Theleadingmultidisciplinary
providerofindependent
realestateconsultingand
professionaladvisoryservices,
worldwide.
UNITHOLDERS’REPORT
FortheyearendedDecember31,2010
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
The following management discussion and analysis (“MD&A”) is intended to assist readers in understanding
Altus Group Income Fund (“Fund” or “Altus”), its business environment, strategies, performance and the risk
factorsoftheFund.Itshouldbereadinconjunctionwiththeconsolidatedfinancialstatementsandaccompanying
notes (“financial statements”) of the F
und for the year ended December
31, 2010, which have been prepared in
accordance with Canadian Generally Accepted Accounting Principles (GAAP) and are reported in Canadian
dollars.Unlessotherwiseindicatedherein,referencesto“$”aretoCanadiandollars.
Unless otherwise indicated or the context otherwise requires, “Fund” or “Altus” refers to Alt
us Group Income
Fund, “Tru
st” refers to Altus Operating Trust, “Altus GP” refersto Altus GroupGeneral Partner Corporation,
“GeomaticsGP”referstoAltusGeomaticsGeneralPartnerCorporation,“AltusLP”referstoAltusGroupLimited
Partnership, “Altus Limited” refers to Altus Group Limited, ”Altus Advisory” refers to Altus Group A
dvisory
Services Limited, “Altus Residential
” refers to Altus Residential Limited, “Altus Geomatics” refers to Altus
Geomatics Limited Partnership, “Altus Geomatics BC” refers to Altus Geomatics Land Surveying BC Limited,
“Altus Paralegal” refers to Altus Group Tax Consulting Paralegal Professional Corporation, “Altus Group UK”
referstoAltusGroup(UK)Limited,“Altus GroupUK2”referstoAltu
sGroup(UK2)Limited,“AltusUKLLP
”
refers to Altus UK Limited Liability Partnership, ”Altus Ireland” refers to Altus Group (Ireland) Professional
Consulting Limited, “Altus Group US” refers to Altus Group U.S. Inc., “PPTL” refers to Physical Planning
TechnologiesLtd.,“AltusHawaii”referstoAltusGroup(Hawaii)Inc.
,“AltusGroupAsiaPacific”referstoAltus
Grou
pAsiaPacificLimited,“AltusVietnam”referstoAltusGroup(Vietnam)Limited,“AltusHongKong”refers
to Altus Group (Hong Kong) Limited, “Altus Shanghai” refers to Altus Construction Consultancy (Shanghai)
Limited,“AltusSingapore”referstoAltusGroup(Singapore)PrivateLimited,“AltusIndia”referstoAltusGro
up
(India)PrivateLimited,“AltusAustralia”referstoAlt
usGroupAustraliaPtyLtd.,“AltusAustraliaConsulting”
refers to Altus Group Consulting Pty Limited, “Altus ACT” refers to Altus Group (A.C.T.) Pty Ltd, “PK
Queensland” refers to Page Kirkland Queensland Pty Ltd., “Altus Australia Cost” refers to Altus Group Cost
Mana
gement Pty Limited, “Altus Thailand” refers
to Altus Group Consulting (Thailand) Co. Ltd., “Altus
Holdings Thailand” refers to Altus Group Management Holdings (Thailand) Co., Ltd., “Altus Construction
Thailand”referstoAltusGroupConstructionProfessionalsThailandCo.Ltd., “AltusServicesThailand”refersto
AltusGroupServices(Thailand)Co. Ltd.,“Altus Egy
pt”refers toAltusGroupEgyptLLC, “AltusAsia Pacific”
refers
totheFund’soperationsin theAsiaPacificregion, “AltusUK”refers to theFund’sUKoperations,“Altus
US” refers to the Fund’s operations in the USA, “Altus Canada” refers to the Fund’s Canadian operations and
“AltusNorthAmerica”re
ferstothecombinedUSandCanadian
operations.
OnJanuary1,2011,theFundcompletedaplanofarrangementwhichallowedfortheconversionoftheFundfrom
an income trust structure into a corporation. The new corporation is named Altus Group Limited and it will
continuetooperatethebusinessofth
eFund.Refertosubsequenteventsonpage39
.
ThisMD&AisdatedasofMarch23,2011.
Forward‐LookingStatements
Certain statements in this MD&A may constitute “forward‐looking” statements, which involve known
andunknownrisks,uncertaintiesand other factors,which maycause theactualresults, performance or
achievements of the Fund and its subsidiary entities, to be materially different from any future results,
performance or achievements expressed or implied by such fo
rward looking statements. When used in
1
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
this MD&A, such statements use words such as “may”, “will”, “expect”, “believe”, “plan”, “would”,
“could”and other similar terminology. These statements are not guarantees of future performance and
aresubjecttonumerousrisksanduncertaintieswhichcouldcauseactualresultstodiffermateriallyfrom
the forward‐looking statements, including those described in the Fun
d’s publicly filed documents,
including
the AnnualInformationForm(which areavailableonSEDARat www.sedar.com
)and inthis
document under “Key Factors Affecting the Business”. Those risks and uncertainties include: general
stateoftheeconomy;dependenceonoilandgassector;competitionintheindustry;abilitytoattractand
retain professionals; interest rate risk; currency risk; credit risk; ability to maintain profitability and
manage growth; revenue and ca
sh flow volatility;
dependence on Canadian multi‐residential market;
integration of acquisitions; protection of intellectual property; weather; fixed‐price and contingency
engagements; performance of obligations / maintenance of client satisfaction; appraisal mandates;
customerconcentration;restrictionsonpotentialgrowth;operatingrisks;riskoffuturelegalproceedings;
legislative and regulatory changes; and, insur
ance limits. Given th
ese risks and uncertainties, investors
should not place undue reliance on forward‐looking statements as a prediction of actual results. These
statementsreflectmanagement’scurrentexpectationsregardingfutureeventsandoperatingperformance
andspeakonlyasofthedateofthisMD&A.Althoughtheforward‐lookingstatementscontainedinthi
s
MD&Aarebaseduponwhatmanagementbelievestobereason
ableassumptions,theFundcannotassure
investors that actual results will be consistent with these forward‐looking statements. These forward‐
lookingstatementsaremadeasofthedateofthisMD&Aand,exceptinaccordancewithapplicablelaw,
the Fund assumes no obligat
ions to update or revise them to reflect new events or circumstance
s.
Additionally, the Fund undertakes no obligation to comment on analyses, expectations or statements
madebythirdpartiesinrespectoftheFund,itsfinancialoroperatingresults,oritssecurities.
Non‐GAAPMeasures
The Fund uses non‐GAAP measures that are generally used by Canadian open‐ended income funds as
indicators of financial performance. Readers are cautioned that they are not defined performance
measures under GAAP and may differ from similar computations as reported by other similar entities
and, accordingly,may not be comparableto fin
ancialmeasures as reported by those entities. The Fund
believestha
tthesemeasures areusefulsupplementalmeasuresthat mayassistinvestorsinassessing an
investmentinunitsoftheFund(“Units”).
Earnings before Interest, Taxes, Depreciation, Amortization and Non‐Controlling Interest,
(“EBITDA”), represents revenue less disbursements, salaries, general and administrative expenses but
beforeint
erest,taxes,depreciati
on,amortization,non‐controllinginterestandequityaccountedearnings
(loss).RefertoResultsofOperationsonpage17.
DistributableCashiscalculatedinaccordancewiththeinterpretiverelease“StandardizedDistributable
Cashin IncomeTrusts andOther Flow‐throughEntities” issued by the Canadian Institute of Cha
rtered
Accountants.RefertoDistributableCashonpa
ge33.
1. Standardized Distributable Cash is defined as the periodic cash flows from operating activities as
reported in the GAAP financial statements, including the effect of changes in non‐cash working
capitalandanycashflowsfrom(usedin)discontinuedoperations,lessprov
isionsfor:
a. capitalexpenditures,including
principalpaymentsoncapitalleases;and,
2
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
b. restrictionsondistributionsarisingfromcompliancewithfinancialcovenants.
2. Adjusted Distributable Cash is defined as Standardized Distributable Cash adjusted for investing
andfinancingactivities,suchas:
a. theeffectofchangesinnon‐cashworkingcapital;
b. incometaxes;
c. debtobligations;
d. funding of long‐term unfunded contractual ob
ligations, such as unfunded pension
oblig
ationsandassetretirementobligations;and,
e. funding of property, plant and equipment and intangible assets with debt or equity
financing.
APayoutRatioiscalculatedforbothStandardizedDistributableCashandAdjustedDistributableCash,
defined as the declared distributions to unitholders divided by Standardized Distribut
able Cash and
AdjustedDistributableCash,asa
ppropriate.RefertoDistributableCashonpage33.
OverviewoftheFund
Asof December31, 2010, the Fundis anunincorporated,open‐ended, limited purposetrust established
underthelawsoftheProvinceofOntario,CanadathatindirectlyownsorcontrolsAltusLimited,Altus
Geomatics, Altus Residential, Altus Advisory, Altus Group US, PPTL, Altus Hawaii, Altus Vietnam,
AltusHongKong,AltusShanghai,Alt
usSingapore,AltusIndia,AltusAustraliaConsulting,AltusACT,
PK Queensland, Altus Austral
ia Cost, Altus Holdings Thailand, Altus Construction Thailand, Altus
ServicesThailandandAltusUKLLP,allofwhichconstitutetheoperatingentities.
The Fund owns all the issued and outstanding units and notes of the Trust. The Trust is an
unincorpor
ated,open‐ended,limitedpurp
osetrustestablishedunderthelawsoftheProvinceofOntario,
Canada.TheTrustwascreatedtoacquireandholdClassAlimitedpartnershipunitsofAltusLP.
AltusLPisalimitedpartnershipformedunderthelawsoftheProvinceofManitoba,Canada.TheFu
nd
owns 100% of the shares of Altus GP, the genera
l partner of Altus LP. Altus LP was created to acquire
and hold the investments in Altus and related businesses. Altus LP owns 100% of the shares of Altus
Limited.
The Altus LP Class B limited partnership units are held by the vendors of ac
quired businesses, certain
employees and the Altus Investors Management Partnershi
p. They are exchangeable into Units of the
Fund on a one‐for‐one basis, subject to adjustment, in accordance with the terms of the Exchange
Agreement.Inaddition,theholdersoftheClassBlimitedpartnershipunitsho
ldSpecialVotingUnitsof
theFund,oneforeachClassB
limitedpartnershipunitofAltusLP,whicharecancelledwhentheAltus
LPClassBlimitedpartnershipunitsareexchangedintoUnitsoftheFund.TheseSpecialVotingUnitsare
theonlyspecialvotingunitsoftheFundcurrentlyout
standing.
Altus Limited was forme
d under the laws of the Province of Ontario, Canada on the amalgamation of
predecessoroperatingentities.AltusLimitedowns100%ofthesharesofAltusGroupUK,AltusIreland,
Altus Group US, Altus Advisory, Altus Residential and Altus Group Asia Pacific. Altus Limited also
owns49
%ofthesharesofGeomaticsGPand99
.9%ofthelimitedpartnershipunitsofAltusGeomatics.
3
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Altus Advisory was formed under the laws of the Province of Ontario, Canada to provide services in
Canadaasreceiver‐managerformortgagesinpossessionandtrusteeundertheConstructionLienActof
thevariousprovinces.
AltusResidentialwasformedunderthelawsoftheProvinceofOntario,Canadatoprovideco
llateraland
riskmanagementservicesinCanad
a.
Altus Geomatics is a limited partnership formed under the laws of the Province of Alberta, Canada.
Geomatics GP isthe general partnerof Altus Geomatics. AltusGeomaticsBCwasformed in April2009
underthelawsoftheProvinceofBritishColumbia,Canadatoall
owAltusGeomaticstoprovidesurvey
services
in British Columbia in compliance with the regulations of the Association of British Columbia
LandSurveyors.
AltusParalegalwasformedunderthelawsofOntario,Canadaandincompliancewiththeregulationsof
theLawSocietyofUpperCanada(asdefinedintheLawSocietyAct).EffectiveMay1,200
8,therealtytax
consultingpracticeinOntario,Ca
nadawasreorganizedasaseparateprofessionalcorporationtocomply
withtherulesandregulationsoftheLawSocietyActandtheconsultantshavebeenlicensedasparalegals.
AltusGroupUKwasformedunderthelawsofEngland& Wa
lestoacquireandholdtheinvestment
sin
AltusGroupUK2andAltusUKLLP.AltusGroupUKownsallthesharesofAltusGroupUK2,formed
under the laws of England & Wales. Altus UK LLP was formed under the laws of England & Walesto
acquire the business assets of busine
sses domiciled in the United Kingdom (“UK”). Altus Group UK
ownsalltheClas
sAlimitedliabilitypartnershipunitsandAltusGroupUK2ownsalltheClassClimited
liability partnership units in Altus UK LLP. The Class B limited liability partnership units of Altus UK
LLPare heldby thevendorsof ac
quiredbusinesses who
are alsocurrent member‐partnersofAltusUK
LLP.ThebeneficialownersoftheClassDlimitedliabilitypartnershipunitsofAltusUKLLParecertain
employeesofAltusUKLLP.EachAltusUKLLPClassBandClassDlimitedliabilitypartnershipunitis
enti
tled to an allocation from profits of Al
tus UK LLP in an amount equal to the cash distributions
declared and paid on each Altus LP Class B limited partnership unit in respect of the same accounting
period,butotherwisehavenoadditionalinterestintheequityofAltusUKLLP
.
AltusIrelandwasformedunderthelawsofIrelandtoproviderealestateconsultingservicesinIreland.
Altus Group US wa
s formed under the laws of the state of Delaware, USA, to acquire and hold
investments or the business assets of businesses domiciled in the USA. Altus Group US ow
ns 100% of
PPTL,AltusHawaii,Altu
sGroup LLC and Altus Group ULC. PPTL was formed under the laws of the
stateofDelaware,USA,tocarryonthebusinessofCapitalPlanningSolutionsInc.(“CPSI”)intheUSA.
AltusHawaiiwasacquiredaspartofthePageKirklandGroupacquisition.
Altus Group LLC wa
s formed under the laws of the state of Del
aware, USA. Altus Group ULC was
formedunderthelawsoftheProvinceofNovaScotia,Canada.Thesecompanieswereformedtofacilitate
intercompanyfinancing.
4
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
AltusGroupAsiaPacificwasformedunderthelawsoftheProvinceofOntario,Canada,toacquireand
hold the investment in businesses domiciled in the Asia Pacific region, including those of the Page
KirklandGroup.AltusGroupAsiaPacificowns100%ofthesharesofAltusAustralia,AltusHongKong,
AltusTh
ailan
d,AltusViet
n
am,AltusSi
ngaporean
dAltus
India.Altus
GroupAsiaPacificalsoowns85%
ofthesharesofAltusEgypt.
Altus Australia was formed under the laws of the state of Victoria, Australia to acquire and hold the
investments in Altus Australia Consulting and Altus ACT. Altus Australia ow
ns 100% of the shares of
AltusAustraliaConsultingandAl
tusACT.AltusAustraliaandAltusAustraliaConsultingtogetherown
100%ofthesharesofPKQueenslandandAltusAustraliaCost.PKQueenslandisintheprocessofbeing
restructuredintoAltusAustraliaConsultingandderegistered.
AltusAustraliaConsultingwasformedunderthela
wsofthestateofNewSouthWales,Austra
lia;Altus
ACT was formed under the laws of the Australian Capital Territory; Altus Australia Cost was formed
underthelawsofthestateofNewSouthWales,Australia;PKQueenslandwasformedunderthelawsof
thestateofNewSo
uthWales,Aus
tralia.
Altus Hong Kong was formed under the laws of Hong Kong and owns 100% of the shares of Altus
Shanghai.AltusShanghaiwasformedunderthelawsofthePeoples’RepublicofChinaandisregistered
asawhollyforeignownedenterprise.
Altus Thailand was formed un
der the laws of Thailand to acquire and hold the investment in Altus
Hold
ingsThailand.AltusThailandowns100%ofthesharesofAltusHoldingsThailand.AltusThailand
andAltusHoldingsThailandtogetherown100%ofthesharesofAltusConstructionThailandandAltus
Services Thailand. Altus Holdings Thailand, Altus Constructi
on Thailand and Altus Services Thailand
were
formedunderthelawsofThailand.
AltusVietnamwasformedunderthelawsofVietnam.
AltusSingaporewasformedunderthelawsofSingapore.
AltusIndiawasformedunderthelawsofIndia.
AltusEgyptwasformedunderthelawsofEgypt.
Disclosureco
ntrolsandproceduresandinternalcontro
lsoverfinancialreporting
Management of the Fund is responsible for establishing and maintaining disclosure controls and
procedures(“DC&P”)andinternalcontrolsoverfinancialreporting(“ICFR”),asthosetermsaredefined
inNationalInstrument52‐109‐CertificationofDisclosureinIssuers’AnnualandInterimFilings(“
NI52‐
109”),fortheFund.
Management has caused such DC&P
to be designed under its supervision to provide reasonable
assurancethatmaterialinformationrelatingtotheFund,includingitsconsolidatedsubsidiaries,ismade
5
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
known to the Chief ExecutiveOfficer and the Chief Financial Officer by others within those entities for
the period in which the annual filings were prepared. Further, such DC&P are designed to provide
reasonableassurancethatinformationrequiredtobedisclosedbytheissuerinitsannualfilings,interim
filings or other reports f
iled or submitted by it under securities legisla
tion is recorded, processed,
summarizedandreportedwithinthetimeperiodsspecifiedinsecuritieslegislation.
Managementhascaused such ICFR to bedesignedunder itssupervisionusingthe “COSO” framework
(“Committee of Sponsoring Organizations of the Treadway Commission”) to provide reasonable
ass
uranceregarding
thereliabilityoffinancialreportingandthepreparationoftheconsolidatedfinancial
statementsforexternalpurposesinaccordancewithGAAP.
Management has limited the scope of the design of DC&P and ICFR to exclude controls, policies and
procedures of a business, the PricewaterhouseCoopers’ US‐based Real Estate Appraisal Man
agement
Practice, which was acquired on
July 30, 2010. Financial information of the business acquired is
summarizedbelow.
SelectedBalanceSheetdata:
Inthousandsofdollars
December31,2010
CurrentAssets $4,224
LongTermAssets 488
CurrentLiabilities 621
IncomeStatementdata:
Inthousandsofdollars
FiveMonthsendedDecember31,2010
Revenues $6,291
Expenses 6,288
Netearnings(loss) 3
Thescopelimitationisinaccordancewithsection3.3(1)(b)ofNI52‐109,whichallowsanissuertolimitits
design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer
acquirednotexceeding365daysfromthedateofacquisition.
ManagementoftheFundha
scausedtobeevaluatedunderitssup
ervisiontheeffectivenessofitsDC&P
as of December 31, 2010, and has concluded that the design and effectiveness of these controls and
procedures provide reasonable assurance that material information relating to the Fund, including its
consolidated subsidiaries, was made known to management on a ti
mely basis to ensure adequat
e
disclosure.
ManagementoftheFundhascausedtobeevaluatedunderitssupervisiontheeffectivenessofitsICFRas
of December 31, 2010 using the COSO framework. Management has concluded that the overall design
6
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
and effectiveness of these controls provide reasonable assurance of the reliability of financial reporting
and the preparation of the consolidated financial statements for external purposes in accordance with
GAAP.
TherehavebeennochangesintheFund’sinternalcontrolsoverfinancialreportingthatoccurredduring
thefourth quarterof 2010,themost rec
entlycompleted interimperiod, that havematerial
lyaffected, or
arereasonablylikelytomateriallyaffect,theFund’sinternalcontrolsoverfinancialreporting.
TheAuditCommitteeandtheBoardofDirectorsofAltusGroupLimited(previouslytheTrusteesofthe
Fund)reviewedandapprovedthisMD&Aandtheconsolidatedfinancialst
atementsfortheyearended
December31,2010.
OverviewoftheIndustryandBusiness
Altus Group is a leading multidisciplinary provider of independent real estate consulting and
professional advisory services worldwide. Altus provides a broad range of services that support many
stagesof the real estate development cycle: Research,Valuation&Advisory; Cost Consulting & Project
Management;RealtyTax Consulting; andGeomatics.Each business unitis co
nsidereda leadingservice
providerwithinit
sspecificpracticearea.
Research,Valuation&Advisory(“RVA”
)
The valuation of offi
ce, retail, industrial and multi‐residential properties is an ongoing need of the real
estateindustry.Propertiesaretypicallyvaluedonaregularbasisasaresultofacquisitions,dispositions,
new financings, covenants of existing financings, expropriation and/or litigation and general portfolio
management. Res
earch is central to the valuation process and research‐based product offeri
ngs are
becominganimportantlineofbusiness.Itencompassesdatabasemanagement,analysisofleaseandsale
transactiondataandprovisionofcustomizedservices,suchasimpactanalysisofmergersonofficespace
demand, consolidation of tenant rosters and lease expiry sche
dules, feasibilit
y analysis, occupancy
strategies,assetbenchmarkingandvacancyforecasts.
CostConsulti
ng&ProjectManagement(“Cost”)
Accurate and reliable cost consulting and project management is inte
gral to the financial success of a
capital development project. Given the significant fluctuation in construction and development costs,
property developers and owners rely on cost consulting specialists to obtain the most efficient cost
structure for their property developme
nt projects and to understand and manage the ris
ks associated
withthedevelopmentcostsideofrealestate.Aswell,withinthecostconsultinggroup,capitalplanning
andinfrastructureadvisoryservicesaredesignedtoassistclientswithongoingsolutionstodevelopand
maintain the long‐term financial stability of their assets, both vertical and li
near. Project Management
coversthefo
urmainphasesofadevelopmentproject:initiationandconcept;planninganddevelopment;
implementationandexecution;andhandoverandevaluation.
RealtyTa
xConsulting(“RealtyTax”)
Property tax is typi
cally the largest cost in property ownership after debt‐service. Further, realty tax
regimes vary significantly between provinces and local jurisdictions. Given the magnitude and
7
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
complexity of this expense, property managers and owners are increasingly seeking professional
expertise to manage this cost. Equipped with a full spectrum of real estate tax consulting services, this
unit includes assessment appeal (including expert witness), tax due diligence, vacancy rebate counsel,
newconstruction/preliminarypropertyassessmentstudiesaswellason‐go
ingpropertyta
xmanagement
andbudgeting.
Geomatics
Geoma
tics is the practice of recording and ma
naging spatially referenced information, including land
surveying, geographic information systems (“GIS”), global positioning systems (“GPS”) and, more
recently,lightdetectionandranging(“LIDAR”).Landsurveysandgeomaticsservicesarefundamentalto
the ownership and management of land: setting property boundaries, confirming route and corrido
r
selection,landsettlementsurveys,mapp
ing,constructionandwellsitesurveys,andoilfieldsurveys.This
team of professionals, based in Western Canada, is engaged primarily in the exploration and
development activity in the oil and gas sector, as well as in pipeline and utility corridors, land
developmentandmunicipalsectors.
GeographicC
overage
At December 31, 2010, Altus had operations in 27 cities acro
ss Canada, 18 cities across Asia Pacific, 10
locationsintheUKandninecitiesintheUS.ConsultantsinNorthAmericaincluded:319advisorystaff
inRVA;176consultantsinCost;210advisorystaffinRealtyTax;and39
6professionalandtechnicalstaff
in Geomatics. Consultants in the UK include
d: 25 advisory staff in RVA; 8 consultants in Cost; and 65
advisorystaffinRealtyTax.ConsultantsinAsiaPacificincluded311consultantsinCost.
Clients
Altus’ clients includ
e prominent banking institutions, pension funds, in
surance companies, accounting
firms, public real estate organizations (including REITs), industrial companies as well as private
investors,assetandfundmanagers,realestatedevelopers,governmentalinstitutionsandfirmsintheoil
andgassector.
Revenue is largely fee‐based and Altus is typical
ly engaged on either an hourly‐based, fixed‐price or
contingency‐based arra
ngement. Altus is usually retained on a project‐by‐project basis, although some
clientshaveannualormulti‐yeararrangementsfortheprovisionofservices.
The Fund’s largest operating expense is compensation, including salaries, performance‐based bonuses,
benefitsandpa
yrolltaxes.Headcountisalso
adriveroftheFund’scapitalexpenditures.
GrowthS
trategy
TheFund’sabilitytoachieverevenue
growthandsustainprofitabilitydependsonitsabilitytoexecuteits
strategicplanandeffectivelymanageitsgrowth.TheFundhasidentifiedanumberofstrategiestogrowits
business, while maintaining its distributions. The Fund’s strategy for organic growth is based on cross‐
selling it
s broad range of servicesto ne
w and existing clients, leveraging its technology platform through
continuedimprovem en tsandinvestinginnewcapabilitiestoaddressgrowingbusinessneeds.Bytargeting
8
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
marketinginitiativesatclientsinbothnewgeographic areasand newindustries, Altus isabletogenerate
revenuegrowthacrossallbusinessunitsfurtherdiversifyingitsrevenuebase.
TheFundintendstocontinuetomakestrategicacquisitionsfromtimetotimetofurthergrowitsbusiness.
Such strategic acquisitions are intended to build on the Fund’s cu
rrent leadership position in real estate
advisory services in Canada
, the UK and the Asia Pacific region by continued regional and international
expansion. Supported by a comprehensive integration plan, these acquisitions complement existing
offeringsandextendAltus’professionalandgeographicreach.
9
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
OperatingHighlights
SelectedFinancialInformation FortheyearendedDecember31,
2010
2009 2008
Inthousandsofdollars,exceptforperunitamounts (audited) (audited) (audited)
Operations
Revenues$252,520$219,766$209,458
EBITDA 32,682 33,234 34,947
Netearnings(loss) 3,148 3,388 9,471
Earnings(loss)perunit:
Basic
Diluted
$0.16
$0.16
$0.18
$0.18
$0.55
$0.55
Weightedaveragenumberunits(‘000s):
Basic
Diluted
19,944
22,579
19,125
21,650
17,158
19,518
DistributableCash
(1)
Distributablecash:
Standardized
Adjusted
11,458
28,407
24,005
30,564
9,420
27,620
Distributionsdeclared 26,776 25,795 23,423
Distributionsdeclared,perunit $1.20 $1.20 $1.20
Weightedaveragenumberunits(‘000s):
FundUnits&Series1ClassBLPunits
Series2ClassBLPunits
19,954
2,359
19,136
2,359
17,160
2,359
Payoutratio:
Standardized
Adjusted
233.7%
94.3%
107.5%
84.4%
248.7%
84.8%
AtDecember31,
2010
(audited)
AtDecember31,
2009
(audited)
AtDecember31,
2008
(audited)
Balancesheet
Totalassets$380,054$339,448$319,265
Long‐termfinancialliabilities 139,185 83,602 37,604
(1) Distributable cash is calculated for the combined interest of the Fund’s Units and the Altus LP Class B limited partnership units in
accordance with theinterpretiverelease “StandardizedDistributableCashinIncomeTrustsandOther Flow‐through Entities” issued
bytheCICA.
