Bank Polska Kasa Opieki Annual Report 2015

Plain-text annual report

2 0 1 5 A N N U A L R E P O R T H I G H L I G H T S YEAR ENDED AUGUST 31 2015 2014 2013 2012 2011 Revenue $ 49,293,254 $ 42,575,935 $ 32,892,159 $ 27,157,385 $ 24,274,990 Operating income before corporate costs $ 13,318,640 $ 11,256,369 $ 7,839,707 $ 6,140,744 $ 5,632,042 Adjusted EBITDA $ 9,161,383 $ 7,542,081 $ 4,344,309 $ 2,710,379 $ 2,346,088 Total assets Total debt $ 114,597,346 $ 56,109,427 $ 53,736,277 $ 25,342,445 $ 24,994,058 $ 25,409,649 $ 9,660,449 $ 19,249,335 $ 2,219,691 $ 2,889,376 Other liabilities $ 45,108,307 $ 20,427,048 $ 20,310,320 $ 9,363,384 $ 9,174,599 Shareholders’ equity $ 44,079,390 $ 26,021,930 $ 14,176,622 $ 13,759,370 $ 12,930,083 Total liabilities and shareholders’ equity $ 114,597,346 $ 56,109,427 $ 53,736,277 $ 25,342,445 $ 24,994,058 Cash, end of year $ 6,514,734 $ 2,750,465 $ 2,449,169 $ 3,199,643 $ 1,287,741 Repayment of long-term debt, net $ 8,400,009 $ 11,258,167 $ 802,538 $ 853,910 $ 2,749,928 Common shares outstanding at year end 44,958,383 39,551,486 33,027,193 32,970,527 32,970,527 REVENUE (in $ millions) OPERATING INCOME BEFORE CORPORATE COSTS (in $ millions) ADJUSTED EBITDA (in $ millions) 50 40 30 20 10 14 12 10 8 6 4 2 10 9 8 7 6 5 4 3 2 1 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 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 For many investors, 2015 was a year of concern, with the realities of a soft domestic economy, weakening Canadian dollar, pull back in crude oil prices and the threat of rising interest rates. I am pleased that People Corporation once again performed very well despite a landscape of economic uncertainty, and that our industry continues to exude strong long-term fundamentals. More than ever, Canadian businesses require leading edge and effective tools to enable them to attract, reward and retain the very best talent for their organizations. These important tools are the intellectual capital and customized advice People Corporation’s teams of professionals dispense every day to allow our clients to achieve their goals of effective cost containment and intelligent plan design in their employee benefit programs. During fiscal 2015, our experienced leadership team, once again, executed and delivered results to significantly move our organization forward. A number of the more notable accomplishments and milestones that our team achieved this year are: 1. Materially scaled up our business through delivery of key financial results including: a. Revenue and Adjusted EBITDA growth of 15.8% and 21.5%, respectively – both records; b. Total Assets of the firm at $114 million – doubled since last year; c. Annual Premiums at year end exceeding $1 billion for the first time and pension assets under administration exceeding $3 billion; and, d. Significantly increased geographic footprint across Canada – 30 offices across 7 provinces with over 400 people in our organization. 2. We welcomed a new and very significant strategic partner to People Corporation during the year as part of our ongoing acquisition related growth plan. In June 2015, we announced the acquisition of Coughlin & Associates Ltd., one of Canada’s largest and most successful independent Third Party Administration (TPA) businesses, which provides group benefit consulting, pension consulting, administrative solutions and claims management services to many of Canada’s most respected corporations, unions and public service organizations. The addition of Coughlin & Associates Ltd. clearly positions People Corporation as one of the foremost TPA organizations in Canada today and into the future for the following key reasons: a. The addition of Coughlin to our already successful TPA businesses significantly enhances our scale and institutional capabilities by enabling us to offer clients new product and service lines, as well as enhancing capabilities in pension management, pension administration and individual financial services consulting and advice; and, b. The addition of Coughlin’s management team and professional staff in Ottawa, Ontario and Winnipeg, Manitoba, markedly increases People Corporation’s leadership bench strength and technical capabilities. 3. We continued to deliver impressive organic growth as approximately 300 companies and well known brand names across Canada chose to become new clients of People Corporation during 2015. Even more impressive is that our client retention across the firm remains at an all time high. This, indeed, is a testament to the high quality of our people and our very strong value proposition for both new and current clients. 4. We continued to expand the breadth and depth of our leadership team during the year to lead and guide us as we move forward and prepare to bring our organization to the next level of success. CEO AND CHAIRMAN’S MESSAGE TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31, 2015 1 5. We fortified our financial position and strengthened our capability to take advantage of growth opportunities through completing a highly successful $14.4 million bought deal private placement of common shares during the year. This second private placement was, again, very well received by investors, with demand significantly exceeding supply. 6. The investment community continued to take increasing notice of People Corporation and once again for the third consecutive year we were recognized as part of the annual PROFIT 500, the definitive ranking of Canada’s fastest growing companies. In addition, we achieved a ranking in the 2015 TSX Venture 50 during the year which recognizes the top 50 performers from over 1900 companies listed on the TSX Venture Exchange. Today and as we move forward, our commitment to the client remains unwavering. Our people truly understand that meeting clients’ needs with market leading solutions is our first priority and essentially makes everything else within our organization possible. What is also truly gratifying is that our vision to build the leading independent national provider of group benefits, group retirement and HR consulting services in Canada, with the best consultants delivering innovative and customized solutions to our clients, is taking hold and we are not only a leader in our industry but also within corporate Canada. Once again in 2015, with strong financial results, an expanding customer base, and an energized and talented leadership team, as well as with fundamentals on our side, I firmly believe that we are extremely well positioned to continue to enjoy our industry leading position and successfully grow our firm well into the future. You’ve heard me say it before and it’s well worth repeating – “we are clearly well past start up, and our momentum is accelerating but we have really only just begun”. Thank you for your ongoing support, trust and partnership as a People Corporation shareholder. Whether you are a long term shareholder or have joined us since our last annual report it is my sincere hope that you will continue to partner with us on our journey of success and Experience the Benefits of People. Sincerely, Laurie Goldberg Chairman and CEO 2 PEOPLE CORPORATIONM 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 F O R T H E 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 5 TA B L E O F C O N T E N T S FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Consulting Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Group Benefit Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Human Resource Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 BUSINESS ENVIRONMENT AND STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 OVERVIEW OF OPERATIONAL PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Operational Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Notable Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Growth Through Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 OUTLOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 NON-IFRS FINANCIAL MEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 OVERVIEW OF FINANCIAL PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Operating Income Before Corporate Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SELECTED ANNUAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Personnel and Compensation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 General and Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Depreciation, Amortization and Impairment Losses . . . . . . . . . . . . . . . . . . . . . . 22 Occupancy Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Administration Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Finance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Public Company Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SELECTED QUARTERLY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 RISKS FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 CRITICAL ACCOUNTING POLICIES AND ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . 34 SEASONALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 OFF‑BALANCE‑SHEET ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 FINANCIAL INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015 4 PEOPLE CORPORATIONThis Management’s Discussion and Analysis (“MD&A”) has been prepared with an effective date of December 10, 2015 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, 2015, 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”, “intends”, “likely”, 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 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 finance expense, income tax expense, depreciation and amortization (“Standardized EBITDA”) or EBITDA before acquisition, integration and reorganization costs, share-based compensation expense and Retained Economic Interest by vendor (“Adjusted EBITDA”), operating income before corporate costs (“Operating Income before Corporate Costs”), corporate costs, Operating Working Capital and Available Operating Working Capital, hereinafter defined, 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 Standardized EBITDA, Adjusted EBITDA and Operating Income before Corporate Costs 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. See the “Non-IFRS Financial Measures” section for further commentary. 5 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015People Corporation (the “Company”) is an employee benefit, pension and human resource consulting firm in Canada. With a growing national footprint, the Company is bringing together leading consultants in the industry to offer innovative and customized product solutions to 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 FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 AUG 31, 2015 AUG 31, 2014 Revenue Adjusted EBITDA $ 15,767.2 $ 10,008.4 $ 49,293.3 $ 2,358.3 $ 1,394.7 $ 9,161.4 Adjusted EBITDA per share (Basic) Net Income Net income per share (Basic) Net income per share (Diluted) $ 0.053 $ 1,050.5 $ $ 0.023 0.023 $ 0.035 $ 0.221 $ (425.2) $ 1,394.4 $ (0.011) $ (0.010) $ $ 0.034 0.033 $ 42,575.9 $ 7,542.0 $ 0.212 $ 1,540.9 $ $ 0.043 0.041 For the twelve months ended August 31, 2015, the Company experienced revenue growth of $6,717.4 or 15.8%. The Company recognized acquired growth of $4,865.2 (11.4%) and organic growth of $1,852.2 (4.4%). Organic growth was driven by the addition of new clients, natural inflationary factors and increased revenue from corporate Shared Services. Organic growth was partially offset by reduced sales volumes in the Human Resource Solutions division and the effect of a depressed labour market in Alberta on certain premium product lines. For the three months ended August 31, 2015, the Company experienced revenue growth of $5,758.8 or 57.5%. The Company recognized acquired growth of $4,292.2 (42.9%) and organic growth of $1,466.6 (14.7%). This increase was driven by organic increases in revenue in Group Benefit Solutions and Consulting Solutions groups, including natural inflationary factors, and new sales activity during the fourth quarter, offset by a decrease in Human Resource Solutions. For the twelve months ended August 31, 2015, the Company reported Adjusted EBITDA growth of $1,619.2 or 21.5%, resulting from organic and acquired growth in the business. Growth in the Adjusted EBITDA for the twelve month period was driven by the increase in revenue, as discussed above, offset by increased operating and corporate costs, including professional fees and claims administration costs. Adjusted EBITDA for the fourth quarter of fiscal 2015 was $2,358.3, representing an increase of $963.6 or 69.1%, as compared to the same period in fiscal 2014. Growth in Adjusted EBITDA for the three month period was primarily driven by contribution from acquisitions and the increase in fourth quarter revenue, partially offset by increases in variable compensation expenses tied directly to the higher revenue. The Company may experience fluctuations in timing of revenue between quarters and, as a result, Adjusted EBITDA as a percentage of revenue is less meaningful on a quarterly basis. 6 PEOPLE CORPORATIONB 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, pension advisory services, claims processing, disability management and administration services and strategic human resource consulting and recruitment services to help companies attract, retain and reward employees. The Company achieves this through approximately 400 employees and contractors with thirty offices (includes 17 satellite offices) located in seven provinces. The Company earns revenues from a diverse base of clients in various industries. Approximately 93% (2014 ‑ 90%) of the Company’s revenues come from employee group benefit consulting, third party benefits administration and group retirement consulting while the remainder comes from strategic human resource consulting, recruitment services and other revenues. 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’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 has financial and management resources in place to execute these priorities. The Company is organized in order to emphasize integration of all of its practice areas, which are as follows: 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, reward and retain their people thereby assisting in the achievement of the client’s goals. While the Company continues to go-to-market with the various brands acquired through acquisition, the Company is organized in such a way so 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 excel, enabling client businesses to prosper. 7 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015People Corporation helps businesses: Attract Reward Retain 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 employee group benefit consulting, third party benefits administration, group retirement consulting, pension advisory services, claims processing, disability management and administration services 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 for 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. 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 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, group pension and disability solutions can be tailored to suit organizations of any size, in any sector. This is achieved through the Company’s partner relationships, its ability to leverage its various systems and platforms and through the expertise of its 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 clients’ businesses and people. National Servicing With offices across the country, the Company can provide clients with servicing on a localized basis. 8 PEOPLE CORPORATIONBelow is a summary of the Company’s various operating brands within group benefits: CONSULTING SOLUTIONS Within the Consulting Solutions division, the Company focuses on providing a unique and proprietary employee benefit, group retirement and human resource solution that is customized to individual client needs. The consulting advice primarily includes plan review and plan design, plan recommendations and alternative funding methods, plan set up, employee communications, wellness programs and plan marketing. The Company’s consultants are divided into teams that focus independently of each other on corporate benefits, public sector benefits, association benefits, student benefits and alternative funding methods including self‑insurance. While each team goes to market independently, the Company has an advisor group that brings the skills of the different teams together and therefore, the Company is able to proactively approach client assignments in a manner that brings the expertise from various consultants together where necessary. 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. 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 plans. WHITE WILLOW BENEFITS CONSULTANTS White Willow Benefit Consultants (“White Willow”), established in 1988, is a boutique group benefits consulting firm that provides services 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. 