 to surplus of $701.5
from the available working capital surplus of $1,826.9 experienced at August 31, 2012.
The decrease in available operating working capital is primarily due to a decrease in
cash of $306.2 related to lower deferred revenue balances and $841.8 of operating
cash, net of acquired cash, used to fund a portion of the consideration paid for
Prosure, Bencom and H+P acquisitions.
The current portion of loans and borrowings related to current year acquisitions
increased by $3,405.9 to a balance of $3,405.9 due to the acquisitions of JSL, Prosure,
Bencom and H+P. In its financial statements, the Company has presented incremental
pro forma net income of $2,114.3, which includes both cash and non-cash items,
representing management’s estimates of consolidated net income for the year ended
August 31, 2013 as if the acquisitions had been completed on September 1, 2012.
The Company maintains a $2 million operating line of credit to facilitate management
of short-term working capital requirements. As at December 4th, 2013, the Company
had not utilized this facility.
SHARE CAPITAL
The Company has authorized share capital of an unlimited number of common voting
shares.
Common shares issued and outstanding:
Stock options outstanding:
AUG 31, 2013
AUG 31, 2012
33,027,193
32,970,527
3,129,809
2,763,142
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013
C O M M I T M E N T S A N D
C O N T I N G E N C I E S
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes, as at August 31, 2013, the Company’s contractual
obligation for the periods specified.
OBLIGATION
LESS
THAN
1 YEAR
TOTAL
1 – 3
YEARS
4 – 5
YEARS
THERE-
AFTER
Accounts Payable and accrued liabilities
$ 4,507.7
$ 4,507.7
$ -
$ -
Operating lease obligations
Capital lease obligations
Long-term debt
Vendor-take-back debt
3,336.1
985.0
1,455.0
859.3
42.9
18.5
24.40
-
14,592.1
2,238.6
4,477.1
4,387.1
3,489.3
4,614.3
1,547.0
3,031.5
35.7
-
$ 27,093.1
$ 9,296.8
$ 8,988.0
$ 5,282.1
$ 3,526.2
$ -
36.9
-
Management believes that operations will generate sufficient cash flows to fund
ongoing operations and finance its seasonal working capital needs.
On June 10, 2011, the Company entered into a Credit Facility Agreement with the
Canadian Imperial Bank of Commerce which includes the following components:
1. A $2 million operating line of credit. As at August 31, 2013, the Company had not
utilized this facility.
2. A $20 million term revolving acquisition credit facility to fund future acquisitions.
The acquisition credit facility is available via loans bearing interest at prime plus
1.5% or via bankers’ acceptances with a stamping fee of 2.5% annually. Each draw
on the facility will be treated as a separate loan repayable over a period of up to
seven years. As at August 31, 2013, the balance owing on this facility was equal to
$12.9 million.
3. A $2.5 million instalment loan issued in 2011 which was utilized to repay and
discharge a substantial amount of long-term debt facilities and vendor-take-back
debt of the Company. The instalment loan will be repaid in quarterly instalments
over a seven year period and bears interest at prime plus 1.5%. As at August 31,
2013, the balance owing on this facility was equal to $1.7 million.
The facility is secured by a general security agreement over the assets of the Company
and its subsidiaries. The Credit Facility Agreement contains certain mandatory financial
covenants, including debt servicing ratios, and other standard business operating and
performance covenants. The Company is compliant with all covenants.
CONTINGENCIES
In the ordinary course of operating the Company’s business it may from time to time
be subject to various claims or possible claims. Although management currently
believes there are no claims or possible claims that if resolved would either individually
or collectively result in a material adverse impact on the Company’s financial position,
results of operations, or cash flows, these matters are inherently uncertain and
management’s view of these matters may change in the future.
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PEOPLE CORPORATION R I S K S A N D U N C E R TA I N T I E S
The Company operates in a well established and highly competitive industry and
its results of operations, business prospects and financial condition are subject to a
number of risks and uncertainties and are affected by a number of factors outside the
control of management of the Company. These factors include, but are not limited to,
the following:
KEY PERSONNEL
The Company is highly dependent upon the expertise and experience of its personnel,
particularly those engaged in generating revenue. The Company’s operations depend,
in part, on the relationships and reputations these individuals have established with
clients, often over many years. In the event the Company were to lose key personnel,
client relationships could be negatively impacted which could lead to material adverse
effects on the Company’s operating and financial results. In addition, many of the
Company’s employees have developed specialized expertise and experience in the
delivery of human resource and benefit solutions. These solutions include, but are
not limited to, specialized human resource consulting engagements, recruitment
projects, career management, benefits plan design and administration, legislative and
regulatory issues, as well as group retirement plan design.
The Company currently has many well experienced employees that have served
the Company for five years or more, who hold senior positions in the Company,
that have various professional designations and that have developed deep and
trusted relationships with clients. While the Company provides a competitive
compensation structure including stock options and an employee share ownership
plan to its employees and has signed comprehensive employment agreements with
its employees to protect the Company, in the event that the Company were to lose
any of its key personnel, it may have a material adverse effect on the business of
the Company. The ability to attract, retain and develop new employees into senior
positions could affect the business of the Company.
REGULATION AND CERTIFICATION
The Company’s benefit and pension consulting and administration services are
subject to laws and regulations that are constantly evolving. In addition, the laws and
regulations differ from province to province and the Company is required to keep up
to date with the laws and regulations of each province.
Although there are currently restrictions on the ability of Canadian banks to market
insurance products in competition with the Company, such legislation is currently
under review. Accordingly, dependent upon the nature of legislative reforms, Canadian
banks may in the future be able to offer products which are competitive with the
products offered by the Company.
Currently the provisions of recruitment services and human resource consulting
engagements are not generally subject to government regulation. However, there is
no certainty that regulation will not be introduced.
Any changes to laws, rules, regulations or policies could have a material adverse effect
on the Company’s business, financial condition and operating results.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 CONTROLS
As a venture issuer, the Company is not required to certify the design and evaluation
of the Company’s disclosure controls and procedures (DC&P) and internal controls
over financial reporting (ICFR), and as such has not completed such an evaluation.
Investors should be aware that inherent limitations on the ability of certifying officers
of a venture issuer to design and implement on a cost effective basis DC&P and
ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability,
transparency and timeliness of interim and annual filings and other reports provided
under securities legislation.
TERMINATION OF CONTRACTS
Group insurance contracts are generally re-negotiated on an annual basis with clients,
pursuant to which insurance premium pricing increases or decreases. Accordingly,
there can be no guarantee that insurance contracts sold through the Company in the
past will be renewed on a go-forward basis. While the Company has several benefit
and insurance clients with contracts that extend for one to seven years, the majority
of the Company’s benefit and pension revenue is derived from contracts that can
be cancelled with thirty days notice. The Company’s experience is that most clients
terminate during the renewal process rather than during the policy year. No single
client makes up more than 5% of the Company’s revenue and the clients are diversified
both in size and industry. During the renewal process the benefits consulting team
will provide benefits planning and consulting services which could result in decreased
benefits coverage and/or decreased premiums which generally results in decreased
revenue for the Company. The Company is often paid commissions in advance from
the insurance carrier. In the event that a contract is terminated by a client and the
Company has been paid in advance for the year, then the Company must rebate the
amount paid on a pro rata basis to the insurance company.
COMPETITIVE CONDITIONS
The insurance brokerage market is highly competitive and is composed of a large
number of companies of varying size and scope of services. Insurance companies
themselves also offer their products through other methods, including insurance
agents and direct distribution channels, which are competitive with the insurance
brokerage industry and the Company.
FUTURE GROWTH VIA ACQUISITIONS
The Company’s growth and expansion plans contain a dual approach of generating
organic growth through enhanced service offerings amongst the Company’s existing
client base and through ongoing acquisition of independent Group Benefit, Pension
Advisory businesses and Human Resource Consulting and Staffing firms at reasonable
prices. There can be no assurance that an adequate number of suitable acquisition
candidates will be available to the Company to meet this area of focus of its expansion
plans, or in the event that such businesses are available for acquisition that they will be
available at a price which would allow the Company to operate the acquisition on a
profitable basis. The Company competes for acquisition and expansion opportunities
with entities that have substantially greater resources than the Company and these
entities may be able to outbid the Company for acquisition targets.
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PEOPLE CORPORATION INTEGRATION OF ACQUISITIONS
There can be no assurance that the businesses acquired by the Company in the
future will achieve acceptable levels of revenue and profitability or otherwise perform
as expected. The Company has limited experience in acquiring and integrating
brokerages in other markets. The Company may be unable to successfully integrate
any business it may acquire in the future, due to diversion of management attention,
strains on the Company’s infrastructure, difficulties in integrating operations and
personnel, entry into unfamiliar markets, or unanticipated legal liabilities or tax,
accounting or other issues. A failure to integrate acquired businesses may be
disruptive to the Company’s operations and negatively impact the Company’s revenue
or increase the Company’s expenses. Risks related to the integration of acquisitions are
mitigated through the Company’s due diligence procedures and legal structure of the
acquisitions.
POTENTIAL UNDISCLOSED LIABILITIES ASSOCIATED WITH ACQUISITION/
LIMITED INDEMNIFICATION
In connection with acquisitions completed by the Company, there may be liabilities
and contingencies that the Company failed to discover or were unable to quantify in
its due diligence which it conducted prior to the execution of an acquisition, and the
Company may not be indemnified for some or all of these liabilities and contingencies.
The existence of any material liabilities or contingencies could have a material
adverse effect on the Company’s business, financial condition, liquidity and results of
operations.
AVAILABILITY OF FINANCING
The Company relies principally on bank debt and vendor-take-back debt financing
to fund its acquisitions. The Company may require additional funds to make future
acquisitions of group benefit, group retirement and human resource consulting
businesses and may require additional funds to market and sell its products into the
marketplace. The ability of the Company to arrange such financing in the future,
and to repay its existing debt, will depend in part upon the prevailing capital market
conditions as well as the business performance of the Company. There can be no
assurance that the Company will be successful in its efforts to arrange additional
financing, when needed, on terms satisfactory to the Company. If additional financing
is raised by the issuance of shares from the treasury of the Company, control of the
Company may change and shareholders may suffer additional dilution. If additional
financing is not available on terms favourable to the Company, the Company may be
unable to grow or may be required to limit or halt its expansion plans. In addition, the
Company’s existing creditors, some of whom have security interests in the Company’s
assets, may exercise their rights to acquire or dispose of the Company’s assets.
INTEREST RATE RISK
Advances under the Company’s credit facilities bear interest at a variable rate. The
Company may incur further indebtedness in the future that also bears interest at
a variable rate or may be required to refinance its debt at higher rates. While the
Company attempts to manage its interest rate risk, there can be no assurance that it
will hedge such exposure effectively or at all in the future. Accordingly, increases in
interest rates could affect the Company’s cash flows.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 DIVIDENDS
Any decision to pay dividends on its common shares in the future will be made by the
Board of Directors on the basis of the Company’s earnings, financial requirements and
other conditions at such time.
LEGAL RISK
Legal risk is the potential for civil litigation or criminal or regulatory proceedings being
commenced against the Company that, once decided, could materially and adversely
affect the Company’s business, operations or financial condition. In the ordinary
course of business, the Company may be involved in litigation and other claims as a
defendant or as a plaintiff. The outcomes of these actions could result in significant
losses to the Company which could have a material adverse effect on the Company’s
business, financial condition and operating results.
