We are one of the largest engineering firms in Canada providing private and public sector clients with a full range of professional consulting services through all execution phases of a project from planning to commissioning.
We have over 1,800 employees working in approximately 40 offices in Canada and overseas.
Our clients operate in various market segments such as building, urban infrastructure, transportation, industrial, power and environment.
TABLE OF CONTENTS Financial Highlights 2 Message to Unitholders 4
ACTIVITY REPORT Building 8 Urban Infrastructure 16 Transportation 22 Industrial 26 Power 30 Environment 32
Management’s Discussion & Analysis 36 Consolidated Financial Statements 58 Management Team 84 GENIVAR thanks all the employees whose photos appear in this Annual Report. Board of Trustees 85 Main Offices 86 Cover: Dorothy Weitzenbauer, Quyen Goudie, Wayne Scharf, Kumar Sood, Jill Vivian, Information to Unitholders 88 Marc Chiasson, Ewen Marjerrison, Ben Hrubesz, Noel Brown, Marie-France Éthier Consulting Engineers: Shaping our World
From the water we drink to our children’s schools, from the roads we travel to the parks we enjoy, engineers and other professionals in the engineering consulting services industry shape our world.
Builders and visionaries first and foremost, they plan, design and deliver a multitude of projects which touch our day-to-day lives.
Whether in the building, urban infrastructure, transportation, industrial, power or environment sectors, they strive in a stimulating world full of possibilities.
For centuries, their creations have stood the test of time, and served the well-being of all.
At GENIVAR, our people proudly and passionately uphold this tradition. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Financial Highlights (in thousands of dollars)
Revenues Net Revenues
EBITDA Number of employees
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Revenues by Market Segment
Financial Highlights GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Results of operations
2006 2005 PRE-IPO POST-IPO TOTAL TOTAL
FOR THE PERIOD FOR THE PERIOD FOR THE TWELVE FOR THE TWELVE FROM JANUARY 1 FROM MAY 25 TO MONTHS ENDED MONTHS ENDED TO MAY 24 DECEMBER 31 DECEMBER 31 DECEMBER 31 (COMBINED- (AUDITED) (COMBINED- (COMBINED- UNAUDITED) UNAUDITED) UNAUDITED) IN THOUSANDS OF DOLLARS (5) (4) (5) EXCEPT PER UNIT DATA
Revenues $ 66,332 $ 109,781 $ 176,113 $ 129,997 Deduct: Subconsultants $ 23,035 $ 25,099 $ 48,134 $ 33,446 and other direct expenses Net revenues (1) $ 43,297 $ 84,682 $ 127,979 $ 96,551 Direct project costs $ 21,346 $ 43,777 $ 65,123 $ 50,942 Gross margin $ 21,951 $ 40,905 $ 62,856 $ 45,609 Marketing, general and $ 13,778 $ 23,089 $ 36,867 $ 28,169 administrative expenses EBITDA (2) $ 8,173 $ 17,816 $ 25,989 $ 17,440 Interest $ 132 $ 476 $ 608 $ 488 Depreciation of property, $ 622 $ 1,245 $ 1,867 $ 1,449 plant and equipment 3 Amortization $ 1,661 $ 5,391 $ 7,052 $ 2,173 of intangible assets Earnings before income $ 5,758 $ 10,704 $ 16,462 $ 13,330 taxes and non-controlling interest ($ 211) Income tax (recovery) (3) Earnings before $ 10,915 non-controlling interest
Non-controlling interest (3) $ 4,571 Net earnings (3) $ 6,344 Basic net earnings per unit $ 0.58 Weighted average number 11,000,000 of Units (6) Diluted net earnings per Unit $ 0.58 Diluted weighted average 18,927,381 number of Units (6)
(1) Net revenues are not a measure in accordance with GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, net revenues may not be comparable to simi- lar measures presented by other issuers. Investors are cautioned that net revenues should not be construed as an alternative to revenues for the period (as determined in accordance with GAAP), as an indicator of the Fund’s performance. (2) 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. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. (3) Income taxes, non-controlling interest and net earnings have not been presented on a comparative basis due to the changes in the capital structure of the preceding entities and the Fund in connection with the IPO on May 25, 2006. (4) Supplementary Non-GAAP Combined Information for the twelve-month period ended December 31, 2006 is the combination of financial results of GENIVAR Engineering Services Business PRE-IPO and financial results of the Fund POST-IPO. Such combination is for illustrative purposes only. As a result of this combined presentation, the POST-IPO earnings have been affected by the additional amortization and depreciation of intangible assets and property, plant and equipment considering that these assets are recorded at fair value at the acquisition date. (5) This combined financial information was carved out from GENIVAR Engineering Services Business regrouping all of the engineering activities of GENIVAR Inc., the Non-controlling Unitholder. (6) As at March 12, 2007, the number of Units is the same as it was as at December 31, 2006.
Financial Highlights GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Message to Unitholders GENIVAR INCOME FUND | 2006 ANNUAL REPORT
› The past year was a landmark year for GENIVAR. We entered a new stage in our development on May 25, 2006 when we began trading on the Toronto Stock Exchange under the ticker symbol GNV.UN. I am thus very proud to present the GENIVAR Income Fund’s first annual report. Even though the management team put a lot of effort into preparing for our successful initial public offering (IPO), we still maintained our pace of growth and enjoyed a banner year. In particular, we continued to implement our acquisition strategy and reinforce our corporate structure in support of growth and in compliance with corporate oversight and good governance requirements.
CANADA-WIDE ORGANIZATION One of our key goals was to build a Canada-wide organization. We achieved this objective by consolidating our position in Ontario and, laying the foundations for our operating platform in several Western Canadian provinces in January 2007 following a series of acquisitions. Acquisitions also enabled us to reinforce our 5 leadership position in Quebec.
Leveraging these accomplishments, the GENIVAR Income Fund is seeking to build on the momentum we have created. We are approaching the next few years with a sense of optimism, buoyed by the efforts of our nearly 1,800 employees. Our financial position is solid. We have a world-class team and a proven business model. Our development plan is clear. Moreover, prospects are bright in all of our markets and operating regions.
SOLID FINANCIAL RESULTS The GENIVAR Income Fund’s results for 2006 were in line with expectations and with the projections outlined in our prospectus. For the 220-day period from May 25, to December 31, 2006, we posted $109.8 million in revenues and $10.7 million in earnings before income tax recovery and non-controlling interest.
For the 12-month period ended December 31, 2006, which combined the financial results of GENIVAR Engineering Services Business PRE-IPO and financial results of the Fund POST-IPO, revenues increased by 35.5% to $176.1 million, compared with $130.0 million for the 12-month period ended December 31, 2005. EBITDA1 for the 12-month period ended December 31, 2006 stood at $26.0 million, thus representing a 49.4% increase, compared with $17.4 million for the 12-month period ended December 31, 2005.
For the 220-day period from May 25, to December 31, 2006, the Fund generated $15.7 million in distributable cash1 or $0.8301 per unit. Our financial position is excellent, with total borrowings, net of cash, of $7.6 million as at December 31, 2006. We thus have adequate financial resources to support our growth while maintaining an attractive distribution ratio for our unitholders. In a reflection of our excellent financial performance and our ongoing pursuit of strategic growth, the Fund’s unit price rose from $10.00 as at May 25, 2006 to $13.70 as at December 31, 2006.
1 Non-GAAP measure GENIVAR INCOME FUND | 2006 ANNUAL REPORT
“ Our business CLEAR DEVELOPMENT PLAN model is In 2007, we plan to continue our geographical expansion across Canada while remaining on the lookout for decentralized consolidation opportunities in Quebec. In light of numerous opportunities in Canada, the Fund has identified a number of potential acquisitions in each province that will enable us to enhance our expertise in certain and gives our market segments while reinforcing our leadership position in target regions. We will also be supporting the employee-owners expansion of our operating platform in the Caribbean in Trinidad and Tobago while taking advantage of the latitude they expansion opportunities in various other international markets we have identified. In addition, we will continue need to develop to support our Canadian clients’ international development initiatives. their activities and oversee the operations PROVEN BUSINESS MODEL 6 of their respective The GENIVAR Income Fund’s underlying business model is solid and sustainable. Supporting this model is offices. ” an extraordinary team of people representing a variety of disciplines and professions. As project drivers, they plan, design and deliver a wide array of projects that enhance the quality of our community life. In assuming this role, they take a proprietary interest in client projects, demonstrating skill, professionalism and accountability. They also apply best practices aimed at on-time and on-budget delivery. Emphasizing teamwork, our people apply group knowledge with a view to providing optimal client solutions. Their efforts are supported by senior managers seeking to foster professional development and outstanding on-the-job performance.
We also seek to derive benefits from an ownership structure under which approximately 200 employee- owners indirectly hold a 41.9 % stake in the Fund. Distinguished by their strong sense of entrepreneurship, these employee-owners either spent their formative working years with GENIVAR or joined the company through acquisitions. Under our decentralized business model, they have the latitude they need to develop their activities and oversee the operations of their respective offices. Solidly rooted in their communities, they have in-depth knowledge of their clients’ needs and support their development initiatives. In this regard, they tap into GENIVAR’s centres of excellence and provide comprehensive solutions wherever clients are located.
Message to Unitholders GENIVAR INCOME FUND | 2006 ANNUAL REPORT
EXCELLENT PROSPECTS “ Our employees The engineering consulting sector has recorded outstanding revenue growth in recent years. Our expertise are our greatest is in high demand in a number of sectors, including urban infrastructure, mining and mineral processing, transportation, power and the environment. We aim to support clients in these sectors and to foster their asset. Backed by development by making our entire range of our services available to them at all stages of the project cycle, their talent, from planning to commissioning. Over the years, this approach has served to boost our revenue stream, creativity and particularly from longstanding clients who utilize our services on a recurring basis. skills, we have shown a consistent pattern of growth. ” ACKNOWLEDGEMENTS I wish to express my gratitude to the GENIVAR Income Fund’s trustees for their efforts and commitment during 7 this inaugural year. I would also like to pay tribute to the contributions of Mr. Louis-Thomas Labbé, who is leaving the Fund’s Board of Trustees for professional reasons; I thank him for his support. Our Board of Trustees subscribes to the principles of good governance, accountability, transparency and long-term value creation for our unitholders. As discussed in our prospectus, the Board of Trustees will be expanding to seven members. We will also be proposing an independent chairperson for the Board at the unitholders’ meeting on May 17, 2007.
Our employees are our greatest asset and I am grateful for their contributions to GENIVAR’s success during this pivotal year in our development. Backed by their talent, creativity and skills, we have shown a consistent pattern of growth. In particular, I would like to express my gratitude and recognition for their continued support.
On behalf of GENIVAR’s trustees and employees, I would also like to thank our clients and unitholders for the trust they have placed in us. We are striving to ensure that the Fund remains an attractive investment for unitholders. They can rest assured that our commitment to profitable growth will continue.
Le président et chef de la direction,
Pierre Shoiry, ing., M. Sc. A. Pierre Shoiry, Eng., M.A.Sc., President and Chief Executive Officer and Chairman of the Board
Message to Unitholders 6.
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9. Photo : photoluxstudio.com
CANADIAN MUSEUM OF NATURE – Ottawa 1. Dorothy Weitzenbauer 2. Quyen Goudie, Technician 3. Wayne Scharf, Senior Technician 4. Kumar Sood, P.Eng. 5. Jill Vivian, Technician 6. Marc Chiasson, P.Eng. 7. Ewen Marjerrison, P.Eng. 8. Ben Hrubesz, Technician 9. Noel Brown, Technician 10. Marie-France Éthier, Technician. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Building
› GENIVAR’s specialists have been active in the building sector for nearly half a century, delivering a wide range of prestigious and cutting-edge projects year-round. They leave a lasting mark by lending their expertise to rehabilitation and expansion projects and by taking part in new construction projects in all areas of the building sector.
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Photo : photoluxstudio.com 9 2. INSTITUTIONAL Built in 1905, the Canadian Museum of Nature in Ottawa is undergoing a complete makeover at the hands of a team from GENIVAR’s Ottawa office. This multi-year project aims to bring the mechanical systems up to current building codes. The museum will be equipped with state-of-the-art facilities, including new galleries and exhibition halls, preserving the unique heritage character throughout. The first phase has been completed and several additional galleries and exhibits have already opened. Other innovative solutions were developed with respect to the humidifying of the exhibition halls as well as electrical issues, including lighting and effects on artefacts, power system reliability and fire detection/evacuation systems. Structural work is underway on phase 2 of the Ottawa International Airport expansion. The project involves a new passenger terminal. GENIVAR was awarded a second project to provide engineering services for the new transborder terminal. The Quebec City team worked on a large and complex project aimed at preserving important ruins discovered on the Museum of Archeology and History’s Ilot des Palais site. The plans and specifications cover phase 1 of the project, focusing on the Jean Talon Pavilion. In addition, Society for Development of Cultural Enterprises
Photo : photoluxstudio.com (SODEC) commissioned GENIVAR to completely restore the Robert Paré House, located on the Place Royale. 3. During the renovation of the Quebec City Convention Centre (CCQ), GENIVAR provided mechanical and electrical engineering services to one of its two buildings. In addition to preparing the plans and specifications, GENIVAR completed the upgrade and utility hook-up.
1. and 2. Canadian Museum of Nature, Ottawa. 3. Quebec City Convention Centre. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
4. The “Montreal, On Stage!” exhibit in Shanghai, for which GENIVAR carried out the structural engineering, received the Grand Honorary International Award as part of Mosaiculture International Shanghai 2006. In January 2006, work began on the Republic of Trinidad and Tobago’s Parliamentary building, known as Red House. GENIVAR was hired to provide project management and construction services. The design is being developed and demolition work in the south wing began last September. In addition, we won a mandate to develop a 3.2 hectare complex along the prestigious Queen’s Park Savannah in Port of Spain.
EDUCATION GENIVAR has delivered a new ultra-modern building housing the Language Technologies Research Centre at the University of Quebec in Outaouais (UQO). We are currently modifying and expanding wings A, B and C of the UQO’s Alexandre Taché Pavilion, which consists of two buildings, including a library. We provided mechanical, electrical and structural engineering services on both of these projects. Construction has begun on a high-performance greenhouse complex at Laval University’s Faculty of Sciences and Agriculture in Quebec City. This new complex will offer a full range of controlled environmental conditions. 5. GENIVAR is providing mechanical, electrical, structural and civil engineering services on this high-tech project. Concordia University’s John Molson School of Management, located on a brand new site in the Concordia district of downtown Montreal, is set to become one of Canada’s most prominent institution. GENIVAR was awarded the project management contract for the construction of this 18-storey building. In connection with Concordia’s purchase of the Grey Sisters’ motherhouse, GENIVAR completed a number 10 of projects, including a pre-purchase due diligence review aimed at analyzing the building’s development potential. GENIVAR is maintaining an active presence on four campuses in Ottawa, including La Cité Collégiale, Algonquin College, the University of Ottawa and Carleton University. We carried out a number of renovation 6. and planning projects for these institutions, including computer and laboratory facilities. In addition, Carleton University retained GENIVAR’s multidisciplinary experts for some 30 projects; the development of an infrastructure master plan will serve as the campus’s sustainable economic and environmental development guide over the next two decades.
HEALTHCARE Construction of the new Montreal University Hospital Centre (CHUM) has been greenlighted by the Government of Quebec. As part of this project, a consortium including GENIVAR was retained to provide project management services. The project covers quality management, value engineering, schedule and cost management, risk, opportunity and change management, as well as commissioning. Valued at $1.6 billion, the world-class CHUM complex represents the largest investment ever in the provincial healthcare network. 7.
4. «Montreal On Stage!» exhibit, Shanghai. 5. Motherhouse of the Grey Sisters, Montreal. 6. Future John Molson School of Management, Concordia University, Montreal. 7. Future Montreal University Hospital Centre, Montreal.
Activity Report | Building GENIVAR INCOME FUND | 2006 ANNUAL REPORT
11 Photo : photoluxstudio.com
LANGUAGE TECHNOLOGIES RESEARCH CENTER – University of Quebec in Outaouais – Gatineau From left to right : Jacques G. Sauvé, P.Eng. and Patrick Lamontagne, P.Eng.