9 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015LES ASSURANCES W.B. INC. Les Assurances W.B. Inc. (“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 JSL (“JSL”), established in 1976, provides group benefit solutions to clients based in southern Ontario and specializes in mid-market corporate clients. JSL takes a partnership approach with clients to develop customized employee benefits programs that meet the changing needs of their businesses and employees. PROSURE GROUP ADMINISTRATORS & PROSURE INSURANCE AGENCIES Prosure Group Administrators and Prosure Insurance Agencies (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. FAIRLES BENEFIT SERVICES Fairles Benefit Services (“Fairles”), established in 1991, provides group benefits and group retirement consulting to a broad range of clients in the Southwestern Ontario region. Fairles was acquired by Bencom in 2014 and now operates in close association with Bencom. HAMILTON + PARTNERS INC. Hamilton + Partners Inc. consists 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. 10 PEOPLE CORPORATIONGROUP BENEFIT SOLUTIONS The Company’s Group Benefit Solutions division has several third‑party administration (“TPA”) service platforms allowing it to provide consulting advice that is highly customized towards the client’s needs. The TPA administers 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 through a plug-n-play approach of using multiple insurance carrier partners on a single benefits plan design. 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. The Company serves as an independent data administrator on behalf of the plan sponsor – this allows the benefit consultant to work with the plan sponsor to select from various insurance carriers and funding options that are best suited to the benefit categories within the plan sponsor’s employee benefits program. The benefit to the client is the availability of multiple carriers and funding alternatives on one consolidated billing and reporting platform. HEALTHSOURCE PLUS HealthSource Plus (“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 and 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. BRYAN H. LUPE AND ASSOCIATES Bryan H. Lupe and Associates (“BHL”), established in 1969, provides group benefits and consulting and administration services to a broad range of clients, and has established a solid reputation for outstanding client service and creativity in providing group benefits solutions to clients primarily based in Manitoba. COUGHLIN & ASSOCIATES LTD. On June 12, 2015, the Company acquired Coughlin & Associates Ltd. (“Coughlin”). Coughlin, established in 1958, provides group benefit consulting, pension consulting, administrative solutions and claims management services to many of Canada’s most respected corporations, unions and public service organizations. Coughlin has offices in Ottawa and Winnipeg. 11 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015HUMAN RESOURCE SOLUTIONS The Company’s Human Resource Solutions division works with clients to diagnose, design and deliver customized human resource solutions. The human resources consulting team delivers a broad range of services, including: human resource consulting, compensation services, assessment services, and talent management. PEOPLE FIRST HR SERVICES LTD. People First HR Services Ltd. (“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. SHARED SERVICES Through its Shared Service division, the Company works with its subsidiaries and divisions by providing subject matter experts and proprietary products, services and solutions to attract and retain clients and provide additional revenue opportunities. The corporate shared service divisions were created to ensure that the Company’s subsidiaries and divisions have access to an internal shared service not normally available to mid‑size employee benefit firms and thereby ensuring that clients are receiving the best possible consulting advice, and that the Company’s subsidiaries have a unique value proposition providing them a competitive edge. 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. GROUP RETIREMENT SOLUTIONS Group Retirement Solutions (“GRS”) 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. BUSINESS DEVELOPMENT REPRESENTATIVES The Business Development Representatives (“BDR”) division is an inside sales department responsible for generating qualified leads for the Company’s benefit consultants. BDR identifies companies and their decision makers in order to qualify, create, and develop sales opportunities. The purpose of the department is to create and heighten People Corporation awareness to potential prospects as well as to generate leads for the consultants to ultimately increase revenues. 12 PEOPLE CORPORATIONWELLNESS SOLUTIONS Wellness Solutions focuses on providing the Company’s corporate clients with a suite of proprietary products and service offerings that will help manage the increasing costs of absenteeism, presenteeism, and loss of productivity. In addition, the Company’s Wellness Solutions serve to help the Company’s clients attract, reward, and retain their employees. B U S I N E S S E N V I R O N M E N T A N D S T R AT E G Y INDUSTRY Many companies are increasingly utilizing employer‑sponsored benefits programs as one of the tools to help them attract and retain employees in today’s competitive market for talent. However, they are challenged in doing so because of the increasing cost of providing such programs to employees, which is driven by rising insurance premiums as a result of factors such as increasing healthcare costs, the entry of new drugs and treatments, the advent of new medical services, higher utilization rates, and the overall aging demographics of the workforce. Given these factors, companies are looking for value-added advice with respect to plan design, and strategies to minimize the cost of plans while continuing to provide competitive benefit programs that will be appealing to employees. Concurrent with the evolution in client demands as described above, the supplier base for group benefits and pension products and services, which is primarily the insurance carriers, continues to consolidate, leading to fewer alternatives for benefits consultants to work with when devising and pricing benefit plans. At the same time, competition has increased not only from traditional market players, but also from new players focused on technology-based solutions, as well as from market participants who have traditionally focused on other segments of the market or adjacent sectors. Finally, the regulatory environments that can impact benefit and pension programs continue to evolve, not only as it relates to the products and services themselves (e.g. pension plan regulations), but also as it relates to the provision of products and services, including matters such as fee disclosure. Given these market dynamics, scale is becoming increasingly important. The Canadian market for group benefits, group pension and HR consulting products and services is dominated by many small players and a few large multinational firms. Historically, the market has been segregated by size: small and medium-sized enterprises have traditionally been serviced by a large number of small regional and local market players, providing a relatively narrow range of products and services, generally priced on a commission-based structure. The balance of the industry, which is focused on large employers and government accounts, has traditionally been serviced by a small number of multinational consulting firms, with a broader scope of services, primarily offered on fee‑based structures. While a significant amount of consolidation has occurred among players servicing large enterprises (i.e. consolidation among the multinational consulting firms), the segment of the market servicing small‑ and medium‑sized enterprises continues to be highly fragmented, with a significant number of small firms, many of which are encountering succession planning issues given the demographic characteristics of their consultant owners. Management believe that this, along with the increasing need for scale as described above, suggests that consolidation in this segment of the market is likely to intensify. 13 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015Management believes that the current dynamics in the group benefits, group pension and HR consulting sectors will continue to drive change within the industry, likely at an accelerating pace. In order to provide a compelling value proposition to employers, benefits, pension and HR consultants must provide innovative products, specialized services and customized solutions. Furthermore, in a highly competitive environment, consultants need to find ways to be more efficient and cost effective. As a result of these environmental factors, scale is increasingly important in these sectors. O V E R V I E W O F O P E R AT I N G P E R F O R M A N C E As a result of a focus on executing its strategic plan, the Company continues to be successful in building upon and growing operational capabilities by investing in employees and the tools they need to provide responsive solutions which address its clients business challenges. The Company wants its clients to experience the benefits that 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. The Company continued its positive momentum and strong performance during the year. OPERATIONAL INITIATIVES INCLUDE: • Enhancing the client service model to promote client retention; • Expanding the product portfolio to expand solutions to the Company’s clients; • Pursuing possible acquisitions which align with the Company’s strategic plan; • Expanding the Company’s billing platforms and TPA platforms, thereby increasing the number of product offerings available to clients; • Promoting and recruiting additional leadership to execute the Company’s organic growth plans; and, • Recruiting additional benefits consultants in order to expand our organic revenue generating capabilities. Results from implementation of these initiatives, momentum from past initiatives and overall improvement in revenue growth can be seen in the Company’s continued strong financial performance. 14 PEOPLE CORPORATIONNOTABLE MILESTONES INCLUDE: • Acquired 100% of the voting interest and 66% of the economic interest of Coughlin, one of Canada’s preeminent independent full service national benefit and pension consulting and third party administration firms, based in Ottawa, Ontario and Winnipeg, Manitoba; • Completed a bought deal private placement financing, issuing 4,232,000 common shares at $3.40 per share; • Entered into new expanded credit facility with $35,000 of senior credit available, a significant increase over the previous senior credit facility of $24,500. The agreement also provides for the potential to increase the facility by a further $15,000 to a total of $50,000 of available credit, effectively doubling senior credit capacity; • Strengthened the organizational structure to position the Company for continued growth, with the appointments of Ms. Bonnie Chwartacki as President, Mr. Keith McMahon, CA as the Company’s Chief Financial Officer, Mr. Brevan Canning as Executive Vice President and Group Head ‑ Benefit Solutions, and Ms. Lisa Villani as Executive Vice President and Group Head – Consulting Solutions; • Expanded organic growth capabilities through the continued expansion of its consulting team, including hiring three additional consultants in Montreal, two in Toronto and one in Winnipeg; • Launched a new sales management and underwriting workflow management technology platform in its corporate focused third party administration division; • Laurie Goldberg, Chairman and CEO, named 2014 Prairie Region EY Entrepreneur of the Year for the professional and financial services category, as awarded by Ernst & Young LLP; and, • Appointed Mr. Eric Stefanson to the Company’s Board of Directors. 15 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015GROWTH THROUGH ACQUISITIONS The Company intends to pursue growth opportunities both organically, increasing its existing business by gaining new clients, increasing product and service penetration with existing clients, as well as through transactions in which the Company acquires new operating entities or subsidiaries. Over the past few years, the Company has enhanced its corporate development capabilities to execute transactions, through significant investments in people, technology and other organizational resources, and has developed techniques, processes and other intellectual capital, all with the objective of creating a compelling value proposition for new entities to join People Corporation. Over the past year, the Company has completed a number of initiatives that position it for continued growth, particularly related to access to financial capital for execution of transactions. • • In October 2014, the Company entered into a new credit facility totalling $35,000 that provides expanded capacity and enhanced flexibility to access senior debt as a source of financing for acquisitions. The new facility includes an accordion feature giving the Company the option, subject to the satisfaction of certain terms and conditions, to increase it to a maximum of $50,000. In May 2015, the Company completed a $14,400 bought deal private placement of common shares, issuing 4.2 million shares at a price of $3.40 per share, to fund growth initiatives, reduce indebtedness and for general corporate purposes. • In addition to these sources of capital, the Company also uses ‘vendor take back’ debt as an additional cost effective source of capital for transactions. Given this depth and breadth of access to financial capital, Management believes the Company is well positioned to continue to make investments for growth. The Company will consider acquisitions ranging in size and structure, but all share the characteristic of having a strong underlying strategic rationale, which may include enhancing the Company’s position in existing markets or providing entry into new markets, expanding the Company’s administrative and technological capabilities, providing new supplier relationships and enhancing the breadth and depth of the Company’s product and service offering. At the same time, given the financial characteristics of the underlying businesses, and the structural components and financial terms of the transactions, the Company will continue to focus on achieving attractive financial returns, as has been the case for past transactions. With a flexible transaction model to address the objectives of vendors, and an operating model to support the ongoing success and growth of the underlying businesses, the Company continues to attract partners who want to join the People Corporation group of companies. In the past three fiscal years, seven transactions have been completed, and there continues to be significant momentum in this component of the Company’s overall growth strategy. 16 PEOPLE CORPORATIONEffective June 12, 2015, the Company acquired Coughlin, an independent full service national firm providing group benefit consulting, pension consulting, administrative solutions and claims management services to corporations, unions and public service organizations in Canada, for consideration totaling $45,610.0. Through the acquisition, management believes the Company is significantly enhancing its national footprint and capability, providing the combined organizations with a competitive advantage. The Company’s interest in Coughlin includes 100% voting interest through a class of voting preferred shares and 66% economic interest through a class of non-voting, non-cumulative, dividend-bearing shares of Coughlin. Consideration of $30,091.0 at closing was comprised of (i) a cash payment of $26,375.0 to the principals of Coughlin, (ii) the issuance of 626,566 common shares of People (issued at a ten-day volume weighted average trailing price of $3.99 per share) to certain of the principals for an aggregate value of $2,500.0, (iii) the issuance of $1,350.0 of vendor‑take‑back notes with a fair value of $1,189.0 to certain of the principals, and (iv) a payable of $27.0 to the vendors related to closing working capital adjustments. The Company also recorded additional consideration totaling $15,519.0 representing the discounted value of the initial 34% minority economic interest (“Coughlin Retained Economic Interest”) retained by the former Coughlin shareholders (the “Coughlin Vendors”). The Coughlin Retained Economic Interest is held through a class of non-voting, non-cumulative, dividend-bearing shares of Coughlin (“Coughlin Vendor Shares”). In addition, certain of the Coughlin Vendors were issued a class of non-voting, non-cumulative, dividend-bearing shares of Coughlin (“Coughlin Spring Shares”) in which they may increase their Coughlin Retained Economic Interest to 40% in five years, subject to certain specified terms and conditions having been met and subject to Coughlin achieving certain financial performance targets over the next five years, and thereby reducing the Company’s economic interest in Coughlin to 60%. Commencing September 1, 2015, all classes of non-voting, non-cumulative, dividend-bearing shares of Coughlin have an ongoing contractual right to receive quarterly dividends based on a calculation derived from Coughlin’s earnings. The Company is entitled to a priority on the payment of dividends declared on the Coughlin dividend‑bearing shares to the extent of a specified earnings amount. In addition, the Company has the right to purchase the Coughlin Vendor Shares and the Coughlin Spring Shares (“Coughlin Call Option”) and individual Coughlin Vendors have the right to require the Company to purchase the Coughlin Vendor Shares and the Coughlin Spring Shares (collectively, the “Coughlin Put Options”) by giving notice to the Company. On the effective date of exercise of the Coughlin Call Option or the Coughlin Put Option, the Coughlin Vendor’s right to earn performance based dividends will be terminated. 