A LEADING GLOBAL FIRM OF COMMUNITY-MINDED PEOPLE WHO MAKE A DIFFERENCE
GENIVAR INCOME FUND
ANNUAL REPORT GENIVAR is one of the largest firms in Canada providing private and public sector clients with a full range of professional consulting services in the areas of engineering, project management and environment through all project phases, ranging from planning to commissioning. We now have over 4,100 employees working in more than 80 locations in Canada and overseas. Our clients operate in various market segments such as buildings, municipal infrastructure, transportation, industrial and energy as well as environment.
02 06 08 11 65 104 105 106
Messages to 2009 Human Management’s Consolidated Management Board of Unitholder Shareholders Year-End Key Resources Discussion & Financial Team Trustees Information Figures Overview Analysis Statements OUR VISION
Our Vision is to be “A leading global firm of community-minded people who make a difference”
Our Vision is supported by our values that shape our unique culture, which form the foundation for our practices and daily activities.
OUR VALUES
Our values reflect who we are and how we interact with each other, whether with colleagues, clients, unitholders or other stakeholders.
Client Focus GENIVAR exists because of our clients. We strive to develop long-term partnerships with them built on mutual respect and world-class services.
Respect We treat our colleagues and clients with dignity and respect by maintaining the highest standards of interpersonal relationships.
Empowerment GENIVAR seeks to create a stimulating work environment that recognizes individual initiative, encourages a sense of personal responsibility and fosters a can-do spirit.
Teamwork We are a global team. We can only grow and achieve our goals by sharing our knowledge and combining our talents for the common good of our clients and the success of our business. GENIVAR INCOME FUND 2009 ANNUAL REPORT
IN 2009, WE HAVE REMAINED FOCUSED ON OUR GROWTH OBJECTIVES AND, THANKS TO OUR SOLID TEAM, WE HAVE CONTINUED TO DELIVER IMPRESSIVE RESULTS. 03
MESSAGES TO UNITHOLDERS
FROM PIERRE SHOIRY
I am very proud to present our 2009 Annual Report and I invite our unitholders to read the CEO Report which gives the highlights of the year, as part of the Management’s Discussion and Analysis. The GENIVAR Income Fund had an excellent year despite a difficult economic environment. Our ability to meet challenges head-on stems from the fact that we have remained focused on our growth objectives and, thanks to our solid team, we have continued to deliver impressive results year after year.
Starting off the decade on a positive note We are starting off a new decade with a number of major assets, including a clear plan, a dynamic and solid team, committed employees and a positive industry outlook. In Pierre Shoiry addition, we have mobilized around our business culture and core values—qualities that help to differentiate us in our sectors of activity. In addition to being decentralized and flexible, our entrepreneurial business model is based on client focus, respect, empowerment and team work—the very keys to our success. As we continue to implement our development plan, we will strive to maintain our distinctive way of doing business.
GENIVAR continued to grow in 2009. Drawing on the assets that have contributed to its success, the firm will keep pursuing its goals as we strive to reach another leadership milestone.
Acknowledgments I would like to thank our employees for their talents, skills and dedication. I am also Daniel Fournier grateful to our clients and unitholders for their trust and to the Board of Trustees for their ongoing support.
Pierre Shoiry, President and CEO
FROM DANIEL FOURNIER
The GENIVAR Income Fund had an excellent year thanks to the diversification of its geographic markets and its clients in both the public and private sectors. The financial results for fiscal 2009 reflect the Fund’s proven ability to withstand economic downturns. The Fund paid a distribution of $1.95 per unit, up 15% from 2008. A total of $48.7 million was paid to unitholders in the past year, representing an adjusted payout ratio of 78.9%. GENIVAR INCOME FUND 2009 ANNUAL REPORT
The Fund completed a $100 million equity financing, during which 3,809,500 units were sold to the public at a price of $26.25. The Fund successfully raised capital for both 2009 and 2010 through a single public offering. This financing was warmly received by the market which demonstrated its ongoing confidence in the Fund. The Fund remains a major consolidating force in the Canadian consulting engineering industry, while its solid balance sheet gives GENIVAR the required flexibility to pursue its disciplined growth plan. The Fund is also on track to become one of the country’s top three consulting engineering firms in its market segments and operating regions by the end of 2010. It is also well positioned to continue expanding within the emerging countries, while preparing to make its entry into other industrialized countries.
Thanks to the team’s strength and encouraging economic prospects, the Fund is optimistic but remains vigilant. The Fund will continue to capitalize on its strengths: its dedicated managers, who oversee operations in a responsible manner; its diversified client base, which generates recurring revenues year after year; and its reputation for delivering state-of-the-art services in accordance with the highest quality standards.
WE ARE ON TRACK TO BECOME ONE OF THE CANADA’S TOP THREE CONSULTING ENGINEERING FIRMS IN OUR MARKET SEGMENTS AND OPERATING REGIONS BY THE END OF 2010.
Governance Sound governance of the GENIVAR Income Fund has always been a top priority for the Board of Trustees, as reflected in its transparent dealings with GENIVAR’s management. Among the Board’s activities, a number of meetings were held with management with a view to monitoring the firm’s strategic plan and development goals. The Board takes pride in the growth of the Fund, which has seen its workforce increase from 1,300 to 4,100 employees since 2006. This development has been achieved while maintaining our entrepreneurial culture—a valuable asset lying at the heart of the Fund’s success.
In light of GENIVAR’s growth and the increasingly complex business environment, the Board also took up the issue of risk management. To this end, a business continuity plan was developed for each GENIVAR office in order to protect employees and safeguard company assets in the event of a major incident. Drawing up such plans involves establishing preparatory measures such as advance arrangements and procedures enabling the firm to take timely, organized and efficient action in the event of an incident.
In order to safeguard its reputation and maintain the trust of its clients and other stakeholders, GENIVAR also reviewed policies aimed at strengthening its best practices. In 2007, procedures were established for handling complaints relating to accounting, auditing and control irregularities, while a confidential telephone line and email address were launched. Individuals both inside and outside the firm can file complaints under these procedures, which are overseen, since 2009, by an independent internal auditor 05
who reports to the Board of Trustees’ Audit Committee. The firm issued a series of communications publicizing these procedures along with GENIVAR’s Code of Conduct, which is in the process of being updated for improved comprehension. A firm’s integrity, particularly in the area of professional services, is primarily based on its employees’ professional judgment. For several decades, GENIVAR has placed its full confidence in its employees so that they can perform their work under the best possible conditions and conduct their business with the required latitude. In addition to reflecting the entrepreneurial culture that has guided GENIVAR since its founding, this approach is designed to foster employee accountability. This strategic advantage will assume even greater importance as GENIVAR continues to grow and more employees continue to join its team. The firm must safeguard all of its assets and be vigilant in maintaining its culture, values, clients and reputation.
As regards the Board of Trustees’ other accomplishments, emphasis was placed on developing a succession plan to ensure GENIVAR’s long-term viability and success, which is largely dependent on the availability of individuals with the desired skills. The Board also discussed the GENIVAR Income Fund’s conversion into a corporation, which will be subject to income tax in the same way as other companies effective January 1st, 2011. In this regard, the Fund has formed a special committee of independent trustees to analyze the opportunity to convert the Fund into a corporation. The special committee is expected to make a formal recommendation to the Board of the Fund before the end of April 2010, and a press release will be issued by the Fund once the Board has made a decision. I would like to reiterate that we are working to protect unitholders’ interests and to ensure the firm’s long-term viability.
The past year was marked by a number of major accomplishments for the Fund, which has reached yet another milestone in its development. We have a solid balance sheet and we continued our profitable growth strategy. In light of our convincing results, we are well on the way to achieving our objectives. As it did in 2009, the Fund will work diligently to begin the new decade on the same basis, benefiting from its prime position while fully capitalizing on the positive outlook for the consulting engineering industry.
Acknowledgments I would like to thank our clients for selecting us as their business partner; they can rest assured of our continued commitment in support of their projects we carry out in Canada and around the world. I would also like to extend my sincere appreciation to our talented employees for their dedicated contributions to GENIVAR’s success. Thank you as well to our Board of Trustees for their wise counsel and invaluable support. I would also like to thank our unitholders for their ongoing trust and confidence.
Daniel Fournier, Chairman, Board of Trustees GENIVAR INCOME FUND 2009 ANNUAL REPORT
2009 YEAR-END KEY FIGURES As of December 31
REVENUES (in millions of dollars)
2005 130.0 477.9 2006 176.1 2007 257.2 INCREASE IN REVENUES 2008 387.8 % 2009 477.9 +23.2 PRE-IPO POST-IPO
NET REVENUES (in millions of dollars)
2005 96.6 395.3 2006 128.0 2007 206.6 INCREASE IN NET REVENUES 2008 320.1 % 2009 395.3 +23.5 PRE-IPO POST-IPO
EBITDA (in millions of dollars)
2005 17.4 78.6 2006 26.0 2007 42.2 INCREASE IN EBITDA 2008 68.6 % 2009 78.6 +14.5 PRE-IPO POST-IPO 07
NET EARNINGS (in millions of dollars) Before Non-controlling Unitholder’s Interest NUMBER OF EMPLOYEES
2005 1,300 50.1 2006 1,600 2007 2,400 ADJUSTED DISTRIBUTABLE CASH (in millions of dollars) 2008 3,400 61.7 2009 3,900
DISTRIBUTIONS DECLARED (in millions of dollars) ADJUSTED PAYOUT RATIO 48.7 78.9%
REVENUES BY MARKET SEGMENT (in %) REVENUES BY GEOGRAPHY (in %)
10 8
11 31 17
24 54 21 24
BUILDINGS MUNICIPAL INFRASTRUCTURE QUEBEC ONTARIO TRANSPORTATION INDUSTRIAL AND ENERGY ENVIRONMENT WESTERN CANADA CARIBBEAN AND INTERNATIONAL GENIVAR INCOME FUND 2009 ANNUAL REPORT
ALIGNING BUSINESS, ORGANIZATION AND TALENT
THE INDUSTRY IN WHICH GENIVAR OPERATES IS AN EXCITING ONE AND THE PEOPLE WORKING WITHIN IT ARE EQUALLY PASSIONATE. OUR TALENTED AND ENGAGED EMPLOYEES CARE DEEPLY ABOUT THEIR WORK AND DO THEIR UTMOST TO HELP MAKE OUR WORLD A BETTER PLACE TO LIVE. OUR PEOPLE CONSISTENTLY SEEK TO MAKE A DIFFERENCE BY PLANNING, DESIGNING AND DELIVERING SUSTAINABLE PROJECTS THAT PLAY A CENTRAL ROLE IN THE DAY-TO-DAY LIFE OF OUR SOCIETY.
Our people are the key to our success. In the current context of demographic change, GENIVAR is taking steps to groom and retain the next generation of employees— accounting for nearly one-third of our workforce—so that they may take on an even greater role in the company in the coming years. Our managers also play a leading role in preparing the next generation of leaders, while our human resources team has developed various training programs aimed at improving our managers’ skills. Approximately 20 different programs were developed and offered company-wide in 2009, focusing on leadership, team management, business process improvements and HR management. As regards managerial training, our employees have also been given opportunities to acquire additional knowledge in the area of technical training. In 2009, a large number of employees underwent training: 75% of our workforce, compared with 40% in 2008. This reflects our commitment to ensuring that our resources have the tools they need to develop their talents.
GENIVAR also believes that companies that manage to differentiate themselves, particularly in a competitive environment, are those that base their success on the overall leadership provided by their management teams, thereby setting the organizational tone. In this regard, GENIVAR has completed the firm-wide implementation of the Leadership Platform, based on four metrics: operational excellence; financial results; leadership effectiveness; and the ability to rally work teams around the business culture. This platform is designed to promote and foster in-house talent in line with overall growth and is aimed at propelling GENIVAR into the ranks of the leading engineering consulting companies in all of its market segments and operating regions.
As regards recruitment, we continued to implement the initiatives undertaken in 2008, including participation in recruitment campaigns using web-based technologies adapted to the needs of the new generation. In addition, our HR department took part in various job fairs at colleges and universities in Canada and abroad. These initiatives enabled us to attract a number of prospective employees seeking to meet new challenges and share their passion. GENIVAR will give them the guidance they need to develop their talents; their dedication and commitment will ensure that we become a engineering services leader. 09
HUMAN RESOURCES OVERVIEW
TOTAL EMPLOYEES AS AT DECEMBER 31 3,900 WORKFORCE EXPANSION IN 2009 (in %) +15
PROPORTION OF WOMEN (in %) 32 EMPLOYEES BY GEOGRAPHIC REGIONS (in %)
EMPLOYEES AVERAGE AGE 40 5
EMPLOYEES AVERAGE YEARS 15 OF EXPERIENCE 14
MANAGERS AVERAGE AGE 48 MANAGERS AVERAGE YEARS 55 OF EXPERIENCE 24 25
PROFESSIONALS AVERAGE AGE 38
PROFESSIONALS AVERAGE YEARS QUEBEC ONTARIO OF EXPERIENCE 13 WESTERN CANADA CARIBBEAN AND INTERNATIONAL
Occupational Health and Safety Occupational health and safety (OHS) remains a key operational priority for GENIVAR. We continued to implement training and prevention initiatives in all of our regions in 2009 and are particularly proud to note that our OHS results are excellent, with nearly 6 million hours worked. Our organization is growing and we have taken steps to offer our employees online and video training while enhancing the OHS manuals and procedures available on our Intranet site.
Under the supervision of the OHS department, GENIVAR also adopted a business continuity program in each province, enabling us to maintain our operations in the event of a major incident.
We are particularly proud of the health and safety promotion award presented to our office in Red Deer, Alberta by the central Alberta chapter of the Canadian Society of Safety Engineering in conjunction with North American Health and Safety Week. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS 11
2009 YEAR-END FINANCIAL REPORT
MANAGEMENT’s DISCUSSION & ANALYSIS GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS 13
MANAGEMENT’S DISCUSSION AND ANALYSIS The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) dated as of March 22, 2010, is intended to assist readers in understanding the GENIVAR Income Fund (the “Fund” or “GENIVAR”), its business environment, strategies, performance and risk factors. In this MD&A, the “Fund”, “we”, “us” and “our” mean GENIVAR Income Fund. This MD&A should be read together with the audited consolidated financial statements and accompanying notes of the Fund for the year ended December 31, 2009. The Fund’s consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”).
This MD&A focuses on the Fund’s fourth-quarter results, being from September 27, 2009, to December 31, 2009. The Fund’s quarters usually comprise 13 weeks except the last one, which has to end on December 31 of each year and the first quarter which follows.
FORWARD-LOOKING STATEMENTS This MD&A contains certain forward-looking statements. These statements relate to future events or future performance and reflect the expectations of management (the “Management”), regarding the growth, results of operations, performance and business prospects and opportunities of GENIVAR Limited Partnership (“GENIVAR LP”) or of the Engineering Services industry. Such forward-looking statements reflect current beliefs of Management and are based on information currently available. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. A number of factors could cause actual events or results to differ materially from the results discussed in the forward-looking statements. In evaluating these statements, investors should specifically consider various factors, including the risks outlined under the heading “Risk Factors” of this MD&A, which may cause actual events or results to differ materially from the results discussed in any forward-looking statement. Although the forward-looking statements contained in this MD&A are based upon what Management believes to be reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements.
NON-GAAP MEASURES The Fund uses Non-GAAP measures that are used by Canadian open-ended income funds as indicators of financial performance measures which are not recognized under GAAP and may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable. The Fund believes these measures are useful supplemental measures that may assist investors in assessing an investment in units.
Non-GAAP measures used by the Fund are Net revenues, EBITDA, Distributable cash, and Payout ratio. These measures are defined at the end of this MD&A in the glossary. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
OVERVIEW OF THE INDUSTRY AND THE FUND The industry The Canadian Engineering Services industry encompasses professional consulting activities in engineering, management, environmental and other technical services related to the development and implementation of infrastructure and other projects in the public and private sectors. Services provided for a particular project may include any or all of the following: feasibility studies, strategic planning, detailed engineering design, project and program management, site inspection, commissioning, plant operation and other related services.
Engineering services are a vital part of the Canadian economy, the Fund’s services being required on most of the infrastructure needs of the society. According to Statistics Canada’s most recent annual survey of the industry, engineering services companies recorded operating revenues of $17.8 billion in 2007. This data encompasses revenues generated by over 21,000 engineering services firms of all types.
Contracts in the Engineering Services industry are awarded through public calls for tenders, through invitation or by private agreement. They are generally remunerated through fee-for-service agreements based on hourly rates, a fixed-price negotiated fee or as a percentage of a project cost. Work is mostly obtained through requests for qualifications and requests for proposals where an offer of services is prepared detailing firm experience and qualifications, personnel, methodology and approach.
The Fund The Fund is a leading Canadian Engineering services firm providing private and public sector clients with a broad diversity of professional consulting services in planning, engineering, architecture, environmental services, and project management. The Fund offers a variety of project services throughout all project execution phases: from the initial development studies through the design, construction, commissioning and maintenance phases. The Fund has developed a multidisciplinary team approach where resources work closely with clients to develop optimized solutions on time and on budget. The Fund operates in five different market segments: Buildings, Municipal infrastructure, Transportation, Industrial & Energy, and Environment.
∫∫ Buildings: The Fund provides engineering, asset management, project management and architecture services to a wide range of clients and projects in the healthcare, educational, institutional, recreational, commercial, residential, manufacturing and industrial sectors. The broad range of services encompasses mechanical, electrical and structural engineering, building sciences, energy efficiency, food services as well as other project services. The Fund works on existing facilities as well as on new construction projects.
∫∫ Municipal infrastructure: Cities, municipalities, townships and real estate developers are among the major clients of this market segment and the assignments relate to municipal rehabilitation and development, water distribution and treatment, wastewater collection and treatment, public utilities, storm water management, land development, municipal road networks, lighting and various municipal facilities. 15
∫∫ Transportation: Through public transport authorities, government departments, cities, airport and port authorities, railroad companies and real estate developers, the Fund offers transportation solutions by providing planning, modeling, engineering, project management and contract administration services. Typical projects include highways, bridges and other civil engineering structures, port, harbour, railway and airport facilities, mass transit facilities, traffic systems and other transportation-related projects.
∫∫ Industrial & Energy: The Fund provides planning, engineering and project management services to private businesses of various industries such as mining and mineral processing, aluminum and light metals, chemical and petrochemicals, pulp and paper, wood products, pharmaceuticals and biotechnology, food and beverage, power generation and general manufacturing. Power generation projects include hydroelectric, wind, thermal power generation, cogeneration and related distribution and transmission systems. Clients include public suppliers of electricity and private developers.
∫∫ Environment: Services include impact studies and environmental assessments, ecosystem studies, monitoring, surveys, and characterizations, management systems, permitting, compliance audits, geomatics and mapping and risk management. Clients in this market segment include organizations from all of the other market segments and typical projects include restoration of contaminated sites, waste management, habitat restoration and site rehabilitation. The Fund has developed an integrated approach to projects where the environmental scientists are involved in the start-up and completion of most projects where environmental considerations are important.
The Fund’s business model is centered on maintaining a leadership position in the regions in which it operates by establishing a strong commitment to and recognizing the needs of surrounding local communities and clients. The Fund’s business model translates into large regional offices with an established market share and a full-service offering throughout every project execution phase. The Fund has permanent offices in six Canadian provinces (Quebec, Ontario, Manitoba, Saskatchewan, Alberta and British Columbia) and in the Caribbean. The Fund also currently works on projects in over twenty countries. Functionally, market segment leaders work together with regional leaders to develop and coordinate markets served, combining local knowledge relationships with nationally recognized expertise.
The goal is to develop a national firm with a leading presence in all major regions of Canada and a leadership position in each of its five market segments. The Fund wants to be recognized as one of the leading multidisciplinary engineering services firm in Canada in terms of employees and notoriety. The Fund will simultaneously continue to develop its Caribbean platform, establish other international operating centers and support its clients in their global development. In order to meet this target, the Fund evaluates that to enhance its position as a leading engineering firm throughout Canada, and to achieve leadership in its market segments, it must continue its growth plan. The Fund will continue to concentrate its efforts on recruiting and retaining a talented workforce by providing a dynamic and vibrant work environment and by continuing the acquisition strategy of attracting successful and complementary businesses to the GENIVAR family. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
PRESIDENT AND CEO’s REPORT The year 2009 was a rewarding one as we continued to execute our Canadian consolidation strategy while maintaining strong operating margins despite a challenging economic environment. This was made possible by the great team effort provided by our more than 3,900 employees, who contributed hours of hard work and dedication. I am pleased to report that we are entering this new decade with a strong team, a clear plan, a motivated leadership group, a committed workforce and a sound industry outlook.
Good fourth-quarter results complete a strong year in a challenging environment In 2009, the Fund posted record results in terms of revenues, net revenues, EBITDA, net earnings per unit and distributable cash per unit.
As of December 31 (in millions of dollars)
REVENUES NET REVENUES EBITDA
395.3 78.6 477.9
68.6 320.1 387.8
257.2 206.6 42.2
176.1 128.0 26.0 130.0 96.6 17.4
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
PRE-IPO POST-IPO
For the full year 2009, revenues grew from $387.8 million in 2008, to $477.9 million, representing a 23.2% increase. Net revenues were $395.3 million up 23.5% from $320.1 million in 2008. Of the total 23.5% increase in net revenues, 14.0% came as a result of the acquisitions completed in 2008 and 2009 and the remaining 9.5% was achieved through organic growth. EBITDA for the twelve-month 2009 period increased by 14.5% to $78.6 million compared to $68.6 million for the same period in 2008. 17
Diluted net earnings and adjusted distributable cash per unit during the twelve month period ended December 31, 2009, were $2.06 per unit and $2.56 per unit respectively, representing year-over-year increases of 5.6% and 13.3%. The EBITDA margin on net revenues was 19.9%, standing at the higher end of our target range of 18% to 20%, although down from the 21.4% level achieved in 2008. However, the 2008 results included a full-year exchange gain of $2.3 million as a result of a weaker Canadian dollar, whereas the 2009 results include a total exchange loss of $3.3 million, of which $1.4 million was recorded in the fourth quarter as a result of a stronger Canadian dollar. Without the exchange loss of $3.3 million recorded between January 1, 2009, and December 31, 2009, EBITDA would have been $81.9 million and the EBITDA margin on net revenues would have been 20.7% for 2009. It is important to note that $2.9 million of the $3.3 million exchange loss is unrealized and therefore will not necessarily have a cash flows impact.
Fourth-quarter results were strong, with total revenues of $135.0 million and net revenues of $108.7 million representing respective year-over-year increases of 16.7% and 16.6%. During the period from September 27, 2009 to December 31, 2009, EBITDA stood at $21.0 million, up from $19.6 million for the same period one year ago, representing an increase of 6.9%. The 2008 fourth-quarter results included a $2.0 million exchange gain while the 2009 fourth-quarter results included an exchange loss of $1.4 million. Without the negative impact of the exchange loss, the EBITDA for the fourth quarter of 2009 would have been $22.4 million. Earnings before non-controlling interest were $12.6 million or $0.47 per unit for the fourth quarter and $50.1 million or $2.06 per unit for the full year on a diluted basis. Without the exchange loss, net earnings would have been $0.56 per unit for the fourth quarter and $2.28 per unit for the full year. Fourth- quarter results included $1.6 million in income taxes as a result of our international operations and $4.7 million in amortization of intangible assets. Total amortization of intangible assets was $17.0 million for the full year, up slightly from $16.5 million in 2008. Total income taxes in 2009 were $3.3 million, up from $2.5 million in 2008.