INSURANCE
The Company believes that its professional errors and omissions insurance, director
and officer liability insurance, and commercial general liability insurance coverage
address all material insurable risks, provides coverage that is similar to that which
would be maintained by a prudent operator of a similar business and is subject to
deductibles, limits and exclusions which are customary or reasonable given the cost
of procuring insurance and current operating conditions. However, there can be no
assurance that such insurance will continue to be offered on economically feasible
terms, that all events that could give rise to a loss or liability are insurable, or that the
amounts of insurance will at all times be sufficient to cover each and every loss or claim
that may occur involving the Company’s assets or operations.
REPUTATION RISK
The Company is dependent, to a large extent, on its client relationships and its
reputation with clients. In addition, the Human Resource Consulting and Staffing part
of the Company is dependent upon its reputation with potential candidates that will
be placed with clients through its recruitment services. The Company’s reputation
can be significantly damaged by failing to deliver timely and quality consulting and
recruitment services or by failing to provide quality services to potential candidates.
The benefit and pension part of the Company relies upon information systems and
technology to maintain accurate records and to carry out its contractual administrative
obligations. Failing to meets its contractual obligations to clients could result in
litigation as well as significant reputation damage to the Company. Damage to the
Company’s reputation could result in the loss of client and candidate relationships
which could result in a material adverse effect on the Company’s business, financial
condition and operating results.
CANADIAN ECONOMY
The Company’s future success is dependent upon the direction and state of the
Canadian economy. The business, operating results and financial condition of
the Company could be materially affected by a prolonged and deep recession or
downturn in the Canadian economy. The Company may not have sufficient financial
resources to withstand a prolonged and deep recession.
30
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PEOPLE CORPORATION C R I T I C A L A C C O U N T I N G P O L I C I E S
A N D E S T I M AT E S
Critical accounting policies are defined as those that are both very important to the
portrayal of the Company’s financial condition and results, and require management’s
most difficult, subjective or complex judgments. We are required in preparing the
Company’s financial statements, in accordance with IFRS, to make certain estimates,
judgments and assumptions that we believe are reasonable based upon available
information, historical information and/or forecasts. These estimates, judgments and
assumptions affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported revenues and expenses during the reporting
periods. Actual results could differ from these estimates. The accounting policies which
management believes are the most critical to aid in fully understanding and evaluating
the Company’s reported financial results include those relating to revenue recognition,
business acquisitions and accounting for the resulting customer relationships and
contracts, goodwill and income taxes.
REVENUE RECOGNITION
Revenue includes fees and commissions generated from administrative, advisory and
consulting services provided to clients.
Generally, revenue from the rendering of services is recognized when the following
criteria are met:
• The amount of revenue can be reliably measured;
• The stage of completion can be reliably measured;
• The receipt of economic benefits is probable; and
• Costs incurred and to be incurred can be reliably measured.
Concurrently with the above general principles, the Company applies the following
specific revenue recognition policies:
Group benefit commission revenue from clients where advisory services and plan
administration services are provided by the Company is generally received in advance
and recorded as deferred revenue. Commission advances are recognized in income
on a monthly basis based on the number of months for which the commission revenue
was advanced, net of a provision for return commissions due to policy cancellation and
adjustments. The provision is determined based on historical data.
Group benefit commission revenue from clients where the Company provides only
advisory services are recognized in income at the effective or renewal date of the
policy, net of a provision for return commissions due to policy cancellation and
adjustments. The provision is determined based on historical data.
Fee revenue from administrative and consulting services are recognized on the
percentage of completion basis.
For fee revenue that is contingent on certain criteria being met, the revenue is not
recognized until the work is completed.
All other revenues are recognized upon the completion of services rendered by the
Company. Other revenue includes investment income recorded on the accrual basis of
accounting.
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MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 BUSINESS COMBINATIONS
For acquisitions, the Group measures goodwill as the fair value of the consideration
transferred including the recognized amount of any non-controlling interest in the
acquiree, less the net recognized amount (generally fair value) of the identifiable assets
acquired and liabilities assumed, all measured as of the acquisition date. When the
excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity
securities, that the Group incurs in connection with a business combination are
expensed as incurred.
INTANGIBLE ASSETS
(i) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition
of subsidiaries over the fair value of the net tangible and intangible assets
acquired. Following the initial recognition, goodwill is measured at cost less any
accumulated impairment losses.
(ii) Other intangible assets
Other intangible assets consist of acquired customer relationships and contracts.
Other intangible assets acquired separately are measured on initial recognition at
cost. The cost of identifiable intangible assets acquired in a business combination
is equal to fair value as at the date of acquisition. Following initial recognition,
identifiable intangible assets are carried at cost less any accumulated amortization
and any accumulated impairment losses.
Definite life intangible assets are amortized from the date of acquisition or,
for internally developed assets, from the time the asset is available for use.
Amortization is recognized either on a declining balance or on a straight-line basis
over the estimated useful life of the asset, and the residual values and useful lives
of the assets are reviewed at each financial year-end and adjusted if appropriate.
Intangible assets are considered to have indefinite lives where management
believes that there is no foreseeable limit to the period over which the intangible
assets are expected to generate net cash flows.
(iii) Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic
benefits embodied in the specific asset to which it relates. All other expenditures
are recognized in profit or loss as incurred.
FUTURE TAX
Future tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Future tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit or loss,
and differences relating to investments in subsidiaries and jointly controlled entities
32
38336 PC 2013 Annual Report_v4.indd 32
1/16/14 10:09 AM
PEOPLE CORPORATION
to the extent that it is probable that they will not reverse in the foreseeable future. In
addition, future tax is not recognized for taxable temporary differences arising on the
initial recognition of goodwill. Future tax is measured at the tax rates that are expected
to be applied to temporary differences when they reverse, based on the laws that have
been enacted or substantively enacted by the reporting date. Future tax assets and
liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the
same taxable entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
A future tax asset is recognized for unused tax losses, tax credits and deductible
temporary differences, to the extent that it is probable that future taxable profits will
be available against which they can be utilised. Future tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.
O F F ‑ B A L A N C E ‑ S H E E T
A R R A N G E M E N T S
Other than as described above, the Company does not have any off-balance sheet
arrangements.
S E A S O N A L I T Y
During the year-ended August 31, 2013, the Company continued to experience the
impacts of the Shared Services division resulting in a leveling of seasonal fluctuations.
Notwithstanding, the Company expects higher revenues in the fourth quarter due to
the timing of certain renewals, as well as, the seasonal impacts associated with student
benefit advisory services. During the past fiscal year the Company had greater cash
flows during the third and fourth quarter. The fourth quarter is primarily strong due
to cash receipts associated with its student benefit advisory business which renews
in August. It is Management’s belief that as growth from acquisitions and strategic
activities continues to develop and mature, the seasonal impacts of revenue and cash
flow will be minimized.
F I N A N C I A L I N S T R U M E N T S
The financial instruments of the Company consist of basic financial instruments which
are typically used in the Company’s operation, including cash, restricted cash, accounts
receivable, accounts payable and other liabilities, obligations under capital lease and
long-term debt.
For the current assets and liabilities, the main risk is the credit risk associated with
accounts receivable. The credit risk is reduced due to a diversified customer base. The
risks associated with long-term debt include the risk of interest rate increases and the
risk of potential defaults in debt payments due to insufficient cash flows.
38336 PC 2013 Annual Report_v4.indd 33
33
1/16/14 10:09 AM
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FOURTH QUARTER & YEAR ENDED AUGUST 31, 2013 34
38336 PC 2013 Annual Report_v4.indd 34
1/16/14 10:09 AM
PEOPLE CORPORATION C O N S O L I D AT E D F I N A N C I A L
S TAT E M E N T S F O R T H E Y E A R S E N D E D
A U G U S T 3 1 , 2 0 1 3 & 2 0 1 2
MANAGEMENTS’ STATEMENT OF RESPONSIBILITY
FOR FINANCIAL REPORTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
INDEPENDENT AUDITOR’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION . . . . . . . . . . . . . . . . . . . 38
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME . . . . . . . . . . . . . . . 39
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY . . . . . . . . . . . . . . . . . . . . 40
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 42
38336 PC 2013 Annual Report_v4.indd 35
35
1/16/14 10:09 AM
CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED AUGUST 31, 2013 & 2012 M A N A G E M E N T S ’ S TAT E M E N T O F
R E S P O N S I B I L I T Y F O R F I N A N C I A L R E P O R T I N G
Independent Auditors’ Report
Independent Auditors’ Report
To the Shareholders of People Corporation and its subsidiaries:
To the Shareholders of People Corporation (“the Company”):
Management is responsible for the preparation and presentation of the accompanying consolidated financial
statements, including responsibility for significant accounting judgments and estimates in accordance with
International Financial Reporting Standards and ensuring that all information in the annual report is consistent
with the consolidated financial statements. This responsibility includes selecting appropriate accounting
principles and methods, and making decisions affecting the measurement of transactions in which objective
judgment is required.
In discharging its responsibilities for the integrity and fairness of the consolidated financial statements,
management designs and maintains the necessary accounting systems and related internal controls to
provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records
are properly maintained to provide reliable information for the preparation of consolidated financial
statements.
The Board of Directors and Audit Committee are composed primarily of Directors who are neither
management nor employees of the Company. The Board is responsible for overseeing management in the
performance of its financial reporting responsibilities, and for approving the financial information included
in the annual report. The Board fulfils these responsibilities by reviewing the financial information prepared
by management and discussing relevant matters with management and the external auditor. The primary
function of the Audit Committee is to assist the Board in fulfilling its financial oversight responsibilities by
reviewing the financial reports and other financial information provided by the Company to regulatory
authorities and shareholders, the Company’s systems of internal controls regarding finance and accounting,
and the Company’s accounting and financial reporting processes. The Committee is also responsible for
recommending the appointment of the Company's external auditors.
MNP LLP, an independent firm of Chartered Professional Accountants, is appointed by the shareholders to
audit the consolidated financial statements and report directly to them; their report follows. The external
auditor have full and free access to, and meet periodically and separately with, both the Committee and
management to discuss their audit findings.
/s/ Mr. Laurie Goldberg, CA
_______________________________
Mr. Laurie Goldberg, CA
Director & Chief Executive Officer
/s/ Mr. Brevan Canning, CGA
_______________________________
Mr. Brevan Canning, CGA
Vice President of Finance
December 4, 2013
36
38336 PC 2013 Annual Report_v4.indd 36
1/16/14 10:09 AM
To the Shareholders of People Corporation and its subsidiaries:
We have audited the accompanying consolidated financial statements of People Corporation and its
subsidiaries which comprise the consolidated statements of financial position as at August 31, 2013 and
We have audited the accompanying consolidated financial statements of People Corporation and its
August 31, 2012, and the consolidated statements of comprehensive income, consolidated statements of
subsidiaries which comprise the consolidated statements of financial position as at August 31, 2013 and
changes in equity and consolidated statements of cash flows for the years ended August 31, 2013 and
August 31, 2012, and the consolidated statements of comprehensive income, consolidated statements of
2012, and a summary of significant accounting policies and other explanatory information.
changes in equity and consolidated statements of cash flows for the years ended August 31, 2013 and
2012, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
Management’s Responsibility for Consolidated Financial Statements
statements in accordance with International Financial Reporting Standards, and for such internal control
Management is responsible for the preparation and fair presentation of these consolidated financial
as management determines necessary to enable the preparation of consolidated financial statements that
statements in accordance with International Financial Reporting Standards, and for such internal control
are free from material misstatement, whether due to fraud or error.
as management determines necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
misstatement.
misstatement.