The Fund was formed on May 19, 2005 when, pursuant to an Initial Public Offering (“IPO”), the Fund
issuedatotalof8,037,825Unitstothepublicforgrossproceedsof$80.4 millionandindirectlyacquired
all of the outstanding shares of the operating and holding companies of the predecessor operating
entities,AltusGroup,Hely
arGroupandDerbyshireViceroyConsultantsLimited(collective
lyreferredto
asthe“predecessoroperatingentities”)andindirectlyformedAltusLimited.
10
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
2008
Altus delivered on its strategic plan and enhanced its competitive position with eight acquisitions.
RevenuefortheyearendedDecember31,2008increased41%comparedto2007,ofwhichapproximately
28%is attributableto revenue from acquisitionsin 2008 and a full 12 months of revenue from the 2007
acquisitions. EBITDA for th
is period was $34.9 mill
ion, a margin of 16.7%, and net earnings were $9.5
million,a marginof4.5%.Distributionstounitholders,onadilutedbasis,were$23.4millionor$1.20per
unitforanadjustedpayoutratioof84.8%.
Totalconsiderationfortheeightacquisitionsin2008was$4
3.7millionincludin
gtheissueof29,544Fund
Unitsand489,339AltusLPSeries1ClassBlimitedpartnershipunits:
TheFundmadetwoacquisitionsintheemerging specialtyareaofseniorshousing.First,onFebruary1,
2008, the Fund indirectly acquired certain assets of HealthTrust Canada ULC, (“HealthTrust”) for
a
pproximately $3.5 million, subject to a
djustments. As partial consideration for such assets, the Fund
issued 22,921 Altus LP Series 1 Class B limited partnership units. In addition, the asset purchase
agreementprovidedthatmanagementwastoinvest$0.612millionin34,382AltusLPSeries 1ClassB
limited partnership uni
ts. Second, on March 1, 2008, the Fund indirectly acquired certain assets,
includingall
oftheintellectualproperty,of2038951OntarioLimited(“DougDorey”)forapproximately
$1.3million,subjecttoadjustments.Aspartoftheconsiderationforsuchassets,theFundissued19,933
AltusLPSeries1ClassBlimitedpartnershipunits.Thepra
cticesofHealthTrustandDougDoreywere
combined
and continue to operate as the Seniors’ Housing line of business in the RVA business unit,
assisting clients with site selection, product offering, expansion, exit strategies and property re‐
positioningwithrespecttoseniors’housing.
OnMarch1,2008,theFundindirect
lyacquiredcertainassets,includingalloftheint
ellectualproperty,
ofGéocomRechercheInc.(“Géocom ” ) forapproximately$3.3million,subjecttoadjustments.Aspartial
considerationforsuchassets,theFundissued33,2 22AltusLPSeries1ClassBlimitedpartnershipunits.
In addition, the asset purchase agreement provided that manage
ment was to invest $0.375 million in
20,763 Altus LP Series 1 Class B limited partnershi
p units. Géocom operates as Altus Géocom in the
RVAbusinessunit,providingretailresearchandmarketanalysis.
On May 30, 2008, the Fund indirectly acquired the Property Tax Practice, including the intellectual
property,ofDeloitt
eCanada(“Deloitte”)for
approximately$15.3million,subjecttoadjustments.With
approximately 80 employees in Vancouver, Calgary, Edmonton, Regina, Saskatoon, Winnipeg,
Toronto, Ottawa, London and Montreal, the acquisitionexpands the Fund’s Realty Tax presence in
Western Canada and broadens its client roster in the multi‐unit residential, commercial, industrial
andre
tailindustries.
OnJune1,20
08,theFundindirectlyacquiredcertainbusinessassetsofAndrewsGroup(“Andrews”)
forapproximately$5.4million,subjecttoadjustments.Aspartialconsiderat ionforsuchassets,theFund
issued29,544FundUnitsand59,087AltusUKLLPClassBlimitedliabilitypartnershipunits.Andrews
continuestooperateasAltusAndrew
s,adivisionofAltusUKLLP.BasedinLondonwithoperations
in Southamp
ton and Bracknell, Altus Andrews offers Cost Consulting & Project Management
11
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
services.Postclosing,therewasaconsensus thatthe UK economywasina recessionandhad been
hard hit by the combined meltdown in international financial conditions, impacting Britain’s
internationalfinancialsectorheavily,andadeflatingpropertymarket.Thiscontributedtoadifficult
business environment for Altus Andrews. Included in the total consider
ation of $5.4 million was a
holdback of $1.0 mi
llion, which would only be paid to the vendor if earnings exceeded a certain
thresholdontheone‐yearanniversary.Duringthefourthquarterof2008,itwasdeterminedthatthe
level of earnings could not be sustained and, therefore, the purcha
se price was adjusted by the
holdback of $1.0 m
illion with a corresponding adjustment to goodwill. In addition, the vendor of
AndrewsGroupresignedpriortoyearend.AsprovidedintheAltusUKLLPmembers’agreement,
theFundredeemedallofthe59,087AltusUKLLPClassBli
mitedliabilitypartnershipunitsissuedto
the vendor and recorded a paya
ble to the vendor as part of the overall consideration paid. The
adjusted consideration paid, as a result of the holdback adjustment and share redemption, was
approximately $4.3 million. The proceeds owing to the vendor for the purchase of the Cla
ss B LLP
unitswillbeheldbytheFundforatwoyearperiodspecifiedinthemembers’agreementandpa
idto
thevendorprovidinghedoesnotcompetewithAltusUKLLPnorsolicitclientsorstaff.
OnAugust1,2008,theFundindirectlyacquiredcertainbusinessassetsofCo
mmercialDataSolutions
Corp.(“Space4Lease”) for
approximately$1.2 million,subject toadjustments. Aspartialconsideration
forsuchassets,theFundissued22,509AltusLPSeries1ClassBlimitedpartnershipunits.Space4Lease
isaVancouver‐basedcompanythatoffersofficemarketinformationtotheCanadiancommercialreal
estatesector
.ByexpandingAltus’currentoffer
ings,Space4LeasesupplementsAltus’existingleading
realestateinformationserviceprovider,AltusInSite.
The Fund made two acquisitions in the specialty area of technology platforms for vertical and linear
infrastructure capital planning. First, on November 1, 2008, the Fund indirectly acquired certain
businessassetsofCa
pitalPlanningSolutionsInc.(“CPSI”)forappr
oximately$13.9million,subjectto
adjustments.Aspartialconsiderationforsuchassets,theFundissued335,609AltusLPSeries1Class
B limited partnership units. The agreement provides for an additional purchase payment to a
maximumof$13,640ifearningsexceedacertainthresholdontheone‐ye
aranniversary.Fortheyear
endedDecember31,2008,thisam
ounthasnotbeenincludedasapartofthetotalpurchasepriceas
the level of earnings could not be determined without a reasonable doubt. PPTL, a company
incorporatedinDelaware,USA,wasacquiredwiththebusinessassetsofCPSI.T
hen,onDecember1,
2008theFundindi
rectlyacquiredcertainbusinessassets ofHarfanTechnologies Inc.(“Harfan”)for
approximately$0.88million,subjecttoadjustments.CPSIoperatesasAltusCapitalPlanning,alineof
businessintheCostbusinessunit.HarfanwasintegratedintoAltusCapitalPlanning. AltusCa
pital
Planningis dedicated to deve
loping capital planning systemsfor organizations lookingfor effective
strategiestomanagetheircapitalspendinginrealestateandinfrastructureassetsportfolios.
Harfan
added the ability to provide infrastructure management software products targeted to North
Americanmunicipalities.
Altus recorded two purchase price adjustments in 2008 related to 2007 acquisitions. A purchase price
adjustment was finalized with respect to Edwin Hill for $1.02 million, payable in cash, which was
recordedasanadjustmenttogoodwill(su
chpaymentwaspreviouslyaccrued
asabonus).Additionally,
12
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Altusaccruedanestimateofa purchase price adjustmentwith respectto Crape for $0.62millionwhich
wasrecordedasanadjustmenttogoodwill.Considerationforthepurchasepriceadjustmentwouldbein
AltusLPSeries1ClassBlimitedpartnershipunitsorcash.Thepurchasepriceadjustmentwithrespectto
Cra
p
ewa
ssubjecttonegotiationwiththevendor.
On
Jul
y2, 200
8,the Fund completeda priva
t
eequity placementof 2,250,000 units forgross proceedsof
$41.0 million. The units issued pursuant to this offering are subject to a four‐month hold period under
Canadian securities laws. On July 3, 200
8, $4.5 million was repaid on the Revo
lving Operating Facility,
$34.2millionwasrepaidontheRevolvingTermFacilityand$1.5millionwasretainedtofinancenetwork
infrastructureimprovements.
On July 29, 2008, the Fund issued 30,000 Altus LP Series 1 Class B limited partnership units, valued at
$0.5 million, to the former owners of All We
st Surveys Ltd., pursuant to an amendment to the
combinationagreementorigin
allydatedApril24,2006.
BeginningMay1,2008,allparalegalsprovidingʺlegalservicesʺinOntario(asdefinedintheLawSocie
ty
Act) must be licensed and may only provide such legal se
rvices through a sole proprietorship,
partnership or professional corporation (incorporated under the Business Corporatio
ns Act (Ontario)).
Effective May 1, 2008, the realty tax consulting practice in Ontario was reorganized as a separate
professional corporation to comply with these rules and regulations and the consultants have been
licensedasparalegals.
2009
Altus continued to deliver on its strategic plan and enhance its competitive position with two
acquisitions. Revenu
e for the year ended December 31, 2009 increase
d 5% compared to 2008, of which
approximately16%is attributableto revenue fromacquisitionsin 2009 anda full12 months of revenue
fromthe2008acquisitions.EBITDAforthisperiodwas$33.2million,amarginof15.1%,andnetearnings
were$3
.4million,amarginof1.5%.Distrib
utionstounitholders,onadilutedbasis,were$25.8millionor
$1.20perunitforanadjustedpayoutratioof84.4%.
Totalconsiderationforthe2009acquisitionswas$39.7millionincludingtheissueof758,144FundUnits
and130,909AltusLPSeries1ClassBli
mitedpartnershipunits:
On May 1, 2009, the Fund indi
rectly acquired certain business assets of Suvius Inc. (“Suvius”) for
approximately$5.1million,subjecttoadjustments.Aspartialconsiderationforsuchassets,theFund
issued 130,909 Altus LP Series 1 Class B limited partnership units. Suvius provided administrative
andfieldse
rvicessupporttoLennonTrilogyProfessional
LandSurveyors(“LennonTrilogy”).Altus
GeomaticswillcontinuetoprovideadministrativeandfieldservicessupporttoLennonTrilogy.
On July 31, 2009, the Fund indirectly acquired shares in certain businesses carried on by the Page
KirklandGroup(“PageKirkland”)forapproximately$34.6mil
lion,subjecttoadjustments.Aspartial
consideration for such shares,
the Fund issued 758,144 Fund Units. A holdback of $14.3 million
Australian Dollars is due within a two to three year period subject to certain performance targets
13
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
being achieved. Page Kirkland operated in eight countries across the Asia Pacific region and in
Hawaii, USA, providing services including cost management, project management, asset and
facilitiesmanagementanddevelopmentmanagement.
Altus finalized four purchase price adjustments in 2009 with respect to 2008 acquisitions. A purchase
price adjustment was finalized with respect to Deloit
te for $0.1 million, which was recorded as an
adju
stmenttogoodwill.ThefinalpurchasepriceadjustmentfortheCrapeacquisitionwas$1.1million,of
which $0.6 million had been accrued as at December 31, 2008. The additional $0.5 million payable
resulted in an increase to goodwill. This wa
s settled in cash of $0.5 million and the issu
ance of 46,791
AltusLPSeries1ClassBlimitedpartnershipunits.Apurchasepriceadjustmentwasalsofinalizedwith
respect to Géocom, resulting in a reduction to goodwill of $0.2 million. With respect to the CPSI
acquisition, there was a holdback of $1
.7 million, which would only be paid to the vendor if certain
performance targets were achieve
d. During the year, this amount was reversed, with a corresponding
adjustment to goodwill, as the amount of the holdback payable could not be determined beyond a
reasonabledoubt.Discussionsarecurrentlyunderwaywiththe vendorsofCPSIreg
ardingachievement
of these performance targets, which will
determine what, if any, final contingent consideration will be
payable.Totheextentthatthereisanadditionalpayment,thiswillresultinanincreasetogoodwill.This
wasoffsetbyapurchasepriceadjustmentforCPSIof$0.2mi
llion,whichwasrecordedasanincre
aseto
goodwill.
OnApril30,2009,theFundincreaseditsinvestmentinSolidifiInc.(“Solidifi”)by$3.0milliontoa19.55%
interest.Solidifi is a leadingprovider of single family residential appraisals, collateral riskmanagement
anddataanalyticservicestotheNorthAmericanfin
ancialservicesindust
ry.Solidifiprovidescustomers
with a flexible service platform for procuring collateral valuation, data solutions, and other real estate
services from marketplace vendors and appraisers, with complete transparency and data to make
“incrediblysmartdecisions”.InaccordancewithGAAP,Altushasadoptedtheequitymethodtoaccount
fortheSol
idifiinvestment.
Effective July 31, 2
009, the Fund amended its credit facilities, increasing the total credit facilities from
$82.5millionto$100.4millionovertheremainingterm.TheRevolvingOperatingFacilityincreasedfrom
$7.5 million to $12.5 million and the Revolving Term Facility increased from $75.0 million to $87.9
mill
ion.Theamendmentalsoresultedinanincreaseintheappl
icablemarginoverthefloatingrate,with
marginsrangingfrom0.5%to2.75%dependingonthefundeddebttoEBITDAratioandfacilityused.
2010
Altus continued to deliver on its strategic plan and enhance its competitive position with three
acq
uisitions.Revenue for the year ende
d December31, 2010increased 15% compared to 2009, of which
approximately13%is attributableto revenue fromacquisitionsin 2010 anda full12 months of revenue
fromthe2009acquisitions.EBITDAforthisperiodwas$32.7million,amarginof12.9%,andnetearnings
were$3
.1million,amarginof1.2%.Distrib
utionstounitholders,onadilutedbasis,were$26.8millionor
$1.20perunitforanadjustedpayoutratioof94.3%.
14
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Totalnetconsiderationforthethreeacquisitionsin2010was$20.6millionincludingtheissueof257,090
FundUnitsand9,868AltusLPSeries1ClassBlimitedpartnershipunits:
On June 1, 2010, the Fund indirectly acquired certain business assets of Brazos Tax Group LLP
(“Brazos”) for a pproximately $2.2 mi
llion, subject to adjustments. As partial consideration for such
ass
ets,theFundissued20,886FundUnits.Twoholdbacksof$0.1millionUSDollarseacharedueon
the first and second anniversary of the acquisition. Another holdback of $0.5 million US Dollars is
due on the second anniversary of the a
cquisition subject to certain performance targets being
achieved. Brazos was a US‐based prop
erty tax company providing services such as business and
personal property tax compliance and appeals, real estate valuation appeals and property tax
paymentadministrationandduediligence.
OnJuly2,2010,theFundindirectlyacquiredcertainbusinessasse
tsofPetersSurveysLtd.(“Peters”)
for approximately $1
.0 million, subject to adjustments. As partial consideration for such assets, the
Fundissued9,868AltusLP Series1 Class B limitedpartnershipunits. A holdback of $1.0 millionis
dueon September30,2011subject to certain performance targetsbeing achieved.Atthea
cquisition
date, only $0.6 million, $0
.5 million on a discounted basis, of this holdback was included in the
purchaseprice.Peterswasaprofessionallandsurveyingandplanningfirm,providingabroadrange
ofgeomaticserviceswithintheprovinceofSaskatchewan,Canada.
OnJuly30,2010,theFu
ndindirectlyacquired
certainbusinessassetsofPricewaterhouseCoopersʹUS‐
based Real Estate Appraisal Management Practice (“PwC Appraisal Management Practice”) for
approximately $17.4 million, subject to adjustments. As partial consideration for such assets, the
Fund issued 236,204 Fund Units. The agreement provides for an additional purchase payment if
average earnings exceed a certain threshol
d on the three‐year anniversary. While there is no
maximumamountstipulated
intheagreement,theFundhasestimatedthecontingentconsideration
tobe$5.3million,onadiscountedbasis,whichisreflectedinthepurchaseprice.ThePwCAppraisal
ManagementPracticeprovidedcomprehensivevaluationconsultingandanalyticservice
stoaroster
ofglobalclientsthroughanationalpractice
operatedfromofficesinJerseyCity,Houston,Irvineand
AtlantaintheUS.
Altusalso revised the purchase price with respect to Page Kirkland. Included in the total consideration
for the Page Kirkland acquisition was a holdback of $9.5 million, which wo
uld only be paid to the
vendorsifcertainperforma
ncetargetswereachievedoveratwotothreeyearperiod.Duringthefourth
quarter of 2010, the amount was reversed with a corresponding adjustment to goodwill and intangible
assets as it was determined that the performance targets were not likel
y to be achieved. Further, the
interest accretion and net foreign exch
ange losses previously recorded related to this holdback of $2.3
million and $1.0 million, respectively, have been reversed. To the extent that there is an additional
payment,thiswillresultinanincreasetogoodwill.
OnJuly23,2010,theFundincre
aseditsinvestmentinSolidifi
.TheFundnowholdsapproximately23.6%
oftheoutstandingsharesofSolidifi.OnJuly29,2010,SolidifiInc.changeditsnametoRealMattersInc.
(“Real Matters”) and has Solidifi, the appraisal management solutions business, as one of its wholly
15
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
owned subsidiaries. Real Matters is the leading provider of property information services in North
America. It fuses unique data gathered from a network of more than 17,000 field agents with the
technological power of its cloud‐based redihive
TM
environment to propel the next generation of
businessesthatprovideinsightintoresidentialandcommercialproperties.RealMatterscurrentlyserves
leadingglobalfinancialinstitutionsandislocatedinChicago,Toronto,MontrealandCalgary.
Effective October 28, 2010, the Fund amended its credit facilities, increasing the Revolving Operating
Facilityfrom$87.9m
illionto$97.9millionoverthere
mainingterm.
On December 1, 2010, the Fund completed the issuance of $50.0 million convertible unsecured
subordinated debentures (“convertible debentures”) with a maturity date of December 31, 2017. The
convertibledebenturesbearinterestatarateof5.75%perannum,andarepayablesemi‐annuallyonJune
30andDec
ember31eachyear.Eachco
nvertibledebentureisconvertibleintoFundUnitsattheoptionof
theholderataconversionpriceof$18.60perFundUnitatanytimeafterJanuary3,2011andpriortothe
close of business on the earlier of December 31
, 2017 and the business day immedia
tely preceding the
datefixedforredemption.
16
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
ResultsofOperations
YearendedDecember31,
2010
2009
Inthousandsofdollars,exceptforperunitamounts (audited) (audited)
Revenues$252,520$219,766
Disbursements 25,352 26,122
Salariesandbenefits 155,768 127,574
Generalandadministrative 38,718 32,836
Earningsbeforeincometaxes,interest,amortization,non‐controlling
interestandequityaccountedearnings(loss)
32,682 33,234
Amortization 25,748 28,164
Interest 4,155 3,514
Equityaccounted(earnings)loss 1,038 615
Earnings(loss)beforeincometaxesandnon‐controllinginterest 1,741 941
Currentincometaxexpense(recovery) 871 459
Futureincometaxexpense(recovery) (3,219) (4,077)
Earnings(loss)beforenon‐controllinginterest 4,089 4,559
Netearnings(loss) 3,148 3,388
Earnings(loss)perunit:
Basic
Diluted
$0.16
$0.16
$0.18
$0.18
Weightedaveragenumberunits(‘000s):
Basic
Diluted
19,944
22,579
19,125
21,650
Revenues for the year ended December 31, 2010 were $252.5 million, an increase of 15% over 2009, of
which 13% is attributable to the 2010 acquisitions of Brazos, PwC Appraisal Management Practice and
Peters,andthe2009acquisitionsofPageKirklandandSuvius.
AltusNorthAmerica
TheoperationsofAltusUSha
vebeencombinedwithAltusCan
adaforreportinginthisMD&A.
Forthe yearended December31, 2010, revenueswere$198.9 million,anincreaseof12%over 2009. The
increase was attributable to organic growth of 6% and acquisitions which provided 6% in incremental
revenues.Revenueperpersonfortheye
arendedDecember31,201
0was$182,000(2009‐$170,000).
NorthAmericaRVArevenuewas$54.9million,anincreaseof17%over2009.Theacquisitionof
PwCAppraisalManagementPracticeprovided13%inincrementalrevenues.AfullyearofAltus
Residentialoperationsrepresented 1%of theincrease. RVA achieved3%organic growth du
eto
highersubscriptionrevenuesandanincreased
numberofappraisalandadvisoryassignments,a
directresultofamoreliquidrealestatemarketplaceincomparisonto2009.
17
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
NorthAmericaCostrevenuewas$38.1million,adecreaseof8%over2009,notwithstandingan
offset of 3% from the 2009 acquisition of the US operations of Page Kirkland. Although new
construction loan activityhas improved, the slowdown of activity in 2009 has had a continuing
impactinto2010.In addition, revenueswereimp
actedby the windingdo
wnofwork relatedto
theOlympicvillageandlowerrevenuesfromAltusCapitalPlanning.
North America Realty Tax revenue was $54.6 million, an increase of 6% over 2009. Organic
growthof3%wasduetocontingency‐relatedworkinBritishColumbiaandMa
nitobaaswellas
newassessmentrollsin largerQuebec
municipalities. The acquisitionof Brazosprovided 3% in
incrementalrevenues.
NorthAmericaGeomaticsrevenuewas$51.3million,anincreaseof35%over2009,ofwhich6%
relatestotheacquisitionsofPetersandSuvius.Organicgrowthof29%wasprima
rilyduetothe
recoveryofAlberta
’soilandgassector.
AltusUK
For the year ended December 31, 2010, revenues were $23.5 million, a decrease of 13% over 2009. A
stronger average Canadian Dollar, compared to the prior year reduced revenues in 2010 by
approximately 10%. Excluding foreign exchange t
ranslations, Realty Tax revenues increased by 3%
.
Despitea weakened economiclandscape, Realty Taxrevenues increasedas2010was the beginningof a
new five‐year re‐valuation cycle. As the UK economy was slow to recover, Valuations, Landlord and
TenantandAgency,aswellas Costserviceswere allnegativelyimpact
edbythe lackof market ac
tivity
anddepressedrealestateassetvalues.Revenueperpersonfortheyearwasapproximately$183,800(2009
‐$206,900).Theforeignexchangeimpactcausedrevenueperpersontodeclinebyapproximately$22,200.
UK RVA revenue was $6.1 million for the year ended December 31
, 2010, a 21% decrease over
2009
.
UK Cost revenue was $2.4 million for the year ended December 31, 2010, a 20% decrease over
2009.
UKRealtyTaxrevenuewas$15.0millionfortheyearendedDecember31,2010,an8%decrease
over2009.
AltusAsiaPacific(Cost)
Revenu
es for the Asia Pacific region were gener
ated from the acquisition of Page Kirkland, which
occurred on July 31, 2009. Revenues for the year ended December 31, 2010 totaled $30.1 million, an
increaseof 107%over 2009, which was earnedin a five month period. Revenueper person for the ye
ar
wasapproximately$99,100(revenueperperson
forthefivemonthperiodin2009was$48,300).
18
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Revenues andexpenses for the year ended December 31, 2010, compared to 2009, are illustratedby the
followingcharts:
RevenuebyPracticeArea
Inthousandsofdollars
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
2009 2010
Geomatics
Cost
RealtyTax
RVA
Total
RevenuebyGeography
Inthousandsofdollars
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
2009 2010
US
AsiaPacific
UK
Canada
Total
19
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Expenses
Inthousandsofdollars
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
2009 2010
Salaries
Disbursements
Administrative
Amortization
Interest
Disbursements, including subcontra
ctor costs, represent expenses directly related to the provision of
services to a client. Consistent with most professional services firms, these costs are billed back to the
client. Disbursements for the year ended December 31, 2010 decreased 3% over 2009 and the ratio to
revenues was 10% (2009 – 12
%). The decrease is due mainly to reduced appeal
filing fees in Ontario,
reducedpaymentstoDeloitteforfilesinprogressattimeofacquisition,andlowersubcontractorfeesin
Canada Cost, offset by higher disbursement costs in North America RVA, Geomatics and Asia Pacific.
Without acquisitions, disbursements would have decreased 11% and wo
uld have represented 10% of
organicreven
ues.
SalariesandbenefitsfortheyearendedDecember31,2010were$155.8million,anincreaseof22%over
2009, andincreasedas apercentage ofrevenuesto 62% (2009 – 58%). Withoutacquisitions,salariesand
benefitswouldhaveincreasedby7%an
dwouldhaverepresented61%oforganicrevenues.Theincrea
se
in salaries and benefits was due to additional headcount from acquisitions, higher hourly pay due to
increasedactivityinGeomatics,generalpayincreasesandanincreaseintheDeferredPerformancePlan
andUnitOptionPlanexpense.
Generalandadministrativecos
tsfortheyearendedDecember31
,2010increased18%over2009andasa
percentage of revenues was 15% of revenue, consistent with the prior period. Incremental costs from
acquiredbusinessesrepresented12%ofthe increaseover2009.Otherincreasesincludedcostsrelatedto
IFRScomplianceandconversiontoaco
rporatestructure.
EBITDAfortheyearendedDecember31,2010decre
ased2%over2009andEBITDAmarginwas13%for
the year compared to 15% in 2009. The EBITDA increase was mainly the result of higher earnings in
GeomaticsoffsetbylowerearningsintheUKandAsiaPacific.
Amorti
zationdecreased9%fortheyearendedDecember31
,2010over2009.
20
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Interest expense for the year ended December 31, 2010 increased 18% over 2009. Interest expense on
long‐termdebtwashigherin2010as theaverageloanoutstandingwas$78.6millioncomparedto$53.6
millionin2009.Theeffectiveinterestrateincreasedto3.89%in2010from3.65%in2009.Interestexpense
wasal
sohigh
er
in201
0duetotheissu
anceoftheconvertible
deb
entureswhichcontributed$0
.3million.
The higher interest expense was offset by lower interest accretion on vendor holdbacks relating to
acquisitions.AsaresultofthereversalofthePageKirklandvendorholdback,totalinterestaccretionfor
2
010 was $(0.4) million compared
to $1.0 million in 2009. Interest expense also includes interest on the
revolving operating facility, capital leases for office equipment and amortization of deferred financing
costs.
Equityaccountedearnings(loss) forthe yearendedDecember 31, 2010was $(1.0)million(2009‐$(0.6)
million).ThisrepresentstheFund’s pro
portionateshareof RealMatters’los
sfortheperiod.TheFund’s
share of loss increased, despite Real Matters’ loss for the year being lower compared to the prior year.
ThisisaresultoftheFund’sinterestinRealMattersincreasingto23.6%from19.55%duringtheyearand
thefacttha
ttheFundbeganequityaccountingforitsinterestinRealMa
ttersfromMay2009onwards.