17 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015O U T L O O K In order to position itself for growth in this environment, the Company has made significant investments in people, technology and other organizational resources, and has developed techniques, processes and other intellectual capital to provide a compelling value proposition to its clients. Driven by these investments, the Company intends to pursue growth opportunities both organically, increasing its existing business by gaining new clients and increased penetration of products and services within its existing client base, as well as through acquisitions in which new operating entities or subsidiaries become part of the Company. Given the positive underlying industry fundamentals, the ongoing development of the Company’s operating and transaction models, and the overall value proposition the Company provides to stakeholder groups that include its clients, consultants, suppliers and employees, management currently expects to continue to generate growth in the foreseeable future. N O N ‑ I F R S F I N A N C I A L M E A S U R E S The Company reports non‑IFRS financial measures, including Standardized EBITDA, Adjusted EBITDA, Operating Income before Corporate Costs, Operating Working Capital and Available Operating Working Capital, hereinafter defined, as key measures used by management to evaluate performance of the business, to compensate employees and to facilitate a comparison of quarterly and annual results of ongoing operations. Adjusted EBITDA is also a concept utilized in measuring compliance with debt covenants. The Adjusted EBITDA measure is commonly reported and widely used by investors and lending institutions as an indicator of a company’s operating performance, ability to incur and service debt, and as a valuation metric. While used to assist in evaluating the operating performance and debt servicing ability of the Company, readers are cautioned that Adjusted EBITDA as reported by the Company may not be comparable in all instances to adjusted EBITDA as reported by other companies. The CPA’s Canadian Performance Reporting Board defined EBITDA to foster comparability of the measure between entities (“Standardized EBITDA”). 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 revenue 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 or one‑time 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, integration and reorganization costs which do not relate to the current operating performance of the business but are typically costs incurred to expand operations or improve productivity and efficiency, Retained Economic Interest representing the minority economic interest portion of earnings, and share-based compensation. Acquisition, integration and reorganization costs are comprised of professional fees and other non-recurring incremental costs incurred to secure and complete specific acquisitions, non‑operating outlays associated with integrating acquired operations into the Company’s business model subsequent to completion of an acquisition, and non-recurring outlays including consulting and recruiting fees and severance costs associated with reorganization operations to position the Company for building additional scale and to enhance operating performance. 18 PEOPLE CORPORATIONO 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 ADJUSTED EBITDA The following is a reconciliation of the Company’s Net Income to Standardized EBITDA and Adjusted EBITDA: Net income Add: Depreciation, amortization and impairment losses Finance expenses, net Income taxes, net Standardized EBITDA Add: Acquisition, integration and reorganization costs Share-based compensation Retained Economic Interest Adjusted EBITDA FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 AUG 31, 2015 AUG 31, 2014 $ 1,050.5 $ (425.2) $ 1,394.4 $ 1,540.9 1,364.7 (240.1) (60.2) 787.7 437.8 509.1 3,935.4 2,901.4 1,648.7 877.4 1,642.6 1,185.6 2,114.9 1,309.4 7,855.9 7,270.5 622.3 62.4 (441.3) 40.6 44.7 - 1,528.1 218.7 (441.3) 95.8 175.7 - $ 2,358.3 $ 1,394.7 $ 9,161.4 $ 7,542.0 Adjusted EBITDA for the year ended August 31, 2015 was $9,161.4, an increase of $1,619.4, or 21.5% from $7,542.0 reported for the same period in the prior year. Factors influencing the increase in Adjusted EBITDA include: • Acquired revenue growth of $4,865.2 representing the increase in revenue resulting from the increased contribution to run rates from 2014 and 2015 acquisitions; • Organic revenue growth of $1,852.2 representing the increase in revenue resulting from the addition of new clients from the Company’s existing and expanded benefits consulting team, natural inflationary factors and increased revenue from corporate Shared Services. These factors are partially offset by reduced sales volumes in the Human Resource Solutions division and the effect of a depressed labour market in Alberta on certain premium product lines; • Increased salaries, bonuses and commissions of $2,630.6 primarily attributable to the increased employee count resulting from the acquisition of Coughlin, the expansion of the consulting team through hiring additional sales consultants, and increased commissions resulting from organic growth in sales; • Increased operating costs of $2,026.1 primarily attributable to the acquired operations of Coughlin and organic growth of the Company’s business; and • Retained Economic Interest of Coughlin representing the vendors’ 34% of Coughlin Adjusted EBITDA was $441.3. See ‘Selected Quarterly Financial Information’ for Management’s discussion of quarterly results. 19 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015 OPERATING INCOME BEFORE CORPORATE COSTS The following is a reconciliation of the Company’s Net Income to Operating Income before Corporate Costs: Adjusted EBITDA Add: Corporate costs Operating income before corporate costs FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 AUG 31, 2015 AUG 31, 2014 $ 2,358.3 $ 1,394.7 $ 9,161.4 $ 7,542.0 1,221.9 1,043.1 4,157.3 3,714.3 $ 3,580.2 $ 2,437.8 $ 13,318.7 $ 11,256.3 Corporate costs, which represent expenses incurred at the corporate office, such as executive remuneration, public company compliance costs, insurance and corporate development activities, for the year ended August 31, 2015 were $4,157.3 versus $3,714.3 incurred in the prior year. The increase of $443.0 is due to an increase in professional fees relating to implementing the Company’s new Security Based Compensation Plan and recruiting costs to fill corporate positions, as well as increases in public company costs, office space and office supplies. Those increases are offset by decreases in corporate travel and salaries and wages which are related to acquisition, integration, and reorganization costs during the twelve months ended August 31, 2015 and are grouped accordingly. Corporate Costs for the three months ended August 31, 2015 were $1,221.9 versus $1,043.1 for the same period in the prior year. The increase in Corporate Costs for the period is largely attributable to run-rates on increased salaries and wages as a result of the investment in leadership positions and the associated recruiting costs as well as an increase in professional fees. See ‘Selected Quarterly Financial Information’ for Management’s discussion of quarterly results. S E L E C T E D A N N U A L I N F O R M AT I O N AUG 31, 2015 AUG 31, 2014 AUG 31, 2013 Revenue $ 49,293.3 $ 42,575.9 $ 32,892.2 Net income and comprehensive income Earnings per share (basic) Earnings per share (diluted) Total assets $ $ $ 1,394.4 $ 1,540.9 0.034 0.033 $ $ 0.043 0.041 $ $ $ 260.1 0.008 0.008 $ 114,597.3 $ 56,109.4 $ 53,736.3 Total non‑current financial liabilities $ 58,130.9 $ 18,969.6 $ 27,328.8 See ‘Revenue’ for Management’s discussion of results. Net income for the year ended August 31, 2015 was $1,394.4, a decrease of $146.5 from fiscal 2014 and an increase of $1,134.3 from fiscal 2013. Net income and comprehensive income has decreased as compared to the prior year as a result of acquisition-related amortization of intangible assets and an increase in acquisition, integration and reorganization costs primarily related to the magnitude of the 2015 acquisition; partially offset by increased adjusted EBITDA. Earnings per share is primarily affected by the change in net income, as well as by an increase in the number of outstanding shares from private placements to fund acquisition growth and exercise of stock options. 20 PEOPLE CORPORATIONTotal assets at August 31, 2015 were $114,597.3, an increase of $58,487.9 and $60,861.0 from August 31, 2014 and 2013, respectively. The increase can primarily be attributed to additions to intangible assets, goodwill and working capital through acquisition. Total non‑current financial liabilities at August 31, 2015 were $58,130.9, an increase of $39,161.3 and $30,802.1 from August 31, 2014 and 2013, respectively. Non‑current financial liabilities have increased due to increases in non‑controlling interest put options, vendor-take-back loans, loans and borrowings and deferred taxes in connection with acquisition activity in 2014 and 2015. REVENUE Revenue from the Consulting Solutions division is primarily comprised of commissions from insurance carriers. In addition, the Company earns fees from pension assets under administration which are paid by the carrier who administers and invests the funds. 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 the Group Benefit Solutions division is primarily from fees earned for third party administration services. Revenue from the Shared Services division is primarily earned through commissions which are paid by the insurance carriers and fees earned from pension assets under administration which are paid by the carrier who administers and invests the funds. The Human Resource Solutions revenue is primarily earned from hourly or fixed fees for consulting services and as a percentage of compensation for recruiting services. FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 49,293.3 $ 42,575.9 $ 6,717.4 15.8% For the year ended August 31, 2015, the Company experienced revenue growth of $6,717 or 15.8%. The Company recognized acquired growth of $4,865.2 (11.4%) representing the increase in revenue resulting from the increased contribution to run rates from 2014 and 2015 acquisitions and organic growth of $1,852.2 (4.4%). Organic growth is primarily comprised of the increase in commission revenue resulting from the addition of new clients from the Company’s existing and expanded benefits consulting team, natural inflationary factors and increased revenue from corporate Shared Services. This is partially offset by reduced fees and other revenue from reduced sales volumes in the Human Resource Solutions division, as well the effect of a depressed labour market in Alberta on certain premium product lines. PERSONNEL AND COMPENSATION EXPENSES The largest operating expense of the Company is compensation and related costs which includes salaries, bonuses and commissions, stock-based compensation, group benefits, and payroll taxes. FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 29,132.6 $ 26,502.0 $ 2,630.6 9.9% For the year ended August 31, 2015, personnel and compensation costs represent 59.1% of revenues (2014 ‑ 62.2%). The Company believes that investment in its employees and associate consultant networks is key to ensuring successful execution of its strategic plans. 21 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015The increase in salaries, bonuses and commissions for the year ended August 31, 2015 of $2,630.6 from $26,502.0 to $29,132.6 is primarily attributable to the increased employee count resulting from the acquisition of Coughlin during the fiscal year. Other factors include the expansion of the consulting team through hiring additional sales consultants in a number of markets in order to expand organic growth opportunities, and increased commissions resulting from organic growth in sales, which is reflective of the variable relationship between revenue and commissions. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses include expenses relating to travel, office supplies, telephone and internet, computer costs, professional fees, advertising, business development and other less significant categories. FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 7,438.7 $ 4,532.0 $ 2,906.7 64.1% General and administrative expenses have increased by $2,906.7 for the year ended August 31, 2015 primarily due to incremental costs incurred to support the ongoing growth strategy of the Company, specifically: • An increase in acquisition, integration and restructuring costs of $1,432.3 primarily comprised of costs related to the acquisition of Coughlin, other acquisition activity, and reorganizing certain aspects of its organizational structure during the year to position the Company positively for the future; and, • An increase of $1,474.4 resulting from a higher general and administrative run-rate due to the Coughlin acquisition in the fourth quarter of the year, an increase in one-time professional fees primarily due to recruiting costs incurred to support the investments in leadership and benefit consulting positions and accounting and legal costs incurred to execute certain strategic initiatives, including the Company’s new long-term incentive plan. DEPRECIATION, AMORTIZATION AND IMPAIRMENT LOSSES Depreciation is recognized 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. 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. Depreciation, amortization and impairment losses are comprised of the following: FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 3,935.4 $ 2,901.4 $ 1,034.0 35.6% Depreciation and amortization expense increased by $1,034.0 for the year ended August 31, 2015 primarily due to significant additions to intangible assets. Depreciation expense on property, plant and equipment increased by $380.4 due to additions to leasehold improvements and furniture and fixtures pertaining to increased leased space and additional employees. 