Our responsibility is to express an opinion on these consolidated financial statements based on our
Auditors’ Responsibility
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Our responsibility is to express an opinion on these consolidated financial statements based on our
Those standards require that we comply with ethical requirements and plan and perform the audits to
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
obtain reasonable assurance whether the consolidated financial statements are free from material
Those standards require that we comply with ethical requirements and plan and perform the audits to
obtain reasonable assurance whether the consolidated financial statements are free from material
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors’
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
including the assessment of the risks of material misstatement of the consolidated financial statements,
the consolidated financial statements. The procedures selected depend on the auditors’
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
including the assessment of the risks of material misstatement of the consolidated financial statements,
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
evaluation of the appropriateness of accounting policies used and the reasonableness of accounting
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
estimates made by management, as well as evaluating the overall presentation of the consolidated
evaluation of the appropriateness of accounting policies used and the reasonableness of accounting
judgment,
judgment,
financial statements.
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
our audit opinion.
Opinion
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of People Corporation and its subsidiaries as at August 31, 2013 and August 31, 2012 and their
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
financial performance and their cash flows for the years ended August 31, 2013 and August 31, 2012 in
position of People Corporation and its subsidiaries as at August 31, 2013 and August 31, 2012 and their
accordance with International Financial Reporting Standards.
financial performance and their cash flows for the years ended August 31, 2013 and August 31, 2012 in
accordance with International Financial Reporting Standards.
December 4, 2013
Toronto, Ontario
December 4, 2013
Toronto, Ontario
Chartered Professional Accountants
Licensed Public Accountants
Chartered Professional Accountants
Licensed Public Accountants
ACCOUNTING › CONSULTING › TAX
300 – 111 RICHMOND STREET W, TORONTO, ON M5H 2G4
1.877.251.2922 P: 416.596.1711 F: 416.596.7894 mnp.ca
ACCOUNTING › CONSULTING › TAX
300 – 111 RICHMOND STREET W, TORONTO, ON M5H 2G4
1.877.251.2922 P: 416.596.1711 F: 416.596.7894 mnp.ca
PEOPLE CORPORATION
Independent Auditors’ Report
Independent Auditors’ Report
To the Shareholders of People Corporation and its subsidiaries:
To the Shareholders of People Corporation and its subsidiaries:
We have audited the accompanying consolidated financial statements of People Corporation and its
subsidiaries which comprise the consolidated statements of financial position as at August 31, 2013 and
We have audited the accompanying consolidated financial statements of People Corporation and its
August 31, 2012, and the consolidated statements of comprehensive income, consolidated statements of
subsidiaries which comprise the consolidated statements of financial position as at August 31, 2013 and
changes in equity and consolidated statements of cash flows for the years ended August 31, 2013 and
August 31, 2012, and the consolidated statements of comprehensive income, consolidated statements of
2012, and a summary of significant accounting policies and other explanatory information.
changes in equity and consolidated statements of cash flows for the years ended August 31, 2013 and
2012, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
Management’s Responsibility for Consolidated Financial Statements
statements in accordance with International Financial Reporting Standards, and for such internal control
Management is responsible for the preparation and fair presentation of these consolidated financial
as management determines necessary to enable the preparation of consolidated financial statements that
statements in accordance with International Financial Reporting Standards, and for such internal control
are free from material misstatement, whether due to fraud or error.
as management determines necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
Auditors’ Responsibility
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Our responsibility is to express an opinion on these consolidated financial statements based on our
Those standards require that we comply with ethical requirements and plan and perform the audits to
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
obtain reasonable assurance whether the consolidated financial statements are free from material
Those standards require that we comply with ethical requirements and plan and perform the audits to
misstatement.
obtain reasonable assurance whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors’
judgment,
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
including the assessment of the risks of material misstatement of the consolidated financial statements,
judgment,
the consolidated financial statements. The procedures selected depend on the auditors’
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
including the assessment of the risks of material misstatement of the consolidated financial statements,
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
evaluation of the appropriateness of accounting policies used and the reasonableness of accounting
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
estimates made by management, as well as evaluating the overall presentation of the consolidated
evaluation of the appropriateness of accounting policies used and the reasonableness of accounting
financial statements.
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
Opinion
position of People Corporation and its subsidiaries as at August 31, 2013 and August 31, 2012 and their
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
financial performance and their cash flows for the years ended August 31, 2013 and August 31, 2012 in
position of People Corporation and its subsidiaries as at August 31, 2013 and August 31, 2012 and their
accordance with International Financial Reporting Standards.
financial performance and their cash flows for the years ended August 31, 2013 and August 31, 2012 in
accordance with International Financial Reporting Standards.
December 4, 2013
Toronto, Ontario
December 4, 2013
Toronto, Ontario
Chartered Professional Accountants
Licensed Public Accountants
Chartered Professional Accountants
Licensed Public Accountants
ACCOUNTING › CONSULTING › TAX
300 – 111 RICHMOND STREET W, TORONTO, ON M5H 2G4
ACCOUNTING › CONSULTING › TAX
1.877.251.2922 P: 416.596.1711 F: 416.596.7894 mnp.ca
300 – 111 RICHMOND STREET W, TORONTO, ON M5H 2G4
1.877.251.2922 P: 416.596.1711 F: 416.596.7894 mnp.ca
37
1/16/14 10:09 AM
38336 PC 2013 Annual Report_v4.indd 37
CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED AUGUST 31, 2013 & 2012
PEOPLE CORPORATION
Consolidated Statements of Financial Position
For years ended as at August 31, 2013, August 31, 2012
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
Non-current assets:
Property and equipment
Goodwill and intangible assets
Deferred tax asset
Total non-current assets
Total assets
Liabilities and shareholders' equity
Current liabilities:
Trade payables, accrued and other liabilities
Deferred revenue
Income taxes payable
Current portion of loans and borrowings
Total current liabilities
Accrued and other liabilities
Deferred revenue
Non-controlling interest put options
Loans and borrowings
Deferred tax liability
Total liabilities
Shareholders' equity:
Share capital
Contributed surplus
Retained earnings
Total shareholders' equity
NOTE
AUG 31, 2013
AUG 31, 2012
5
6
7
12
8
9
12
11
8
9
4
11
12
13
$
2,449,169
$
3,199,643
2,896,632
388,383
5,734,184
2,573,125
430,873
6,203,641
990,894
840,670
46,876,735
18,298,134
134,464
181,064
48,002,093
19,319,868
$
53,736,277
$
25,523,509
$
4,522,278
$
3,684,621
3,792,348
112,240
3,804,077
4,098,533
226,651
465,351
12,230,943
8,475,156
993,070
89,299
6,172,884
15,445,258
4,628,201
57,398
150,518
-
1,754,340
1,326,727
39,559,655
11,764,139
12,024,732
11,990,956
774,245
1,377,645
650,878
1,117,536
14,176,622
13,759,370
Total liabilities and shareholders' equity
$
53,736,277
$
25,523,509
Commitments and contingencies (Note 18)
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ “Scott Anderson”
____________________________________
Director, Chair of the Audit Committee
/s/ “Laurie Goldberg”
_____________________________________
Director, Chief Executive Officer
38
The notes on pages 42 to 68 are an integral part of these consolidated financial statements.
38336 PC 2013 Annual Report_v4.indd 38
1/16/14 10:09 AM
PEOPLE CORPORATION
Consolidated Statements of Comprehensive Income
For years ended as at August 31, 2013, August 31, 2012
Revenue
Commissions
Fees and other revenues
Operating expenses
Personnel
General and administrative
Advertising and promotion
Income before undernoted
Finance and other income (costs):
Amortization of intangible assets
Finance expenses
Acquisition costs
Net income before income taxes
Income tax expense:
Current
Deferred
Net income and comprehensive income
Earnings per share
Basic
Diluted
NOTE
YEAR ENDED
AUG 31, 2013
YEAR ENDED
AUG 31, 2012
$
17,433,232
$
12,829,814
15,458,927
32,892,159
14,327,571
27,157,385
21,056,253
17,740,775
6,763,330
1,245,111
29,064,694
3,827,465
(1,242,131)
(930,783)
(966,018)
(3,138,932)
688,533
711,149
(282,725)
428,424
260,109
0.008
0.008
$
$
$
5,957,044
1,161,615
24,859,434
2,297,951
(901,135)
(336,787)
-
(1,237,922)
1,060,029
454,910
(121,034)
333,876
726,153
0.022
0.022
$
$
$
23
23
15
4
12
12
13(c)
The notes on pages 42 to 68 are an integral part of these consolidated financial statements.
39
1/16/14 10:09 AM
38336 PC 2013 Annual Report_v4.indd 39
PEOPLE CORPORATION
Consolidated Statements of Changes in Equity
For the years ended August 31, 2013 and August 31, 2012
Balance, August 31, 2011
$
11,990,956
$
547,744
$
391,383
$
12,930,083
Net Income and comprehensive income for the year
-
-
726,153
726,153
Transactions with shareholders, recorded directly in shareholders’ equity
SHARE
CAPITAL
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS)
TOTAL
Share-based payments
Total transactions with shareholders
Balance, August 31, 2012
Balance, August 31, 2012
Net Income and comprehensive income for the year
-
-
11,990,956
103,134
103,134
650,878
$
$
-
$
$
726,153
1,117,536
$
$
103,134
829,287
13,759,370
SHARE
CAPITAL
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS)
TOTAL
11,990,956
$
650,878
$
1,117,536
$
13,759,370
-
260,109
260,109
$
$
$
-
Transactions with shareholders, recorded directly in shareholders’ equity
Exercise of stock options
Share-based payments
Total transactions with shareholders
Balance, August 31, 2013
-
33,776
-
33,776
(13,510)
136,877
123,367
-
-
260,109
20,266
136,877
417,252
$
12,024,732
$
774,245
$
1,377,645
$
14,176,622
40
The notes on pages 42 to 68 are an integral part of these consolidated financial statements.
38336 PC 2013 Annual Report_v4.indd 40
1/16/14 10:09 AM
PEOPLE CORPORATION
Consolidated Statements of Cash Flows
For the years ended August 31, 2013 and August 31, 2012
Operating activities
Net income for the year
Adjustments for:
Depreciation
Amortization of intangible assets
Share-based compensation
Non-controlling interest put option fair value adjustment
Accretive interest expense
Loss from disposal of capital assets
Deferred tax expense (recovery)
Net cash from operations
Change in the following:
Trade and other receivables
Other current assets
Trade payables, accrued and other liabilities
Deferred revenue
Deferred tax liability
Net cash from (used by) working capital items
Net cash from operating activities
Investing activities
Proceeds from disposal of property and equipment
Acquisition of subsidiary, net of cash and cash equivalents acquired
Acquisition of property and equipment
Acquisition of intangible assets
Net cash used in investing activities
Financing activities
Proceeds from exercise of stock options
Proceeds from loans and borrowings
Repayment of loans and borrowings
Net cash from (used) in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at the end of the year
NOTE
YEAR ENDED
AUG 31, 2013
YEAR ENDED
AUG 31, 2012
$
260,109
$
726,153
6
7
379,967
1,242,131
136,877
123,220
163,426
3,045
(282,725)
2,026,050
167,912
139,101
(277,379)
(367,404)
(221,265)
(559,035)
309,293
901,135
103,134
-
-
-
(121,034)
1,918,681
635,358
(117,214)
(314,829)
579,919
119,610
902,844
1,467,015
2,821,525
300
(13,991,842)
(395,470)
(198,205)
-
-
(165,056)
-
(14,585,217)
(165,056)
20,266
13,150,000
(802,538)
12,367,728
(750,474)
3,199,643
-
109,343
(853,910)
(744,567)
1,911,902
1,287,741
$
2,449,169
$
3,199,643
The notes on pages 42 to 68 are an integral part of these consolidated financial statements.