Activity Report | Building GENIVAR INCOME FUND | 2006 ANNUAL REPORT
8. GENIVAR teams are working on several expansion and restoration projects at CHUM’s current facilities, including Notre Dame Hospital’s neurology and tertiary cardiology centre and various facility upgrades. Work on Sainte Justine University Hospital’s Charles Bruneau Cancer Centre will be completed shortly. The Montreal Cardiology Institute commissioned GENIVAR to provide design services, prepare plans and specifications and oversee structural engineering for its new pharmaco-genomics centre. Thanks to a consortium including GENIVAR that was contracted to provide mechanical and electrical engineering services, Maisonneuve-Rosemont Hospital will be equipped with expanded emergency facilities. On Montreal’s South Shore, GENIVAR was hired to carry out structural engineering as part of a project to relocate and expand 9. the emergency department at Haut Richelieu Hospital. GENIVAR’s Quebec City office is currently working on the complete restoration of the Hotel Dieu emergency facilities in Lévis. The company was also awarded a contract to build the Villa Plaisance long-term care hospital centre at the Archipel Hospital site in Cap-aux-Meules. In Ontario, GENIVAR expanded its client base in the healthcare sector. Halton Health Services hired the company to provide project management services for the expansion of Milton District Hospital’s diagnostic imaging department. This project included the modernization of 10 pieces of medical equipment, including 10. a gamma camera, a digital X-ray machine and an angiography apparatus. Grey Bruce Health Services also contracted GENIVAR’s Toronto office to provide project management services for the Markdale Hospital site redevelopment and for a new long-term care facility. GENIVAR was awarded a contract to provide project management, interior design and mechanical and electrical engineering services for the renovation of the paediatric care facilities at the Eric Williams Medical Sciences Complex in Port of Spain, Trinidad & Tobago. 12 COMMERCIAL AND RESIDENTIAL A variety of prestigious and complex commercial and residential projects, including several condominium developments, kept GENIVAR’s building team busy in all regions. Structural engineering services were provided on Proment Corporation’s Le Vistal project, which consists of two 25-storey towers soon to be built on the southern tip of Nuns’ Island. The project is aiming for LEED certification. GENIVAR received a structural engineering mandate from the Iber Management Group involving a 26-storey 11. high-rise in downtown Montreal. The building will include 300 housing units, a street-level shopping plaza and five floors of commercial and residential parking. In 2006, GENIVAR carried out structural engineering for the facilities housing the Cirque du Soleil’s Corteo show. The project involved the completion of the structural design and validation of the structural integrity of the big top tent, including the tent poles, rigging, and stands, in addition to the show’s central scenographic element. Expansion work is underway on 45 new chemistry and biology research laboratories for Boehringer Ingelheim in Laval, where GENIVAR is providing mechanical, electrical, structural and civil engineering services for the 3-storey research centre.
12. Port of Spain’s waterfront revitalization project is progressing on schedule. The Hyatt Regency Hotel project is underway, with 17 of 22 storeys completed; one of the two office towers will be ready by the end of 2007. GENIVAR was also commissioned by the client to provide pre-opening management services.
8. Milton District Hospital. 9. Hôtel-Dieu de Lévis Hospital Centre. 10. Le Vistal future apartment tower, Nun’s Island, Montreal. 11. Corteo Show big top tent, Cirque du Soleil, Montreal. 12. Future apartment tower, Iber Management, Montreal.
Activity Report | Building GENIVAR INCOME FUND | 2006 ANNUAL REPORT
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WATERFRONT REVITALIZATION PROJECT – Port of Spain From left to right: Gervais Roy, Engineer, Jack Shenker, Engineer, Kim McClatchie, Susan Vivian, MBA, Aneka Danclair-George, Architect, Sasha Singh, Alfred Heinman and Melanie Harris, Engineer.
Activity Report | Building GENIVAR INCOME FUND | 2006 ANNUAL REPORT
13. GENIVAR’s partnership with Evolving TecKnologies and Enterprise Development Co. Ltd. (e Teck) continues to grow following the introduction of services aimed at facilitating technology transfers between the two companies. An initial assessment of e Teck’s project management capabilities was completed in 2006. We have launched a number of structured technology transfer activities, in addition to a mentoring program for the Hilton Hotel and Convention Centre renovation project. By offering a full range of services integrating Canadian and Trinidadian experts, we generated a number of contracts in 2006. On behalf of e Teck, GENIVAR performed a Building Condition Survey of the Hilton building in Tobago in conjunction with a team of experts from Port of Spain, Tobago, Montreal, Gatineau and Toronto.
14. ENERGY SAVINGS AND GREEN BUILDINGS Designing sustainable development solutions that incorporate features and equipment intended to provide improved energy efficiency, water savings, lighting and comfort has moved from being trendy to being in very high demand by numerous clients. These requirements are consistently reflected in many of GENIVAR’s projects, including a number that have obtained or are aiming for LEED certification. Reflecting their commitment to the advancement of green building practices and in response to growing demand, nearly 150 employees have taken training courses developed by our centre for excellence in preparation for the LEED accreditation exams. Aiming for LEED Gold certification, GENIVAR is working on a major state-of-the-art project for the Sisters of the Assumption of the Blessed Virgin Mary in Nicolet. A team began the installation of 88 geothermal wells (500 feet deep) designed to recover heat. The project includes mechanical, electrical, structural and civil engineering, as well as food services. 14 In Ottawa, plans and specifications are currently being prepared for the Orleans Arts Centre. Awarded in 2006, this mechanical and electrical engineering project aims to become Ottawa’s second LEED-certified building. The City of Ottawa’s first LEED project, Ottawa’s Paramedic Headquarters, was completed by GENIVAR in 2005, and obtained LEED certification in 2006. Ottawa’s Bell Sensplex facility was selected for a technology award by the Ottawa Valley chapter of the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE). The facility includes three skating rinks, two of which are standard NHL size. 15. The Canadian Forces Base six floor housing project in Esquimalt, near Victoria also received an award from ASHRAE’s Ottawa Valley chapter. In partnership with Ecosystem, GENIVAR is working on several energy efficiency projects for clients in the educational and institutional sectors, including the Hector Fabre Building and Quebec City Hall. Photo : Roger Pensom 16.
13. LEED training session. 14. Paramedic Services Head Office, Ottawa. 15. Bell Sensplex Centre, Ottawa. 16. Canadian Armed Forces Base, Esquimalt, Victoria.
Activity Report | Building GENIVAR INCOME FUND | 2006 ANNUAL REPORT
17. TELECOMMUNICATIONS GENIVAR added solid telecommunications structure expertise to its array of skills when it acquired Martoni, Cyr & Associates (MCA). MCA developed state-of-the-art methods for reinforcing telecommunications towers, thereby extending service life while reducing reconstruction costs and service delays. It also perfected the technique of applying a smooth polyethylene extrusion sheath to the towers’ steel guy wires to reduce ice accumulation. GENIVAR’s regular clients include Bell Mobility, Rogers Wireless, Telus Mobility, The Quebec Government’s General Directorate of Information Technology and Communications, Telebec Mobility, Nexacor (Telecom) and Hydro Quebec. The firm operates in Quebec, Ontario, New Brunswick, Prince Edward Island and Nova Scotia. 18. In 2006, we worked on a total of 450 towers, carrying out inspections and structural analyses, preparing modifications for existing structures and designing new ones. We also replaced microwave antennas for Hydro Quebec as part of an analog-to-digital switchover on 14 sites on the way from Lévis to Manic. Rogers Wireless is slated to introduce the third generation of its wireless telecommunication network, in greater Montreal and Quebec City. A large number of sites will be brought into service over a very short timeframe. Structural analyses and/or technical evaluations and engineering plans will be required for approximately 230 sites. GENIVAR was also hired to carry out work on telecommunications towers on approximately 80 sites and on approximately 75 roof top sites.
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17. Monopole Tower. 18. Tower exposed to in-cloud icing. 19. Guyed Tower. 20. Telecommunications tower inspection.
Activity Report | Building CHAMPLAIN BOULEVARD TRANSFORMATION PROJECT – Quebec City From left to right: Alain Blouin, Engineer, Pyer Gagné, Engineer, Jacques Desjardins, Engineer, Jean-François Hudon, Engineer, Michel L. Caron, Biologist. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Urban infrastructure
› GENIVAR employees are striving to improve the quality of community life in all our operating regions. From rehabilitating water and wastewater networks to the treatment of drinking water and the upgrading of roads or, the redevelopment of urban areas, our people are busy delivering an array of projects and shaping the world around us.
1. URBAN REDEVELOPMENT In anticipation of Quebec City’s 400th anniversary celebrations in 2008, GENIVAR is working on a prestigious project that will transform Champlain Boulevard into an urban promenade. Since 2005, a 10 km section has been the site of multiple activities, backed by the expertise of a multi-disciplinary team providing civil engineering, maritime engineering, hydraulic engineering, decontamination, building engineering, and traffic 17 and safety management services. In 2006, several project phases were completed, most notably the reconfiguration of Champlain Boulevard, with four new traffic lanes. Construction of several public plazas will be completed in the near future. Work is continuing in the Quai des Cageux sector and the Tequenonday wooded area, including two new visitor information centres. GENIVAR has completed the last phase of the vast urban development project in Montreal’s International Quarter. The final phase covered McGill Street south to the Old Port and involved rehabilitating and rebuilding watermains and combined sewers; moving utilities, lighting, traffic lights and street furniture; and redeveloping public squares. Photo : CCNQ, A. Larochelle 2. GENIVAR obtained the mandate for phase 2 of the revitalisation of St. Joseph Street in downtown Quebec City. The mandate which includes project plans and specifications will complete the removal of the St. Roch Mall roof and the rehabilitation of infrastructures. Work is scheduled to begin Spring 2007 and will be completed by Spring 2008. One of GENIVAR’s most important and most prestigious projects on the international front involves the redevelopment of the Central Business District (CBD) of Port of Spain, the capital of Trinidad and Tobago. Sustainable solutions will be developed to address growing and recurrent problems such as flooding, storm sewer overflows and traffic jams. The bustling sector will be given a new focus, enabling neighbourhood residents, businesses and institutions to reclaim a vital urban space. In collaboration with specialists from GENIVAR’s Montreal, Laval, Markham and Vancouver offices, a multidisciplinary team of local experts is currently hard at work on this multi-stage project, which involves completely rehabilitating surface and underground infrastructure, burying utilities, upgrading street furniture and lighting, planting trees, changing the direction of certain traffic arteries and realigning streets and Photo : Gilles Savoie sidewalks over a 15.6 km stretch of roadway in downtown Port of Spain. This 10-year project also includes preparatory studies, preliminary and final drawings and specifications, call for tender documents and services during the construction phase, which is slated to begin in 2007.
1. Champlain Boulevard Transformation, Quebec City. 2. McGill sewer, Montreal International Quarter. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
3. As part of the CBD project, a massive data collection effort was carried out, including detailed topographic and geotechnical surveys, utilities, digital topographic maps, and various stakeholder-specific plans such as drainage, water and wastewater as well as fire service. Future needs were also identified. This database is available on a 24/7 basis and will facilitate coordination between the official stakeholders responsible for utilities and the regulatory approval process. GENIVAR has been hired to carry out an even broader mandate involving Port of Spain’s urban design master plan and the development of a long-term land use model. Special attention will be placed on providing drainage and traffic solutions both inside and outside the municipal boundaries.
4. DRINKING WATER, WASTE WATER AND ROAD NETWORKS Montreal’s road network improvement program is progressing steadily in a dozen boroughs of the city, with GENIVAR overseeing the sidewalk and roadway rehabilitation component. A consortium of companies, including GENIVAR, was commissioned to rehabilitate the water and sewer network as part of the overall action plan, which is now one-third complete. In this regard, we inspected and diagnosed a portion of the network; digitised the network including 6,000 km of water and sewer lines, compiled an extensive asset management database and began work on the action plan. This is the largest project of its kind ever undertaken by a Canadian city. On Montreal’s North Shore, GENIVAR has been very active on projects with various municipalities. In Laval, we carried out engineering work for the excavation and construction of a retention pond in the heart of the Champfleury housing development.
18 GENIVAR also serves a large number of municipalities on Montreal’s South Shore. Projects completed in 2006 included the City of Sainte Julie’s wastewater treatment plant expansion. This project involved the building of an aeration tank and replacing the air distribution system. There will also be a one-year performance monitoring period. GENIVAR carried out a number of hydraulic modeling studies for the city of Saint-Jean-sur-Richelieu and developed an action plan for the cities of Marieville and Saint Rémi, including a comprehensive water and sewer infrastructure inventory. These studies will help determine network investment priorities and prepare funding applications under infrastructure renewal programs. Engineering work was also carried out for the City of Sainte Catherine to replace a high-pressure water line and rehabilitate the main street in Châteauguay. On behalf of the Ile Perrot Water Board, GENIVAR prepared plans and specifications, obtained provincial environmental approval and oversaw work on a project to install new watermains, thereby increasing water pressure and flow rates. In conjunction with this project, GENIVAR is expanding and upgrading the drinking water filtration plant, in addition to expanding the capacity of the Rouleau booster station. The plans and specifications were prepared in order to evaluate the final drinking water supply and fire protection needs and to determine the required improvements. GENIVAR also completed the hydraulic modeling and master plan for the water supply network. In Ontario, the GENIVAR team continues to provide large-scale detailed engineering services on a highly complex trunk sewer tunnel project along 16th Avenue in the Region of York. The project also includes construction phase and environmental management services. The first section of the trunk sewer is 3.8 km long and 2,642 mm in diameter, while the second is 1.5 km long and 1,675 mm in diameter. The environmental component of the project consisted mainly of dewatering the surrounding area. Work on the project began in 2002 and is scheduled for completion in spring 2007.
3. Châteauguay main street rehabilitation. 4. New Burloak water purification plant, Halton.
Activity Report | Urban Infrastructure GENIVAR INCOME FUND | 2006 ANNUAL REPORT
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CENTRAL BUSINESS DISTRICT REVITALISATION PROJECT – Port of Spain First row, from left to right: Vanessa Bushe, Engineer, Neil Ali, Engineer, Arlette Jutla, Chad Stephen, P.Eng., Jean-Marc Drolet, Engineer. 2nd row : Brian Barber, P.Eng., Jaishree Mellowes, Engineer, Uche Osuji, Engineer, Marielle Ottley, Engineer, Jean-Marcel Jacques, Engineer, Grafton Greenidge, Senior Technician.
Activity Report | Urban Infrastructure GENIVAR INCOME FUND | 2006 ANNUAL REPORT
5. On behalf of the Regional Municipality of Halton, GENIVAR completed the design work for phase I of the new Burloak Water Purification Plant, which has a capacity of 55 million litres per day (ML/d), expandable to 220 ML/d. Construction of the plant began in April 2006 and the project will be completed in 2008. GENIVAR also successfully secured a number of large engineering assignments during the year in Ontario, including the following: design of the new 9 km-long Bathurst trunk sewer project in the Region of York; design of the Hanlan pumping station expansion (Region of Peel); design and construction administration of process upgrades at the Timmins Water Treatment Plant; expansion of the Humber Wastewater Treatment Plant’s primary tanks and upgrade of the chlorination system; preliminary design work for the Lorne Park Water Treatment Plant expansion using membrane and granular activated carbon filtration processes and an ultraviolet disinfection system; update of the Region of York’s water and wastewater master plan; and a solid waste 6. management environmental assessment for the Regions of York and Durham. The City of Ottawa contracted GENIVAR to oversee the Occupational Health and Safety (OHS) component of a water treatment plant upgrade project on Lemieux Island. This project will be carried out over two years, with several contractors working on site. OHS activities will include organizing orientation meetings for new on-site employees, conducting audits and submitting daily and monthly reports. Another project in progress involves evaluating and upgrading 21 wastewater treatment plants with a total capacity of 13 ML/d on behalf of 13 municipalities in Trinidad. This project includes field investigations, condition assessments, and environmental assessments, as well as preliminary and detailed design and construction supervision.
7. URBAN LAND DEVELOPMENTS 20 In association with various municipalities, all of GENIVAR’s offices actively worked on civil engineering projects on behalf of a wide range of real estate developers. These projects involved installing water and sewer lines; burying utilities; installing roadways, curbs and sidewalks; building retention ponds; and obtaining environmental permits. Projects included the Harmonie development on the southern tip of Nuns’ Island in Verdun; Les Cours Lafontaine in Montreal; Le Domaine de la Forêt and Le Sommet Boisé in Pincourt; La Seigneurie du Roy in Pointe des Cascades in the Montérégie region; the Cours Candiac housing development and the Carrefour Candiac commercial development on Montreal’s South Shore. North Shore projects included Val-des-Ruisseaux in Duvernay East, Laval and several projects adjacent to the former GM site in 8. Boisbriand. In the Outaouais region, projects included Limbour and Grands Ravins; Vieux Moulin and Domaine des Vignobles in Aylmer; and Le Château du Golf in Gatineau. Quebec City projects included Les Méandres, La Seigneurie and Vue du Port, in addition to the Colline du Lac Beauport and the Domaine l’Escarcelle in Lévis.
5. Woodford Square, central business district, Port of Spain. 6. Waste water rehabilitation project, Port of Spain. 7. Les Grands Ravins Housing Development, Gatineau. 8. Housing project near the former GM plant, Boisbriand.
Activity Report | Urban Infrastructure GENIVAR INCOME FUND | 2006 ANNUAL REPORT
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16th AVENUE TRUNK SEWER PROJECT – Region of York First row, from left to right: Chad Stephen, P.Eng., Keith Stephen, P.Eng., Andrea Stoner, Crystal-Marie Sealy, Derek Brunner, Hydrologist. 2nd row Tabitha Lee, P.Eng., Andre Lyn, Geo-Scientist, Esmaeil Khazaei, Ph.D., Jason Ahlberg, Stan Holden, P.Eng., Muin Husain, Ph.D., Geo-Scientist.
Activity Report | Urban Infrastructure Photo : Gilles Savoie
CAVENDISH BOULEVARD EXTENSION AND CONNECTION PROJECT – Montreal Seated from left to right: Julie Michaud, Economist, Silvio Morelli, Geographer, Marie-Christine Denis, Engineer, André Leduc, Engineer. Standing from left to right: Nicolas Bérubé, Technician, Ricet Nadeau, Engineer, Martin Hétu, Engineer. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Transportation
› Vital to the economy, the transportation sector is one of GENIVAR’s recognized areas of expertise. Our specialists have distinguished themselves for their transportation planning, highway and civil structure design projects. Adopting a proactive approach, they bring added value at all stages of a project.