The overall utilization rate of our workforce on billable projects decreased by 2.4% in the twelve-month period from January 1 to December 31, 2009, compared with the same period in 2008. Total project billable hours increased by 21.3%, from 3,389 million in 2008 to 4,111 million in 2009.
The Fund distributed $1.95 per unit in 2009, representing an adjusted payout ratio of 78.9% for the year. This includes a year-end special distribution of $0.45 per unit declared on December 18, 2009, which was required to maintain the Fund’s non-taxable status. Aggregate distributions totalled $48.7 million. Based on the weighted average trading price of the Fund’s units for the year of $24.95, total distributions of $1.95 represented an annual yield of 7.8%. Regular distributions are currently $0.125 per month.
Fund units closed the year ended December 31, 2009 at $27.05, up 7.3% from $25.20 as at December 31, 2008. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Trading price and volume
MONTHLY HIGH PRICE MONTHLY LOW PRICE DISTRIBUTIONS TOTAL VOLUME PER UNIT PER UNIT PER UNIT
2009 $ $ Units $
First quarter $ 25.15 $ 19.50 2,303,011 $ 0.375
Second quarter $ 26.53 $ 21.75 1,674,098 $ 0.375
Third quarter $ 27.98 $ 22.60 3,733,647 $ 0.375
Fourth quarter $ 27.95 $ 25.06 3,401,740 $ 0.825
Full year $ 27.98 $ 19.50 11,112,496 $ 1.95
Continued growth despite a challenging economic environment GENIVAR’s goal is to be recognized as one of the leading multidisciplinary engineering services firms in Canada. In 2009, we continued executing our growth strategy as we added about 500 employees in Canada and overseas, of which slightly more than 340 came through acquisitions and the remainder by organic growth. We completed twelve acquisitions in four provinces in 2009, which contributed to consolidating our position in these provinces while enhancing our expertise in several market segments. We also added to our Caribbean platform with one acquisition in Trinidad and Tobago.
∫∫ In the first quarter of 2009, five companies joined forces with GENIVAR, adding approximately 100 employees. These acquisitions provide a technical complement to our platform by adding specific expertise, thereby broadening our capabilities in the environmental, municipal infrastructure, transportation and building market segments. Envirotel 3000 brings us leading-edge expertise in wildlife and plant habitat inventory projects; WSA Trenchless Consultants has unique expertise in trenchless technologies used in the rehabilitation of water and sewer systems; ENTRA Consultants is recognized as an innovative firm specializing in transportation, transit planning and traffic engineering; Design Collaborative Associates Ltd. is one of the leading architectural and planning firms in the Caribbean; and Wiebe Environmental Services provides a platform in Alberta for our environmental services and brings valuable expertise in the oil and gas industry.
∫∫ In the second quarter of 2009, the Fund added approximately 125 employees with the acquisitions of three firms which enable us to strengthen our capabilities in the environmental and energy sectors and to enter the nuclear power market. Algal & Associates is recognized as a leading provider of electrical engineering services for power generation, transmission and distribution systems; Jagger Hims enhances GENIVAR’s earth and environmental sciences capabilities and expands our Ontario operating platform by adding six new offices in this province; ENAQ is a niche player in the nuclear sector, bringing expertise in the specific fields of nuclear licensing, safety analysis, risk assessment and nuclear engineering design. 19
∫∫ In the third quarter of 2009, three acquisitions were completed, adding slightly more than 100 employees to the Fund. WM.R. Walker Engineering, a multidisciplinary engineering firm based in Sault Ste. Marie, came onboard in July and added about 15 employees. The acquisitions of Magnate Engineering & Associates and Magnate Communications Corp., two telecommunications firms with a total of 70 employees in Ontario and British Columbia, positioned the Fund as a key national player in the wireless, fibre-optic and cable services industries. The Fund also acquired Progemes Consultants, a Montreal- based building engineering firm, adding 20 employees and strengthening our sustainable building expertise.
∫∫ In the fourth quarter of 2009, the Fund acquired two small companies with a total of 15 employees: Harp Engineering and Design, a St. Catharines-based mechanical and electrical firm, and Gilles Taché & Associés, a municipal infrastructure firm based in Sainte-Agathe, Quebec.
While acquisitions accounted for 14.0% of the year-over-year growth of our net revenues in 2009, compared with 29.5% of year-over-year acquisitive growth in 2008, we expect to maintain our consolidation strategy in Canada over the next few years. Organic growth accounted for over 9.5% of our revenues and net revenues growth in 2009, placing us at the high end of our 5%-10% target for the year. Considering the slowdown in several of our sectors in 2009, primarily stemming from reduced private investments in the industrial and energy sectors, residential and commercial facilities and environmental projects, our organic growth was very satisfying. As at December 31, 2009, we had a total workforce of more than 3,900 employees.
NUMBER OF EMPLOYEES
3,900
3,400
2,400
1,600
1,300
2005 2006 2007 2008 2009 GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
In 2009, the Fund remained active in all of its market segments, with positive year-over-year net revenues growth.
Revenues and net revenues by market segment
2009 2008
REVENUES REVENUES VARIATION
IN THOUSANDS OF DOLLARS $ % $ % %
Municipal Infrastructure $ 115,174 24.1% $ 106,997 27.6% 7.6%
Transportation $ 113,318 23.7% $ 85,707 22.1% 32.2%
Buildings $ 145,868 30.5% $ 107,606 27.7% 35.6%
Industrial & Energy $ 54,541 11.4% $ 59,775 15.4% (8.8%)
Environment $ 49,023 10.3% $ 27,718 7.2% 76.9%
$ 477,924 100.0% $ 387,803 100.0%
2009 2008
NET REVENUES NET REVENUES VARIATION
IN THOUSANDS OF DOLLARS $ % $ % %
Municipal Infrastructure $ 96,053 24.3% $ 87,484 27.3% 9.8%
Transportation $ 87,724 22.2% $ 66,692 20.9% 31.5%
Buildings $ 125,949 31.8% $ 96,437 30.1% 30.6%
Industrial & Energy $ 48,931 12.4% $ 47,926 15.0% 2.1%
Environment $ 36,670 9.3% $ 21,555 6.7% 70.1%
$ 395,327 100.0% $ 320,094 100.0%
The strongest revenues growth was recorded in the environmental sector, primarily as a result of the acquisitions completed during the year, adding about 140 people, as well as of those completed in the last quarter of 2008. The Industrial & Energy segment was the most affected by the economic situation, posting a slight increase in net revenues of 2.1%. 21
Revenues and net revenues by geographical market
2009 2008
REVENUES REVENUES VARIATION
IN THOUSANDS OF DOLLARS $ % $ % %
Canada
Quebec $ 257,621 53.9% $ 212,242 54.7% 21.4%
Ontario $ 98,349 20.6% $ 70,335 18.2% 39.8%
Alberta $ 48,326 10.1% $ 42,379 10.9% 14.0%
British Columbia $ 19,494 4.1% $ 14,636 3.8% 33.2%
Manitoba $ 7,827 1.6% $ 8,637 2.2% (9.4%)
Saskatchewan $ 6,645 1.4% $ 6,460 1.7% 2.9%
International $ 39,662 8.3% $ 33,114 8.5% 19.8%
$ 477,924 100.0% $ 387,803 100.0% 23.2%
2009 2008
NET REVENUES NET REVENUES VARIATION
IN THOUSANDS OF DOLLARS $ % $ % %
Canada
Quebec $ 214,206 54.2% $ 178,654 55.8% 19.9%
Ontario $ 80,759 20.4% $ 57,122 17.9% 41.4%
Alberta $ 40,744 10.3% $ 34,510 10.8% 18.1%
British Columbia $ 18,863 4.8% $ 13,819 4.3% 36.5%
Manitoba $ 7,259 1.8% $ 7,980 2.5% (9.0%)
Saskatchewan $ 5,904 1.5% $ 5,911 1.8% (0.1%)
International $ 27,592 7.0% $ 22,098 6.9% 24.9%
$ 395,327 100.0% $ 320,094 100.0% 23.5%
In geographical terms, the revenues generated in most provinces grew in similar proportion to the overall growth of the Fund, with the exception of Saskatchewan and Manitoba, our two smallest regions in terms of number of employees and market diversification. Our Manitoba operations were affected by the slowdown of our urban land practice, while the growth of our Saskatchewan operations was limited by labour shortages. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
The Fund continued to grow in our four strongest markets for engineering services: Ontario, Quebec, Alberta and British Columbia, which together account for about 96.7% of the total Canadian market. In addition, we recorded a 19.8% growth in our international revenues, which accounted for 8.3% of our total 2009 revenues, compared with 8.5% of our total 2008 revenues.
The breakdown of our 2009 revenues by market segment and geography are summarized below:
REVENUES BY MARKET SEGMENT (in %) REVENUES BY GEOGRAPHY (in %)
10 8
11 31 17
54 24 21 24
QUEBEC ONTARIO BUILDINGS MUNICIPAL INFRASTRUCTURE TRANSPORTATION WESTERN CANADA CARIBBEAN & INTERNATIONAL INDUSTRIAL & POWER ENVIRONMENT
We intend to continue growing and enhancing the technical capabilities of our Canadian platform through strategic acquisitions and organic growth initiatives. Our main focus in 2010 will be to pursue the goal of achieving a top-tier leadership position in all Canadian regions within each of our five market segments. To this end, the Fund completed two acquisitions as at March 22, 2010, adding 210 employees. Cook Engineering of Thunder Bay gives us a leadership position in Northwestern Ontario and enhances our capabilities in the mining, energy and transportation sectors; the Thompson Rosemount Group consolidates our leading position in Eastern Ontario and provides GENIVAR with additional capabilities in the municipal infrastructure and building segments.
Solid balance sheet provides flexibility The Fund’s balance sheet remained very solid as at December 31, 2009, with a net cash position of $51.9 million and long-term financial liabilities totalling $13.1 million. On October 16, 2009, the Fund raised $100.0 million in equity financing through a public offering of 3,809,500 units at a price of $26.25 each. The Fund had 27,163,976 outstanding units as at December 31, 2009. This successful financing round marked the completion of the maximum new equity the Fund can raise before the end of 2010 under growth rules issued by Canada’s Minister of Finance. Thanks to its existing credit facility of $82.0 million and its net cash position of $51.9 million, the Fund expects to continue executing its business plan and consolidation strategy in 2010. 23
Major operating cash flow improvements were achieved in the fourth quarter of 2009. The Fund reduced the total days sales outstanding to 111 at the end of the fourth quarter, compared with 121 at the end of the third quarter.
The Fund’s total assets increased from $427.4 million as at December 31, 2008, to $533.1 million as at December 31, 2009.
Capital expenditures for the full year totalled $12.8 million, of which $6.0 million was allocated to IT equipment and software; $3.0 million to furniture and equipment; $1.9 million to leasehold improvements; $1.5 million to our ERP system implementation called UNISON project and $0.4 million to others. For the fourth quarter of 2009, capital expenditures totalled $3.9 million.
Diversified client base: client satisfaction is our main focus GENIVAR would not exist without its clients. We strive to develop long term client partnerships built on mutual respect, quality service and technical excellence. As at December 31, 2009, the Fund had 5,997 active clients, with the top 100 accounting for 57.2% of our revenues and the top 10 accounting for approximately 28.0%. We typically generate significant repeat business if we provide efficient and quality professional services and if projects are delivered on time and on budget. As at December 31, 2009, the Fund had 14,010 active projects underway with a diversified client base. These projects range in size and scope; the value of our related services varies from less than a thousand to several million dollars. In 2009, no single project accounted for more than 4.0% of our total annual revenues. Our largest client generated 9.1% of our revenues thanks to the awarding of several hundred projects and the utilization of several of our services. A number of clients utilize a wide variety of our services; we focus on creating organic growth by leveraging multiple services to existing clients and new clients gained through acquisitions. Significant emphasis is placed on maximizing business opportunities through knowledge sharing and cross-marketing initiatives with firms that join GENIVAR.
In 2009, public-sector clients accounted for approximately 58.2% of our revenues; private-sector clients accounted for the remaining 41.8%. However, several public-sector projects were completed on behalf of architects, developers and design-build contractors who qualify as private-sector clients even though the projects were public. Revenues from public-sector projects thus accounted for slightly over 60.0% of our total revenues.
As GENIVAR continues to grow, we will strive to continue serving all of our clients on projects of varying size and scope and benefiting from our overall scale and depth to undertake larger and more significant projects. We also provide our national clients with local services within our Canadian network. We are focused on developing national accounts in the public and private sectors in connection with the national investment and maintenance programs of some of our clients. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Our clients have given us opportunities to work on a diversified range of projects and to gain distinction for our excellent and innovative results. We are grateful to our clients for their continued support and we wish to assure them of our ongoing commitment to providing them with innovative and cost-effective solutions and quality service.
In 2009, GENIVAR received nine engineering and project management awards recognizing the excellent services provided by GENIVAR’s teams. Our goal is to contribute to the success of our clients’ projects by delivering tangible and measurable value-added. The following projects received awards of excellence:
01
02 03
04 05 06 25
∫∫ International Waterfront revitalization project, Port of Spain, Trinidad and Tobago, on behalf of the Urban Development Corporation of Trinidad and Tobago Ltd.; Quebec Consulting Engineering Awards, project management category. (06)
∫∫ Energy optimization project involving four buildings located in a remote part of the La Vérendrye Wildlife Reserve, on behalf of the Quebec Real Estate Corporation; Quebec Consulting Engineering Awards, Visionary Prize. (05)
∫∫ Samuel-De Champlain Promenade, on behalf of the Quebec National Capital Commission (CCNQ), Quebec City, first prize (best of category, commercial architecture and urban design, Canadian Design Exchange Award). (01)
∫∫ Electrical engineering project for Passport Canada’s production centre in Gatineau, Quebec, on behalf of Public Works and Government Services Canada, Passport Award. (02)
∫∫ Restoration of the Egyptian Ambassador’s residence in Ottawa; certificate of merit for architectural conservation, City of Ottawa. (03)
∫∫ Urban integration project involving two buildings: Maison Mackay and 57 Lewis in Ottawa; award of excellence for urban design, Ottawa.
∫∫ Exterior lighting project for Carleton University’s outdoor sports complex, Ottawa; Illuminating Engineering Society, Ottawa.
∫∫ Structural engineering project involving a building at Innovation Place in Saskatoon; Saskatchewan Masonry Design Award, commercial buildings category. (04)
∫∫ Structural and electrical engineering project, College Building, University of Saskatchewan; Saskatchewan Masonry Design Award, masonry restoration design category.
Operational excellence: raising the bar in 2010 In addition to achieving a solid financial performance, we have continued to build a stronger and more unified organization. We have strengthened our corporate support services and improved our processes, policies and governance without unnecessary bureaucracy or overmanagement. We have launched a number of internal initiatives that will mean an even stronger GENIVAR in 2010, including a company-wide resource planning system known as UNISON. UNISON will provide easily accessible project, financial, HR and knowledge management information throughout the firm, thereby enhancing our strategic information sharing and helping us to leverage our collective experience and know-how.
Several management changes were made in 2009, including the appointment of Marc Rivard as Chief Operating Officer. We are starting off 2010 with a very strong and dynamic leadership team and the ongoing engagement of our 400 plus employee-owners, who collectively hold a 33.35% equity interest in the Fund. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Starting off a new decade on a positive note We have been pursuing a strategy of market segment and geographic diversification, combined with a balanced mix of private and public-sector clients undertaking projects of varying size and scope. This has served to mitigate risks in fast-changing markets, as seen in 2009.
We intend to continue with this model and our mergers and acquisitions (“M&A”) strategy in the coming years by focusing on complementary businesses that provide us with additional geographical exposure or enhanced practice areas, share similar values and adhere to our business plan. We favour successful firms that provide minimal overlap with our existing operations; this allows us to focus on creating new opportunities through cross-marketing and organic growth. Knowledge sharing and ensuring effective communications within the growing group will be the twin keys to leveraging our M&A strategy. We believe that the internal systems being implemented in 2010 will further enhance our development.
Additional Canadian development will be our primary focus in 2010 with a view to expanding our regional platforms and establishing a foothold in Atlantic Canada. We intend to pursue our international development by expanding in certain developing countries and preparing to move into various industrialized countries. In some markets, we will implement strategies to maximize opportunities aimed at obtaining national accounts with clients operating in the areas of environment and building. We also hope to enhance our overall relationship with private clients in the mining and energy industries.
We are starting off this decade with an ambitious plan based on building a global professional engineering services firm; we are confident in our ability to achieve this goal. We have grown significantly since our IPO in May 2006 and have brought in 42 acquired firms and added both through acquisitions and organically with a total of nearly 3,000 new employees. GENIVAR’s entrepreneurial culture is supported by its core values and guiding principles, which form the foundations of our day-to-day activities and provide a solid platform for continued growth. We are starting off this decade with a clear plan; our expansion will be aligned with our business model and entrepreneurial approach. As a professional services firm, we foster a culture of adaptability, flexibility and agility, empowering our resources to adopt efficient management practices and deliver the best projects for our clients. 27
SUMMARY OF QUARTERLY RESULTS
2009 2008
TTM Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
FOR THE FOR THE FOR THE FOR THE FOR THE PERIOD FOR THE FOR THE FOR THE TRAILING PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM FROM SEPTEMBER PERIOD FROM PERIOD FROM PERIOD FROM TWELVE SEPTEMBER 27 JUNE 28 TO MARCH 29 TO JANUARY 1 TO 28 TO DECEMBER JUNE 29 TO MARCH 30 TO JANUARY 1 TO IN THOUSANDS OF DOLLARS, MONTHS TO DECEMBER 31 SEPTEMBER 26 JUNE 27 MARCH 28 31 SEPTEMBER 27 JUNE 28 MARCH 29 EXCEPT PER UNIT DATA (AUDITED*) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Results of operations
Revenues $ 477,924 $ 135,022 $ 125,426 $ 120,045 $ 97,431 $ 115,718 $ 104,650 $ 97,348 $ 70,087
Net revenues (1) $ 395,327 $ 108,708 $ 101,181 $ 100,634 $ 84,804 $ 93,263 $ 85,814 $ 80,869 $ 60,148
Gross margin $ 198,683 $ 53,797 $ 52,054 $ 50,422 $ 42,410 $ 47,910 $ 43,792 $ 40,440 $ 29,966
EBITDA $ 78,569 $ 20,952 $ 21,385 $ 19,507 $ 16,725 $ 19,598 $ 19,670 $ 17,463 $ 11,878
Net earnings $ 31,093 $ 8,191 $ 8,824 $ 7,674 $ 6,404 $ 6,226 $ 8,325 $ 6,666 $ 4,598
Net earnings per unit Basic (2) $ 2.06 $ 0.47 $ 0.62 $ 0.54 $ 0.45 $ 0.44 $ 0.65 $ 0.52 $ 0.36 Diluted $ 2.06 $ 0.47 $ 0.62 $ 0.54 $ 0.45 $ 0.44 $ 0.64 $ 0.52 $ 0.35
Weighted average number of units 15,071,186 17,297,253 14,276,466 14,276,730 14,277,078 14,192,428 12,870,030 12,870,364 12,870,664
Diluted weighted average number of units 24,131,573 26,357,640 23,351,903 23,348,960 23,345,696 23,224,760 21,352,768 21,350,781 21,347,826
Distributable cash
Distributable cash Standardized $ 39,794 $ 31,835 $ 939 ($ 2,484) $ 9,504 $ 10,321 $ 6,824 $ 5,278 $ 5,461 Adjusted $ 61,704 $ 16,893 $ 18,174 $ 14,512 $ 12,125 $ 13,754 $ 16,078 $ 13,242 $ 9,798
Distributable cash, per unit (3) Standardized $ 1.65 $ 1.21 $ 0.04 ($ 0.11) $ 0.41 $ 0.44 $ 0.32 $ 0.25 $ 0.26 Adjusted $ 2.56 $ 0.64 $ 0.78 $ 0.62 $ 0.52 $ 0.59 $ 0.75 $ 0.62 $ 0.46
Distributions declared $ 48,684 $ 22,410 $ 8,758 $ 8,758 $ 8,758 $ 19,268 $ 8,011 $ 5,340 $ 5,340
Distributions declared, per unit (4) $ 1.95 $ 0.83 $ 0.38 $ 0.38 $ 0.38 $ 0.83 $ 0.38 $ 0.25 $ 0.25
Payout ratio Adjusted 78.9% 132.7% 48.2% 60.4% 72.2% 140.1% 49.8% 40.3% 54.5%
* Except for Non-GAAP measures.
(1) Net revenues are defined as Revenues less subconsultants and other direct expenses (see glossary).
(2) As at December 31, 2009, 18,103,589 Fund units and 9,060,387 Exchangeable Class B and Class C LP units were outstanding for a total of 27,163,976 units. As at March 22, 2010, the number of units is identical to what it was as at December 31, 2009.
(3) Distributable cash per unit is calculated using the diluted weighted average number of units.
(4) Distributions declared per unit represent the annual distributions declared. Distributions declared per unit, calculated using the diluted weighted average number of units, were $1.98 per unit for the year. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
SELECTED CONSOLIDATED FINANCIAL INFORMATION Financial Highlights
3 MONTHS 12 MONTHS
2009 2008 2009 2008
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM SEPTEMBER 27 TO FROM SEPTEMBER 28 TO FROM JANUARY 1 FROM JANUARY 1 DECEMBER 31 DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS OF DOLLARS, EXCEPT PER UNIT DATA (UNAUDITED) (UNAUDITED) (AUDITED*) (AUDITED*)
Net revenues $ 108,708 $ 93,263 $ 395,327 $ 320,094
EBITDA $ 20,952 $ 19,598 $ 78,569 $ 68,609
Net earnings $ 8,191 $ 6,226 $ 31,093 $ 25,815
Net earnings per unit Basic $ 0.47 $ 0.44 $ 2.06 $ 1.95 Diluted $ 0.47 $ 0.44 $ 2.06 $ 1.95
* Except for Non-GAAP measures.
3 MONTHS 12 MONTHS
2009 2008 2009 2008
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM SEPTEMBER 27 TO FROM SEPTEMBER 28 TO FROM JANUARY 1 FROM JANUARY 1 DECEMBER 31 DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS OF DOLLARS (UNAUDITED) (UNAUDITED) (AUDITED*) (AUDITED*)
Distributable cash Standardized $ 31,835 $ 10,321 $ 39,794 $ 27,884 Adjusted $ 16,893 $ 13,754 $ 61,704 $ 52,872
Aggregate Distributions, all units $ 22,410 $ 19,268 $ 48,684 $ 37,959
Payout ratio Adjusted 132.7% 140.1% 78.9% 71.8%
* Except for Non-GAAP measures.