41
1/16/14 10:09 AM
38336 PC 2013 Annual Report_v4.indd 41
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
1. REPORTING ENTITY:
People Corporation, (the “Company”) was incorporated under the Ontario Business Corporations Act
on July 5, 2006. The Company is a public company listed on the TSX Venture Exchange (the "TSX-V"),
trading under the "PEO" symbol and is domiciled in Canada. The address of the Company’s head office
is 360 Main Street, Suite 1800, Winnipeg, Manitoba, Canada and the Company’s registered office is
180 Bay Street, Suite 4400, Toronto, Ontario, Canada. These consolidated financial statements of the
Company comprise accounts of the Company and its subsidiaries. The Company is primarily involved
in the delivery of employee group benefit consulting, pension consulting and third-party benefits
administration services, as well as, recruiting services, strategic human resources consulting and career
management services to help companies recruit, retain and reward employees (Note 21).
These consolidated financial statements were approved by the Board of Directors and authorized for
issue on December 4, 2013.
2. BASIS OF PRESENTATION:
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS").
(b) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for
the following material items in the consolidated statements of financial position:
•
financial instruments at fair value through profit or loss are measured at fair value
•
equity settled share-based payment awards are measured at fair value at grant date
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company's
and its subsidiaries functional currency. All financial information presented has been rounded to the
nearest dollar except where indicated otherwise.
(d) Use of estimates and judgments
The preparation of these consolidated financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities at the date of these financial
statements and reported amounts of income and expenses during the reporting period. Actual
results may differ from these estimates.
The preparation of our Consolidated Financial Statements requires us to make estimates and
judgments that affect the application of policies and the reported amounts of assets, liabilities,
revenue and expenses. Actual results may differ from those estimates. Areas of significant accounting
estimates and judgments include determination of fair value of financial instruments, impairment of
financial instruments, impairment of goodwill and intangible assets, and taxes. We also use judgment
when determining functional currencies, contingencies, restructuring, non-current assets and the
determination of fair value of share-based payments. Details on the estimates and judgments are
further described in the relevant accounting policies in these Notes.
42
38336 PC 2013 Annual Report_v4.indd 42
1/16/14 10:09 AM
PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Provisions are recognized for present legal or constructive obligations as a result of a past event, if it
is probable that they will result in an outflow of economic resources and the amount can be reliably
estimated. The amounts recognized for these provisions are the best estimates of the expenditures
required to settle the present obligations or to transfer them to a third party at the statement of
financial position date, considering all the inherent risks and uncertainties, as well as the time value of
money. These provisions are reviewed as relevant facts and circumstances change.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods
affected.
3. SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies set out below have been applied consistently to all years presented in these
consolidated financial statements.
(a) Basis of consolidation
(i) Business combinations
For acquisitions, the Company measures goodwill as the fair value of the consideration
transferred, including the recognized amount of any non-controlling interest in the acquiree, less
the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities
assumed, all measured as of the acquisition date. When the excess is negative, a bargain
purchase gain is recognized immediately in profit or loss.
The Company recognizes liabilities, if any, resulting from a contingent consideration arrangement
at their acquisition date fair value and such amounts form part of the cost of the business
combination. Subsequent changes in the fair value of contingent consideration arrangements are
recognized in profit or loss for the period.
Changes in the fair value of the contingent consideration that qualify as measurement period
adjustments are adjusted retrospectively, with corresponding adjustments to goodwill.
Measurement period adjustments are adjustments that arise from additional information
obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition
date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do
not qualify as measurement period adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity is not re-measured at subsequent
reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is re-measured at subsequent reporting
dates in accordance with IAS 39 Financial Instruments: recognition and measurement, or IAS 37
Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding
gain or loss being recognized in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the
Company incurs in connection with a business combination are expensed as incurred.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
(ii) Subsidiaries
Subsidiaries are entities controlled by the Company or a subsidiary of the Company. The financial
statements of subsidiaries are included in these consolidated financial statements from the date
that control commences until the date that control ceases.
(iii) Transactions eliminated on consolidation
Intra-Company balances and transactions, and any realized or unrealized income and expenses
arising from intra-Company transactions, are eliminated in preparing these consolidated financial
statements.
(b) Financial instruments
(i) Non‑derivative financial assets
Financial assets classified as fair value through profit and loss ("FVTPL") are measured at fair
value, with gains and losses recognized in net income/loss. Cash and cash equivalents are
classified as FVTPL.
The Company initially recognizes loans and receivables on the date that they are originated.
All other financial assets (including assets designated at fair value through profit or loss) are
recognized initially on the trade date at which the Company becomes a party to the contractual
provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash and cash
equivalents flows from the asset expire, or it transfers the rights to receive the contractual cash
and cash equivalents flows on the financial asset in a transaction in which substantially all the
risks and rewards of ownership of the financial asset are transferred. Any interest in transferred
financial assets that is created or retained by the Company is recognized as a separate asset or
liability.
Financial assets and liabilities are offset and the net amount presented in the consolidated
statements of financial position when, and only when, the Company has a currently enforceable
legal right to offset the recognized amounts and intends either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
(ii) Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not
quoted in an active market. Such assets are recognized initially at fair value plus any directly
attributable transaction costs.
Subsequent to initial recognition loans and receivables are measured at amortized cost using the
effective interest method, less any impairment losses. Loans and receivables comprise trade and
other receivables.
(iii) Non‑derivative financial liabilities
Financial liabilities classified as fair value through profit and loss ("FVTPL") are measured at fair
value, with gains and losses recognized in net income/loss. Non-controlling interest put option is
classified as FVTPL.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
The Company initially recognizes debt securities issued and subordinated liabilities on the date
that they are originated. All other financial liabilities (including liabilities designated at fair value
through profit or loss) are recognized initially on the trade date at which the Company becomes
a party to the contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations are discharged or
cancelled or expire.
Financial assets and liabilities are offset and the net amount presented in the consolidated
statements of financial position when, and only when, the Company has a legal right to offset the
amounts and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously.
The Company has the following non-derivative financial liabilities: loans and borrowings,
accounts payable, accrued and other liabilities.
Such financial liabilities are recognized initially at fair value less any directly attributable
transaction costs. Subsequent to initial recognition these financial liabilities are measured at
amortized cost using the effective interest method.
(iv) Share capital
Common voting shares are classified as equity. Incremental costs directly attributable to the issue
of common voting shares are recognized as a deduction from equity, net of any tax effects.
(c) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses. When parts of an item of property and equipment have different
useful lives, they are accounted for as separate items (major components) of property and
equipment. The costs of the day-to-day servicing of property and equipment are recognized in
the consolidated statements of comprehensive income in the period in which they are incurred.
(ii) Depreciation
Depreciation is recognized in the consolidated statements of comprehensive income over the
estimated useful lives of each part of an item of property and equipment in a manner which most
closely reflects the expected pattern of consumption of the future economic benefits embodied
in the asset. The estimated useful lives for the current and comparative periods are as follows:
ASSET
BASIS
Furniture and fixtures
Diminishing balance
Computer equipment
Diminishing balance
RATE
20%
30%
Leasehold improvements
Straight-line
Shorter of useful life or term of the lease
Computer software
Software licenses
Straight-line
Straight-line
Shorter of useful life or term of the license
4 years
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and
adjusted if appropriate.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
(d) Goodwill and intangible assets
(i) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over
the fair value of the net tangible and intangible assets acquired. Following the initial recognition,
goodwill is measured at cost less any accumulated impairment losses.
(ii) Intangible assets
Intangible assets consist of acquired brands, customer relationships and contracts. Intangible
assets acquired separately are measured on initial recognition at cost. The cost of identifiable
intangible assets acquired in a business combination is equal to fair value as at the date of
acquisition. Following initial recognition, identifiable intangible assets are carried at cost less any
accumulated amortization and any accumulated impairment losses.
Definite life intangible assets are amortized from the date of acquisition or, for internally
developed assets, from the time the asset is available for use. Amortization is recognized in
the consolidated statements of comprehensive income either on a declining balance or on a
straight-line basis over the estimated useful life of the asset, and the residual values and useful
lives of the assets are reviewed at each financial year-end and adjusted if appropriate.
Intangible assets are considered to have indefinite lives where management believes that there
is no foreseeable limit to the period over which the intangible assets are expected to generate
net cash flows.
(e) Leased assets
Leases in terms of which the Company assumes substantially all the risks and rewards of ownership
are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount
equal to the lower of its fair value and the present value of the minimum lease payments. Imputed
interest on the lease payments is charged against income. Subsequent to initial recognition, the asset
is accounted for in accordance with the accounting policy applicable to that asset.
Leases not meeting the criteria for finance leases are operating leases and the related assets are not
recognized in the Company’s consolidated statements of financial position.
Payments made under operating leases are recognized in profit or loss on a straight-line basis over
the term of the lease. Lease incentives received are recognized as an integral part of the total lease
expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense
and the reduction of the outstanding liability. The finance expense is allocated to each period during
the lease term so as to produce a constant periodic rate of interest on the remaining balance of the
liability.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
(f)
Impairment
(i) Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date
to determine whether there is objective evidence that it is impaired. A financial asset is impaired
if objective evidence indicates that a loss event has occurred after the initial recognition of
the asset, and that the loss event had a negative effect on the estimated future cash and cash
equivalents flows of that asset that can be estimated reliably.
At each reporting date, the Company assesses whether there is objective evidence that a
financial asset is impaired. An impairment loss in respect of a financial asset measured at
amortized cost is calculated as the difference between its carrying amount and the present
value of the estimated future cash and cash equivalents flows discounted at the asset’s original
effective interest rate. Losses are recognized in profit or loss and reflected in an allowance
account against assets. Interest on the impaired asset continues to be recognized using the
effective interest rate method. When a subsequent event causes the amount of impairment
loss to decrease, the decrease in impairment loss is reversed up to the amount of original cost
through profit or loss.
(ii) Non‑financial assets
The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill,
and intangible assets that have indefinite useful lives or that are not yet available for use, the
recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash and cash equivalents-generating unit is the
greater of its value in use and its fair value less costs to sell. In assessing value in use, the
estimated future cash and cash equivalents flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset. For the purpose of impairment testing, assets that cannot
be tested individually are grouped together into the smallest group of assets that generates
cash and cash equivalents inflows from continuing use that are largely independent of the
cash and cash equivalents inflows of other assets or groups of assets (the “cash and cash
equivalents-generating unit”, or “CGU”). For the purposes of goodwill impairment testing,
goodwill acquired in a business combination is allocated to the CGU, or the group of CGUs,
that is expected to benefit from the synergies of the combination. This allocation is subject to an
operating segment ceiling test and reflects the lowest level at which that goodwill is monitored
for internal reporting purposes.
The Company’s corporate assets do not generate separate cash and cash equivalents inflows.