22 PEOPLE CORPORATIONAmortization expense and impairment losses on customer relationships, customer contracts and software increased by $653.6 primarily due to additions of customer relationships resulting from the acquisition of Coughlin and an increased investment in software development for the TPA platform. There were no impairment losses recognized during the year. OCCUPANCY COSTS Occupancy costs are composed of the following: FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 2,447.4 $ 2,156.2 $ 291.2 13.5% Occupancy costs increased by $291.2 for the year ended August 31, 2015 primarily due to incremental lease costs associated with the acquisition of Coughlin during the year as well as increased lease space and increased rates on renewal of lease agreements. ADMINISTRATION FEES Administration fees represent amounts paid by the company to third party claims adjudicators for services provided on behalf of the Company to certain of its clients on its TPA platform. Administration fees are composed of the following: FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 2,080.6 $ 1,845.3 $ 235.3 12.8% Administration fees increased by $235.3 for the year ended August 31, 2015 due to an increase claims processing fees. The increase in claims processing fees is volume driven and is a direct result from the increase in TPA revenue in Group Benefit Solutions. FINANCE COSTS Finance costs, net of interest income, are comprised of the following: FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 1,648.7 $ 1,642.6 $ 6.1 0.4% Finance expenses increased by $6.1 for the year ended August 31, 2015. The change is primarily due to a net increase in interest and other finance costs of $122.4 offset by a decrease of $116.3 in accretion expense and fair value adjustments to contingent consideration and the non-controlling interest put obligation. PUBLIC COMPANY COSTS Public Company costs are composed of the following: FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE $ 338.1 $ 270.0 $ 68.1 25.2% 23 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015Public company costs have increased by $68.1 for the year ended August 31, 2015. The increase can be attributed to higher TSX‑V filing costs due to higher average share price, increased directors’ fees with the addition of a director and increases in Director and Officer insurance costs. S E L E C T E D Q U A R T E R LY I N F O R M AT I O N The selected financial information provided below is derived from the Company’s unaudited quarterly financial statements for each of the last eight quarters: 2015 2014 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Revenue $ 15,767.2 $ 10,487.6 $ 11,974.9 $ 11,063.6 $ 10,008.4 $ 11,577.0 $ 11,216.8 $ 9,773.7 Operating & corporate expenses Adjusted EBITDA Finance expenses (13,408.9) (8,345.1) (9,513.9) (8,864.2) (8,613.6) (9,612.2) (8,884.5) (7,923.4) 2,358.3 2,142.5 2,461.0 2,199.4 1,394.8 1,964.8 2,332.3 1,850.3 240.1 (631.4) (584.2) (673.2) (437.8) (466.3) (283.3) (455.3) Depreciation and amortization (1,364.7) (903.9) (821.6) (845.1) (787.7) (801.8) (664.1) (619.2) Write down of capital assets Share-based compensation Retained Economic Interest - (62.4) 441.3 - - - - (70.2) (40.3) (45.7) (44.7) - - - - (28.5) (50.6) - - - (40.2) (40.3) - - Income tax expense, net 60.2 (317.6) (352.6) (267.3) (509.1) (455.1) 80.2 (301.6) Acquisition, integration and reorganization costs Net income Total assets (622.3) (570.5) (275.3) (60.0) (40.6) (19.6) - (35.5) 1,050.5 (351.1) 387.0 308.1 (425.1) 142.9 1,424.9 398.4 114,597.3 69,808.2 57,440.7 57,838.5 56,109.4 63,356.5 52,838.0 53,349.0 Total loans and borrowings 25,409.6 9,773.5 9,986.8 10,637.0 9,660.4 16,847.5 17,688.2 18,740.1 Total other liabilities Shareholders’ equity 45,108.3 19,748.9 20,495.9 20,689.1 20,427.0 20,108.4 18,937.4 19,958.6 44,079.4 40,285.8 26,958.1 26,512.5 26,021.9 26,400.6 16,212.4 14,650.4 Adjusted EBITDA per share 0.053 0.052 Earnings per share (basic) 0.023 (0.009) Earnings per share (diluted) 0.023 (0.009) 0.062 0.010 0.009 0.055 0.039 0.008 (0.012) 0.008 (0.012) 0.054 0.004 0.004 0.070 0.028 0.043 0.012 0.040 0.011 Adjusted EBITDA for the fourth quarter of fiscal 2015 was $2,358.3, representing an increase of $963.6 or 69.1%, as compared to the same period in fiscal 2014. The growth in Adjusted EBITDA for the three month period was comprised of: • Acquired revenue growth of $4,292.2; • Organic revenue growth of $1,466.6; offset by, • Increased salaries, bonuses and commissions of $3,104.4 primarily attributable to the acquired employee count, the expansion of the consulting team, and increased commissions resulting from organic growth in sales; and • Increased operating costs of $1,249.6 primarily attributable to the acquired operations of Coughlin and organic growth of the Company’s business. • Retained Economic Interest of Coughlin representing the vendors’ 34% of Coughlin Adjusted EBITDA was $441.3. 24 PEOPLE CORPORATIONThe Company can experience fluctuations in timing of revenue between quarters and, as a result, Adjusted EBITDA as a percentage of revenue is less meaningful on a quarterly basis. Finance expenses for the fourth quarter of fiscal 2015 was ($240.1), representing a decrease of $677.9 or 154.8%, as compared to the same period in fiscal 2014. The decrease in finance costs for the three month period was primarily due to a reduction to the fair value of the H+P non‑controlling put liability resulting from difficult economic conditions in western Canada resulting from depressed oil and gas markets offset by higher interest on long-term debt resulting from an increase to the credit facility to fund the Coughlin acquisition. Depreciation and amortization for the fourth quarter of fiscal 2015 was $1,364.7, representing an increase of $577.1 or 73.3%, as compared to the same period in fiscal 2014, primarily due to increased amortization of customer lists acquired related to the Coughlin acquisition. Retained Economic Interest of Coughlin representing the vendors’ 34% of Coughlin Adjusted EBITDA was $441.3. 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 Liquidity ensures the Company has sufficient financial resources available at all times to meet its obligations. This involves effectively managing assets and liabilities while maintaining an optimal capital structure. The Company manages this risk by ensuring it has adequate cash and access to credit to meet its obligations in the most cost-effective manner possible. Cash flow from operations, together with cash on hand and unutilized credit available on existing credit facilities are expected to be sufficient to meet operating and capital expenditure requirements. The Company also continues to actively investigate acquisition and other growth opportunities. The Company expects to finance future acquisitions from a combination of available cash, unutilized credit available on existing credit facilities, vendor financing, expanded credit facilities, issuance of equity as part of the consideration and equity proceeds from treasury issuance. CONTRACTUAL OBLIGATIONS The following table summarizes, as at August 31, 2015, the Company’s contractual obligation for the periods specified. OBLIGATION PAYMENTS DUE BY PERIOD LESS THAN 1 YEAR TOTAL 1 – 3 YEARS 4 – 5 YEARS THERE- AFTER Accounts payable and accrued liabilities $ 4,962.9 $ 4,962.9 $ ‑ $ ‑ $ Operating lease obligations 6,042.9 1,815.8 3,021.9 1,205.2 Obligations under finance leases 3.9 3.9 - - ‑ - - Vendor-take-back loans 3,305.0 2,005.0 400.0 300.0 600.0 Term loans Acquisition line 6,580.0 665.0 805.0 5,110.0 15,775.0 - 15,775.0 - - - $ 36,669.7 $ 9,452.6 $ 20,001.9 $ 6,615.2 $ 600.0 Management believes that operations will generate sufficient cash flows to fund ongoing operations and finance its seasonal working capital needs. 25 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015CASH FLOWS The following table summarizes the Company’s cash flows for the year ended August 31, 2015: FOR THE YEAR ENDED AUG 31, 2015 AUG 31, 2014 $ VARIANCE % VARIANCE Net income for the period $ 1,394.4 $ 1,540.9 $ (146.5) (9.5)% Add non-cash items, net 4,351.5 844.7 3,506.8 415.2% Changes in non-cash working capital (2,391.6) (1,222.6) (1,169.0) 95.6% Net cash from operating activities 3,354.3 3,558.6 (204.3) (5.7)% Net cash from (used by) investing activities Net cash from (used by) financing activities (27,676.2) (3,027.8) (24,648.4) 814.1% 28,086.2 (229.5) 28,315.7 (12,338.0)% Net increase in cash $ 3,764.3 $ 301.3 $ 3,463.0 1,149.4% Cash generated from operating activities for the year ended August 31, 2015 was $3,354.3, a decrease of $204.3 or 5.7% from the $3,558.6 of cash generated in the same period in the prior year. Significant influences of cash inflows and outflows related to operating activities for the year ended August 31, 2015 versus the same period in the prior year include: • Decrease in cash resulting from changes in working capital accounts of $1,169.0 including the effect of accounts receivable, accounts and other payables, income taxes payable, and deferred revenue. A portion of the change in working capital is a result of working capital acquired through 2015 acquisitions. Change in deferred revenue of $912.7 is the result of timing differences between when funds are received and when revenue is recognized and services are provided to customers. Change in income taxes payable of $886.3 is attributable to a decrease in income tax expense. The remainder of the changes in working capital accounts are a result of increases in trade and accrued receivables and an increase in trade payables. • Increase in Adjusted EBITDA of $1,619.4, 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. Cash used by investing activities for the year ended August 31, 2015 of $27,676.2 was used to fund the acquisition of Coughlin & Associates and additions to property and equipment and software. Direct costs were also incurred relates to the acquisition of customer relationships and the acquisition of customer contracts with fixed terms. Cash generated from financing activities for the year ended August 31, 2015, was $28,086.2, as compared to cash used of $229.5 in the prior year. Cash inflows related to proceeds from the issue of a new term loan of $7,000.0 (2014 ‑ nil), drawdown of the acquisition line of $15,775.0 (2014 ‑ nil) to fund current year acquisitions, net proceeds from the private placement of shares of $13,511.2 (2014 ‑ $9,573.4) and proceeds from the exercise of stock options of $200.0 (2014 ‑ $555.3) were partially offset by outflows related to repayment of long‑term debt and finance lease liabilities of $8,400.0 (2014 ‑ $11,258.2). 26 PEOPLE CORPORATIONCAPITAL 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 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 make use of its operating line of credit during the year. WORKING CAPITAL The Company’s working capital (defined as current assets less current liabilities) at August 31, 2015 is set forth in the table below. The Company defines Available Operating Working Capital as current assets less current liabilities, with an exclusion of certain current liabilities from such calculation. The current liabilities excluded are comprised of: 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 have 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. 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 year. 27 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015The table below reconciles the differences in the calculation of working capital and Available Operating Working Capital. Current assets Less: Current liabilities Working capital Add back: Deferred revenue Operating working capital Add back: AUG 31, 2015 AUG 31, 2014 $ 15,203.4 $ 6,700.1 12,387.0 11,117.9 2,816.4 (4,417.8) 4,951.7 4,059.7 7,768.1 (358.1) Current portion of loans and borrowings related to acquisitions 2,468.5 3,056.5 Available Operating Working Capital $ 10,236.6 $ 2,698.4 Available Operating Working Capital has increased by $7,538.2 to a surplus of $10,236.6 compared to the available working capital surplus of $2,698.4 at August 31, 2014. The increase in Available Operating Working Capital is due to an increase in cash and accounts receivable as a result of Coughlin working capital acquired and timing of cash received pertaining to renewals late in the fiscal year. The current portion of acquisition related loans and borrowings decreased by $588.0 to a balance of $2,468.5 due to revised repayment terms under the Company’s new credit facility. Current assets increased by $8,503.3 to a balance of $15,203.4 largely due to incremental increases in cash balances, accounts receivable and other assets resulting from the acquisition of Coughlin & Associates. The Company maintains a revolving operating line of credit of $5,000.0 to facilitate management of short‑term working capital requirements. As at August 31, 2015, the Company had not utilized this facility. CREDIT FACILITIES Effective October 31, 2014, the Company entered into a Senior Credit Facility Agreement with Canadian Imperial Bank of Commerce (“CIBC”) as lead lender of a syndicated loan facility. The credit facility includes the following components: • Operating revolver totalling $5,000.0 to fund operating cash flow needs; • Term Loan totaling $7,000.0 used to refinance the outstanding balance of the acquisition facility under the previous credit agreement; and, • Acquisition Revolver totalling $23,000.0 used to fund future acquisitions. The agreement also has an Accordion Feature, which provides for an option, subject to the satisfaction of certain terms and conditions, to increase the Acquisition Revolver by up to $15,000.0 of additional capacity. This would result in an increase in the size of the Acquisition Revolver of up to $38,000.0 and overall credit capacity of up to $50,000.0. 28 PEOPLE CORPORATIONThe facility matures on October 31, 2017, and the Company has the option to extend it to October 31, 2019. The Term Loan requires quarterly principal repayments of $140.0 per quarter for the first year, $175.0 per quarter in the second year and $210.0 per quarter in the third year, with the balance due at maturity. The Operating Revolver and Acquisition Revolver do not have scheduled principal repayments prior to maturity. The loans bear interest at a floating rate based on prime or banker’s acceptances plus a credit margin based on the Company’s quarterly leverage ratio. The facility is secured by a general security agreement over the assets of the Company and its subsidiaries and is subject to both financial and non‑financial covenants, including maximum total leverage and senior leverage ratios and minimum fixed charge coverage ratios. The new facility replaces the Company’s previous credit facility that was entered into in 2011 and subsequently amended. At August 31, 2015, the Company had a balance of $6,580.0 outstanding on the $7,000.0 drawn on the Term Loan, $15,775.0 outstanding on the Acquisition Revolver and was compliant with all financial covenants. At August 31, 2015, the Company had unutilized and available credit of $12,225.0, including $5,000.0 on the Operating Revolver and $7,225.0 to fund acquisitions on the Acquisition Revolver. SHARE CAPITAL The Company has authorized share capital of an unlimited number of common voting shares. The Company’s outstanding securities are comprised of: Common shares issued and outstanding Stock options outstanding CONTINGENCIES AUG 31, 2015 AUG 31, 2014 44,958,383 39,551,486 1,107,679 1,566,667 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. 29 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015R I S K F A C T O R 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, including, but not limited to, those involved in benefits plan design and administration, benefits legislative and regulatory issues, group retirement plan design and specialized human resource consulting, recruitment and career management. 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 a number of key personnel, client relationships could be negatively impacted, which could lead to material adverse effects on the Company’s operating and financial results. The Company currently has many experienced employees who hold senior positions in the Company, who have various professional designations and who have developed deep and trusted relationships with clients. While the Company provides a competitive compensation structure for its employees, including an employee share purchase plan and a security based compensation plan and has comprehensive employment agreements in place with its employees to protect the Company, the loss of a number of key personnel 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. CLIENT RELATIONSHIPS Group insurance contracts are generally renegotiated 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 upon 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 2.5% of the Company’s revenue and the clients are diversified both in size and industry. INSURANCE COMPANY RELATIONSHIPS In certain cases, the Company acts as advisor to end-user employers to broker group insurance products with insurance companies. There can be no assurance that the Company will be able to maintain its existing relationships with these insurance companies which could have a material adverse effect on the Company’s business, financial condition and operating results. In addition, during the renewal process the benefits consulting team will provide benefits planning and consulting services based on the availability of insurance products and pricing of such products, which could result in decreased benefits coverage and/or decreased premiums which generally would result in decreased revenue for the Company. 