1. TRAFFIC AND TRANSPORTATION PLANNING An opportunity study concerning the extension of Cavendish Boulevard to link the Montreal boroughs of Côte Saint Luc and Saint Laurent is nearing completion; the environmental study is scheduled to begin in 2007. A large-scale project to upgrade more than 630 traffic lights in the city of Montreal is almost completed. The cities of Laval, Longueuil and Gatineau each called upon our team to complete similar mandates in their respective networks. 2. We undertook several mandates for the Quebec Transportation Ministry (QTM) including a study done in consortium on the redevelopment of Route 132 urban boulevard between Candiac and St. Constant, an opportunity study of the Varennes sector as well as one concerning the redevelopment of the Metropolitan 23 autoroute in Montreal. In connection with the residential and commercial development of Nuns’ Island in Montreal, GENIVAR carried out a redevelopment study for the network of roads providing access to Pointe Nord, a segment of the island that currently has no direct access. GENIVAR’s traffic and transportation planning experts conducted the preliminary design study and took part in the public hearing process. GENIVAR completed several phases of the redevelopment of Fer à Cheval road in St. Julie and most recently, the planning, design and work supervision of a new traffic circle located on this artery. GENIVAR obtained a study mandate from the Capital Transportation Network (CTN) for the reinforcement of preferred measures in mass transit concerning the current route of metro buses 800 and 801. The objective
Photo : Journal de Montréal of the project is to establish solutions to improve the performance of these two lines that form the basis of 3. the network structure of public transit to Quebec City and, to facilitate the revival of their use. Overseas, GENIVAR’s traffic and transportation planning team contributed to a transportation plan study in Port of Spain, capital of Trinidad and Tobago.
ROAD ENGINEERING As part of the transformation of the former GM site in Boisbriand and to improve the Highway 15/Highway 640 interchange, the QTM has commissioned a consortium, including GENIVAR, to carry out a large-scale reconfiguration of these interchanges. This project, which includes the final design study and the plans and specifications, will bring together the expertise of a multi-disciplinary team of transportation, urban infrastructure and traffic engineers. With work set to begin in summer 2007, the interchange will be reconfigured using directional ramps. Potential conflict zones will be reduced by eliminating weaving traffic patterns, while local service will be improved by separating through and local traffic and by adding one lane in each direction on Highway 640 between Highway 15 and Route 117. Designed to facilitate traffic flow for Faubourg Boisbriand residents, the four-phase project will become a work, housing, services and leisure centre, with residential, commercial and industrial zones. In partnership with the city of Boisbriand, GENIVAR has implemented the municipal infrastructure for several roads adjacent to Faubourg Boisbriand.
1. New Traffic Circle, Sainte-Julie. 2. Reconfiguration of the Taschereau Interchange– Highway 10, Brossard. 3. Extension of Highway 175, Laurention Wildlife Sanctuary. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
4. Following the decision of the Quebec government to extend Highway 30 West of Montreal and Highway 25 in the East, calls for tender have been submitted. GENIVAR, as engineer, is part of two distinct consortiums that have been qualified following calls for tender. These consortiums have therefore been invited to present a proposal for planning financing, execution, maintenance and reconstruction of Highways 30 and 25. In eastern Quebec, work continued on the Route 73/Route 175 trunk road running through the Laurentian Wildlife Preserve, while construction work has begun on two sections of Route 175; GENIVAR is supervising both of these projects. Preliminary and final plans and specifications have been completed for two additional sections (L’Étape and Chicoutimi), with construction set to begin in 2007. Under GENIVAR’s supervision, work 5. has begun on the Route 185 redevelopment in Saint-Louis-du-Ha! Ha! Work is underway on the vast Taschereau interchange project on Highway 10 in Brossard and will be completed in 2008. The project includes several overpasses, new access lanes and ramps, a bicycle path, a pedestrian tunnel, noise barriers and a dedicated mass transit lane. In the Outaouais region, construction has begun on a five km stretch of Highway 50 between Fasset and Grenville-la-Rouge. With a total of 18 km of roadway, this project requires the expertise of a road and structural engineering team, whose responsibilities include preparing plans and specifications and supervising the work. This multi-phase project includes several overpasses and an interchange.
6. CIVIL STRUCTURES A consortium including GENIVAR was commissioned to develop a preliminary design study in connection with the replacement of Carbonneau Bridge, which spans the Ashuapmushuan River in Saint Félicien in the 24 Saguenay-Lac Saint-Jean region. The 360 metre long structure will have five bays and four lanes, in addition to a multi-purpose path for snowmobiles, all-terrain vehicles and bicycles. The company is also working on a turnkey project in association with the Mohawk Bridge Consortium, which will be rebuilding the southern tip of Mercier Bridge on the Kanawake Reserve. GENIVAR is currently preparing the access ramp plans and specifications. Other GENIVAR projects underway in the Montreal region include the Monseigneur Langlois Bridge 7. reconstruction/expansion and the Champlain Bridge restoration and maintenance project, both of which GENIVAR is supervising. In Gatineau, the McConnell-Laramée Bridge is under construction and will be completed in 2007. This 290 metre long structure spans Lac des Fées. GENIVAR has completed the reconstruction of the Mulets River Bridge on Highway 15 in Sainte Adèle. This was the first cantilevered bridge ever demolished in Quebec and required special methods and heightened preventive safety measures both before and during the demolition, due in particular to the nearby houses. The concrete bridge deck was cut into sections after removing the asphalt and demolishing the concrete overhangs. A 250 tonne crane was used to cut the deck into 10 to 12 foot long slabs. More than 135 feet of the span was cut away using this technique. The new steel bridge is 216 metres long with an 80 metre long central span. The structure has two abutments and two 15 foot high pillars. 8. We also completed the expansion and renovation of the arched bridges on Highway 20 above the Chaudière River in Saint Romuald. The expansion and repair work required in-depth analysis at several levels.
4. Benoit Larivée, Engineer, Jacques Bibaud, Senior Technician, Construction of Highway 50, from Fassett to Grenville-sur-la-Rouge. 5. Reconstruction of the Monseigneur-Langlois Bridge, Salaberry-de-Valleyfield. 6. Reconstruction of the southern tip of Mercier Bridge, Kanawake. 7. Reconstruction of Rivière aux Mulets Bridge, Sainte-Adèle. 8. Rebuilding of the Rivière Chaudière Bridge, Saint-Romuald.
Activity Report | Transportation GENIVAR INCOME FUND | 2006 ANNUAL REPORT
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HIGHWAY 15/HIGHWAY 640 INTERCHANGE REDEVELOPMENT – Boisbriand First row, from left to right: Raymond Assaf, Engineer, André Bélanger, Senior Technician, Jean-François Gauthier, Engineer, Robert Thyer, Senior Technician. 2nd row: Kasandra Cherrier, Technician, Isabelle Bordeleau, Junior Engineer, Jean Comeau, Engineer, Chantal Coulombe, Engineer, Mouloud Gougam, Engineer.
Activity Report | Transportation BULK KIMBERLITE SAMPLE PROJECT, FOXTROT PROPERTY – North-Central Quebec From left to right: Réal Brosseau, Senior Technician, Rock Poisson, Senior Technician. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Industrial
› From site rehabilitation and underground and surface mines in the gold, silver, nickel, zinc and diamond sectors to pulp and paper industrial processes, our team provides client support services throughout the project cycle, from development to commissioning.
1. MINING AND MINERAL PROCESSING GENIVAR was commissioned to provide engineering, procurement and construction management services for Semafo’s gold mine in Burkina Faso. As part of this project, we developed the process diagram, material balance, detailed engineering and procurement program. We were also commissioned by Semafo to audit the gold processing plant at the Kiniero mine in Guinea. The audit included the metallurgical process, mechanical equipment condition monitoring, training, operating procedures, equipment reconditioning and the preventive maintenance program. A feasibility study was also conducted with a view to expanding the plant’s capacity. GENIVAR is currently working on an underground extraction project involving a bulk kimberlite sample on 27 the Foxtrot property in north-central Quebec for Ashton Mining of Canada. GENIVAR will be responsible
2. for site preparation and coordination, airborne logistics for the mining machinery and equipment, call for tenders preparation, detailed engineering for the underground mine development, mine water management, site management and construction supervision during the project, stakeholder coordination, follow-up and budget-schedule management. Blue Note Metals will be reopening the Caribou mine near Bathurst, New Brunswick. GENIVAR will be providing process review, equipment sizing, procurement, construction management and start-up services for the processing plant (zinc, copper and lead). The project also includes dewatering and rehabilitating the underground and open pit mines. GENIVAR played a key role on the Kidd Creek mine project in Timmins, Ontario on behalf of Xstrata (formerly Falconbridge). This underground facility is over 9,750 feet deep. GENIVAR provided civil, structural, mechanical and electrical engineering services, as well as various management services, such as budgeting, scheduling, procurement, work supervision, contract administration for muck handling, mine water pumping, industrial water supply, underground concrete conveyor systems and maintenance areas for mobile production and service equipment. Agnico-Eagle’s LaRonde mine in Cadillac located in the Abitibi region, is the largest gold deposit in Canada. GENIVAR is providing engineering, procurement and construction management services for the entire infrastructure, which includes a 10,500 foot internal winze, three hoists, a loading station, a crusher room, a discharging station, a conveyor-assisted ore handling system and a ventilation/air conditioning system. GENIVAR is also working on the Nuestra Señora silver and zinc mining project on behalf of Scorpio Mining in Mexico. The project involves preliminary engineering design services for an ore processing plant and electrical engineering for the main high-voltage power supply and on-site power distribution. The work also involves validating the metallurgical process and sizing the plant equipment. In 2006, GENIVAR also worked for Quebec-Cartier, Iron Ore Canada, Wabush Mines, Aurizon Mines Ltd., AUR Resources Inc., Metanor Resources Inc., BHP Billiton and Teck Cominco.
1. Kidd Creek Mine, Timmins. 2. LaRonde Mine, Agnico-Eagle, Cadillac. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
4. PULP AND PAPER GENIVAR completed a number of projects for Abitibi Consolidated (ACI) in 2006. One large-scale initiative consisted of providing detailed engineering and construction management services to improve the bleaching process for the #6 and #9 paper machines at ACI’s Shawinigan plant. The secondary effluent treatment system was modified by adding a fifth pond and a pumping station. A new wastewater outfall was installed to meet new standards. 5. At ACI’s Snowflake division in Arizona, GENIVAR carried out a project to increase the capacity of paper machine #3. ACI’s Kenogami plant will be producing thermo-mechanical pulp. In this regard, GENIVAR is working on a project to install new heat recovery equipment. In addition, we renewed service allocation agreements for ACI’s Alma and Kenogami divisions. GENIVAR also provided detailed engineering for the installation of a new pulp screening system adjacent to the L-11 paper machine at ACI’s Laurentian division in Grand Mère located in the Mauricie region. In addition to ACI, GENIVAR worked also for Smurfit-Stone; Masson Paper Ltée, Concert Airlaid and Fraser Paper; Uniboard Canada Inc.; and Domtar. In 2006, GENIVAR carries out various plant operation and maintenance projects for these clients on an ongoing basis.
6. METAL PROCESSING Over the past 15 years, GENIVAR has provided engineering services to Alcoa in the municipality of Deschambault. In 2006, we carried out a number of engineering projects involving the metal casting process, production equipment and maintenance improvements and the on-site occupational health and safety 28 program, focusing on machine accident prevention. In addition, Aluminerie de Bécancour (ABI), an Alcoa- owned aluminum smelter, required more of our services throughout the year. We completed a wide variety of projects and continued work on a structural engineering initiative relating to the addition of a new homogenization furnace. GENIVAR also worked on a number of energy efficiency projects aimed at reducing consumption at various Alcan facilities, including the Vaudreuil, Laterrière, Alma, Arvida, Shawinigan and Beauharnois plants.
OTHER INDUSTRIAL PROJECTS In 2006, GENIVAR carried out engineering for blackwater collection and treatment at the Port Cartier terminal and facilities. The second phase will continue throughout 2007 with the construction of sanitation treatment facilities and the provision of engineering services in connection with the collection and treatment of runoff, wash and process water. GENIVAR carried out projects of various sizes for PCI Chemicals Canada, a Pioneer company located in Becancour, involving existing and new processes. We also worked on Servitank’s liquid ammonium nitrate transfer system, including preliminary and detailed engineering, technical assistance during the construction phase, start-up and environmental authorization certificate applications. Héroux-Devtek (HD) commissioned GENIVAR to provide engineering, procurement and construction management services for a new metal plating production line for the landing gear division at HD’s Longueuil plant. The first phase was completed in 2006. In 2007, work will continue on the project, which is being carried out in collaboration with our construction subsidiary, without interrupting production.
The electrical engineering experts from GENIVAR’s Ottawa office were awarded a design contract for Kellogg’s new plant in Belleville, Ontario. The facility will be equipped with a 150,000 sq. ft. cereal production line and will house the wheat milling operations.
4. Paper machine #3, Snowflake Division, Abitibi-Consolidated, Arizona. 5. Heat recovery project, Kénogami Division, Abitibi-Consolidated, Kénogami. 6. Héroux-Devtek Plant, Longueuil.
Activity Report | Industrial GENIVAR INCOME FUND | 2006 ANNUAL REPORT
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BLEACHING PROCESS TRANSFORMATION PROJECT, BELGO DIVISION, ABITIBI-CONSOLIDATED – Shawinigan
Top photo, from left to right : Ronnie Dryburgh, Engineer, Mathieu Desrosiers, Junior Technician, Luc Laferrière, Senior Technician, Suzanne St-Antoine, Senior Technician, René Ferron, Engineer. Bottom photo, from left to right : Louis Vaillancourt, Engineer, Mary Valergas, Engineer, Luc Gingras, Engineer.
Activity Report | Industrial WIND MEASUREMENT TOWER INSTALLATION PROJECT – Matapedia Valley From left to right: Jérôme Alexis-Tremblay, Junior Engineer, Michel Beaurivage, Technician, and Urgel Poitras, Technician. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Power
› GENIVAR has developed a wide range of expertise and carried out numerous projects for both public and private clients in the areas of hydroelectric and wind power, as well as combustible energy sources. Amid growing demand, our team is taking part in the development of the power sector.
1. WIND POWER GENIVAR made remarkable progress in the wind power sector in 2006 and now ranks among recognized professional services companies in the field in Canada. The company was awarded contracts by several large-scale wind power producers, including Northland Power, TransCanada Wind Energy, Florida Power & Light, Boralex/Gaz Metro and Algonquin Power, in addition to various privately owned cooperatives, First Nations communities and municipal organizations. The services provided by our wind power team ranged from market studies and site prospecting to wind measurement tower installation and detailed engineering. 2. We also executed detailed engineering on behalf of Northland Power, for a proposed 150 MW wind park in Saint-Ulric–Saint-Léandre in the Matane Region.
31 HYDROELECTRIC POWER GENIVAR worked on several projects both in Quebec and in Ontario, where the market has been regaining momentum. In association with our construction subsidiary, we carried out detailed engineering for the 40.6 MW hydroelectric plant on the Magpie River in the North Coast region on behalf of Hydromega and are currently supervising the construction phase. This plant is scheduled to be brought into service in August 2007. GENIVAR also obtained a number of new hydroelectric contracts in Ontario. Trent University commissioned us to renovate its plant in the Peterborough region. GENIVAR has been working on the 3. environmental study since 2006 and will provide engineering services in 2007. The plant’s power capacity will be nearly doubled to 3.9 MW. This multi-disciplinary project is being carried out in association with our Quebec City, Ottawa, Toronto and Saguenay offices. In addition, GENIVAR began the technical design and detailed engineering work for two new plants of 5MW each on the Namakan River, west of Thunder Bay. We continued development work on a 28MW project in Ottawa on behalf of Domtar. GENIVAR’s services were also retained by Boralex, in association with the Natashquan Innu community, to carry out preliminary engineering for two plants of 8MW and 15MW each on the Quetachou and Nabissipi Rivers. Abitibi Consolidated’s hydroelectric plant in Besy Falls in the Saguenay region was delivered to the client in May 2006. We also continued detailed engineering for two of the eight weirs that will be constructed on the Rupert River as part of Hydro Quebec’s Eastmain-1-A and Rupert diversion projects. Hydro Quebec also requested our hydraulic services on the Romaine River project. GENIVAR’s power team also worked closely with the mining division on engineering design projects for proposed dams in northern Quebec.
4. DAM SAFETY GENIVAR continued to be involved with various dam safety studies. Work began on several new projects on behalf of private owners and regional municipalities of Forestville, Donnacona and Quebec City. Our professional teams also continued work on the Matane and Rimouski River projects on behalf of the Quebec Ministry of Sustainable Development, Environment and Parks (MDDEP).
1. Construction of the Magpie Hydroelectric Station, Rivière-Saint-Jean, North Shore. 2. and 3. Renovation of the Trent University Hydroelectric Station, Peterborough. 4. Domtar Hydroelectric Project, Chute des Chaudières, Ottawa. RAGLAN SOUTH NICKEL PROJECT ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT – Nunavik Top photo, 1st row, from left to right: Christian Harvey, Biologist, Daniel Gauthier, Biologist, Yanick Plourde, Biologist, Linda Giroux, Landscape Architect. 2nd row, from left to right: Hélène Massé, Biologist, Mylène Levasseur, Geomorphologist, Steve Renaud, Engineer, Chantal Landry, Geomatic Technician, Patrice Bégin, Biologist, Jean Therrien, Biologist, Gilles Wiseman, Geographer.
Bottom photo, capture of a lake trout for the fish inventory, from left to right: Christian Bernier, Wildlife Technician accompanied by an Inuit assistant. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Environment
› Whether they are environmental impact studies, soil, water and air characterisation and management plans or, real-time infrastructure system simulations in both natural and structured settings, our scientists provide comprehensive client support services. We are also active in the areas of organizational development and training, thereby contributing to positive social change.