IncometaxesfortheyearendedDecember31,2010wasarecoveryof$2.3million(2009–recoveryof$3.6
million). Altus Limited, Altus Advisory, Altus Residential, Altus Geomatics BC, Altus Paralegal, Al
tus
GroupUK,AltusGroupUS,PPTL,AltusHaw
aii,AltusGroupAsiaPacific,AltusVietnam,AltusHong
Kong, Altus Shanghai, Altus Singapore, Altus India, Altus Australia, Altus Australia Consulting, Altus
ACT,PKQueensland,AltusAustraliaCost,AltusThailand,AltusHoldingsThailand,AltusConstruction
Thailand, Altus Services Thailand, Altus Egypt, Altus Group LLC and Alt
us Group ULC are subject to
corporateincometa
xes,whicharereflectedintheconsolidatedfinancialstatements.
Earnings(loss) before non‐controlling interest of the Fund for the year ended December 31, 2010 was
$4.1million,adecreaseof10%over2009.
Non‐controllinginterestintheFun
d’soperationsfortheyearendedDecember31,2010
was$0.9million
(2009‐$1.2million).
TheAltusGroupLPSeries2ClassBlimitedpartnershipunitsandtheAltusUKLLPunitsarereflectedas
non‐controlling interest. As discussed in the section headed “Overview of the Fund”, non‐controlling
int
erestofAltusUKLLPrelated
totheClassBandClassDlimitedliabilitypartnershipunitsislimitedto
the distributions declared and paid on those units. Included in non‐controlling interest is $0.57 million
paidtotheAltusUKLLPClassBandClassDunitholdersin2010(2009‐
$0.75million).
Netearnings(loss)duringtheye
arendedDecember31,2010were$3.1million,and$0.16perunit,basic
anddiluted(2009‐$3.4million,and$0.18perunit,basicanddiluted).
21
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
SummaryofQuarterlyResult s
2010
2009
Inthousandsofdollars,
Dec31 Sep30 Jun30 Mar31
Dec31 Sep30 Jun30 Mar31
exceptforperunitamounts
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
ResultsofOperations
Revenues$68,069$61,246$62,452$60,753$64,511$54,062$50,632$50,561
EBITDA 5,219 8,555 10,535 8,373 9,669 8,374 8,952 6,239
Netearnings(loss) 1,568 254 1,415 (89) 920 1,303 1,090 75
Earnings(loss)perunit:
Basic
Diluted
$0.08
$0.08
$0.01
$0.01
$0.07
$0.07
$0.00
$0.00
$0.05
$0.05
$0.07
$0.07
$0.06
$0.06
$0.00
$0.00
Weightedaveragenumber
units(‘000s):
Basic
Diluted
20,
205
22,808
20,077
22,694
19,821
22,450
19,664
22,023
19,668
22,309
19,388
21,920
18,760
21,185
18,670
21,029
DistributableCash
(1)
Distributablecash:
Standardized
Adjusted
$7,128
4,979
$378
7,643
$4,080
9,082
$(128)
6,703
$10,710
9,238
$4,460
8,012
$5,272
8,228
$3,563
5,086
Distributionsdeclared 6,771 6,735 6,663 6,607 6,607 6,533 6,346 6,309
Distributionsdeclared,per
unit $0.30 $0.30 $0.30 $0.30 $0.30 $0.30 $0.30 $0.30
Weightedaveragenumber
units(‘000s):
FundUnits&AltusLP
Series1Bunits
AltusLPSeries2Bunits
20,210
2,359
20,090
2,359
19,850
2,359
19,664
2,
359
19,666
2,359
19,416
2,359
18,793
2,359
18,670
2,359
Payoutratio:
Standardized
Adjusted
95.0%
136.0%
1,781.7%
88.1%
163.3%
73.4%
(5,161.7)%
98.6%
61.7%
71.5%
146.5%
81.5%
120.4%
77.1%
177.1%
124.0%
(1) Distributable cash is calculated for the combined interest of the Fund’s Units and the Altus LP Class B limited partnership
unitsinaccordance withtheinterpretiverelease“StandardizedDistributableCashinIncomeTrustsandOtherFlow‐through
Entities”issuedbytheCICA.
22
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
TheFund’sperformancereflectsseasonality.Eachbusinessunithasdifferentseasonalpatternsassociated
withitsparticularoperations.WhilethecoreCostpracticedoesnotexperiencesignificantseasonalityin
itsoperations,AltusCapitalPlanning,acquiredin2008,hasarevenuestreamthatincludescontractsales
that do not occur consistently throughout the year. RV
A typically experiences incre
ased demand for
annualvaluationsinthethirdandfourthquarters.TheUKRealtyTaxpracticehasahigherproportionof
propertytaxappealsresolvedandrevenuerecognized,inthefirstandfourthquartersoftheyear,dueto
the March 31 fiscal year end for UK m
unicipalities.Geomatics has weather‐related reven
ue seasonality
and its peak activity is in the autumn and winter months. Some of Geomatics’ projects tend to be on
remoteundevelopedlandwhichismostaccessibleinthewinterandsummermonthsandleastaccessible
inthespringmonthswhengroundconditionsareso
ftandwet.Inaddition,asaresultofthec
ontingency
fee‐based projects in the Canadian Realty Tax practice, the Fund experiences fluctuations in revenue
duringtheyeardependingonwhenappealcasesaresettled.
2010
(Fullyea rrevenueofacquisitionsuse dforcomparisonpurposes)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2010Q1 2010Q2 2010Q3 2010Q4
Geomatics
Cost
Realt
y
Tax
RVA
Total
2009
(Fullyea rrevenueofa cquisitionsusedforcompa risonpurposes)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2009Q1 2009Q2 2009Q3 2009Q4
Geomatics
Cost
Realt
y
Tax
RVA
Total
23
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Compoundrevenuegrowthforthelasteightquartersisapproximately2.93%perquarter.Altus’strategic
planofsteadyorganicgrowthcomplementedbygrowththroughacquisitionisreflectedbythefollowing
charts,showingthetimingofthe5acquisitionsduringthelasteightquarters:
Inthousandsofdollars
RevenueGrowthbySegment
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4
RVA
Realt
y
Tax
Cost
Geomatics
RevenueGrowthbyRegion
I
nthousandsofdollars
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4
Canada
US
UK
AsiaPacific
Acquisitions:
2009Q2 2009Q3 2010Q2 2010Q3
▪Suvius ▪PageKirkland ▪Brazos ▪Peters
▪PwCAppraisalManagement
Practice
24
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
FourthQuarter
RevenuesforthequarterendedDecember31,2010,were$68.1million,anincreaseof6%overthesame
period in 2009. The 2010 acquisitions of Brazos, PwC Appraisal Management Practice and Peters
provideda7%increase,offsetbya1%reductionfromtheexistingbusinesses.
AltusNorthAmerica
Theoperatio
nsofAltusUShavebeencombin
edwithAltusCanadaforreportinginthisMD&A.
ForthequarterendedDecember31,2010,revenueswere$54.1million,anincreaseof11%overthesame
period in 2009. Acquisitions provided 9% in incremental revenues in 2010. Revenue per person for the
qu
arterwasapproximately$46,800(
2009Q4–$47,100).
NorthAmericaRVArevenuewas$16.5million,anincreaseof30%overthesameperiodin2009.
TheacquisitionofPwCAppraisal Management Practiceprovided29%ofincrementalrevenues.
Excluding acquisitions, revenue was 1% above prior year as improved market conditions
resultedinanincre
asednumberofvaluation
sandhigherrevenuesfromsubscriptionservices.
North America Cost revenue was $9.8 million, a decrease of 8% over the same period in 2009.
Revenue growth from servicing infrastructure clients was outweighed by lower consulting and
softwarelicenserevenues.
North America Realty Tax revenue was $1
2.8 million, a decrease of 4% over 2
009,
notwithstanding a 3% increase from the acquisitionof Brazos. The decrease was largely due to
contingency‐relatedworkinBritishColumbiaandManitobathatbegantorampupinthefourth
quarterof2009andsloweddowninthethirdquarterof2
010.
NorthAmericaGeoma
ticsrevenuewas$15.0million,anincreaseof23%overthesameperiodin
2009, ofwhich4%isattributabletothe acquisitionofPeters.Higheroil andgasdrillingactivity
continuedtodrivedemandforGeomaticsservices.
AltusUK
For the quarter ended December 31
, 2010, revenues were $6.5 mi
llion, a decrease of 12% over 2009. A
strongerCanadian dollarduringthe quarter comparedtothe same periodin 2009reduced revenues by
approximately 7%. The weak UK economy continued to adversely impact RVA and Cost revenues.
Excludingforeignexchangetranslations,RealtyTaxrevenuesincreasedby4%asthera
mpuptothenew
five‐year re‐valuation cycle continue
d in the quarter. Revenue per person for the quarter was
approximately$52,000(2009Q4‐$56,500).
UKRVArevenuewas$1.7millionforthequarterendedDecember31,2010,a22%decreasefrom
thesameperiodin20
09.
UKCostrevenuewas$0.6millionforthequart
erendedDecember31,2010,a29%decreaseover
thesameperiodin2009.
UKRealtyTaxrevenuewas$4.2millionforthequarterendedDecember31,2010,a4%decrease
overthesameperiodin2009.Thedeclin
ewastheresultofthestrongerCanadianDollar.
25
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
AltusAsiaPacific(Cost)
Revenues for the Asia Pacific region were generated from the 2009 acquisition of Page Kirkland.
Revenuesfor the quarterended December 31, 2010 totaled $7.5 million, an 11% decrease over the same
periodin2009.RevenueperpersonforthequarterendedDecember31,2010wasapproximately$2
3,900
(2009Q4‐$
25,800).
EBITDA for the quarter ended December 31, 2010 decreased 46% over the same period in 2009 and
EBITDA margin was 8% for the quarter compared to 15% over the same period in 2009. The EBITDA
decrease was mainly the result of lower earnings in Cost partially offset by EB
ITDA contribution from
Geomaticsan
dacquiredbusinesses.
Interest expense for the quarter ended December 31, 2010 was $(0.4) million compared to $1.4 million
overthesameperiodin2009.Higherinterestfromlong‐termdebtwasoutweighedbyacreditininterest
accretiondue tothereversalof the Pag
eKirklandvendor holdback.Interest expe
nse on long‐termdebt
washigherinthefourthquarterof2010astheaverageloanoutstandingwas$87.5millioncompared to
$70.3 million in the fourth quarter of 2009. The effective interest rate increased to 3.88% in the fourth
quarterof2010from3.65%inthesam
eperiodin2009.Interestexpensewasalsohigherinthequ
arterdue
totheissuanceoftheconvertibledebentureswhichcontributed$0.3million.Interestaccretiononvendor
holdbacks relating to acquisitions was $(1.8) million compared to $0.5 million in 2009. Interest expense
also includes interest on the revolv
ing operating facility, capi
tal leases for office equipment and
amortizationofdeferredfinancingcosts.
Earningsbeforenon‐controllinginterestoftheFundforthequarterendedDecember31,2010was$1.9
million,anincreaseof58%overthesameperiodin2009.
Net earnings (loss) during the quarter ended Dec
ember 31, 2010 were $1.6 million, and $0.0
8 per unit,
basicanddiluted(2009Q4‐$0.9million,and$0.05perunit,basicanddiluted).
LiquidityandCapitalResources
CashFlow YearendedDecember31,
2010
2009
Inthousandsofdollars (audited) (audited)
Cashfromoperatingactivities$17,880$27,427
Cashfromfinancingactivities 35,910 569
Cashfrominvestingactivities (19,676) (26,926)
Effectofforeigncurrencytranslation (482) 129
Changeincashpositionduringtheperiod 33,632 1,199
Distributionspaid$30,317$26,464
The Fund expects to fundoperations and distributions fromcash from operating activities.Deficiencies
arising from short‐term working capital requirements and capital expenditures may be financed on a
short‐termbasiswithbankindebtednessoronapermanentbasiswithnewequityissuances.Significant
26
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
erosioninthegeneralstateoftheeconomycouldaffecttheFund’sliquiditybyreducingcashgenerated
from operating activities or by limiting access to short‐term financing as a result of tightening credit
markets.
Cashfromoperatingactivities
WorkingCapital
December31,2010
December31,2009
Inthousandsofdollars (audited) (audited)
Currentassets$137,962$88,554
Currentliabilities 36,807 35,895
Workingcapital$101,155$52,659
Current assets are composed primarily of work‐in‐process and accounts receivable. Current liabilities
includeaccountspayable,distributionspayableandamountspayabletovendorsofacquiredbusinesses.
Accountsreceivableandwork‐in‐processincreased16.9%fromDecember31,2009toDecember31,2010.
Asapercentageoftrailing12monthsre
venues,combinedaccountsreceivableandwork ‐in‐pr
ocesswere
34.0% as at December 31, 2010 compared to 33.4% as at December 31, 2009, a two day increase in the
numberofdaysrevenueoutstanding.
Current and long‐term liabilities include amounts owing to the vendors of the acquired businesses on
accountof ex
cess working capital, deferred purchase price paymentsand other closing adj
ustments. At
December 31, 2010, the amounts owing to the vendors of the acquired businesses were approximately
$7.6million(December31,2009‐$12.2million).TheFundrequiresacquiredbusinessestohavesufficient
working capital to fund operating cash flow on an uninterr
upted basis. The purchase and sale
agreements for the acquired bu
sinesses require that excess working capital be paid back to the sellers
once it is monetized. Any working capital deficiency is withheld from the deferred purchase payment.
Additionally,thepurchaseandsaleagreementsgenerallyprovidethatliabilitiesincurredpriortoclo
sing
are obligations of the vendors and any liabi
litiesidentified post closing are withheld from the deferred
purchasepayment,withsettlementrangingfromonetothreeyearsfromtheacquisitiondate.
The Fund intends to fund the deferred purchase price payments through its revolving term facility or
cashonhand.TheFundisab
letosatisfythebalanceofitscurrentliabili
tiesthroughtherealizationofits
currentassets.
Cashfromfinancingactivities
On December 1, 2010, the Fund completed the issuance of $50.0 million convertible deben
tures with a
maturity date of December 31, 2017. The convertible debentures bear interest at a rate of 5.75% per
annum,andarepayablesemi‐annuallyonJune30andDecember31eachyear.Theeffect
iveinterestrate
is8.44%.
Eachconvertibledebentureisconvertib
leintoFundUnitsattheoptionoftheholderataconversionprice
of$18.60perFundUnitatanytimeafterJanuary3,2011andpriortothecloseofbusinessontheearlier
ofDecember31,2017andthebusine
ssdayimmediatelyprecedingthedatefixedforredemption.On
or
27
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
afterDecember31,2013andpriortoDecember31,2015,theconvertibledebenturesmayberedeemedat
the option of the Fund, in whole or in part, at a redemption price equal to the principal amount plus
accruedandunpaidinterest,providedthatthecurrentmarketpriceonthedateofnoticeisatlea
st12
5%
oftheconver
sionprice.Onoraf
terDec
e
mber
31
,2015andpriortothematuritydate,theFundmayatits
option redeem the convertible debentures, in whole or in part, at a price equal to the principal amount
plus accrued and unpaid interest. On re
demption or at the December 31, 2017 maturity da
te, the Fund
may,atitsoptionandsubjecttoregulatoryapproval,electtosatisfyitsobligationtopayalloraportion
oftheprincipalamountandtheaccruedandunpaidinterestbytheissuanceofFundUnits.Thenumber
of Fund Un
its to be issued will be determined by dividing the principal amount of the convertible
debenturestoberedeemedorrepaidatmaturi
typlusaccruedandunpaidinterestby95%ofthecurrent
marketpriceasatthedateofredemptionormaturity.
Upontheoccurrenceofachangeincont
rolinvolvingtheacquisitionofvotingcontrolordirect
ionoverof
66.67%ormoreoftheUnitsoftheFund,theFundwillberequiredtomakeanoffertopurchase,within
30 days, all of the outstanding convertible debentures at a price equal to 101% of the principal amount
plusaccr
uedandunpaidinterest.
TheFund’sothercreditfacilities
aresummarizedbelow:
December31,2010
December31,2009
Inthousandsofdollars (audited) (audited)
RevolvingOperatingFacility:Seniorsecuredrevolvingoperating
facilityforgeneralcorporatepurposes,includinglettersofcreditdue
ondemand,whichwillmatureOctober1,2012.$12,500$12,500
RevolvingTermFacility:Seniorsecuredtermfacilitytofinance
investmentsaspermittedbythecreditagreement.TheRevolving
TermFacilityrequiresrepaymentofprincipalatsuchtimeascertain
thresholdsareexceededandwillmatureOct
ober1,2012. 97,931 87,931
$
110,431$100,431
AtDecember31,2010,theFundhadtotalborrowingsonitscreditfacilitiesof$89.7million,drawnonthe
termfacility,anincreaseof$18.4millionfromDecember31,2009.During theyear,fundswereborrowed
on the term facility for the acquisitions of Peters, Brazos and PwC Appraisal Management Practice, the
invest
ment in Real Matters and the payment of holdbacks for 2009 acqu
isitions. Altus also has
outstandinglettersofcreditunderitscreditfacilitiesinthetotalamountof$0.3milliontosecureacredit
facilityforoperatingleasesandasperformanceguaranteestocustomers.
ThecostoftheFund’sfa
cilitiesistiedtoPrimeRate,Bankers’Acceptance,USbas
eratesorLIBORrates.
The prime rate of interest in Canada averaged 2.60% during the year ended December 31, 2010. As at
December 31, 2010, $87.5 million of the credit facilities were subject to various interest rate swap
agreementstofixtheint
erestrate.Theeffectiverateofinte
restfortheyearendedDecember31,2010was
3.89%(2009–3.65%).
28
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
AtDecember31,2010,theFundisincompliancewit
hthefinancialcovenantsofitsbankcreditfacilities,
whichare:
December31,2010
December31,2009
FundeddebttoEBITDA(maximum2.50:1)
1.34:1
1.68:1
EBITDAtointerestexpense(minimum4.50:1)
9.62:1
10.55:1
Workingcapitalratio(minimum1.25:1)
3.75:1
2.47:1
ThecreditfacilityagreementrequiresthatcertainsubsidiariesoftheFundmustaccountforatleast85%
ofEBITDAattheendofeachfiscalquarter.AsatDecember31,2010,theFundhasmetthisrequirement.
Under the terms of the credit facilities, the Fund may elect to have the fun
ded debt to EBITDA ratio
maximumra
isedfrom2.0:1to2.5:1forthenextfourconsecutivequartersaftercompletinganapproved
acquisitionfundedwithdebt.Further,theelectionprovidesthattheratioshallnotbegreaterthan2.0:1at
the end of the election period. During the third quarter of 2
010 and as a result of the PwC Appraisal
ManagementPractic
eacquisition,theFundgavenoticetoitslenderstoapplythiselection.
In2009,theFundreceivedaloantofinanceleaseholdimprovementsmadetoleasedpremises.Theloan,
payable in installments up to March 2019, is with the land
lord and bears interest at Canadian Do
llar
prime rate plus 2%. In 2010, the Fund received a loan to finance leasehold improvements for another
leased premise. The loan, payable in installments up to August 2014, is with the landlord and bears
interest at 7%. The loans are not secured. The effective rate of int
erest on the leasehold improvement
loansfo
rtheyearendedDecember31,2010was4.43%(2009–4.25%).
In2009,Altusfinancedthepurchaseofacustomsoftwareapplicationandacustomerlist.Theamountis
payableinmonthlyinstallmentsuntilSeptember2012.Theimplicitinterestrateis9.
34%(2009–9.34%).
Theamountisnotsecured
.
Otherthanlong‐termdebtandlettersofcredit,theFundhascontractualobligationsforoperatingleases
forofficefacilitiesandofficeequipmentandcapitalleasesforofficeequipment.
ContractualObligationsPaymentsDuebyPeriod(undiscounted)
Inthousandsofdollars
Total
Lessthan
1year 1to3years 4to5years After5years
Long‐termdebt
$90,462
227 89,921 122 192
Operatingleaseobligations
$44,197
7,104 11,092 7,062 18,939
Capitalleaseobligations
$426
264 162‐‐
Payablestovendors
$9,135
1,731 7,404‐‐
Convertibledebentures
$50,000
‐ ‐ ‐ 50,000
Othercurrentandlong‐termliabilities
$1,440
1,165 146 49 80
29
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Cashfrominvestingactivities
TheFundinvests inproperty,plantandequipmentandint
angibleassetstosupportthe activitiesof the
business,suchas computer equipment and software, trucks and field equipment, and office equipment
andfurnishings.Capitalexpendituresforaccountingpurposesincludeproperty,plantandequipmentin
substance as well as for
m, including assets under capital lease and int
angible assets comprising of
computer application software. For purposes of calculating distributable cash, capital expenditures
exclude assets funded by financing activities. Capital leases are treated as interest and loan payments,
consistentwiththetreatmentontheStatementofCashFlows.
Capitalexpendituresarer
econciledasfollows:
CapitalExpenditures YearendedDecember31,
2010
2009
Inthousandsofdollars (audited) (audited)
Property,plantandequipmentadditionsonStatementofCashFlows$4,843$1,417
IntangibleassetadditionsonStatementofCashFlows 1,455 2,010
Proceedsondisposalofoperationalproperty,plantandequipment,
reinvested (123) (368)
Capitalexpendituresfundedbycashfrominvestingactivities$6,175$3,059
FundUnits
As at December 31, 2010, the following Fund Units and Altus LP Class B limited partnership units
(exchangeableonaone‐for‐onebasisintoFundUnits)wereoutstanding:
Issuedand
Units Outstanding %ofTotal
AltusGroupIncomeFundUnits 17,792,646 78.7%
AltusLPSeries1ClassBlimitedpartnershipunits 2,464,161 10.9%
TotalUnits 20,256,807 89.6%
AltusLPSeries2ClassBlimitedpartnershipunits 2,359,427 10.4%
TotalDilutedUnits 22,616,234 100.0%
The Altus LP Class B limited partnership units are held by the vendors of acquired businesses, certain
employeesandtheAltusInvestorsManagementPartnership(“AIMP”).TheyareexchangeableintoUnits
ofthe Fundon aone‐for‐onebasis, subjecttoadjustment,inaccordancewith theterms oftheExchange
Agreement.Inadd
ition,theholdersoftheClassBlimited
partnershipunitsholdSpecialVotingUnitsof
the Fund, one for each Class B limited partnership unit of Altus LP. These Special Voting Units are the
onlyspecialvotingunitsoftheFundcurrentlyoutstanding.
30
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
AtDecember31,2010,theAltusLPSeries1ClassBlimitedpartnershipunitsareexchangeable.TheAltus
LPSeries2ClassBlimitedpartnershipunitsmaybeexchangeableafterDecember31,2010.EachSpecial
VotingUnitoftheFundiscancelledupontheexchangeofanAltusLPClassBli
mitedpartnershipunit.
During the ye
a
r en
ded
De
c
e
mber 31, 2010, 567,445 Altus LP Series 1 Class B limited partnership units
wereexchangedforanequivalentnumberofFundUnits.AnequivalentnumberofSpecialVotingUnits
werecancelled.
DuringtheyearendedDecember31,2010,theFundissued16,154FundUn
itsand95,426AltusLPSeries
1 Cla
ss B limited partnership units to the Altus Group Income Fund Employee Benefit Plan Trust with
respecttothe2009DeferredPerformancePlan.
During the year ended December 31, 2010, the Fund issued 9,868 Altus LP Series 1 Class B limited
partnershipunitstothevendorsofPete
rs,20,886FundUnitstothevendorsofBrazosand23
6,204Fund
UnitstocertainofthevendorsinvolvedintheacquisitionofthePwCAppraisalManagementPractice.In
addition,theFundissued207,012FundUnitswithrespecttoFundUnitoptionsthatwereexercisedand
5,172Fu
ndUnitstotheTrusteesofthe Fundasacomponentof their2010compensation.Further,4,193
Altus
LP Series 1 Class B limited partnership units were issued during the year to a supplier for its
compensation.
DuringtheyearendedDecember31,2010,fractionalunits totalling127AltusLPSeri
es1ClassBlimited
partnershipunitsand1AltusLPSeri
es2ClassBlimitedpartnershipunitwereredeemed.
For the year ended December 31, 2010, an amount of $2.7 million (2009‐$1.6 million) was accrued in
relation to the Fund’s Deferred Performance Plan as the actual adjusted pay‐out ra
tio fell within the
establishedrang
esetbytheadministratorsofthisplan.Duringthefourthquarterof2009,theTrustees of
the Altus Group Income Fund Employee Benefit Plan Trust approved a variation to the vesting period
thatpermittedunitsissuedforthe2008DeferredPerformancePlantovestinJan
uary2010andtheunits
issuedforthe2009Def
erredPerformancePlantovestinApril2010.
On May 7, 2010, the Fund granted 730,000 Fund Unit options which vest over a period from 12 to 36
months.Theweightedaverageestimatedfairvalueatthedateofgrantforthe73
0,000FundUnitoptions
was$1.82perunitoption.Thisfairva
luewasestimatedusingtheBlack‐Scholesoptionpricingmodel.
AtDecember31,2010,thereare1,194,747FundUnitoptionsoutstanding(December31,2009–707,409)at
a weighted average exercise price of $11.19 per unit (December 31, 200
9‐$7.28 per unit) and 28,788
optionsareex
ercisable(December31,2009–Nil).AtDecember31,2010,theweightedaverageremaining
contractual life of these options is 2.11 years (December 31, 2009 – 2.34 years). For the year ended
December31,2010,theFundrecordedcompensationexpenseof$0.8mi
llion(2009‐$0.3million)
related
to Fund Unit options granted to employees with a corresponding adjustment to contributed surplus.
Duringtheyear,207,012FundUnitoptionswereexercisedand35,650FundUnitoptionswereforfeited.
31
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
On January 1, 2011, the Fund converted from an income trust structure to a corporation. All the Fund
Units, Altus LP Series 1 and Series 2 Class B limited partnership units were exchanged into common
shares of Altus Group Limited on a one‐for‐one basis. All the special voting units were ca
n
c
e
l
l
e
d. As
a
result,onJanuary1,2011,therewere22,616,234commonsharesofAltusGroupLimitedoutstanding.
From January 1, 2011 to March 11, 2011, Altus Group Limited issued 1,352 common shares to the
Directors of Altus Limited as a component of their 2010 compensation and 397 common share
s to a
supplierforitscompensation.AsatMarch14,20
11,therewere22,617,983commonsharesoutstanding.
32
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
DistributableCash
(1)
YearendedDecember31,
2010
2009
Inthousandsofdollars,exceptforperunitamounts (audited) (audited)
Cashfromoperatingactivities
$17,880$27,427
Adjustments:
Capitalexpenditures
(2)
Principalpaymentsofcapitalleases
(2)
(6,175)
(247)
(3,059)
(363)
StandardizedDistributableCash
11,458 24,005
Adjustments:
Changeinnon‐cashoperatingworkingcapital
AltusUKLLPnon‐controllinginterest
Property,plantandequipmentfundedbylong‐termdebt
(3)
Discountaccretiononvendorholdbacks
(4)
Netproceedsfromsaleofintangibleassets
(5)
13,656
(568)
4,213
(352)
‐
4,044
(753)
1,759
1,019
490
AdjustedDistributableCash
$28,407$30,564
DistributableCash,perunit:
Standardized
Adjusted
$0.51
$1.27
$1.12
$1.42
Distributionsdeclared$26,776$25,795
Distributionsdeclared,perunit $1.20 $1.20
Weightedaveragenumberunits(‘000s):
FundUnits&Series1ClassBunits
AltusLPSeries2ClassBunits
19,954
2,359
19,136
2,359
Payoutratio:
Standardized
Adjusted
233.7%
94.3%
107.5%
84.4%
(1) Distributable cash is calculated for the combined interest of the Fund’s Units and the Altus LP Class B limited partnership
unitsinaccordance withtheinterpretiverelease“StandardizedDistributableCashinIncomeTrustsandOtherFlow‐through
Entities”issuedbytheCICA.