If there is an indication that a corporate asset may be impaired, then the recoverable amount is
determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment
losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in
the unit (group of units) on a pro rata basis.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment
losses recognized in prior periods are assessed at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is reversed only
to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
(g) Trade payables, accrued and other liabilities
Trade payables include obligations to pay for goods or services that have been acquired in the
ordinary course of business. Trade payables are classified as current liabilities if payment is due within
one year or less and are recognized initially at fair value and subsequently measured at amortized
cost.
Accrued liabilities include accruals for salaries and compensation, and other obligations incidental
to the Company’s normal business operations. They are classified as current when it is expected to
be settled within one year of the reporting period date, and are recognized initially at fair value and
subsequently measured at amortized cost.
(h) Deferred revenue
Deferred revenue represents the excess of retainer amounts billed over costs incurred and revenue
earned on service contracts.
(i)
Insurance premium liabilities and related cash and cash equivalents
In its capacity as consultants, the Company collects premiums from insurers and remits
premiums, net of agreed deductions, such as taxes, administrative fees and commissions, to
insurance carriers. As the Company is acting in its capacity as consultants to collect and remit
premiums from insurers to insurance underwriters, the Company is considered to have a legal
right to offset premiums collected and corresponding liabilities. As such, the cash and cash
equivalents and investment balances relating to these liabilities have been offset against the
related liability in the Company’s consolidated statements of financial position.
(j) Employee benefits
(i) Short‑term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash and cash
equivalents bonus or profit-sharing plans if the Company has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee, and the
obligation can be estimated reliably.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
(ii) Share‑based payment transactions
Share-based payments are comprised of equity-settled stock options and equity settled Share
Ownership plan. Equity-settled share-based payments to employees are measured at the fair
value of the equity instruments at the grant date. The grant date fair value of share-based
payment awards granted to employees as a personnel expense, with a corresponding increase in
equity, over the period that the options vest. The amount recognized as an expense is adjusted
to reflect the number of awards for which the related service and non-market vesting conditions
are expected to be met, such that the amount ultimately recognized as an expense is based on
the number of awards that do meet the related service and non-market performance conditions
at the vesting date. For share-based payment awards with non-vesting conditions, the grant
date fair value of the share-based payment is measured to reflect such conditions and there is no
reconciliation for differences between expected and actual outcomes.
The Company’s contributions under its Employee Share Ownership Plan are expensed as
incurred.
Equity-settled share based payments to non-employees are measured at the fair value of the
goods and services received unless that fair value cannot be estimated reliably, in which case
they are measured at the fair value of the equity instrument granted and measured at the date
the Company obtains the good or the counter party renders the service.
(k) Revenue Recognition
Revenue includes fees and commissions generated from administrative, advisory and consulting
services provided to clients.
Generally, revenue from the rendering of services is recognized when the following criteria are met:
• The amount of revenue can be reliably measured;
• The stage of completion of services can be reliably measured;
• The receipt of economic benefits is probable; and
• Costs incurred and to be incurred can be reliably measured.
Concurrently with the above general principles, the Company applies the following specific revenue
recognition policies:
Group benefit commission revenue from clients where advisory services and plan administration
services are provided by the Company is generally received in advance are recorded as deferred
revenue. Commission advances are recognized in income on a monthly basis based on the number
of months for which the commission revenue was advanced, net of a provision for return commissions
due to policy cancellation and adjustments. The provision is determined based on historical data.
Group benefit commission revenue from clients where the Company provides only advisory services
are recognized in income at the effective or renewal date of the policy, net of a provision for return
commissions due to policy cancellation and adjustments. The provision is determined based on
historical data.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Fee revenue from administrative and consulting services are recognized as services are provided.
For fee revenue that is contingent on certain criteria being met, the revenue is not recognized until
criteria has been met.
All other revenues are recognized as services are rendered by the Company. Other revenue includes
investment income recorded on the accrual basis of accounting.
(l) Finance income and finance costs
Finance income comprises interest income on funds invested which is recognized as it accrues
in profit or loss, using the effective interest method. Finance costs comprise interest expense on
borrowings which are recognized in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
(m) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized
in profit or loss except to the extent that it relates to a business combination, or items recognized
directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using
tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences: the initial recognition of assets
or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the foreseeable future. In
addition, deferred tax is not recognized for taxable temporary differences arising on the initial
recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied
by the same tax authority on the same taxable entity, or on different tax entities, but they intend to
settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which
they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
(n) Earnings per share
Basic earnings per share is calculated by dividing income available to common shareholders by the
weighted average number of common shares outstanding during the period.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Diluted earnings per share is determined by adjusting the profit or loss attributable to common
shareholders and the weighted average number of common shares outstanding, adjusted for own
shares held, for the effects of all dilutive potential common shares, which comprise convertible notes
and share options granted to employees.
(o) New Standards and interpretations not yet adopted
The Company has not early applied the following new and revised Standards and Interpretations that
have been issued but are not yet effective.
IFRS 9, “Financial Instruments”
The IASB issued IFRS 9, “Financial Instruments” to replace IAS 39, “Financial Instruments:
Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial
asset is measured at amortized cost or fair value, and replaces the multiple rules in IAS 39. The
approach in IFRS 9 focuses on how an entity manages its financial instruments in the context of
its business model, as well as the contractual cash and cash equivalents flow characteristics of the
financial assets. The new standard also requires a single impairment method to be used, replacing
the multiple impairment methods currently provided in IAS 39. In November 2013, the IASB has
removed the mandatory effective date for IFRS 9. The new date will be determined when IFRS 9 is
closer to completion.
IFRS 10, “Consolidation”
IFRS 10, “Consolidation” replaces SIC-12, “Consolidation - Special Purpose Entities” and parts of IAS
27, “Consolidated and Separate Financial Statements”. IFRS 10 requires an entity to consolidate an
investee when it is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. The standards are
effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.
IFRS 11, “Joint Arrangements”
IFRS 11 supersedes IAS 31, “Interests in Joint Ventures”, and SIC-13, “Jointly Controlled Entities
- Non-monetary Contributions by Venturers”. IFRS 11 requires a venturer to classify its interest in a
joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the
equity method of accounting whereas, for a joint operation, the venturer will recognize its share of
the assets, liabilities, revenues and expenses of the joint operation. The standards are effective for
annual periods beginning on or after January 1, 2013, with earlier application permitted.
IFRS 12, “Disclosure of Interests in Other Entities”
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements,
equity accounted investments, special purpose vehicles and off balance sheet vehicles. The standard
introduces additional disclosure requirements that address the nature of, and risks associated with, an
entity’s interests in other entities. The standards are effective for annual periods beginning on or after
January 1, 2013, with earlier application permitted.
IFRS 13, “Fair Value Measurement”
IFRS 13 is a comprehensive standard that defines fair value, sets out a single IFRS framework for
measuring fair value, and requires disclosures about fair value measurements. This new standard
clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability
in an orderly transaction between market participants, at the measurement date. The standard also
establishes disclosures about fair value measurement. The standards are effective for annual periods
beginning on or after January 1, 2013, with earlier application permitted.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Amendments to Other Standards
Amendments to IAS 19 eliminate an entity’s option to defer the recognition of certain gains and
losses related to post-employment benefits and require re-measurement of associated assets and
liabilities in other comprehensive income. Amendments to IAS 19 are applicable on a modified
retrospective basis to annual periods beginning on or after January 1, 2013, with early adoption
permitted.
The amended IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates
in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its
scope and to address the changes in IFRS 10 to 13 as described above. Amendments to IAS 27 and
IAS 28 are applicable to annual periods beginning on or after January 1, 2013, with early adoption
permitted.
The Company anticipates that the application of IFRS 9 may have impact on the amounts reported in
respect of the Company’s financial assets. However, it is not yet practicable to provide a reasonable
estimate of that effect. The Company anticipates that the application of the other new and revised
standards and amendments, including IFRS 10, IFRS 11, IFRS 12 and IFRS 13, are not expected to
have a material impact on the results and the financial position of the Company.
4. BUSINESS ACQUISITIONS:
During the year ended August 31, 2013, the Company acquired the following businesses:
•
•
•
•
•
Effective September 1, 2012 the Company acquired all of the issued and outstanding shares of JSL
Inc. ("JSL"), a company that provides employee benefit solutions, consulting services and practical
health management programs to its clients.
Effective November 1, 2012, the Company acquired all of the issued and outstanding shares of
Prosure Group Administrators Ltd. and Prosure Insurance Agencies Ltd. (collectively “Prosure”).
Prosure provides employee benefit solutions, consulting services and third party administration
services to mid-market corporate clients.
Effective December 3, 2012 the Company acquired all of the issued and outstanding common shares
and special shares of Bencom Financial Service Group Inc. ("Bencom"), a company that provides
employee benefit solutions, group retirement solutions and individual benefit solutions to its clients.
In connection with the Bencom acquisition, the Company entered into various agreements
whereby the vendors hold an economic interest in Bencom through the ongoing right to earn
performance-based commission and fees. In addition, the vendors hold ongoing ownership through
non-voting, non-dividend earning special shares of Bencom ("Bencom Special Shares"). The
Company has the right to purchase the Bencom Special Shares ("Call Option") and the vendors have
the right to require the Company to purchase the Bencom Special Shares ("Bencom Put Option")
at certain dates in the future, subject to certain vesting and other conditions. On the effective date
of exercise of the Call Option or the Put Option, the vendor’s right to earn performance based
commission and fees will be terminated.
Effective July 9, 2013 the Company acquired all of the issued and outstanding common shares of
H+P Consulting Corporation ("H+P") which wholly owns Employee Benefits Inc. ("EBI"), Disability
Concepts Inc. ("DCI") and 6814409 Canada Incorporated ("681") which operate under the brand
Hamilton + Partners. H+P provides group benefits and disability insurance consulting services to its
clients.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
In connection with the H+P acquisition, the Company entered into various agreements whereby
the vendors hold an economic interest in H+P through the ongoing right to earn performance
based commission and fees. In addition, the vendors hold ongoing ownership through non voting,
non dividend earning special shares of H+P ("H+P Special Shares"). The Company has the right
to purchase the H+P Special Shares ("Call Option") and the vendors have the right to require the
Company to purchase the H+P Special Shares ("H+P Put Option") at certain dates in the future,
subject to certain vesting and other conditions. On the effective date of exercise of the Call Option
or the Put Option, the vendor’s right to earn performance based commission and fees will be
terminated.
The Company has accounted for these transactions as business combinations and has applied the
acquisition method of accounting in accordance with IFRS 3. The recognized amounts of assets acquired
and liabilities assumed in the transactions and the acquisition-date fair value of the total consideration
transferred are as follows:
HAMILTON
+ PARTNERS
BENCOM
OTHER
ACQUISITIONS
TOTAL
Assets
Cash
Accounts receivable and other assets
Property and equipment
Other long-term assets
Customer relationships
Goodwill
Deferred tax liability
Accounts payable and accrued liabilities
Consideration
Cash payment on closing
Working capital adjustment due to vendors
Promissory note payable
Non-controlling interest put option
Contingent consideration
$
252,543
$
128,012
$
234,914
$
160,878
109,847
57,310
10,814,000
11,603,671
(2,880,850)
(510,051)
196,890
14,756
-
1,660,000
3,588,548
(439,900)
(439,347)
50,155
13,460
-
786,304
(310,050)
(198,321)
19,607,348
4,708,959
1,746,462
615,469
407,923
138,063
57,310
15,978,523
(3,630,800)
(1,147,719)
26,062,769
1,170,000
13,644,000
10,311,068
3,435,907
860,334
14,607,309
(132,023)
3,186,686
5,310,044
931,573
75,000
498,637
699,415
-
-
886,128
-
-
(57,023)
4,571,451
6,009,459
931,573
$
19,607,348
$
4,708,959
$
1,746,462
$
26,062,769
Amounts recognized as promissory notes payable represent the estimated fair value of the promissory notes
of $287,257 for JSL, $700,000 for Prosure, $564,093 for Bencom, and $3,605,000 for H+P, as well as the
estimated contingent consideration expected to be paid were fair valued using a discount rate of 6.43%. Total
consideration paid is subject to final adjustments for working capital and contingent consideration based on
earnings of Prosure in each of the first and second years ending after the date of acquisition.