1. The company is proceeding with the preliminary study concerning the construction of four power stations on the Romaine River on behalf of Hydro Quebec. This major study will be completed in 2007. Biophysical studies for the Eastmain-1-A project and the Rupert River diversion have been submitted. The GENIVAR team supported Hydro Quebec during the public hearing process. Construction permits have been granted for the project, which is scheduled to run from 2007 to 2010; the monitoring period will extend from 2007 to 2024. Work has begun on an environmental impact study for the Petit Mécatina River project, consisting of four power stations. The Manicouagan Regional County Municipality commissioned GENIVAR to conduct a riverbank 2. erosion impact study. 33 Impact studies for the Highway 73 extension in the Beauce region were completed on behalf of the Quebec Transportation Ministry. The Highway 185 impact study in the Témiscouata region is ongoing. Work is scheduled to begin shortly on an environmental impact study for the Cavendish Boulevard extension, which will link the city of Côte Saint Luc with the Montreal borough of Saint Laurent. Due to the presence of contaminated soils, this project also features an environmental engineering component. GENIVAR also developed a master plan for mapping and characterizing wetlands and riverbanks on behalf of the municipality of Saint Lazare in the Montérégie region. In association with a landscape architecture firm, GENIVAR was commissioned by the city of Montreal to characterise the existing ecological and hydrological conditions as part of a project to redevelop the Peel St. 3. entrance at the southern slope of Mount Royal. GENIVAR will develop contemporary ecological design concepts, design surface water/fauna and flora habitat management techniques and supervise the project. GENIVAR was selected by the Montreal Centre of Excellence for Site Rehabilitation (CEMRS) to propose a treatment solution for contaminated groundwater at Montreal’s Technoparc. A feasibility study was completed for a unique treatment procedure, with convincing results. GENIVAR is among a group of companies that could be invited to develop full-scale pilot tests. The CEMRS will make its final decision based on the optimal technology proposed by the participants. Similarly, GENIVAR was selected to develop a solution to address the issue of soils contaminated by polycyclic aromatic hydrocarbons (PAHs) and heavy metals such as lead, as part of a research and development project at the Longue Pointe military base in east Montreal. The company was awarded two other large-scale projects notably an environmental and social impact assessment study for the Raglan South nickel and copper mine on behalf of Canadian Royalties Inc. This project aims to exploit four nickel and copper deposits in Raglan South, Nunavik. The complexity of the project called for the expertise of a multidisciplinary team in biology, chemistry, hydraulics, hydrogeology, geomorphology, maritime engineering and landscape architecture. The Quebec, Amos, Val-D’Or, Montreal and Baie-Comeau offices are all taking part. The second pertains to an environmental impact study for the opening of the Bloom Lake iron mine near Fermont, on behalf of Consolidated Thompson Iron Mines Ltd., including the permit application component.
1. Preparatory studies on the Romaine River, Havre-Saint-Pierre. 2. Impact studies, simulation of Autoroute 73, Beauce region. 3. Draba subcapitata, a rare plant rediscovered for the first time in Québec, Raglan South Nickel and Copper Mine project, Raglan South. GENIVAR INCOME FUND | 2006 ANNUAL REPORT
4. GENIVAR was very active with mining companies in 2006. Projects delivered included a major rehabilitation initiative at BHP Billiton’s Selbaie mine site in the James Bay region, including soil rehabilitation, water management and environmental risk analysis. Overseas, the company’s services were retained for the MagIndustries impact study in connection with a magnesium mine in Pointe Noire in the Republic of the Congo, as well as for a hydrological study relating to a gold mine dewatering project in Burkina Faso. In Ontario, we successfully completed several projects with both private and public sector clients. Initiatives included 3-year standing offers with Public Works and Government Services Canada (PWGSC), Ontario Realty Corporation (ORC) and the York Region District School Board. Services included environmental site assessments, soil and groundwater remediation and designated substance surveys. A key project in 2006 was the completion of soil and groundwater remediation for Toronto Hydro Electric 5. Systems. In addition, we have delivered several hydrogeological and groundwater modelling studies including source water protection for York Region and the City of Sault St. Marie. Other studies include groundwater exploration for the regions of York and Durham and the development of environmental management plans for large-scale construction projects in the regions of York, Peel, Niagara, the City of Barrie and the Town of Blue Mountains. Environmental approvals were obtained from both federal and provincial regulatory agencies.
ORGANISATIONAL DEVELOPMENT AND TRAINING
In 2006, we successfully completed a number of large-scale projects such as judicial reform in Rwanda and healthcare in Gabon. 34 6. Work also continued on the justice development program support project in Mali. Thus far we have modernised the courtrooms and tribunals, including computerising the registry services. We have also developed services for persons awaiting trial and supported partnerships between legal professionals and civil society organisations with a view to advancing judicial reform. GENIVAR was commissioned by the Canadian International Development Agency (CIDA) to undertake a research-action project in the area of women’s social justice and communication in Burkina Faso. This project is being carried out in partnership with the Junior Bar Association of Quebec, together with various government departments and numerous local organisations in Burkina Faso. We have also begun the implementation stage of the CIDA-funded Canada-Balkans Judicial Reform Project. 7. In partnership with the University of Ottawa, this initiative aims to strengthen the rule of law in Bosnia- Herzegovina and Serbia. Steps are being taken in both countries to reinforce judicial institutions, train legal professionals, develop new methods to make the justice system work more effectively and support civil society’s efforts to promote the rule of law and ensure integration within Europe.
4. Selbaie Mine Rehabilitation, James Bay. 5. Research-action project in the area of women’s social justice and communication, Burkina Faso. From left to right : Josianne Pusterla, Legal Officer, MBA, Julien Laplante, Lawyer, Lisa Bérubé, Lawyer, General Director of the Quebec Association Bar and two representatives of the Burkina Coalition for Women’s Rights, Félicité Meda and Ursule Viviane Sanon. 6. Project in support of judicial reform in the Balkans. From left to right: Georges Proulx, Legal Officer, Robert McDougall, Canadian Ambassador to Serbia, Zoran Stojkovic, Serbian Justice Minister and Zivka Spasic, Assistant Deputy Minister. 7. Project in support of the development of justice in Mali, training session.
Activity Report | Environment GENIVAR INCOME FUND | 2006 ANNUAL REPORT
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JUSTICE DEVELOPMENT PROGRAM SUPPORT PROJECT – Mali From left to right: Pierre Robert, Sociologist, President of the Tribunal and his chief clerk, Bandiagara Hall of Justice, Georges Proulx, Legal Officer.
Activity Report | Environment 2006 Year-end financial report
MANAGEMENT’S DISCUSSION & ANALYSIS GENIVAR INCOME FUND
2006 Year-end financial report MANAGEMENT’S DISCUSSION & ANALYSIS
The following management’s discussion and analysis of financial condition and results of operations («MD&A») dated as of MARCH 12, 2007, is intended to assist readers in understanding GENIVAR Income Fund (the «Fund»), 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 period extending from May 25, to December 31, 2006 and in conjunction with the prospectus of the Fund dated May 16, 2006. The Fund’s consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles («GAAP»). In order to enhance the purpose and the relevance of this MD&A, certain financial and operating results of the Fund for its third reporting period are added to the unaudited combined financial and operating results of the GENIVAR Engineering Services Business (as defined below), hereby ended, covering a period of twelve months being from January 1, to December 31, 2006. They are compared to the unaudited combined results of the GENIVAR Engineering Services Business for the period of twelve months ended December 31, 2005, which were carved out from GENIVAR inc. (the «Non-controlling Unitholder»). Such information is for reference purposes only and is not intended to represent a comprehensive comparison of the unaudited consolidated financial results. The GENIVAR Engineering Services Business means the professional consulting engineering services and related services business that was previously carried on by GENIVAR Inc. and which is now carried on by the Fund through GENIVAR Limited Partnership («GENIVAR LP»).
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 37 management («Management»), regarding the growth, results of operations, performance and business prospects and opportunities of GENIVAR LP or of the Engineering Services industry. Such forward-looking statements reflect current beliefs of Management and are based on information currently available to Management. 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”, which may cause actual results to differ materially from 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. These forward-looking statements are made as of the date of this MD&A, and GENIVAR Income Fund and related parties do not assume any obligation to update or revise them to reflect new events or circumstances, other than as required by current legislation. GENIVAR INCOME FUND
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, our services being required on most of the infrastructure needs of our society. According to statistics, Canada's most recent annual survey of the industry, engineering firms employed some 78,000 people in 2004 and recorded operating revenues of $12 billion. This industry is comprised of several hundred firms of varying sizes with most firms employing fewer than fifty (50) people and a few firms employing more than 1,000 people. 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 GENIVAR Income Fund offers a broad diversity of professional consulting services in planning, engineering, architecture, environmental services, project management and a variety of project services throughout all project execution phases : from the initial development studies through the design, construction, 38 commissioning and maintenance phases. We have developed a multidisciplinary team approach where resources work closely with clients to develop optimized solutions on time and on budget. We are a fee- for-service business and operate in five different market segments : Buildings, Urban infrastructure, Industrial & Power, Transportation and Environment. • Building : We provide engineering, asset management, project management and architecture services to a wide range of clients and projects in the healthcare, education, institutional, recreational, commercial, residential, manufacturing and industrial sectors. Our broad range of services encompasses mechanical, electrical and structural engineering building sciences, energy efficiency, food services as well as other project services. We work on existing facilities as well as on new construction projects. • Urban infrastructure : Cities, municipalities, townships and real estate developers are among the major clients of this market segment and our assignments relate to urban rehabilitation and development, water distribution and treatment, wastewater collection and treatment, public utilities, storm water management, land development, urban road networks, lighting and miscellaneous municipal facilities. • Industrial & Power : We provide planning, engineering and project management services to private businesses of various industries such as mining and mineral processing, aluminium 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. Our clients include public suppliers of electricity and private developers.
Management’s Discussion & Analysis GENIVAR INCOME FUND
• Transportation : Through public transport authorities, government departments, cities, airport and port authorities, railroad companies and real estate developers, we offer transportation solutions by providing planning, modelling, 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. • Environment : Our 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. We have developed an integrated approach to projects where our environmental scientists are involved in the start-up and completion of most projects where environmental considerations are important. The Fund is one of the largest Engineering Services firm in Canada in terms of number of employees, with more than 1,800 managers, professionals, technicians and technologists and support staff in over 40 offices in Canada and abroad. These numbers include the five recent acquisitions mentioned below.
Consolidation in Quebec and Ontario and Expansion in Western Canada Our goal is to develop a national firm with a leading presence in all major regions of Canada with the objective of being market leaders in each of our operating segments and regions. 2006 has been a year of continued growth and expansion of our national platform in line with our development strategy. Since our Initial Public Offering, as at May 25, 2006, we have actively pursued our business strategy in achieving growth in the Canadian market and reaching important milestones due to the following acquisitions: • The MacViro acquisition created a solid base in the Toronto region. MacViro is an engineering firm of 170 employees based in Markham, in the Greater Toronto Area, specialized in urban infrastructure, industrial and power and environment market segments. • The Martoni, Cyr & Associates acquisition consolidated our expertise and position as one of Canada’s leaders in the building sector. It also added an internationally recognized know-how in telecommunication tower design and reinforcement. The firm, based in Montreal, has 70 employees. 39 • Following Cochrane Design Group acquisition, an engineering firm of 150 employees, GENIVAR gained an important foothold in Western Canada by establishing a presence in major cities, including: Vancouver, Winnipeg, Saskatoon and Regina. We also have expanded our operations in Ontario. This transaction was effective January 1, 2007. • The acquisition of Toronto-based Kazmar Associates, a structural engineering firm of approximately 25 employees, brought us additional expertise in structural engineering while at the same time strengthened our national platform in building engineering and enlarged our presence in Ontario. • In February 2007, we completed the acquisition of Groupe G.L.D. inc. and established a presence in the Beauce Region in Quebec. We thus expanded our network and consolidated our building expertise in the greater Quebec City Region. The firm has 50 employees. These acquisitions added a solid base of national repeat clients in all of our market segments. The integration of administrative functions, expansion of existing services and client marketing were achieved in Ontario, Quebec, as well as in Western Canada.
Management’s Discussion & Analysis GENIVAR INCOME FUND
More acquisitions targeted We will pursue our business strategy and growth in the Canadian marketplace both through leveraging of our existing client base by the cross-selling of services and through strategic acquisitions. The Fund expects to pursue its acquisition strategy and has, in that sense, proceeded in identifying potential acquisition targets in all provinces.
Strong Entrepreneurial Culture We operate in a knowledge-based environment and our work force is our most important asset. Our business is generated by our employees and the alignment and commitment of our key resources is the cornerstone of our business model. To this effect, we maintain a partnership structure that sustains an entrepreneurial culture within the group by exercising a limited central control and focussing on regional autonomy. GENIVAR inc., the Non-controlling Unitholder, holds 7,927,381 exchangeable units of the Fund and counts over 200 shareholders who are active employee-owners. These partners are the entrepreneurial resources of the Fund who, through their technical expertise, client relations and management skills, run the business of the Fund through its different offices and market segments. This team of partners shares a common vision of developing their region and all of our market segments through the leveraging of the global expertise of the Fund. Our clients deal with employee-owners who have a vested interest in the success of their projects, customer satisfaction and the profitability of the Fund. This unique business model combines the advantages of the small business entrepreneurial spirit to the global outreach of a large multidisciplinary firm. Our effective business model represents an asset. We believe our decentralized philosophy serves as a selling feature when we approach acquisitions.
NEW INCOME FUND RULES On October 31, 2006, the Minister of Finance of Canada announced changes to the taxation of publicly traded trusts and, on December 15, 2006, issued 40 subsequent guidelines as to normal growth of existing trusts. Draft tax legislation was issued on December 21, 2006 and parliamentary hearings and discussions have been held since the beginning of 2007 on this matter. In response to these proposed changes, management has analyzed the draft legislation and its implication and is developing a plan to pro-actively respond to the modifications, if and when they occur. With the information currently available, we can formulate the following response to the issue at hand: • The proposed changes do not impact our business model and business strategies; management believes professional services firms are well suited for income trusts since most professional services firms operate under a partnership structure where the most important assets are the employees and where low capital expenditures are required to operate. The GENIVAR Income Fund is a sustainable model if the proposed modifications are implemented in 2011; • The proposed changes do not impact our current strategy for cash distribution to Unitholders; • The proposed changes will not significantly impact our access to additional capital. Under the proposed guidelines, the Fund could issue $210 million in new equity in the four following years which, combined with our existing credit facilities, will sustain our growth plan. We have however made representations to the Minister of Finance to include, under the proposed "safe harbour" rules, all units on a fully-diluted basis (including exchangeable units held by the Non-controlling Unitholders) in the calculation of the market capitalization of GENIVAR on October 31, 2006. This adjustment will enable the Fund to raise additional equity of $39 million in the first year of the four-year period up to 2011, if required. The Fund will be able to maintain its growth strategy through organic growth and acquisitions under these new guidelines. Management and the Board of Trustees will continue to assess the situation as it unfolds and identify the impact of changes to taxation of the Fund as well as manage its strategic options going forward.
Management’s Discussion & Analysis GENIVAR INCOME FUND
SELECTED CONSOLIDATED FINANCIAL INFORMATION FINANCIAL HIGHLIGHTS
2006 2005 2006 2005
PRE-IPO POST-IPO TOTAL TOTAL Q4 Q4
FOR THE PERIOD FOR THE PERIOD FOR THE TWELVE FOR THE TWELVE FOR THE PERIOD FOR THE PERIOD JANUARY 1 MAY 25 MONTHS ENDED MONTHS ENDED OCTOBER 1 OCTOBER 1 TO MAY 24 DECEMBER 31 DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 TO DECEMBER 31 IN THOUSANDS (COMBINED- (AUDITED) (COMBINED- (COMBINED- (UNAUDITED) (COMBINED- OF DOLLARS UNAUDITED) UNAUDITED) UNAUDITED) UNAUDITED) EXCEPT PER (5) (4) (5) (5) UNIT DATA Net revenues (1) $ 43,297 $ 84,682 $ 127,979 $ 96,551 $ 36,733 $ 28,104 EBITDA (2) $ 8,173 $ 17,816 $ 25,989 $ 17,440 $ 7,437 $ 6,093 Net earnings $ 6,344 $ 2,577 Earnings per Fund Unit Basic $ 0.58 $ 0.24 Diluted $ 0.58 $ 0.24
41 2006
POST-IPO Q4
FOR THE PERIOD PER UNIT FOR THE PERIOD PER UNIT MAY 25 TO DECEMBER 31 OCTOBER 1 TO DECEMBER 31 IN THOUSANDS OF DOLLARS (AUDITED) (UNAUDITED) EXCEPT PER UNIT DATA
Distributable Cash (3) $ 15,712 $ 0.8301 $ 6,329 $ 0.3344
Aggregate Distributions, $ 11,394 $ 0.6022 $ 4,730 $ 0.2500 all Units
Actual payout ratio 72.5 % 74.7 %
(1) Net revenues are not a measure in accordance with GAAP and do not have a 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 period (as determined in accordance with GAAP), as an indicator of the Fund’s performance. See reconciliation with revenues in selected consolidated financial information-Results of operations. (2) 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. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. See reconciliation with earnings before income taxes and non- controlling interest in selected consolidated financial information-Results of operations. (3) Distributable cash does not have a standardized meaning prescribed by GAAP, but is a measure generally used by Canadian open-ended income funds as an indicator of financial performance. The Fund defines distributable cash as cash flows from operating activities adjusted for change in non-cash working capital items, income taxes paid, capital expenditures paid, current income tax expense and interest unpaid. The Fund’s method of calculating distributable cash may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to distributable cash as reported by such entities. The Fund believes that its distributable cash is a useful supplemental measure that may assist investors in assessing the return on their investment in Units. Distributable cash and distributable cash per Unit amounts are calculated for the combined interest of the Fund’s Units and Non-subordinated Exchangeable LP Units and Subordinated LP Units, which total 18,927,381. See reconciliation with cash flows from operating activities in selected consolidated financial information-Distributable cash. (4) Supplementary Non-GAAP Combined Information for the twelve-month period ended December 31, 2006 is the combination of financial results of GENIVAR Engineering Services Business PRE-IPO and financial results of the Fund POST-IPO. Such combination is for illustrative purposes only. As a result of this combined presentation, the POST-IPO earnings have been affected by the additional amortization and depreciation of intangible assets and property, plant and equipment assets considering that these assets were recorded at fair value at the acquisition date. (5) This combined financial information was carved out from GENIVAR Engineering Services Business regrouping all of the engineering activities of GENIVAR inc., the Non-controlling Unitholder.