(2) Capital expenditures exclude capital leases, which are tr
eated as interest and loan payments fo
r purposes of calculating
distributablecash,consistentwiththetreatmentontheStatementofCashFlows.Seereconciliation.
(3) Includedinproperty,plantandequipmentfundedbylong‐termdebtareexpendituresincurredwithrespecttoanEnterprise
ResourcePlanningplatformforwhichfundinghasbeenco
mmittedaspartoftheFund’screditfacility.
(4
) Included in net earnings is the accretion of the discount on vendor holdbacks. As this is an acquisition related expenditure,
whichisfundedwithlongtermdebtand/orequity,ithasbeenaddedbacktodetermine AdjustedDistributableCash.
(5) Proceedsfr
omsaleofintang
ibleassetsrelatestoaonetimesaleofsoftwarethatwasacquiredduringthepurchaseofcertain
businessassetsofHarfan,netoflegalcosts.
Managementbelievesthatdistributablecashisausefulmeasureofperformance,asitprovidesinvestors
withanindicationoftheamountofcashavailablefordistributiontounitholders.Investorsarecautioned,
however,thatdistributablecashshouldnotbeconstruedasanalternativetousingthestatementofcash
flows. Furthermore, the Fund’s method of calc
ulating distributable cash ma
y not be comparable to
similarlynamedcalculationspreparedbyotherentities.
33
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
With the exception of monthly and quarterly distributions paid in December 2010, which had a record
dateofDecember21,2010andwerepaidonDecember31,2010inordertofacilitatetheconversionofthe
Fund’s income trust structure into a corporation, the timing of distributions was unchanged from
previousye
arsasoutlinedbelow.
TheFundmak
esmonthlydistributionstounitholdersofrecordonthelastdayofeachmonth,payableon
oraboutthe15thdayofthefollowingmonth.
Distributions on the Altus LP Series 1 Class B limited partnership units may be paid monthly.
Distributions on the Al
tus LP Series 2 Class B limit
ed partnership units continued to be paid quarterly
untilDecember31,2010.
AltusLPmakesdistributionstounitholdersofrecordoftheAltusLPSeries1ClassBlimitedpartnership
unitsheldoutsideAIMPonthelastdayofeachmonth,payableonoraboutthe15t
hdayofthefollowing
month.AltusGroupLPmakesdistributionstounit
holdersofrecordoftheAltusLPSeries1andSeries2
ClassBlimitedpartnershipunitsheldinsideAIMPonthelastdayofthemonth,paidquarterly.
Thecurrentdistribution rateis $0.10 per unitper month. Distrib
utions forthe quarterended
December
31, 2010 were $0.30 per unit (2009Q4‐$0.30) and $1.20 per unit for the year ended December 31, 2010
(2009‐$1.20).
The Fund’s primary source of cash for distributions is cash flow from operating activities. Deficiencies
arising from short‐term working capital requiremen
ts and capital expenditures may be financed with
ba
nkindebtedness.
Whenever there is an excess of cash available for distribution over actual distributions, the excess has
beenretainedintheoperatingentitiestoallowforseasonalfluctuationsincashfromoperations,tofund
acquisitionsandtofundcapitalexpenditures.
34
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Excess(shortfall)ofcashflowandnetearnings(loss)ondistributionsdeclared
Thefollowingtablepresentsexcess(shortfall)cashflowsfromoperatingactivitiesandnetearnings(loss)
ondistributionsdeclaredfortheyearendedDecember31:
YearendedDecember31,
2010
2009
Inthousandsofdollars (audited) (audited)
Cashflowfromoperatingactivities(A)$17,880$27,427
Netearnings(loss)(B) 3,148 3,388
Distributionsdeclared(C) 26,776 25,795
Excess(shortfall)ofcashflowsfromoperatingactivitiesoverdistributions
declared(A‐C)
(8,896) 1,632
Shortfallofnetearnings(loss)overdistributiondeclared(B‐C) (23,628) (22,407)
Distributions declared exceeded cash flow from operating activities by $8.9 million for the year ended
December 31, 2010 (2009 – cash flow from operating activities exceeded distributions declared by $1.6
million).Cashflowfromoperatingactivitiesincludeschangesinworkingcapitalwhicharemainlydueto
timing of cash receipts and payment of li
abilities and do not impact adjusted distributable cash. Such
incre
asesordecreasesarefinancedfromavailablecashorfromtheFundʹsRevolvingOperatingFacility.
Ifthenetchangeinoperatingworkingcapitalisaddedbacktothecashflowfromoperatingactivitiesfor
the year ended December 31
, 2010, the total cash funded by operation
s is $31.5 million (2009‐$31.5
million),whichismorethandistributionsdeclared.
Distributionsdeclaredexceedednetearningsby$23.6millionfortheyearendedDecember31,2010(2009
‐$22.4million).Inanyperiod,theamountofdistributionsdeclaredwillexceednetearnings(lo
ss)ofthe
Fund as a result of non‐cash charges such as a
mortization of property, plant and equipment and
intangibles and equity accounted losses that reduce the net earnings (loss) figure. As a result of the
Fund’s acquisitions over the past several years, net earnings (loss) have been affected by the increased
am
ortization on the intang
ible assets.The costs of the intangible assets are included as part of the total
considerationpaidbuttherearenofuturecashflowsassociatedwithmaintainingtheseassets.Thetotal
amount of amortization and equity accounted loss for the year ended December 31, 2010 wa
s $26.8
million(2009‐$28
.8million).Ifthesechargesareaddedbacktothenetearnings(loss)fortheyearended
December 31, 2010, adjusted net earnings (loss) is $29.9 million (2009‐$32.2 million), which exceeded
distributionsdeclared.
Cashdistributions declared werelowerthan distributablecash resultingin an adjustedpa
y‐outratioof
94.3%in2010.Cashdistribu
tionswerelowerthandistributablecashin2009resultinginanadjustedpay‐
outratio of 84.4%. The level of distributions declared is regularly reviewed by the Board of Trustees to
take into account the current and prospective performance of the Fund and the fut
ure sustainabi
lity of
distributions.
35
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
FinancialInstrumentsandOtherInstruments
FinancialinstrumentsheldinthenormalcourseofbusinessincludedintheFund’sconsolidatedbalance
sheet at December 31, 2010 consist of cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities, payables to vendors, capital lease obligations, redemption proceeds payable,
convertible debentures, long‐term debt, current and long‐term other oblig
ations and cash flow hedges.
TheFunddoesnotenterintofinanci
alinstrumentarrangementsforspeculativepurposes.
Thefairvaluesoftheshort‐termfinancialinstrumentsapproximatetheir carryingvalues.Thefairvalues
of the long‐term debt and capital lease obligations are not significantly different than their carrying
values, as these inst
ruments bear int
erest at rates comparableto current market rates. The fair value of
otherlong‐termliabilitiesandpayablestovendorsisestimatedbydiscountingthefuturecontractualcash
flowsatthecostofmoneytotheFund,whichisequaltotheircarryingvalue.
The fair va
lue of the convertible debentures as at December 31, 2010 was
approximately $48.7 million,
basedonmarketquotes.
TheFundisexposedtointerestrateriskintheeventoffluctuationsinthebank’sprimerateorbankers’
acceptancerate,USbaserateandLIBORrateastheinterestratesontheRevolvi
ngOperatingFacilityand
Revolv
ing Term Facility fluctuate with changes in the bank’s prime rate, bankers’ acceptance rate, US
baserateorLIBORrate.
To mitigate the interest rate risk on long‐term debt, the Fund has entered into interest rate swap
agreements associated with its credit facilities. In 20
06, the Fund entered into an interest rate swap
agreementwithanotionalam
ountof$12.5millionandafixedinterestrateat4.46%plusastampingfee
of 2.75%. This interest rate swap matures on May 13, 2011. At December 31, 2010, the fair value of the
swapwas$0
.1millioninfavorofthecounterparty.
In 2010
, the Fund entered into two additional interest rate swap agreements. One swap agreement,
effectiveAugust20,2010,hasanotionalamountof$75.0millionandafixedinterestrateof0.98%plusa
stampingfeeof2.75%.ThisinterestrateswapexpiresonAug
ust31,2011.Theotherinte
restrateswapis
aforwardswap,effectiveAugust31,2011,onexpiryofthepreviousswap,foranotionalamountof$75.0
millionandafixedinterestrateof2.77%plustheapplicablestampingfeeatthattime.AtDecember31,
2010,thefa
irvalueoftheseswapswas$0.2millioninfavoroftheFundand$0.6mi
llioninfavorofthe
counterparty,respectively.
TheFundisexposedtocreditriskwithrespecttoaccountsreceivable.Creditriskisnot concentratedin
anyparticularclientorgeographicsectorbutthereisexposuretotherealestat
eandoilandgassectors.
Accounts receivable are monitored on an ongoing basis with r
espect to their collectability and, where
appropriate,aspecificreserveisrecorded.Inaddition,ageneralreserveissetuponaccountsreceivable
inaccordancewiththeFund’saccountingpolicies.
36
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Liquidityrisk is the risk thatthe Fund will not be ableto meet its financialobligationsas they falldue.
TheFundmanagesliquidityriskthroughthemanagementofitscapitalstructureandfinancialleverage.
It also manages liquidity risk by continuously monitoring actual and projected cash flows, taking into
accountthe s
e
ason
al
it
y
ofthe Fund’s re
venuesand re
ceipts andmaturity profileof financial assetsand
liabilities.TheBoardofTrusteesreviewsandapprovestheFund’soperatingandcapitalbudgets,aswell
as any material transactions out of the ordinary course of business, including proposals on mergers,
acquisitionsorotherma
jorinvestments.
RelatedPartyTransactions
TheFundhadthefollowingtransactionswithrelatedpartiesduringtheyear,whichwereinthenormal
courseofoperationsandmeasuredattheexchangeamount.
TheSt.John’s,Newfoundlandofficeleasespremisesinabuildingpartiallyownedbytwoemployeeswho
are holders of Altus LP Class B limited partnership units. The original le
ase commenced in September
1999for atermoftenyearsatarent deemedby theowners,inclu
dingthenon‐related owner,to reflect
market for comparable office space. In March 2008, Altus subleased adjacent office space for a term to
coincide with the original lease. A lea
se for the combined office space was renewed during the thi
rd
quarter of 2009 and commenced on September 1, 2009, with a lease term of five years. Rent was set at
ratesdeemedbytheownersandAltustoreflectmarketforcomparableofficespace.Rentpaidwas$0.035
millionfortheye
arendedDecember31,2010(2009‐
$0.032million).
OneoftheofficesinEdmonton,Albertaleasespremisesinabuildingownedbythreeemployeeswhoare
holdersofAltusLPClassBlimitedpartnershipunits.TheleasecommencedFebruary1,2007foraterm
of five years. At inception of the le
ase, rent was set at rates deemed by the owners an
d Altus to reflect
marketforcomparableofficespace,basedonastudyofcomparablepropertiesintheEdmontonmarket
byanindependentappraiser.Rentpaidwas$0.096millionfortheyearendedDecember31,2010(2009‐
$0.096mi
llion).
TheofficeinVirden,Manitobaleasespremisesinabuildingownedbyfiveemployee
swhoareholdersof
AltusLPClassBlimitedpartnershipunits.TheleasecommencedonMay1,2009foratermoffiveyears.
At inception of the lease, rent was set at rates deemed by the owners and Altus to re
flect market for
comparab
le office space.Rent expense was $0.010 millionfor the year ended December 31, 2010 (2009‐
$0.007million).
TheofficeinWeyburn,Saskatchewanisatenantinabuildingownedbytwoemployeeswhoareholders
ofAltusLPClassBlimitedpartnersh
ipunits.Occupancyisonamonth‐to‐monthbasis.
Rentwasdeemed
byAltus management toreflect market for comparableofficespace. The office inRegina, Saskatchewan
wasformerlyatenantinabuildingownedbytwoemployeeswhoareownersofAltusLPClassBlimited
partnershipunits.Thisof
ficewasoccupieduntilJune20
09,atwhichtimeaseparatebuildingwasleased
from a third party. Rent paid was $0.036 million for the year ended December 31, 2010 (2009‐$0.054
million).
37
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Altus UK LLP leases premises in Dartford, Kent, from a trust, the beneficiaries of which are holders of
unitsofAltusUKLLP.TheleaseexpiresonJanuary31,2011.RentwasdeemedbyAltusmanagementto
reflectmarketforcomparableofficespace.Rentpaidwas$0.070millionfortheyearendedDe
c
e
mb
e
r31
,
2
010(
2009‐$0.080million).
AltusHongKongleasespremisesinStanley,IslandSouth,HongKong,fromacompanywhosedirector
is an employee and holder of Fund Units. The lease commenced in November 2009 for a term of three
years. Rent was deemed by Altus management to reflect ma
rket for comparable space. Rent paid was
$0.254millionfortheyearendedDecember31,2010(2009‐$0.042million).
The Fund has a consulting agreement with the principals of one of the original entities, Altus Québec,
pursuanttowhichtheprincipalsagreedtoprovideconsultingservicesfora periodoftenye
arsinrespect
ofcertaininformationtec
hnologydevelopedbytheprincipalsandacquiredbyAltusonMay19,2005.In
considerationforprovisionof the consultingservices,the principals are entitledto a fee, payable to the
extentthatearningsexceedcertainthresholds.FortheyearendedDecember31,20
10,$0.151millionhas
beenaccrued(200
9–$Nil).
TheFundhasaconsultingagreementwithacompanywhichistheformerownerofthebusinessassetsof
InSite to provide certain services to Altus related to the business of InSite for a period of six years. The
agreementprovidesthatthecompanywillbere
imbursed,withnomark‐up,forallreasonab
lethirdparty
costs incurred in connection with the provision of the services. In consideration for providing the
services, the company is entitled to a fee in years two through six of the agreement. The fee is payable
only to the extent tha
t earnings exceed certain thresholds. No amount is payable in respec
t of the year
endedDecember31,2010(2009–$Nil).
During the year ended December 31, 2010, the Fund recorded expenses of $0.394 million (2009‐$0.078
million),aspertheReferralandServicesAgreementbetweenAltusResidentialLimitedandRe
alMatters.
Included in accounts payable and accrued li
abilities is $0.153 million payable to Real Matters as at
December31,2010(December31,2009‐$0.048million).Includedinaccountsreceivableis$0.123million
receivablefromRealMattersasatDecember31,2010(December31,2009‐$0.075million).
TheFundpro
videsappraisalservices
toRealMatters,anentityinwhichtheFundhassignificantinfluence.
Duringthe yearended December31, 2010, theFund had revenues of $0.041million for appraisalservices
providedtoRealMatters(2009‐$0.026million).
Contingencies
The Fund is currently in a dispute with the vendors of the business of Capital Planning Solutions Inc.,
whoareseekinganadjustmenttothepurchaseprice.Inaddition,thereisaStatementofClaimfromthe
principal vendor for wrongful dismissal. In management’s opinion, both actions are without merit. No
am
ounthasbeenaccruedintheconsolidated
financialstatements.
38
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
SubsequentEvents
CorporateConversion
On December 8, 2010, unitholders and holders of the special voting units of the Fund approved the
reorganizationoftheFund’sincometruststructureintoacorporation,pursuanttoaplanofarrangement
undertheBusinessCorporationsAct(Ontario)(the“Arrangement”).TheeffectivedateoftheArrangement
was January 1, 201
1. The reorganization was
undertaken as a result of legislative changes to the tax
treatmentofbusinessincometrusts.
PursuanttotheArrangement,unitholdersoftheFundandholdersofClassBlimitedpartnershipunitsof
AltusLPexchangedtheirunitsforcommonsharesofthenewlyformed,whollyownedsub
sidiaryofthe
Fundon a one‐for‐one basis. The newamal
gamated corporation,AltusGroup Limited, willcontinue to
operate the business of the Fund. Altus LP, Altus Operating Trust and the Fund were liquidated and
dissolved.
Altus Group Limited assumed the obligation of the Fund in respect of outsta
nding Fund Unit options.
UponexerciseoftheoutstandingFundUnitoptions,holderswill
receivethenumberofcommonshares
equal to the number of Fund Units they would have been entitled to receive in accordance with the
Fund’sUnitOptionPlan.
In connection with the Arrangement, Altus Group Limited assumed al
l of the obligations of the Fund
relatingto the outstanding convertibledebentures. Theconvertibledebentures havebecomeconvertible
unsecu
redsubordinateddebenturesofAltusGroupLimitedandholdersareentitledtoreceivecommon
shares,ratherthanFundUnits,atthesameconversionpriceatwhichtheUnitswerepreviouslyissuable
uponconversion.
TheTrusteesoftheFundha
vebecometheBoardofDirecto
rsofAltusGroupLimitedandtheofficersand
managementoftheFundhavebecomeofficersandmanagementofAltusGroupLimited.
It is anticipated that Altus Group Limited will adopt a quarterly dividend policy. While the Board of
Directorsc
urrentlyantici
patesaquarterlydividendof$0.30percommonsharepayableonoraboutApril
15,2011toshareholdersofrecordonMarch31,2011,theBoardofDirectorswillassessanydividendtobe
declaredinlightofthecorporation’sfinancialperformanceanditscurrentandanticipatedbusinessne
eds
atthattime.
BenefitsofConversion
TheBoardofDirectorsandma
nagementofAltusbelievethattheconversiontoacorporationwasinthe
bestinterestsofAltusanditsstakeholders.Itisexpectedthattheconversionmayprovidethefollowing
benefits:
commencing in 2011, the tax savings to the Fund from distributions to u
nitholders will be
reduced
asaconsequenceoftheapplicationofSpecifiedInvestmentFlow‐ThroughTaxRulesto
theFund,therebydiminishingtheprimarybenefitoftheincometruststructure;
39
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
it is anticipated that the reorganized structure of the Fund as a corporation may attract new
investors, including non‐resident investors, and provide, in the aggregate, a more active,
attractiveandliquidmarketforthecommonsharesthancurrentlyexistsfortheUnits;
itisanticipatedthattheFunds’fin
ancialandoperationalperformancewillbemoreeas
ilyvalued
relativetootherpubliclyheldcompanies;and
theBoardofDirectorsbelieveacorporatestructuremayenhanceaccesstocapital.
AmendmenttoCreditFacilities
Asaresultofthecorporateconversion,amendmentswererequiredtotheCreditFacilities.Theamended
CreditF
acilitiesaree
ffectiveJanuary1,2011andhavearevisedmaturitydateofDecember31,2015.The
RevolvingOperatingFacilitylimithasincreasedfrom$12.5millionto$20.0million.TheRevolvingTerm
Facilitylimithas increasedfrom$97.9 millionto$110.0million, withan accordionfeaturewhichallows
AltusGroupLimitedtoin
creasethelimitfurtherto$150.0m
illion.Interestratescontinuetobebasedon
the Canadian Dollar prime rate, bankers’ acceptance rates, US base rates or LIBOR rates plus, in each
case, an applicable margin to those rates. The margin ranges from 1.0% to 3.5% depending on the
calc
ulationofthefundeddebttoEBITDAra
tioandthefacilityused.
Under the amended Credit Facilities, certain subsidiaries of the Fund must account for a minimum of
80% of EBITDA at the end of each fiscal quarter, as compared to 85% of EBITDA previously. Further,
certainsubsidiariesoftheFundmu
stnowalsoprovideaminimumof80%ofto
talconsolidatedassetsat
theendofeachfiscalquarter.
The amended agreement also resulted in new and revised financial covenants. These have been
summarizedbelow:
FundeddebttoEBITDAratio:maximumof2.50:1
Minimumfixedchargecoverageratio:minimumof1.
25:1
Maximumfundeddebttocapital
izationratio:maximumof0.5:1
Theagreementprovidesforanelectiontohave thefundeddebtto EBTIDAratiomaximumraisedfrom
2.50:1 to 3.00:1 for the next two consecutive quarters after completing an approved acquisition funded
withdebt.
RepaymentofRevolvingOperatingFacilityandCancellationof$1
2.5millionInterestRateSwap
On Jan
uary 5, 2011, Altus Group Limited repaid $12.5 million on the Revolving Operating Facility and
cancelledits$12.5millioninterestrateswapagreement,incurringapenaltyof$0.1million.
ConvertibleNoteReceivabletoRealMatters
On February 25, 2011, Altus Group Limited issu
ed a convertible note receivable to Real Ma
tters in the
amountof$1.0million.TheconvertiblenotereceivablehasamaturitydateofFebruary20,2012andbears
interestat7%perannum,compoundedannually,payableatmaturity.DuringtheperioduptoMay31,
2011,AltusGroupLimitedmay,atit
soption,convertthereceivableintosharesus
ingaconversionprice
of$1.7848pershare.
40
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Non‐bindingLetterofIntent
OnMarch7,2011,AltusGroupLimitedenteredintoanon‐bindingletterofintenttoacquire100%ofthe
shares of a third party. Altus Group Limited may be required to pay $3.0 million US Dollars in certain
circumstances if the acquisition is not completed. At thi
s time, there can be no assuranc
e that any
transaction willoccur,orassuranceas to thetiming,structureor termsof anysuchtransaction.Thefull
impactoftheacquisitiononfuturefinancialresultscannotbedeterminedatthistime.
CriticalAccountingEstimates
The preparation of the Fund’s consolidated financial statements requires management to make certain
estimatesandassumptions.TheestimatesandassumptionsarebasedontheFund’sexperiencecombined
with management’s understanding of current facts and circumstances. These estimates may differ from
actualresultsandcertainestimatesareconsideredcriticalastheyarebothimpo
rtanttoreflecttheFund’s
financial position and results of operations and re
quire significant or complex judgment on the part of
management.The followingis a summaryofcertain accountingestimatesor policiesconsidered critical
bythemanagementoftheFund:
Work‐in‐proc
ess
TheFundvaluesitswork‐in‐processbasedonthetimeandmaterialschar
gedintoeachparticularproject.
Thework‐in‐processforeachprojectisreviewedonamonthlybasisbythecontrollerresponsibleforthe
business unit and the consultant responsible for the project to determine whether the am
ount is a true
reflectionoftheamountthatwillbeinvoiced
ontheproject.Wherethereviewdeterminesthatthevalue
of work‐in‐process exceeds the amount that can be invoiced, adjustments are made to the work‐in‐
process. The valuation of the work‐in‐process involves esti
mates of the amount of work required to
completetheproject.Errorsinesti
matingworkrequiredtocompletetheprojectscouldleadtotheunder
orovervaluationofwork‐in‐process.Significanterosioninthegeneralstateofthe economycouldresult
inincreasedprovisionstowork‐in‐process.
Provisionfo
rdoubtfulaccounts
Estimates are usedin det
erminingtheallowance for doubtful accountsrelated to tradereceivables.The
estimates are based on management’s best assessment of the collectability of the related receivable
balancebased,inpart,onthe ageofthespecificreceivablebalance.Aprovision isestablishedwhenthe
like
lihood of collecting the account has si
gnificantly diminished. Future collections of receivables that
differ from management’s current estimates would affect the results of operations in future periods as
well as accounts receivable and other operating expenses.Significant erosion in the general state of the
economycouldresultinincreasedprovisionsfordoubtfulacco
unts.
Goodwill
Goodwillisnotamortizedandissubjecttoanannualimpair
menttest.Goodwillimpairmentisevaluated
between annual tests upon the occurrence of certain events or circumstances. Goodwill impairment is
assessed based on a comparison of the reporting unit’s carrying amount to its fair value. When the
carryingamountoftherep
ortingunitexceedsitsfairvalue,thefairva
lueofthereportingunit’sgoodwill
is compared with its carrying amount to measure the amount of impairment loss, if any. Management
testedgoodwillforimpairmentasatDecember31,2010anddeterminedthatnoimpairmentexists.
41
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Intangibleassets
Intangibleassets are assetsacquire
dthat lackphysical substanceand that meet the specified criteria for
recognitionapartfromgoodwill.Intangibleassetswithafinitelife,includingdatabases,customsoftware
applications,employmentcontractsandnon‐competeagreements,customerbacklog,customerlists,and
computerapplicationsoftwarearerecordedatcostandaream
ortizedovertheperiodofexpectedfuture
benefiton
thestraight‐linemethodfromtwotofiveyearsoronthedecliningbalancemethod.Intangible
assetswith an indefinite life, which include the Altus Group brand, are recordedat cost. On anannual
basis, management reviews the carrying amount of int
angible assets which have an indefinite
life for
possible impairment by evaluating discounted cash flows. Intangible assets are written down to their
estimated fair value, as determined by discounted cash flows when a decline is identified. Significant
erosioninthegeneralstateoftheeconomycouldresultinincreasedimp
airmentlosses.
Purchasepriceallocatio
nsandcont
ingentconsideration
Estimates are made in determining the fair value of assets and liabilities, including the valuation of
separatelyidentifiableintangibleassetsacquiredaspartofanacquisition.Further,estimatesaremadein
determining whether contingent consideration payments should be recorded as part of the cost of
purchaseonthe dateofac
quisitionorwhethertheamountshouldbe recorde
dwhenthe contingencyis
resolved. Contingent consideration payments are generally based on acquired companies achieving
certain performance targets. The estimates are based on management’s best assessment of the related
inputs used in the valuation models, such as future cash fl
ows and discount rates. Future performa
nce
resultsthatdifferfrommanagement’sestimatescouldresultinchangestogoodwill.Significanterosionin
the general state of the economy could negatively impact future performance results of acquired
companies.
Changes in Accounting Policies Including Initial Adoption of New Accounting
Pronouncements
GoodwillandIntangibleAssets
Effective January 1, 2009, the Fund adopted the Canadian Institute of Chartered Accountants (“CICA”)
Handbook Section 3064, Goodwill and Intangible Assets, which establishes standards for recognition,
measurement,presentationanddisclosureofgoodwillandintangibleassets.Asaresultofadoptingthe
newstandardretroactively,onJanuary1,200
9,theFundhasreclassifiedapplicat
ionsoftwarecostsfrom
property,plantandequipmenttointangibleassets.TherewasnoimpactontheFund’sconsolidatednet
earnings.
FinancialInstruments–RecognitionandMeasurement
Effective for the annual financial statements ended December 31, 2009, the Fund adopted amendments
made to CICA Handbook Section 3
855, Financial Instruments – Recognition and Meas
urement. Section
3855hasbeenamendedtochangethecategoriesintowhichadebtinstrumentisrequiredorpermittedto
beclassified,tochangetheimpairmentmodelforheld‐to‐maturityfinancialassetstotheincurredcredit
loss model in Section 3025, Impaired Loans, and requires the reversal of previo
usly recognized
impairmentlosseson
available‐for‐salefinancialassetsinspecifiedcircumstances.Theadoptionofthese
amendmentshadnosignificantimpactontheconsolidatedfinancialstatements.