Amounts recognized as contingent consideration represent the estimated present value of $1,308,793 for
potential additional future consideration based on achieving financial targets for H+P.
The Company's consolidated statements of comprehensive income include the result of operations for JSL,
Prosure, Bencom, and H+P from their respective dates of acquisition to August 31, 2013.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
AUG 31, 2013
Operating revenues
H+P
Bencom
Other acquisitions
Net income and comprehensive income (loss)
H+P
Bencom
Other acquisitions
AS REPORTED
PRO FORMA
$
$
$
$
$
$
525,473
1,750,241
1,377,399
67,843
484,016
281,569
$
$
$
$
$
$
6,200,328
2,386,358
1,457,250
1,334,785
475,950
303,585
Pro forma balances represent management's estimates of consolidated revenue and consolidated net
income as if the acquisitions had been completed on September 1, 2012. For the purposes of these pro
forma balances, comprehensive income is equal to net income. Acquisition-related costs amounting
to $966,018 are not included as part of the consideration transferred and have been recognized as
acquisition costs in the consolidated statements of comprehensive income.
Non‑controlling interest Put Options
In connection with the Bencom and H+P acquisition, the Company entered into agreements whereby the
vendors' hold an economic interest, which includes performance-based commissions and fees, which may
be acquired by People through exercise of non-controlling interest put options in the future, subject to
certain terms and conditions.
The liability recognized in connection with the Bencom Put Option has been determined based on
a pre-determined formula defined in an agreement which is based on a multiple of estimated future
earnings of Bencom, the estimated future exercise dates and other factors. The fair value of the liability
associated with the Bencom Put Options as at August 31, 2013 was $756,640 (August 31, 2012 - nil). The
Bencom Put Option is restricted during the first three years of the agreement but then may be exercisable
at any time by the non-controlling shareholder(s).
The liability recognized in connection with the H+P Put Option has been determined based on a
pre-determined formula defined in an agreement which is based on a multiple of estimated future
earnings of H+P, the estimated future exercise dates and other factors. The fair value of the liability
associated with the H+P Put Option as at August 31, 2013 was $5,416,245 (August 31, 2012 - nil)). The
H+P Put Option is restricted during the first three years of the agreement but then may be exercisable at
any time by the non-controlling shareholder(s).
The fair value of the liability associated with the non-controlling put options is determined by
discounting the estimated future payment obligation at each reporting date, and changes in fair value
of the estimated liability in future periods will be recorded in finance costs in subsequent consolidated
statements of comprehensive income. For the year ended August 31, 2013 the Company recorded an
adjustment to the non-controlling interest put options amounting to $163,426 (2012 – nil) to the change
in estimated fair value of the liability.5. Trade and other receivables:
54
38336 PC 2013 Annual Report_v4.indd 54
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
5. TRADE AND OTHER RECEIVABLES:
Trade receivables
AUG 31, 2013
$ 2,896,632
AUG 31, 2012
$ 2,573,125
Retainer amounts for which the related performance conditions have not yet been met are presented as
deferred revenue (Note 9). The Company’s exposure to credit and currency risks, and impairment losses
related to trade and other receivables is disclosed in note 19.
6. PROPERTY AND EQUIPMENT:
NOTE
LEASEHOLD
IMPROVEMENTS
FURNITURE
AND
FIXTURES
COMPUTER
EQUIPMENT
COMPUTER
SOFTWARE
Cost
Balance, September 1, 2011
437,845
703,820
930,223
Additions
25,467
21,503
85,824
Balance, August 31, 2012
463,312
725,323
1,016,047
70,703
-
6,527
11,257
(8,376)
54,013
179,552
-
23,319
TOTAL
2,458,916
165,056
2,623,972
395,470
(8,376)
138,063
387,028
32,262
419,290
133,958
-
54,204
Additions
Disposals
Acquisition through business
combination
Balance, August 31, 2013
Depreciation and impairment
losses
Balance, September 1, 2011
Depreciation for the year
Balance, August 31, 2012
Depreciation for the year
Disposals
Balance, August 31, 2013
Carrying amounts
Balance, August 31, 2012
Balance, August 31, 2013
540,542
782,217
1,218,918
607,452
3,149,129
NOTE
LEASEHOLD
IMPROVEMENTS
FURNITURE
AND FIX-
TURES
COMPUTER
EQUIPMENT
COMPUTER
SOFTWARE
TOTAL
(230,193)
(434,478)
(579,118)
(230,217)
(1,474,006)
(75,454)
(55,200)
(116,225)
(62,414)
(309,293)
$
(305,647)
$
(489,678)
$
(695,343)
$
(292,631)
$
(1,783,299)
(88,473)
(53,095)
(127,525)
(110,874)
(379,967)
-
(5,031)
-
-
(5,031)
(394,120)
(537,742)
(822,868)
(403,505)
$
(2,158,235)
$
$
157,665
146,422
$
$
235,643
244,475
$
$
320,703
396,050
$
$
126,659
203,947
$
$
840,670
990,894
38336 PC 2013 Annual Report_v4.indd 55
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
7. GOODWILL AND INTANGIBLE ASSETS:
Cost
Balance, September 1, 2011
Balance, August 31, 2012
Additions
Acquisition through business
combination
Balance, August 31, 2013
Amortization and impairment losses
Balance, September 1, 2011
Amortization for the year
Balance, August 31, 2012
Amortization for the year
Balance, August 31, 2013
Carrying amounts
Balance, August 31, 2012
Balance, August 31, 2013
NOTE
GOODWILL
CUSTOMER
RELATIONSHIPS
CUSTOMER
CONTRACTS
TOTAL
$
13,547,835
$
5,961,351
$
3,000,000
$
22,509,186
13,547,835
5,961,351
3,000,000
26,200
38,001
134,008
4
15,978,523
$
$
$
$
$
29,552,558
-
-
-
-
13,547,835
29,552,558
$
$
$
$
$
$
13,644,000
19,643,352
$
$
-
3,134,008
(2,059,917)
$
(1,250,000)
(601,135)
(300,000)
(2,661,052)
(1,550,000)
(938,759)
(303,372)
(3,599,811)
$
(1,853,372)
3,300,299
16,043,541
$
$
1,450,000
1,280,636
$
$
$
$
$
$
22,509,186
198,209
29,622,523
52,329,918
(3,309,917)
(901,135)
(4,211,052)
(1,242,131)
(5,453,183)
18,298,134
46,876,735
8. TRADE PAYABLES, ACCRUED AND OTHER LIABILITIES:
The Company had the following trade payables, accrued and other liabilities.
Trade payables and other liabilities
Contingent consideration
Deferred lease inducements
Less current portion of trade payables, accrued and other liabilities
Long-term portion of accrued and other liabilities
Total long‑term Trade payables
4
$
$
$
$
AUG 31, 2013
AUG 31, 2012
4,507,749
$
3,645,066
950,204
57,395
5,515,348
$
4,522,278
993,070
993,070
$
$
-
96,955
3,742,021
3,684,621
57,398
57,398
The Company’s exposure to currency and liquidity risk related to trade payables is disclosed in note 19.
9. DEFERRED REVENUE:
Deferred revenue is a non-cash liabilitiy which represents the excess of retainer amounts billed over costs
incurred and revenue earned on service contracts. The Company had the following deferred revenue.
Fees received in advance
less: current portion of deferred revenue
Long-term portion of deferred revenue
AUG 31, 2013
$ 3,881,647
$ 3,792,348
$ 89,299
AUG 31, 2012
$ 4,249,051
$ 4,098,533
$ 150,518
56
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
10. INSURANCE PREMIUM LIABILITIES AND RELATED CASH AND CASH
EQUIVALENTS:
In its capacity as third-party benefits administrator, the Company collects premiums from insurers and remits
premiums, net of agreed deductions, such as taxes, administrative fees and commissions, to insurance
underwriters. These are considered flow-through items for the Company and, as such, the cash and cash
equivalents and investment balances relating to these liabilities are deducted from the related liability in the
consolidated balance sheets. The Company had the following amounts held in accounts segregated from the
Company's operating funds for insurance premium liabilities.
Payable to carriers and insured individuals or groups
less: related cash and cash equivalents balances
AUG 31, 2013
AUG 31, 2012
$ 14,558,743
$ 10,882,121
$ 14,558,743
$ 10,882,121
$ -
$ -
11. LOANS AND BORROWINGS:
This note provides information about the contractual terms of the Company's interest-bearing loans and
borrowings, which are measured at amortized cost. For more information about the Company's exposure to
interest rate and liquidity risk, see note 19.
Term loans
(a) A loan bearing interest of 7% per annum, unsecured, repayable in quarterly
installments of principal and interest of $21,422. The loan matured on
September 30, 2012.
$
(b) A bank loan bearing interest of 4.5% per annum, secured by the assets of the
Company, repayable in monthly installments of $11,161. The loan matured
November 30, 2012.
(c) A bank loan bearing interest of prime plus 1.5% per annum, secured by the
assets of the Company, repayable in quarterly installments of $90,000 plus
accrued interest. The loan matures May 31, 2018
(d) A bank loan bearing interest of prime plus 1.5% per annum, secured by the
assets of the Company, repayable in quarterly installments of principal of
$133,929 plus accrued interest. The loan matures December 31, 2019.
(e) A bank loan bearing interest of prime plus 1.5% per annum, secured by the
assets of the Company, repayable in quarterly installments of principle of
$335,714 plus accrued interest. The loan matures July 8, 2020.
Total term loans
Vendor‑take‑back loans
(f) A group of vendor-take-back loans bearing no interest per annum, secured
by the assets of the Company, repayable in monthly installments. The loans
matured on February 1, 2013.
(g) A non-interest bearing loan, unsecured, repayable in monthly installments of
$1,933. The loan matures on September 1, 2013.
(h) A vendor-take-back loan bearing no interest per annum, secured by the assets
of the Company, payable in two annual instalments of $350,000. The amortized
cost of the loan has been discounted using a rate equal to 6.43%. The loan
matures on October 1, 2014.
AUG 31, 2013
AUG 31, 2012
-
-
$
21,054
33,214
1,710,000
2,070,000
3,482,143
9,400,000
14,592,143
-
899
-
-
2,124,268
11,924
23,793
672,019
-
38336 PC 2013 Annual Report_v4.indd 57
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
(i) A vendor-take-back loan bearing no interest per annum, secured by the
assets of the Company, payable in three annual instalments of $181,031. The
amortized cost of the loan has been discounted using a rate equal to 6.43%.
The loan matures on December 1, 2015.
(j) A vendor-take-back loan bearing no interest per annum, unsecured, payable
in monthly instalments of $5,224. The amortized cost of the loan has been
discounted using a rate equal to 6.43%. The loan matures on August 1, 2017.