Balance Sheets 2009 2008
AS AT DECEMBER 31 AS AT DECEMBER 31 IN THOUSANDS OF DOLLARS (AUDITED) (AUDITED)
Total assets $ 533,097 $ 427,382
Long-term financial liabilities (1) $ 13,068 $ 26,315
(1) Long-term financial liabilities consist of balances of purchase price payable and long-term debt, including current portions, and bank advances. 29
RESULTS OF OPERATIONS
3 MONTHS 12 MONTHS
2009 2008 2009 2008
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM SEPTEMBER 27 TO FROM SEPTEMBER 28 TO FROM JANUARY 1 FROM JANUARY 1 DECEMBER 31 DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS OF DOLLARS EXCEPT PER UNIT DATA (UNAUDITED) (UNAUDITED) (AUDITED*) (AUDITED*)
Revenues $ 135,022 $ 115,718 $ 477,924 $ 387,803
Deduct: Subconsultants and other direct expenses $ 26,314 $ 22,455 $ 82,597 $ 67,709
Net revenues $ 108,708 $ 93,263 $ 395,327 $ 320,094
Direct project costs $ 54,911 $ 45,353 $ 196,644 $ 157,986
Gross margin $ 53,797 $ 47,910 $ 198,683 $ 162,108
Marketing, general, and administrative expenses and others $ 32,845 $ 28,312 $ 120,114 $ 93,499
EBITDA $ 20,952 $ 19,598 $ 78,569 $ 68,609
Interest $ 386 $ 850 $ 1,898 $ 2,341
Depreciation of property, plant and equipment $ 1,676 $ 1,647 $ 6,287 $ 4,705
Amortization of intangible assets $ 4,719 $ 5,486 $ 17,036 $ 16,527
Earnings before income taxes and non-controlling interest $ 14,171 $ 11,615 $ 53,348 $ 45,036
Income taxes $ 1,556 $ 1,434 $ 3,281 $ 2,518
Earnings before non-controlling interest $ 12,615 $ 10,181 $ 50,067 $ 42,518
Non-controlling interest $ 4,424 $ 3,955 $ 18,974 $ 16,703
Net earnings $ 8,191 $ 6,226 $ 31,093 $ 25,815
Basic net earnings per unit $ 0.47 $ 0.44 $ 2.06 $ 1.95
Weighted average number of units 17,297,253 14,192,428 15,071,186 13,213,513
Diluted net earnings per unit $ 0.47 $ 0.44 $ 2.06 $ 1.95
Diluted weighted average number of units 26,357,640 23,224,760 24,131,573 21,829,087
* Except for Non-GAAP measures. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS Revenues The Fund operates in one reporting segment, which is commonly referred to as consulting services. The Fund’s financial performance and results should be measured and analyzed in relation to the fee-based revenues, or net revenues, since direct recoverable costs can vary significantly from contract to contract and are not indicative of the engineering services business.
Revenues for the three-month period ended December 31, 2009, increased by $19.3 million (16.7%) from $115.7 million in 2008, to $135.0 million in 2009.
Revenues for the twelve-month period ended December 31, 2009, increased by $90.1 million (23.2%), from $387.8 million in 2008, to $477.9 million in 2009.
Net revenues, expressed as revenues less direct costs for subconsultants and other direct expenses that are recoverable directly from the clients, amounted to $108.7 million for the three-month period ended December 31, 2009, and to $93.3 million for the corresponding period in 2008, which represents an increase of $15.4 million (16.6%).
Net revenues increased from $320.1 million for the twelve-month period ended December 31, 2008, to $395.3 million for the corresponding period in 2009, which represents an increase of 23.5%.
The following tables summarize the impact of business acquisitions and organic growth on both revenues and net revenues:
IN THOUSANDS OF DOLLARS 3 MONTHS 12 MONTHS VARIATION 2009 VARIATION 2009 Revenues % % VS. 2008 VS. 2008 Acquisition growth (1) $ 12,399 10.71% $ 53,237 13.73%
Organic growth (1) $ 6,905 5.97% $ 36,884 9.51%
Total increase $ 19,304 16.68% $ 90,121 23.24%
IN THOUSANDS OF DOLLARS 3 MONTHS 12 MONTHS VARIATION 2009 VARIATION 2009 Net revenues % % VS. 2008 VS. 2008 Acquisition growth (1) $ 9,658 10.36% $ 44,676 13.96%
Organic growth (1) $ 5,787 6.20% $ 30,557 9.54%
Total increase $ 15,445 16.56% $ 75,233 23.50%
(1) Acquisition growth is calculated from the average per quarter revenues of the acquired business at the acquisition’s date. The total growth of the Fund that exceeds the acquisition growth is presented as organic growth. 31
From December 2008 to December 2009, the number of employees increased by 14.7% from 3,400 to more than 3,900 employees. Of this increase, 4.7% came from organic growth.
Organic growth for the three-month period of 6.0% on revenues and 6.2% on net revenues met the Fund’s 5-10% target on organic growth. Organic growth for the twelve-month period was 9.5% on revenues and net revenues. At the higher end of the target, these numbers are very satisfying considering the slowdown in several sectors in 2009.
EXPENSES Operating expenses consist of two major components which are direct project costs and marketing, general and administrative expenses and others. Direct project costs include payroll costs relating to the delivery of consulting services and project delivery. Marketing, general and administrative expenses and others include payroll costs of marketing and other administrative support staff, such as accounting, communications, information technology, quality, health and safety, purchasing and human resources, as well as other fixed costs such as occupancy costs, non recoverable client services costs, technology costs, office costs, professional services costs and insurance.
Other expenses include depreciation of property, plant and equipment, amortization of intangible assets, interest expenses and exchange gain or loss.
Key performance indicators of the Fund are Direct project costs, Gross margin and Marketing, general, and administrative expenses and others, all of which are expressed as a percentage of net revenues.
Direct project costs For the three-month period ended December 31, 2009, direct project costs represented 50.5% of net revenues compared to 48.6% for the same period in 2008. The Fund’s quarter to quarter projects repartitions vary from different market segments with different margins, which explains the 1.9% increase in direct project costs.
For the twelve-month period ended December 31, 2009, direct project costs represented 49.7% of net revenues compared to 49.4% for the same period in 2008.
Direct project costs, as a percentage of net revenues, are generally comparable from quarter to quarter.
As a percentage of net revenues, direct project costs for the last four quarters were as follows:
∫ 50.5% Q4-2009 ∫ 48.6% Q3-2009 ∫ 49.9% Q2-2009 ∫ 50.0% Q1-2009 GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Gross margin For the three-month period ended December 31, 2009, the gross margin represented 49.5% of net revenues compared to 51.4% for the same period in 2008.
For the twelve-month period ended December 31, 2009, the gross margin represented 50.3% of net revenues compared to 50.6% for the same period in 2008.
As a percentage of net revenues, gross margin over the last four quarters was as follows:
∫ 49.5% Q4-2009 ∫ 51.4% Q3-2009 ∫ 50.1% Q2-2009 ∫ 50.0% Q1-2009
Marketing, general and administrative expenses and others Marketing, general and administrative expenses and others for the three-month period ended December 31, 2009, increased to $32.8 million compared to $28.3 million for the same period in 2008. As a percentage of net revenues, marketing, general and administrative expenses and others represented 30.2% for the three-month period ended December 31, 2009, compared to 30.4% for the same period in 2008.
Marketing, general and administrative expenses and others for the twelve-month period ended December 31, 2009, increased to $120.1 million compared to $93.5 million for the same period in 2008. As a percentage of net revenues, marketing, general and administrative expenses and others represented 30.4% for the twelve-month period ended December 31, 2009, compared to 29.2% for the same period in 2008.
As a percentage of net revenues, marketing, general, and administrative expenses and others for the last four quarters were as follows:
∫ 30.2% Q4-2009 ∫ 30.3% Q3-2009 ∫ 30.7% Q2-2009 ∫ 30.3% Q1-2009
Marketing, general and administrative expenses and others are not in direct relation with net revenues and therefore may fluctuate from quarter to quarter. 33
During the fourth quarter, the Fund continues to be impacted by a strong Canadian dollar. As a result, the Fund recorded an exchange loss of $1.4 million in Q4-2009 for a year to date exchange loss of $3.3 million. In comparison, in 2008, the Fund has recorded an exchange gain of $2.0 million during the fourth quarter and $2.3 million for the twelve-month period ended December 31, 2008. Without the exchange variation, the marketing, general and administrative expenses and others, as a percentage of net revenues, would have been:
∫ 29.5% Year 2009 ∫ 29.9% Year 2008
On the other hand, the overall utilization rate of the workforce billable on projects decreased by 2.4%, which results in more staff time charged to non-billable projects accounted for as marketing, general and administrative expenses and others.
EBITDA EBITDA for the three-month period ended December 31, 2009, stood at $21.0 million, up $1.4 million from $19.6 million for the same period in 2008, thus representing a 6.9% increase. As a percentage of net revenues, EBITDA margin stood at 19.3% for the three-month period ended December 31, 2009, compared to 21.0% for the same period in 2008. Without the impact of the exchange loss, the EBITDA margin would have been 20.6%.
EBITDA for the twelve-month period ended December 31, 2009, stood at $78.6 million, up $10.0 million from $68.6 million for the same period in 2008, thus representing a 14.5% increase. As a percentage of net revenues, EBITDA margin stood at 19.9% for the twelve-month period ended December 31, 2009, compared to 21.4% for the same period in 2008. Without the impact of the exchange loss, the EBITDA margin would have been 20.7%.
As a percentage of net revenues, EBITDA for the last four quarters were as follows:
∫ 19.3% Q4-2009 ∫ 21.1% Q3-2009 ∫ 19.4% Q2-2009 ∫ 19.7% Q1-2009
During the fourth quarter, the EBITDA margin reached the Fund’s target range of 18% to 20% EBITDA margin on net revenues.
Depreciation and amortization Depreciation of property, plant and equipment for the three-month period ended December 31, 2009, was $1.7 million compared to $1.6 million for the same period in 2008. For the twelve-month period ended December 31, 2009, depreciation of property, plant and equipment was $6.3 million compared to $4.7 million for the same period in 2008. The underlying cause is the depreciation of additional assets acquired through various business acquisitions. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Amortization of intangible assets for the three-month period ended December 31, 2009, was $4.7 million compared to $5.5 million for the same period in 2008. For the twelve-month period ended December 31, 2009, amortization of intangible assets increased by $0.5 million, from $16.5 million in 2008 to $17.0 million in 2009. The amortization expense increase is attributable to the various business acquisitions.
Interest Interest expense for the three-month period ended December 31, 2009, was $0.4 million compared to $0.9 million for the same period in 2008. Interest expense for the twelve-month period amounted to $1.9 million in 2009 compared to $2.3 million for the same period in 2008.
Income taxes For the three-month period ended December 31, 2009, the Fund recognized an amount of $1.6 million as an income tax expense compared to $1.4 million for the same period in 2008. For the twelve-month period ended December 31, 2009, the Fund recognized an amount of $3.3 million as an income tax expense compared to $2.5 million for the same period in 2008. Current income taxes are mainly related to the international activities of the Fund.
SIFT Rules On October 31, 2006, the Minister of Finance (Canada) announced new tax measures proposing changes to the manner in which certain specified investment flow-through entities (“SIFT”), such as publicly-traded income trusts, and the distributions from such entities are taxed (the “SIFT Rules”). Bill C-52, which received Royal Assent on June 22, 2007, contained and implemented the SIFT Rules.
The SIFT Rules will subject the Fund to trust level taxation as of January 1, 2011, at a rate comparable to the combined federal and provincial corporate tax rate applicable to certain types of income (other than taxable dividends). In addition, the taxable distributions received by Unitholders will, as of January 1, 2011, be treated as dividends from a taxable Canadian corporation but the tax treatment of distributions that are paid as a return of capital by a SIFT will not be changed. There can be no assurance that the Fund will be able to maintain the same level of distributions commencing in 2011.
The Fund will be able to retain the benefit of the deferred application of the SIFT Rules until January 1, 2011. If, during the period from and including November 1, 2006 to December 31, 2010, the Fund is deemed to have undergone “undue expansion”, as described in the guidelines on normal growth issued by the Department of Finance (Canada) (the “Normal Growth Guidelines”), the SIFT Rules will become applicable to the Fund on a date earlier than January 1, 2011.
Under the Normal Growth Guidelines, a SIFT will not lose the benefit of the deferred application of the new tax regime to 2011 if the aggregate amount of new equity (which will include units and debt that is convertible into units and potentially other substitutes for such equity) issued by it during any of intervening years up to 2011 does not exceed the greater of $50.0 million and an objective “safe harbor” amount equal to a certain percentage of the Fund’s market capitalization as of the end of trading on October 31, 2006 (“October 31, 2006, Market Capitalization”). 35
On February 25, 2009, the Minister of Finance released explanatory notes related to the Normal Growth Guidelines to accelerate the safe harbor amounts of 2009 and 2010 to make them available immediately, as initially announced in 2008. This change would generally allow a trust like the Fund to use the remaining growth room (including where applicable the $50.0 million “de minimis” amount) in a single year rather than incrementally over 2009 and 2010. Considering its October 31, 2006, Market Capitalization and the 2009, 2008 and 2007 issuance of Fund units and interests convertible into Fund units, the Fund has met the maximum amount of new equity that it can issue under the Normal Growth Guidelines of publicly-traded income trusts until December 31, 2010.
Conversion The Fund has formed a special committee of independent trustees to analyze the opportunity to convert the Fund into a corporation. The special committee is expected to make a formal recommendation to the Board of the Fund before the end of April 2010, and a press release will be issued by the Fund once the Board has made a decision.
Net earnings and earnings per unit The Fund’s net earnings for the three-month period ended December 31, 2009, were $8.2 million or $0.47 per unit on a basic and diluted basis compared to $6.2 million or $0.44 per unit on a basic and diluted basis for the same period in 2008.
The Fund’s net earnings for the twelve-month period ended December 31, 2009, were $31.1 million or $2.06 per unit on a basic basis and diluted basis compared to $25.8 million or $1.95 per unit on a basic and diluted basis for the same period in 2008.
DISTRIBUTABLE CASH Distributable cash is calculated in accordance with the recommendations provided in CICA’s publication “Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities.” A complete definition of distributable cash is provided at the end of this MD&A in the glossary. The Fund also calculated Adjusted distributable cash, which is defined as Standardized distributable cash adjusted for items that management believes are appropriate for the determination of levels of distributions. Distributions are based on actual historical and estimated future performance of the Fund on a full-year basis. Consequently, periodic fluctuations in non-cash working capital are not considered when evaluating the cash flows available for distribution. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
DISTRIBUTABLE CASH
3 months 12 months
2009 2008 2009 2008
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM SEPTEMBER 27 TO FROM SEPTEMBER 28 TO FROM JANUARY 1 FROM JANUARY 1 DECEMBER 31 DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS OF DOLLARS EXCEPT PER UNIT DATA (UNAUDITED) (UNAUDITED) (AUDITED*) (AUDITED*)
Cash flows from operating activities $ 35,703 $ 14,069 $ 52,581 $ 38,322 Capital expenditures paid ($ 3,868) ($ 3,748) ($ 12,787) ($ 10,438) Standardized distributable cash $ 31,835 $ 10,321 $ 39,794 $ 27,884
(2) Change in non-cash working capital items ($ 16,473) $ 3,433 $ 20,379 $24,988 Capital expenditures paid for (1) UNISON project $ 1,531 - $ 1,531 - Adjusted distributable cash $ 16,893 $ 13,754 $ 61,704 $ 52,872
Adjusted distributable cash, per unit (3) $ 0.64 $ 0.59 $ 2.56 $ 2.26
Payout ratio Standardized 70.4% 186.7% 122.3% 136.1% Adjusted 132.7% 140.1% 78.9% 71.8% Distributions Fund’s units distributions $ 14,935 $ 11,793 $ 31,016 $ 23,080 Class B Exchangeable LP Unit distributions $ 3,571 $ 3,571 $ 8,441 $ 6,836 Class C Exchangeable LP Unit distributions $ 3,904 $ 3,904 $ 9,227 $ 8,043 Aggregate distributions, all units $ 22,410 $ 19,268 $ 48,684 $ 37,959
Aggregate distributions, all units, per unit (4) $ 0.83 $ 0.83 $ 1.95 $ 1.70
* Except for Non-GAAP measures.
(1) The Fund is working towards the implementation of a new information management system called the UNISON project. Costs incurred for this project are non-recurrent and therefore are removed from the calculation of the Adjusted distributable cash. See President and CEO’s Report section.
(2) Distributions are based on actual historical and estimated future performance of the Fund on a full-year basis. Consequently, periodic fluctuations in non-cash working capital are not considered when evaluating the cash flows available for distribution.
(3) Distributable cash per unit is calculated using the diluted weighted average number of units.
(4) Distributions declared per unit represent the annual distributions declared. Distributions declared per unit, calculated using the diluted weighted average number of units, were $1.98 per unit for the year. 37
During the three-month period ended December 31, 2009, the Fund generated $16.9 million of adjusted distributable cash compared to $13.8 million for the same period in 2008.
The adjusted payout ratio for the quarter was 132.7% compared to 140.1% for the same period in 2008. In comparison to the adjusted payout ratio for the year, the percentage for the quarter is high due to the December special distribution of $0.45 per unit in both 2009 and 2008.
The adjusted payout ratio for the year 2009 was 78.9% compared to 71.8% in 2008. Since the objective of the Fund is to distribute all its taxable income, distributions are based on estimations of the Fund’s taxable income.
Relation between capital expenditure and productive capacity The Fund is not a capital-intensive business. Capital expenditures incurred by the Fund consist mainly of expenditures pertaining to office furniture and information technology software and hardware. Although these capital expenditures are affected by a change in the number of employees, they are mainly driven by an employee’s productivity maintenance objective. To reach this objective, the Fund recognized the need to ensure a stimulating work environment, enjoyable working conditions and ongoing training. Investments in capital expenditures are primarily required to update technology and systems in a context of organic growth but also to upgrade the information technology software and hardware of the acquired businesses to the Fund’s standards.
CASH DISTRIBUTION Since the beginning of its operations on May 2006 and until June 2008, the Fund declared a monthly distribution of $0.0833 per unit or $1.00 per unit on an annualized basis. Since July 2008, the monthly distribution is $0.1250 per unit or $1.50 per unit on an annualized basis. On December 2009 and 2008, the Fund announced a one-time special distribution of $0.45 per unit for unitholders of record at the close of business on December 31, 2009, and 2008. The one-time special distribution of December 2009 was paid in January 2010. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
3 months 12 months
2009 2008 2009 2008
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM SEPTEMBER 27 TO FROM SEPTEMBER 28 TO FROM JANUARY 1 FROM JANUARY 1 DECEMBER 31 DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS OF DOLLARS (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
Cash flows from operating activities $ 35,703 $ 14,069 $ 52,581 $ 38,322
Net earnings $ 8,191 $ 6,226 $ 31,093 $ 25,815 Non-controlling interest $ 4,424 $ 3,955 $ 18,974 $ 16,703 Earnings before non-controlling interest $ 12,615 $ 10,181 $ 50,067 $ 42,518
Actual cash distributions declared $ 22,410 $ 19,268 $ 48,684 $ 37,959
Excess (shortfall) of cash flows from operating activities over cash distributions declared $ 13,293 ($ 5,199) $ 3,897 $ 363
Excess (shortfall) of earnings before non-controlling interest over cash distributions declared ($ 9,795) ($ 9,087) $ 1,383 $ 4,559
Excess (shortfall) of cash flows from operating activities over cash distributions declared Cash flows from operating activities are higher than the cash distributions by $13.3 million for the three- month period ended December 31, 2009, compared to a shortfall of cash flows over cash distributions of $5.2 million for the same period in 2008. Cash flows from operating activities exceeded cash distributions declared for both twelve-month periods ended December 31, 2009 and 2008. The Fund generated enough cash flows to pay distributions declared to unitholders.
Excess (shortfall) of earnings before non-controlling interest over cash distributions declared For the three-month period ended December 31, 2009, earnings before non controlling interest are lower than the cash distributions declared by $9.8 million. This can be explained by the one-time special distribution of $0.45 per unit for a total amount of $12.2 million declared in the fourth quarter. As shown by the twelve-month period, on an annual basis, the distributions did not exceed the earnings before non-controlling interest. It is important to note that the Fund does not use net earnings as a basis to calculate cash distributions because net earnings, in accordance with GAAP, are determined after deducting expenses which do not affect cash such as amortization of intangible assets including non-competition agreements, customer relationships and contract backlogs. As a result of the Fund’s acquisitions over the past years, its net earnings have been impacted by significant intangible amortization. The costs of these intangible assets are included in the purchase price but there are no future cash outflows associated with these intangible assets. If the impact of intangible amortization is excluded, cash distributions declared would exceed earnings before 39
non-controlling interest by $5.7 million for the three-month period ended December 31, 2009, compared to the $4.3 million for the corresponding period of 2008 and earnings before non-controlling interest exceeded cash distributions declared by $16.2 million for the twelve-month period ended December 31, 2009 compared to $19.4 million for the corresponding period of 2008.
BACKLOG As at December 31, 2009, the backlog, which represents future revenues that stem from existing signed contracts to be completed, stood at $355.6 million. As at December 31, 2008, the backlog was $314.1 million. On a comparative basis, this represents an increase of $41.5 million (13.2%). In the Fund’s field of business, backlog is measured in terms of months. As at December 31, 2009, the backlog represented 8.6 months of upcoming work compared to 9.0 months for the corresponding period of 2008.
∫ $355.6 million Q4-2009 ∫ $334.2 million Q3-2009 ∫ $321.3 million Q2-2009 ∫ $316.9 million Q1-2009
LIQUIDITY 3 months 12 months 2009 2008 2009 2008
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM SEPTEMBER 27 TO FROM SEPTEMBER 28 FROM JANUARY 1 FROM JANUARY 1 DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS OF DOLLARS (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
Cash Flows
Cash flows from operating activities $ 35,703 $ 14,069 $ 52,581 $ 38,322
Cash flows from financing activities $ 8,085 ($ 8,532) $ 22,115 $ 26,926
Cash flows from investing activities ($ 4,934) ($ 10,715) ($ 37,518) ($ 63,394)
Net change in cash position during the period $ 38,854 ($ 5,178) $ 37,178 $ 1,854
Distributions paid ($ 9,710) ($ 8,510) ($ 46,494) ($ 27,098)
Capital expenditures ($ 3,868) ($ 3,748) ($ 12,787) ($ 10,438) GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Cash flows from operating activities For the twelve-month period ended December 31, 2009, operating activities generated $73.0 million and non-cash working capital items used $20.4 million, for a total net cash flows from operating activities of $52.6 million. The use of $20.4 million in non-cash working capital is mainly attributable to an increase in accounts receivable of $4.9 million, and an increase of $4.4 million in costs and anticipated profits in excess of billings. Accounts payable and accrued liabilities and billings in excess of costs and anticipated profits used $3.1 million and $4.9 million respectively. The remaining $3.1 million was used by other items.
For the three-month period ended December 31, 2009, operating activities generated $19.2 million and non-cash working capital items generated $16.5 million, for a total cash flows from operating activities of $35.7 million. Accounts receivables, cost and anticipated profits in excess of billings and accounts payable and accrued liabilities generated $12.4 million, $1.8 million and $5.7 million respectively. Prepaid expenses used $2.7 million. The remaining $0.7 million was used by other items.
During the quarter, as expected, the number of days required to recover accounts receivable and costs and anticipated profits in excess of billings decreased by 10 days to reach 111 days as of December 31, 2009. In 2010, continued effort will be made to lower this ratio.
Cash flows from financing activities For the twelve-month period ended December 31, 2009, net financing activities generated $22.1 million of cash. As part of the financing activities, $94.5 million came from the issuance of units pursuant to a public offering net of issuance-related costs and $6.0 million by the long-term debt contracted. On the other hand, $46.5 million was used to pay distributions to unitholders, $15.2 million was used for the payment of balances of purchase price payable related to business acquisitions, a net of $10.7 million was used to reimburse bank advances, $1.9 million for long-term debt and $4.1 million for advances from the non- controlling unitholder.