30 PEOPLE CORPORATIONREGULATION AND CERTIFICATION The Company’s employee benefits and group retirement 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. The rules and regulations governing income and commodity taxes are complex and wide ranging, and the calculations of income taxes and applicability of commodity taxes requires judgment in interpreting tax rules and regulations. The Company’s tax filings are subject to government audits that could result in material changes to the amount of current or future income taxes or related costs. Any changes to laws, rules, regulations or policies could have a material adverse effect on the Company’s business, financial condition and operating results. TECHNOLOGY AND INFORMATION SECURITY The Company is reliant on computerized operational and reporting systems. The Company makes reasonable efforts to ensure that back-up systems and redundancies are in place and functioning appropriately and maintains a disaster recovery plan to protect against significant system failures. Whereas a computer system failure would not be expected to critically damage the Company in the long term, there can be no assurance that a computer system crash or like event would not have a material impact on its financial results. Information security risks have increased in recent years due, in part, to the proliferation, sophistication and constant evolution of new technologies used by hackers and external parties. The Company’s technologies, systems and networks and third parties providing services to the Company, may be subject to attacks, breaches or other compromises. In the event of such an occurrence, the Company may experience, among other things, financial loss, a loss of customer or business opportunities, disruption to operations, misappropriation or unauthorized release of confidential, financial or personal information, litigation, regulatory penalties or intervention, remediation, investigation or restoration cost, and reputational damage. ACCESS TO CAPITAL The Company relies principally on bank debt, vendor‑take‑back debt financing and issuance of common shares 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. While the Company has been successful in the past, there is no assurance that capital will be available under terms that are satisfactory to the Company. 31 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015Pursuant to its articles of incorporation, the Company is authorized to issue an unlimited number of Common Shares for consideration and on such terms as are established by the Board of Directors without the approval of any shareholders. Any further issuance of Common Shares may dilute the interests of existing shareholders. If additional capital 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 strategic growth plans. In addition, certain of the Company’s creditors who have security interests in the Company’s assets, may decide to exercise their rights to acquire or dispose of the Company’s assets. FUTURE GROWTH VIA ACQUISITIONS The Company’s growth and expansion plans contain a dual approach of generating organic growth by increasing its existing business by gaining new clients and increasing product and service penetration with existing clients, as well as through transactions in which the Company acquires new operating entities or subsidiaries. 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 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. INTEGRATION OF FUTURE 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 may be unable to successfully integrate businesses that 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 Company, there may be liabilities and contingencies related to the acquired entity that the Company failed to discover or was unable to quantify in its due diligence 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. INTEREST RATE Advances under the Company’s credit facilities bear interest at variable rates. The Company may incur further indebtedness in the future that also bears interest at variable rates or it 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 adversely affect the Company’s cash flows. 32 PEOPLE CORPORATIONLEGAL 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. CANADIAN ECONOMY AND COMPETITIVE CONDITIONS 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. In particular, the Company is exposed to difficult economic conditions in western Canada resulting from depressed oil and gas markets. There is no assurance that the Company will have sufficient financial resources to withstand a prolonged and deep recession. 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. BRAND AND REPUTATION The Company is dependent, to a large extent, on its client relationships and its reputation with clients. Damage to the Company’s brand or reputation could result in the loss of client relationships, which could result in a material adverse effect on the Company’s business, financial condition and operating results. There can be no assurance that future incidents will not negatively affect the Company’s brand or reputation. INTERNAL CONTROL 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) as defined by National Instrument 52‑109, 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 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation. 33 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015C 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. Management is required in preparing the Company’s financial statements, in accordance with IFRS, to make certain estimates, judgments and assumptions that it believes 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. 34 PEOPLE CORPORATIONAll 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. 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. 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. 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. DEFERRED TAX 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 35 MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE QUARTER AND YEAR ENDED AUGUST 31, 2015been 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. S E A S O N A L I T Y As the Company continues to grow through acquisitions, the revenue trends from quarter to quarter may change depending on the relative significance of acquisitions in a fiscal year and the seasonal variances of the client renewals of those particular acquisitions. As the company continues to grow both organically and through acquisitions the revenue and Adjusted EBITDA trends from quarter to quarter within a fiscal may continue to vary, however the annual revenue trends will increasingly be more representative of the Company’s annual revenue run rate as the company achieves increasing scale. 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 outlined below, the Company does not have any off-balance sheet arrangements. Concurrent with the acquisition of Coughlin, the Company assumed the role of sponsor of certain individual pension plans (“IPP”) which had been established prior to the date of acquisition. While the IPPs are ongoing, the Company’s obligation to make contributions towards any funding deficiency required by pension legislation is indemnified by the beneficiaries of the respective IPP. Conversely, any funding surpluses are payable to the beneficiaries of the respective IPP. As a result, the Company has no net exposure to unfunded or overfunded IPPs. 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, non-controlling interest put options 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. 36 PEOPLE CORPORATIONC 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 5 & 2 0 1 4 (Expressed in Canadian Dollars) INDEPENDENT AUDITOR’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION . . . . . . . . . . . . . . . . . . . 39 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME . . . . . . . . . . . . . . . 40 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY . . . . . . . . . . . . . . . . . . . . 41 CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 43 37 CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED AUGUST 31, 2015 & 2014INDEPENDENT AUDITORS’ REPORT To the Shareholders of People Corporation: INDEPENDENT AUDITORS’ REPORT 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, 2015 and 2014, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated To the Shareholders of People Corporation: statements of cash flows for the years ended August 31, 2015 and 2014, and a summary of significant accounting policies and other explanatory information. 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, 2015 and 2014, and the Management’s Responsibility for Consolidated Financial Statements consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended August 31, 2015 and 2014, and a summary of significant accounting Management is responsible for the preparation and fair presentation of these consolidated financial statements in policies and other explanatory information. accordance with International Financial Reporting Standards, and for such internal control as management determines necessary to enable the preparation of consolidated financial statements that are free from material Management’s Responsibility for Consolidated Financial Statements misstatement, whether due to fraud or error. Management is responsible for the preparation and fair presentation of these consolidated financial statements in Auditors’ Responsibility accordance with International Financial Reporting Standards, and for such internal control as management determines necessary to enable the preparation of consolidated financial statements that are free from material Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We misstatement, whether due to fraud or error. conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance whether Auditors’ Responsibility the consolidated financial statements are free from material misstatement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require judgment, including the consolidated financial statements. The procedures selected depend on the auditors’ that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance whether assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or the consolidated financial statements are free from material misstatement. error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the control. An audit also includes evaluation of the appropriateness of accounting policies used and the reasonableness assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and financial statements. fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit control. An audit also includes evaluation of the appropriateness of accounting policies used and the reasonableness opinion. of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Opinion We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of opinion. People Corporation and its subsidiaries as at August 31, 2015 and 2014 and their financial performance and their cash flows for the years ended August 31, 2015 and 2014 in accordance with International Financial Reporting Opinion Standards. 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, 2015 and 2014 and their financial performance and their cash flows for the years ended August 31, 2015 and 2014 in accordance with International Financial Reporting Standards. Toronto, Ontario December 10, 2015 Chartered Professional Accountants Licensed Public Accountants Toronto, Ontario December 10, 2015 Chartered Professional Accountants Licensed Public Accountants 38 SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G4 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G4 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca PEOPLE CORPORATION INDEPENDENT AUDITORS’ REPORT To the Shareholders of People Corporation: INDEPENDENT AUDITORS’ REPORT 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, 2015 and 2014, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated To the Shareholders of People Corporation: statements of cash flows for the years ended August 31, 2015 and 2014, and a summary of significant accounting policies and other explanatory information. 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, 2015 and 2014, and the Management’s Responsibility for Consolidated Financial Statements consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended August 31, 2015 and 2014, and a summary of significant accounting Management is responsible for the preparation and fair presentation of these consolidated financial statements in policies and other explanatory information. accordance with International Financial Reporting Standards, and for such internal control as management determines necessary to enable the preparation of consolidated financial statements that are free from material Management’s Responsibility for Consolidated Financial Statements misstatement, whether due to fraud or error. Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management Auditors’ Responsibility determines necessary to enable the preparation of consolidated financial statements that are free from material Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We misstatement, whether due to fraud or error. conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance whether Auditors’ Responsibility the consolidated financial statements are free from material misstatement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require consolidated financial statements. The procedures selected depend on the auditors’ that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance whether assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or the consolidated financial statements are free from material misstatement. error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and judgment, including the fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal consolidated financial statements. The procedures selected depend on the auditors’ control. An audit also includes evaluation of the appropriateness of accounting policies used and the reasonableness assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and judgment, including the fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit control. An audit also includes evaluation of the appropriateness of accounting policies used and the reasonableness financial statements. of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit 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, 2015 and 2014 and their financial performance and their cash flows for the years ended August 31, 2015 and 2014 in accordance with International Financial Reporting 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, 2015 and 2014 and their financial performance and their cash flows for the years ended August 31, 2015 and 2014 in accordance with International Financial Reporting financial statements. Opinion opinion. Opinion Standards. Standards. Toronto, Ontario December 10, 2015 Toronto, Ontario December 10, 2015 Chartered Professional Accountants Licensed Public Accountants Chartered Professional Accountants Licensed Public Accountants PEOPLE CORPORATION Consolidated Statements of Financial Position As at August 31, 2015 and August 31, 2014 Assets Current assets: Cash and cash equivalents Trade and other receivables Income taxes receivable 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 Total liabilities and shareholders’ equity Commitments and contingencies (Note 19) Subsequent Events (Note 24) ON BEHALF OF THE BOARD OF DIRECTORS NOTE AUG 31, 2015 AUG 31, 2014 5 13 6 7 13 8 9 13 12 8 9 11 12 13 14 $ 6,514,734 $ 2,750,465 7,199,276 3,423,216 610,065 879,282 15,203,357 1,582,820 97,087,692 723,477 - 526,444 6,700,125 1,173,248 47,740,023 496,031 99,393,989 49,409,302 $ 114,597,346 $ 56,109,427 $ 4,962,924 $ 3,700,928 4,951,681 - 2,472,433 12,387,038 1,666,656 89,303 22,649,069 22,937,216 10,788,674 70,517,956 4,059,744 276,275 3,080,922 11,117,869 1,093,781 68,536 6,661,351 6,579,527 4,566,433 30,087,497 39,029,883 22,465,334 736,584 4,312,923 638,090 2,918,506 44,079,390 26,021,930 $ 114,597,346 $ 56,109,427 SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G4 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G4 1.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca /s/ “Scott Anderson” __________________________________ Director, Chair of the Audit Committee /s/ “Laurie Goldberg” ________________________________ Director, Chief Executive Officer The notes on pages 43 to 74 are an integral part of these consolidated financial statements. 39 PEOPLE CORPORATION Consolidated Statements of Comprehensive Income For the years ended August 31, 2015 and August 31, 2014 Revenue Operating expenses Depreciation, amortization and impairment losses Finance expenses Acquisition, integration and reorganization costs Income before income taxes Income tax expense: Current Deferred Net income Earnings per share Basic Diluted NOTE YEAR ENDED AUG 31, 2015 YEAR ENDED AUG 31, 2014 23 6,7 16 23 23 13 13 14(c) $ 49,293,254 $ 42,575,935 39,909,260 35,209,587 3,935,352 1,648,690 1,528,133 47,021,435 2,271,819 1,452,849 (575,447) 877,402 2,901,427 1,642,637 95,799 39,849,450 2,726,485 1,894,600 (708,976) 1,185,624 $ 1,394,417 $ 1,540,861 $ $ 0.034 0.033 $ $ 0.043 0.041 40 The notes on pages 43 to 74 are an integral part of these consolidated financial statements. PEOPLE CORPORATION Consolidated Statements of Changes in Equity For the years ended August 31, 2015 and August 31, 2014 Balance, August 31, 2013 Net income (loss) and comprehensive net income (loss) for the year Issuance of common shares Exercise of stock options Share-based payments NOTE SHARE CAPITAL CONTRIBUTED SURPLUS RETAINED EARNINGS TOTAL $ 12,024,732 $ 774,245 $ 1,377,645 $ 14,176,622 - 9,573,447 - - 867,155 (311,888) - 175,733 14(b) 14(b) 15(b) 1,540,861 1,540,861 - - - 9,573,447 555,267 175,733 10,440,602 (136,155) 1,540,861 11,845,308 Balance, August 31, 2014 $ 22,465,334 $ 638,090 $ 2,918,506 $ 26,021,930 Balance, August 31, 2014 Net income (loss) and comprehensive net income (loss) for the year Issuance of common shares Acquisition-related Issuance of shares Exercise of stock options Share-based payments Total transactions with shareholders NOTE SHARE CAPITAL CONTRIBUTED SURPLUS RETAINED EARNINGS TOTAL $ 22,465,334 $ 638,090 $ 2,918,506 $ 26,021,930 14(b) 14(b) 14(b) 15(b) 13,744,339 2,500,000 - - 320,210 (120,195) - 16,564,549 218,689 98,494 1,394,417 1,394,417 - - - - 13,744,339 2,500,000 200,015 218,689 1,394,417 18,057,460 Balance, August 31, 2015 $ 39,029,883 $ 736,584 $ 4,312,923 $ 44,079,390 The notes on pages 43 to 74 are an integral part of these consolidated financial statements. 