(k) A vendor-take-back loan bearing no interest per annum, secured by the assets
of the Company, payable in three annual instalments of $1,201,667. The
amortized cost of the loan has been discounted using a rate equal to 6.43%.
The loan matures on June 9, 2016.
Total vendor‑take‑back loans
Finance lease liabilities
(l) A finance lease repayable in monthly installments of $939 and secured by the
assets to which the obligation relates. The lease expires August 1, 2015 and
includes implicit interest rates ranging from 8.65%.
(m) A finance lease repayable in monthly installments of $1,074 and secured by the
assets to which the obligation relates. The lease expires December 1, 2015 and
includes implicit interest rates ranging from 11.28%.
Total finance lease liabilities
Less: current portion
Term loans
Vendor take-back loans
Finance lease liabilities
520,386
200,109
3,220,838
4,614,251
-
-
-
35,717
18,254
26,265
24,687
42,941
33,441
59,706
19,249,335
2,219,691
2,238,571
1,546,978
18,528
3,804,077
15,445,258
$
$
$
$
436,663
11,924
16,764
465,35
1,754,340
The Company entered into a Credit Facility Agreement with the Canadian Imperial Bank of Commerce which
includes the following components:
1.
2.
3.
A $2 million operating line of credit. As at August 31, 2013, the Company had not utilized this facility
(2012 - nil).
A $20 million term revolving acquisition credit facility to fund future acquisitions. The acquisition
credit facility is available via loans bearing interest at prime plus 1.5% or via bankers’ acceptances
bearing periodically fixed interest plus a stamping fee of 2.5% annually. Each draw on the facility will
be treated as a separate loan repayable over a period of up to seven years. As at August 31, 2013,
the balance owing on this facility was equal to $12,882,143 (2012 - nil); and
A $2.5 million installment loan which was utilized to repay and discharge a substantial amount of
long-term debt facilities and vendor-take-back debt of the Company. The installment loan is being
repaid in quarterly installments over a seven year period and bears interest at prime plus 1.5%. As at
August 31, 2013, the balance owing on this facility was equal to $1,710,000 (2012 - $2,070,000).
The facility is secured by a general security agreement over the assets of the Company and its subsidiaries
and is subject to covenants (Note 20).
58
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Finance lease liabilities are payable as follows:
FUTURE
MINIMUM
LEASE
PAYMENTS
INTEREST
AUG 31, 2013
PV OF
MINIMUM
LEASE
PAYMENTS
FUTURE
MINIMUM
LEASE
PAYMENTS
INTEREST
1-12 months
13-60 months
$
$
22,055
$
3,528
$
18,528
$
22,055
$
5,289
$
26,083
1,670
24,412
48,138
5,198
48,138
$
5,198
$
42,940
$
70,193
$
10,487
$
AUG 31, 2012
PV OF
MINIMUM
LEASE
PAYMENTS
16,766
42,940
59,706
12. INCOME TAXES:
Net income and comprehensive net income
Statutory tax rate
Income taxes (recovery) at statutory tax rates
Adjustments to income taxes
Non-deductible items
Change in rate at which temporary differences are recorded
Recognition of previously unrecognized tax loss
Other
Current taxes
Deferred taxes
AUG 31, 2013
AUG 31, 2012
$
688,533
$
1,060,029
26.59%
183,116
228,177
(2,450)
73,122
(53,541)
428,424
711,149
(282,725)
$
428,424
$
26.78%
283,858
64,960
56,492
-
(71,434)
333,876
454,910
(121,034)
333,876
The 2013 statutory tax rate differs from the 2012 statutory tax rate because of a change in the provincial
allocation of gross revenue and wages.
Significant components of deferred tax assets and liabilities are as follows:
Deferred tax assets
Equity issue and financing costs
Lease inducements
Other reserves
Non-capital loss carryforwards
Deferred financing costs
Deferred tax liabilities
Property and equipment
Intangible assets
AUG 31, 2013
AUG 31, 2012
$
15,442
$
15,248
15,665
66,037
22,072
134,464
71,415
4,556,786
4,628,201
37,910
25,826
30,633
86,695
-
181,064
61,379
1,265,348
1,326,727
Net deferred tax liabilities
$
(4,493,737)
$
(1,145,663)
38336 PC 2013 Annual Report_v4.indd 59
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Movement in net deferred tax liabilities:
Balance, August 31, 2012
Recognized in the statement of income and comprehensive income
Recognized in business acquisitions (Note 4)
Balance, August 31, 2013
AUG 31, 2013
AUG 31, 2012
$
(1,145,663)
$
(1,266,697)
282,725
(3,630,799)
(4,493,737)
121,034
-
(1,145,663)
The Company has non-capital loss carryforwards that expire as follows:
2031
2032
2033
13. SHARE CAPITAL
(a) Authorized
$
$
790
49,729
198,052
248,571
The Company has authorized share capital of an unlimited number of common voting shares.
(b) Shares issued and outstanding
Shares issued and outstanding are as follows:
Balance, August 31, 2011
Balance, August 31, 2012
Exercise of stock options
Balance, August 31, 2013
(c) Earnings per share
NUMBER OF COMMON
VOTING SHARES
32,970,527
32,970,527
56,666
33,027,193
$
$
$
$
AMOUNT
11,990,956
11,990,956
33,776
12,024,732
Basic earnings per share was calculated by dividing profit attributable to common shares by the sum
of the weighted average number of common shares outstanding during the year.
Diluted earnings per share was calculated using the basic calculation described above, and adjusting
for the potentially dilutive effect of total number of additional common shares that would have been
issued by the Company under its Stock option plan.
The following details the earnings per share, basic and diluted, calculations for the years ended
August 31, 2013 and August 31, 2012:
60
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Net income attributable to common shares (basic and diluted)
Weighted average number of common shares (basic)
add: Dilutive effect of stock options
Weighted average number of common shares (diluted)
Earnings per share (basic)
Earnings per share (diluted)
AUG 31, 2013
AUG 31, 2012
260,109
$
726,153
33,000,604
382,229
32,970,527
38,942
33,382,833
33,009,469
0.008
0.008
$
$
0.022
0.022
$
$
$
The average market value of the Company's shares for the purposes of calculating the dilutive effect
of share options was based on quoted market prices for the year during which the options were
outstanding.
14. SHARE‑BASED PAYMENTS
On February 23, 2011, at the Annual General Meeting of the Shareholders, the Shareholders re-approved
and amended the Stock Option Plan and approved the Company’s Employee Share Ownership Plan. Under
the terms of the plans, the number of shares issued under the Stock Option Plan and the Employee Share
Ownership Plan, as well as all other security based compensation agreements combined cannot exceed 15%,
or 4,954,079, of the Company’s issued and outstanding shares.
(a) Employee share ownership plan
The Company has an employee share ownership plan ("ESOP") whereby both employee and
Company contributions are used to purchase shares on the open market for employees. The
Company’s contributions are expensed as incurred as there is no vesting period. Under the plan, the
Company matches $1 for every $4 contributed by employee contributions of between 2% and 5% of
annual base remuneration. Contribution under ESOP began effective November 1, 2011.
At August 31, 2013, there were 116 participants (2012 – 87) in the plan. The total number of shares
purchased during the years ended August 31, 2013 on behalf of participants, including the Company
contribution, was 662,591 shares (2012 – 788,834 shares). During the years ended August 31, 2013,
the Company’s matching contributions totalled 139,282 shares (2012 – 157,814 shares).
(b) Stock option plan
Options may be granted to directors, officers, employees and service providers of the Company on
terms that the directors of the Company may determine within the limitations set forth in the Stock
Option Plan or by security regulators. Options shall not be granted for a term exceeding five years.
Changes in the number of options outstanding during the years ended August 31, 2013 and August
31, 2012, are as follows:
38336 PC 2013 Annual Report_v4.indd 61
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Balance, beginning of year
Granted
Exercised
Forfeited and expired
Balance, end of year
Options exercisable, end of year
AUG 31, 2013
AUG 31, 2012
WEIGHTED
AVERAGE
EXERCISE
OPTIONS
PRICE OPTIONS
2,763,142
$
475,000
(56,666)
(51,667)
3,129,809
$
2,166,472
0.34
0.56
0.36
0.55
0.37
2,891,142 $
800,000
-
(928,000)
2,763,142
$
1,811,472
WEIGHTED
AVERAGE
EXERCISE
PRICE
0.39
0.41
-
0.55
0.34
Options outstanding at August 31, 2013 consist of the following:
RANGE OF
EXERCISE PRICES
$ 0.25 - $ 0.40
$ 0.41 - $ 0.50
$ 0.51 - $ 0.64
$ 0.25 - $ 0.64
WEIGHTED
AVERAGE
OUTSTANDING
NUMBER
2,279,809
500,000
350,000
3,129,809
REMAINING
CONTRACTUAL LIFE
WEIGHTED
AVERAGE
EXERCISE PRICE
EXERCISABLE
NUMBER
1.32 years
3.48 years
4.67 years
2.04 years
$0.32
$0.43
$0.63
$0.34
1,999,806
166,666
-
2,166,472
The share option compensation expense for options issued to employees was determined based
on the fair value of the options at the date of measurement using the Black-Scholes option pricing
model (Note 17) with the following weighted average assumptions:
Expected option life
Risk free interest rate
Dividend yield
Forfeiture rate
Volatility factor of expected market price of the Company's shares
AUG 31, 2013
AUG 31, 2012
5.00 years
5.00 years
1.37%
nil
6.37%
88.26%
1.46%
nil
6.05%
93.78%
For awards that vest at the end of a vesting period, compensation cost is recognized on a
straight-line basis over the period of service. For awards subject to graded vesting, each installment
is treated as a separate award with separate fair value and a separate vesting period. The estimated
forfeiture rate is adjusted to actual forfeiture experience as information becomes available.
The expected life of the share options is based on historical data and current expectations and
is not necessarily indicative of exercise patterns that may occur. Volatility is determined based on
the five-year share price history. The expected volatility reflects the assumption that the historical
volatility over a period similar to the life of the options is indicative of future trends, which may also
not necessarily be the actual outcome.
62
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2012 and August 31, 2011
15. FINANCE INCOME AND FINANCE COSTS:
The Company's finance costs for the years ended August 31, 2013 and August 31, 2012 were comprised
of the following:
Accretion
vendor-take-back loans
contingent consideration
Non-controlling interest put option adjustment
Interest on long-term debt
Other finance costs
Interest income
16. FINANCIAL INSTRUMENTS:
Fair Value
NOTE
AUG 31, 2013
AUG 31, 2012
11
4
$
104,589
$
18,631
123,220
163,426
558,422
89,300
(3,585)
$
930,783
-
-
-
-
354,362
29,826
(47,401)
336,787
The Company’s carrying value of cash and cash equivalents, trade and other receivables, trade payables,
accrued and other liabilities approximate their fair values due to the immediate or short term maturity of
these instruments.
The carrying value of the long term debt approximates its fair value as the interest rates are consistent
with the current rates offered to the Company for debt with similar terms.