For the three-month period ended December 31, 2009, net financing activities generated $8.1 million of cash. As part of the financing activities, $94.5 million came from the issuance of units pursuant to a public offering net of issuance-related costs. On the other hand, $72.2 million was used to reimburse the bank advances and $4.1 million for advances from the non-controlling unitholder. Another $9.7 million was used to pay distributions to unitholders and $0.3 million was used for the payment of balances of purchase prices payable related to business acquisitions.
Cash flows from investing activities For the twelve-month period ended December 31, 2009, investing activities used $37.5 million of cash. Business acquisitions totalled $25.7 million of this amount and capital expenditures, net of proceeds from disposal of property, plant and equipment, $12.0 million. Advances to companies and a joint venture controlled by the non-controlling unitholder generated $0.2 million.
For the three-month period ended December 31, 2009, investing activities used $4.9 million of cash. Business acquisitions totalled $1.8 million of this amount and capital expenditures, net of proceeds from disposal of property, plant and equipment, $3.3 million. Advances to companies and a joint venture controlled by the non-controlling unitholder generated $0.2 million. 41
Net cash position As at December 31, 2009, the net cash position of the Fund amounted to $51.9 million as detailed hereafter:
2009 2008
AS AT DECEMBER 31 AS AT DECEMBER 31 IN THOUSANDS OF DOLLARS (AUDITED) (AUDITED)
Cash and cash equivalents $ 51,887 $ 14,709
Bank advances - ($ 10,668)
Net cash position $ 51,887 $ 4,041
During the last quarter of 2009, the Fund issued pursuant to a public offering approximately $100.0 million in new equity. From this amount, $72.2 million has been used to fully repay the bank advances.
Management believes that the cash flows are strong enough to sustain organic growth and continue to finance the distributions to unitholders through cash generated from its operations. Up until now, the credit facilities have been mainly used to complete business acquisitions and for working capital and general corporate purposes.
Credit facilities As at December 31, 2009, the Fund’s credit facilities, totalling $82.0 million, were allocated as follows:
Term loan credit facility Facility of $80.0 million for operations and for the financing of acquisitions. The term loan credit facility may also be used for the payment of distributions to unitholders up to a maximum amount of $10.0 million.
Treasury credit facility Facility of $2.0 million to hedge against interest rate risks and foreign exchange risks.
These credit facilities mature in May 2012. At any time prior to the maturity date, the Fund may elect to repay all or a part of the term loan credit facility. The term of the credit facilities can be extended each year, for an additional one-year period, subject to the prior approval of the lender. The credit facilities are fully repayable at maturity without any prepayment penalties, except for banker’s acceptances and LIBOR advances. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
These credit facilities are secured by a first ranking hypothec over the universality of movable assets of GENIVAR Limited Partnership (“GENIVAR LP”) and those of some of its subsidiaries. The term loan credit facilities bear interest at prime rate for Canadian currency advances and US base rate for US currency advances. A variable fee, based on different levels of covenants, is applicable on LIBOR advances.
Under these credit facilities, GENIVAR LP, a Fund’s subsidiary, is requested, among other conditions, to respect certain covenants on a consolidated basis, which have been met as at December 31, 2009.
As at December 31, 2009, the Fund had unused credit facilities of $81.6 million net of outstanding letters of credit of $0.4 million.
ANALYSIS OF SELECTED ANNUAL INFORMATION Set out is selected information for each of the last three years ended on December 31.
2009 2008 2007
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM JANUARY 1 FROM JANUARY 1 FROM JANUARY 1 TO DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS OF DOLLARS, EXCEPT PER UNIT DATA (AUDITED*) (AUDITED*) (AUDITED*)
Revenues $ 477,924 $ 387,803 $ 257,205 Net revenues $ 395,327 $ 320,094 $ 206,628
Net earnings $ 31,093 $ 25,815 $ 15,295
Net earnings per unit Basic $ 2.06 $ 1.95 $ 1.32 Diluted $ 2.06 $ 1.95 $ 1.32
Total assets $ 533,097 $ 427,382 $ 305,972
Long-term financial liabilities (1) $ 13,068 $ 12,552 -
Distributions Fund’s units distribution $ 31,016 $ 23,080 $ 15,500 Class B Exchangeable LP Unit distributions $ 8 ,441 $ 6,836 $ 4,493 Class C Exchangeable LP Unit distributions $ 9,227 $ 8,043 $ 6,149
* Except for Non-GAAP measures.
(1) Long-term financial liabilities consist of balances of purchase price payable and long-term debt including current portions and bank advances. 43
In the last three years, the revenues and net revenues increased by way of the acquisitions realized in 2009 and 2008 as well as the higher level of business activity. The business acquisitions had a direct impact on the net earnings per unit on a basic and diluted basis for the years ended December 31, 2009 and 2008 and 2007, and on the total value of the Fund’s assets. In 2009, the Fund realized thirteen acquisitions for a total consideration of $35.0 million compared to fourteen acquisitions for a total consideration of $75.6 million in 2008 and eleven acquisitions for $25.9 million in 2007. The Fund used its credit facilities and issued new units pursuant to public offerings to finance operations and business acquisitions. Finally, over the last three years, the Fund increased the distributions declared to unitholders in order to distribute all the taxable income of the Fund.
THE FUND The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of the Province of Quebec pursuant to the Fund’s declaration of trust made as of March 31, 2006, as amended and restated on May 16, 2006. The Fund was created to indirectly acquire and hold a limited partnership interest in GENIVAR LP and all of the outstanding shares of GENIVAR GP Inc., the general partner of GENIVAR LP. GENIVAR LP has been formed to acquire, own and operate the GENIVAR Engineering Services Business. The Fund is entirely dependent upon the operations and assets of GENIVAR LP and its subsidiaries. The Fund began its operations on May 25, 2006, after the completion of an initial public offering.
On September 13, 2007, the Fund issued, pursuant to a public offering, $50.0 million in new equity from which $11.0 million were invested directly and indirectly by GENIVAR inc., the Non-controlling Unitholder. After this transaction, the Fund owned indirectly 12,902,439 Class A LP Units of GENIVAR LP representing a 60.4% interest (58.1% before this transaction). The Non-controlling Unitholder held 3,732,121 Exchangeable Class B LP Units and 4,731,845 Exchangeable Class C LP Units of GENIVAR LP, together representing the remaining 39.6% interest in GENIVAR LP (41.9% before this transaction). In addition, the Non-controlling Unitholder held 8,463,966 Special Voting Units of the Fund.
On October 2, 2008, the Fund issued pursuant to a public offering, $50.0 million in new equity from which $15.0 million were invested directly and indirectly by GENIVAR inc., the Non-controlling Unitholder. After this transaction, the Fund owned indirectly 14,294,089 Class A LP Units of GENIVAR LP representing a 61.2% interest (60.4% before this transaction). The Non-controlling Unitholder held 9,060,387 Exchangeable LP Units (4,328,542 Exchangeable Class B LP Units and 4,731,845 Exchangeable Class C LP Units), together representing the remaining 38.8% interest in GENIVAR LP (39.6% before this transaction). In addition, the Non-controlling unitholder held 9,060,387 Special Voting Units of the Fund.
On October 16, 2009, the Fund issued, pursuant to a public offering, approximately $100.0 million in new equity. After this transaction, the Fund owns indirectly 18,103,589 Class A LP Units of GENIVAR LP representing a 66.65% interest (61.2% before this transaction). The Non-controlling Unitholder holds 9,060,387 Exchangeable LP Units (4,328,542 Exchangeable Class B LP Units and 4,731,845 Exchangeable Class C LP Units), together representing the remaining 33.35% interest in GENIVAR LP (38.8% before this transaction). GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
The Exchangeable LP Units are exchangeable at any time into units on a one-for-one basis, subject to an adjustment. In addition, the Non-controlling Unitholder holds 9,060,387 Special Voting Units of the Fund. These Special Voting Units are the only ones currently outstanding. Each Special Voting Units will be cancelled upon the exchange of an Exchangeable LP Unit
The following chart illustrates, on a simplified basis, the structure of the Fund as at December 31, 2009:
Public
GENIVAR Income Fund 9,060,387 Special Voting Units
100% Trust Units and Trust Notes GENIVAR Inc.
GENIVAR 100% Operating 33.35% Special Partner Trust Interest GENIVAR GP Inc. (General Partner)
66.65% Special Partner Interest
0.01% GP Interest
GENIVAR 100% Limited Partnership
GENIVAR Ontario Inc. 99.98% Interest
0.02% Interest GENIVAR Consultants Limited Partnership
Certain subsidiaries, each of which represent not more than 10% of the consolidated assets and not more than 10% of the consolidated revenues of the Fund, and all of which, in the aggregate, represent not more than 20% of the total consolidated assets and the total consolidated revenues of the Fund as at December 31, 2009, have been omitted. 45
GOVERNANCE Disclosure controls and procedures The Fund’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining the Fund’s disclosure controls and procedures. These disclosure controls and procedures are designed to ensure that information required to be disclosed by the Fund in reports filed with securities regulatory authorities is recorded or disclosed on a timely basis, as required by law, and is accumulated and communicated to the Fund’s Management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Chief Executive Officer and Chief Financial Officer are assisted in this responsibility by the Disclosure Committee, which is composed of senior executives of the Fund. Based on an evaluation of the Fund’s disclosure controls and procedures, the Fund’s Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures operated effectively as of December 31, 2009, to ensure that material information relating to the Fund would have been known to them.
Internal control over financial reporting The Fund’s Chef Executive Officer and Chief Financial Officer are responsible for designing and evaluating the effectiveness of internal controls over financial reporting. Management has designed such internal controls over financial reporting, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with GAAP.
Management has used the Internal Control-Integrated Framework to evaluate the effectiveness of internal controls over reporting, which is a recognized and suitable framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Management has evaluated the design and operation of the Fund’s internal controls over financial reporting, as at December 31, 2009, and has concluded that such internal controls over financial reporting are effective. There are no material weaknesses that have been identified by management in this regard.
There has been no change in the Fund’s internal control over financial reporting that occurred during the year ended December 31, 2009, that has materially affected, or is reasonably likely to materially affect the Fund’s internal controls over financial reporting.
Responsibilities of the Board of Trustees The Board of Trustees has oversight responsibilities for reported information. Accordingly, the Audit committee and the Board of Trustees have reviewed and approved this MD&A before its publication.
CRITICAL ACCOUNTING POLICIES Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported in the financial statements. Those estimates and assumptions also affect the disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the year. Significant estimates used in the preparation of these consolidated financial statements include the percentage of completion of contracts, allowances for doubtful accounts and for costs and GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
anticipated profits in excess of billings, useful lives and fair value of identifiable intangible assets acquired in business acquisitions, impairment test of intangible assets and goodwill, provision for legal claims and provision for future income taxes. Actual results could differ from those estimates.
Costs and anticipated profits in excess of billings The Fund values its costs and anticipated profits in excess of billings based on the time and materials charged into each project. The costs and anticipated profits in excess of billings for each project are reviewed on a monthly basis to determine whether the amount is a true reflection of the amount that will be invoiced on the project. Where the review determines that the value of costs and anticipated profits in excess of billings exceed the amount that can be invoiced, adjustments are made to the costs and anticipated profits in excess of billings. The valuation of the costs and anticipated profits in excess of billings involves estimates of the amount of work required to complete the project. Errors in the estimation of work required to complete the projects could lead to the under or overvaluation of costs and anticipated profits in excess of billings.
Allowance for doubtful accounts Estimates are used in determining the allowance for doubtful accounts related to trade receivables. The estimates are based on management’s best assessment of the collectability of the related receivable balance based, in part, on the age of the specific receivable balance and the current and expected collection trends. A provision is established when the likelihood of collecting the account has significantly diminished. Future collections of receivables that differ from management’s current estimates would affect the results of operations in future periods.
Business acquisitions The acquisitions of the Fund have been accounted for using the purchase method, and the operating results have been included in the consolidated financial statements from the date of acquisition.
There are many assumptions made by the Fund to determine the fair values of the acquired companies’ assets and liabilities. The most significant assumptions, and those requiring the most judgement, involve the estimated fair values of customer relationships, contract backlogs and non-competition agreements. To determine the fair values of those intangible assets, the Fund adopted an income approach and received independent valuation reports. Among others, significant assumptions included the anticipated level of growth, the EBIT margin of the acquired companies and the level of recurring revenues.
Intangible assets Intangible assets with finite useful lives consist of software, customer relationships, contract backlogs and non-competition agreements. If the Fund’s estimated useful lives of these assets were incorrect, the Fund could experience increased or reduced charges for amortization of intangible assets with finite useful lives in the future. The trade name is an indefinite-lived intangible asset and accordingly is not subject to amortization. However, the value of the trade name is tested for impairment on an annual basis, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. If the indefinite-lived intangible asset is determined to have a finite life at some point in the future, the Fund could experience increased charges for amortization of intangible assets. Such charges do not result in a cash outflow and would not affect the Fund’s liquidity or distributable cash. 47
Impairment of long-lived assets Long-lived assets are reviewed for impairment when events or circumstances indicate that costs may not be recoverable. Impairment exists when the carrying value of the asset is greater than the pre-tax undiscounted future cash flows expected to be provided by the asset. The amount of impairment loss, if any, is the excess of the carrying value over its fair value. If the future differed adversely from management’s best estimate of key economic assumptions and associated cash flows were to materially decrease, the Fund could potentially experience future material impairment charges. As at December 31, 2009, no impairment exists.
Goodwill Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of net identifiable assets acquired. Goodwill is not subject to amortization but is tested for impairment on an annual basis, or more frequently if events or circumstances indicate that it might be impaired. The impairment test is accomplished mainly by determining whether the fair value of a reporting unit, based upon an accepted valuation method, exceeds the carrying amount of that reporting unit. If the fair value exceeds the carrying amount of the reporting unit, no impairment is necessary. If the carrying amount of the reporting unit exceeds its fair value, a second test must be performed whereby the fair value of the reporting unit’s goodwill must be compared with its carrying value to measure the amount of the impairment loss, if any. Fair value of goodwill is estimated in the same way as it was determined at the date of the acquisition. The Fund compared the reporting units carrying value to its market value determined through the market capitalization of the Fund. In preparing the analysis, the Fund estimates the trailing-twelve-month EBITDA of the business acquisitions realized during the year. When the carrying amount of the reporting unit’s goodwill exceeds the fair value of the goodwill, an impairment loss equal to the excess is recognized.
The Fund has elected to carry out its annual impairment test in December of each year for all its existing reporting units. As at December 31, 2009, such test determined that no impairment exists.
Future income taxes The Fund uses the liability method of tax allocation under which future income tax assets and liabilities are determined based on deductible or taxable temporary differences between financial statement values and tax values of assets and liabilities. Management uses judgement and estimates in determining the appropriate rates and amounts in recording future taxes, giving consideration to timing and probability. Actual taxes could significantly vary from these estimates as a result of future events, including changes in income tax law. The resolution of these uncertainties and the associated final taxes may result in adjustment to the Fund’s future income tax assets and liabilities.
Future income tax are recognized to the extent that realization is considered more likely than not. The Fund considers past results, current trends and outlooks for future years in assessing future income tax assets. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
NEW ACCOUNTING STANDARDS On January 1, 2009, the Fund adopted Section 3064, “Goodwill and Intangible Assets,” issued by the Canadian Institute of Chartered Accountants (“CICA”). This Section replaces Section 3062, “Goodwill and Other Intangible Assets” and Section 3450, “Research and Development Costs.” This Section establishes standards for the recognition measurement, presentation and disclosure of goodwill and intangible assets.
On January 20, 2009, the Fund adopted the recommendation of the Emerging Issues Committee No. 173, “Credit Risk and the Fair Value of Financial Assets and Financial Liabilities” (EIC-173) issued by the CICA. This Abstract clarifies that an entity’s own credit risk and the credit risk of its counterparty should be taken into account in determining the fair value of financial assets and liabilities.
The application of these standards had no significant impact on the Fund’s consolidated results of operations or financial position.
FUTURE ACCOUNTING STANDARDS International Financial Reporting Standards (“IFRS”) In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP and IFRS over an expected five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly listed companies to use IFRS, replacing Canada’s own GAAP. The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition will require the restatement for comparative figures reported by the Fund for the year ended December 31, 2010.
The Fund has begun the process to transition from Canadian GAAP to IFRS. It has established a project plan and project team. A steering committee has been formed to provide directional leadership for the conversion project and to assist in developing accounting policy recommendations. The project team is led by finance management and includes representatives from various areas of the organization as necessary to plan for and achieve a proper transition to IFRS.
The project plan consists of four phases: conception and evaluation, solution development, implementation and analysis after implementation. The Fund has completed the first phase, and is still engaged in the solution development phase. It involves choosing the appropriate accounting standards, calculating the impacts of change in accounting standards, assessing the effects on information systems, training and updating the processes and controls. During the implementation phase, the Fund will execute the required changes to business processes and financial systems. All employees affected by IFRS will receive appropriate training.
The impacts of IFRS conversion on the Fund’s information system and business process are addressed as the Fund progresses in the implementation of the new information management system, UNISON. The accounting process and internal controls are also updated as part of the project. The IFRS standard requires more extensive disclosure than Canadian GAAP. The requirements for additional information are included in the design and configuration of the new system. 49
The adoption of IFRS will initially require retrospective application as of the transition date, on the basis that the entity has always prepared its financial statements in accordance with IFRS. IFRS 1 “First time adoption of International Financial Reporting Standards” provided some exemptions to assist the Fund with difficulties associated with historical accounting information. Adjustment arising on the conversion should be recognized in opening retained earnings. Management is analyzing the various exemptions available under IFRS 1 and will implement those determined to be the most appropriate for the Fund which, as preliminary decisions, are as follows:
∫ Business Combination IFRS 1 provides an exemption that allows entity transitioning to IFRS not to restate business combinations entered into, prior to the date of the transition
∫ Property, Plant and Equipment IFRS 1 allows an entity transitioning to IFRS to initially measure an item of property, plant and equipment at fair value as deemed cost at the date of the transition to avoid retrospective application. The Fund evaluates the possibility to use this exemption for some of its property, plant and equipment categories.
∫ Foreign exchange IFRS 1 provides an exemption that allows an entity to reset its cumulative translation account to zero at the date of transition, with the balance being transferred to opening retained earnings.
The Fund has reviewed each exemption available under IFRS 1.
During the fourth quarter of 2009, the Fund maintained its efforts in the solution development phase by focusing on the significant differences identified in the initial diagnostic, by choosing the appropriate accounting standards, and beginning calculation impacts. The Fund has begun the implementation phase for some of the critical changes. The key areas that are likely to be impacted by changes in accounting policies include:
∫ Business combinations IFRS and Canadian GAAP require the acquisition method of accounting for all business combinations, but significant differences exist in other areas. The most significant difference for the Fund is that under IFRS, transactions costs are expensed immediately whereas under Canadian GAAP such amounts are included in the cost of the asset. Other differences identified between IFRS and Canadian GAAP will not have a significant impact for the Fund if the Fund continues to purchase all the assets and liabilities of targeted companies. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
∫ Impairment of long-lived assets Under Canadian GAAP, whenever the estimated future cash flows on an undiscounted basis of a long-lived asset is less than the carrying amount of the asset, an impairment loss is measured and recorded based on fair values. Under IFRS, IAS 36 impairment of Assets (“IAS 36”) requires an impairment charge to be recognized if the recoverable amount, determined as the higher of the estimated fair value less costs to sell or value in use is less than carrying amount. The impairment charge under IFRS is equal to the amount by which the carrying amount exceeds the recoverable amount. The difference in testing and determining an impairment may result in more frequent impairment charges, where carrying values of assets may have been supported under Canadian GAAP on an undiscounted cash flow basis, but cannot be supported on a discounted flow basis. In addition, IAS 36 requires, under certain circumstances, the reversal of impairment loses, which is not allowed under Canadian GAAP.
∫ Consolidation Under Canadian GAAP, an entity determines whether it should consolidate an entity by first determining whether control is determined by the variable interest entity (“VIE”) model, and if not applicable, then control is assessed using the voting control model. Under IFRS, the requirement to consolidate is determined based on control defined as the power to govern the financial and operating policies of an entity to obtain a benefit from its activities. Control is presumed to exist when the parent owns, directly or indirectly, more than one half of an entity’s voting power of potential voting rights, but also exists when the parent owns half, or less, of the voting power but has legal or contractual rights to control or de facto control. The Fund is currently revising its scope of consolidation.
The IASB is in the process of amending certain IFRS standards, which will, if implemented in their current form, prohibit proportionate consolidation of joint ventures that are held through a legal entity, or where the venturers do not have rights to individual assets or obligations of the venture, because joint venturers in these circumstances do not have a direct ownership of the underlying net assets of the joint venture. IFRS currently allows joint ventures in these circumstances to be either proportionately consolidated or equity accounted.
∫ Property, plant and equipment With the transition to the IFRS, the Fund is in the process of revaluating all its depreciation policies. The Fund will determine the appropriate depreciation method for each category of property, plant and equipment, reflecting the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.
∫ Income taxes The Fund is currently in the process of analyzing the impacts of the transition to IFRS on income taxes.
∫ Non-controlling interest The Fund is assessing the appropriate classification of the non-controlling interest between equity and long-term liabilities.
∫ Intangible assets Intangible assets with definite life under IFRS will be amortized on a straight-line basis over their estimated useful lives, including software, which are amortized using the declining balance method under Canadian GAAP. No other significant change has been identified from the Fund’s current accounting policy. 51
The above should not be regarded as an exhaustive list of changes expected on transition to IFRS. At the current stage of the project, the quantitative impact of the adoption of IFRS on consolidated financial statements cannot be reasonably established.
The Fund actively monitors all proposed projects by AcSB and by International Accounting Standards Board that may affect the timing, nature or disclosure of its adoption of IFRS. Regular reporting is provided to the Fund’s senior executive management and to the audit committee.
Business combinations The CICA published Section 1582, “Business Combinations.” This section will be applicable to business combinations for which the acquisition date is on or after January 1, 2011. Early adoption is permitted. This section improves the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects.
Consolidated financial statements The CICA published Section 1601, “Consolidated Financial Statements.” This section will be applicable to the Fund’s interim and annual financial statements for the year beginning on January 1, 2011. Early adoption is permitted. This section establishes standards for the preparation of consolidated financial statements.
Non-controlling interest The CICA published Section 1602, “Non-controlling Interests.” This section will be applicable to the Fund’s interim and annual financial statements for the year beginning on January 1, 2011. Early adoption is permitted. This section establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination.
The Fund has not yet determined the impact of the adoption of these new sections on its consolidated financial statements.