Management’s Discussion & Analysis GENIVAR INCOME FUND
RESULTS OF OPERATIONS
2006 2005 2006 2005 PRE-IPO POST-IPO TOTAL TOTAL Q4 Q4
FOR THE PERIOD FOR THE PERIOD FOR THE TWELVE FOR THE TWELVE FOR THE PERIOD FOR THE PERIOD FROM JANUARY 1 FROM MAY 25 TO MONTHS ENDED MONTHS ENDED OCTOBER 1 TO OCTOBER 1 TO TO MAY 24 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 (COMBINED- (AUDITED) (COMBINED- (COMBINED- (UNAUDITED) (COMBINED- UNAUDITED) UNAUDITED) UNAUDITED) UNAUDITED) IN THOUSANDS OF DOLLARS (5) (4) (5) (5) EXCEPT PER UNIT DATA
Revenues $ 66,332 $ 109,781 $ 176,113 $ 129,997 $ 49,703 $ 33,447 Deduct: Subconsultants $ 23,035 $ 25,099 $ 48,134 $ 33,446 $ 12,970 $ 5,343 and other direct expenses Net revenues (1) $ 43,297 $ 84,682 $ 127,979 $ 96,551 $ 36,733 $ 28,104 Direct project costs $ 21,346 $ 43,777 $ 65,123 $ 50,942 $ 19,200 $ 14,313 Gross margin $ 21,951 $ 40,905 $ 62,856 $ 45,609 $ 17,533 $ 13,791 Marketing, general and $ 13,778 $ 23,089 $ 36,867 $ 28,169 $ 10,096 $ 7,698 administrative expenses EBITDA (2) $ 8,173 $ 17,816 $ 25,989 $ 17,440 $ 7,437 $ 6,093 Interest $ 132 $ 476 $ 608 $ 488 $ 195 $ 158 42 Depreciation of property, $ 622 $ 1,245 $ 1,867 $ 1,449 $ 534 $ 424 plant and equipment Amortization $ 1,661 $ 5,391 $ 7,052 $ 2,173 $ 2,130 $ 547 of intangible assets Earnings before income $ 5,758 $ 10,704 $ 16,462 $ 13,330 $ 4,578 $ 4,964 taxes and non-controlling interest ($ 211) $ 144 Income tax (recovery) (3) Earnings before $ 10,915 $ 4,434 non-controlling interest
Non-controlling interest (3) $ 4,571 $ 1,857 Net earnings (3) $ 6,344 $ 2,577 Basic net earnings per unit $ 0.58 $ 0.24 Weighted average number 11,000,000 11,000,000 of Units (6) Diluted net earnings per Unit $ 0.58 $ 0.24 Diluted weighted average 18,927,381 18,927,381 number of Units (6)
(1) Net revenues are not a measure in accordance with GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, net revenues may not be comparable to simi- lar measures presented by other issuers. Investors are cautioned that net revenues should not be construed as an alternative to revenues for the period (as determined in accordance with GAAP), as an indicator of the Fund’s performance. (2) 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. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. (3) Income taxes, non-controlling interest and net earnings have not been presented on a comparative basis due to the changes in the capital structure of the preceding entities and the Fund in connection with the IPO on May 25, 2006. (4) Supplementary Non-GAAP Combined Information for the twelve-month period ended December 31, 2006 is the combination of financial results of GENIVAR Engineering Services Business PRE-IPO and financial results of the Fund POST-IPO. Such combination is for illustrative purposes only. As a result of this combined presentation, the POST-IPO earnings have been affected by the additional amortization and depreciation of intangible assets and property, plant and equipment considering that these assets are recorded at fair value at the acquisition date. (5) This combined financial information was carved out from GENIVAR Engineering Services Business regrouping all of the engineering activities of GENIVAR Inc., the Non-controlling Unitholder. (6) As at March 12, 2007, the number of Units is the same as it was as at December 31, 2006.
Management’s Discussion & Analysis GENIVAR INCOME FUND
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
2006 Q2 Q3 Q4 FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FROM MAY 25 FROM JULY 2 TO FROM OCTOBER 1 TO TO JULY 1 SEPTEMBER 3O DECEMBER 31 IN THOUSANDS OF DOLLARS EXCEPT PER UNIT DATA Revenues $ 17,523 $ 42,555 $ 49,703 Earnings before income tax recovery and $ 2,164 $ 3,962 $ 4,578 non-controlling interest Net earnings $ 1,403 $ 2,364 $ 2,577 Basic net earnings per unit $ 0.13 $ 0.21 $ 0.24
Weighted average number of units 11,000,000 11,000,000 11,000,000 Diluted net earnings per unit $ 0.13 $ 0.21 $ 0.24 Diluted weighted average number of units 18,927,381 18,927,381 18,927,381
BALANCE SHEET 43 2006 AS AT DECEMBER 31 (AUDITED)
IN THOUSANDS OF DOLLARS Total assets $ 248,838 Long-term financial liabilities ---
Management’s Discussion & Analysis GENIVAR INCOME FUND
RESULTS OF OPERATIONS 1
Revenues We operate in one reportable segment, consulting services. Our revenues for our first reporting period of 37 days (running from May 25, to July 1, 2006), accounted for $ 17.5 million and for the second reporting period of 91 days (running from July 2, to September 30, 2006), were $42.6 million. Comparatively, our revenues for the third reporting period of 92 days (running from October 1, to December 31, 2006), were $49.7 million, totalling $109.8 million in revenues for the POST- IPO period of 220 days. For the twelve-month period ended December 31, 2006, revenues increased by 35.5% to $176.1 million compared to $130.0 million for the twelve months ended December 31, 2005. Revenues from growth through acquisitions2 accounted for approximately $21.1 million of which $18.3 million originated from the MacViro acquisition concluded on May 24, 2006, $2.3 million from Labelle Ryan acquisition concluded on March 1, 2006 and $0.5 million from Martoni, Cyr & Associates concluded on December 1, 2006. Our revenues include fees from consulting services, as well as other direct costs for subconsultants and other direct expenses that are recoverable directly from our clients. We believe that our financial performance and our results should be measured and analyzed in relation to our fee-based revenues, or net revenues, since direct recoverable costs can vary significantly from contract to contract and are not indicative of our Engineering Services business. Our net revenues (a non-GAAP measure), expressed as revenues less costs for subconsultants and other direct expenses that are recoverable directly from our clients were $128.0 million for the twelve months ended December 31, 2006 and $96.6 during the same period in 2005. For the 92-day period ended December 31, 2006, net revenues increased from $28.1 million to $36.7 million. This increase over the prior year is due to a healthy combination of acquisition growth as well as organic growth.
44 Expenses Our operating expenses consist of two major components which are our direct project costs and marketing, general and administrative expenses. Direct project costs include payroll costs relating to the delivery of consulting services and project delivery. Payroll costs include salaries and employee benefits, payroll taxes and other staffing services. Marketing, general and administrative expenses 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 interest, the depreciation of property, plant and equipment and amortization of intangible assets. We believe that the key performance indicators of our business are direct project costs, gross margin and marketing, general and administrative expenses all expressed as a percentage of net revenues.
1 Supplementary Non-GAAP Combined Information for the twelve-month period ended December 31, 2006 is the combination of financial results of GENIVAR Engineering Services Business PRE-IPO and financial results of the Fund POST-IPO. Such combination is for illustrative purposes only. As a result of this combined presentation, the PRE-IPO combined finan- cial information was carved out from GENIVAR Engineering Services Business regrouping all of the engineering activities of GENIVAR inc. (“the Non-controlling Unitholder”). Combined information for the twelve-month period ended December 31, 2005 was also carved out from GENIVAR Engineering Services Business. 2 Growth through acquisitions is derived from revenues of acquired businesses from the date of acquisition to December 31 of the same year. Acquisitions realized in the last 45 days of the financial year are considered as growth through acquisitions for the current period and for the following period.
Management’s Discussion & Analysis GENIVAR INCOME FUND
Direct project costs For the twelve months ended December 31, 2006, direct costs represented 50.9% of net revenues compared to 52.8% for the same period in 2005. That improvement over the last year can be explained by a higher level of activity and increased productivity. For the 92-day period ended December 31, 2006, the Fund’s direct project costs amounted to $19.2 million or 52.3% of net revenues. Comparatively, for the same period in 2005, direct project costs amounted to $14.3 million or 50.9% of net revenues. It is important to note that this measure in terms of net revenues could slightly change from one period to another and for better comparison should be evaluated on a yearly basis.
Gross margin For the twelve months ended December 31, 2006, the gross margin represented 49.1% of net revenues compared to 47.2% for the same period ended December 31, 2005. This is explained by a lower proportion of total labour allocated to projects as a result of better efficiency in the execution of our projects, enhanced synergies provided by the integration of our acquisitions, and the ongoing benefits of project management training provided to our project directors. During the 92-day period ended December 31, 2006, the gross margin was $17.5 million compared to $13.8 million in the prior year. As a percentage of net revenues, the gross margin stood at 47.7% in 2006, representing a slight decrease of approximately 1.4% compared to 49.1% in 2005. It is important to note that this measure in terms of net revenues could slightly change from one period to another and for better comparison should be evaluated on a yearly basis.
Marketing, general and administrative expenses Marketing, general and administrative expenses for the twelve-month period ended December 31, 2006 increased to $36.9 million compared to $28.2 million for the same period in 2005. This increase in dollars over last year results from up growth (organic and acquisition) in our work force and administrative support staff as well as additional rental expenses and marketing initiatives. It results, also, from additional accounting and other management expenses pertaining to 45 public market information requirements. As a percentage of net revenues, marketing, general and administrative expenses represent 28.8% for the twelve months ended December 31, 2006, compared to 29.2% for the same period in 2005. Marketing, general and administrative expenses from October 1 to December 31, 2006 were $10.1 million, representing 27.5% of net revenues compared to $7.7 million or 27.4% for the same period in 2005.
Management’s Discussion & Analysis GENIVAR INCOME FUND
EBITDA EBITDA (a non-GAAP measure) for the twelve months ended December 31, 2006 stood at $26.0 million, up $8.6 million from $17.4 million for the twelve months ended December 31, 2005, thus representing a 49.4% increase. Improved gross margin with a slight dercrease in marketing, general and administrative expenses as a percentage of net revenues accounted for the improved EBITDA. During the 92-day period ended December 31, 2006, earnings before interest, depreciation, amortization and income tax (EBITDA) of the Fund were $7.4 million. As a percentage of net revenues, EBITDA margin for the 92-day period ended December 31, 2006 and for the whole twelve months ended December 31, 2006 stood at 20.3%.
Interest Interest expense for the twelve-month period ended December 31, 2006, increased to $0.6 million compared to $0.5 million during the same period in 2005. Interest expense for the 92-day period ended December 31, 2006 was $0.2 million and the same in 2005.
Depreciation and amortization Depreciation of property, plant and equipment, was $1.9 million for the twelve months ended December 31, 2006 compared to $1.5 million for the twelve months ended December 31, 2005. The underlying cause is the depreciation and amortization of additional assets acquired through various acquisitions during fiscal years 2005 and 2006 and as well, as a result of our constant efforts to upgrade the technology infrastructure of these acquisitions. Amortization of intangible assets, for the twelve months ended December 31, 2006, was $7.0 million compared to $2.2 million for the twelve months ended December 31, 2005. The amortization expense increase is attributable to acquisitions completed in fiscal year 2006 (PRE-IPO), as well as an amount of $5.4 million for the 220-day period from May 25, to December 31, 2006, arising from the acquisition of the GENIVAR Engineering Services business by the Fund 46 at the closing of the IPO.
Earnings before non-controlling interest The Fund’s earnings before non-controlling interest for the period from May 25, to December 31, 2006 were $10.9 million. The basic net earnings per unit were $0.58 after accounting for the combined interest of the 11,000,000 Class A partnership units, 3,195,536 Class B partnership units (the “Non-subordinated Exchangeable LP Units”) and 4,731,845 Class C partnership units of GENIVAR LP (the «Subordinated Exchangeable LP Units»), which total 18,927,381 Units.
Management’s Discussion & Analysis GENIVAR INCOME FUND
DISTRIBUTABLE CASH
2006 POST-IPO Q4
FOR THE PERIOD MAY 25 PER UNIT FOR THE PERIOD OCTOBER 1 PER UNIT TO DECEMBER 31 TO DECEMBER 31 (AUDITED) (UNAUDITED) IN THOUSANDS OF DOLLARS EXCEPT PER UNIT DATA
Cash flows Cash flows from $ 13,333 $ 8,833 operating activities Change in non-cash working 3,886 (1,648) capital items Current income tax expense 121 57 Income taxes paid (327) (70) Capital expenditures paid (1,583) (915) Interest unpaid 282 72 47 Distributable cash (1) (2) $ 15,712 $0.8301 $ 6,329 $ 0.3344 Actual payout ratio (3) 72.5% 74.7%
Fund’s Units distributions $ 6,622 $ 0.6022 $ 2,749 $ 0.2500 Class B Non-subordinated 1,924 $ 0.6022 799 $ 0.2500 Exchangeable LP Units distributions Class C Subordinated 2,848 $ 0.6022 1,182 $ 0.2500 Exchangeable LP Units distributions
Aggregate distributions, all Units (1) $ 11,394 $ 0.6022 $ 4,730 $ 0.2500
Distributable cash (1) $ 15,712 $ 0.8301 $ 6,329 $ 0.3344 Capital expenditures paid 1,583 915 Interest paid 194 123 Income taxes paid 327 70
EBITDA (4) $ 17,816 $ 7,437
(1) Distributable cash does not have a standardized meaning prescribed by GAAP, but is a measure generally used by Canadian open-ended income funds as an indicator of financial performance. The Fund defines distributable cash as cash flows from operating activities adjusted for change in non-cash working capital items, income taxes paid, capital expenditures paid, current income tax expense and interest unpaid. The Fund’s method of calculating distributable cash may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to distributable cash as reported by such entities. The Fund believes that its distributable cash is a useful supplemental measure that may assist investors in assessing the return on their investment in Units. (2) Distributable cash and distributable cash per Unit amounts are calculated for the combined interest of the Fund’s Units and Non-subordinated Exchangeable LP Units and Subordinated LP Units, which total 18,927,381. (3) Payout ratio is defined as aggregate distributions divided by distributable cash. (4) 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. Therefore, EBITDA may not be comparable to similar measures presented by other issuers.
Management’s Discussion & Analysis GENIVAR INCOME FUND
DISTRIBUTABLE CASH During the period from May 25, to December 31, 2006, the Fund generated $15.7 million of distributable cash. The amount estimated in the Fund’s prospectus, prorated for the same period, was $12.7 million. Based on a payout ratio of 90% of the anticipated annual distributable cash stated in the Fund’s Prospectus, the total distributions were $11.4 million. On a per-unit basis, distributable cash was $0.8301 for the period, compared to $0.6691 for the equivalent period as regards the proportionate share of the anticipated annual distributable cash stated in the Fund’s prospectus. This apparent favorable difference can be explained by the fact that the 220-day period, extending from May 25 to December 31, 2006, is shorter than the Fund’s normal annual working capital cycle and may not be representative of the Fund’s distributable cash over a normal annual cycle. The actual payout ratio for the 220-day period ended December 31, 2006, is 72.5%. During the period from October 1, to December 31, 2006, based on a payout ratio of 90% of the anticipated annual distributable cash stated in the Fund’s Prospectus, a monthly cash distribution totalling $0.25 per unit was declared to each unitholder of record of the Fund for this period. The total cash requirement for the distributions was $4.7 million, including distributions declared on Fund’s Units, Non-Subordinated Exchangeable LP Units and Subordinated Exchangeable LP Units. The actual payout ratio for the 92-day period ended December 31, 2006, is 74.7%.
BACKLOG As at December 31, 2006, our backlog of revenues, which represents future revenues that stem from existing signed contracts to be executed, stood at $136.4 million. If we consider that our field of business measures backlog in terms of months of work, we can foresee that it represents approximately 9.3 months of upcoming work.