41 PEOPLE CORPORATION Consolidated Statements of Cash Flows For the years ended August 31, 2015 and August 31, 2014 Operating activities Net income for the year Adjustments for: Depreciation Amortization of intangible assets Share-based compensation Change in estimated fair value of non-controlling interest put option Accretive interest expense Loss from disposal or write down of intangible assets Deferred tax expense (recovery) Net cash from operations Change in the following: Trade and other receivables Commission advances Other current assets Trade payables, accrued and other liabilities Deferred revenue Income tax payable Net cash from (used by) working capital items Net cash from operating activities Investing activities NOTE YEAR ENDED AUG 31, 2015 YEAR ENDED AUG 31, 2014 $ 1,394,417 $ 1,540,861 6 7 15(b) 16 16 7 736,019 3,199,333 218,689 468,618 304,299 - (575,447) 5,745,928 355,180 2,523,927 175,733 488,466 400,444 22,320 (725,735) 4,781,196 (1,043,778) (476,748) (36,848) (120,403) (694,071) 209,872 (706,419) - (138,061) (992,909) 246,633 138,478 (2,391,647) (1,222,607) 3,354,281 3,558,589 Acquisition of subsidiary, net of cash and cash equivalents acquired (26,214,652) (746,044) 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 Proceeds from private placement of shares, net Net cash from (used) in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year (734,273) (727,278) (1,118,488) (1,163,308) (27,676,203) (3,027,840) 200,015 22,775,000 555,267 900,000 (8,400,009) (11,258,167) 13,511,185 28,086,191 3,764,269 2,750,465 9,573,447 (229,453) 301,296 2,449,169 Cash and cash equivalents at the end of the year $ 6,514,734 $ 2,750,465 42 The notes on pages 43 to 74 are an integral part of these consolidated financial statements. PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 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. These consolidated financial statements were approved by the Board of Directors and authorized for issue on December 10, 2015. 2. BASIS OF PRESENTATION: (a) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). (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 • share-based compensation 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 functional currency of the Company and its subsidiaries. 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 judgments, 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 revenue and expenses during the reporting period. Actual results may differ from these estimates. 43 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 The preparation of these consolidated financial statements requires management 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. 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. 44 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 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. (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 revenue 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. 45 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 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, trade payables, and 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 Automobiles Diminishing balance 30% 46 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 Depreciation methods, useful lives and residual values are reviewed at each financial year‑end and adjusted if appropriate. (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. (iii) Computer software and software licenses Computer software and software licenses are measured on initial recognition at cost. Following initial recognition, computer software and software licenses are carried at cost less any accumulated amortization and any accumulated impairment losses. Computer software is amortized on a straight-line basis over four years and software licenses are amortized over the shorter of the useful life of the license or the term of the license. (e) 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. 47 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 (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. 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. (f) 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. 48 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 (g) Deferred revenue Deferred revenue represents the excess of retainer amounts billed over costs incurred and revenue earned on service contracts. (h) 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. (i) 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. (ii) Share‑based payment transactions Share-based payments are comprised of equity-settled Employee Share Purchase Plan, equity-settled stock options, equity-settled performance-conditioned Restricted Stock Units and equity-settled Deferred Stock Units (collectively, “Equity-settled Awards”). Equity-settled Awards granted to employees and directors of the Company are measured at the fair value of the equity instruments at the grant date. The grant date fair value of Equity-settled Awards are granted to employees as a personnel expense, with a corresponding increase in equity, over the period that the Awards vest. The amount recognized as an expense is adjusted to reflect the number of Equity-settled 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 Equity-settled Awards that do meet the related service and non-market performance conditions at the vesting date. For Equity-settled 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 Purchase Plan are expensed as incurred. Equity-settled Awards 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 counterparty renders the service. 49 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 (j) 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 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 is 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 is 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. (k) 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. (l) 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. 50 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 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. (m) 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. 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. (n) 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 by IASB but are not yet effective: IFRS 9, Financial Instruments (“IFRS 9”) The IASB issued IFRS 9 as 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. The effective date is for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact of adopting IFRS 9 on its financial statements and the extent of the impact of adoption of the standard has not yet been determined. 51 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) The IASB issued IFRS 15 to establish principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. It provides a single model in order to depict the transfer of promised goods or services to customers. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. IFRS 15 also includes a cohesive set of disclosure requirements that would result in an entity providing comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. This standard is effective for annual periods beginning on or after January 1, 2018 with earlier adoption permitted. The Company is currently evaluating the impact of adopting IFRS 15 on its financial statements and the extent of the impact of adoption of the standard has not yet been determined. (o) Changes in accounting policies: The Company has adopted the following revised standards on a prospective basis, along with any consequential amendments, effective September 1, 2014. These changes were made in accordance with the applicable transitional provisions. IAS 1 Presentation of Financial Statements (“IAS 1”) The IASB issued amendments to IAS 1. The amendments are part of the IASB’s Disclosure Initiative to improve presentation and disclosure requirements and to ensure entities are able to use judgment when preparing their financial statements. The amendments may impact presentation relating to materiality, presentation of financial position and profit or loss and other comprehensive income, and notes to the financial statements. These amendments are effective for annual periods beginning on or after January 1, 2016 and earlier application is permitted. The Company has early adopted IAS 1 and has determined that early adoption did not result in a material impact on the results or the financial position of the Company. 4. BUSINESS ACQUISITIONS: Effective June 12, 2015, the Company acquired Coughlin & Associates Ltd. (“Coughlin”), an independent full service national firm providing group benefit consulting, pension consulting, administrative solutions and claims management services to corporations, unions and public service organizations in Canada. The Company’s interest in Coughlin includes 100% voting interest through a class of voting preferred shares and 66% economic interest through a class of non-voting, non-cumulative, dividend-bearing shares of Coughlin (“Coughlin PC Shares”). In connection with the Coughlin acquisition, the former Coughlin shareholders (the “Coughlin Vendors”) retained an initial 34% minority economic interest (“Coughlin Retained Economic Interest”) through a class of non-voting, non-cumulative, dividend-bearing shares of Coughlin (“Coughlin Vendor Shares”). In addition, certain of the Coughlin Vendors were issued a class of non-voting, non-cumulative, dividend bearing shares of Coughlin (“Coughlin Spring Shares”) in which they may increase their Coughlin Retained Economic Interest to 40% in five years, subject to certain specified terms and conditions having been met and subject to Coughlin achieving certain financial performance targets over the next five years, and thereby reducing the Company’s economic interest in Coughlin to 60%. Commencing September 1, 2015, all classes of non-voting, non-cumulative, dividend-bearing shares of Coughlin have an ongoing contractual right to receive quarterly dividends based on a calculation derived from Coughlin’s earnings. The Company is entitled to a priority on the payment of dividends declared on the Coughlin dividend‑bearing shares to the extent of a specified earnings amount. 52 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 In addition, the Company has the right to purchase the Coughlin Vendor Shares and the Coughlin Spring Shares (“Coughlin Call Option”) and individual Coughlin Vendors have the right to require the Company to purchase the Coughlin Vendor Shares and the Coughlin Spring Shares (collectively, the “Coughlin Put Options”) by giving notice to the Company. On the effective date of exercise of the Coughlin Call Option or the Coughlin Put Option, the Coughlin Vendor’s right to earn performance based dividends will be terminated (Note 11). The Company accounted for this transaction as a business combination and has applied the acquisition method of accounting in accordance with IFRS 3. The recognized amounts of assets acquired and liabilities assumed in the transaction and the acquisition date fair value of the total consideration transferred are as follows: Assets acquired and liabilities assumed Net working capital Property and equipment Customer relationships Goodwill (including assembled workforce) Post‑retirement benefits Deferred tax liabilities Consideration paid or payable Cash payment on closing Common shares issued by the Company Working capital adjustment due to vendors Vendor take-back notes payable Non-controlling economic interest (“retained economic interest”) $ 641,759 446,000 25,855,000 25,930,637 (460,000) (6,803,396) $ 45,610,000 $ 26,375,000 2,500,000 27,000 1,189,000 15,519,000 $ 45,610,000 Total consideration paid is subject to final adjustments for working capital. Further details as to consideration paid, including the fair value of certain components of contingent consideration are as follows: • 626,566 common shares of the Company at a value of $3.99 per share, totaling $2,500,000 (Note 14); • Vendor take‑back notes payable with a face value of $1,350,000, payable in installments of $150,000 in June 2016, and thereafter $300,000 annually until 2020. The notes payable were discounted at a rate of 4.4%, with a fair value of $1,189,000; and, • The retained economic interest comprises the Coughlin Vendor Shares and the Coughlin Spring Shares, which are classified as a liability due to their terms, including the put and call features. The fair value of these shares was determined using a discounted cash flow methodology, and based on the terms of the Coughlin Vendor Shares and the Coughlin Spring Shares. The key assumptions in valuing the retained economic interest include: estimated gross projected cash flows based on historical results and applying a growth factor; the dates at which the put options will be exercised by the holders; the likelihood of certain contingent milestones being reached; and, a discount rate of 16%. 53 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 Changes in fair value, arising from changes in assumptions and accretion of interest, of these estimated liabilities for consideration paid will be recorded in finance costs in the consolidated statements of comprehensive income in future periods. The Company’s consolidated statements of comprehensive income include the result of operations for Coughlin from its date of acquisition to August 31, 2015. Operating revenues Net income and comprehensive income AUG 31, 2015 AS REPORTED FOR COUGHLIN PRO FORMA OF THE COMPANY $ 4,239,888 $ 19,946,819 $ 896,822 $ 2,914,079 Pro forma balances represent management’s estimates of consolidated revenue and consolidated net income as if the acquisition had been completed on September 1, 2014. For the purposes of these pro forma balances, comprehensive income is equal to net income. Acquisition-related costs amounting to $1,528,133 (2014 ‑ $95,799) are not included as part of the consideration transferred and have been recognized as acquisition, integration and reorganization costs in the consolidated statements of comprehensive income. 5. TRADE AND OTHER RECEIVABLES: The Company has the following trade and other receivables: Trade receivables Commission advances AUG 31, 2015 AUG 31, 2014 $ 7,174,925 24,351 $ 7,199,276 $ 3,264,492 158,724 $ 3,423,216 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 20. 54 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 6. PROPERTY AND EQUIPMENT: The Company has the following property and equipment: LEASEHOLD IMPROVEMENTS FURNITURE AND FIXTURES COMPUTER EQUIPMENT AUTOMOBILES TOTAL Cost Balance, August 31, 2013 $ 540,542 $ 782,217 $ 1,218,918 $ Additions 461,004 115,635 Acquisition through business combination 44,681 - 165,332 46,641 Balance, August 31, 2014 1,046,227 897,852 1,430,891 Additions 331,454 235,533 Acquisition through business combination 47,017 1,067,752 167,286 834,796 ‑ - - - - $ 2,541,677 741,971 91,322 3,374,970 734,273 35,000 1,984,565 Balance, August 31, 2015 $ 1,424,698 $ 2,201,137 $ 2,432,973 $ 35,000 $ 6,093,808 Depreciation Balance, August 31, 2013 Depreciation for the year Acquisition through business combination $ (394,120) $ (537,742) $ (822,868) $ (163,500) (66,682) (125,488) (44,681) - (46,641) Balance, August 31, 2014 (602,301) (604,424) (994,997) ‑ - - - $ (1,754,730) (355,670) (91,322) (2,201,722) Depreciation for the year (201,331) (285,343) (248,304) (1,041) (736,019) Acquisition through business combination (38,537) (790,893) (726,518) (17,299) (1,573,247) Balance, August 31, 2015 $ (842,169) $ (1,680,660) $ (1,969,819) $ (18,340) $ (4,510,988) Carrying amounts Balance, August 31, 2014 Balance, August 31, 2015 $ 443,926 $ 582,529 $ $ 293,428 520,477 $ $ 435,894 463,154 $ ‑ $ 1,173,248 $ 16,660 $ 1,582,820 In accordance with IAS 38, Intangible Assets, computer software is being reported in Note 7. 