RELATED PARTY TRANSACTIONS The Fund enters into transactions with GENIVAR inc., the Non-controlling Unitholder, in connection with certain business acquisitions. Generally, GENIVAR inc. acquires all the outstanding shares of a company and sells the net assets of the acquired company to GENIVAR LP or one of its subsidiaries. The purchase price for GENIVAR LP or one of its subsidiaries is identical to the shares’ purchase price paid by GENIVAR inc., taking into account certain assets or liabilities that are not or cannot be transferred, which price has been concluded with unrelated parties. This acquisition strategy has been realized to facilitate the Fund’s negotiations related to the acquisition of targeted companies. As a result, the transaction yields fiscal benefits for both the vendors and GENIVAR LP or one of its subsidiaries. During the year, the Fund has acquired Envirotel 3000, WSA Trenchless Consultants, ENTRA Consultants, Wiebe Environmental Services, Algal & Associates, ENAQ, Jagger Hims, WM.R. Walker Engineering, Magnate Engineering & Associates and Magnate Communications Corp., Progemes Consultants, Gilles Taché & Associés and Harp Engineering and Design for a total consideration of $27.6 million, excluding acquisition-related costs of $0.7 million assumed directly by the Fund. Subsequent to the year-end, the Fund has acquired V.B. Cook (“Cook”) and Thompson Rosemount Group (“Thompson”). GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Since GENIVAR inc. decided to exit the general contracting business in 2007, there are very few transactions with construction companies controlled by GENIVAR inc. These transactions represent less than $0.6 million for the twelve-month period ended December 31, 2009.
There are advances made between the Fund and the Non-controlling Unitholder. The interest rate applied is identical to the one used by the Bank. As at December 31, 2009, advances to the Non-controlling Unitholder totaled $3.4 million related to the payment in December by the Non-controlling Unitholder of a special dividend before the reception of the Fund’s special distribution. These advances have been cashed in part in January 2010. Net interest expense charged to the Non-controlling Unitholder by the Fund amounted to less than $0.1 million for the three-month period and to less than $0.1 million for the twelve-month period ended December 31, 2009. For the twelve-month period ended December 31, 2009, the Fund charged $0.5 million to the Non-controlling Unitholder for administrative salaries.
OFF-BALANCE SHEET AGREEMENTS There were no off-balance sheet agreements as at December 31, 2009.
CONTRACTUAL OBLIGATIONS The following tables provide a summary of the Fund’s long-term contractual obligations.
LESS THAN BETWEEN 1 BETWEEN 2 BETWEEN 3 BETWEEN 4 AFTER IN THOUSANDS OF DOLLARS A YEAR AND 2 YEARS AND 3 YEARS AND 4 YEARS AND 5 YEARS 5 YEARS TOTAL Balances of purchase price payable, including current portion $ 5,369 $ 937 $ 982 - - - $ 7,288
Long-term debt, including current portion $ 480 $ 507 $ 507 $ 507 $ 507 $ 4,941 $ 7,449
THERE- IN THOUSANDS OF DOLLARS 2010 2011 2012 2013 2014 AFTER TOTAL
Operating lease commitments $ 15,107 $ 13,145 $ 11,034 $ 9,295 $ 8,619 $ 22,731 $ 79,931
SUBSEQUENT EVENTS In February 2010, the Fund acquired all the assets and liabilities of Cook and Thompson, two Ontario multidisciplinary consulting engineering firms. 53
RISK FACTORS The risks and uncertainties below are not the only ones facing GENIVAR. Additional risks and uncertainties not presently known to GENIVAR or that GENIVAR currently considers immaterial may also impair GENIVAR’s business operations.
RISKS RELATED TO THE GENIVAR ENGINEERING SERVICES BUSINESS AND THE ENGINEERING SERVICES INDUSTRY Ability to Maintain Profitability and Manage Growth There can be no assurance that GENIVAR’s business and strategy will enable GENIVAR to sustain profitability in future periods. GENIVAR’s future operating results will depend on a number of factors.
GENIVAR’s growth strategy depends, in part, on its ability to:
∫ offer a full range of Engineering Services; ∫ successfully cross-sell additional services to existing clients and attract new clients; ∫ consolidate its position in the Provinces of Quebec, Ontario, Manitoba, Saskatchewan, Alberta and British Columbia, and identify and acquire suitable acquisition candidates in order to expand in other regions; and ∫ successfully integrate acquired businesses with existing operations.
There can be no assurance that GENIVAR will be successful in achieving its strategic plan or that its strategic plan will enable GENIVAR to maintain its historical revenue growth rates or to sustain profitability. Due to the current economic conditions, GENIVAR may be unable to obtain the necessary capital to finance by way of debt financing. Failure to successfully execute any material part of its strategic plan could have a material adverse effect on its business, financial condition and results of operations and its ability to make distributions on the Units.
Reputational Risk GENIVAR depends to a large extent on its relationships with its clients and its reputation for high-quality Engineering Services. As a result, if a client is not satisfied with its services, it may be more damaging in its business than in other businesses. Moreover, its success depends in large part on whether GENIVAR fulfills its contractual obligations with clients and keep its clients satisfied. If GENIVAR fails to satisfactorily perform its contractual obligations or address performance issues, or make professional errors in the services that it provides, then clients could terminate projects, exposing GENIVAR to legal liability, loss of its professional reputation and risk of loss or reduced profits or, in some cases, a loss on that project. GENIVAR also depends on its reputation as an Engineering Services firm that abides to the highest ethical standards. As a result, if one of its employees commits unethical actions in order, for example, to obtain a contract, GENIVAR may be subject to legal liability or loss of client relationships. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Reliance on Key Professionals Employees who became shareholders of GENIVAR Inc. at the time of the IPO were subject to a discount of 25% of the purchase price for their shares if they leave before a period of two years from the date of the IPO. This restriction has ceased to apply to such employees on May 25, 2008. GENIVAR’s operations are dependent on the abilities, experience and efforts of its professionals, many of whom have significant reputations and contacts in the industry in which GENIVAR operates. Should any members of its professional staff be unable or unwilling to continue their relationship with GENIVAR, its business, financial condition and results of operations and its ability to make distributions on the Units could be materially adversely impacted. GENIVAR obtained from its employee-owners non-competition and non-solicitation undertakings.
Shortage of Engineers GENIVAR’s success depends in part on its continued ability to attract and retain qualified and skilled engineers. Over the years, a significant shortage of engineers has developed and resulted in continued upward pressure on engineer compensation packages. There can be no assurance that GENIVAR will be able to attract, hire and retain a sufficient number of engineers necessary to continue to maintain and grow its business. The inability to attract, hire and retain a sufficient number of engineers could limit its ability to sustain and increase revenues.
Competition in the Industry GENIVAR operates in highly competitive markets and have numerous competitors for all of the services it offers. Size and characteristics of competitors vary widely with the type of service it provides. On large capital infrastructure industrial and facilities projects, competitors are usually other full-service Engineering Services firms. However, GENIVAR also competes with small and medium sized multidisciplinary regional firms or niche players who offer specific services. Some of its competitors have longer operating histories, greater name recognition, larger customer bases and have achieved substantially more market penetration in certain of the areas in which it competes. In addition, some of its competitors have substantially more financial resources and/or financial flexibility and marketing resources than GENIVAR. These competitive forces could have a material adverse effect on its business, financial condition and results of operations and its ability to make distributions on the Units by reducing its current market share in the market segments in which GENIVAR operates.
Possible Acquisitions and Integrations GENIVAR intends to continue making acquisitions from time to time as part of its strategy to grow its business. Acquisitions, if they occur, will increase the size of its operations and may increase the amount of indebtedness that GENIVAR has to service. There is no assurance that GENIVAR will be able to acquire operations on satisfactory terms, or at all. The successful integration and management of acquired businesses, involve numerous risks that could adversely affect GENIVAR’s growth and profitability, including: (i) the risk that GENIVAR may not be able to obtain the necessary capital to finance by way of debt financing (ii) the risk that GENIVAR may not be able to successfully manage the acquired operations and the integration may place significant demands on GENIVAR’s Management, diverting their attention from existing operations; (iii) the risk that its operational, financial and management systems may be incompatible with or inadequate to effectively integrate and manage acquired systems; (iv) the risk that acquisitions may require substantial financial resources that otherwise could be used in the development of other aspects of its GENIVAR Engineering Services Business; (v) the risk that major clients of the acquired firms may not be retained following the acquisition of such firms; and (vi) the risk that acquisitions may 55
result in liabilities and contingencies, which could be significant to GENIVAR’s operations. The successful integration of an acquired business is also subject to the risk that personnel and professionals from the acquired business and GENIVAR’s existing GENIVAR Engineering Services Business may not be able to work together successfully, which could affect its operations. In particular, GENIVAR may seek to require as a condition of its acquisitions that key personnel and professionals enter into employment agreements for specified post-acquisition periods and/or non-competition undertakings, but there are risks that those commitments will not be fulfilled or that the personnel and professionals subject to same or other personnel and professionals will not be successfully integrated as productive contributors to GENIVAR’s business. There is no assurance that GENIVAR will be able to successfully integrate its acquisitions and GENIVAR’s failure to do so could have a material adverse effect on its business, financial condition and results of operations and its ability to make distributions on the Units.
Reduction of Backlog GENIVAR cannot guarantee that the revenues projected in its backlog (as set out in GENIVAR’s Management and Discussion Analysis) will be realized or, if realized, will result in profits. Projects may remain in GENIVAR’s backlog for an extended period of time. In addition, project cancellations or scope adjustments may occur, from time to time, with respect to contracts reflected in its backlog, especially during economic downturn. Backlog reductions adversely affect the revenues that GENIVAR actually receives from contracts reflected in its backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of its backlog and the revenues that it actually receives. Most contracts for services with its clients are terminable by the clients on short notice. If a reduction in its backlog occurs, it could incur costs resulting from reductions in staff that would have the effect of reducing its net earnings and affect its ability to make distributions on the Units.
Geographic Concentration and Dependence on Economic Conditions The market segments in which GENIVAR operates are affected by general economic conditions, including international, national, regional and local economic conditions, all of which are outside of its control. Furthermore, its business is largely conducted in the Province of Quebec and, accordingly, is highly dependent on the general economic conditions of this region. Economic slowdowns or downturns, adverse economic conditions, cyclical trends, increases in interest rates, variations in currency exchange rates, reduced client spending and other factors could have a material adverse effect on its business, financial condition and results of operations and its ability to make distributions on the Units. Although its operations are functionally diversified, significant erosion in levels of activity in any market segment in which GENIVAR operates could have a negative impact on its business, financial condition and results of operations and its ability to make distributions on the Units.
Fixed-Price Negotiated Fee Contracts A portion of GENIVAR’s revenues comes from fixed-price negotiated fee contracts. Under fixed-price negotiated fee contracts, GENIVAR agrees to perform either all or a specified portion of work under the contract for a fixed amount of fees. Fixed-price negotiated fee contracts expose GENIVAR to a number of risks not inherent in hourly basis contracts, including underestimation of fees, ambiguities in specifications, unforeseen difficulties, problems with new technologies, delays beyond its control and economic or other changes that may occur during the contract period. Increasing use of fixed-price negotiated fee contracts and/or increasing size of such contracts would increase its exposure to these risks. Losses under fixed- price negotiated fee contracts could have a material adverse effect on its business, financial condition and results of operations and its ability to make distributions on the Units. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Dependence on Clients Engineering services, as provided by GENIVAR, is subject to fluctuations resulting from different factors, including economic conditions. Furthermore, as most contracts for services with its clients are terminable by the clients on short notice, there can be no assurance that GENIVAR will be able to retain its relationships with its largest clients. GENIVAR’s largest clients usually comprise many decision-making units, each of which is responsible for awarding a portion of such client’s contracts. This situation reduces GENIVAR’s dependence on such clients. However, there can be no assurance that any or all decision-making units of its largest clients will continue to use its services in the future. Any negative change involving any of its largest clients, including but not limited to a client’s financial condition, or desire of such clients or of a significant number of decision-making units of such clients to continue using its services, could result in a significant reduction in business which could have a material adverse effect on its business, financial condition, results of operations and its ability to make distributions on the Units.
Increased Assumption of Risk by GENIVAR In order to adapt to the current trends affecting the manner in which projects are performed in the areas in which GENIVAR operates, it may participate in upfront qualification work, for example in the context of a RFQ, in order to participate in consortiums formed to bid on large projects. The qualification work GENIVAR performs is usually performed on a cost basis. The time invested in participating in consortiums for large projects and the related qualification work may ultimately not result in GENIVAR obtaining contracts on which it can generate profit margins.
Risk of Future Legal Proceedings GENIVAR is threatened from time to time with, or named as a defendant in, or may become subject to various legal proceedings in the ordinary course of conducting the GENIVAR Engineering Services Business, including lawsuits based upon professional errors and omissions. Because GENIVAR’s projects are often large and can affect many people, its failure to make judgments and recommendations in accordance with applicable professional standards could result in large damages and, perhaps, punitive damages. Defending lawsuits of this nature or arising out of any of the services provided by GENIVAR could require substantial amounts of its Management’s attention, which could divert its focus from operations and could materially adversely affect its financial condition. Any such claims may produce negative publicity that could hurt its reputation and business. A significant judgment against GENIVAR or the imposition of a significant fine or penalty as a result of a finding that GENIVAR has failed to comply with laws or regulations could have a material adverse effect on its business, financial condition and results of operations and its ability to make distributions on the Units.
Insurance Limits GENIVAR believes that its professional errors and omissions insurance and director and officer liability insurance coverage addresses 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 GENIVAR’s assets or operations. 57
Additional Capital Requirements GENIVAR believes that its operating income will be sufficient to fund operations and planned capital expenditures in the near term. However, GENIVAR may be required to raise additional capital in the future. The availability of future financing will depend on prevailing market conditions and the acceptability of financing terms offered. There can be no assurance that future financing will be available, or available on acceptable terms, in an amount sufficient to fund its needs, especially during economic downturns.
Accounts Receivable As is common in the Engineering Services industry, GENIVAR carries a high level of accounts receivable on its balance sheet. This value is spread amongst numerous contracts and clients. Although GENIVAR has not experienced accounts receivable collection problems in the past, there can be no assurance that outstanding accounts receivable will be paid on a timely basis or at all.
Reduction in the Scope of Environmental Regulations A portion of GENIVAR Engineering Services Business is generated directly or indirectly as a result of laws and regulations regarding environmental protection. Changes in environmental regulations could affect GENIVAR’s business more significantly than they would affect other Engineering Services firms. Accordingly, a reduction in the number of scope of these laws and regulations could significantly reduce the size of its market environment segment and have a material adverse effect on its business, financial condition and results of operations and on its ability to make distributions on the Units.
International Operations Subject to Numerous Risks In addition to its operations in Canada, GENIVAR has operations in Trinidad and Tobago and in other countries, pursue contracts for clients in Trinidad and Tobago and other countries and derive some of its revenues from such operations. Although its international operations in Trinidad and Tobago have represented 5.0% of its revenues for the year ended December 31, 2009 and that its international operations in countries other than Trinidad and Tobago represented 3.3% of its revenues for the year ended December 31, 2009 and that its overall international operations were mostly conducted for Canadian-based clients, completed from resources of its Canadian offices and paid in Canadian dollars, GENIVAR’s international operations could increase in the future. International business is subject to a variety of special risks, including (a) greater risk of uncollectible accounts and longer collection cycles; (b) currency fluctuations; (c) logistical and communications challenges; (d) potential adverse changes in laws and regulatory practices; (e) changes in labour conditions; (f) general economic and political conditions in the foreign markets; and (g) international hostilities. These and other risks associated with international operations could have a material adverse effect on its business, financial condition and results of operations and its ability to make distributions on the Units.
Since GENIVAR operates outside Canada, it is exposed to currency risks as a result of potential exchange rate fluctuations, mainly in Trinidad and Tobago. Exchange rate fluctuations, as a result of a strong Canadian dollar, had a negative impact of $3.3 million on the financial results for the year ended December 31, 2009. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
RISKS RELATING TO THE STRUCTURE OF THE FUND Dependence upon the Trust and GENIVAR LP The Fund is entirely dependent upon the operations and assets of GENIVAR LP, through its indirect ownership of 66.65% of the GENIVAR LP Units. Cash distributions to Unitholders depends, among other things, upon the ability of the Trust to pay interest on the Trust Notes and to make cash distributions in respect of the Trust Units, which, in turn, is dependent on GENIVAR LP making cash distributions in respect of the GENIVAR LP Units. The ability of the Trust and GENIVAR LP to make cash distributions or make other payments or advances is subject to applicable laws and regulations and contractual restrictions contained in the instruments governing any indebtedness of those entities.
Cash Distributions Are Not Guaranteed and Will Fluctuate with the GENIVAR Engineering Services Business Performance Although the Fund intends to distribute the interest received in respect of the Trust Notes and the cash distributions received in respect of the Trust Units, less expenses and amounts, if any, including in connection with the redemption of Units, there can be no assurance regarding the amounts of income to be generated by the GENIVAR Engineering Services Business or ultimately distributed to the Fund. The actual amount distributed in respect of the Units is not guaranteed and depends upon numerous factors, including GENIVAR’s profitability, fluctuations in GENIVAR’s working capital, its obligations under applicable credit facilities, sustainability of its margins and capital expenditures. The market value of the Units may deteriorate if the Fund is unable to meet its distribution targets in the future, and such deterioration may be significant. In addition, the composition of cash distributions for tax purposes may change over time and may affect the after-tax return for investors.
Nature of Units The Units do not represent a direct investment in the GENIVAR Engineering Services Business and should not be viewed by investors as limited partnership units in GENIVAR LP. As holders of Units, Unitholders do not have the statutory rights normally associated with ownership of shares of a corporation, including, for example, the right to bring “oppression” or “derivative” actions. Each Unit represents an equal, undivided right to and interest in the distributions from the Fund. The Fund’s primary assets are the Trust Notes and the Trust Units. The Units do not represent debt instruments and there is no principal amount owing to Unitholders under the Units. The price per Unit is a function of anticipated Distributable Cash and other market factors.
The Units are not “deposits” within the meaning of the Canada Deposit Insurance Corporations Act (Canada) and are not insured under the provisions of that Act or any other legislation. Furthermore, the Fund is not a trust company and, accordingly, is not registered under any trust and loan company legislation as it does not carry on or intend to carry on the business of a trust company. 59
Unpredictability and Volatility of Unit Price A publicly traded income trust such as the Fund does not necessarily trade at values determined by reference to the underlying value of the GENIVAR Engineering Services Business. The prices at which the Units trade cannot be predicted. The market price of the Units could be subject to significant fluctuations in response to variations in quarterly operating results, monthly distributions, and other factors. In addition, industry specific fluctuations in the stock market may adversely affect the market price of the Units regardless of GENIVAR’s operating performance and there can be no assurance that the price of the Units will remain at current levels. The annual yield on the Units as compared to the annual yield on other financial instruments may also influence the price of Units in the public trading markets. In addition, the securities markets have experienced significant price and volume fluctuations from time to time in recent years that often have been unrelated or disproportionate to the operating performance of particular issuers. These broad fluctuations may adversely affect the market price of the Units.
Fund not a Corporation Purchasers are cautioned that the Fund is not generally regulated by established corporate law and Unitholders’ rights are governed primarily by the specific provisions of the Fund Declaration of Trust, which addresses such items as the nature of the Voting Units, the entitlement of Unitholders to cash distributions, restrictions respecting non-resident holdings, meetings of Voting Unitholders, delegation of authority, administration, Fund governance and liabilities and duties of the Fund Trustees to Unitholders. As well, under certain existing legislation such as the Bankruptcy and Insolvency Act and the Companies Creditor’s Arrangement Act, the Fund is not a legally recognized entity within the definitions of these statutes. In the event of insolvency or restructuring of the Fund, the rights of Unitholders may be different from those of shareholders of an insolvent or restructuring corporation as the Fund and its stakeholders would not be able to access the remedies and procedures available thereunder.
Redemption of Units The redemption right is not the primary mechanism for Unitholders to liquidate their investments. Upon redemption of Units, the Fund Trustees may distribute the Trust Notes directly to the Unitholders, subject to obtaining any required regulatory approvals and complying with the requisite terms and conditions of such approvals. Trust Notes so distributed may not be qualified investments for trusts governed by Plans depending upon the circumstances at the time. Additionally, such Trust Notes will not be listed on any stock exchange and no established market is expected to develop in such Trust Notes and they may be subject to resale restrictions under applicable securities laws.
Distribution of Securities on Redemption or Termination of the Fund Upon redemption of Units or termination of the Fund, the Fund Trustees may distribute the Exchange Notes, the Trust Notes or the Trust Units directly to the Unitholders, subject to obtaining all required regulatory approvals. There is currently no market for the Exchange Notes, the Trust Notes or the Trust Units. In addition, Exchange Notes, Trust Notes and Trust Units are not freely tradable or listed on any stock exchange. The Exchange Notes so distributed may not be qualified investments under the Tax Act for Plans, depending upon the circumstances at the time. The Trust Notes and the Trust Units would not be qualified investments under the Tax Act for such Plans. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Leverage and Restrictive Covenants The degree to which GENIVAR is leveraged could have important consequences to the Unitholders, including (i) GENIVAR’s ability to obtain additional financing for working capital, capital expenditures or acquisitions in the future may be limited, (ii) a significant portion of GENIVAR’s cash flow from operations may be dedicated to the payment of the principal of and interest on its indebtedness, thereby reducing funds available for future operations and to pay distributions, (iii) certain of GENIVAR’s borrowings under the Credit Facilities are at variable rates of interest, which exposes GENIVAR to the risk of increased interest rates and (iv) GENIVAR may be more vulnerable to economic downturns and be limited in its ability to withstand competitive pressures. These factors may increase the sensitivity of Distributable Cash to interest rate variations.
GENIVAR’s ability to make distributions or make other payments or advances will be subject to applicable law and contractual restrictions contained in the instruments governing any of its indebtedness (including the Credit Facilities). The Credit Facilities contain numerous restrictive covenants, including covenants that limit the discretion of GENIVAR with respect to certain business matters. These covenants will place significant restrictions on, among other things, GENIVAR’s ability to incur additional indebtedness, to create liens or other encumbrances, to pay distributions or make certain other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. In addition, the Credit Facilities contain a number of financial covenants that require GENIVAR to meet certain financial ratios and financial condition tests. A failure to comply with the obligations in the Credit Facilities could result in a default, which, if not cured or waived, could result in a termination of its distributions and permit acceleration of the relevant indebtedness. If the indebtedness under the Credit Facilities, including any possible hedge contracts with the lenders, were to be accelerated, there can be no assurance that GENIVAR’s assets would be sufficient to repay in full that indebtedness or that any amount be left for distribution to Unitholders.
GENIVAR will eventually have to refinance its available credit facilities or other debt and there can be no assurance that GENIVAR will be able to do so or be able to do so on terms as favourable as those presently in place. If GENIVAR is unable to refinance these credit facilities or other debt, or is only able to refinance these credit facilities or other debt on less favourable and/or more restrictive terms, this may have a material adverse effect on its financial position, which may result in a reduction or suspension of cash distributions to Unitholders. In addition, the terms of any new credit facility or debt may be less favourable or more restrictive than the terms of the existing credit facilities or other debt, which may indirectly limit or negatively impact its ability to make distributions on the Units.
Income Tax Matters The current tax legislation contains rules (the “SIFT Rules”) providing for changes to the manner in which certain flow-through entities and the distributions from such entities may be taxed. The SIFT Rules will subject the Fund to trust level taxation as of January 1, 2011 at a rate comparable to the combined federal and provincial corporate tax rate applicable to certain types of income (other than taxable dividends), thereby reducing the amount of Distributable Cash. In addition, the taxable distributions received by Unitholders will, as of January 1, 2011, be treated as dividends from a taxable Canadian corporation but the tax treatment of distributions that are paid as a return of capital by a SIFT will not be changed. There can be no assurance that the Fund will be able to maintain the same level of distributions commencing in 2011. 61
There can be no assurance that the Fund will be able to retain the benefit of the deferred application of the new tax regime until 2011. If, during the period from and including November 1, 2006 to December 31, 2010, the Fund is deemed to have undergone “undue expansion”, as described in the Guidelines on Normal Growth issued by the Minister of Finance (Canada) on December 15, 2006 and revised on December 4, 2008 (the “Normal Growth Guidelines”), the SIFT Rules will become applicable to the Fund on a date earlier than January 1, 2011. The loss of the benefit of the deferred application of the new tax regime until 2011 could have a material and adverse effect on the value of the Units.