42
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
FinancialInstruments−Disclosures
Effective for the annual financial statements ended December 31, 2009, the Fund adopted amendments
made to CICA Handbook Section 3862, Financial Instruments – Disclosures. Section 3862 has been
amended to include additional disclosure requirements about fair value measurement of financial
instruments and to enhance liquidity risk disclosure requirements for pub
licly accountable enterprises.
The adoption of these
amendments resulted in additional disclosures in the notes to the consolidated
financialstatements.
CreditRiskandtheFairValueofFinancialAssetsandFinancialLiabilities
EffectiveJanuary1, 2009, the Fund adoptedCICAEmergingIssues Committee (“EIC”)‐173, Credit Risk
andtheFairVa
lueofFinancialAssetsandFinancialLiabil
ities,whichrequiresthatanentity’sowncredit
riskandthecreditriskofthecounterpartyshouldbetakenintoaccountindeterminingthefairvalueof
financial assets and financial liabilities, including derivative instruments. EIC‐173 is to be applied
retrospectively without restatement of prior periods. The ado
ption of this recommendation ha
d no
significantimpactontheconsolidatedfinancialstatements.
Recentaccountingpronouncementsissuedandnotyeteffective:
InternationalFinancialReportingStandards
InFebruary2008,theCICAconfirmedthatitwillconvergeGAAPwithInternationalFinancialReporting
Standards(“IFRS”),asissuedbytheInternation
alAccountingStandards
Board,effectiveJanuary1,2011.
IFRSuses a conceptual framework similar to GAAP,but there aresignificantdifferences inrecognition,
measurement and disclosures. For the Fund, the changeover to IFRS will be required for interim and
annualconsolidatedfinancialstatementsbeginningonJanuary1,2011.Itwillalsorequirether
estatement
for comparativ
e purposes of amounts reported by the Fund for its interim and annual consolidated
financialstatementsin2010.
In order to meet the requirement to transition to IFRS, the Fund has developed a changeover plan to
convert its consolidated financial statements to IFRS. The Fund has es
tablished a working and steering
committeetooverseetheplan.Further
,theFundhasestablishedregularprogressreportingtotheAudit
CommitteewithrespecttothestatusoftheIFRSchangeoverplan.
The transition plan is comprised of four phases: an assessment phase; planning phase; implementation
and testing phase; and, closure phase. The ass
essment phase incl
uded in‐depth employee training,
identification of key differences between IFRS and GAAP, and an assessment of the impact of IFRS on
accounting policies, processes and systems. The planning phase included the identification, evaluation
and selection of accounting policies and the impact on other operational elements such as info
rmation
technology,internalcontrolsoverf
inancialreporting,debtagreementsandtherespectivedebtcovenants,
andothertrainingrequirements.Thisphasealsoassessedtheexemptionsandelectionsthatareavailable
on transition under IFRS 1, First‐time Adoption of International Financial Reporting Standards. The
implementationandtestingphaseincludedprepar
ingparallelconsolidatedfina
ncialstatementsinorder
toobtaincomparativeinformationunderIFRS.Theclosurephasewillconsistofensuringthatallinterim
43
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
and year end results for fiscal 2011 are compliant with existing IFRS at that time, and that all required
informationissuccessfullypublishedandreported.
Thefollowingisasummaryofthestatusofthechangeoverplan:
KeyActivity Milestones StatusUpdate
Financial
statement
presentation
Identificationofdifferences
betweenGAAPandIFRSthat
areapplicabletotheFund
Evaluationandselectionof
IFRSaccountingpolicies
Evaluationandselectionof
electionsunderIFRS1
PreparationofIFRSopening
balancesheetand
quantificationofeffectsofthe
IFRSconversion
Preparationoffinancial
statementtem
plates,
includingnotedisclosures,
underIFRS
Completetheidentificationof
keydifferencesbetween
GAAPandIFRSbytheendof
2008
Evaluateaccountingpolicy
alternativesandselect
accountingpoliciesunder
IFRSduring2009
EvaluateandselectIFRS1
electionsapplicabletothe
Fundduring2009
Quantifydiffer
encesand
prepareopeningbalance
sheetduring2010
DraftIFRSfinancial
statementtemp
lateduring
2010
Gathercomparative
informationrequiredunder
IFRSduring2010
IFRSdiagnosticcompleted
during2008
Evaluationandselectionof
accountingpolicyalternatives
completedduring2009but
continuetobeassessed
Evalu
ationandselectionof
electionsund
erIFRS1
completedduring2009
Quantificationofdifferences
andpreparationofopening
balancesheetissubstantively
completeusingthecurrent
standards
DraftingthepreliminaryIFRS
financialstatementtemplate
hasbeencompleted;the
reviewisongoing
Gatheringofcomparative
informationcommencedin
Q42010andisongoing
Financial
reporting
expertise,
trainingand
communication
Establishmentofworking
committeeandsteering
committee
Provideadequatetrainingto
theworkingandsteering
committeemembersandto
theotheraffectedemployees
Engagementofexternal
consultants
Providecommunicationof
changeoverplanandstatus
updatestointernaland
externalstakeholders
In‐depthIF
RStrainingcourse
tobeprovidedtokeyaffected
employeesduring2008
Ongoingtrainingtobe
providedthroughoutthe
conversionperiodasrequired
Communicatewithsteering
committeeandAudit
Committeeonatimelybasis
regardingstatusof
conversionplanandkey
decisionsbeingmade
Workingandsteering
c
ommitteesestablishedinQ1
2009
IndepthIFRStrainingcourse
heldinQ42008
Ongoingtrainingcourses
attendedbykeyworking
committeemembers
throughout2009and2010
andadditionalcourseswill
beattendedasnecessary
throughout2011
44
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
KeyActivity Milestones StatusUpdate
Financial
reporting
expertise,
trainingand
communication,
cont’d
Updateexternalstakeholders
onstatusofconversionplan
onaquarterlybasis
Professionalservicefirm
engagedtoassistwithIFRS
conversionprojectin2008.
Externalconsultantshave
beeninvolvedinperforming
atechnicalreviewofanalysis
andconclusionsreachedin
2009andhavebeeninvolved
throughout2010
Meetingshavebeenheld
withthesteerin
gcommittee
onanongoingbasisbasedon
projectoutputs
AuditCommitteeupdates
havebeenprovidedona
quarterlybasisandduring
othermeetings,asrequired
CommunicationoftheIFRS
changeoverplanandstatus
updateshasbe
enincludedin
thequarterlyandannual
MDAandcontinued
throughout2010
Information
technologyand
datasystems
IdentificationofIFRS
differencesthatwillrequire
changestothefinancial
system
Ensuresystemsandprocesses
areinplacetocapture
requiredinformationunder
IFRS
Ensureprocessisinplaceto
addresstherequirementfor
dualrecordkeepingin2010
Completeidentificationof
changesrequiredtothe
financialsy
stemasaresultof
IFRSdifferencesbytheendof
2009
Processesandprocedures
requiredtoaddressdual
reportingin2010and
appropriatedatacaptureto
befinalizedbyQ12010
Identificationofchanges
requiredtothefinancial
systemshasbeencompleted
andwasdeter
minedtobe
minimal
Processtocapturedataand
addressdualreportingwas
implementedinQ12010
Business
activities
Identificationofimpactof
differencesunderIFRSon
bankcovenants,
compensationplansand
hedgingactivities
Identificationofimpactof
differencesunderIFRSonthe
2011budgetingprocess
Makeamendmentsto
contractsand/orplansas
required
Completerequiredchanges
todebtagreementsandbank
covenantsbyQ42010
Completerequiredchanges
tocom
pensationplansbyQ4
2010
Completerequiredchanges
tothe2011budgetprocessby
theendofQ32010
Communicationwiththe
lendercommencedin2009
withrespecttorequired
changestobankcovenants
andcontinuedinQ32010and
Q42010.Aspartofthe
amendmentsmadetothe
creditfacilityagreement,
effectiveJanuary1,2011,the
bank
covenantshavebeen
renegotiatedtoreflectthe
impactofthetransitionto
IFRS
45
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
KeyActivity Milestones StatusUpdate
Business
activities,
cont’d
Evaluatewhetherthe
interestrateswapqualifies
forhedgeaccountingunder
IFRSasatJanuary1,2010
andmaintainrequired
documentationandtesting
ofhedgeeffectiveness
throughout2010
Impactoncompensation
planswasassessedandthe
impactwasdeterminedtobe
minimal
Impactonthe2011budget
processwasa
ssessedinQ3
2010andanychangeshave
beenappropriately
incorporated
Interestratesw
apanalysis
asatJanuary1,2010has
beencompleted.
Effectivenesstestingwas
performedthroughout2010
andwillcontinueonago
forwardbasis
Internalcontrol
overfinancial
reportingand
disclosure
controlsand
procedures
(DC&P)
Assessmentofrequired
changestocurrentinternal
controlsoverfinancial
reportingduetochangesin
accountingpoliciesunder
IFRSandwithrespectto
one‐timechangeover
adjustments
Reviseinternalcontrolsto
addresstherequirementfor
dualrecordkeepingin2010
Foranychange
srequiredto
internalcontrols,assessment
oftheimpactonDC&P
designandeffectivene
ss
Completeassessmentof
requiredchangestointernal
controlsasaresultof
adoptingIFRSstandards
andaccountingpoliciesby
Q22010
Designandimplement
controlandprocesschanges
during2010
Cons
iderimpactofchanges
oncertificationofinternal
controlprocessesbyCEO
andCFO
Considerationofchangesto
internalcontrolsandDC&P
commencedin2009and
continuedin2010
Basedonmanagement’s
analysis,nosignificant
changesareexpectedasa
resultofthetransitionto
IFRS
Throughoutthe planning phase, the Fund identified a number of key accounting areas where there are
differencesbetweenGAAPandIFRSthatarelikelytohaveanimpactonthefinancialresults.Thesehave
been summarized below based on the standards currently issued and applicable to the Fund. The
estimated impact of conversion to IFRS as at the tra
nsition date, Januar
y 1, 2010, has been included,
whereapplicable,toprovideadditionalinformationtoinvestorsandothers.Thisisnotacompletelistof
differencesbetween IFRS and GAAPanddoes not include allIFRS standardsthat mayrequirechanges
for the tra
nsition to IFRS. Further, several IFRS standard
s are in the process of being amended by the
International Accounting Standards Board (“IASB”) and amendments are expected to continue until
December31,2011,thedateoftheFund’sfirstauditedannualconsolidatedfinancialstatementsprepared
inaccordancewithIFRS.Theseamendmentsmayalsohaveanim
pactonfuturefinancialresul
ts.
46
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
IFRS3:BusinessCombinations
Both IFRS and GAAP follow the acquisition method of accounting for all business combinations,
however, significant differences exist between the two frameworks in other areas. The most significant
differencesastheyrelatetotheFundareasfollows:
(i) Under IFRS transaction costs (including legal fees, tax adv
isor fees and third party inta
ngibles
valuation fees)are expensed immediately whereas under GAAP, such amounts are includedas
part of the purchase price. This will reduce net earnings and EBITDA in the year of acquisition
andresultinlowergoodwillvalues.
(ii) Contingentconsiderationunder IFRSis recognizedat fai
rvalue on thedateof acquisition,with
subse
quentchangesgenerallyrecognizedinnetearnings.UnderGAAP,contingentconsideration
can be recognized initially as part of the purchase price to the extent such amounts can be
reasonablyestimatedbeyondareasonabledoubt.Ifnot,thecontingentconsiderationisrecorded
when the contingency is resolved and the consider
ation is issued or becomes issuable. Any
subse
quentchangesarerecordedasanadjustmenttogoodwill.Thiswillincreasevolatilityinthe
incomestatementthroughouttheperiodofthecontingency,especiallywhentheoutcomeofthe
contingencyissignificantlydifferentfromwhatwasoriginallyanticipatedandr
ecorded.
(iii) The fair value of securities
issued is determined on the date of acquisition under IFRS, unlike
GAAP,whichrequiresthesecuritiestobefairvaluedusinganaverageofthetradingpriceover
certaindaysclosetothedateofacquisition.
(iv) IFRSrequiresthepurchasertomeasureanynon‐cont
rollinginterestintheacqu
ireeateitherfair
value or at the non‐controlling interest’s proportionate share of the fair value of the acquiree’s
identifiable net assets, whereas GAAP requires non‐controlling interest to be measured at the
historicalcarryingvalueoftheacquiree’sidentifiablenetassets.
Transition im
pact: While there
is no expected impact on transition, it is expected that there will be an
impactrelatingtoacquisitionsinthe2010comparativeyearandonagoforwardbasis.
IAS36:ImpairmentofAssets
Under IFRS, an entity is required to recognize an impairment charge if the recover
able amount,
determined as the higher
of the estimated fair value less costs to sell or value‐in‐use, is less than its
carrying value. Value‐in‐use is the discounted present value of estimated future cash flows. Under
GAAP,impairmentisrecognizedbasedonestimatedfairvaluewhentheun
discountedfuturecashflows
fromanasset,orgroupofasset
s,islessthanthecarryingvalue.
Under IFRS, all assets, including goodwill, are allocated to Cash Generating Units (“CGU”) for
impairment testing purposes. A CGU is the smallest group of assets that generate cash flows
independentlyfromeachother.Testingforimpa
irmentattheCGUlevelunderIFRSisatamoregranul
ar
leveloftestingthanunderGAAP.Asaresult,impairmentlossesunderIFRSmayberecognizedearlier,
ormayberecordedwhentheymaynothavebeenrecognizedatallunderexistingGAAP.
IFRS also requires the re
versal of an impairment loss (for all assets other than goodw
ill) when the
recoverableamountishigherthanthecarryingvalue,butbynomorethanwhatthedepreciatedamount
47
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
of the asset would have been had the impairment not occurred, whereas GAAP does not permit such
reversals.
Transition impact: As a result of the impairment testing being performed at the CGU level, there is an
expectedgoodwillimpairmentchargeof$2.0million,withtheoffsettoopeningdeficit.
IAS32
:FinancialInstruments:Presentation
Under
IFRS, a financial instrument which gives the holder the right to put the instrument back to the
issuer for cash should be classified as a financial liability, unless certain criteria are met to allow for
classification as equity. Given that the Fund Units are redeemable at the option of the holder and tha
t
thereis a mandatoryrequirementto distributetaxabl
eincome undertheDeclaration of Trust,theFund
may be required to present its equity as a liabilityunder IFRS. Based on theanalysisperformed, it was
determinedthattheFundUnitsandAltusLPSe
ries1ClassBlimitedpartnershipunitscanbeclassified
asequ
ityastheymetcertainexceptionrequirements undertheIFRSstandard.Thisexception,however,
only applies to the presentation of the units, but that in all other respects of IFRS, these units are
consideredliabilities.
The Altus UK LLP Class B and D lim
ited liability partnership units and the Altus
LP Series 2 Class B
limitedpartnershipunitsdidnotmeettheexceptionrequirementsandthusaretreatedasliabilitiesunder
IFRS,whicharere‐measuredatfairvalueateachreportingdate.UnderGAAP,theseunitswererecorded
asnon‐cont
rollinginterest.
Transitionimpact
:NoexpectedimpactforFundUnitsandAltusLPSeries1ClassBlimitedpartnership
units.Thiswill,however,impacttheDeferredPerformancePlanandUnitOptionPlan,discussedfurther
below.WithrespecttotheAltusUKLLPClassBandDlimitedliabilitypartnershipunitsandtheAltus
LPSer
ies2ClassBlimit
edpartnershipunits,thefairvalueoftheseunitsasatJanuary1,2010was$34.7
million,whichisexpectedtoresultinanadjustmentof$11.5milliontoopeningdeficit.
IAS39:FinancialInstruments:RecognitionandMeasurement
UnlikeGAAP,IFRSdoesnotal
lowgeneralreservesonfin
ancialassets.
Under IFRS, there are more specific rules relating to hedge accounting that could lead to a different
conclusion,however,thecashflowhedgethatexistsontransitionhasbeenassessedandisconsideredto
stillqualifyforhedgeaccounting.
IAS39iscurrentlybeingre
placedbytheIASBinitsentirety.IFRS9,FinancialInstruments,was
issuedby
IASBinNovember2009replacingcertainrelevantportionsofIAS39.TheFundwillcontinuetomonitor
thestatusofchangestothisstandardandtheimpacttotheFund.
Transitionimpact:Noexpectedimpact.
48
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
IAS19:EmployeeBenefits
TheFundhasconcludedthattheFundUnitsandAltusLPSeries1ClassBlimitedpartnershipunitscan
be classified as equity as they meet certain exception rules, but that this exception applies only to the
presentationofunits.Inallotherrespects,theseunitsareconsid
eredliabilities.Asaresult,theDeferred
Perform
ancePlanandUnit Option Plan, where employees are remuneratedinunits, are required to be
treatedaslongtermincentiveplansaccountedforusingthisstandard.Therefore,existingobligationsto
deliver units are now recorded as liabilities and are required to be recorded ove
r the service period to
whichtheawardrelates.Inaddition,an
ychangesinthevalueoftheawardsduetochangesinunitprice
arerecognizedimmediatelyasacompensationexpense.
Transitionimpact:AtJanuary1,2010,thevalueoftheliabilitytobeaccruedforobligationsrelatingtothe
Deferre
d Performance Plan is estimated to be $1.7 mill
ion, with a corresponding adjustment of $2.3
milliontocontributedsurplusanda$0.6millioncredittoopeningdeficit.AtJanuary1,2010,thevalueof
theliabilitytobeaccruedforobligationsrelatingtotheUnitOptionPlanisestimatedtobe$1
.1million,
with a corresponding adjustm
ent of $0.3 million to contributed surplus and $0.8 million to opening
deficit.
IAS12:IncomeTaxes
IAS 12 is largely similar to the Canadian standard, however, IFRS requires that deferred tax be
determined using the highest tax rate applicable on undistributed profits, on the a
ppropriate timing
differences.Thi
swillapplytocertainsubsidiariesoftheFundthatarelimitedpartnerships.
OtherimpactstotheFundwillalsodependonothermaterialadjustmentsmadeupontransitiontoIFRS
whichwilllikelyhaveacorrespondingeffectonincometaxbalances.
Transitionimpact:Theoverallexpectednetimpactontra
nsitionisexpectedtobeadecreaseindeferred
ta
xassetsof$0.21million,anincreaseinfuturetaxliabilitiesof$0.08million,acreditof$0.27millionto
othercomprehensiveincomeandacorrespondingoffsettoopeningdeficitof$0.14million.
IAS16:Property,PlantandEquipment
Under IFRS, there is an opti
on to choose either the cost method or the revaluation method to mea
sure
property, plant and equipment, whereas GAAP follows the cost method only. The Fund has elected to
continueusingthecostmethodforallassetclasses.
Transitionimpact:Noexpectedimpact.
IAS17:Lea
ses
Whilethecriteriafordeterminingwhetheraleas
eisconsideredtobeafinance(capital)oroperatinglease
is similarunderboth standards,IFRS does not provide numerical thresholds. This IFRS standard is not
expected to have any significantimpact on the Fund’s leases inits current form. An expo
sure draft has
beenissuedbyIASBwhic
hproposessignificantchange.However,thischangeisnotexpectedtoimpact
the Fund in the year of transition. The Fund will continue to monitor the status of changes to this
standardandtheimpacttotheFund.
49
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Transitionimpact:Noexpectedimpact.
IAS18:Revenue
CurrentrevenuerecognitionguidanceunderIFRSfollowsthesameprinciplesasGAAP,andthusthereis
minimal impact expected on transition. An exposure draft has been issued by IASB which proposes
significantchange.However,thischangeisnotexpectedtoimpacttheFundintheyearoftransi
tion.The
Fundwillcontinuetomonitorthestatusofchangestothisst
andardandtheimpacttotheFund.
Transitionimpact:Noexpectedimpact.
IAS27:ConsolidatedandSeparateFinancialStatements
IAS 27 is largely similar to the Canadian standard, as it applies to the Fund, except for the fol
lowing
significantdifferences:un
likeGAAP,IFRSrequiresthatnon‐controllinginterest(“NCI”)beclassifiedasa
separatecomponentofequityonthebalancesheet;underIFRS,inadditiontoattributingnetearningsto
NCI,totalcomprehensiveincomealsoneedstobeattributedtoNCI.Totalcomprehensiveincomeisnot
a
ttributedtoNCIunderGAAP.Further,anexposuredraftwasissuedbyIA
SBinDecember2008which
definesthe“control”relationshipdifferentlyfromthecurrentIFRSstandard.Thechangesareexpectedto
be finalized in 2011. The Fund will continue to monitor the status of changes to this stan
dard and the
impacttotheFund.
Transition impact: The Fund has performed an analys
is and concluded that the Altus Group Income
Fund Employee Benefit Plan Trust (“Altus EBT”) is a special purpose entity under IFRS and should be
consolidated.TheAltusEBT holdunitsforthepurposes oftheD
eferredPerformancePlan,andthuson
consolidation,these units are shown astreasury uni
ts.As at the transition date,itis expectedthat cash
andcashequivalentsanddistributionspayablewillincreaseby$0.05million.Further,itisexpectedthat
theunitsheldbytheAltusEBT,amountingto$0.65million,willbeadju
stedwithanoffsettocontributed
surplus.
IAS28:InvestmentsinAssoc
iates
UnderGAAPandIFRS,theequitymethodisusedwheresignificantinfluenceexistsandtheaccounting
issubstantiallythesameunderbothstandards.However,someofthekeydifferencesincludethefactthat
IFRSexplicitlyrequiresthattheequitypi
ck‐upoftheassociatebedeterm
inedusingconsistentaccounting
policiesastheinvestor.TheFundneedstoensurethatthefinancialresultsofRealMattersarereconciled
toanIFRSbasisforitsequitypick‐upcalculation.
Transitionimpact:Noexpectedimpact.
IAS37:Provisions,ContingentLiabilitiesan
dContingentAssets
Under GAAP, provis
ions and contingent liabilities are recorded if they are “more likely than not” to
occur, compared to IFRS, which follows a “probable” criterion. For the Fund, some provisions and
contingentliabilitiesmay be recordedearlier,or recordedwhen theymaynot havebeen recordedatal
l
underexistingGAAP.
50
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Transitionimpact:Itisexpectedthatanadjustmentof$0.23millioninprovisionswillberecordedrelated
toanonerouslease,withacorrespondingadjustmenttoopeningdeficit.
IAS1:PresentationofFinancialStatements
IFRS requires significantly more disclosure than existing GAAP. In addition, classification and
presentationmaybedifferentforsomeba
lancesheetandincomestatementitems.TheFundisanaly
zing
theoverallimpactoftheclassificationandpresentationchangesonitsfinancialstatements.
In addition to differences in accounting policies discussed above, IFRS generally requires enhanced
disclosureascomparedtoGAAP.
IFRS1:First‐timeAdoptionofInternationalFinancialReportingSt
andards
The adoption of IFRS requir
es the application of IFRS 1, which provides guidance for an entity’s initial
adoption.IFRSgenerallyrequiresanentitytoapply allstandardsonaretrospectivebasis, however,IFRS
1providesbothmandatoryexceptionsandoptionalexemptionsfromthisgeneralrequirement.Firsttime
adoptionexemptionstha
tarerelevanttotheFundarediscussedbelow:
BusinessCombinat
ions
An entity may keep original GAAP treatment for all acquisitions that occurred prior to the
transitiondateormaygobacktoapointintimeandapplyIFRStoallacquisitionsfromthatdate.
TheFundwillelecttoa
pplythisexemptionandwillnotrestateanybu
sinesscombinationsprior
toJanuary1,2010.
Transitionimpact: Whilethere is no expected impacton transition, it is expected that therewill
beanimpactrelatingtoacquisitionsinthe2010comparativeyearandonagoforwardbasis.
CumulativeT
ranslationDifferences(inclu
dedinOtherComprehensiveIncome)
Anentitymayelecttodeemthecumulativetranslationdifferencesforallforeignoperationstobe
$Nil at the transition date. This will result in the exclusion of translation differences that arose
priortothetransitiondatefromgainsorlossesonasubse
quentdisposalofaforeignoperation.
TheFundwillelecttoapplythisexemption.
Transitionim
pact:Itisexpectedthat$8.6millionwillbeadjustedtoresetcumulativetranslation
differencesto$Nil,withacorrespondingadjustmenttoopeningdeficit.
FirsttimeadoptionexceptionsthatarerelevanttotheFundared
iscussedbelow:
Hedge accounting – hedge accounting under IFRS c
annot be retrospectively applied, therefore,
theFundmustensurethatallhedgingtestsaredoneasatJanuary1,2010.
Estimates–anentitycannotchangeestimatesmadeinpreviousfinancialstatements,however,if
newestimatesarerequiredattransition,theFundwi
llusethefactsavailabl
eatthatdate.
Non‐controllinginterest–totalcomprehensiveincomeneedstobeallocatedtoNCIonapro‐rata
basis.
51
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
At this time and due to anticipated changes in IFRS standards, the Fund is unable to make a final
determination of the full impact of the change to IFRS on the Fund’s consolidatedfinancial statements.
However, the Fund anticipates that there will be changes in accounting policies and that these changes
ma
y ma
terially
imp
a
ct the consolidated fin
a
nci
al statements. The above discussion detailed the Fund’s
preliminaryquantitativeimpactonitsJanuary1,2010openingbalanceforthetransitiontoIFRSbasedon
currentinformation.
As a result of the adoption of IFRS, future accounting changes relating to GAAP are not applicable as
theywillnev
erbeappliedbytheFund.
KeyFactorsAffectingtheBusiness
TherisksanduncertaintiesthatcouldsignificantlyaffecttheFund’sfinancialconditionandfutureresults
ofoperationsaresummarizedbelow:
Generalstateoftheeconomy
The businesses operated by the Fund are affected by general economic conditions
, including
international, national, regional and local economic conditions, all of which are outside of the Fundʹs
control. Economic slowdowns or downturns, adverse economic conditions, cyclical trends, increases in
interestrates,variationsincurrencyexc
hangerates,reduc
edclientspendingandotherfactorscouldhave
amaterial adverseeffectonthe Fundʹsbusiness,financial conditionandresultsofoperations.Although
the Fundʹs operations are functionally and geographically diversified, significant erosion in levels of
activity in any segment that the Fund services could have a negative imp
act on the Fundʹs business,
financialcon
ditionandresultsofoperations.
Dependenceonoilandgassector
ThelandsurveypracticeofGeomaticsoperatesprima
rilyintheoilandgasindustryinAlberta.Therisks
to the outlook for the land survey practice in Alberta arise from world markets for oil and gas.
Historically,the prices foroilandgashavebeenvol
atileandsubjecttowidefluctuat
ionsinresponseto
changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional
factorsbeyondtheFund’scontrol.TheFundcannotpredictfutureoilandgaspricemovements.Ifoiland
gaspricesdeclinesignificantly,therecouldbea ma
terialadve
rseeffectontheFund’sbusiness,financial
condition,liquidityandoperatingresults.
Competitionintheindustry
The Fund faces competition from other service providers in each of the ma
in services it offers.