55 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 7. GOODWILL AND INTANGIBLE ASSETS: The Company has the following goodwill and intangible assets: GOODWILL CUSTOMER RELATIONSHIPS CUSTOMER CONTRACTS COMPUTER SOFTWARE TOTAL Cost Balance, August 31, 2013 $ 29,552,558 $ 19,643,352 $ 3,134,008 $ 607,452 $ 52,937,370 Additions Disposals Acquisition through business combination - - 900,000 278,157 377,008 1,555,165 585,423 1,065,000 - - - (22,320) (22,320) 2,535 1,652,958 Balance, August 31, 2014 30,137,981 21,608,352 3,412,165 964,675 56,123,173 Additions Acquisition through business combination - 308,461 93,945 324,871 727,277 25,930,637 25,855,000 - 1,209,581 52,995,218 Balance, August 31, 2015 $ 56,068,618 $ 47,771,813 $ 3,506,110 $ 2,499,127 $ 109,845,668 Amortization Balance, August 31, 2013 $ Amortization for the year Acquisition through business combination Balance, August 31, 2014 Amortization for the year Acquisition through business combination Balance, August 31, 2015 $ Carrying amounts ‑ - - - - - ‑ $ (3,599,811) $ (1,853,372) $ (403,505) $ (5,856,688) (2,110,533) (308,092) (105,301) (2,523,926) - - (2,535) (2,535) (5,710,344) (2,161,464) (511,341) (8,383,149) (2,689,396) (329,905) (180,032) (3,199,333) - - (1,175,494) (1,175,494) $ (8,399,740) $ (2,491,369) $ (1,866,867) $ (12,757,976) Balance, August 31, 2014 $ 30,137,981 $ 15,898,008 $ 1,250,701 Balance, August 31, 2015 $ 56,068,618 $ 39,372,073 $ 1,014,741 $ $ 453,333 $ 47,740,023 632,260 $ 97,087,692 56 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 The Company completed its annual impairment tests for goodwill and concluded that there was no impairment. For impairment test purposes, the carrying value of goodwill has been allocated as follows: Coughlin & Associates Ltd. (Note 4) Hamilton & Partners Ltd. Bencom Financial Services Group Inc. Other AUG 31, 2015 $ 25,930,637 11,600,184 3,913,752 14,624,045 AUG 31, 2014 $ - 11,600,184 3,913,752 14,624,045 $ 56,068,618 $ 30,137,981 The key assumptions used to calculate the value in use are those regarding discount rates, growth rates and expected changes in margins. The values of these assumptions reflect past experience. The weighted average cost of capital was determined to be in the range of 13.2% to 14.6% (August 31, 2014 ‑ 19.8% to 21.8%) and is based on a risk‑free rate, an equity risk premium adjusted for betas of comparable publicly-traded companies, an unsystematic risk premium, an after-tax cost of debt based on Company’s financing arrangements and the capital structure of the Company. Cash flow projections have been discounted using rates of return derived from Company’s after‑tax weighted average cost of capital considering specific risks relating to each CGU. At August 31, 2015, the after‑tax discount rates used in the recoverable amount calculations ranged from 13.2% to 14.6% (August 31, 2014 ‑ 19.8% to 21.8%). The pre‑tax discount rates ranged from 17.2% to 19.0% (August 31, 2014 ‑ 24.5% to 27.0%). The Company included five years of cash flows in its discounted cash flow model. The cash flow forecasts were extrapolated beyond the five year period using estimated long term growth rate of 2.0% (August 31, 2014 ‑ 2.0%). 8. TRADE PAYABLES, ACCRUED AND OTHER LIABILITIES: The Company has the following trade payables, accrued and other liabilities: Trade payables and other liabilities Contingent acquisition consideration Post‑retirement benefits and other liabilities Less current portion of trade payables, accrued and other liabilities AUG 31, 2015 $ 4,954,935 1,183,319 491,326 6,629,580 4,962,924 AUG 31, 2014 $ 3,687,611 1,064,229 42,869 4,794,709 3,700,928 Total non-current accrued and other liabilities $ 1,666,656 $ 1,093,781 57 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 Amounts recognized as contingent acquisition consideration at August 31, 2015 represent the estimated undiscounted fair value of $1,308,793 (2014 ‑ $1,308,793) for potential additional future consideration related to the acquisition of Hamilton + Partners group of companies (“H+P”) on July 9, 2013. The estimate of additional future consideration is based on achieving financial targets for H+P and may be payable at 36, 48 and 60 months subsequent to the acquisition. The liability recognized in connection with the contingent consideration 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 and other factors. The fair value of the liability in connection with the contingent consideration is determined by discounting the estimated future payment obligation at each reporting date. 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, 2015 the Company recognized an adjustment to the fair value of the contingent consideration of $119,090 (2014 ‑ $114,025). 9. DEFERRED REVENUE: Deferred revenue is a non-cash liability which represents the excess of retainer amounts billed over costs incurred and revenue earned on service contracts. The Company has the following deferred revenue: Fees received in advance Less current portion of deferred revenue Long-term portion of deferred revenue AUG 31, 2015 AUG 31, 2014 $ 5,040,984 4,951,681 $ 89,303 $ 4,128,280 4,059,744 $ 68,536 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 has 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, 2015 AUG 31, 2014 $ 19,564,951 19,564,951 $ ‑ $ 16,640,790 16,640,790 $ ‑ 58 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 11. NON‑CONTROLLING INTEREST PUT OPTIONS: The Company has the following non-controlling interest put options: Balance, August 31, 2013 Change in estimated fair value Balance, August 31, 2014 NOTE COUGHLIN H+P BENCOM TOTAL $ ‑ - - $ 5,416,245 $ 756,640 $ 6,172,885 393,695 5,809,940 94,871 488,566 851,511 6,661,451 Acquisition through business combination 4 15,519,000 - - 15,519,000 Change in estimated fair value Balance, August 31, 2015 (i) Coughlin 423,013 (13,184) 58,789 468,618 $ 15,942,013 $ 5,796,756 $ 910,300 $ 22,649,069 In connection with the acquisition of Coughlin (Note 4), the Company entered into various agreements whereby the Coughlin Vendors hold a minority economic interest in Coughlin through the ongoing right to receive quarterly dividends based on a calculation derived from Coughlin’s earnings. The Company is entitled to a priority on the payment of dividends declared on the Coughlin dividend‑bearing shares to the extent of a specified earnings amount. In addition, the Company has the right to purchase the Coughlin Vendor Shares and the Coughlin Spring Shares (“Coughlin Call Option”) and individual Coughlin Vendors have the right to require the Company to purchase the Coughlin Vendor Shares and the Coughlin Spring Shares (collectively, the “Coughlin Put Options”) by giving notice to the Company. On the effective date of exercise of the Coughlin Call Option or the Coughlin Put Option, the Coughlin Vendor’s right to earn performance based dividends will be terminated. The liability recognized in connection with the Coughlin Retained Economic Interest, which includes the fair value of future dividend entitlements of the Coughlin Vendor Shares and Coughlin Spring Shares and the Coughlin Put Options, has been determined based on a pre-determined formula defined in an agreement which is based on a multiple of estimated future earnings of Coughlin, the estimated future exercise dates of Coughlin Put Options and other factors. Individual Coughlin Vendors are restricted from exercising their respective Coughlin Put Options until dates on or after August 2018, subject to certain terms and conditions including restrictions requiring minimum time period between individual exercise dates. (ii) H+P In connection with the acquisition of H+P, the Company entered into various agreements whereby the H+P vendors hold an economic interest in H+P through the ongoing right to earn performance‑based commissions and fees. In addition, the H+P vendors hold ongoing ownership through non‑voting, non‑dividend earning special shares (“H+P Special Shares”). The Company has the right to purchase the H+P Special Shares (“H+P 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 H+P Call Option or the H+P Put Option, the H+P vendor’s right to earn performance‑based commissions and fees will be terminated. 59 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 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 H+P Put Option is restricted until July 2016, which is three years from the effective date of the agreement, but then may be exercisable at any time by the non‑controlling shareholder(s), subject to certain terms and conditions. (iii) Bencom In connection with the acquisition of Bencom Financial Service Group Inc. (“Bencom”), the Company entered into various agreements whereby the vendors hold an economic interest in Bencom through the ongoing right to earn performance‑based commissions and fees. In addition, the vendors hold ongoing ownership through non‑voting, non‑dividend earning special shares (“Bencom Special Shares”). The Company has the right to purchase the Bencom Special Shares (“Bencom 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 Bencom Call Option or the Bencom Put Option, the Bencom vendor’s right to earn performance‑based commissions and fees will be terminated. 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 Bencom Put Option is restricted until December 2015, which is three years from the effective date of the agreement, but then may be exercisable at any time by the non‑controlling shareholder(s), subject to certain terms and conditions. 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. 12. LOANS AND BORROWINGS: The Company has the following loans and borrowings, which are measured at amortized cost: Term loans (a) (b) (c) A bank loan bearing interest of prime plus 1.50% per annum, secured by the assets of the Company, repayable in quarterly installments of principal of $335,714 plus accrued interest. The loan was repaid in October 2014. A bank loan bearing interest of prime plus an amount equal to 1.75% to 3.50% per annum subject to certain terms, secured by the assets of the Company, repayable in quarterly installments equal to 2.00% to 3.00% of the opening principal balance throughout the term of the agreement. The loan matures October 31, 2017 unless extended pursuant to the agreement. A bank loan bearing interest of prime plus an amount equal to 1.75% to 3.50% per annum subject to certain terms, secured by the assets of the Company, to the extent not previously paid, the principal shall be due and payable on the maturity date. The loan matures October 31, 2017 unless extended pursuant to the agreement. AUG 31, 2015 AUG 31, 2014 $ ‑ $ 6,057,143 6,580,000 15,775,000 ‑ ‑ Total term loans 22,355,000 6,057,143 60 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 Vendor‑take‑back loans (d) (e) (f) (g) (h) (i) (j) A vendor-take-back loan bearing no interest per annum, unsecured, payable in two annual installments of $350,000. The amortized cost of the loan has been discounted using a rate of 6.43%. The loan was repaid on February 17, 2015. A vendor-take-back loan bearing no interest per annum, unsecured, payable in three annual installments of $188,031. The amortized cost of the loan has been discounted using a rate of 6.43%. The loan matures on December 3, 2015. A vendor-take-back loan bearing no interest per annum, unsecured, payable in two payments of $105,000 and $135,000, respectively. The amortized cost of the loan has been discounted using a rate of 5.76%. The loan matures June 14, 2016. A vendor-take-back loan bearing no interest per annum, unsecured, payable in three annual installments of $1,201,667. The amortized cost of the loan has been discounted using a rate of 6.43%. The loan matures on July 9, 2016. A vendor-take-back loan bearing no interest per annum, unsecured, payable in three annual installments of $100,000. The amortized cost of the loan has been discounted using a rate equal to 5.80%. The loan matures on August 29, 2017. A vendor-take-back loan bearing no interest per annum, unsecured, payable in monthly installments of $5,224. The amortized cost of the loan has been discounted using a rate of 6.43%. The loan matures on August 31, 2017. A vendor-take-back loan bearing no interest per annum, unsecured, payable in five payments: $150,000 in the first year and $300,000 annually thereafter. The amortized cost of the loan has been discounted using a rate of 4.40%. The loan matures on June 12, 2020. Total vendor‑take‑back loans Finance lease liabilities (k) (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 an implicit interest rate equal to 8.65%. 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 an implicit interest rate equal to 11.28%. Total finance lease liabilities Less: current portion of: Term loans Vendor take-back loans Finance lease liabilities - 346,476 186,137 358,619 230,197 217,659 1,141,168 2,213,392 186,928 272,183 117,284 170,564 1,189,000 3,050,714 - 3,578,893 ‑ 9,520 3,935 3,935 14,893 24,413 25,409,649 9,660,449 665,000 1,803,498 3,935 1,342,857 1,717,587 20,478 2,472,433 3,080,922 $ 22,937,216 $ 6,579,527 61 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 On October 31, 2014, the Company entered into an agreement with its senior lender, Canadian Imperial Bank of Commerce (“CIBC”), as lead lender of a syndicated loan facility, which included the following components: 1. $5,000,000 revolving credit facility. As at August 31, 2015, the Company had not utilized this facility (August 31, 2014 ‑ nil). 2. $23,000,000 term acquisition credit facility to fund future acquisitions. As at August 31, 2015, $15,775,000 (August 31, 2014 ‑ $6,057,143) was drawn down on the credit facility in connection with the acquisition of Coughlin. 3. $7,000,000 term credit facility installment loan which was used to refinance the acquisition facility balance outstanding under the previous agreement. As at August 31, 2015, the balance owing on this facility was equal to $6,580,000 (August 31, 2014 ‑ nil). The agreement provides for an option (the “Accordion Feature”), subject to the satisfaction of certain terms and conditions, to increase the Acquisition Revolver by an additional $15,000,000 of capacity. The exercise of the option would result in the size of the Acquisition Revolver being increased to a maximum of $38,000,000 and overall credit capacity being increased to a maximum of $50,000,000. The new facility is secured by a general security agreement over the assets of the Company and its subsidiaries and is subject to covenants. The new facility replaced the Company’s previously existing credit facility originally entered into in 2011 and subsequently amended. Finance lease liabilities are payable as follows: FUTURE MINIMUM LEASE PAYMENTS 1-12 months $ 4,028 13‑60 months - $ 4,028 AUG 31, 2015 PV OF MINIMUM LEASE PAYMENTS FUTURE MINIMUM LEASE PAYMENTS INTEREST AUG 31, 2014 PV OF MINIMUM LEASE PAYMENTS $ 3,935 $ 22,055 $ 1,577 $ 20,478 - 4,028 93 3,935 $ 3,935 $ 26,083 $ 1,670 $ 24,413 INTEREST $ 93 - $ 93 62 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 13. INCOME TAXES: Net income before income taxes Statutory tax rate Income taxes (recovery) at statutory tax rates Adjustments to income taxes Non-deductible items Prior period deferred tax expense Prior period current tax expense (recovery), net Change in rate at which temporary differences are recorded Change in estimate Other Current taxes Deferred taxes AUG 31, 2015 AUG 31, 2014 $ 2,271,819 $ 2,726,485 26.57% 603,622 331,697 - (10,526) 129 (47,520) - 877,402 1,452,849 (575,447) 26.62% 725,790 340,546 81,610 (14,270) 729 14,222 36,997 1,185,624 1,894,600 (708,976) The 2015 statutory tax rate differs from the 2014 statutory tax rate resulting from a change in the provincial allocation of gross revenue and wages. Significant components of deferred tax assets and liabilities are as follows: $ 877,402 $ 1,185,624 Deferred tax assets Deferred financing costs Lease inducements Equity issue and financing costs Non-capital losses carried forward Cumulative eligible capital Other Deferred tax liabilities Property and equipment Intangible assets Other deferred tax liabilities AUG 31, 2015 AUG 31, 2014 $ 11,044 $ 11,420 8,323 242,706 259,470 122,499 79,435 723,477 104,876 10,683,795 - 10,788,671 11,389 51,659 421,563 - - 496,031 57,978 4,498,215 10,240 4,566,433 Net deferred tax liabilities $ (10,065,194) $ (4,070,402) 63 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 Movement in net deferred tax liabilities: Balance, August 31, 2014 Recognized in the statement of income and comprehensive income Share issue costs in equity Recognized in business acquisitions (Note 4) Other Balance, August 31, 2015 14. SHARE CAPITAL: (a) Authorized AUG 31, 2015 AUG 31, 2014 $ (4,070,402) $ (4,493,737) 575,447 233,154 (6,803,396) 3 708,976 - (275,401) (10,240) $ (10,065,194) $ (4,070,402) The Company has authorized share capital of an unlimited number of common voting shares with no par value. (b) Shares issued and outstanding Shares issued and outstanding are as follows: NOTE NUMBER OF COMMON VOTING SHARES AMOUNT Balance, August 31, 2013 Private placement of shares Exercise of stock options Balance, August 31, 2014 Private placement of shares Acquisition-related issuance of shares Exercise of stock options Balance, August 31, 2015 4 15(b) 33,027,193 $ 12,024,732 4,815,080 9,573,447 1,709,213 867,155 39,551,486 22,465,334 4,232,000 13,744,339 626,566 548,331 2,500,000 320,210 44,958,383 $ 39,029,883 On May 6, 2015, the Company closed a private placement offering of 4,232,000 shares at a price of $3.40 per share, which included the exercise in full of the Underwriter’s over‑allotment option of 552,000 shares. The offering resulted in aggregate gross proceeds of $14,388,800 less share issuance and commission costs of $877,615 for net proceeds of $13,511,185. In addition, the Company recorded a deferred tax asset of $233,154 relating to share issuance and commission costs. In connection with the acquisition of Coughlin, the Company issued 626,566 common shares to the vendors for an aggregate value of $2,500,000. 