The current tax legislation also contains certain provisions to facilitate the conversion of existing income trusts into corporations on a tax deferred basis without any undue tax consequences to either the SIFT or its unitholders (the “Conversion Rules”). The Fund is reviewing and analyzing the Conversion Rules taking into account what would be in the best interest of the Unitholders.
Income fund structures involve a significant amount of inter-company or similar debt, generating substantial interest expenses, which reduce earnings and therefore income tax payable. There can be no assurance that taxation authorities will not seek to challenge the amount of interest expenses deducted. If such a challenge were to succeed against GENIVAR, it could adversely affect the amount of Distributable Cash available. Management believes that the amount of interest expenses inherent in the structure of the Fund is supportable and reasonable.
There can be no assurance that Canadian federal income tax laws and administrative policies respecting the treatment of mutual fund trusts will not be changed in a manner that adversely affects the Unitholders’ Investment Eligibility.
There can be no assurance that the Units will continue to be qualified investments under the Tax Act for Plans. The Tax Act imposes penalties for the acquisition or holding of non-qualified investments.
Limitations on Non-Resident Ownership The Fund Declaration of Trust provides that at no time may non-residents of Canada be the beneficial owners of more than 49.9% of the Units. In the event that GENIVAR becomes aware that non-residents of Canada are the owners of more than 49.9% of the Units, GENIVAR may require certain of the non-residents of Canada to sell their Units. The limitation on ownership of Units by non residents of Canada may have an adverse impact on the liquidity of the Units. In addition, the sale by non-residents of Canada of a significant number of Units at GENIVAR’s demand may have an adverse effect on the market price of the Units.
Restrictions on Potential Growth The payout by GENIVAR LP of substantially all of its operating cash flow will make additional capital and operating expenditures dependent on increased cash flow or additional financing in the future. Lack of such funds could limit the future growth of the GENIVAR Engineering Services Business and the related cash flow to the Fund. GENIVAR INCOME FUND MANAGEMENT’S DISCUSSION & ANALYSIS
Conversion to Corporate Structure The non-completion of the Proposed Conversion on or about January 1, 2011, may have a material adverse effect on GENIVAR’s business and financial condition.
The Proposed Conversion is subject to the approval of the Fund Trustees, the Unitholders, the board of directors of GENIVAR Inc. and the shareholders of GENIVAR Inc. The risk factors related to the completion of the Proposed Conversion will be included in the Proxy Circular to be distributed to the Unitholders.
Ownership Interest of GENIVAR Inc.; Potential Conflicts of Interest GENIVAR Inc. holds directly and indirectly 9,060,387 Exchangeable LP Units representing, in the aggregate, 33.35% of the outstanding GENIVAR LP Units. Under the Exchange Agreement, Exchangeable LP Units will be exchangeable for Units at any time after the closing of the IPO on a one-for-one basis, subject to customary anti-dilution provisions. GENIVAR Inc. has also been granted certain “demand” and “piggy-back” registration rights by the Fund. If GENIVAR Inc. sells substantial amounts of Units in the public market, the market price of Units could fall. The perception among the public that these sales will occur could also produce such effect.
As a result of this economic interest in the Fund and of its board appointment rights under the Securityholders’ Agreement, GENIVAR Inc. may be able to exert significant influence over matters concerning the Fund. The timing and receipt of any takeover or control premium by Unitholders could depend on the determination of GENIVAR Inc. as to when to sell Units. This could delay or prevent a change of control that could be attractive to, and provide liquidity for, the Unitholders, and could limit the price that investors are willing to pay in the future for Units.
The interests of GENIVAR Inc. may conflict with those of the Unitholders.
Unitholder Liability The Fund Declaration of Trust provides that no Unitholder will be subject to any liability whatsoever to any person in connection with a holding of Units. However, in jurisdictions outside the Provinces of Ontario, Quebec and Alberta, there remains a risk, which GENIVAR considers to be remote in the circumstances, that a Unitholder could be held personally liable, despite such statement in the Fund Declaration of Trust, for the obligations of the Fund to the extent that claims are not satisfied out of the assets of the Fund. GENIVAR’s affairs are conducted to seek to minimize such risk wherever possible.
GLOSSARY Net revenues Net revenues are defined as revenues from consulting services less direct costs for subconsultants and other direct expenses that are recoverable directly from the clients. Net revenues are not a measure in accordance with GAAP and do not have standardized meaning prescribed by GAAP. Therefore, net revenues may not be comparable to similar measures presented by other issuers. Investors are cautioned that net revenues should not be construed as an alternative to revenues for the year (as determined in accordance with GAAP), as an indicator of the Fund’s performance. 63
EBITDA EBITDA is defined as earnings before interest, tax, depreciation and amortization. EBITDA is not an earnings measure in accordance with GAAP and does not have a standardized meaning prescribed by GAAP. Investors are cautioned that EBITDA should not be construed as an alternative to net earnings for the year (as determined in accordance with GAAP) as an indicator of the Fund’s performance, or as an alternative to cash flows from operating, financing and investing activities as a measure of the Fund’s liquidity and cash flows. The Fund’s method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, the Fund’s EBITDA may not be comparable to similar measures used by other issuers.
Distributable cash The Fund views distributable cash as an operating performance measure and it is a non-GAAP measure generally used by Canadian income funds as an indicator of financial performance.
Distributable cash is calculated in accordance with the recommendations provided in CICA’s publication “Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities.” Standardized distributable cash is defined as cash flows from operating activities as reported in the GAAP financial statements, including the effects of changes in non-cash working capital items and any operating cash flows provided from or used in discontinued operations, less adjustments for:
(a) total capital expenditures as reported in the GAAP financial statements; and
(b) restrictions on distributions arising from compliance with financial covenants restrictive at the date of the calculation of standardized distributable cash and limitations arising from the existence of a minority interest in a subsidiary.
The Fund also calculated an adjusted distributable cash, which is defined as standardized distributable cash adjusted for entity-specific adjustment items that management believes are appropriate for the determination of levels of distributions.
Payout ratio Standardized payout ratio is defined as aggregate cash distributions divided by standardized distributable cash. Adjusted payout ratio is defined as aggregate cash distributions divided by adjusted distributable cash. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS 65
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31 2009 and 2008 (in thousands of dollars) GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of GENIVAR Income Fund and all the information in this annual report are the responsibility of management and are approved by the Board of Fund Trustees.
The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. When alternative accounting methods exist, management has chosen those it considers most appropriate for the circumstances.
The significant accounting policies used are described in Note 3 to the consolidated financial statements. Certain amounts in the financial statements are based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Management has prepared the financial information presented elsewhere in the annual report and has ensured that it is consistent with that in the consolidated financial statements.
The Fund maintains systems of internal accounting and administrative controls which are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Fund’s assets are appropriately accounted for and adequately safeguarded.
The Board of Fund Trustees is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board of Fund Trustees carries out this responsibility principally through its Audit Committee.
The Audit Committee is appointed by the Board of Fund Trustees, and three of its members are outside directors. The Audit Committee meets periodically with management, as well as with the external auditors, to discuss internal controls, accounting, auditing and financial reporting issues, to ensure that each party is properly discharging its responsibilities, and to review the consolidated financial statements, the management’s discussion and analysis and the external auditors’ report. The Audit Committee reports its findings to the Board of Fund Trustees for consideration when the latter approves the consolidated financial statements for issuance to the unitholders. The Audit Committee also considers, for review by the Board of Fund Trustees and approval by the unitholders, the engagement or reappointment of the external auditors.
The consolidated financial statements have been audited, on behalf of the unitholders, by PricewaterhouseCoopers LLP, the external auditors, in accordance with Canadian generally accepted auditing standards. The external auditors have full and free access to the Audit Committee and may meet with or without the presence of management.
Pierre Shoiry, Eng., M. A. Sc., Marcel Boucher, CA, CFE, President and Chief Executive Officer Chief Financial Officer
Montreal, Quebec, Canada March 22, 2010 67
AUDITORS’ REPORT To the Unitholders of GENIVAR Income Fund
We have audited the consolidated balance sheets of GENIVAR Income Fund as at December 31, 2009 and 2008 and the consolidated statements of earnings and comprehensive income, retained earnings and contributed surplus and cash flows for the years then ended. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Fund as at December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
Montreal, Quebec, Canada March 22, 2010
1 Chartered accountant auditor permit No. 19042
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets As at December 31, 2009 and 2008
IN THOUSANDS OF DOLLARS 2009 ($) 2008 ($)
ASSETS
Current assets
Cash and cash equivalents 51,887 14,709
Accounts receivable (note 6) 143,256 115,443
Costs and anticipated profits in excess of billings 51,292 46,076
Prepaid expenses 4,710 2,230
251,145 178,458
Property, plant and equipment (note 7) 33,029 30,021
Intangible assets (note 8) 100,167 78,453
Goodwill (note 9) 148,756 140,450
533,097 427,382
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (note 11) 69,388 62,012
Income taxes payable 347 428
Billings in excess of costs and anticipated profits 24,836 29,481
Future income tax liabilities (note 20) 389 953
Distributions payable to unitholders (note 18) 15,619 13,429
Current portion of balances of purchase price payable 5,300 13,763 (note 12)
Current portion of long-term debt (note 13) 330 1,662
116,209 121,728
Balances of purchase price payable (note 12) 1,768 -
Long-term debt (note 13) 5,670 222
Bank advances (note 10) - 10,668
Future income tax liabilities (note 20) 3,695 1,044
Non-controlling interest (note 14) 128,361 111,832
255,703 245,494
UNITHOLDERS’ EQUITY
Fund units (note 15) 275,065 179,636
Retained Earnings 2,329 2,252
277,394 181,888
533,097 427,382
Commitments and contingencies (note 24)
Subsequent events (note 27)
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Trustees, (signed) Pierre Shoiry , Trustee (signed) Pierre Seccareccia , Trustee 69
Consolidated Statements of Retained Earnings and Contributed Surplus For the years ended December 31, 2009 and 2008
IN THOUSANDS OF DOLLARS 2009 ($) 2008 ($)
Retained Earnings (Deficit) – Beginning of year 2,252 (483)
Net earnings for the year 31,093 25,815
33,345 25,332
Declared distributions to unitholders (note 18) (31,016) (23,080)
Retained Earnings – End of year 2,329 2,252
IN THOUSANDS OF DOLLARS 2009 ($) 2008 ($)
Contributed Surplus – Beginning of year - - Compensation costs under the Long-Term Incentive Plan 275 275 (“LTIP”)
Units vested under the LTIP (275) (275)
Contributed Surplus – End of year - -
The accompanying notes are an integral part of these consolidated financial statements. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Earnings and Comprehensive Income For the years ended December 31, 2009 and 2008
2009 ($) 2008 ($) IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA
Revenues 477,924 387,803
Costs 279,241 225,695
Gross margin 198,683 162,108
Expenses
Marketing, general and administrative 116,867 95,898
Depreciation of property, plant and equipment 6,287 4,705
Amortization of intangible assets 17,036 16,527
Net interest expense (note 19) 1,813 2,198
Exchange loss (gain) 3,332 (2,256)
145,335 117,072
Earnings before income taxes and non-controlling interest 53,348 45,036
Income taxes (note 20) 3,281 2,518
Earnings before non-controlling interest 50,067 42,518
Non-controlling interest (note 14) (18,974) (16,703)
Net earnings and comprehensive income for the year 31,093 25,815
Basic net earnings per unit 2.06 1.95
Weighted average number of units (note 17) 15,071,186 13,213,513
Diluted net earnings per unit 2.06 1.95
Diluted weighted average number of units (note 17) 24,131,573 21,829,087
The accompanying notes are an integral part of these consolidated financial statements. 71
Consolidated Statements of Cash Flows For the years ended December 31, 2009 and 2008
IN THOUSANDS OF DOLLARS 2009 ($) 2008 ($) Cash flows from operating activities Net earnings for the year 31,093 25,815 Items not affecting cash and cash equivalents Depreciation and amortization 23,323 21,232 Compensation costs under the LTIP 275 275 Future income taxes (705) (715) Non-controlling interest 18,974 16,703 72,960 63,310
Change in non-cash working capital items (note 21) (20,379) (24,988)
52,581 38,322 Cash flows from financing activities Variation in advances payable to and receivable from the (4,180) (85) non-controlling unitholder Distributions paid to unitholders (28,826) (15,936) Distributions paid to the non-controlling unitholder (17,668) (11,162) Repayment of balances of purchase price payable (15,190) (3,298) Long-term debt contracted 6,000 307 Repayment of long-term debt (1,884) (1,311) Net variation in bank advances (10,668) 10,668 Issuance of units (note 15) 100,000 35,000 Investment by the non-controlling unitholder (note 14) - 15,000 Issuance-related costs (note 1) (5,500) (2,250) Distributions reinvested in units under the LTIP 31 (7) 22,115 26,926 Cash flows used in investing activities Business acquisitions (note 4) (25,735) (53,570) Variation in advances to companies and a joint venture 177 (175) controlled by the non-controlling unitholder Additions to property, plant and equipment (7,960) (8,129) Proceeds from disposal of property, plant and equipment 827 789 Acquisition of software (4,827) (2,309) (37,518) (63,394) Increase in cash and cash equivalents 37,178 1,854 Cash and cash equivalents – Beginning of year 14,709 12,855 Cash and cash equivalents – End of year 51,887 14,709 Additional information Interest paid 1,898 2,341 Interest received (85) (143) Income taxes paid 5,029 8,270
The accompanying notes are an integral part of these consolidated financial statements. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
1. DESCRIPTION OF THE FUND The Fund is an unincorporated, open-ended, limited purpose trust created pursuant to the Fund Declaration of Trust made as of March 31, 2006, as amended and restated on May 16, 2006, and is governed by the laws of the Province of Quebec. The Fund has been created to invest, through GENIVAR Operating Trust (the «Trust»), a wholly owned trust, in limited partnership units of GENIVAR Limited Partnership («GENIVAR LP») and in shares of GENIVAR GP Inc. (“Genivar GP”), the general partner of GENIVAR LP.
The Fund offers services ranging from planning to execution, including conceptual and development studies, feasibility and economic studies, preliminary engineering and detailed design, plans and specifications, work supervision and environmental planning.
On October 2, 2008, the Fund issued, pursuant to a public offering, 1,391,650 units for gross proceeds of $35,000. Concurrently with the closing of the offering, GENIVAR inc., the non-controlling unitholder, subscribed, directly and indirectly, for 596,421 Exchangeable Class B LP Units of GENIVAR LP and 596,421 Special Voting Units of the Fund for gross proceeds of $15,000. Total issuance related costs amounted to $2,250 less future income taxes of $235. Following this transaction, the Fund owned 14,294,089 Class A LP Units of GENIVAR LP, representing a 61.2% interest.
On October 16, 2009, the Fund issued, pursuant to a public offering, 3,809,500 units for gross proceeds of approximately $100,000. Total issuance-related costs amounted to approximately $5,500 less future income taxes of $623. Following this transaction, the Fund now owns indirectly 18,103,589 Class A LP Units of GENIVAR LP, representing a 66.65% interest.
2. CHANGES IN ACCOUNTING POLICIES On January 1, 2009, the Fund adopted Section 3064, “Goodwill and Intangible Assets,” issued by the Canadian Institute of Chartered Accountants (“CICA”). This section replaces Section 3062, “Goodwill and Other Intangible Assets” and Section 3450, “Research and Development Costs.” This section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets.
On January 20, 2009, the Fund adopted the recommendation of the Emerging Issues Committee No. 173, “Credit Risk and the Fair Value of Financial Assets and Financial Liabilities” (EIC-173) issued by the CICA. This abstract clarifies that an entity’s own credit risk and the credit risk of its counterparty should be taken into consideration in determining the fair value of financial assets and liabilities.
The application of these standards had no significant impact on the Fund’s consolidated results of operations or financial position. 73
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
On January 1, 2008, the Fund adopted the following new accounting standards issued by the CICA:
∫∫ Section 1400, “General Standards of Financial Statement Presentation.” This standard has been amended to include requirements to assess and disclose an entity’s ability to continue as a going concern.
∫∫ Section 1535, “Capital Disclosures.” This section establishes standards for disclosing information about an entity’s capital and how it is managed. It describes the disclosure of the entity’s objectives, policies and processes for managing capital as well as summary quantitative data on the elements included in the management of capital. The section seeks to establish whether the entity has complied with capital requirements and, if not, the consequences of such non-compliance. These disclosures are included in note 16.
∫∫ Section 3862, “Financial Instruments – Disclosures.” This section describes the required disclosures to evaluate the significance of financial instruments for the entity’s financial position and performance as well as the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. These disclosures are included in note 23.
∫∫ Section 3863, “Financial Instruments – Presentation.” This section establishes standards for presentation of financial instruments and non-financial derivatives. It details the presentation of standards described in Section 3861, “Financial Instruments – Disclosure and Presentation.”
These sections relate to disclosure and presentation and did not have any impact on the Fund’s consolidated results or financial position.
On August 28, 2008, the Fund adopted EIC-171, “Future Income Tax Consequences of Exchangeable Interests in an Income Trust or Specified Investment Flow-Through,” issued by the CICA. This EIC establishes that the future income taxes related to temporary differences associated with the assets and liabilities attributable to the exchangeable interests should not be recorded prior to the conversion of the exchangeable interests. It also describes how future income taxes should be accounted for on the conversion of exchangeable interests. The Fund adopted this new recommendation retrospectively. The implementation of this standard had no significant impact on the consolidated financial statements of the Fund.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported in the financial statements. Those estimates and assumptions also affect the disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the year. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Significant estimates used in the preparation of these consolidated financial statements include the percentage of completion of contracts, allowances for doubtful accounts and for costs and anticipated profits in excess of billings, useful lives and fair value of identifiable intangible assets acquired in business acquisitions, impairment test of intangible assets and goodwill, provision for legal claims and provision for future income taxes. Actual results could differ from those estimates.
Consolidation and joint ventures These financial statements include the accounts of the Fund, the Trust, GENIVAR GP, GENIVAR LP and its subsidiaries.
The Fund conducts certain activities in joint ventures with other parties. The interests in such joint ventures are accounted for using the proportionate consolidation method, which results in the Fund recording its pro rata share of the assets, liabilities, revenues, costs and cash flows of each of these joint ventures using the most recent financial statements of the joint ventures available, which are not necessarily the ones as at December 31, 2009 or 2008.
All significant intercompany transactions and balances have been eliminated.
Variable interest entities Entities that are subject to control on a basis other than ownership of voting interests are accounted for using the accounting requirement on the consolidation of variable interest entities (“VIEs”) under Accounting Guideline AcG-15, “Consolidation of variable interest entities.” VIEs are characterized as entities in which the equity is not sufficient to permit them to finance their activities without external support, or equity investors lack voting control, an obligation to absorb expected losses or the right to receive expected residual returns.
Where a reporting entity is determined to have a variable interest in such an entity, and where that interest will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected returns, or both at the end of the VIE’s existence, the reporting entity is deemed to be the primary beneficiary and must consolidate the VIE. VIEs controlled by the Fund, otherwise than by voting control, and for which the Fund is the primary beneficiary, are consolidated.
Translation of foreign currencies For foreign currency transactions and foreign entities, which are considered financially and operationally integrated, the temporal method of translation of foreign currencies has been used. Monetary items are translated at the rate in effect at the balance sheet date, non-monetary items are translated at their historical rate (as well as the related depreciation and amortization) and revenues and expenses are translated at the rate in effect at the transaction date or at the average exchange rates during the period as appropriate. Translation gains and losses are recorded in earnings.
Revenue recognition Revenues and profits from cost-plus contracts with ceilings and from fixed price contracts are accounted for using the percentage- of-completion method, which is calculated on the ratio of contract costs incurred to total anticipated costs. 75
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Revenues and profits from cost-plus contracts without stated ceilings and from short-term projects are recognized as costs are incurred and are calculated based on billing rates for the services performed.
Certain costs incurred by the Fund for subconsultants and other expenses that are recoverable directly from clients are billed to them and therefore are included in revenues. In all cases, the value of goods and services purchased by the Fund, when acting as purchasing agent for a client, is not recorded as revenue.
The effect of revisions to estimated revenues and costs is recorded when the amounts are known and can be reasonably estimated. These revisions can occur at any time and could be material. Where total contract costs exceed total contract revenues, the expected loss is recognized as an expense immediately via a provision for losses to completion, irrespective of the stage of completion and based on a best estimate of forecast results including, where appropriate, rights to additional income or compensation, where they are probable and can be determined reliably. Given the uncertainties associated with these types of contracts, it is possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of previously recorded revenues and profits.
Financial assets and financial liabilities Financial assets and financial liabilities are initially recognized at fair value, except for the related party transactions, which are measured at exchanged amount, and their subsequent measurements are dependant on their classification, as described below. The classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics and the Fund’s designation of such instruments as follows:
∫∫ Cash and cash equivalents are classified as held for trading.
∫∫ Accounts receivable, costs and anticipated profits in excess of billings, advances to the non-controlling unitholder and advances to companies and a joint venture controlled by the non-controlling unitholder are classified as loans and receivables.
∫∫ Accounts payable and accrued liabilities, advances payable to the non-controlling unitholder, distributions payable to the unitholders, balances of purchase price payable, long-term debt and bank advances are classified as other liabilities.
Settlement date accounting is used for all financial assets. Changes in fair value between the trade date and settlement date for held for trading financial assets are reflected in the consolidated statements of earnings.
Held for trading Held-for-trading financial instruments are measured at fair value at the balance sheet date. Interest earned, gains and losses realized on disposal and unrealized gains and losses from change in fair value are recorded in the consolidated statements of earnings. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Loans and receivables Loans and receivables are accounted for at amortized cost using the effective interest rate method.
Other liabilities Other liabilities are recorded at amortized cost using the effective interest rate method.
Transaction costs Transaction costs related to held-for-trading financial instruments are expensed as incurred. Transaction costs related to loans and receivables and other liabilities are considered as part of the carrying value of the asset and liability and are then amortized over the expected life of the instrument using the effective interest rate method. In addition, transaction costs do not include direct transaction costs in business acquisitions that are included as part of the purchase price of the acquisition.
Determination of fair value The fair value of a financial instrument is the amount of consideration that would be agreed on in an arm’s-length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of a financial instrument on initial recognition is the transaction price, which is the fair value of the consideration given or received. Subsequent to initial recognition, the fair values of financial instruments that are quoted in active markets are based on bid prices for financial assets held and offer prices for financial liabilities. When independent prices are not available, fair values are determined by using valuation techniques that refer to observable market data.
Hedge accounting The Fund does not use hedge accounting.
Cash and cash equivalents Cash and cash equivalents consist of cash on hand and balances with banks as well as all highly liquid short-term investments with original maturities of three months or less. They are accounted for at their estimated fair value which approximates cost.