Competition includes a broad mix of competitors, ranging from smaller, locally based professional
service firms and national, multi‐regional professional service providers, to large engineering and
accounting firms. These competitive forces co
uld result in a material adverse effec
t on the Fundʹs
business, financial condition and results of operations by reducing the Fund’s relative share in the
marketsitserves.
The Fund believes that it offers the most comprehensive range of services, has the broadest geographic
reach and employs the deepest pool of “loc
al”expertise within each of its maj
or markets. Management
52
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
furtherbelievesthatanyattempttoduplicatetheAltus“platform”wouldbedifficultandveryexpensive
foranycompetitor.
Abilitytoattractandretainprofessionals
The Fundʹs success and ability to grow are depen
dent on the expertise, experience and efforts of its
professionals. Competition for employees with the qualifications desired by the Fund is intense, which
puts upward pressure on compensation costs. The Fund expects that competition for qualified
profession
alswillcontinuetoincrease,therebycausingcompensationcoststoescalate.ShouldtheFund
beunabletoattrac
tandretainprofessionals thatmeetthedesiredlevelof skillsandability,itsbusiness
maybejeopardized.
Interestra
terisk
TheFundisexposedtofluctua
tionsininterestratesunderitsborrowings.Increasesininterestratesmay
haveanadverseeffectontheearningsoftheFundand,inturn,thedistributablecashoftheFund.
CurrencyRi
sk
TheFund’sreportingcurrencyistheCana
dianDollar.
The Fund has operations in Canada, UK, US, Australia and in various countries throughout Asia. The
Fund’sexposuretoforeigncurrencyriskisprimarilyinthefollowingareas:
Net earnings (loss) generated by operations in foreign countries, which are translated into
Ca
nadianDollarsusingtheaverageexch
angerate;
Net assets of self‐sustaining foreign subsidiaries, which are translated into Canadian Dollars
usingtheperiodendexchangeratewithanygainsorlossesrecordedunderAccumulatedOther
ComprehensiveIncome(Loss)withinUnitholders’equity;
Monetary assets and liabilities of integrated foreign su
bsidiaries, which are translated into
Canadia
n Dollars using the period end exchange rate with any gains or losses recorded in the
statementofearnings(loss);
Non‐Canadian Dollar denominated monetary assets and liabilities, which are translated into
Canadian Dollars using the period end exchange rate with any gains or losse
s recorded in the
statementofearnings(loss).
TheexchangeratebetweentheCanadian
DollarandtheBritishPoundrangedfrom$1.6708atDecember
31, 2009 to $1.5469 at December 31, 2010. The exchange rate between the Canadian Dollar and the US
Dollar ranged from $1.0491 at December 31, 2009 to $0.
9980 at December 31, 2010. The exchange rate
between the Cana
dian Dollar and the Australian Dollar ranged from $0.9368 at December 31, 2009 to
$1.0163atDecember31,2010.TheexchangeratebetweentheCanadianDollarandtheHongKongDollar
ranged from $0.1353 at December 31, 2009 to $0.1283 at December 31
, 2010. The exchange rate between
theCanadianDollarandtheUnitedAr
abEmiratesDirhamrangedfrom$0.2856atDecember31,2009to
$0.2717atDecember31,2010.
53
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Creditrisk
The Fund may be materially and adversely
affected if the collectability of its accounts receivable is
impaired for any reason. The Fund monitors the collectability of its accounts receivable on an ongoing
basis.
Abilitytom
aintainprofitabilityan
dmanagegrowth
The Fund’s abilityto achieve revenue growth and sustain profitabilityin future periods depends on its
ability to execute its strategic plan and effectively manage its growth. A failure to do so could have a
materialadverseeffectontheFundʹsbusiness,financialcondit
ionandresultsofoperations.
Revenueandcashflowvolatility
Revenues, cash flow, oper
ating results and profitab
ility of the Fund may experience fluctuations from
quartertoquarter,basedonprojecttermsandconditionsforbillingandrenderingofservices.
DependenceonCana
dianmulti‐residen
tialmarket
Approximately 40% of the Canadian cost consulting and project management practice areaʹs annual
revenues are derived from the rental apartment and condominium sectors of the multi‐residential
development market. Any significant decline in the multi‐unit residential development market could
havea materialadverseeffectontheFund’sbusine
ss,financialcondit
ion,liquidityandoperatingresults.
However,AltusbelievestheriskismitigatedbecauseinCanada’smajorcities,highriseresidentialsales
account for approximately 50% of new residential sales, which underscores the increasing market
acceptanceofthesebuildingsandCanadaCost’sdecisiontospecializeinthisare
a.
Integrationofacquisitions
The Fund intends to make acquisit
ions from time to time as part of its strategy to grow its business.
Acquisitionsmayincreasethesizeoftheoperations,aswellasincreasetheamountofindebtednessthat
may have to be serviced by the Fund. There is no assurance tha
t the Fund will be able to acquire
operations on sati
sfactory terms. The successful integration and management of acquired businesses
involvenumerousrisksand thereis noassurancethatthe Fundwillbeabletosuccessfullyintegrateits
acquisitions.Suchfailurecouldadverselyaffectitsbusiness,financialconditionandresultsofoperation
s.
Protectionofintellectualproperty
The Fund continually deve
lops and improves its databases and branding, which have been important
factorsinmaintainingitscompetitiveposition.DespitetheFundʹseffortstoprotectitsproprietaryrights,
unauthorized parties may attempt to obtain and use information that the Fund regards as proprietary.
Therecanbenoass
urancethattheFundwillbesuccessfulinprotectingitsproprietaryrightsand,ifitis
not, it
s business, financial condition, liquidity and results of operations could be materially adversely
affected.
Weather
The level of a
ctivity in the oilfield serv
ices industry and natural resources industry are influenced by
seasonalweatherpatternsandnaturalorotherdisasters,suchasfloodsandforestfires.Springbreak‐up
duringthesecondquarterleavesmanysecondaryroadstemporarilyincapableofsupportingtheweight
of field equipment, whic
h results in severe restrictions in the provision of field work for Geoma
tics’
54
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
surveyservices andland‐useconsulting. The timing and durationof spring break‐upare dependent on
regionalweatherpatternsbutgenerallyoccurinAprilandMay.
Thedemandforsurveyservicesandforestryandland‐useservicesmayalsobeaffectedbytheseverityof
the Canadian winters and excessively ra
iny periods, thereby adversely affect
ing operations. The
uncertainty of weather and temperature can therefore create unpredictability in activity and utilization
rates.
Fixed‐pr
iceandcontingencyengagements
A
portion of the Fundʹs revenues comes from fixed‐price engagements. A fixed‐price engagement
requirestheFundtoeitherperformalloraspecifiedpartofworkundertheengagementforaspecified
lumpsumpayment.Fixed‐priceengagementsexposetheFundtoanu
mberofrisksnotinherentincost‐
plus engage
ments, including underestimation of costs, ambiguities in specifications, unforeseen or
changed costs or difficulties, problems with new technologies, delays beyond the control of the Fund,
failuresof subcontractorstoperformand economic or other changesthatmay occur during the term of
engagement.Increasingre
lianceonfixed‐priceengageme
ntsand/orincreasingsizeofsuchengagements
would increase the exposure to this risk. Economic loss under fixed‐price engagements could have a
materialadverseeffectontheFundʹsbusiness.
TheFundisalsoengagedtoprovideservicesonacontingencybasis,meaningthatitre
ceivesitsfeesonly
if certain re
sults are achieved. The Fund may experience adverse financial effects from having devoted
certain professional and other resources to a project, which, due to a failure to meet the contingency
goals,arenotrecoupedthroughfees.
Performanceofob
ligations/main
tenanceofclientsatisfaction
TheFundʹssuccessdependslargelyonitsabilitytofulfillobligationsandensureclientsatisfaction.Ifthe
Fund fails to satisfactorily perform its obligations, address performance issues or makes professional
errorsintheservicesthatitprovides,clientscouldterminateprojects,therebyex
posingtheFundtolegal
liability,loss
ofprofessionalreputation,enhancedriskoflossorreducedprofits.
Appraisalmandates
Someclients rotate their appraisal mandates ever
yoneto three years.As a result,Altusmay be rotated
outofanappraisalengagement.
Customerc
oncentration
Geomatics’revenueisderi
vedfrommultiplecontractsforafewclients.FortheyearendedDecember31,
2010,approximately29%ofGeomatics’revenuesarederivedfromfiveclients.
Restrictionsonpo
tentialgrowth
The payout by the Fund of substantially all of its operating cash flow will make additional capital and
operating expendituresdependent on increased cash flow or additionalfinancing in the future. Lack of
thosefundscouldlimitthefuturegrowthoftheFundanditscashflow.
55
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
Operatingrisks
The Fundʹs professionals are sometimes required to attend at worksites of its c
lients, including
constructionworksitesinthecaseofthecostconsultinganddevelopmentcostmanagementpracticearea.
Theactivitiesattheseworksitesmayinvolvecertainoperatinghazardsthatcanresultinpersonalinjury
andlossofli
fe.Therecanbenoassurancetha
ttheFundʹsinsurancewillbesufficientoreffectiveunder
all circumstances or against all claims or hazards to which it may be subject or that it will be able to
continuetoobtainadequateinsuranceprotection.Asuccessfulclaimordamageresultingfromahazard
forwh
ichitisnotfullyinsuredcould
adverselyaffecttheFundʹsresultsofoperations.
Riskoffuturelegalproceedings
TheFundisthreatenedfromtimetotimewith,orisnamedasadefend
antin,ormaybecomesubjectto
various legal proceedings in the ordinary course of conducting its business, including lawsuits based
uponprofessionalerrorsandomissions.AsignificantjudgmentagainsttheFund, ortheim
positionofa
significant fine or penalty as a res
ult of a finding that the Fund has failed to comply with laws,
regulations,contractualorotherarrangementsorprofessionalstandards,couldhaveasignificantadverse
impact on the Fundʹs financial performance. In addition, through its cost consulting and d
evelopment
cost management practice area, the Fund fre
quently acts as receiver/manager of financially troubled
developments,whicharefrequentlythesubjectoflawsuits.Shouldanyoftheindemnitiesmadeinfavor
oftheFundinrespectoftheseassignmentsfailtoberespectedorenforced,theFundmaysuffermaterial
adversefi
nancialeffects.
Legislativeandregu
latorychanges
Changestoanyof thela
ws,rules, regulationsor policiesaffectingthebusinessoftheFundwould have
an impact on the Fundʹs business. Certain elements of the Fundʹs business are influenced by the
regulatory environment of its clients, such as the requirement for pension fund ma
nagers to obtain
propertyvaluationsonanannualbasis.
Inaddition,elementsoftheFundʹsbusiness,suchasitsrealtytax
managementpractice,aresignificantlyinfluencedbytheregulatoryregimeandanychangesthereto.Any
change to laws, rules, regulations or policies may significantly and adversely affect the operations and
fin
ancialperformanceoftheFund.
Insurancelimits
Management believes that the Fundʹs professional
errors and omissions insurance and trustee, director
and officer liability insurance coverage addresses all material insurable risks, provides coverage that is
similartothatwhichwouldbemaintainedby aprudent operatorof asimilarbusinessandissubjectto
deductibles, limits and exc
lusions, which are customa
ry or reasonable given the cost of procuring
insuranceandcurrentoperatingconditions.However,therecanbenoassurancethatsuchinsurancewill
continuetobeofferedonaneconomicallyaffordablebasis,thatalleventsthatcouldgiverisetoalossor
liabilityare insurable, or tha
t the amounts of insurance will
at all times be sufficient to cover each and
everylossorclaimthatmayoccurinvolvingtheassetsoroperationsoftheFund.
56
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
OverviewofEconomicEnvironment
The International Monetary Fund (“IMF”) recently reported that the world economy expanded by an
estimated5.0%in2010.Emerginganddevelopingcountriesexperienced7.1%growthwhereasadvanced
countries saw approximately 3.0% growth. Overall, the pattern of growth through 2010 reflected peak
activity in the first quarter of 2010 and progressive moderation thereafter. In 20
11, rising food prices,
sovereign debt concerns and a tran
sition from stimulus policies to fiscal constraint in many domestic
economieswillcontinuetochallengeworldgrowth.
The Canadian economy advanced approximately 2.9% in 2010, which in real terms surpassed the peak
priortotherecession.Theeconomyproducedabout23
0,000newjobsin2010.AlthoughCanada’slabour
marketha
sbeenrecentlyperformingatahigherrate,theunemploymentrateremainselevatedandslack
remainsintheeconomy.
Canada’s commercial real estate sector recovered from 2008/2009 recession levels. Transaction activity
was strong in 2010 and investment capital has been accumulating. Accord
ing to the REALpac/IPD
CanadaPropertyIndex,totalreturnsoncommercialre
alestateexceeded11%in2010,asubstantialreturn
comparedtothemodestdeclinein2009.
Investment in new housing and renovations surged in late 2009 and spring of 2010 as a result of
anticipated unfavourable interest rate policy and ta
x measures. Sales and housi
ng starts fell sharply
subsequently in the summer and fall of 2010. Stronger housing affordability and improved consumer
confidenceisanticipatedtobringmarketsbackintobalanceinearly2011.
Governmentspendingoninfrastructurerelatedto“stimulus”programsannouncedin2009continuedto
providesupporttonon‐residentialconst
ructionactivitythroughout201
0,butisscheduledtowinddown
inthefirsthalfof2011.
Afterthreeyearswitha negativecontributiontogrowth,theoilandgassectoradvancedatanestimated
rate of 6% on an annualized basis in the fourth quarter of 2010. Unrest in the Mid
dle East and North
Africa has created con
siderable speculative demand for oil, pushing prices well into the $100 bbl
territory, and is fuelling additional investments in Canada’s energy sector. According to Statistics
Canada, capital construction investment intentions by the oil and gas sector are up 13% for 2011
followingasimi
larrisein2010.
In
the US, GDP advanced 2.8% in 2010. Despite modest growth, the unemployment rate remained at
elevated levels and the housing market remained weak due to high inventory levels. Commercial real
estate markets improved in 2010 as transactions rose in the year. Commercial mortgaged backed
secur
ities lending is report
edly on the rise, adding liquidity to the market. The US economy remains
vulnerabletohigheroilpriceswhichrepresentelevatedrisktosustainedgrowthin2011.
InAsiaPacific,theeconomicrecoverycontinued.TheChineseeconomyexpandedatanestimatedrateof
approximately 10% in the second half of 2
010, with growth continuing to rely heavily on domestic
57
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
demand. Chinese authorities have introduced several recent measures to dampen housing demand,
includingbothhigherinterestratesandtighteradministrativemeasures.GDPestimatesshowthatother
countries in the region also had significant growth including Indonesia, Vietnam and South Korea, all
with growth in excess of 6% in 2010. Capital Economics est
imates that the economy of Singapore
outpaced the growth in all other countries in As
ia with a pace of approximately 14%. Taiwan and
Thailand also both accelerated in 2010. Improving conditions in the region are in large part linked to
stronger international trade. Activity in the Australian economy grew over the second half of 2
010,
according to the Australian Reserve Bank. Strong demand for Australian commodities underpinn
ed
growth in national income alongside an elevated level of business investment. Heavy flooding in early
2011isexpectedtohaveanegativeimpactoneconomicperformanceinthemonthsahead.
TheperformanceoftheSouthAsiaeconomywassteadyin20
10.India’seconomyadvancedanesti
mated
9.2% in 2010. Its challenge ahead continues to be controlling inflation which, although dropping from
15%ayearago,isreportedtobeadvancingatapaceofapproximately10%.
RecenteconomicactivityintheMiddleEastandGu
lfregionisrecoveringslowly.SaudiAr
abia’sprivate
sector economy continues to suffer from the effects of the global slowdown and credit shortages.
Aggressive public sector spending plans in health and education in 2011 may provide an uplift.
Elsewhere, the UAE is starting to show signs of improvement with government spending, tourism and
tra
de set to lift the economy. The real estate sector, however, re
mains depressed and credit conditions
remainedtightattheendof2010.
TheUKhadoneoftheweakereconomicperformancesamongadvancedeconomiesin2010,growingat
anestimated1.7%intheyear.Furthergovernmentspendingcutbackswi
lllikelycontinuetobeadragon
the economy. The housing market sh
owed mixed performance. The Nationwide House Price Index
dippedintonegativeterritorythroughthefourthquarter,andshowedvirtuallyflatpricesfortheyearas
a whole. The commercial property market continues to emerge from the recession. The lat
est RICS
commercial market survey shows tenant demand rising in the fou
rth quarter for retail and stable for
officeand industrialproperties,but it alsoindicatedthat capital valuesfellinthe fourth quarter forthe
thirdconsecutivequarter.Investmentdemandincommercialrealestatewasreportedtobeneutral.
Outlook
Altusiswellpositionedtobenefitfromcontinuedglobalrecoveryin2011.
Followingastrongperformancein2010,theTaxpracticeinNorthAmericaisexpectedtoremainvibrant
in2011.TheBrazosacquisitionprovidedAltuswithabaseonwhichtogrowthebusinessintheUSboth
organicallyandthrougha
cquisitions.IntheUK,theramp‐upofthe2010re‐valu
ationprogramhasbeen
slower than anticipated due to completions of 2005 appeals and a slower pace in decision turnarounds
from Inland Revenue. In 2011, it is expected that UK revenues will rebound by the second half of the
year
.
In 2011,RVA will benefit from a full ye
ar of the PwC Appraisal Management Practice acquisition.This
acquisitionhas surpassed expectations and continues to exceed performance targets as new clients sign
58
AltusGroupIncomeFund
ManagementDiscussion&Analysis
December31,2010
on.Inaddition,theDatabridgeproduct, aBIsoftwareanddatatool purchasedwith thePwCAppraisal
ManagementPracticeacquisition,hasbeengainingtractioninboththeUSandCanada.
TheCostpracticeisonlynowbeginningtobenefitfromtheeconomicreboundasitsperformancetends
to lag economic cycles. 20
11 should see stronger revenue performance as new assignm
ents increase in
both Canada and the US. Altus Capital Planning is expected to outperform its 2010 results due to
significant new contract awards, such as the recently signed contract with the Ontario Board of
Education.
Altus Asia Pacific is expected to see improved results in 20
11 resulting from both top line growth and
expensere
ductionprograms.ChinaandIndiacontinuetoprovideattractivegrowthopportunities.
Withsupplyconcernshavingcreptbackintothemarketplace,oilhasrecentlyseenpricesabovethe$100
a barrel mark. This bodes very well for Geomatics as dril
ling activity continues to increase in western
Canadaandthedeman
dforitsservicescontinuetogrow.
Altuscontinuestoseeknewgrowthopportunitiesbyleveragingitsresourcesandassetsandbymaking
strategicacquisitions.Altus has a very rich base of data resources that is derived from its core rese
arch
and consulting services. In addit
ion, strategic investments in technology are providing Altus with a
distinctcompetitiveadvantage.Altus’technologyproductssuchasDatabridge,CapitalPlanning,Insight,
andAVMareexamplesofagrowingtrendinthemarketandexhibittheimportanceofdata,technology
and analytic solutions that help businesses ma
nage assets, enhance value and ma
ke strategic decisions.
Data, technology and analytics will be key drivers for future growth and a key differentiator in the
marketplace.Altusisfocusedanddeterminedtobetheindustryleader.
AdditionalInformation
Additional information by the Fund, including its Annual Information Form is available on SEDAR at
www.sedar.com
.
ThecommonsharesofAltusGroupLimitedtradeontheTorontoStockExchangeunderthesymbolAIF
andtheconvertibledebenturestradeunderthesymbolAIF.DB.
59
AltusGroupIncomeFund
ConsolidatedFinancialStatements
December31,2010
(ExpressedinThousandsofDollars)
60
AltusGroupIncomeFund
Management’sResponsibilityforFinancialReporting
TheaccompanyingconsolidatedfinancialstatementsofAltusGroupIncomeFundaretheresponsibility
of management and have been reviewed by the Board of Directors of Altus Group Limited. The
consolidated financial statements have been prepared by management in accordance with Canadian
generally accepted accounting principles an
d, where appropriate, reflect management’s best estimates
andjudgments.ManagementhasalsopreparedfinancialandallotherinformationintheAnnualReport
andhasensuredthatthisinformationisconsistentwiththeconsolidatedfinancialstatements.
The Fund maintains appropriate systems of internal control, policies and procedures, which provide
managementwithreasonabl
eassurancethatassetsaresafeguardedandthefinancialrecordsarereliable
andformaproperbasisforpreparationoffinancialstatements.
The Board of Directors of Altus Group Limited ensure that management fulfills its responsibilities for
financial reporting and internal control through an Audit Committee. This committee reviews the
consolidated fin
ancial statements and reports to the Board of Directors. The committee meets with the
auditors to discuss the results of the audit, the adequacy of internal accounting controls and financial
reportingmatters.
The consolidated financial statements have been independently audited by RSM Richter LLP in
accordance with Canadian generally ac
cepted auditing standards.Their report which follows expresses
theiropinionontheconsolidatedfinancialstatementsoftheFund.
“GaryYeoman” “AngeloBartolini”
GaryYeoman AngeloBartolini
ChiefExecutiveOfficer ChiefFinancialOfficer
March23,2011 March23,2011
61
AltusGroupIncomeFund
IndependentAuditor’sReport
TotheShareholdersof
AltusGroupLimited
ReportontheConsolidatedFinancialStatements
We have audited the accompanying consolidated financial statements of Altus Group Income Fund
whichcomprisetheconsolidatedbalancesheetsasatDecember31,2010andDecember31,2009andthe
consolidated statements of earning
s (loss) and comprehensive income (loss), deficit, accumulated other
comprehensive income (loss) andstatements of cash flows for the years then ended, and a summary of
significantaccountingpoliciesandotherexplanatoryinformation.
ManagementʹsResponsibilityfortheConsolidatedFinancialStatements
Management is responsible for the preparation and fair presen
tation of these consolidated financial
statements in accordance with Canadian generally accepted accounting principles and for such internal
controlasmanagementdeterminesisnecessarytoenablethepreparationoffinancialstatementsthatare
freefrommaterialmisstatement,whetherduetofraudorerror.
AuditorʹsResponsibility
Our responsibility is to express an op
inion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audits to
obtain reasonable assurance about whether the consolidatedfinancial statements are free fro
m material
misstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresin
the consolidated financial statements. The procedures selected depend on the auditorʹs judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or e
rror. In making those risk assessments, the auditor considers internal control
relevant to the entityʹs preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the enti
tyʹs internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.
We believe that the audit evidence we have obtained in our audits is sufficient and ap
propriate to
provideabasisforourauditopinions.
62
AltusGroupIncomeFund
Opinion
Inouropinion,the consolidatedfinancialstatementspresentfairly,inallmaterialrespects,the financial
positionofAltusGroupIncomeFundasatDecember31,2010andDecember31,2009andtheresultsof
itsoperationsanditscashflowsfortheyearsthenendedinaccordancewithCa
nadiangenerallyaccepted
accountingprinciples.
“RSMRICHTERLLP”
CharteredAccountants
LicensedPublicAccountants
Toronto,Ontario
March23,2011
63
AltusGroupIncomeFund
ConsolidatedBalanceSheets
AsatDecember31,2010and2009
(ExpressedinThousandsofDollars)
December31,2010
December31,2009
Assets
CurrentAssets
Cashandcashequivalents(note6)
$42,627
$8,995
Accountsreceivable
60,343
52,960
Work‐in‐process
25,449
20,408
Prepaidexpensesandsundryassets(note7)
4,989
3,976
Incometaxesrecoverable
368
179
Futureincometaxassets(note18)
4,186
2,036
137,962
88,554
Long‐termPortionofPrepaidExpensesandSundryAssets(note7)
3,211
1,833
Investment(note8)
7,347
5,385
FutureIncomeTaxAssets(note18)
8,286
8,441
Property,PlantandEquipment(note9)
17,460
16,640
IntangibleAssets(note10)
45,345
53,167
Goodwill(note2)
160,443
165,428
TotalAssets$380,054
$339,448
LiabilitiesandUnitholders’Equity
CurrentLiabilities
Accountspayableandaccruedliabilities
$31,414
$28,771
Payablestovendors(note2)
1,669
1,799
Distributionspayable(note27)
‐
2,974
Currentportionoflong‐termdebt(note12)
198
175
Othercurrentliabilities(note13)
1,564
390
Incometaxespayable
718
802
Futureincometaxliabilities(n
ote18)
1,244
984
36,807
35,895
Long‐termPayablestoVendors(note2)
5,911
10,380
ConvertibleDebentures(note11)
43,019
‐
Long‐termDebt(note12)
88,417
69,854
OtherLong‐termObligations(note14)
1,838
3,368
FutureIncomeTaxLiabilities(note18)
9,243
10,693
Non‐controllingInterest(note21)
20,014
23,225
TotalLiabilities
205,249
153,415
CommitmentsandContingencies(note15)
UnitholdersʹEquity
Units(note20)
244,508
237,463
EquityComponentofConvertibleDebentures(note11)
4,356
‐
ContributedSurplus(note25)
4,093
2,498
AccumulatedOtherComprehensiveIncome(Loss)
(12,602)
(9,174)
Deficit
(65,550)
(44,754)
(78,152)
(53,928)
TotalUnitholders’Equity
174,805
186,033
TotalLiabilitiesandUnitholders’Equity$380,054
$339,448
Seeaccompanyingnotes
ApprovedonBehalfoftheBoardofTrustees
“HarveyNaglie” ”EricSlavens”’
HarveyNaglieEricSlavens
64
AltusGroupIncomeFund
ConsolidatedStatementsofDeficit
FortheYearsEndedDecember31,2010and2009
(ExpressedinThousandsofDollars)
Fortheyearended
December31,2010
Fortheyearended
December31,2009
Balance–BeginningofYear$(44,754)
$(25,178)
Netearnings(loss)
3,148
3,388
(41,606)
(21,790)
Distributionsdeclaredtounitholders(note27)
23,944
22,964
Balance–EndofYear$(65,550)
$(44,754)
Seeaccompanyingnotes
ConsolidatedStatementsofAccumulatedOtherComprehensiveIncome(Loss)
FortheYearsEndedDecember31,2010and2009
(ExpressedinThousandsofDollars)
Fortheyearended
December31,2010
Fortheyearended
December31,2009
Balance–BeginningofYear$(9,174)
$(6,867)
Othercomprehensiveincome(loss)
(3,428)
(2,307)
Balance–EndofYear(note22)$(12,602)
$(9,174)
Seeaccompanyingnotes
65
AltusGroupIncomeFund
ConsolidatedStatementsofEarnings(Loss)and
ComprehensiveIncome(Loss)
FortheYearsEndedDecember31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
Seeaccompanyingnotes
Fortheyearended
December31,2010
Fortheyearended
December31,2009
Revenues
Revenues
$252,520
$219,766
Less:disbursements
25,352
26,122
NetRevenue
227,168
193,644
Expenses
Salariesandbenefits
155,768
127,574
Generalandadministrative
38,718
32,836
Amortizationofintangibleassets
21,522
24,088
Amortizationofproperty,plantandequipment
4,226
4,076
Interest
4,155
3,514
224,389
192,088
Earnings(Loss)BeforeUndernotedItems 2,779
1,556
Equityaccountedearnings(loss)(note8)
(1,038)
(615)
Earnings(Loss)BeforeIncomeTaxesandNon‐controllingInterest 1,741
941
Currentincometaxexpense(recovery)(note18)
871
459
Futureincometaxexpense(recovery)(note18)
(3,219)
(4,077)
(2,348)
(3,618)
Earnings(Loss)BeforeNon‐controllingInterest 4,089
4,559
Non‐controllinginterest(note21)
941
1,171
NetEarnings(Loss)fortheYear$3,148
$3,388
OtherComprehensiveIncome(Loss),NetofTax
Gain(loss)oninterestrateswapsdesignatedascashflowhedges
144
427
Unrealizedgain(loss)ontranslatingfinancialstatementsofself‐
sustainingforeignoperations
(3,572)
(2,734)
(3,428)
(2,307)
ComprehensiveIncome(Loss)$(280)
$1,081
Basicearnings(loss)perunit
$0.16
$0.18
Weightedaveragenumberofunits(note24)
19,943,823
19,124,931
Dilutedearnings(loss)perunit
$0.16
$0.18
Weightedaveragenumberofdilutedunits(note24)
22,579,492
21,649,536
66
AltusGroupIncomeFund
ConsolidatedStatementsofCashFlows
FortheYearsEndedDecember31,2010and2009
(ExpressedinThousandsofDollars)
Fortheyearended
December31,2010
Fortheyearended
December31,2009
FundsProvided(Used)
OperatingActivities
Netearnings(loss)fortheyear
$3,148
$3,388
Non‐controllinginterest
941
1,171
Amortizationofintangibleassets
21,522
24,088
Amortizationofproperty,plantandequipment
4,226
4,076
Amortizationofleaseinducements
195
(6)
Amortizationofinterestexpense
858
364
Unrealizedforeignexchange(gain)loss
(705)
365
Ex
ecutiveCompensationPlan(notes25and29)
3,430
1,849
(Gain)lossondisposalofproperty,plantandequipment
102
(362)
Equityaccountedloss(earnings)
1,038
615
Futureincometaxexpense(recovery)
(3,219)
(4,077)
31,536
31,471
Netchangesinoperatingworkingcapital
(13,656)
(4,044)
17,880
27,427
FinancingActivities
Proceedsfromissuanceofconvertibledebentures
50,000
‐
Proceedsfromexerciseofoptions(note29)
1,506
‐
RedemptionofAltusUKLLPClassBandDunitsandAltusLP
Series1ClassBunits
(709)
(468)
Financingfeespaid
(2,482)
(1,799)
Proceedsfromlong‐termdebt
18,335
57,758
Repaymentoflong‐termdebt
(176)
(23,095)
Bankindebted
ness,net
‐
(5,000)
Distributionspaid
(30,317)
(26,464)
Repaymentofobligationsundercapitalleases
(247)
(363)
35,910
569
InvestingActivities
Purchaseofinvestment
(3,000)
(3,000)
Acquisitions(netofcashacquired)(note 2)
(10,501)
(21,357)
Purchaseofintangibleassets
(1,455)
(2,010)
Proceedsfromthedisposalofintangibleassets
‐
490
Purchaseofproperty,plantandequipment
(4,843)
(1,417)
Proceedsfromthedisposalofproperty,plantandequipment
123
368
(19,676)
(26,926)
Effectofforeigncurrencytranslation (482)
129
Increase(Decrease)inCashandCashEquivalents 33,632
1,199
CashandCashEquivalents
Beginningofyear 8,995
7,796
Endofyear$42,627
$8,995
Interestpaid
$3,646
$2,132
Incometaxespaid
1,001
168
Seeaccompanyingnotes
67
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
1. OrganizationandNatureoftheBusiness
Altus Group Income Fund (“Fund”) is an unincorporated, open‐ended, limited‐purpose trust,
established under the laws of the Province of Ontario that indirectly owns or controls operating
entities located within Canada, the United Kingdom (“UK”), the United States of America (“US”),
Australiaan
dseveralcountriesinAsia.