64 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 (c) Earnings per share 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 the total number of additional common shares related to grants outstanding at August 31, 2015 that would have been issued by the Company under its stock option plans. The following details the earnings per share, basic and diluted, calculations for the years ended August 31, 2015 and August 31, 2014: Net income (loss) attributable to common shares (basic and diluted) Weighted average number of common shares (basic) Add: Dilutive effect of stock options AUG 31, 2015 AUG 31, 2014 $ 1,394,417 41,448,569 906,428 $ 1,540,861 35,540,710 1,891,772 Weighted average number of common shares (diluted) 42,354,997 37,432,482 Earnings per share (basic) Earnings per share (diluted) $ $ 0.034 0.033 $ $ 0.043 0.041 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 period during which the options were outstanding. 15. SHARE‑BASED PAYMENTS: Effective March 6, 2015, the Company established a Security Based Compensation Plan replacing the Company’s existing Stock Option Plan. The new Plan provides for more flexibility in the granting of equity incentive awards. The Security Based Compensation Plan allows for the issuance of stock options, tandem stock appreciation rights, restricted stock units and deferred stock units. All option agreements entered into under the former Stock Option Plan will continue to be governed under the terms of the former Stock Option Plan. The Company’s Employee Share Purchase Plan (“ESPP”) is unaffected by the new Plan. Under the Security Based Compensation Plan, awards may be granted to any director, officer, employee or consultant of the Company or of any of its affiliates. Subject to the adjustment provisions provided for in the Security Based Compensation Plan and the applicable rules and regulations of all regulatory authorities to which the Company is subject (including the TSX Venture Exchange), the aggregate number of common shares reserved for issuance pursuant to the Security Based Compensation Plan cannot exceed 5,986,222, which number takes into account the common shares that are available for issuance under the ESPP and the Security Based Compensation Plan. 65 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 (a) Employee share purchase plan The Company has an ESPP 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. At August 31, 2015, there were 174 participants (August 31, 2014 – 177) in the plan. The total number of shares purchased during the years ended August 31, 2015 on behalf of participants, including the Company contribution, was 230,738 shares (August 31, 2014 – 335,633 shares). During the year ended August 31, 2015, the Company’s matching contributions totalled 46,148 shares (August 31, 2014 – 66,907 shares). For the year ended August 31, 2015 the Company recorded an expense to recognize the matching contribution equal to $134,209 (August 31, 2014 – $124,184). (b) Stock option plans 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 Security Based Compensation Plan or former Stock Option Plan or by security regulators. Options shall not be granted for a term exceeding eight years under the terms of the Security Based Compensation Plan or five years under the terms of the former Stock Option Plan. Changes in the number of options outstanding during the years ended August 31, 2015 and August 31, 2014, are as follows: AUG 31, 2015 AUG 31, 2014 WEIGHTED AVERAGE EXERCISE PRICE OPTIONS OPTIONS WEIGHTED AVERAGE EXERCISE PRICE Balance, beginning of year 1,566,667 $ 0.57 3,129,809 $ 0.37 Granted Exercised Forfeited and expired Balance, end of year 189,345 (548,331) (100,002) 3.06 0.36 0.31 150,000 (1,709,213) (3,929) 1.90 0.32 0.28 1,107,679 $ 1.12 1,566,667 $ 0.57 Options exercisable, end of year 701,664 883,328 66 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 For the year ended August 31, 2015, the Company received proceeds equal to $200,016 (2014 ‑ $555,267) from the exercise of 548,331 (2014 ‑ 1,709,213) options. Related to these transactions, the Company transferred $120,195 (2014 ‑ $311,888) from contributed surplus to share capital. Options outstanding at August 31, 2015 consist of the following: RANGE OF EXERCISE PRICES $ 0.25 ‑ $ 0.50 $ 0.51 ‑ $ 1.00 $ 1.01 ‑ $ 2.00 $ 2.01 ‑ $ 3.00 $ 3.01 ‑ $ 4.00 $ 4.01 ‑ $ 4.12 $ 0.25 ‑ $ 4.12 NUMBER OUTSTANDING REMAINING CONTRACTUAL LIFE 475,000 293,334 125,000 190,313 10,000 14,032 1,107,679 1.46 years 2.67 years 3.46 years 4.30 years 7.74 years 7.87 years 2.63 years WEIGHTED AVERAGE EXERCISE PRICE $ 0.41 0.63 1.71 2.92 3.83 4.11 NUMBER EXERCISABLE 475,000 176,666 41,665 8,333 - - $ 1.12 701,664 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 18) 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, 2015 AUG 31, 2014 5.00 years 5.00 years 0.90% nil 5.72% 64.94% 1.61% nil 6.38% 76.72% 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. 67 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 (c) Performance‑conditioned Restricted Stock Units (“RSUs”) The Company has conditionally granted RSUs (payable in cash or shares of the Company’s common stock at the discretion of the Board of Directors) to designated management employees, that may be earned at the end of a one-year performance period, based on each fiscal year (“the performance period”), subject to achieving certain financial metrics for the performance period. In order to earn RSUs a minimum threshold must be achieved, with the maximum number of RSUs being earned upon achievement of the target. During the year ended August 31, 2015, the Company conditionally granted 38,568 RSUs related to the fiscal year. Any RSUs earned are scheduled to vest on August 31, 2017, conditional upon continued employment with the Company until such date. (d) Deferred Stock Units (“DSUs”) Independent members of the Company’s Board of Directors are paid a portion of their annual retainer in the form of DSUs, which vest on the date determined by the Board of Directors. They may also elect to receive up to 100% of their remaining cash remuneration in the form of DSUs. The underlying security of DSUs are the Company’s common shares, which are valued based on their volume weighted average closing price for the ten trading days prior to the date on which the DSUs are granted. The DSUs will be settled by the issuance of common shares by the Company unless, subject to the consent of the Company, the Director elects to receive cash in lieu of common shares. Granted Balance, end of year NUMBER OF DSUs 9,730 9,730 AUG 31, 2015 AMOUNT $ 40,000 $ 40,000 For the year ended August 31, 2015 the Company recorded an expense to recognize Equity‑ settled Awards granted to employees and directors of the Company equal to $218,689 (August 31, 2014 – $175,733). 16. FINANCE EXPENSES: The Company’s finance expenses for the years ended August 31, 2015 and August 31, 2014 were comprised of the following: Interest and finance costs on long‑term debt 12 $ 829,544 $ 705,246 NOTE AUG 31, 2015 AUG 31, 2014 Other finance costs, net Non‑cash finance costs Accretion expense on vendor-take-back loans Accretion on contingent acquisition consideration Change in estimated fair value of non-controlling interest put option 12 8 11 46,229 48,481 185,209 119,090 304,299 468,618 772,917 286,419 114,025 400,444 488,566 888,910 $ 1,648,690 $ 1,642,637 68 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 17. FINANCIAL INSTRUMENTS: Fair Value Measurement The Company’s financial instruments measured at fair value through profit or loss include cash and cash equivalents, contingent consideration, and non-controlling interest put options. The valuation techniques used to measure level 2 and level 3 financial instruments are described in the referenced notes. The following presents the Company’s assets and liabilities measured at fair value on a recurring basis and categorized by hierarchy level: (QUOTED PRICES IN AN ACTIVE MARKET FOR IDENTICAL ASSETS) LEVEL 1 NOTE (SIGNIFICANT OTHER OBSERVABLE INPUTS) LEVEL 2 (SIGNIFICANT OTHER UNOBSERVABLE INPUTS) LEVEL 3 $ 6,514,734 $ - - $ 2,750,465 $ - - ‑ - - ‑ - - $ ‑ 1,183,319 22,649,069 $ ‑ 1,064,229 6,661,351 8 11 8 11 August 31, 2015: Cash and cash equivalents Contingent acquisition consideration Non-controlling interest put options August 31, 2014: Cash and cash equivalents Contingent acquisition consideration Non-controlling interest put options The carrying value of the Company’s 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. Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset of 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. 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 options and contingent acquisition consideration. 69 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 18. 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. 19. COMMITMENTS AND CONTINGENCIES: (a) Contractual obligations The Company leases premises and various office equipment under agreements which expire on various dates up to May 2019. Future minimum lease payments as at August 31, 2015 are as follows: Next 12 months 13 ‑ 24 months 25 ‑ 36 months 37 ‑ 48 months 49 ‑ 60 months 70 $ 1,815,844 1,707,610 1,314,248 762,836 442,363 $ 6,042,901 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 (b) 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. 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. 20. 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 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, 2015, a change in interest rate relating to loans and borrowings of 1% would have increased or decreased interest expense by approximately $175,000 (2014 ‑ $145,000). (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, 2015 is $19,005 (2014 ‑ nil). 71 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 Pursuant to their respective payment terms, consolidated trade receivable are aged as follows as at August 31, 2015: Current 31 – 60 days past due 61 – 90 days past due Over 91 days past due Allowance for doubtful accounts (c) Liquidity Risk $ 6,390,284 477,371 270,969 79,657 7,218,281 (19,005) $ 7,199,276 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, 2015 are as follows: CARRYING AMOUNT CONTRACTUAL 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 Trade payables and accrued liabilities $ 6,629,580 $ 7,038,054 $ 5,004,924 $ 1,458,130 $ 126,000 $ 449,000 Loans and borrowings 25,409,649 25,663,937 2,611,323 17,042,614 5,410,000 600,000 $ 32,039,229 $ 32,701,991 $ 7,616,247 $ 18,500,744 $ 5,536,000 $ 1,049,000 21. CAPITAL MANAGEMENT: The Company views its capital as the combination of its cash and cash equivalents, long-term debt, and shareholders’ equity, which as at August 31, 2015 was equal to $62,974,305 (August 31, 2014 ‑ $32,931,914). 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 issue new or repurchase existing shares and assume new or repay existing debt. 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, 2015. 72 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 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 Purchase Plan (Note 15(a)) and Security Based Compensation Plan (Note 15(b)). The following table details the compensation paid to key management personnel during the year ended August 31, 2015 and 2014: Salaries, fees and short‑term employee benefits $ 1,279,078 $ 1,569,695 AUG 31, 2015 AUG 31, 2014 Share-based payments 186,626 122,977 $ 1,465,704 $ 1,692,672 (b) Key management personnel and director transactions As at August 31, 2015, directors and key management personnel owned 19.06% (August 31, 2014 ‑ 24.50%) of the voting shares of the Company. As at August 31, 2015, 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. 23. EXPENSES BY NATURE: The Company’s expenses for the year ended August 31, 2015 and August 31, 2014 were comprised of the following: Personnel and compensation General and administrative Occupancy Administration fees Public company costs Depreciation, amortization and impairment losses Finance expenses AUG 31, 2015 AUG 31, 2014 $ 29,132,600 $ 26,501,987 7,438,743 2,447,378 2,080,553 338,119 4,531,973 2,156,215 1,845,251 269,960 41,437,393 35,305,386 3,935,352 1,648,690 2,901,427 1,642,637 $ 47,021,435 $ 39,849,450 73 PEOPLE CORPORATION Notes to the Consolidated Financial Statements For the years ended August 31, 2015 and August 31, 2014 The Company’s operating expenses and acquisition, integration and reorganization costs, as reported on the statement of comprehensive income, for the year ended August 31, 2015 and August 31, 2014 were comprised of the following: Operating expenses Acquisition, integration and reorganization costs AUG 31, 2015 AUG 31, 2014 $ 39,909,260 1,528,133 $ 41,437,393 $ 35,209,587 95,799 $ 35,305,386 Certain employees of the Company participate in a defined contribution pension plan. Contributions to the plan by the Company totalled $31,433 for the year ended August 31, 2015 (2014 – $27,292). Employee benefits totalled $2,637,982 for the year ended August 31, 2015 (2014 – $2,106,838). These amounts are included in the personnel and compensation expense in these consolidated financial statements. For the year ended August 31, 2015 the Company incurred $1,528,133 (2014 ‑ $95,799) of acquisition, integration and reorganization costs. Acquisition, integration and reorganization costs are comprised of professional fees and other non‑recurring incremental costs incurred to secure and complete specific acquisitions, non-operating outlays associated with integrating acquired operations into the Company`s business model subsequent to completion of an acquisition, and non-recurring outlays including consulting and recruiting fees and severance costs associated with reorganization of operations. 24. SUBSEQUENT EVENTS: On October 19, 2015, under its Security Based Compensation Plan, the Company’s Board of Directors has granted equity incentive awards to certain independent directors and executive management of the Company. In particular, the company granted: • 34,205 stock options to independent directors with an exercise price of $3.59 per option, having terms of eight years, vesting over a period of three years and otherwise subject to the terms of the Security Based Compensation Plan; • 16,712 deferred stock units to independent directors, vesting immediately and otherwise subject to the terms of the Security Based Compensation Plan; and • 110,724 restricted stock units, subject to performance conditions, to certain executive management, vesting after three years and otherwise subject to the terms of the Security Based Compensation Plan. In addition to the above, the Company’s Board of Directors granted 166,135 stock options to management with an exercise price of $3.59 per option, having terms of eight years, vesting over a period of three years and otherwise subject to the terms of the Security Based Compensation Plan. 25. COMPARATIVE FIGURES: Certain prior period balances have been reclassified to conform with the current year presentation. These reclassifications do not affect prior period’s net income. 74 NOTES 75 NOTES 76 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 Bonnie Chwartacki, President Brevan Canning, Executive Vice President, Benefit Solutions Lisa Villani, Executive Vice President, Consulting Solutions Keith McMahon, Chief Financial Officer Glenn Pittman, Vice President Corporate Development Dave Young, Vice Chair, Corporate Initiatives BOARD OF DIRECTORS: Laurie Goldberg, Chairman Scott Anderson, Lead Director Richard Leipsic Eric Stefanson CORPORATE OFFICES: Executive Head Office: 1800 - 360 Main Street Winnipeg, Manitoba R3C 3Z3 Canada Registered Office: c/o McMillan LLP, 181 Bay Street, Suite 4400 Toronto, Ontario M5J 2T3 Canada LEGAL COUNSEL: McMillan LLP Brookfield Place 181 Bay Street, Suite 4400 Toronto, Ontario M5J 2T3 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 24, 2016 3:00 PM Central Standard Time Suite 1800, 360 Main Street Winnipeg, Manitoba R3C 3Z3 Canada EXECUTIVE HEAD OFFICE: 1800 – 360 Main Street 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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