48 LIQUIDITY AND CAPITAL RESOURCES
2006 POST-IPO Q4
FOR THE PERIOD FOR THE PERIOD MAY 25 TO OCTOBER 1 DECEMBER 31 TO DECEMBER 31 (AUDITED) (UNAUDITED)
IN THOUSANDS OF DOLLARS
Cash Flows Cash flows provided from operating activities $ 13,332 $ 8,833 Cash flows provided from financing activities 33,661 1,528 Cash flows used by investing activities (38,807) (2,175) Cash as at December 31, 2006 $ 8,186 $ 8,186
Distributions paid $ (9,029) $ (6,073) Capital expenditures $ (1,583) $ (915)
Management’s Discussion & Analysis GENIVAR INCOME FUND
For the 220-day period ended December 31, 2006, cash flows from operations generated $17.2 million of cash and $3.9 million were used in non-cash working capital items for net cash from operating activities of $13.3 million. The use of non-cash working capital items is explained by a $7.7 million accounts receivable increase. Billings in excess of costs and anticipated profits increased by $2.5 million and costs and anticipated profits in excess of billings decreased by $0.5 million. This is all due to our effective billing process. Receivables and work in progress represent approximately 107 days of annual sales which correspond to the industry standards for comparable businesses. Financing activities generated $33.7 million of cash. As a result of the IPO, the issuance of Units generated a net amount of $100 million. From this amount, the Fund used $62.8 million to reimburse the note payable issued at the acquisition of assets from GENIVAR inc. and $37.2 million for business acquisitions (presented in investing activities). The Fund also used $9.0 million to pay distributions to unitholders. Finally, bank advances and advances from the Non-controlling Unitholder contributed by $5.5 million of the $33.7 million. Investing activities used $38.8 million of cash. As previously mentioned, business acquisitions used up to $37.2 million of this amount. Finally, $1.6 million were used for capital expenditures. As at December 31, 2006, the net cash position of the Fund amounted to $1.2 million and is detailed as follows:
2006
IN THOUSANDS OF DOLLARS AS AT DECEMBER 31
Cash and cash held in trust $ 8.2 Bank advances (7.0) Net cash $ 1.2
Cash held in trust amounting to $4.2 million was reserved for a business acquisition concluded on January 1, 2007. 49 It should be noted that the 220-day period extending from May 25, to December 31, 2006 is shorter than the Fund’s normal annual cash flow cycle and is not representative of the Fund’s cash flow over a normal annual cycle. 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 operations. The credit facility available to GENIVAR LP consists of a revolving term facility of up to $40 million (or the US dollar equivalent thereof). The credit facility has a three-year term from Closing. The credit facility may be used for general corporate purposes and to finance future acquisitions. With respect to acquisitions, certain conditions as to, inter alia, the nature of the acquired business, level of interest acquired, financial covenants and security, will have to be met to the satisfaction of the Bank of Montreal (the «Lender»). On each anniversary of the Closing, the term of the credit facility can be extended at GENIVAR LP’s request for an additional one-year period, subject to the prior approval of the Lender and payment of an extension fee.
Management’s Discussion & Analysis GENIVAR INCOME FUND
The credit facility is secured by a first priority security interest and hypothec over the universality of movable assets of GENIVAR LP, GENIVAR Ontario Inc. and, to the extent required by the Lender, GENIVAR LP’s other present and future subsidiaries and GENIVAR LP’s general partner, with each such entity, as the case may be, providing a first priority security interest and hypothec over the universality of its movable assets, subject to certain exclusions and permitted liens as well as by a first priority pledge by the Trust over the Units of GENIVAR LP held by the Trust. As of December 31, 2006, the Fund had total borrowings of $15.8 million. From this amount, $7.0 million were financed by the bank and, as per agreed upon by the Fund and the Lender, $8.8 million by the Non-controlling Unitholder. The interest rate applied is identical to the one used by the Lender. As of December 31, 2006, the Fund had $8.2 million cash in trust and cash on hand.
FORMATION OF THE FUND On May 25, 2006, the Fund completed an initial public offering («IPO»). Pursuant to the IPO, including the exercise by the underwriters of an over-allotment option to purchase 1,000,000 Units, the Fund issued a total of 11,000,000 Units to the public in exchange of proceeds amounting to $110 million. 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. 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. («GENIVAR GP»), 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 in which the Fund indirectly holds 11,000,000 Class A partnership units, representing a 58.12% interest. The Non-controlling Unitholder holds 3,195,536 Class B partnership units (the “Non-subordinated Exchangeable LP Units”) and 4,731,845 Class C partnership units of GENIVAR LP (the «Subordinated Exchangeable LP Units»), together representing the remaining 41.88% interest in GENIVAR LP. The Non-subordinated Exchangeable LP Units are exchangeable at any time into Units on a one-for-one basis, subject to an adjustment. The Subordinated LP Units are exchangeable, no earlier than July 1, 2008, into Units, on a one-for-one basis, subject to an adjustment. In addition, the Non-controlling Unitholder holds 7,927,381 Special Voting Units of the Fund. These Special Voting Units are the only ones currently outstanding. Each Special Voting Unit will be cancelled upon the exchange of a Non-subordinated Exchangeable LP Unit or Subordinated LP Unit. 50
FINANCIAL INFORMATION
Disclosure controls 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 and/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, 2006 to ensure that material information relating to the Fund would have been known to them.
Management’s Discussion & Analysis GENIVAR INCOME FUND
Internal control over financial reporting Internal control over financial reporting (ICFR) is designed to provide reasonable assurance regarding the reliability of the Fund’s financial reporting and its compliance with GAAP in its financial statements. The Chief Executive Officer and Chief Financial Officer have evaluated whether there were changes to its ICFR during the period from May 25, to December 31, 2006 that have materially affected, or that are reasonably likely to materially affect its ICFR. No such changes were identified through their evaluation.
CRITICAL ACCOUNTING POLICIES
Estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles 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 period. Significant estimates include purchase price allocation resulting from business acquisitions, the allowance for doubtful accounts receivable, costs and anticipated profits in excess of billings, the useful life of property, plant and equipment and intangible assets, billings in excess of costs and anticipated profits and certain accrued liabilities such as bonuses and litigation. Actual results could differ from those estimates.
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. 51 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 are 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. Revisions of estimates are reflected in the accounts on a periodic basis and all foreseeable losses are included in earnings, when it is determined that such losses are estimated to be likely to occur. Deferred revenue represents a deposit on a contract received in advance.
Goodwill and intangible assets Acquisitions have been a key component of the growth strategy of the Fund. The purchase price of acquired companies is determined based on a number of factors including the operating cash flows, the ability of management to grow revenues and cash flows, the service offering, the competitive position, the cultural compatibility with our organization, and our judgment. Service companies are not capital intensive. Therefore, the majority of the purchase price is allocated to goodwill and intangible assets. Intangible assets generally result from the customer relationships, contract backlogs, non-competition agreements and trade name of the acquired companies. Such evaluations are largely subjective and involve significant assumptions. The amount of intangible assets is recorded on the balance sheet and amortized over the expected useful life of the asset. The trade name is an indefinite-lived intangible asset and accordingly is not subject to amortization. Any balance of purchase price that is unallocated is recorded as goodwill.
Management’s Discussion & Analysis GENIVAR INCOME FUND
Pursuant to current accounting rules, 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. We performed these tests at year-end. The impairment test was accomplished mainly by determining whether the fair value of a reporting unit, based primarily upon the discounted cash flows 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. Further to this exercise, we concluded that our goodwill was not impaired.
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.
New accounting standards
Financial Instruments The CICA issued Section 3855 of the CICA Handbook, Financial Instruments - Recognition and Measurement. The section is effective for fiscal years beginning on or after October 1, 2006. It describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives.
52 This section requires that: • All financial assets be measured at fair value, with some exceptions such as loans and investments that are classified as held to maturity; • All financial liabilities be measured at fair value if they are derivatives or classified as held for trading purposes. Other financial liabilities are measured at their carrying value; • All derivative financial instruments be measured at fair value, even when they are part of a hedging relationship. The CICA has also reissued Section 3860 of the CICA Handbook as Section 3861, Financial Instruments - Disclosure and Presentation, which establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. These revisions come into effect for fiscal years beginning on or after October 1, 2006. These new accounting standards are not expected to have a significant effect on the Fund’s financial results.
Management’s Discussion & Analysis GENIVAR INCOME FUND
FINANCIAL INSTRUMENTS Cash, cash held in trust, accounts receivable, advances to companies controlled by the Non-controlling Unitholder, bank advances, accounts payable and accrued liabilities, advances payable to the Non-controlling Unitholder and distributions payable to unitholders are financial instruments whose fair values approximate their carrying value due to their short-term maturity or to variable interest rates. Financial instruments which potentially subject the Fund to significant credit risk consist principally of accounts receivable. The distribution of the Fund’s customers and the business risk management procedures have the effect of avoiding any concentration of credit risk. 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 on-going credit reviews of all its customers and establishes an allowance for doubtful accounts when accounts are determined to be uncollectible.
RELATED PARTY TRANSACTIONS During the period ended December 31, 2006, the Fund entered into the following transactions with related parties:
2006 POST-IPO Q4
FOR THE PERIOD FOR THE PERIOD MAY 25 TO OCTOBER 1 TO DECEMBER 31 DECEMBER 31 (AUDITED) (UNAUDITED)
IN THOUSANDS OF DOLLARS 53
Companies controlled by the Non-controlling Unitholder
Revenues $ 2,137 $ 1,210 Costs $ 355 $ 205 Marketing, general and administrative expenses $ 150 $ 74 Non-controlling Unitholder Marketing general and administrative expenses $ 99 $ 39 Net interest expense $ 282 $ 72
The Fund uses the services of companies controlled by the Non-controlling Unitholder, to realize certain contracts as well as the Fund is a subconsultant of those companies in certain projects. Companies controlled by the Non-controlling Unitholder offer construction services. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed upon by the related parties, taking in account the fair market value of comparable goods and services.
Management’s Discussion & Analysis GENIVAR INCOME FUND
In the last quarter, the Fund also retained the services of one of these companies to realize the extension of an existing building on Des Gradins Boulevard. Both the Fund and the Construction company occupy the building and the Construction company pays rent to the Fund based on square-footage at current market rates. Some administrative employees and directors of the Fund also work for the Non-controlling Unitholder and its subsidiaries, and the cost related to these employees is charged to them. The Fund was granted some advances by the Non-controlling Unitholder. The interest rate applied is identical to the one used by the Lender. As at December 31, 2006, advances amounted to $8.8 million. On December 1, 2006, the Fund acquired all of the assets and liabilities of Martoni, Cyr & Associates («Martoni»), a Quebec-based engineering consulting firm previously owned by GENIVAR inc. The purchase price of $4.0 million was fully settled in cash. On the same day, GENIVAR inc. had acquired all of the outstanding shares of Martoni for a consideration of $4.0 million.
OFF-BALANCE SHEET AGREEMENTS There were no off-balance sheet agreements.
COMMITMENTS The following table provides a summary of our contractual obligations and should be read in conjunction with notes 6, 20 and 23 to our consolidated financial statements as of December 31, 2006.
2007 2008 2009 2010 2011 Thereafter 54
IN THOUSANDS OF DOLLARS
Lease commitments $ 4,698 $ 3,092 $ 2,472 $ 2,390 $ 2,295 $ 6,176 Costs to complete building $ 1,558 - - - - - under construction 1 Closing payments for acquisitions $ 10,650 $ 150 - - - - completed after year-end 2
FOREIGN CURRENCY FORWARD CONTRACTS Since the Fund operates outside Canada, it is exposed to currency risks as a result of potential exchange rate fluctuations, mainly in Trinidad and Tobago. In order to reduce the potential negative impact of fluctuations in the Canadian dollar, the Fund entered into foreign currency forward contracts during the period to cover future sales anticipated in US dollars. Pursuant to these foreign currency forward contracts, the Fund is required to sell US dollars at a pre- determined rate. As at December 31, 2006, the Fund held foreign currency forward contracts to exchange $1.250M US in the next five months at an average exchange rate of CAN$1.09/US$1. The fair value of these foreign currency forward contracts amounts to $0.09 million and is classified as liabilities even if not realized as at December 31, 2006.
1 This amount relates to a $2.6 million construction project to expand square footage of the main office in Quebec City, from 45,000 square feet to 65,000 square. feet. In relation with this construction project, GENIVAR sold its second building in February 2007 for an amount of $0.5 million and cancelled a lease for office space in the vicin- ity. This was part of the strategy of the Fund to regroup the employees in a single office space and creating a cost-effective synergy. Since the project has been financed by way of the current credit facilities, the Fund believes that there will be no material impact on future cash distributable. 2 Closing payments are related to acquisitions of Cochrane Design Group, Kazmar Associates and Groupe G.L.D. inc. and will be financed using the Fund’s credit facilities.
Management’s Discussion & Analysis GENIVAR INCOME FUND
SUBSEQUENT EVENTS On May 30, 2006, the Fund accepted an offer to sell a building, which was concluded on February 7, 2007. The Fund’s building, situated at 780 Louis XIV, Quebec City, was sold at its net carrying value for a cash consideration of $0.5 million (see commitments above-note 1). On December 20, 2006, the Fund entered into an agreement, effective on January 1, 2007, providing for the acquisition of certain assets of Cochrane Design Group («CDG»), a Western Canada-based engineering consulting firm, for a consideration of $4,7 million settled as follows: a cash amount of $4,2 million and the issuance of a note payable to the vendors in the amount of $0.5 million. On January 9, 2007, the Fund entered into an agreement effective on January 1, 2007, providing for the acquisition of certain assets of Kazmar Associates («Kazmar»), an Ontario-based engineering consulting firm, for a consideration of $2.1 million settled as follows: a cash amount of $1.8 million and a balance of purchase price of $0.3 million. On February 22, 2007, the Fund entered into an agreement, effective on February 24, 2007, providing for the acquisition of all assets and liabilities of Groupe G.L.D. inc. («GLD»), a Quebec-based engineering consulting firm previously owned by GENIVAR inc., for a cash amount of $4.0 million. On March 12, 2007, the board of directors of GENIVAR GP inc. and the trustees of the Fund approved, in relation to the long-term incentive plan, the pur- chase of Units on the market for an amount totalling $0.8 million.
RISK FACTORS The results of operations, business prospects and the financial condition of the Fund are subject to a number of risks and uncertainties and are affected by a number of factors outside of our control. This may cause a decline of the price of the Units and our ability to make distributions on the Units could be adversely affected.
55 Income tax matters The Fund will evaluate the potential consequences of the new rules proposed on October 31, 2006 and the draft legislation released for comment on December 21, 2006, concerning the income trust structure, as presented by the Minister of Finance of Canada. The rules applicable to publicly traded trusts and partnerships will be significantly modified. In particular, certain income of (and distributions made by) these entities will be taxed in a manner similar to income earned by (and distributions made by) a corporation. These rules will be effective in 2011 for the trusts whose units were publicly traded prior to November 1, 2006, which is the case for the Fund. At such time, as the proposed rules apply to the Fund, the distributable cash of the Fund may be reduced and such reduction may be material.
Management’s Discussion & Analysis GENIVAR INCOME FUND
Ability to Maintain Profitability and Manage Growth There can be no assurance that our business and growth strategy will enable us to sustain profitability in future periods. Our future operating results will depend on a number of factors, including our ability to continue to successfully execute the strategic initiatives. Our growth strategy depends, in part, on our ability to: • offer a full range of Engineering Services; • successfully cross-sell additional services to existing clients and attract new clients; • consolidate our position in the provinces of Quebec and Ontario as well as identify and acquire suitable acquisition candidates in order to expand into other regions; and • successfully integrate acquired businesses with existing operations. There can be no assurance that we will be successful in achieving our strategic plan or that our strategic plan will enable us to maintain our historical revenue growth rates or to sustain profitability. Failure to successfully execute any material part of our strategic plan could have an adverse effect on our business, financial condition and results of operations as well as our ability to make distributions on the Units.
Reputation Risk We depend to a large extent on our relationships with our clients and our reputation for high-quality Engineering Services. Therefore, if a client is not satisfied with our services, it may be more damaging in our business than in other businesses. Moreover, our success depends in large part on whether we effectively fulfill our contractual obligations towards our clients and keep our clients satisfied. If we fail to satisfactorily perform our contractual obligations or address performance issues, or make professional errors in the services that we provide, and then clients may terminate projects, exposing us to legal liability, loss of our professional reputation and risk of loss or reduced profits or, in some cases, a loss on that project. We also depend on our reputation as an Engineering 56 Services firm that abides by the highest ethical standards. As a result, if one of our employees commits unethical actions in order, for example, to obtain a contract, we may be subject to legal liability or loss of client relationships.
Reliance on Key Professionals Our operations are dependent on the abilities, experience and efforts of our professionals, many of whom have significant reputations and contacts in the industry in which we operate. Should any members of our professional staff be unable or unwilling to continue their relationship with us, this may have a negative impact on our operations and our ability to effectively make distributions on the Units.
Management’s Discussion & Analysis GENIVAR INCOME FUND
Shortage of Engineers Our success depends in part on our 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 we will be able to attract, hire and retain a sufficient number of engineers necessary to continue to sustain existing activities and future growth of our business. Our potential inability to attract, hire and retain a sufficient number of engineers could limit our ability to sustain and increase revenues.
Fixed-Price Negotiated Fee Contracts A portion of our revenues comes from fixed-price negotiated fee contracts. Under fixed-price negotiated fee contracts, we agree 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 us to a number of risks not inherent in hourly basis contracts, including underassessment of fees, ambiguities in specifications, unforeseen difficulties, problems with new technologies, delays beyond our control and economic or other changes which may occur during the contract period. Increasing use of fixed-price negotiated fee contracts and/or the increasing scope of such contracts would increase our exposure to these risks. Losses under fixed-price negotiated fee contracts could have a material adverse effect on our business, financial condition and results of operations as well as our ability to make distributions on the Units. Further details are provided in the “RISK FACTORS” section of the Fund’s prospectus dated May 16, 2006.