TheFundprovidesrealest
ateconsulting,professionaladvisoryandtechnicalservices.Itsbusinessis
conducted through four real estate‐related practice areas: Research, Valuation & Advisory; Cost
Consulting&ProjectManagement;RealtyTaxConsulting;andGeomatics.
“Altus”refers totheconsolidatedoperationsoftheFund.
2. Acquis
itions
Acquisitions are acco
unted for by the purchase method with the results of operations included in
theseconsolidatedfinancialstatementsfromtherespectiveacquisitiondates.
2010
PurchasePriceAdjustmentonAcquisitionofPageKirklandGroup
IncludedinthetotalconsiderationforthePageKirklandGroup(“PageKirkland”)ac
quisitionwasa
holdback of $9,480, wh
ich would only be paid to the vendors if certain performance targets were
achieved over a two to three year period. During the fourth quarter of 2010, the amount was
reversed with a corresponding adjustment to goodwill and intangible assets as it was determined
that the performa
nce targets were not likely to be achieved. Furt
her, the interest accretion and net
foreign exchange losses previously recorded related to this holdback of $2,322 and $951,
respectively,havebeenreversed.Totheextentthatthereisanadditionalpayment,thiswillresultin
anincreasetogoodwill.
AcquisitionofBrazosTaxGr
oupLLP
EffectiveJune1,2010,theFundindi
rectlyacquiredcertainbusinessassetsofBrazosTaxGroupLLP
(“Brazos”)forapproximately$2,155,subjecttoadjustments.Aspartialconsiderationforsuchassets,
theFundissued 20,886 Fund Units. The valueofthe Fund Unitsof $273 was determined ba
sedon
the trading value of the Fu
nd Units prior to closing. A holdback of $105 US Dollars and $110 US
Dollars is due on the first and second anniversary of the acquisition, respectively. A holdback of
$508 US Dollars is due onthe second anniversary of the acquisition subject to certain performa
nce
targets being achieved. At the acquisition date, the discounted, Ca
nadian Dollar amounts of the
holdbacks were $635. The holdback is not secured. Brazos was a US‐based property tax company
providing services such as business and personal property tax compliance and appeals, real estate
valuationappealsandpropertyta
xpaymentadmi
nistrationandduediligence.
68
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
2. Acquisitions,cont’d
AcquisitionofPetersSurveysLtd.
Effective July 2, 2010, the Fund indirectly acquired certain business assets of Peters Surveys Ltd.
(“Peters”)forapproximately$1,033,subjecttoadjustments.Aspartialconsiderationforsuchassets,
theFundissued9,868AltusLP Series1ClassBlimitedpartnershipunits. Theva
lueof theseAltus
LPSeries1ClassB
limitedpartnershipunitsof$120wasdeterminedbasedonthetradingvalueof
theFundUnitspriortoclosing.Aholdbackof$1,000isdueonSeptember30,2011subjecttocertain
performancetargetsbeingachieved.Attheacquisitiondate,only$600ofthi
sholdbackwasincluded
inthepurchase price.Thediscou
ntedamountof thisholdback was$536.Peterswasa professional
landsurveyingandplanningfirm,providingabroadrangeofgeomaticserviceswithintheprovince
ofSaskatchewan,Canada.
AcquisitionofPricewaterhouseCoopers’US‐basedRealEstateAppraisalManagementPractice
Effect
ive July 30, 2010, the Fund indirectl
y acquired certain business assets of
PricewaterhouseCoopersʹ US‐based Real Estate Appraisal Management Practice (“PwC Appraisal
ManagementPractice”) forapproximately$17,443, subject to adjustments. As partial consideration
for such assets, the Fund issued 236,204 Fund Units. The value of these Fund Units of $3,236 was
determinedba
sedonthetradi
ngvalueof theFund Unitsprior to closing.The agreementprovides
foranadditionalpurchasepaymentifaverageearningsexceeda certainthresholdonthethree‐year
anniversary. While there is no maximum amount stipulated in the agreement, the Fund has
estimatedthecontingentconsiderationtobe$5,
330,onadiscountedba
sis,whichisreflectedinthe
purchase price. The PwC Appraisal Management Practice provided comprehensive valuation
consulting and analytic services to a roster of global clients through a national practice operated
fromofficesinJerseyCity,Houston,IrvineandAtlantaintheUS.
69
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
2. Acquisitions,cont’d
YearendedDecember31,2010
PageKirkland Brazos Peters
PwC
Appraisal
Management
Practice
Total
Netassetsacquiredbefore
non‐controllinginterest:
Networkingcapital(excluding
cash)
$‐ $301$150$494
$945
Property,plantandequipment
‐ 28 219‐
247
Intangibleassets
(1,763) 1,328 360 13,547
13,472
Goodwill
(7,717) 498 304 3,402
(3,513)
$(9,480)$2,155$1,033$17,443
$11,151
Consideration:
Cashconsideration,including
transactioncosts
$‐ $1,247$377$8,877
$10,501
Holdbacks
(9,480) 635 536 5,330
(2,979)
AltusLPClassBlimited
partnershipunits(note20)
‐ ‐ 120‐
120
FundUnits(note20)
‐ 273‐3,236
3,509
$(9,480)$2,155$1,033$17,443
$11,151
2009
AcquisitionofPageKirklandGroup
EffectiveJuly31,2009,theFundindirectlyacquired100%ofthesharesincertainbusinesses carried
onbyPageKirklandforapproximately$34,611,subjecttoadjustments.Aspartialconsiderationfor
such shares, the Fund issued 758,144 Fund Units. The value of these Fund Units was de
termined
based on the trading value of the Fu
nd Units prior to closing. A holdback of $14,280 Australian
Dollars is due within a two to three year period subject to certain performance targets being
achieved. At the acquisition date, the discounted, Canadian Dollar amount of the holdback was
$9,480. The holdbac
k is not secured. Page Kirkland operated in eight coun
tries across the Asia
PacificregionandHawaii,US,providingservicesincludingcostmanagement,projectmanagement,
assetandfacilitiesmanagementanddevelopmentmanagement.
70
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
2. Acquisitions,cont’d
PurchasePriceAdjustmentonAcquisitionofthePropertyTaxPracticeofDeloitteCanada
Effective May 30, 2009, the purchase price with respect to the acquisition of the Property Tax
PracticeofDeloitteCanada(“Deloitte”)wasfinalizedresultinginanincreasetogoodwillof$77.
AcquisitionofSuviusInc
.
EffectiveMay1,2009,theFundindirec
tlyacquiredcertainbusinessassetsofSuviusInc.(“Suvius”)
forapproximately$5,132, subjecttoadjustments.Aspartialconsiderationfor suchassets,theFund
issued130,909AltusLPSeries1ClassBlimitedpartnershipunits.ThevalueoftheseAltusLPSeries
1 Class B limi
ted partnership units
of $1,440 was defined in the asset purchase agreement.
Additional Altus LP Series 1 Class B limited partnership units will be issued to the vendors if the
averageclosing tradingpriceof theUnitsforanytenconsecutivetradingdaysduringthefirsttwo
years does no
t achieve a minimum of $11.00 per Unit. Su
vius provided administrative and field
services support to Lennon Trilogy Professional Land Surveyors (“Lennon Trilogy”). Altus
GeomaticswillcontinuetoprovideadministrativeandfieldservicessupporttoLennonTrilogy.
PurchasePriceAdjustmentonAcquisitionofCrapeGeomaticsCorporation
DuringthethreemonthsendedMarch31
,2009,thepurchasepricewithrespecttotheacquisit
ionof
Crape Geomatics Corporation (“Crape”) was finalized. The final purchase price adjustment was
$1,050 of which $617 had been accrued as at December 31, 2008. The additional $433 payable
resultedinanincreasetogoodwill.Thepurchasepriceadjustmentwassettl
edincashof$525,paid
subseq
uent to the quarter ended March 31, 2009, and 46,791 Altus LP Series 1 Class B limited
partnership units which were effective as of January 1, 2009 (note 20). The value of the Altus LP
Series1ClassBlimitedpartnershipunitsof$52
5wasdefinedintheassetpurchaseagreement.
Purcha
sePriceAdjustmentonAcquisitionofGéocomRechercheInc.
EffectiveMarch1,2009,thepurchasepricewithrespecttotheacquisitionofGéocomRechercheInc.
(“Géocom”) was finalized. As Géocom did not meet the predetermined earnings threshold, a
purchasepriceadjustmentof$(
163)resultedinareductiontogoodwill.
71
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
2. Acquisitions,cont’d
PurchasePriceAdjustmentonAcquisitionofCapitalPlanningSolutionsInc.
During the three months ended March 31, 2009, the Fund incurred additional transaction costs of
$200 in relation to the acquisitionof Capital Planning Solutions Inc. (“CPSI”) which resulted in an
increasetogoodwill.
Includedinthe tota
lconsiderationfortheCPSIacquisit
ionwasaholdbackof$1,672,whichwould
onlybepaidto thevendor ifcertainperformancetargets wereachieved.Duringthefourthquarter
of2009,theamountwasreversedwithacorrespondingadjustmenttogoodwillastheamountofthe
holdback payable could not be determined beyond a re
asonable doubt. Discussion
s are currently
underwaywiththevendorsofCPSIregardingachievementoftheseperformancetargets,whichwill
determinewhat,ifany,finalcontingentconsiderationwillbepayable.Totheextentthatthereisan
additionalpayment,thiswillresultinanincreasetogoodwill.
YearendedDecember31,2009
Page
Kirkland
Deloitte Suvius Crape Géocom CPSI Total
Netassetsacquiredbeforenon‐
controllinginterest:
Cash
$1,392$‐ $‐ $‐ $‐ $‐ $1,392
Networkingcapital(excluding
cash)
2,051 (77) 419‐‐‐2,393
Property,plantandequipment
1,158‐919‐‐‐2,077
Intangibleassets
13,857‐2,910‐‐‐16,767
Futureincometaxassets
765‐‐‐‐‐765
Futureincometaxliabilities
(1,811)‐‐‐‐‐(1,811)
Long‐termobligations
(460)‐‐‐‐‐(460)
Goodwill
17,659 77 884 433 (163) (1,472) 17,418
$34,611$‐ $5,132$433$(163)$(1,472)$38,541
Consideration:
Cashconsideration,including
transactioncosts
$19,316$‐
$2,708$525$‐ $200$22,749
Payable
‐ ‐ ‐ (617)‐‐(617)
Holdbacks
9,480‐984‐(163) (1,672) 8,629
AltusLPClassBlimited
partnershipunits(note20)
‐ ‐ 1,440 525‐‐1,965
FundUnits(note20)
5,815‐‐‐‐‐5,815
$34,611$‐ $5,132$433$(163)$(1,472)$38,541
72
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
2. Acquisitions,cont’d
Intangibleassetsacquiredareasfollows:
Yearended
December31,2010
Yearended
December31,2009
Finite‐lifeassets
Brandsofacquiredbusinesses
$‐
$2,430
Computerapplicationsoftware
‐
162
Customsoftwareapplications
1,448
‐
Customerbacklog
72
3,127
Customerlists
10,574
9,800
Employmentcontractsandnon‐competeagreements
1,378
1,248
$13,472
$16,767
Accountinggoodwillacquiredbysegmentisasfollows:
RVA RealtyTax Cost Geomatics Corporate Total
Yearended
December31,2010 $3,402$498$(7,717)$304$‐ $(3,513)
Yearended
December31,2009
(163) 77 16,187 1,317‐17,418
Certainincometaxelectionsmaybefiledbythevendorsoftheacquiredcompanieswithinoneyear
from the acquisition date and may result in adjustments to the purchase price equation. To that
extent,thepurchasepriceequationwouldbeaffectedwitharelatedadjustmenttogoodwill.
Goodwill acquired and deductib
le for tax purposes for the year ended December 31, 20
10 was
$12,862(yearendedDecember31,2009–adeductionof$1,472).
73
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
3. ChangeinAccountingPolicies
GoodwillandIntangibleAssets
Effective January 1, 2009, the Fund adopted the Canadian Institute of Chartered Accountants
(“CICA”)HandbookSection 3064,Goodwill and IntangibleAssets,which establishesstandardsfor
recognition,measurement,presentationanddisclosureofgoodwillandintangibleassets.Asaresult
ofadoptingthenewstandardretroactively,onJa
nuary1,2009,theFundhasreclassifiedapplic
ation
softwarecostsfromproperty,plantandequipmenttointangibleassets.Therewasnoimpactonthe
Fund’sconsolidatednetearnings.
FinancialInstruments–RecognitionandMeasurement
Effective for the annual financial statements ended December 31, 2009, the Fund adop
ted
amendments made to CICA Handbook Section 3855, Fin
ancial Instruments – Recognition and
Measurement.Section3855hasbeenamendedtochangethecategoriesintowhichadebtinstrument
is required or permitted to be classified, to change the impairment model for held‐to‐maturity
financialassets to the incurred credit lo
ss model in Section 3025, Impaired Loans, an
drequiresthe
reversalofpreviouslyrecognizedimpairmentlossesonavailable‐for‐salefinancialassetsinspecified
circumstances. The adoption of these amendments had no significant impact on the consolidated
financialstatements.
FinancialInstruments−Disclosures
Effective for the annual financial statements ended Decemb
er 31, 2009, the Fund adopted
amendments ma
de to CICA Handbook Section 3862, Financial Instruments – Disclosures. Section
3862hasbeenamendedtoincludeadditionaldisclosurerequirementsaboutfairvaluemeasurement
of financial instruments and to enhance liquidity risk disclosure requirements for publicly
accountableenterprises.Theadoptionoftheseamendmentsresultedinadd
itionaldisclosuresinthe
notestotheco
nsolidatedfinancialstatements.
CreditRiskandtheFairValueofFinancialAssetsandFinancialLiabilities
EffectiveJanuary 1, 2009, the Fund adopted CICA Emerging Issues Committee (“EIC”)‐173, Credit
RiskandtheFairValueofFinancialAssetsandFinancialLiabilities,whichre
quiresthatanentity’s
owncreditriskandthecr
editriskofthecounterpartyshouldbetakenintoaccountindetermining
thefairvalueoffinancialassetsandfinancialliabilities,includingderivativeinstruments.EIC‐173is
to be applied retrospectively without restatement of prior periods. The adoption of this
recommendationhadnosi
gnificantimpactontheconsolidatedfinancialst
atements.
74
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
4. SummaryofSignificantAccountingPolicies
TheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewithCanadiangenerally
acceptedaccountingprinciples(“GAAP”)andreflectthefollowingsignificantaccountingpolicies:
PrinciplesofConsolidation
The consolidated financial statements include the accounts of Altus Group Income Fund and its
wholly owned subsidiaries. Altus Group Tax Consulting Par
alegalProfessional Corporation, Altus
Geoma
tics Land Surveying BC Limited and Lennon Trilogy Professional Land Surveyors are
variable interest entities and are consolidated in the financial statements of the Fund pursuant to
CICAHandbook Section1590,Subsidiaries, asclarifiedby AccountingGuideline15,Consolidation
ofVariableInterestEntities.
Allsi
gnifica
ntintercompanytransactionsandbalanceshavebeeneliminatedonconsolidation.
RevenueRecognition
Revenueisrecognizedwhenpersuasiveevidenceofanarrangementexists,servicesareperformed,
the fee to the customer is fixed or determinable, and collection of the resulting receivable is
reasonablyassured. Revenueis measured in one of three ways: co
st plus contracts recor
d revenue
on an hourly basis as work is performed; fixed price contracts record revenue on a percentage of
completion basis; and contingency arrangements record revenue when the uncertainty is resolved
andthefeebecomesdeterminable.Lossesarerecognizedintheperiodidentified.
Services rend
ered but not yet billed are recognized in revenue andrecorded as work‐in‐pr
ocess at
the lower of standard rates per hour in effect at the time the services were rendered and net
realizablevalue.
Customerretainersonwork‐in‐processareincludedinaccountspayableandaccruedliabilities.
Revenu
e is recorde
d on a gross basis when Altus is a principal to the transaction and net of costs
when Altus is acting as an agent between the customer and the vendor. Several factors are
consideredindeterminingwhetherAltusisaprincipaloranagenttoatransaction,includingwhois
theprimaryobligatortothecustomer,whoestablishespricing,whethertheam
ountearnedisfixed,
andwhobearsthecreditrisk.
CashandCashEquivalents
Cash and cash equivalents include cash on hand, bank balances and short‐term, highly liquid
investmentswhichgenerallyhaveoriginalmaturitiesofthreemonthsorless.
75
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
4. SummaryofSignificantAccountingPolicies,cont’d
Property,PlantandEquipment
Property,plantandequipmentarerecordedatcostandareamortizedovertheremainingusefullife
oftheassetsonthedecliningbalancemethod:
Buildings 4%
Parkinglot 8%
Leaseholdimprovements 20%
Furniture,fixturesandequipment 20‐35%
Computerequipment 30%
Inta
ngibleAssets
Intangibleassetsareassetsacq
uiredthatlackphysicalsubstanceandthatmeetthespecifiedcriteria
forrecognitionapart fromgoodwill. Intangibleassetswitha finitelife are recordedatcost andare
amortized over the period of expected future benefit on the straight‐line method or d
eclining
balancemethod:
Brandsofacq
uiredbusinesses1yearstraight‐line
Computerapplicationsoftware 30%decliningbalance
Customsoftwareapplications 2yearsstraight‐line
Customerbacklog 2‐3yearsstraight‐line
Customerlists 5yearsstraight‐line
Databases 2yearsstraight‐line
Employmentcontractsandnon‐competeagreements3ye
arsstraight‐line
Intangible asset
s which have an indefinite life are recorded at cost and are not amortized.
Management considers the Altus Group brand to be an indefinite life asset. On an annual basis,
managementreviewsthecarryingamountofintangibleassetswhichhaveanindefinitelife,ormore
frequently upon the occurrence of ce
rtain events or circumst
ances, for possible impairment by
evaluatingdiscountedcashflows.Intangibleassetsarewrittendowntotheirestimatedfairvalueas
determinedbydiscountedcashflowswhenadeclineisidentified.
76
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
4. SummaryofSignificantAccountingPolicies,cont’d
Goodwill
Goodwill is not amortized and is subject to an annual impairment test. Goodwill impairment is
evaluated between annual tests upon the occurrence of certain events or circumstances. Goodwill
impairment is assessed based on a comparison of the reporting unit’s carrying amount to it
s fair
value. When the carrying amount of the reporting unit
exceeds its fair value, the fair value of the
reporting unit’s goodwill is compared with its carrying amount to measure the amount of
impairment loss, if any. Management tested goodwill forimpairment as at December 31, 2010 and
determinedth
atnoimpairmentexists.
Long‐li
vedAssets
Long‐livedassets, which comprise property, plant and equipment and intangible assets with finite
lives, are reviewed for impairment if events or changes in circumstancesindicatethat the carrying
value may not be recoverable. If the sum of the undiscountedfuture cash flows expected fromuse
andre
sidualvalueislessthantheca
rryingamount,thelong‐livedassetisconsideredimpaired.An
impairment loss is measured as the amount by which the carrying value of the long‐lived asset
exceedsitsfairvalue.
DerivativeFinancialInstruments
TheFund hasenteredintoint
erestrateswapagreementsforthepurposesofmanaginginte
restrate
exposure and not for trading or speculative purposes. Derivatives are initially recognized at fair
value when a derivative contract is entered into and are subsequently re‐measured at their fair
value. Derivatives that have been designatedand function effectivelyas a hedgeareacco
unted for
usinghedgeaccountingprinciples.
Deriva
tivesthatdonotqualifyforhedgeaccountingarerecordedontheconsolidatedbalancesheet
atfairvaluewithchangesinfairvaluerecordedasinterestexpenseintheconsolidatedstatementof
earnings(loss).
For derivates that are designated as a ca
sh flow hedge, the effective portion of the changes in fair
value are recognized in other comprehensive
income (loss) and any ineffective portion in net
earnings(loss)fortheperiod.
77
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
4. SummaryofSignificantAccountingPolicies,cont’d
IncomeTaxes
The Fund is subject to taxes computed under the Income Tax Act (Canada). The Fund recognizes
futureincometaxassetsandliabilitieswithacorrespondingadjustmenttofuturetaxexpense,based
on temporary differences expected to reverse after January 1, 2011 at the subst
antively enacted tax
rateapplicabletotheFun
din2011,asdescribedbelow.
TheFundfollowstheassetandliabilitymethodofaccountingforincometaxes.Underthismethod,
future income tax assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets an
d liabilities, and are calculated
using the substantively enacted
taxratesandlawsthatwillbeineffectwhenthedifferencesareexpectedtoreverse.Futureincome
tax assets, if any, are recognized only to the extent that, in the opinion of management, it is more
likelythannottha
ttheassetswillberealized.
ForeignCurrencyTr
anslation
Assets and liabilities of self‐sustaining foreign operations denominated in foreign currencies are
translated into Canadian dollars, at the exchange rates in effect at each period‐end date. Revenue
andexpensesdenominatedinforeigncurrenciesaretranslatedintoCanadiandollars,attheav
erage
foreigncurrencyexchangeratefortheyear.Theresultingexchangegain
sorlossesontranslationare
recordedinaccumulatedothercomprehensiveincome(loss).
For other transactions, accounts in foreign currency have been translated into Canadian dollars as
follows:monetaryitemsatexchangeratesineffectatthebalancesheetdate;no
n‐monetaryitemsat
exchange rates in effect on the date
s of the transactions; and revenue and expenses at average
exchange rates prevailing during the year. Gains and losses arising from these foreign currency
translationsarerecordedinnetearnings(loss)fortheperiod.
UseofEstimates
The p
reparation of the consolidated financial statements requires ma
nagement to make estimates
and assumptions which affect the reported amounts of assets and liabilities at the date of the
consolidatedfinancialstatementsandrevenueandexpensesrecognizedfortheperiodsreported.By
their nature, these estimates are subjectto measurementuncertainty andare reviewed per
iodically
and adjustme
nts, if necessary, are made in the period in which they are identified. Actual results
maydifferfromtheseestimates.Significantestimatesusedinthepreparationofthese consolidated
financialstatementsincludevaluationofwork‐in‐process,provisionfordoubtfulaccounts,valuation
of long‐lived assets and goodwill and det
ermination of purchase price alloc
ations and contingent
considerationforacquisitions.
78
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
4. SummaryofSignificantAccountingPolicies,cont’d
FinancingCosts
Transaction costs incurred in the assumption of long‐term debt and convertible debentures have
beenincludedinthecarryingvalueoftherelateddebt.
ExecutiveCompensationPlan
The Fund recognizes a compensation cost in net earnings (loss) related to employee Un
it option
grantsthatwillbesettledbyissuingFundUnits
.ThecompensationcostisthefairvalueoftheUnit
options on the grant date using the Black‐Scholes option pricing model and is recognized as an
expensewithacorrespondingcredittocontributedsurplusoverthevestingperiod.Ontheexercise
of the options, the conside
rationpaid by the employee and the related fair value of the option
are
credited to Units within Unitholders’ Equity. Forfeitures or cancellation of option grants are
accountedforintheperiodinwhichtheyoccur.
TheFundrecognizesacompensationcostinnetearnings(l
oss)relatedtotheDeferred
Performance
Planthat will besettledby issuingequity. Thecompensation costisdetermined based onthepay‐
out ratio achieved by the Fund and the distributions declared and paid by the Fund in respect of
2,213,668 (2009 – 1,831,454) underlying Units approved for issu
ance. The compensati
on cost is
recognizedasanexpensewithacorrespondingcredittocontributedsurplus.Whenunitsareissued
tosettletheobligation,theamountpreviouslyrecordedtocontributedsurplusistransferredtounits
withinUnitholders’Equity.