The following is a summary of the accounting model the Company has elected to apply to each of its
significant categories of financial instruments outstanding at August 31, 2013:
Cash and cash equivalents
Trade and other receivable
Accounts payable, accrued and other liabilities
Loans and borrowings
Non-controlling interest put option
Fair value through profit or loss
Loans and receivables
Other financial liabilities
Other financial liabilities
Fair value through profit or loss
The different levels of fair value hierarchy, which require the Company to maximize the use of observable
inputs when measuring fair value are defined as follows:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities. An active market
for the asset or liability is a market in which transactions for the asset or liability occur with
sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
38336 PC 2013 Annual Report_v4.indd 63
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
Fair value through profit or loss financial instruments are measured at fair value using Level 1 inputs for
cash and cash equivalents and Level 3 inputs for non-controlling interest put option.
17. DETERMINATION OF FAIR VALUES:
A number of the Company’s accounting policies and disclosures require the determination of fair value,
for both financial instruments and non-financial assets and liabilities. Fair values have been determined
for measurement and/or disclosure purposes based on the following methods. When applicable, further
information about the assumptions made in determining fair values is disclosed in the notes specific to
that asset or liability.
(a) Property and equipment
The fair value of property and equipment recognized as a result of a business combination is based
on market values. The market value of property is the estimated amount for which a property could
be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length
transaction after proper marketing wherein the parties had each acted knowledgeably and willingly.
(b) Intangible assets
The fair value of customer contracts and customer relationships is based on the discounted cash
flows expected to be derived from the use and eventual sale of the assets.
(c) Share‑based payment transactions
The fair value of the employee share options and the share appreciation rights is measured using
the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise
price of the instrument, expected volatility (based on weighted average historic volatility adjusted
for changes expected due to publicly available information), weighted average expected life of
the instruments (based on historical experience and general option holder behaviour), expected
dividends, and the risk-free interest rate (based on government bonds). Service and non-market
performance conditions attached to the transactions are not taken into account in determining fair
value.
(D) Non‑controlling interest put option
The fair value of the non-controlling interest put option has been determined by discounting
estimated future cash flows based on an appropriate discount rate. The estimated future cash flows
are calculated based on pre-determined formulas as defined in the purchase agreements which are
based on a multiple of estimated future earnings, estimated future exercise dates and other factors.
64
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
18. COMMITMENTS AND CONTINGENCIES:
(a) Contractual obligations
The Company leases premises and various office equipment under agreements which expire from
December 2012 to February 2018. Future minimum lease payments as at August 31, 2013 are as
follows:
Next 12 months
13 – 24 months
25 – 36 months
37 – 48 months
49 – 60 months
Thereafter
(b) Contingencies
$
984,964
848,518
606,443
580,176
279,173
36,855
$
3,336,129
In the ordinary course of operating the Company’s business it may from time to time be subject to
various claims or possible claims. Management is of the position that there are no claims or possible
claims that if resolved would either individually or collectively result in a material adverse impact on
the Company’s financial position, results of operations, or cash flows. These matters are inherently
uncertain and management’s view of these matters may change in the future.
19. FINANCIAL RISK MANAGEMENT:
The Company has exposure to the following risks from its use of financial instruments:
• interest risk
• credit risk
• liquidity risk
This note presents information about the Company’s exposure to each of the above risks, the Company’s
objectives, policies and processes for measuring and managing risk, and the Company’s management of
capital. Further quantitative disclosures are included throughout these interim condensed consolidated
financial statements.
(a) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash and cash equivalents flows of a
financial instrument will fluctuate because of changes in market interest rates. Financial assets and
financial liabilities with variable interest rates expose the Company to cash and cash equivalents
flow interest rate risk. Financial assets and financial liabilities that bear interest at fixed rates are
subject to fair value interest rate risk. The Company’s term loans bear interest at variable rates
and vendor-take-back loans are non-interest bearing. The carrying value of the long term debt
approximates its fair value as the interest rates are consistent with the current rates offered to the
Company for debt with similar terms.
The Company has identified an exposure to fair value variation in relation to variable interest term
loans. The Company does not use financial derivatives to decrease its exposure to interest risk. For
the year ended August 31, 2013, a change in interest rate relating to loans and borrowings of 1%
would have increased or decreased interest expense by approximately $108,000 (2012 - $26,000).
38336 PC 2013 Annual Report_v4.indd 65
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
(b) Credit Risk
Credit risk arises from the potential that a counter party will fail to perform its obligations. The
Company is exposed to credit risk from customers. In order to reduce its credit risk, the Company
reviews a new customer's credit history before extending credit and conducts regular reviews of its
existing customers' credit performance. An allowance for doubtful accounts is established based
upon factors surrounding the credit risk of specific accounts, historical trends and other information.
The Company has experienced few bad debt write offs and accordingly its allowance at August 31,
2013 is nil (2012 - $812).
Pursuant to their respective payment terms, consolidated accounts receivable are aged as follows as
at August 31, 2013:
Current
31 – 60 days past due
61 – 90 days past due
Over 91 days past due
Allowance for doubtful accounts
(c) Liquidity Risk
$
2,527,610
35,146
161,833
172,043
2,896,632
-
2,896,632
Liquidity risk is the risk that the Company would not be able to meet its financial obligations as they
come to maturity or can only do so at excessive costs. Based on the Company’s ability to generate
cash and cash equivalents flows through its ongoing operations, management believes that cash and
cash equivalents flows are sufficient to cover its known operating and capital requirements, as well
as its debt servicing costs. The Company manages its cash and cash equivalents resources through
ongoing financial forecasts and anticipated cash and cash equivalents flows.
The maturity dates of the Company’s financial liabilities as at August 31, 2013 are as follows:
Trade payables
Loans and borrowings
CARRYING
AMOUNT
CONTRAC-
TUAL CASH
FLOWS
MATURING
IN THE
NEXT 12
MONTHS
MATURING
IN 13 TO 36
MONTHS
MATURING
IN 37 TO 60
MONTHS
MATURING
MORE THAN
60 MONTHS
$
4,507,749
$
4,507,749
$ 4,507,749
$
-
$
-
$
-
19,249,335
19,729,644
4,060,386
7,756,331
4,423,642
3,489,285
$ 23,757,084
$ 24,237,393
8,568,135
$
7,756,331
$ 4,423,642
$
3,489,285
20. CAPITAL MANAGEMENT:
The Company views its capital as the combination of its cash and cash equivalents, long-term debt,
and shareholders' equity. The Company's primary objective when managing capital is to safeguard the
entity's ability to continue as a going concern while supporting the growth of the Company's business
through organic growth and new acquisitions.
The Company manages the capital structure and makes adjustments to it in accordance with the
aforementioned objective, as well as taking into consideration changes in economic conditions and the
risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
issue new or repurchase existing shares and assume new or repay existing debt.
The Company expanded the acquisition component of its existing credit facility agreement with the
Canadian Imperial Bank of Commerce from $10 million to $20 million. No other changes were made in
the objectives, policies or processes for managing capital during the year.
The credit facilities require the Company to maintain certain financial covenants. Management also uses
these ratios as key indicators in managing the Company's capital. The Company complied with all the
required financial covenants at August 31, 2013.
21. OPERATING SEGMENTS:
The Company offers human resource consulting, recruitment services, pension advisory services, group
benefits Insurance, benefits and pension administration. As at August 31, 2013, on the basis of type of
services provided and in accordance with IFRS 8, Operating Segments, the Company was represented by
and had one reportable segment. The Company operates exclusively within Canada.
22. RELATED PARTIES:
(a) Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Company. The Board of Directors and Officers are key
management personnel. In addition to their salaries, the Company also provides non-cash and cash
equivalents benefits and participation in the Employee Share Ownership Plan (Note 14(a)) and Stock
Option Plan (Note 14(b)).
The following table details the compensation paid to key management personnel during the year
ended August 31, 2013 and 2012:
Salaries, fees and short-term employee benefits
Short-term benefits and insurance premiums
Share-based payments
AUG 31, 2013
AUG 31, 2012
$
$
1,600,152
21,894
83,115
1,705,161
$
$
1,370,612
24,245
79,204
1,474,061
(b) Key management personnel and director transactions
Directors and key management personnel own 30.66% (August 31, 2012 - 26.90%) percent of the
voting shares of the Company.
As at August 31, 2013, the Company engages in transactions with Directors and key management
personnel of the Company. All the transactions are in the normal course of operations and are
measured at the exchanged amount, which is the consideration agreed to by the parties.
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PEOPLE CORPORATION
Notes to the Consolidated Financial Statements
For the years ended August 31, 2013 and August 31, 2012
23. EXPENSES BY NATURE:
The Company's operating expenses for the year ended August 31, 2013 and August 31, 2012 were
comprised of the following
Personnel
Wages, salaries and commissions
Bonuses
Short term benefits and insurance premiums
Share based payments
Advertising and sponsorships
Automobile
Administration fees
Depreciation of property and equipment
Occupancy
Office supplies and communication
Other
Professional fees
Public company costs
Travel
AUG 31, 2013
AUG 31, 2012
$
17,450,791
$
14,190,325
1,755,832
1,712,753
136,877
1,965,567
1,481,749
103,134
21,056,253
17,740,775
512,186
292,473
1,697,491
379,967
1,718,214
1,176,216
381,809
886,439
246,569
717,077
491,321
233,317
1,568,739
309,294
1,315,689
1,123,747
375,540
793,005
285,897
622,110
$
29,064,694
$
24,859,434
Compensation and benefits includes salaries, wages, management fees and commissions.
Certain employees of the Company participate in a defined contribution pension plan. Contributions
to the plan by the Company totaled $26,822 for the year ended August 31, 2013 (2012 – $25,683). The
amount is included in the salaries, wages and benefits expense in these interim condensed consolidated
financial statements.
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C O R P O R AT E I N F O R M AT I O N
EXECUTIVE
MANAGEMENT TEAM:
Laurie Goldberg, Chief Executive Officer
John Gallivan, President
Bonnie Chwartacki, Executive Vice President
Brevan Canning, Vice President Finance
Glenn Pittman, Vice President Corporate Development
Paul Asmundson, Vice President Corporate Development
David Young, Vice-Chair, Corporate Initiatives
BOARD OF DIRECTORS: Laurie Goldberg, Chairman
Scott C. Anderson, Lead Director
Richard Leipsic
CORPORATE OFFICES: Executive Head Office:
1800 - 360 Main Street, The Commodity Exchange Tower
Winnipeg, Manitoba R3C 3Z3 Canada
Registered Office:
c/o McMillan LLP, 181 Bay Street, Suite 4400
Toronto, Ontario, M5J 2T3
LEGAL COUNSEL: Lang Michener LLP
Brookfield Place
181 Bay Street, Suite 2500
Toronto, Ontario M5J 2T7 Canada
AUDITORS: MNP LLP
701 - 85 Richmond Street West
Toronto, Ontario M5H 2C9 Canada
TRANSFER AGENT: TMX Equity Transfer Services
200 University Avenue, Suite 300
Toronto, Ontario M5H 4H1 Canada
LISTING: Stock Exchange: TSX-V
Symbol: PEO
ANNUAL
GENERAL MEETING:
February 26, 2014
3:00 PM Central Standard Time
Suite 1800, 360 Main Street
Winnipeg, Manitoba R3C 3Z3 Canada
2 0 1 3 A N N U A L R E P O R T
EXECUTIVE HEAD OFFICE:
1800 – 360 Main Street
The Commodity Exchange Tower
Winnipeg, Manitoba R3C 3Z3 Canada
REGISTERED OFFICE:
c/o McMillan LLP
181 Bay Street, Suite 4400
Toronto, Ontario M5J 2T3 Canada
38336 PC 2013 Annual Report Cover_v2.indd 1-2
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