57
Management’s Discussion & Analysis Consolidated Financial Statements
DECEMBER 31, 2006 IN THOUSANDS OF DOLLARS GENIVAR INCOME FUND
Management’s 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 2 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 59 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/s.r.l./s.e.n.c.r.l., 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 and Chairman of the Board Chief Financial Officer
Montreal, Canada March 12, 2007 GENIVAR INCOME FUND
Auditors’ Report TO THE UNITHOLDERS OF GENIVAR INCOME FUND
We have audited the consolidated balance sheet of GENIVAR Income Fund as at December 31, 2006 and the consolidated statements of earnings, deficit and cash flows for the period from May 25, to December 31, 2006. These consolidated 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 audit.
We conducted our audit 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, 2006 and the results of its operations and its cash flows for the period from May 25, to December 31, 2006 in accordance with Canadian generally 60 accepted accounting principles.
Chartered Accountants Quebec City, Quebec, Canada March 12, 2007
Consolidated Financial Statements GENIVAR INCOME FUND
CONSOLIDATED BALANCE SHEET
IN THOUSANDS OF DOLLARS AS AT DECEMBER 31, 2006 $ Assets
Current assets Cash 3,986 Cash held in trust (note 23) 4,200 Accounts receivable (notes 5 and 8) 51,445 Income taxes receivable 87 Costs and anticipated profits in excess of billings (note 8) 17,910 Advances to companies controlled by the non-controlling unitholder 105 Prepaid expenses 708 78,441
Property, plant and equipment (notes 6 and 23) 12,126
Intangible assets (note 7) 41,834
Goodwill (note 3) 116,437 61 248,838 Liabilities
Current liabilities Bank advances (note 8) 6,957 Accounts payable and accrued liabilities (note 9) 28,585 Advances payable to the non-controlling unitholder 8,763 Income taxes payable 166 Billings in excess of costs and anticipated profits 10,783 Future income tax liabilities (note 16) 690 Distributions payable to unitholders (note 13) 2,365 58,309 Future income tax liabilities (note 16) 1,734
Non-controlling interest (note 10) 79,073 139,116 Unitholders' Equity
Fund units (note 11) 110,000
Deficit (278)
109,722 248,838 Commitments and contingencies (notes 6 and 20)
Subsequent events (note 23)
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Trustees, (signed) Pierre Shoiry , Trustee / (signed) Pierre Seccareccia ,Trustee
Consolidated Financial Statements GENIVAR INCOME FUND
CONSOLIDATED STATEMENT OF DEFICIT
IN THOUSANDS OF DOLLARS FOR THE PERIOD FROM MAY 25, TO DECEMBER 31, 2006 $
Balance as at May 25, 2006 -
Net earnings for the period 6,344 Declared distributions to unitholders (note 13) (6,622)
Balance as at December 31, 2006 (278)
62
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements GENIVAR INCOME FUND
CONSOLIDATED STATEMENT OF EARNINGS
IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA FOR THE PERIOD FROM MAY 25, TO DECEMBER 31, 2006 $
Revenues 109,781
Costs 68,876
Gross margin 40,905
Expenses Marketing, general and administrative 23,063 Depreciation of property, plant and equipment 1,245 Amortization of intangible assets 5,391 Net interest expense (note 15) 404 Exchange loss 98 30,201
Earnings before income tax recovery and non-controlling interest 10,704
63 Income tax recovery (note 16) 211
Earnings before non-controlling interest 10,915
Non-controlling interest (note 10) (4,571)
Net earnings for the period 6,344
Basic net earnings per unit 0.58 Weighted average number of units (note 12) 11,000,000
Diluted net earnings per unit 0.58 Diluted weighted average number of units (note 12) 18,927,381
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements GENIVAR INCOME FUND
CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS OF DOLLARS FOR THE PERIOD FROM MAY 25, TO DECEMBER 31, 2006 $ Cash flows from operating activities Net earnings for the period 6,344 Items not affecting cash Depreciation and amortization 6,636 Future income taxes (332) Non-controlling interest 4,571
17,219
Change in non-cash working capital items (note 17a) (3,887)
13,332
Cash flows from financing activities Bank advances contracted 4,148 Increase in advances to the non-controlling unitholder 1,310 Repayment of note payable (note 3) (62,768) 64 Issuance of units 110,000 Redemption of units from the non-controlling unitholder (10,000) Distributions paid to unitholders (5,705) Distributions paid to the non-controlling unitholder (3,324)
33,661
Cash flows from investing activities Business acquisition, less net cash acquired (note 3) (37,171) Advances to companies controlled by the non-controlling unitholder (105) Additions to property, plant and equipment (note 17b) (1,323) Proceeds from disposal of property, plant and equipment 52 Acquisition of software (note 17b) (260)
(38,807)
Increase in cash 8,186
Cash as at May 25, 2006 -
Cash as at December 31, 2006 * 8,186
Additional information (note 17b) Interest paid 194 Interest received (41) Income taxes paid 327
* Cash as at December 31, 2006 consists of cash and cash held in trust. The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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 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, the general partner of GENIVAR LP. GENIVAR LP and its subsidiaries, GENIVAR Ontario Inc., Genivar (Trinidad Tobago) Ltd. and GENIVAR Consultants Limited Partnership offer services ranging from planning to execution and including conceptual and development studies, feasibility and economic studies, preliminary engineering and detailed design, plans and specifications, work supervision as well as environmental planning. On May 25, 2006, the Fund issued, pursuant to an initial public offering (“IPO”), 10,000,000 units for proceeds of $100,000. On June 5, 2006, the underwriters exercised their over-allotment option in full through the issuance of 1,000,000 additional units for proceeds of $10,000. Transaction-related costs were paid by GENIVAR SEC. The Fund has indirectly acquired, through the Trust, 11,000 000 Class A LP units of GENIVAR LP representing a 58.12% interest. The Fund began its operations on May 25, 2006. Since its incorporation on March 31, 2006, it has not carried on any business, except for the issuance of initial units.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of estimates 65 The preparation of financial statements in conformity with Canadian generally accepted accounting principles 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 period. Actual results could differ from those estimates.
Consolidation and joint ventures These financial statements include the accounts of the Fund, the Trust, GENIVAR LP and its subsidiaries. The Fund conducts certain projects 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. All significant intercompany transactions and balances have been eliminated. The Fund does not own any interests in variable interest entities.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
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. 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. Revisions of estimates are reflected in the accounts on a periodic basis and all foreseeable losses are included in earnings, when it is determined that such losses are estimated to be likely to occur. Deferred revenue represents a deposit on a contract received in advance (note 9).
Property, plant and equipment 66 Property, plant and equipment are recorded at cost and are depreciated as follows:
METHODS RATES AND PERIODS Buildings Declining balance 4% and 10% Building under construction -- Leasehold improvements Straight-line Lease term Furniture and equipment Declining balance 20 % Computer equipment Declining balance 30 % Automotive equipment Declining balance 30 %
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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. 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. The other intangible assets are amortized as follows:
METHODS RATES AND PERIODS Software Declining balance 30 % Customer relationships Straight-line 10 and 14 years Sum-of-the-years-digits 7 years Contract backlogs Straight-line 1 to 2 years Non-competition agreements Straight-line 4 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. 67 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.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
Income taxes Under the terms of the Income Tax Act (Canada), the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to a unitholder. Accordingly, no provision for current income taxes for the Fund is made. In addition, the Fund is not subject to the recommendations of Canadian Institute of Chartered Accountants (CICA) Handbook Section 3465, Income Taxes regarding future income tax recognition, as the Fund is contractually committed to distribute to its unitholders all or virtually all of its taxable income and taxable capital gains that would otherwise be taxable in the Fund. The Fund intends to continue to meet the requirements under the Income Tax Act (Canada) applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements. On December 21, 2006, Canada's Minister of Finance released draft legislative proposals to implement a tax on distributions from publicly traded income trusts and partnerships. In that regard, the government proposed a four-year transition period for existing income trusts and partnerships until their 2011 taxation year. The impact for the Fund cannot be determined yet but it might be significant should the bill be passed. Two Fund's operating subsidiaries are subject to CICA Handbook Section 3465 and to corporate income taxes as computed under the prescribed legislation. 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 based 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.
Earnings per unit 68 Earnings per unit are calculated by dividing net earnings by the weighted average number of units outstanding during the period. For the purposes of the weighted average number of units outstanding, units are determined to be outstanding from the date they are issued.
Foreign currency forward contracts The Fund's foreign currency forward contracts do not qualify for hedge accounting. Accordingly, these contracts are accounted for at fair value, and any subsequent variation in the fair value is allocated to earnings.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
3. BUSINESS ACQUISITIONS During the period, the Fund made the following business acquisitions: (i) Upon the closing that occurred on May 25, 2006, GENIVAR LP acquired certain operating assets related to GENIVAR Engineering Services Business as well as all of the outstanding shares of GENIVAR Ontario Inc. and GENIVAR (Trinidad Tobago) Ltd. directly or indirectly held by GENIVAR inc., the non- controlling unitholder. The purchase price amounting to $189,274 has been settled as follows: a cash amount of $37,232, a note payable of $62,768 and the issuance of 4,195,536 exchangeable LP units and 4,731,845 subordinated LP units having respective values of $41,955 and $47,319 (note 10). (ii) On December 1, 2006, GENIVAR LP acquired all of the assets and liabilities of Martoni, Cyr & Associates ("Martoni"), a Quebec-based engineering consulting firm previously owned by GENIVAR inc. The purchase price of $4,000 was fully settled in cash. On the same day, GENIVAR inc. had acquired all the outstanding shares of Martoni for a consideration of $4,000.
69
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
The purchase price allocation of GENIVAR shown below is based on an independent valuation report. The purchase price allocation of Martoni is preliminary but the Fund does not anticipate any significant changes in the final purchase price allocation.
GENIVAR Martoni Total $$$ Assets acquired Current assets Cash 4,061 - 4,061 Accounts receivable 42,567 1,191 43,758 Income taxes receivable 159 - 159 Costs and anticipated profits in excess of billings 17,799 658 18,457 Prepaid expenses 1,210 112 1,322
65,796 1,961 67,757
Property, plant and equipment 10,876 242 11,118
70 Intangible assets 45,766 929 46,695
122,438 3,132 125,570
Liabilities assumed Current liabilities Bank advances (2,791) (18) (2,809) Accounts payable and accrued liabilities (25,417) (1,558) (26,975) Income taxes payable (445) - (445) Billings in excess of costs and anticipated profits (8,295) - (8,295) Advances payable to the non-controlling unitholder (7,282) (171) (7,453)
(44,230) (1,747) (45,977)
Future income tax liabilities (2,756) - (2,756) (46,986) (1,747) (48,733)
Net identifiable assets acquired 75,452 1,385 76,837 Goodwill 113,822 2,615 116,437
Purchase price including acquisition-related costs of $9,200 of GENIVAR 189,274 4,000 193,274
Less: Cash acquired (4,061) - (4,061) Note payable (62,768) - (62,768) LP units (note 10) (89,274) - (89,274)
Net cash used for the acquisitions 33,171 4,000 37,171
These 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.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
4. INVESTMENTS IN JOINT VENTURES The following is a summary of the Fund's proportionate share in the assets, liabilities, revenues, costs and cash flows of the joint ventures, included in the consolidated financial statements:
$ Statements of earnings Revenues 15,612 Costs 11,180
Gross margin 4,432
Statements of cash flows Cash flows provided from operating activities 2,751
Current assets Cash 2,242 Accounts receivable 6,942 Costs and anticipated profits in excess of billings 2,043 71
Total assets 11,227
Current liabilities Accounts payable and accrued liabilities 4,252 Billings in excess of costs and anticipated profits 1,980 Advances to the non-controlling unitholder 2,881
Total liabilities 9,113
5. ACCOUNTS RECEIVABLE
$
Trade receivables * 50,486 Companies controlled by the non-controlling unitholder 959
51,445
*Trade receivables include holdbacks amounting to $1,275.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
6. PROPERTY, PLANT AND EQUIPMENT
COST ACCUMULATED DEPRECIATION NET VALUE $$$ Land 525 - 525 Buildings 3,430 82 3,348 Building under construction 1,042 - 1,042 Leasehold improvements 1,165 160 1,005 Furniture and equipment 3,770 428 3,342 Computer equipment 3,235 540 2,695 Automotive equipment 204 35 169
13,371 1,245 12,126
The building under construction consists of the expansion of an existing building for which the total cost is estimated at $2,600.
72 7. INTANGIBLE ASSETS
COST ACCUMULATED AMORTIZATION NET VALUE $$$ Finite useful life Software 2,056 330 1,726 Customer relationships 27,051 1,235 25,816 Contract backlogs 11,508 3,522 7,986 Non-competition agreements 2,010 304 1,706
Indefinite useful life Trade name 4,600 - 4,600
47,225 5,391 41,834
During the period from May 25, to December 31, 2006, the Fund acquired intangible assets amounting to $47,225. Of this sum, an amount of $42,625 is subject to amortization.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
8. CREDIT FACILITIES The Fund has credit facilities totalling $42,100 allocated as follows:
Term facility Term facility of $40,000 for general corporate purposes, to allow for the financing of acquisitions and the payment of distributions to unitholders, the use of the credit facility for the payment of distributions to unitholders being limited to a maximum amount of $5,000. This credit facility has a three-year term and matures in May 2009. The term of the facility can be extended for one additional one-year period, subject to the prior approval of the lender. The credit facility is fully repayable at maturity without any prepayment penalties, except for banker's acceptances and LIBOR advances.
Treasury facility Demand facility of $2,000 to hedge against interest rate risks and foreign exchange risks.
Credit card Corporate credit card in the amount of $100. These credit facilities are secured by a first hypothec over the universality of movable assets and bear interest at prime rate, U.S. base rate or LIBOR rate plus an applicable margin that will vary depending on the type of advance and total consolidated debt to earnings before interest, tax, depreciation and amortization ratio, as defined in the credit agreement. Under these credit facilities, the Fund is required, among other conditions, to respect certain covenants, which have been met as at December 31, 2006. As of December 31, 2006, the Fund issued, in the normal course of business, irrevocable letters of credit totalling $253 for its own commitments, thus 73 decreasing such available credit facilities.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
$ Trade payables and accrued liabilities 27,299 Companies controlled by the non-controlling unitholder 1,083 Deferred revenue 113 Fair value of foreign currency forward contracts (note 19) 90
28,585
10. NON-CONTROLLING INTEREST As at December 31, 2006, the non-controlling interest is as follows:
NON-SUBORDINATED EXCHANGEABLE LP UNITS SUBORDINATED LP UNITS TOTAL Number $ Number $ $ 74 Units issued pursuant to the business acquisition (note 3) 4,195,536 41,955 4,731,845 47,319 89,274
Units disposed of upon exercise of over-allotment option (1,000,000) (10,000) - - (10,000)
Share in earnings attributable to the non-controlling unitholder - 1,842 - 2,729 4,571
Distributions - (1,923) - (2,849) (4,772)
Balance as at December 31, 2006 3,195,536 31,874 4,731,845 47,199 79,073
The Non-Subordinated Exchangeable LP Units and Subordinated LP Units are economically equivalent to Class A LP Units held by the Trust, except that distributions on Subordinated LP Units will be made only at the end of the quarter provided that GENIVAR LP has made a monthly distribution of at least $0.0833 per unit to the holders of Class A LP Units and of Non-Subordinated Exchangeable LP Units and that any distribution deficiency during the last twelve months has been settled. The Non-Subordinated Exchangeable LP Units will be exchangeable for Units on a one-for-one basis (subject to customary anti-dilution protections). The Subordinated LP Units will be exchangeable for Units at any time after the Subordination End Date on a one-for-one basis (subject to customary anti-dilution protections), which date cannot occur before July 1, 2008. The Subordinated LP Units may also be exchanged for Units before the Subordination End Date in certain specified circumstances. As at December 31, 2006, an amount of $1,449 has been accounted for as distributions payable to unitholders.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
11. UNITHOLDERS' EQUITY An unlimited number of Units and an unlimited number of Special Voting Units may be issued pursuant to the Fund 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, however, be redeemed by the holder at any time for an amount related to the quoted market price, cash redemptions being limited to $50 per month.