Property, plant and equipment Property, plant and equipment are recorded at cost and are depreciated as follows:
Methods Rates and period
Buildings Declining balance 4% and 10% Leasehold improvements Straight-line Lease term Furniture and equipment Declining balance 20% and 25% Computer equipment Declining balance 30% Automotive equipment Declining balance 30% 77
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Intangible assets Intangible assets with finite useful lives consist of software, customer relationships, contract backlogs and non-competition agreements. The trade name is an indefinite-lived intangible asset and accordingly is not subject to amortization but is tested for impairment on an annual basis, or more frequently if events or circumstances indicate that the carrying value may not be recoverable.
The other intangible assets are amortized as follows:
Methods Rates and periods
Software Straight-line 6 years Declining balance 30% Customer relationships Straight-line 10 and 14 years Contract backlogs Straight-line 6 months to 3 years Non-competition agreements Straight-line 1 to 5 years
Impairment of long-lived assets Long-lived assets are reviewed for impairment when events or circumstances indicate that costs may not be recoverable. Impairment exists when the carrying value of the asset is greater than the pre-tax undiscounted future cash flows expected to be provided by the asset. The amount of impairment loss, if any, is the excess of the carrying value over its fair value.
Goodwill Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of net identifiable assets acquired. Goodwill is not subject to amortization but is tested for impairment on an annual basis or more frequently if events or circumstances indicate that it might be impaired. The impairment test is accomplished mainly by determining whether the fair value of a reporting unit, based upon an accepted valuation method, exceeds the carrying amount of that reporting unit. If the fair value exceeds the carrying amount of the reporting unit, no impairment is necessary. If the carrying amount of the reporting unit exceeds its fair value, a second test must be performed whereby the fair value of the reporting unit’s goodwill must be compared with its carrying value to measure the amount of the impairment loss, if any. Fair value of goodwill is estimated in the same way as it was determined at the date of the acquisition. When the carrying amount of the reporting unit’s goodwill exceeds the fair value of the goodwill, an impairment loss equal to the excess is recognized.
The Fund has elected to carry out its annual impairment test in December of each year for all its existing reporting units.
Income taxes Since the second quarter of 2007, the Fund accounts for future income taxes. The cumulative effect of future income taxes recognized, in addition to the taxes recognized by operating subsidiaries subject to income taxes, is based on existing temporary differences that are expected to reverse from January 1, 2011, when the SIFT Rules take effect. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Income taxes are accounted for using the liability method of tax allocation. Under this method, future income tax assets and liabilities are determined based on deductible or taxable temporary differences between financial statement values and tax values of assets and liabilities using enacted or substantively enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse on a stand-alone basis. Valuation allowance is established against future income tax assets if, based on available information, it is more likely than not that some or all of the future income tax assets will not be realized.
Long-Term Incentive Plan (“LTIP”) During 2007, the officers and key employees were eligible to participate in GENIVAR LP’s LTIP. The plan provided that one third of the units will vest equally over a three-year period following the grant of the awards. The Fund accounts for a compensation cost, on a straight-line basis, over the vesting period of the units. Units purchased in the market have been applied against unitholders’ equity.
Earnings per unit Basic earnings per unit are determined using the weighted average number of units outstanding during the year.
Diluted earnings per unit are determined using the weighted average number of units outstanding during the year, plus the effects of dilutive potential units outstanding during the year. The calculation of diluted earnings per unit is made using the treasury stock method.
Future accounting standards Business combinations The CICA published Section 1582, “Business Combinations.” This section will be applicable to business combinations for which the acquisition date is on or after January 1, 2011. Early adoption is permitted. This section improves the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects.
Consolidated financial statements The CICA published Section 1601, “Consolidated Financial Statements.” This section will be applicable to the Fund’s interim and annual financial statements for the year beginning on January 1, 2011. Early adoption is permitted. This section establishes standards for the preparation of consolidated financial statements.
Non-controlling interest The CICA published Section 1602, “Non-controlling Interests.” This section will be applicable to the Fund’s interim and annual financial statements for the year beginning on January 1, 2011. 79
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Early adoption is permitted. This section establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination.
The Fund has not yet determined the impact of the adoption of these new sections on its consolidated financial statements.
Comparative figures Certain comparative figures have been reclassified to conform to the current year presentation.
4. BUSINESS ACQUISITIONS The acquisitions have been accounted for using the purchase method, and the operating results have been included in the consolidated financial statements from the date of acquisition. Upon a change in the purchase price, the net assets acquired and the balances of purchase price payable are modified when it is determined that such change is estimated to be likely to occur. Such change occurs when there is a price adjustment provision to the carrying value of the net assets acquired.
(a) Acquisitions made by the Fund in 2009 ∫∫ On January 1, 2009, the Fund acquired all the outstanding shares of Design Collaborative Associates Ltd. (“DCA”), a Trinidad and Tobago-based architectural and urban planning firm.
∫∫ On January 31, 2009, the Fund acquired all the assets and liabilities of Envirotel 3000 (“Envirotel”), a Quebec-based environmental engineering firm.
∫∫ On January 31, 2009, the Fund acquired all the assets and liabilities of WSA Trenchless Consultants (“WSA”), a Quebec-based municipal infrastructure engineering firm.
∫∫ On January 31, 2009, the Fund acquired all the assets and liabilities of ENTRA Consultants (“ENTRA”), an Ontario-based transportation engineering firm.
∫∫ On February 28, 2009, the Fund acquired all the assets and liabilities of Wiebe Environmental Services (“WES”), a Western Canada-based environmental engineering firm.
∫∫ On April 4, 2009, the Fund acquired all the assets and liabilities of Algal & Associates (“Algal”), an Ontario-based electrical engineering firm.
∫∫ On April 30, 2009, the Fund acquired all the assets and liabilities of ENAQ, a Quebec-based nuclear power engineering firm.
∫∫ On May 19, 2009, the Fund acquired all the assets and liabilities of Jagger Hims (“Jagger”), an Ontario-based earth sciences and environmental engineering firm.
∫∫ On July 5, 2009, the Fund acquired all the assets and liabilities of WM. R. Walker Engineering (“Walker”), an Ontario-based multidisciplinary consulting and engineering firm. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
∫∫ On August 23, 2009, the Fund acquired all the assets and liabilities of Magnate Engineering & Associates (“MEA”) and all the outstanding shares of Magnate Communications Corp. (“MCC”) (collectively “Magnate”), two Ontario- and British Columbia- based telecommunications engineering firms.
∫∫ On September 1, 2009, the Fund acquired all the assets and liabilities of Progemes Consultants (“Progemes”), a Quebec- based building engineering firm.
∫∫ On October 1, 2009, the Fund acquired all the assets and liabilities of Gilles Taché & Associés (“Gilles Taché”), a Quebec- based municipal infrastructure firm.
∫∫ On October 8, 2009, the Fund acquired all the assets and liabilities of Harp Engineering and Design (“Harp”), an Ontario- based mechanical and electrical firm. 81
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
The final purchase price allocations of DCA, Envirotel, WSA, ENTRA and WES are completed by management with the assistance of an independent valuator. The purchase price allocations of Algal, Jagger, Walker, Magnate, Progemes, Gilles Taché and Harp are preliminary, but the Fund does not anticipate any significant changes upon the finalization of the evaluation of the intangible assets in the purchase price allocations. The purchase price allocation of ENAQ has not been completed, and as such, any excess of the consideration paid over management’s best estimate of the fair value of net tangible assets acquired has been allocated to goodwill.
($)
Assets acquired
Current assets
Cash 1,856
Accounts receivable 19,611
Costs and anticipated profits in excess of billings 846
Prepaid expenses 488 22,801
Property, plant and equipment 1,443
Intangible assets
Finite useful life
Software 116
Customer relationships 12,143
Contract backlogs 2,909
Non-competition agreements 478 39,890
Liabilities assumed
Current liabilities
Bank advances 1,095
Accounts payable and accrued liabilities 10,897
Advances payable to the non-controlling unitholder 318
Billings in excess of costs and anticipated profits 291
Income taxes payable 962 13,563
Future income tax liabilities 198 13,761
Net identifiable assets acquired 26,129
Goodwill 8,862
Purchase price 34,991
Plus (less):
Cash acquired (1,856)
Bank advances assumed 1,095
Balances of purchase price payable (8,495)
Net cash used for the acquisitions 25,735 GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
(b) Finalization in 2009 of purchase price allocations During the year 2009, the Fund finalized the purchase price allocations pertaining to the acquisitions of Doucet & Associés Conseils (“DAC”), Peterson Galloway (“PG”), Bullock Baur Associates (“BBA”), ZENIX Engineering (“ZE”), Solmers, Henderson Paddon & Associates/Oweson (“HP&O”), Consultants GÉNIPLUS/Nageco (“GÉNIPLUS”), DDH Environnement (“DDH”), Pomeroy Consulting Engineers (“Pomeroy”) and Consumaj Estrie (“CE”), realized in 2008. The final allocations, completed by management with the assistance of an independent valuator, resulted in an increase in customer relationships of $257, an increase in contract backlogs of $250 and an increase in non-competition agreements of $49. As a result of these changes, goodwill decreased by $556.
(c) Acquisitions made by the Fund in 2008 ∫∫ On January 1, 2008, the Fund acquired all the assets and liabilities of Transenco (“TL”), an Ontario-based transportation planning and design engineering firm.
∫∫ On January 31, 2008, the Fund acquired all the assets and liabilities of RFA Consulting Electrical Engineers (“RFA”), a British Columbia-based electrical engineering and lighting design services firm.
∫∫ On January 31, 2008, the Fund acquired all the assets and liabilities of Phoenix Engineering (“Phoenix”), a Western Canada- based wind power consulting firm.
∫∫ On February 29, 2008, the Fund ultimately acquired all the assets and liabilities of EXH Engineering Services (“EXH”), an Alberta-based transportation and municipal infrastructure firm.
∫∫ On May 5, 2008, the Fund acquired all the assets and liabilities of DAC, a Quebec-based telecommunications and utilities infrastructure engineering and consulting firm.
∫∫ On June 1, 2008, the Fund acquired all the assets and liabilities of BBA, a British Columbia-based civil and municipal engineering firm.
∫∫ On June 30, 2008, the Fund acquired all the assets and liabilities of PG, a British Columbia-based civil and building engineering consulting firm.
∫∫ On August 1, 2008, the Fund acquired all the assets and liabilities of ZE, an Ontario-based electrical and building engineering consulting firm.
∫∫ On August 1, 2008, the Fund acquired all the assets and liabilities of Solmers, a Quebec-based environmental engineering consulting firm.
∫∫ On August 1, 2008, the Fund acquired all the assets and liabilities of HP&O, an Ontario-based civil engineering and environmental consulting firm.
∫∫ On October 31, 2008, the Fund acquired all the assets and liabilities of GÉNIPLUS, a Quebec-based municipal infrastructure, structural buildings and bridge engineering firm. 83
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
∫∫ On November 1, 2008, the Fund acquired all the assets and liabilities of CE, a Quebec-based environmental and municipal infrastructure engineering firm.
∫∫ On December 1, 2008, the Fund acquired all the assets and liabilities of DDH, a Quebec-based earth sciences and environmental engineering firm.
∫∫ On December 1, 2008, the Fund acquired all the assets and liabilities of Pomeroy, a British Columbia-based structural and building engineering firm. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
The final purchase price allocations of TL, RFA, Phoenix and EXH are completed by management with the assistance of an independent valuator. The purchase price allocations of DAC, BBA, PG, ZE, Solmers, HP&O, and GÉNIPLUS were preliminary in 2008 and have been finalized in 2009 (note 4(b)). The purchase price allocations of CE, DDH and Pomeroy had not been completed in 2008, and as such, any excess of the consideration paid over management’s best estimate of the fair value of net tangible assets acquired had been allocated to goodwill in 2008. These purchase price allocations have been finalized in 2009 (note 4(b)).
EXH ($) Others* ($) Total ($)
Assets acquired
Current assets
Cash 2,867 1,616 4,483
Accounts receivable 6,044 15,939 21,983
Costs and anticipated profits in excess of billings 636 3,811 4,447
Prepaid expenses 253 432 685 9,800 21,798 31,598
Property, plant and equipment 6,798 2,778 9,576
Intangible assets
Finite useful life
Software 201 2,197 2,398
Customer relationships 16,500 14,709 31,209
Contract backlogs 5,300 3,406 8,706
Non-competition agreements 990 702 1,692 39,589 45,590 85,179
Liabilities assumed
Current liabilities
Bank advances - (1,919) (1,919)
Accounts payable and accrued liabilities (6,463) (9,961) (16,424)
Billings in excess of costs and anticipated profits - (2,078) (2,078)
Income taxes payable (1,165) - (1,165)
Advances payable to the non-controlling unitholder - (287) (287)
Current portion of long-term debt (885) (287) (1,172) (8,513) (14,532) (23,045)
Long-term debt (1,447) (269) (1,716) (9,960) (14,801) (24,761)
Net identifiable assets acquired 29,629 30,789 60,418
Goodwill 3,450 11,747 15,197
Purchase price 33,079 42,536 75,615
Plus (less):
Cash acquired (2,867) (1,616) (4,483)
Bank advances assumed - 1,919 1,919
Balances of purchase price payable (8,711) (6,640) (15,351)
Income taxes payable (4,130) - (4,130)
Net cash used for the acquisitions 17,371 36,199 53,570
“Others” include TL, RFA, Phoenix, DAC, BBA, PG, ZE, Solmers, HP&O, GÉNIPLUS, CE, DDH, and Pomeroy. 85
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
(d) Finalization in 2008 of purchase price allocations During the year 2008, the Fund finalized the purchase price allocations pertaining to the acquisitions of National Capital Engineering, SEG Engineering, Harmer Podolak Engineering Consultants, TERRA experts conseils, André Simard et Associés, B.H. Martin Consultants and 9142-1362 Québec, realized in 2007. The final allocations, completed by management with the assistance of an independent valuator, resulted in an increase in customer relationships by $1,302, an increase in contract backlogs of $472 and the recognition of non-competition agreements of $215. Purchase price increased by $5 due to a change in the acquisition-related costs. As a result of these changes, goodwill decreased by $1,984.
5. JOINT VENTURES ACTIVITIES The following is a summary of the Fund’s proportionate share in the assets, liabilities, revenues, costs, expenses, and cash flows of the joint ventures, included in the consolidated financial statements:
2009 ($) 2008 ($)
Statements of earnings
Revenues 51,977 31,929
Costs 32,107 20,917
Gross margin 19,870 11,012
Statements of cash flows
Cash flows provided from operating activities 16,972 6,427
Current assets
Cash 5,936 2,956
Accounts receivable 15,318 11,082
Costs and anticipated profits in excess of billings 6,158 4,051
Total assets 27,412 18,089
Current liabilities
Accounts payable and accrued liabilities 6,832 4,544
Billings in excess of costs and anticipated profits 3,777 2,621
Total liabilities 10,609 7,165 GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
6. ACCOUNTS RECEIVABLE
2009 ($) 2008 ($)
Trade receivables * 139,657 115,008 Companies controlled by the non-controlling unitholder 145 111
Non-controlling unitholder - 129
Advances to the non-controlling unitholder 3,436 -
Advances to companies and a joint venture controlled by the non-controlling unitholder 18 195
143,256 115,443
*Trade receivables include holdbacks amounting to $3,847 ($3,473 in 2008).
7. PROPERTY, PLANT AND EQUIPMENT 2009
ACCUMULATED COST ($) DEPRECIATION ($) NET VALUE ($)
Land 1,345 - 1,345
Buildings 9,991 936 9,055
Leasehold improvements 5,932 1,627 4,305
Furniture and equipment 13,394 4,013 9,381
Computer equipment 14,450 6,198 8,252
Automotive equipment 1,079 388 691
46,191 13,162 33,029
2008
ACCUMULATED COST ($) DEPRECIATION ($) NET VALUE ($)
Land 1,396 - 1,396
Buildings 9,671 617 9,054
Leasehold improvements 4,467 986 3,481
Furniture and equipment 10,481 2,683 7,798
Computer equipment 11,748 3,901 7,847
Automotive equipment 667 222 445
38,430 8,409 30,021 87
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
8. INTANGIBLE ASSETS 2009
ACCUMULATED COST ($) AMORTIZATION ($) NET VALUE ($)
Finite useful life Software 13,311 4,989 8,322
Customer relationships 87,364 16,419 70,945
Contract backlogs 13,363 6,890 6,473
Non-competition agreements 5,105 3,190 1,915
Indefinite useful life
Trade name 12,512 - 12,512 131,655 31,488 100,167
2008
ACCUMULATED COST ($) AMORTIZATION ($) NET VALUE ($)
Finite useful life Software 8,629 3,016 5,613
Customer relationships 69,850 9,243 60,607
Contract backlogs 9,788 4,791 4,997
Non-competition agreements 4,578 1,942 2,636
Indefinite useful life
Trade name 4,600 - 4,600 97,445 18,992 78,453
During the year, the Fund acquired intangible assets amounting to $38,195 ($47,405 in 2008), for which $30,573 are subject to amortization, including an amount of $17,722 ($1,277 in 2008) from the step-by-step acquisition (note 14). The Fund allocated an amount of $556 ($1,989 in 2008) (note 4(b) and (d)) from goodwill to intangible assets as a result of the finalization of purchase price allocations.
9. GOODWILL
2009 ($) 2008 ($)
Balance – Beginning of year 140,450 126,698 Goodwill resulting from business acquisitions (note 4(a) and (c)) 8,862 15,197
Finalization of purchase price allocations (note 4(b) and (d)) (556) (1,984)
Goodwill resulting from a step-by-step acquisition including future income taxes (note 14) - 539
Balance – End of year 148,756 140,450 GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
As at December 31, 2009, goodwill amounting to $28,498 ($22,510 in 2008) is deductible for income tax purposes.
10. CREDIT FACILITIES The Fund has credit facilities totalling $82,000 ($82,000 in 2008) allocated as follows:
Term loan credit facility Term facility of $80,000 ($80,000 in 2008) for operations and for the financing of acquisitions. The term loan credit facility may also be used for the payment of distributions to unitholders up to a maximum amount of $10,000 ($10,000 in 2008).
Treasury credit facility Facility of $2,000 to hedge against interest rate risks and foreign exchange risks.
These credit facilities mature in May 2012. At any time prior to the maturity date, the Fund may elect to repay all or a part of the term loan credit facility. The term of the credit facilities can be extended each year, for an additional one-year period, subject to the prior approval of the lender. The credit facilities are fully repayable at maturity without any prepayment penalties, except for banker’s acceptances and LIBOR advances.
These credit facilities are secured by a first ranking hypothec over the universality of movable assets of GENIVAR LP and those of some of its subsidiaries. The term loan credit facility bears interest at prime rate for Canadian currency advances and US base rate for US currency advances. A variable fee, based on different levels of covenants, is applicable on LIBOR advances.
Under these credit facilities, GENIVAR LP is requested, among other conditions, to respect certain covenants on a consolidated basis, which have been met as at December 31, 2009 and 2008.
As at December 31, 2009, the Fund issued, in the normal course of business, irrevocable letters of credit totalling $408 ($303 in 2008) for its own commitments, thus decreasing such available credit facilities.
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2009 ($) 2008 ($)
Trade payables and accrued liabilities 69,388 61,586 Advances payable to the non-controlling unitholder - 426 69,388 62,012 89
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
12.BALANCES OF PURCHASE PRICE PAYABLE 2009 ($) 2008 ($)
Payable to the vendor in annual capital instalments of $884, bearing interest at 5% 2,652 -
Payable to the vendors in less than a year
Without interest 651 3,276
Prime rate 1,000 7,194 Fixed rate varying from 3% to 5% 2,765 3,293
7,068 13,763
Less: Current portion 5,300 13,763 1,768 -
The annual capital instalments on balances of purchase price payable over each of the next three years amount to $5,300 in 2010, $884 in 2011 and $884 in 2012.
13. LONG-TERM DEBT
2009 ($) 2008 ($)
Loan bearing interest at 3.02%, payable in monthly instalments of $42 including capital and interest, beginning in February 2010, secured by a building. 6,000 -
Reimbursed during the year - 1,884
6,000 1,884 Less: Current portion 330 1,662
5,670 222
The annual instalments due on long-term debt over each of the next five years amount to $330 in 2010, $339 in 2011, $350 in 2012, $361 in 2013, $372 in 2014 and $4,248 thereafter. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
14. NON-CONTROLLING INTEREST As at December 31, 2009 and 2008, the non-controlling interest is as follows:
EXCHANGEABLE CLASS B LP EXCHANGEABLE UNITS CLASS C LP UNITS TOTAL
NUMBER $ NUMBER $ NUMBER $
Balance as at December 31, 2007 3,732,121 44,313 4,731,845 49,245 8,463,966 93,558 Units issued pursuant to a private placement (note 1) 596,421 15,000 - - 596,421 15,000
Issuance-related costs (note 1) - (150) - - - (150)
Increase of the non-controlling interest as a result of a step-by-step acquisition* - 764 - 836 - 1,600 Share in earnings attributable to the non-controlling unitholder - 7,510 - 9,193 - 16,703 Distributions - (6,836) - (8,043) - (14,879)
Balance as at December 31, 2008 4,328,542 60,601 4,731,845 51,231 9,060,387 111,832
Increase of the non-controlling interest as a result of a step-by-step acquisition* - 7,273 - 7,950 - 15,223
Share in earnings attributable to the non-controlling - 9,064 - 9,910 - 18,974 unitholder
Distributions - (8,441) - (9,227) - (17,668)
Balance as at December 31, 2009 4,328,542 68,497 4,731,845 59,864 9,060,387 128,361
*On October 16, 2009, the Fund acquired 3,809,500 units issued by GENIVAR LP for a cash consideration of $100,000. As a result of this transaction, the Fund increased its interest in GENIVAR LP to 66.65% (61.2% before this transaction). This increase has been accounted for as a step-by-step acquisition which is a non-cash transaction. The excess of the purchase price over the net identifiable assets on the date of acquisition including future income taxes amounted to $18,440 and has been recorded as contract backlogs for $4,696, customer relationships for $5,114, trade name for $7,912 and property, plant and equipment for $718. Accordingly, the non-controlling interest has increased by $15,223 and future income taxes liabilities have increased by $3,217. 91
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
On October 2, 2008, the Fund acquired 1,391,650 units issued by GENIVAR LP for a cash consideration of $35,000. Concurrently, GENIVAR inc., the non-controlling unitholder subscribed for 596,421 Exchangeable Class B LP Units of GENIVAR LP for a cash consideration of $15,000. As a result of this transaction, the Fund increased its interest in GENIVAR LP to 61.2% (60.4% before this transaction). This increase has been accounted for as a step-by-step acquisition which is a non-cash transaction. The excess of the purchase price over the net identifiable assets on the date of acquisition including future income taxes amounted to $1,816 and has been recorded as contract backlogs for $282, customer relationships for $995 and goodwill for $539 not deductible for income tax purposes. Accordingly, the non-controlling interest has increased by $1,600 and future income taxes liabilities have increased by $216.
The subordination period for the Exchangeable Class C LP Units ended as of July 1, 2008, in accordance with the terms of the GENIVAR LP Agreement. As a result, distributions are now made to all unitholders of GENIVAR LP Units concurrently and on a pro rata basis.
The Exchangeable Class B and Class C LP Units are economically equivalent to Class A LP Units held by the Trust. The Exchangeable Class B and Class C LP Units could be exchangeable for units on a one-for-one basis (subject to customary anti-dilution protections).