Issued and paid
UNITS Number $
Balance as at May 25, 2006 10 - Issuance of units pursuant to the IPO 10,000,000 100,000 Over-allotment 1,000,000 10,000
Redemption of units (10) - 75
Balance as at December 31, 2006 11,000,000 110,000
Special Voting Units The Special Voting Units will not be entitled to any right to 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 Non-Subordinated Exchangeable LP Units, Subordinated LP Units of GENIVAR LP 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 Non-Subordinated Exchangeable LP Units or Subordinated 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 Non-Subordinated Exchangeable LP Units or Subordinated 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 Non-Subordinated Exchangeable LP Units or Subordinated LP Units (or other exchangeable securities) to which the Special Voting Unit relates. Upon the exchange of the Non-Subordinated Exchangeable LP Units or Subordinated 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 Non-Subordinated Exchangeable LP Unit and Subordinated LP Unit issued by GENIVAR LP. As at December 31, 2006, 7,927,381 Special Voting Units are outstanding and are classified as non-controlling interest.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
12. EARNINGS PER UNIT The following table reconciles the basic net earnings to the diluted net earnings:
$
Basic net earnings 6,344 Non-controlling interest 4,571
Diluted net earnings 10,915
The following table reconciles the basic weighted average number of units outstanding to the diluted weighted average number of units outstanding:
Weighted average number of: Units 11,000,000 GENIVAR LP Units 7,927,381
Diluted weighted average number of units outstanding 18,927,381
76 13. 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 the 15th day following the end of each month
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
14. LONG-TERM INCENTIVE PLAN ("LTIP") The officers and key employees of GENIVAR are eligible to participate in GENIVAR LP's LTIP. The purpose of the LTIP is to reward officers and key employees for significant performance and associated per Unit cash flows growth of the Fund. Pursuant to the LTIP, GENIVAR LP will set aside a pool of funds based upon the amount, if any, by which the Fund's per Unit distributions exceed certain defined per Unit distribuable cash threshold amounts. GENIVAR LP or director of GENIVAR GP Inc. ("the GP Director") appointed to administer the LTIP will purchase Units in the market with this pool of funds and will hold the Units until such time as ownership vests in each participant. Generally, one-third of these Units will vest equally over the three years following the grant of the awards. LTIP participants will be entitled to receive distributions on all Units held for their account prior to the applicable vesting date. Unvested Units held by the GP Director for an LTIP participant will be forfeited if the participant resigns or is terminated for cause prior to the applicable vesting date, and those Units will be sold and the proceeds returned to GENIVAR LP. The board of directors of GENIVAR GP Inc. or any other authorized committee will have the power to, among other things (i) determine those individuals who will participate in the LTIP, (ii) determine the level of participation of each participant, and (iii) determine the time or times when LTIP awards will vest or be paid to each participant. Initially, the LTIP will provide for awards that may be earned based on the amount by which Distributable Cash per annum per Unit (calculated on a fully-diluted basis) exceeds a base threshold per Unit per annum. The percentage amount of that excess will be determined in accordance with the table below:
PERCENTAGE BY WHICH DISTRIBUTABLE CASH MAXIMUM PROPORTION OF DISTRIBUTABLE CASH PER UNIT EXCEEDS THE BASE THRESHOLD (1) AVAILABLE FOR LTIP PAYMENTS 5% or less 10% of any excess up to 5% 77 Over 5% to 10% 10% of the first 5% and 15% of any excess over 5% but not exceeding 10% Greater than 10% 10% of the first 5% and 15% of any excess over 5% but not exceeding 10% and 20% of any excess over 10%
Until December 31, 2008, the base threshold will be $1.00 per Unit. After December 31, 2008, the board of directors of GENIVAR GP Inc. or any other authorized committee will review and assess the base threshold.
(1) Annualized for fiscal periods of less than twelve months.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
15. NET INTEREST EXPENSE
$
Interest on bank advances 194 Interest on advances payable to the non-controlling unitholder 282 Interest income (72)
404
16. INCOME TAXES The reconciliation of the income tax expense with the income tax recovery per the financial statements is as follows:
$
Earnings before income tax recovery 10,704 Fund's earnings not subject to income taxes (10,885) 78
(181)
Combined Canadian federal and provincial statutory tax rate 36.12 %
Income taxes based on statutory income tax rates (65) Non-deductible expenses 6 Foreign tax rate differences (29) Effect of change in tax rate (76) Other (47)
(211)
Current 121 Future (332)
( 211)
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
As at December 31, 2006, the significant components of future income tax assets and liabilities are as follows:
$ Future income tax assets Deductible provision upon settlement 117 Cumulative eligible capital deduction 4 Non-capital losses 558 Future income tax liabilities Costs and anticipated profits in excess of billings (807) Property, plant and equipment and software (161) Customer relationships and contract backlogs (2,135)
Future income taxes, net (2 424)
Classified as: Current future income tax liabilities (690) Long-term future income tax liabilities (1,734) 79
(2,424)
As at December 31, 2006, a Fund's subsidiary has accumulated non-capital losses totalling $1,631. These losses, which can be carried forward in the future, will expire as follows:
EXPIRY DATE $
2022 21 2023 91 2024 1 2025 1,518
GENIVAR LP's taxable earnings will be taxable in the hands of LP unitholders. The effect of temporary tax differences of taxable subsidiaries is reflected in these consolidated financial statements. GENIVAR LP's net deductible temporary differences amount to $22,967, which are not recognized in these consolidated financial statements.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
17. STATEMENT OF CASH FLOWS (a) Change in non-cash working capital items
$
Accounts receivable (7,687) Income taxes receivable 72 Costs and anticipated profits in excess of billings 547 Prepaid expenses 614 Accounts payable and accrued liabilities 358 Income taxes payable (279) Billings in excess of costs and anticipated profits 2,488
(3,887)
(b)Operating and investing activities not affecting cash
Accounts payable of $982 for additions to property, plant and equipment and of $270 for acquisitions of software. 80
18. RELATED PARTY TRANSACTIONS During the period, the Fund entered into the following transactions with related parties:
$
Companies controlled by the non-controlling unitholder Revenues 2,137 Costs 355 Marketing, general and administrative expenses 150 Non-controlling unitholder Marketing, general and administrative expenses 99 Net interest expense 282
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. At the end of the period, the amounts due from and (to) related parties have arisen from the transactions referred to above.
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
19. FINANCIAL INSTRUMENTS Fair value Cash, cash held in trust, accounts receivable, advances to companies controlled by the non-controlling unitholder, bank advances, accounts payable and accrued liabilities, advances payable to the non-controlling unitholder and distributions payable to unitholders are financial instruments whose fair values approximate their carrying value due to their short-term maturity or to variable interest rates.
Credit risk Financial instruments which potentially subject the Fund to significant credit risk consist principally of accounts receivable. The distribution of the Fund's customers and the business risk management procedures have the effect of avoiding any concentration of credit risk. 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 on-going credit reviews of all its customers and establishes an allowance for doubtful accounts when accounts are determined to be uncollectible.
Interest risk As at December 31, 2006, the Fund's exposure to interest rate risk is summarized as follows:
Cash Variable interest rate Cash held in trust Variable interest rate 81 Accounts receivable Non-interest bearing Advances to companies controlled by the non-controlling unitholder Prime rate Bank advances Variable interest rate Accounts payable and accrued liabilities Non-interest bearing Advances payable to the non-controlling unitholder Prime rate Distributions payable to unitholders Non-interest bearing
Foreign exchange risk Since the Fund operates outside Canada, it is exposed to currency risks as a result of potential exchange rate fluctuations, mainly in Trinidad and Tobago. In order to reduce the potential negative impact of fluctuations in the Canadian dollar, the Fund entered into foreign currency forward contracts during the period to cover future sales anticipated in US dollars. Pursuant to these foreign currency forward contracts, the Fund is required to sell US dollars at a predetermined rate. As at December 31, 2006, the Fund held foreign currency forward contracts to exchange, during the next five months, US$1,250 at an average rate of CAN$1.09/US$1. These foreign currency forward contracts, whose fair value amounts to $90, have been classified as liabilities (note 9).
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
20. 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 $4,698 in 2007, $3,092 in 2008, $2,472 in 2009, $2,390 in 2010, $2,295 in 2011 and $6,176 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. The Fund takes out a professional liability insurance policy in order to hedge against such proceedings. Based on advice and information provided by its legal advisors and on its experience of 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.
21. EMPLOYEE FUTURE BENEFITS The Fund participates in a defined contribution retirement savings plan. Pursuant to this plan, the Fund pays a contribution equivalent to the employee contribution up to a maximum of 2% of the employee 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 $488 for the period from May 25, to December 31, 2006.
82
Consolidated Financial Statements GENIVAR INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2006 (IN THOUSANDS OF DOLLARS, EXCEPT THE NUMBER OF UNITS AND PER UNIT DATA AND UNLESS OTHERWISE STATED)
22. SEGMENT INFORMATION (a) Major customers During the period from May 25, to December 31, 2006, one customer represents 10% of the Fund's consolidated revenues. Our economic dependence on this customer is reduced by the fact that the latter consists of numerous decision units, each of which being responsible for awarding a portion of such customer's contracts. (b)Market segments The Fund is organized into market segments, which 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, urban infrastructure, transportation, industrial and power and environment. Each market segment presents similar long-term financial performance and the same long-term economic conditions and characteristics. Each of them has comparable operating margins. Therefore, given these similarities, the Fund's management aggregates its market segments into one reporting segment..
23. SUBSEQUENT EVENTS On May 30, 2006, the Fund accepted an offer to sell a building, which was concluded on February 7, 2007. The Fund's building was sold at its net carrying value for a cash consideration of $448. On December 20, 2006, the Fund entered into an agreement, effective on January 1, 2007, providing for the acquisition of certain assets of Cochrane Design Group ("CDG"), a Western Canada-based engineering consulting firm, for a consideration of $4,700 settled as follows: a cash amount of $4,200 and the issuance of a note payable to the vendors in the amount of $500. 83 On January 9, 2007, the Fund entered into an agreement, effective on January 1, 2007, providing for the acquisition of certain assets of Kazmar Associates ("Kazmar"), an Ontario-based engineering consulting firm, for a consideration of $2,100 settled as follows: a cash amount of $1,800 and a balance of purchase price of $300. On February 22, 2007, the Fund entered into an agreement, effective on February 24, 2007, providing for the acquisition of all assets and liabilities of Groupe G.L.D. inc. ("GLD"), a Quebec-based engineering consulting firm previously owned by GENIVAR inc., for a cash amount of $4,000. On the same day, GENIVAR inc. had acquired all the outstanding shares of GLD for a consideration of $4,000. On March 12, 2007, the board of directors of GENIVAR GP inc. and the trustees of the Fund approved, in relation to the LTIP, the purchase of units on the market for an amount totalling $829 (note 14).
Consolidated Financial Statements GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Management Team
Pierre Shoiry QUEBEC ONTARIO President and Chief Executive Officer André Boudreault Brian Barber and Chairman of the Board Vice-President, Industrial Director, GENIVAR Ontario Inc.
CORPORATE Jean Boudreault Mamadreza Ettehadieh Marcel Boucher Vice-President, Environment Vice-President, Project Services Chief Financial Officer Roger Cyr Marc Rivard Louis-Martin Richer Director, Building Engineering Vice-President, Eastern Ontario Director, Legal Affairs Montreal Region and Corporate Secretary Gary Scott Pierre-André Dugas Director, GENIVAR Ontario Inc. Tony Veilleux Vice-President, Transportation Controller Anita Smith Ali Ettehadieh Vice-President, Central and Western Ontario 84 Robert Dandurand Vice-President, Project Services and International Vice-President, Administration BRITISH COLUMBIA Francis Gauthier J. Rob Harmer Jacques Angers Vice-President, Power Vice-President, Western Canada Director, Health and Safety Léandre Gervais Elisa Brandts Marlène Casciaro Vice-President, Abitibi-Temiscamingue and President, PBK Architects Inc. Director, Communications Northern Quebec Regions
Daryl Thomas Marcel Comtois André Lapointe Vice-President, British Columbia Director, Quality Vice-President, Building Engineering Eastern Quebec Region Louis Grenier MANITOBA Director, Information Technology Yves Lortie Bill Brant Vice-President, Urban Infrastructure Vice-President, Manitoba Normand Rheault Director, Human Resources François Perreault Vice-President, Western Quebec Region SASKATCHEWAN Dennis Rutten Éric Tremblay Vice-President, Saskatchewan Vice-President, Eastern Quebec Region INTERNATIONAL Ali Ettehadieh Vice-President, Project Services and International
Management Team GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Board of Trustees
85 Photo : Gilles Savoie
From left to right: Louis-Thomas Labbé, Pierre Seccareccia, Pierre Shoiry, Ali Ettehadieh and Daniel Fournier.
Ali Ettehadieh Pierre Seccareccia (1) (2) Vice-President, Project Services and international Corporate Director Fund Trustee Fund Trustee
Daniel Fournier (1) (2) President of ACNG Capital Inc. Pierre Shoiry Fund Trustee President and Chief Executive Officer and Chairman of the Board Lead Trustee Fund Trustee
Louis-Thomas Labbé (1) (2) President of Conseil CPGC Inc. Fund Trustee
(1) Member of the Audit Committee. (2) Member of the Corporate Governance, Nominating and Compensation Committee.
Board of Trustees GENIVAR INCOME FUND | 2006 ANNUAL REPORT
Main Offices
CANADA LAURENTIANS REGION ESTRIE REGION Michel Labelle Mario Blais Quebec 1–386 de Saint-Jovite Street 4152 Laval Street Mont-Tremblant, Quebec, Canada J8E 2Z9 Lac-Mégantic, Quebec, Canada G6B 1B3 MONTREAL REGION Telephone: (819) 425-3483 Telephone: (819) 583-5110 François Perreault Fax: (819) 425-9181 Fax: (819) 583-5991 5858 Côte-des-Neiges Road, 4th Floor Montreal, Quebec, Canada H3S 1Z1 Jean Labelle Telephone: (514) 340-0046 3–436 de la Madone Street SAGUENAY–LAC-ST-JEAN REGION Fax: (514) 340-1337 Mont-Laurier, Quebec, Canada J9L 1S3 Errol Fillion Telephone : (819) 623-3302 125 Racine East Street André Boudreault Fax : (819) 623-7616 Saguenay, Quebec, Canada G7H 1R5 1400–2001 University Street Telephone: (418) 698-4488 Montreal, Quebec, Canada H3A 2A6 Fax: (418) 698-6677 Telephone: (514) 284-3565 QUEBEC CITY REGION Fax: (514) 282-8505 Éric Tremblay Martin Larose 5355 des Gradins Blvd. 202–1125 Sacré-Cœur Blvd. Roger Cyr Quebec City, Quebec, Canada G2J 1C8 Saint-Félicien, Quebec, Canada G8K 1P6 900–2120 Sherbrooke East Street Telephone: (418) 623-2254 Telephone: (418) 679-2151 86 Montreal, Quebec, Canada H2K 1C3 Fax: (418) 624-1857 Fax: (418) 679-9245 Telephone: (514) 596-1300 Fax: (514) 598-1315 Alain Pleau 120–100 Road 138 LOWER ST. LAWRENCE REGION Ciro Martoni Donnacona, Quebec, Canada G3M 1B5 Caroline Beaudoin 2197 Sherbrooke East Street Telephone: (418) 285-2007 D–35 Saint-Louis Street Montreal, Quebec, Canada H2K 1C8 Fax: (418) 285-3100 Rivière-du-Loup, Quebec, Canada G5R 2V3 Telephone: (514) 596-1000 Telephone: (418) 862-6636 Fax: (514) 596-1463 Fax: (418) 862-6425 CHAUDIÈRE-APPALACHES REGION Yanick Bouchard Claude Vaugeois 600–2525 Daniel-Johnson Blvd. 825 Commerciale Street OUTAOUAIS REGION Laval, Quebec, Canada H7T 1S9 Lévis, Quebec, Canada G6Z 2E1 Claude Marquis Telephone: (450) 686-0980 Telephone: (418) 839-1733 500 Gréber Blvd., 3th Floor Fax: (450) 686-0987 Fax: (418) 839-8407 Gatineau, Quebec, Canada J8T 7W3 Telephone: (819) 243-2827 Gilles Blier Claude Létourneau Fax: (819) 243-2019 200–2405 Fernand-Lafontaine Blvd. 200–1112 de la Rive-Sud Blvd. Longueuil, Quebec, Canada J4N 2M7 Lévis, Quebec, Canada G6W 5M6 Telephone: (450) 679-7220 Telephone: (418) 834-4040 MAURICIE REGION Fax: (450) 670-9076 Fax: (418) 834-4088 Luc M. Fleury 300–3450 Gene-H.-Kruger Blvd. Gilles Roy Martin Lacombe Trois-Rivières, Quebec, Canada G9A 4M3 9–89 Don Quichotte Blvd. 200–11505 1st Avenue East Telephone: (819) 375-1292 L’Île-Perrot, Quebec, Canada J7V 6X2 Saint-Georges, Quebec, Canada G5Y 7X3 Fax: (819) 375-1217 Telephone: (514) 453-1621 Telephone: (418) 228-8041 Fax: (514) 453-9305 Fax: (418) 228-8045 Stéphane Boudreau 323 Saint-François Street Christian Faubert La Tuque, Quebec, Canada G9X 1S2 203–200 MacDonald Street CENTRE-DU-QUEBEC REGION Telephone: (819) 523-9469 Saint-Jean-sur-Richelieu, Quebec, Canada J3B 8J6 Jean Beauchesne Fax: (819) 523-8770 Telephone: (450) 359-7070 101–1001 Bernier Street Fax: (450) 359-7066 Drummondville, Quebec, Canada J2C 6T5 Telephone: (819) 477-3609 Fax: (819) 477-32977
Offices Information to Unitholders
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 2001University Street Room 1600 Montreal, Quebec, Canada H3A 2A6 Tel.: 1-800-387-0825 www.cibcmellon.com
Auditors PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
Head Office 5858 Côte-des-Neiges Road 4th Floor Montreal, Quebec, Canada H3S 1Z1 Tel.: 514-340-0046 www.genivar.com
Annual Meeting The Annual Unitholders’ Meeting will be held at 10:30 a.m. on Thursday May 17, 2007 at : Montreal Convention Centre 201 Viger Street West Room 523 Montreal, Quebec, Canada
For additional information, please contact: GENIVAR’s Communications Department 5858 Côte-des-Neiges Road 4th Floor Montreal, Quebec, Canada H3S 1Z1 Tel.: (514) 340-0046 Fax : (514) 340-1337
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