As at December 31, 2009, an amount of $5,210 ($5,210 in 2008) has been accounted for as distributions payable to the non- controlling unitholder.
15. FUND UNITS An unlimited number of units and an unlimited number of Special Voting Units may be issued pursuant to the Fund’s Declaration of Trust.
Units Each unit is transferable and represents an equal, undivided right to and interest in any distributions from the Fund, whether of net earnings, net realized capital gains (other than net realized capital gains distributed to redeeming unitholders) or other amounts, and in the net assets of the Fund in the event of termination or winding-up of the Fund. All units are of the same class with equal rights and privileges. Units may be redeemed at the holder’s request at any time for an amount related to the quoted market price, cash redemptions being limited to $50 per month. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Issued and paid
NUMBER OF UNITS
ISSUED HELD BY A TRUSTEE TOTAL $
Balance as at December 31, 2007 12,902,439 (31,634) 12,870,805 146,233
Units issued pursuant to a public offering (note 1) 1,391,650 - 1,391,650 35,000 Issuance-related costs less future income taxes (note 1) - - - (1,865)
Units vested net of distributions reinvested under the LTIP - 14,977 14,977 268 Balance as at December 31, 2008 14,294,089 (16,657) 14,277,432 179,636 Units issued pursuant to a public offering (note 1) 3,809,500 - 3,809,500 100,000 Issuance-related costs less future income taxes (note 1) - - - (4,877) Units vested net of distributions reinvested under the LTIP - 16,657 16,657 306 Balance as at December 31, 2009 18,103,589 - 18,103,589 275,065
Special Voting Units The Special Voting Units will not be entitled to any right nor interest in any distribution from the Fund whether of net earnings, net realized capital gains or other amounts, or in the net assets of the Fund in the event of a termination or winding-up of the Fund.
The Special Voting Units may be issued in series and will only be issued in connection with or in relation to Exchangeable Class B and Class C LP Units of GENIVAR LP (“Exchangeable LP Units”) or other securities that are, directly or indirectly, exchangeable for units, in each case for the sole purpose of providing voting rights at the Fund level to the holders of such securities. Special Voting Units will be issued in conjunction with, and will not be transferable separately from, the Exchangeable LP Units (or other exchangeable securities) to which they relate. Conversely, the Special Voting Units will automatically be transferred upon a transfer of the associated Exchangeable LP Units. Each Special Voting Unit will entitle the holder thereof to a number of votes at any meeting of Voting Unitholders equal to the number of units which may be obtained upon the exchange of the Exchangeable LP Units (or other exchangeable securities) to which the Special Voting Unit relates. 93
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Upon the exchange of the Exchangeable LP Units (or other exchangeable securities) for units, the Special Voting Units attached to such securities will immediately be cancelled without any further action of the Fund Trustees or the former holder of such Special Voting Units, and the former holder of such Special Voting Units will cease to have rights with respect thereto.
One Special Voting Unit will be outstanding for each Exchangeable Class B and Class C LP Unit issued by GENIVAR LP. As at December 31, 2009 and 2008, Special Voting Units outstanding amounted to 9,060,387.
16. CAPITAL DISCLOSURES The Fund’s objectives when managing capital structure are:
∫∫ to maintain financial flexibility in order to meet financial obligations and to continue the growth plan by business acquisitions; and
∫∫ to control the Fund’s activities in order to provide an appropriate distribution to the unitholders each year.
The Fund has defined its capital structure as the combination of balances of purchase price payable, long term debt, bank advances, non-controlling interest and unitholders’ equity, net of cash and cash equivalents.
2009 ($) 2008 ($)
Balances of purchase price payable, including current portion 7,068 13,763 Long-term debt, including current portion 6,000 1,884
Bank advances - 10,668
Non-controlling interest 128,361 111,832
Unitholders’ equity 277,394 181,888 418,823 320,035
Less: Cash and cash equivalents (51,887) (14,709) 366,936 305,326
The Fund determines the appropriate level of bank advances and long-term debt in the context of its cash flows and business risks. The Fund has historically generated sufficient cash flows to pay monthly distributions to its unitholders.
The Fund’s financing strategy is defined to maintain a flexible structure consistent with the objectives stated above, to respond adequately to changes in economic conditions and to allow growth through business acquisitions. In order to adjust its capital structure, the Fund may issue new units in the market, contract bank advances and negotiate new credit facilities. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
In October 2009, the Fund issued new units pursuant to a public offering. The gross proceeds were used to reimburse part of the bank advances contracted in 2009 and 2008 to make business acquisitions and pay distributions to unitholders.
In order for the Fund to retain the benefit of the deferred application of the SIFT Rules, the Fund is not allowed to issue new equity until 2011.
The Fund, whose objectives are to distribute its taxable income to the unitholders and to use any excess of income to manage growth, monitors capital using the adjusted payout ratio, which is a non-GAAP measure. Adjusted payout ratio is defined as aggregate cash distributions divided by adjusted distributable cash. The adjusted distributable cash is defined as standardized distributable cash adjusted for entity-specific adjustment items that management believes are appropriate for the determination of levels of distributions. The standardized distributable cash is defined as cash flows from operating activities, including the effects of changes in non-cash working capital items and any operating cash flows provided from or used in discontinued operations, less total capital expenditures and restrictions on distributions arising from compliance with financial covenants and limitations arising from the existence of a minority interest in a subsidiary. For the year ended December 31, 2009, the adjusted distributable cash and the adjusted payout ratio amount respectively to $61,704 and 78.9% ($52,872 and 71.8% in 2008).
The Fund is not subject to any external requirements arising from regulatory or similar authorities.
The Fund’s objectives and strategy described above have not changed since the Fund’s constitution in 2006. These objectives and strategy are reviewed on an annual basis.
17. EARNINGS PER UNIT The following table reconciles the basic net earnings to the diluted net earnings:
2009 ($) 2008 ($)
Basic net earnings 31,093 25,815 Non-controlling interest 18,974 16,703
Diluted net earnings 50,067 42,518 95
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
The following table reconciles the basic weighted average number of units outstanding to the diluted weighted average number of units outstanding:
2009 2008
Weighted average number of:
Units outstanding – basic 15,071,186 13,213,513
LTIP awards - 4,947
Exchangeable GENIVAR LP units 9,060,387 8,610,627
Diluted weighted average number of units outstanding (note 3) 24,131,573 21,829,087
18. DISTRIBUTIONS TO UNITHOLDERS The Fund has committed to distributing to its unitholders all or virtually all of its taxable income and taxable capital gains.
The Fund makes distributions on a monthly basis to unitholders of record as of the last business day of each month with distributions being paid on or about the fifteenth day, if such day is not a business day, following the end of each month.
In December 2009 and 2008, the Fund declared a one-time special distribution of $0.45 per unit for both years.
19. NET INTEREST EXPENSE
2009 ($) 2008 ($)
Interest on bank advances 1,812 2,089 Other interest 86 252
Interest income (85) (143) 1,813 2,198 GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
20. INCOME TAXES The reconciliation of the income tax expense with the income tax expense per the consolidated financial statements is as follows:
2009 ($) 2008 ($)
Earnings before income tax expense and non-controlling interest 53,348 45,036 Fund’s earnings not subject to income taxes (45,587) (36,583) 7,761 8,453
Combined Canadian federal and provincial statutory tax rate 32.73% 32.57% Income taxes based on statutory income tax rates 2,540 2,753
Implementation of the SIFT Rules* (112) (243)
Non-deductible expenses 390 24
Foreign tax rate differences 471 (115)
Effect of change in tax rate (136) 24
Other 128 75 3,281 2,518
Current 3,986 3,233
Future (705) (715) 3,281 2,518
* To calculate the adjustment required on future income taxes since the application of the new fiscal rules (note 3), the Fund forecasted the changes in its tax attributes between year-end, and December 31, 2010. These forecasts will be updated quarterly and any change will be reflected in net earnings.
The tax rate used is the tax rate that is substantively enacted to be in effect for 2011. For the year ended December 31, 2009, the Fund recognized an amount of $2,597 as future income tax liabilities ($115 in 2008) and recorded $112 ($243 in 2008) as an income tax recovery, $623 ($235 in 2008) as a reduction of issuance-related costs and $3,217 ($216 in 2008) as an increase in intangible assets and property, plant and equipment (goodwill in 2008) resulting from step by step acquisition as a result of the implementation of the SIFT rules. 97
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
As at December 31, 2009 and 2008, the significant components of future income tax assets and liabilities are as follows:
2009 ($) 2008 ($)
Future income tax assets
Deductible provision upon settlement 23 521
Non-capital losses - 242
Deferred issuance-related costs 991 312
Future income tax liabilities
Costs and anticipated profits in excess of billings (310) (859)
Holdbacks (102) (617)
Property, plant and equipment and intangible assets (4,686) (1,596)
Future income taxes, net (4,084) (1,997)
Classified as:
Current future income tax liabilities (389) (953)
Long-term future income tax liabilities (3,695) (1,044) (4,084) (1,997)
The tax attributes of GENIVAR LP and a non-taxable subsidiary of GENIVAR LP are transferred to the Fund’s unitholders and, accordingly, are not recognized in these consolidated financial statements. As at December 31, 2009 and 2008, the carrying amounts of the assets owned by GENIVAR LP and a non taxable subsidiary of GENIVAR LP, which create temporary differences, exceeded their tax basis by $16,363 and $10,939.
21. STATEMENTS OF CASH FLOWS Change in non-cash working capital items
2009 ($) 2008 ($)
Decrease (increase) in:
Accounts receivable (4,943) (18,249)
Income taxes receivable - 65
Costs and anticipated profits in excess of billings (4,370) (14,106)
Prepaid expenses (1,992) (476)
Increase (decrease) in:
Accounts payable and accrued liabilities (3,095) 3,044
Income taxes payable (1,043) (5,102)
Billings in excess of costs and anticipated profits (4,936) 9,836 (20,379) (24,988) GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
22. RELATED PARTY TRANSACTIONS Business acquisitions The Fund enters into transactions with GENIVAR inc., the non-controlling unitholder, in connection with certain business acquisitions. Generally, GENIVAR inc. acquires all the outstanding shares of a company and sells the net assets of the acquired company to GENIVAR LP or one of its subsidiaries. The purchase price for GENIVAR LP or one of its subsidiaries is identical to the shares’ purchase price paid by GENIVAR inc., taking into account certain assets or liabilities that are not or cannot be transferred, which price has been concluded with unrelated parties. This acquisition strategy has been realized to facilitate the Fund’s negotiations related to the acquisition of targeted companies. During the year, the Fund has acquired Envirotel, WSA, ENTRA, WES, Algal, ENAQ, Jagger, Walker, Magnate, Progemes, Gilles Taché and Harp (TL, RFA, Phoenix, DAC, BBA, PG, ZE, Solmers, HP&O, GÉNIPLUS, CE, DDH, and Pomeroy in 2008) for a total consideration of $27,637 ($41,603 in 2008), excluding acquisition-related costs of $686 ($933 in 2008) assumed directly by the Fund (note 4(a) and 4(c)). Subsequent to the year-end, the Fund has acquired V.B. Cook Co. (“Cook”) and Thompson Rosemount Group (“Thompson”) (note 27).
23. FINANCIAL INSTRUMENTS Fair value Cash and cash equivalents, accounts receivable, costs and anticipated profits in excess of billings, advances to the non-controlling unitholder, advances to companies and a joint venture controlled by the non-controlling unitholder, accounts payable and accrued liabilities, advances payable to the non-controlling unitholder, distributions payable to unitholders, balances of purchase price payable, long-term debt, and bank advances are financial instruments whose fair values approximate their carrying values due to their short-term maturity, variable interest rates or current market rates for instruments with fixed rates.
The fair value hierarchy under which the Fund’s financial instruments are valued as follows: Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly or indirectly, and Level 3 includes inputs for the assets or liability that are not based on observable market data. As at December 31, 2009 and 2008, the fair value of cash and cash equivalents are valued under Level 1.
The Fund is exposed to credit risk, foreign exchange risk, interest rate risk and liquidity risk. The following analyses provide a measurement of those risks as at December 31, 2009 and 2008.
Credit risk Financial instruments which potentially subject the Fund to significant credit risk consist principally of cash and cash equivalents, accounts receivable, and costs and anticipated profits in excess of billings. 99
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
The Fund’s cash and cash equivalents are held with or issued by high-credit quality financial institutions. Therefore, the Fund considers the risk of non-performance on these instruments to be remote.
The Fund’s credit risk is principally attributable to its trade receivables. The amounts presented in the balance sheet are net of an allowance for doubtful accounts, estimated by the Fund’s management and based, in part, on the age of the specific receivable balance and the current and expected collection trends. As at December 31, 2009, less than 13.19% (13.17% in 2008) of trade receivables are outstanding for more than 180 days. Generally, the Fund does not require collateral or other security from customers for trade accounts receivable; however, credit is extended following an evaluation of creditworthiness. In addition, the Fund performs ongoing credit reviews of all its customers and establishes an allowance for doubtful accounts when the likelihood of collecting the account has significantly diminished. The Fund believes that the credit risk of accounts receivable is limited. During the year ended December 31, 2009, bad debts accounted for $1,549 ($688 in 2008).
The distribution of the Fund’s customers and the business risk management procedures have the effect of avoiding any concentration of credit risk.
Foreign exchange risk The Fund is exposed to currency risks as transactions with customers outside Canada are predominantly denominated in US dollars, TT dollars and Euros. These risks are partially offset by purchases and operating expenses incurred in US dollars, TT dollars and Euros. As at December 31, 2009 and 2008, the balances denominated in foreign currencies are as follows:
Foreign currencies converted into CAN$
2009 ($) 2008 ($)
Current assets 42,586 32,659 Current liabilities 19,786 17,764
Taking into account the amounts denominated in currencies indicated above and supposing that all of the other variables remain unchanged, a fluctuation in exchange rates would have an impact on the Fund’s net earnings. Management believes that a 10% change in exchange rates would be reasonably possible and that the impact on earnings of a 10% change in exchange rates would be approximately $2,280 ($1,490 in 2008). GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Interest rate risk As at December 31, 2009 and 2008, the Fund’s exposure to interest rate risk is summarized as follows:
Cash and cash equivalents Variable interest rate Accounts receivable, excluding advances Non-interest bearing
Costs and anticipated profits in excess of billings Non-interest bearing
Advances to the non-controlling unitholder Prime rate
Advances to companies and a joint venture controlled by the non-controlling unitholder Prime rate
Accounts payable and accrued liabilities, excluding advances Non-interest bearing
Advances payable to the non-controlling unitholder Prime rate
Distributions payable to unitholders Non-interest bearing
Balances of purchase price payable As described in note 12
Long-term debt As described in note 13
Bank advances As described in note 10
The Fund may be affected by a fluctuation in the interest rate but will have the ability to meet its obligations.
A fluctuation in interest rates would have an impact on the Fund’s net earnings. Management believes that a 0.5% change in interest rate would be possible and that the impact on earnings of a 0.5% change in interest rates would be approximately $272 ($2 in 2008).
Liquidity risk Liquidity risk is the risk that the Fund will not be able to meet its obligations as they fall due. The following are the contractual maturities of financial liabilities as at December 31, 2009 and 2008. 2009 CARRYING CONTRACTUAL LESS THAN BETWEEN 1 AND MORE THAN AMOUNT CASH FLOWS A YEAR 2 YEARS 2 YEARS ($) ($) ($) ($) ($)
Trades payable and accrued liabilities 69,388 69,388 69,388 - - Distributions payable to unitholders 15,619 15,619 15,619 - -
Balances of purchase price payable, including current portion 7,068 7,288 5,369 937 982
Long-term debt, including current portion 6,000 7,449 480 507 6,462 98,075 99,744 90,856 1,444 7,444 101
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
2008 CARRYING CONTRACTUAL LESS THAN BETWEEN 1 AND MORE THAN AMOUNT CASH FLOWS A YEAR 2 YEARS 2 YEARS ($) ($) ($) ($) ($)
Trades payable and accrued liabilities 61,586 61,586 61,586 - - Advances payable to the non-control- ling unitholder 426 436 436 - -
Distributions payable to unitholders 13,429 13,429 13,429 - -
Balances of purchase price payable, including current portion 13,763 13,966 13,966 - -
Long-term debt, including current portion 1,884 1,980 1,720 130 130
Bank advances 10,668 11,571 - - 11,571 101,756 102,968 91,137 130 11,701
As at December 31, 2009 and 2008, the Fund had unused credit facilities of $81,592 and $71,029, net of outstanding letters of credit of $408 and $303, and cash and cash equivalents of $51,887 and $14,709.
24. COMMITMENTS AND CONTINGENCIES The Fund is bound by lease commitments for office premises and equipment. Minimum payments required during the next five fiscal years ending December 31 and thereafter, amount to $15,107 in 2010, $13,145 in 2011, $11,034 in 2012, $9,295 in 2013, $8,619 in 2014 and $22,731 thereafter.
The Fund is currently facing legal proceedings for work carried out in the normal course of its business. Management believes that most of the claims are unfounded; however, the outcome cannot be predicted with certainty. The Fund takes out a professional liability insurance policy in order to manage the risks related to such proceedings. Based on advice and information provided by its legal advisors and on its experience in the settlement of similar proceedings, management believes that the Fund has accounted for sufficient provisions in that regard and that the final settlement should not exceed the insurance coverage significantly or should not have a material effect on the financial position or operating results of the Fund. GENIVAR INCOME FUND CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
25. EMPLOYEE FUTURE BENEFITS The Fund participates in defined contribution retirement savings plans. Pursuant to these plans, the Fund pays a contribution equivalent to the employee contribution up to a maximum varying from 3% to 5% of the employee’s salary. An employee acquires the whole employer contributions after two years of continuous service or if he loses his job due to a layoff resulting from a lack of work. The Fund’s portion of the contributions, net of repayments received following the departure of employees having non- vested contributions, amounts to $3,618 and $2,181 respectively for the years ended December 31, 2009 and 2008.
26. SEGMENT INFORMATION (a) Major customers As at December 31, 2009 and 2008, no customers represented more than 10% of the Fund’s consolidated revenues.
(b) Segmented information The Fund is organized into geographic areas. Market segments are analyzed by the Fund’s management in certain geographic areas but not in all of them. Accordingly, the Fund defined its segments as the following geographic areas: Quebec, Ontario, Western Canada, and International.
The geographic areas provide the same nature of services and serve similar clients in similar industries. Each of them provides its clients with the same complete range of specialized services, viewed as convergent disciplines by the Fund’s management: Building, Municipal Infrastructures, Transportation, Industrial and Energy and Environment. The geographic areas present similar long-term financial performance and the same long-term economic conditions and characteristics. The Fund’s management aggregates its geographic areas into one reporting segment.
(c) Geographic areas The following revenues have been allocated to geographic regions based on the country in which the majority of the projects have been realized.
2009 ($) 2008 ($)
Canada 438,756 355,829 Trinidad and Tobago 23,932 21,170
Other 15,236 10,804 477,924 387,803 103
Notes to Consolidated Financial Statements December 31, 2009 and 2008 (in thousands of dollars, except the number of units and per unit data and unless otherwise stated)
Property, plant and equipment, intangible assets and goodwill are mainly associated with activities in Canada.
27. SUBSEQUENT EVENTS In February 2010, the Fund acquired all the assets and liabilities of Cook and Thompson, two Ontario multidisciplinary consulting engineering firms. GENIVAR INCOME FUND 2009 ANNUAL REPORT
MANAGEMENT TEAM
Pierre Shoiry QUEBEC ONTARIO President and Chief Executive Officer François Perreault Brian Barber Marc Rivard Vice-President, Western Quebec Senior Vice-President, Greater Chief Operating Officer Region Toronto Area Éric Tremblay Shawn Gibbons CORPORATE Vice-President, Eastern Quebec Region Senior Vice-President, Eastern Ontario André Bossé Marcel Boucher Vice-President, Transportation, Marz Kord Chief Financial Officer Eastern Quebec Senior Vice-President, Northern and Western Ontario Anne-Marie Laberge Yanick Bouchard Corporate Secretary Vice-President, Municipal Angela Iannuzziello Louis-Martin Richer Infrastructure, Western Quebec Vice-President, Transit and Transportation Planning Chief Legal Affairs Jean Boudreault Tony Veilleux Vice-President, Pierre Lacombe Corporate Controller Environment, Quebec Vice-President, Industrial and Energy Marlène Casciaro Léandre Gervais Director of Communications Vice-President, Abitibi- Gary Scott Témiscamingue and Northern Vice-President, Water and Carole Lauzon Quebec Regions Wastewater Infrastructure Director of Information Technology Martin Hétu Steve Taylor Vice-President, Transportation, Vice-President, Transportation Normand Rheault Western Quebec Vice-President, Human Resources Sylvain Labrèche Vice-President, Industrial and WESTERN CANADA Gino Vita Energy, Quebec Director, Internal Audit François Morton André Lapointe Vice-President, British Columbia Vice-President, Buildings, Daryl Thomas Eastern Quebec Elisa Brandts Vice-President, Industrial President, PBK Architects Inc. Renaud Poirier Brian Oshust Vice-President, Ali Ettehadieh Vice-President, Alberta Executive Vice-President, International Project Management, Quebec Jeff Reichert and Project Services Valmont Robichaud Vice-President, Saskatchewan Raouf Yacoub Vice-President, Municipal Vice-President, Strategic Partnerships Infrastructure, Eastern Quebec Bill Brant Vice-President, Manitoba 105
BOARD OF TRUSTEES
01 RICHARD BÉLANGER (1) (2) 03 DANIEL FOURNIER 06 PIERRE SIMARD (1) (2) (3) President of Toryvel Group Inc. President of ACNG Capital Inc. Associate Director President of Stetson Timberlands Fund Trustee Champlain Financial Corporation Fund Trustee and Chairman of the Chairman of the Board of Trustees (Canada) Inc. Corporate Governance, Nominating and Fund Trustee Compensation Committee 04 PIERRE SECCARECCIA (1) Corporate Director 07 LAWRENCE E. SMITH (2) (3) 02 ALI ETTEHADIEH Fund Trustee and Chairman of the Audit Partner, Bennett Jones LLP Executive Vice-President, International Committee Fund Trustee and Chairman of the Risk and Project Services, GENIVAR Limited Committee Partnership 05 PIERRE SHOIRY Fund Trustee President and Chief Executive Officer, GENIVAR Limited Partnership Fund Trustee
(1) Member of the Audit Committee (2) Member of the Corporate Governance, Nominating and Compensation Committee (3) Member of the Risk Committee
01 02 03
04 05 06 07 GENIVAR INCOME FUND 2009 ANNUAL REPORT
UNITHOLDERS INFORMATION
Stock Exchange GENIVAR Income Fund unit is listed on the Toronto Stock Exchange, under the symbol GNV.UN
Transfer Agent and Registrar CIBC Mellon Trust Company 2001 University Street, Room 1600 Montreal, Quebec, Canada H3A 2A6 T 1-800-387-0825 www.cibcmellon.com
Auditors PricewaterhouseCoopers LLP
Head Office 1600 René-Lévesque Boulevard West, 16th Floor Montreal, Quebec, Canada H3H 1P9 T 514-340-0046 www.genivar.com
For more information, please contact: Communications Department GENIVAR Income Fund 1600 René-Lévesque Boulevard West, 16th Floor Montreal, Quebec, Canada H3H 1P9 T 514-340-0046 F 514-340-13377
Shareholders who receive duplicate mailings should advise CIBC Mellon Trust Company.
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