LeaseInducements
Lease inducements received in the form of cash, leasehold improvements or rent free periods are
deferr
edand amortizedon a str
aight‐linebasisas a reduction of rent expenseover the term of the
relatedlease.
Foroperatingleaseswithescalatingrentalterms,totalrentpaymentsareexpensedonastraight‐line
basis over the term of the lease. The difference be
tween rent expense and the amount paid is
recordedasanincre
aseorreductioninleaseinducements.
Leases
Leases are classified as operating or capital leases, depending on whether substantially all of the
risksandrewardshavebeentransferredtothelessee.Capitalleasesarecapitalizedbyrecordingthe
ass
et,alongwiththerelatedobligation,toreflecttheacq
uisitionandfinancing.
79
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
4. SummaryofSignificantAccountingPolicies,cont’d
Investment
As determined by GAAP, the Fund has significantinfluence with respect to its investment in Real
MattersInc.(“RealMatters”),formerlyknownasSolidifiInc.Asaresult,theequitymethodisused
to account for this investment. Under the equity method, the origin
al cost of the investment is
adjusted for the Fund’s proportionate share of post‐acqu
isition net earnings (loss) and other
comprehensiveincome(loss)andreducedbyanydividendspayabletotheFund.Theinvestmentis
writtendownwhenthereisalossinvaluethatisotherthantemporary.
FinancialAss
ets
Held‐for‐trading
Financialass
etsthatareheldwiththeintentionofgeneratingprofitsinthenearterm,andderivative
contractsthat arefinancialassets,except fora derivativethat isa designatedand effectivehedging
instrument, are classified as held‐for‐trading. In addition, any other financial assets can be
designated by the Fund upon in
itial recognition as held‐for‐tra
ding. These instruments are
subsequentlyre‐measuredatfairvaluewiththechangeinthefairvaluerecognizedinnetearnings
(loss)duringtheperiod.
Held‐to‐maturity
Financialassetsthathaveafixedmaturitydate,andwhichtheFun
dhasapositiveintentionandthe
abilit
ytoholdtomaturity,areclassifiedasheld‐to‐maturity,whicharesubsequentlyre‐measuredat
amortizedcostusingtheeffectiveinterestratemethod.
Loansandreceivables
Loansandreceivablesarenon‐derivativefinancialassetsresultingfromthedeliveryofcashorother
ass
ets in return for a promise to repa
y on a specified date, or on demand, usually with interest.
Loans and receivables are subsequently re‐measured at amortized cost using the effective interest
ratemethod.
Available‐for‐sale
Available‐for‐sale assets are non‐derivative financial assets that are ei
ther designated in this
category or not classified in any of the other categor
ies. Financial assets classified as available‐for‐
sale are subsequently re‐measured at fair value, with the changes in fair value recorded in other
comprehensiveincome(loss).
80
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
4. SummaryofSignificantAccountingPolicies,cont’d
Portfolioequityinvestmentsnotquotedinanactivemarketarerecordedatcost,andtheincomeon
theinvestmentisrecordedwhendividendsarereceived.Ifthefairvalueofthefinancialassetisless
than its carrying amount and the decline is other tha
n temporary, then the asset is consider
ed
impaired. An impairment loss is measured as the amount by which the carrying value exceeds its
fairvalueandisrecordedinnetearnings(loss)fortheperiod.
FinancialLiabilities
Held‐for‐trading
Financial liabilities that are held with the intention of generating profits in the near term, and
deriv
ative contracts that are financia
l liabilities, except for a derivative that is a designated and
effective hedging instrument, are classified as held‐for‐trading. In addition, any other financial
liabilities can be designated by the Fund upon initial recognition as held‐for‐trading. These
inst
rumentsaresubsequentlyre
‐measuredatfairvaluewiththechangeinthefairvaluerecognized
innetearnings(loss)duringtheperiod.
Otherliabilities
Non‐derivativefinancialliabilitiesthathavenotbeendesignatedasheld‐for‐tradingareclassifiedas
other liabilities, which are subsequently re‐measured at am
ortized cost using the effective interest
ratemethod.
TheFundhasclassifiedit
sfinancialinstrumentsasfollows:
FinancialInstrument
Classification
Cashandcashequivalents Held‐for‐trading
Accountsreceivable Loansandreceivables
Accountspayableandaccruedliabilities Otherliabilities
Payablestovendors Otherliabilities
Distributionspayable Otherliabilities
Othercurrentliabilities Otherliabilities
Obligationsundercapitalleases Otherliabilities
Redemptionproceedspayable Otherliabilities
Convertibledebentures Otherliabilities
Long‐termdebt Otherli
abilities
Otherlong‐termobligation
s Otherliabilities
81
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
5. RecentAccountingPronouncements
InternationalFinancialReportingStandards
TheCICA isconverging GAAPwithInternational FinancialReportingStandards(“IFRS”)effective
January1,2011.WhileIFRSrequirements willhaveaneffectivedateofJanuary1,2011, itwill also
requirethe restatementfor comparativepurposesof amountsreported bytheFundfor theint
erim
andannualfinancialstatementsin2010.
Asaresu
ltoftheadoptionofIFRS,futureaccountingchangesrelatingtoGAAParenotapplicablein
theseconsolidatedfinancialstatementsastheywillneverbeappliedbytheFund.
6. CashandCashEquivalents
Cashandcashequivalentscompriseof:
December31,2010
December31,2009
Cash
$9,644
$8,995
TermDeposits
32,983
‐
$42,627
$8,995
82
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
7. PrepaidExpenses
AspartoftheReferralandServicesAgreementbetweenAltusResidentialLimitedandRealMatters,
the Fund has paid a Sales and Account Management Fee of $3,500 with respect to services to be
performed over the 20 year agreement ending April 2029. This amount has been included with
prepaidexpe
nsesandisbeingamortizedonastr
aight‐linebasisoverthetermofthecontract.
8. Investment
Duringthe second quarter of 2009, the Fund increased its investmentinRealMatters and adopted
the equity method of accounting as it was established that it obtained significant influence with
respecttothisinve
stment.
Amount
BalanceDecember31,2008$3,000
AdditionalinvestmentinRealMatters3,000
Equityaccountedearnings(loss)for2009(615)
BalanceDecember31,20095,385
AdditionalinvestmentinRealMatters3,000
Equityaccountedearnings(loss)for2010(1,038)
BalanceDecember31,2010$7,347
83
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
9. Property,PlantandEquipment
December31,2010
Cost
Accumulated
Amortization
NetCarrying
Amount
Land$706$‐
$706
Buildings 3,702 615
3,087
Parkinglot 99 31
68
Leaseholdimprovements 4,348 1,681
2,667
Furniture,fixturesandequipment 12,074 6,753
5,321
Computerequipment 12,100 6,489
5,611
$33,029$15,569
$17,460
December31,2009
Cost
Accumulated
Amortization
NetCarrying
Amount
Land$706$‐ $706
Buildings 3,694 488 3,206
Parkinglot 99 25 74
Leaseholdimprovements 3,773 1,168 2,605
Furniture,fixturesandequipment 10,738 5,257 5,481
Computerequipment 9,435 4,867 4,568
$28,445$11,805$16,640
Furniture, fixtures and equipment includes assets held under capital lease amounting to $995
(December 31, 2009‐$1,012) and accumulated amortization of $515 (December 31, 2009‐$404).
Computerequipmentincludesassetsheldundercapitalleaseamountingto$75(December31,2009‐
$Nil) and accumulated amortization of $14 (December 31, 2009‐$Nil). Additions to assets held
underca
pitalleasefortheyearendedDece
mber31,2010were$85(yearendedDecember31,2009‐
$Nil).
Leaseholdimprovementsincludetenantinducementsamountingto$378(December31,2009‐$261)
andaccumulatedamortizationof$83(December31,2009‐$18).
Leasehold improvements financed by a loan from the la
ndlord (note 12) was $480 (December 31
,
2009‐$450).
Assets acquired and not yet available for use include computer equipment amounting to $32
(December31,2009‐$29),furniture,fixturesandequipmentamountingto$28(December31,2009‐
$Nil)andleaseholdimprovementsamountingto$246(December31,2009‐$Nil).Accordingly,these
ass
etsarenotbeingamortized.
84
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
10. IntangibleAssets
December31,2010
Cost
Accumulated
Amortization
NetCarrying
Amount
Finite‐lifeassets
Brandsofacquiredbusinesses
$12,851$12,851
$‐
Computerapplicationsoftware
6,652 2,761
3,891
Customsoftwareapplications
10,645 9,159
1,486
Customerbacklog
9,290 7,896
1,394
Customerlists
86,094 56,135
29,959
Databases
2,735 2,735
‐
Employmentcontractsandnon‐compete
agreements
12,298 9,948
2,350
140,565 101,485
39,080
Indefinitelifeassets
Brand 6,265‐
6,265
$146,830$101,485
$45,345
December31,2009
Cost
Accumulated
Amortization
NetCarrying
Amount
Finite‐lifeassets
Brandsofacquiredbusinesses
$12,902$11,449$1,453
Computerapplicationsoftware
5,501 2,214 3,287
Customsoftwareapplications
9,054 6,948 2,106
Customerbacklog
9,196 6,300 2,896
Customerlists
77,340 43,889 33,451
Databases
2,735 2,735‐
Employmentcontractsandnon‐compete
agreements
11,048 7,339 3,709
127,776 80,874 46,902
Indefinitelifeassets
Brand 6,265‐6,265
$134,041$80,874$53,167
Custom software applications and customer list financed by a loan from the vendor (note 12) was
$434(December31,2009‐$434).
85
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
10. IntangibleAssets,cont’d
Included in computer application software is $2,501 (December 31, 2009‐$1,685) of computer
applicationsoftwareacquiredandnotyetavailableforuse.Accordingly,theseassetsarenotbeing
amortized.
11. ConvertibleDebentures
On December 1, 2010, the Fund completed the issuance of $50,000 convertible unsecured
subord
inateddebentures(“convertibledebentures”)withamaturitydateofDecember31,2017.The
convertible
debenturesbearinterestatarateof5.75%perannum,andarepayablesemi‐annuallyon
June30andDecember31eachyear.Theeffectiveinterestrateis8.44%.
EachconvertibledebentureisconvertibleintoFundUnitsattheopti
onoftheholderataconversion
priceof$18
.60perFundUnitatanytimeafterJanuary3,2011andpriortothecloseofbusinesson
the earlier of December 31, 2017 and the business day immediately preceding the date fixed for
redemption. On or after December 31
, 2013 and prior to December 31, 2015
, the convertible
debenturesmay be redeemed at the option of the Fund, in whole orinpart, at a redemption price
equal to the principal amount plus accrued and unpaid interest, provided that the current market
priceonthedateofnoticeisatlea
st125%oftheconversionprice.OnorafterDecember31
,2015and
priortothematuritydate,theFundmayatitsoptionredeemtheconvertibledebentures,inwholeor
inpart,atapriceequaltotheprincipalamountplusaccruedandunpaidinterest.Onredemptionor
at the December 31
, 2017 maturity date, the Fund ma
y, at its option and subject to regulatory
approval,electtosatisfyitsobligationtopayalloraportionoftheprincipalamountandtheaccrued
andunpaid interestbytheissuanceof Fund Units.The number of Fund Unit
sto be issued will be
determined by dividin
g the principal amount of the convertible debentures to be redeemed or
repaidatmaturityplusaccruedandunpaidinterestby95%ofthecurrentmarketpriceasatthedate
ofredemptionormaturity.
Upon the occurrence of a change in control involv
ingthe acquisit
ionof voting control or direction
over of 66.67% or more of the Units of the Fund, the Fund will be required to make an offer to
purchase, within 30 days, all of the outstanding convertible debentures ata price equal to 101% of
theprincipalamountplusaccruedandunpai
dinterest.
86
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
11. ConvertibleDebentures,cont’d
The convertible debentures have characteristics of both debt and equity. Accordingly, on issuance,
theconversionfeaturewasseparatelyvaluedandpresentedasacomponentofequityintheamount
of $4,356. The remaining value of the convertible debentures is classified as a liability. Transaction
costs of $2
,690 have been netted against the liabilit
y. Interest expense includes a charge for the
couponinterestaswellastheaccretionoftheliabilitytotheconvertibledebentures’aggregateface
value of $50,000 at maturity using the effective interest rate method. As at December 31, 2010, the
carryingvalueoftheconve
rtibledebentureliabilitywas$4
3,019.
FortheyearendedDecember31,2010,interestexpenseontheconvertibledebentureswas$302.
The fair value of the convertible debentures as at December 31, 2010 was approximately $48,700,
basedonmarketquotes.
12. OtherCreditFacilities
AltusGroupLimitedPartnership(“AltusLP”)ha
screditfacilit
iesasfollows:
a) Revolving Operating Facility: Senior secured Revolving Operating Facility, in the principal
amountofupto$12,500(December31,2009‐$12,500),dueondemand.Thisfacilitywillmature
on October 1, 2012. At December 31, 2010, the amount drawn under this facility was $Nil
(December31,200
9‐$Nil).
b) Revolving Term Fa
cility: Senior secured Revolving Term Facility in an amount of $97,931
(December 31, 2009‐$87,931). The Revolving Term Facility will mature October 1, 2012. The
Termfacilityrequiresrepaymentofprincipal,atsuchtimeascertainthresholdsareexceeded.At
December 31, 2010, the amount draw
n under this facility was $8
9,667 (December 31, 2009‐
$71,332).
Loansunderallfacilitiesarerepayablewithoutanyprepaymentpenalties,andwillbearinterestata
floatingrate, based on the Canadian Dollar prime rate, bankers’ acceptance rates, US base rates or
LIBORratesplus,ineachcase,anap
plicablemargintothoserates.Themarginrangesfrom0.50%to
2.
75% depending on the calculation of the funded debt to EBITDA ratio (note 28) and the facility
used.Lettersofcreditarealsoavailableoncustomarytermsforfacilitiesofthisnature.
PursuanttotheCreditAgreementfortheabovenot
edfacilitie
s,securityisgrantedoverallofAltus
LPʹs assets. Guarantees and a security interest over all or certain assets is provided by certain
subsidiariesoftheFund.
TheCreditAgreementrequiresAltusLPtocomplywithcertainfinancialcovenants,asdisclosedin
note28.
87
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
12. OtherCreditFacilities,cont’d
In addition, certain subsidiaries of the Fund must account for at least 85% of Earnings before
Interest,Taxes, Depreciation,and Amortization(“EBITDA”)at theend ofeach fiscalquarter.Asat
December31,2010,theFundhasmetthisrequirement.
At December 31, 2010, $87,500 (Decemb
er 31, 2009‐$1
2,500)of the credit facilities were subject to
variousinterestrateswaparrangements(note17)tofixtheinterestrate.
In2009,the Fundreceivedaloantofinanceleaseholdimprovementsmadetoleased premises.The
loan,payableininstallmentsuptoMarch2019,iswiththela
ndlordandbearsinterestatCa
nadian
Dollarprimerateplus2%.In2010,theFundreceivedaloantofinanceleaseholdimprovementsfor
another leased premise. The loan, payable in installments up to August 2014, is with the landlord
andbearsinterestat7%.Theloansarenotsecured.
In 20
09, the Fund indirectly purchased a custom software applic
ation and a customer list for $500
plus applicable taxes. This amount is payable in monthly installments over a term of 3 years to
September1,2012.Theimplicitinterestrateis9.34%.
Long‐termdebtisasfollows:
December31,2010
December31,2009
RevolvingTermFacility,weightedeffectiveinterestrateof
3.89%(December31,2009–3.65%)
$89,667
$71,332
Leaseholdimprovementsloans,weightedeffectiveinterestrate
of4.43%(December31,2009–4.25%)
434
445
Intangibleassetsfinancingloan,weightedeffectiveinterestrate
of9.34%(December31,2009–9.34%)
272
407
Less:deferredfinancingfees
(1,758)
(2,155)
88,615
70,029
Less:currentportion
198
175
$88,417
$69,854
88
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
12. OtherCreditFacilities,cont’d
Principalrepaymentsonlong‐termdebtareasfollows:
2011
2012
2013
2014
2015
Thereafter
$198
89,840
53
53
49
180
$90,373
Interestincurredonthe long‐term debtduring the yearended December 31,2010was$3,112(year
endedDecember31,2009‐$1,980).
13. OtherCurrentLiabilities
Othercurrentliabilitiesincludethefollowing:
December31,2010
December31,2009
Currentportionofobligationsundercapitalleases(note19)
$243
$221
Currentportionofleaseinducements
95
169
Cashflowhedges(note17)
145
‐
Redemptionproceedspayable(note21)
817
‐
Othercurrentliabilities
264
‐
Balance
$1,564
$390
89
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
14. OtherLong‐TermObligations
Otherlong‐termobligationsincludethefollowing:
December31,2010
December31,2009
Obligationsundercapitalleases(note19)
$156
$330
Leaseinducements
951
544
Cashflowhedges(note17)
402
577
Redemptionproceedspayable(note21)
94
1,462
Otherlong‐termobligations
235
455
Balance
$1,838
$3,368
15. CommitmentsandContingencies
Future minimum annual lease payments under operating leases for the Fund’s premises and
equipmentforeachoftheyearsendedDecember31andthereafterareasfollows:
2011
2012
2013
2014
2015
Thereafter
$7,104
6,573
4,519
3,649
3,413
18,939
As at December 31, 2010, the Fund provided letters of credit of approximately $266 to its lessors
(December31,2009‐$2,103toitslessorsandtovendorsofanacquiredbusiness).
The Fund is currently in a dispute with the vendors of the business of Capital Planning Solutions
Inc.,whoareseek
inganadjustmenttothepurchaseprice.In
addition,thereisaStatementofClaim
from the principal vendor for wrongful dismissal. In management’s opinion, both actions are
withoutmerit.Noamounthasbeenaccruedintheconsolidatedfinancialstatements.
90
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
16. SegmentedInformation
The operations of the Fund consist of four reportable segments: Research, Valuation & Advisory
(“RVA”), Cost Consulting & Project Management (“Cost”), Realty Tax Consulting (“Realty Tax”)
and Geomatics. Discrete operating and financial information is available for these reportable
segments, and is used to determine operating performance for each se
gment and to allocate
resources.
RVA performs real estat
e valuations, litigation support, financial due diligence, research and real
estate‐relatedservices.
Cost provides construction cost planning, loan monitoring and project management services to
construction companies and financial institutions as well as providing software solutions for
trackingandoptimizingthevalueofca
pitalassets.
Realty Tax performs realty tax asse
ssment reviews and appeals, and assists with realty tax
compliancefilings.
Geomatics provides advanced geomatics solutions including geographic information systems,
digital mapping, remote sensing, 3‐D laser scanning and orthophoto maps. Geomatics operates
primarilyintheoilandgassector.Italsoprovidesen
vironmentalservicestotheforestryandenergy
sectors.
The accounting policies of the segments are the same as those descr
ibed in the summary of
significant accounting policies described in note 4. Revenue transactions between segments are
valuedatmarketratesandeliminatedonconsolidation.
TheFundoperatesinfourgeogr
aphicregions:Canada,theUK,theAsiaPa
cificregionandtheUS.
91
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
16. SegmentedInformation,cont’d
SegmentRevenuesandExpenditures
YearendedDecember31,2010
RVA
Realty
Tax
Cost Geomatics
Total
Operations
Corporate
(1)
Total
Revenues$60,988$69,591$70,624$51,278$252,481$39
$252,520
Amortizationof
property,plant
andequipment 613 368 728 1,633 3,342 884
4,226
Earnings(loss)
beforeincome
taxesandnon‐
controllinginterest 9,046 21,667 4,921 7,707 43,341 (41,600)
1,741
Property,plant
andequipment
additions 1,033 408 710 1,261 3,412 1,431
4,843
(1)
Corporateincludesglobalcorporateofficecosts,interestexpense,amortizationofintangibleassetsacquiredaspartof
businessacquisitions,andequityaccountedearnings(loss)ofRealMatters.
YearendedDecember31,2009
(2)
RVA
Realty
Tax
Cost Geomatics
Total
Operations
Corporate
(1)
Total
Revenues$54,799$67,793$59,024$38,113$219,729$37$219,766
Amortizationof
property,plant
andequipment 620 395 590 1,741 3,346 730 4,076
Earnings(loss)
beforeincome
taxesandnon‐
controllinginterest
7,230 21,919 9,048 39 38,236 (37,295) 941
Property,plant
andequipment
additions 205 221 214 222 862 555 1,417
(1)
Corporateincludesglobalcorporateofficecosts,interestexpense,amortizationofintangibleassetsacquiredaspartof
businessacquisitions,andequityaccountedearnings(loss)ofRealMatters.
(2)
The2009comparativeshavebeenreclassifiedtoconformtothepresentationadoptedin2010.
92
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
16. SegmentedInformation,cont’d
SegmentAssetsandGoodwill
December31,2010
RVA
Realty
Tax
Cost Geomatics
Total
Operations
Corporate
Total
Assets$53,647$74,860$77,756$61,469$267,732$112,322
$380,054
Goodwill 33,076 48,216 45,145 34,006 160,443‐
160,443
December31,2009
RVA
Realty
Tax
Cost Geomatics
Total
Operations
Corporate Total
Assets$45,643$74,342$90,163$54,213$264,361$75,087$339,448
Goodwill 30,006 48,804 52,915 33,703 165,428‐165,428
GeographicInformation–RevenueandEarnings(Loss)beforeIncomeTaxesandNon‐
ControllingInterest
YearendedDecember31,2010
Canada UK AsiaPacific US
Total
Revenues$187,918$23,464$30,130$11,008
$252,520
Earnings(loss)beforeincometaxesand
non‐controllinginterest 5,486 2,166 (6,808) 897
1,741
YearendedDecember31,2009
Canada UK AsiaPacific US Total
Revenues$177,073$27,049$14,568$1,076$219,766
Earnings(loss)beforeincometaxesand
non‐controllinginterest
3,051 (357) (1,982) 229 941
93
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
16. SegmentedInformation,cont’d
GeographicInformation–Property,PlantandEquipmentandGoodwill
December31,2010
Canada UK AsiaPacific US
Total
Property,plantandequipment$15,022$597$1,185$656
$17,460
Goodwill 128,737 18,237 9,711 3,758
160,443
December31,2009
Canada UK AsiaPacific US Total
Property,plantandequipment$14,876$670$1,090$4$16,640
Goodwill 128,433 19,655 17,340‐165,428
17. FinancialInstruments
FairValueMeasurements
Fairvalue measurementsrecognizedinthebalancesheet mustbeclassified inaccordancewith the
fairvaluehierarchyestablishedbySection3862,whichreflectsthesignificanceoftheinputsusedin
determining the measurements. The inputs can be either observable or unobservable. Observable
inputs re
flect assumptions ma
rket participants would use in pricing an asset or liability based on
market data obtained from independent sources while unobservable inputs reflect a reporting
entity’spricingbaseduponitsownmarketassumptions.
Thefairvaluehierarchyconsistsofthefollowingthreelevels:
Level1:Inputsarequoted,unadjustedpricesinact
ivemarketsforidenticalasse
tsorliabilities;
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or
liability,eitherdirectlyorindirectly;
Level3:Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata.
94
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
17. FinancialInstruments,cont’d
ThefollowinginterestrateswapswereoutstandingatDecember31,2010:
December31,2010
EffectiveDate AnnualFixedRate
(1)
NominalAmount FairValue ContractsExpire
June19,2006 4.46%$12,500$(145) May13,2011
August20,2010 0.98%$75,000$187 August31,2011
August31,2011 2.77%$75,000$(589) August31,2015
(1)
Theannualfixedrateexcludesthestampingfeeof2.75%
December31,2009
EffectiveDate AnnualFixedRate
(1)
NominalAmount FairValue ContractsExpire
June19,2006 4.46%$12,500$(577) May13,2011
(1)
Theannualfixedrateexcludesthestampingfeeof1.5%
The fair value of the interest rate swaps, designated as cash flow hedges, was determined using
estimatedfuturediscountedcashflows,usingacomparablecurrentmarketrateofinterest(Level2).
Accounts receivable, accounts payable and accrued liabilities, distributions payable and payables
due to vendors within a year are all short‐term in nature an
d, as such, their car
rying values
approximatefairvalues.
The fair values of long‐term debt and obligations under capital leases approximate their carrying
values,astheseinstrumentsbearinterestatratescomparabletocurrentmarketrates.Theapplicable
interestratesaredisclosedinnotes12and19
.Thefairvalueofotherlong‐termliabilitie
sandlong‐
termpayablestovendorsisestimatedbydiscountingthefuturecontractualcashflowsatthecostof
moneytotheFund,whichisequaltoitscarryingvalue.
The fair value of convertible debentures is based on the published tra
ding prices on the Toronto
StockExchange,which
isdisclosedinnote11.
95
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
17. FinancialInstruments,cont’d
FinancialRiskManagementObjectivesandPolicies
TheFunddoesnotenterintofinancialinstrumentarrangementsforspeculativepurposes.TheFund
maybeexposedtofinancialrisksresultingfromitsnormaloperatingactivities,asfollows:
MarketRisk
InterestRateRisk
The Fund is exposed to interest rate ri
sk in the event of fluctu
ations in the bank’s prime rate or
bankers’ acceptance rate, US base rate and LIBOR rate as the interest rates on the Revolving
Operating Facility and Revolving Term Facility fluctuate with changes in the bank’s prime rate,
bankers’acceptancerate,USbaserateorLIBORra
te.
In order to limit interest rate exposure
, the Fund has entered into interest rate swap agreements
associated with its credit facilities. In 2006, the Fund entered into an interest rate swap agreement
with a notional amountof $12,500(December 31,2009‐$12,500).The Fund is obligated to pay the
SwapCounterpa
rtyanamountbaseduponafixedinterestrateof4.
46%perannumplusastamping
feeof2.75%(2009–1.5%)andtheSwapCounterpartyisobligatedtopaytheFundanamountequal
totheCanadianBankers’Acceptancerate.
During the third quarter of 2010, the Fund enter
ed into two additional int
erest swap agreements.
One swap agreement, effective August 20, 2010, has a notional amount of $75,000. The Fund is
obligated to pay the Swap Counterparty an amount based upon a fixed interest rate of 0.98% per
annum plus a stamping fee of 2.75% and the Swap Counterpa
rty is obligated to pay the Fund an
am
ount equal to the Canadian Bankers’ Acceptance rate. The other interestrate swap is a forward
swap, effective August 31, 2011, on expiry of the previous swap,for a notional amountof $75,000.
TheFundisobligatedtopaytheSwapCounterpartyanam
ountbaseduponafixedinterestrateof
2.77% per an
num plus the applicable stamping fee at that time, and the Swap Counterparty is
obligatedtopaytheFundanamountequaltotheCanadianBankers’Acceptancerate.
TheFundmonitorsitsinterestrateexposureanditshedgingstrategyonanon
goingbasis.
96
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
17. FinancialInstruments,cont’d
Fluctuations inapplicable interestrates will impact earnings. For the year ended December 31, 2010,
every 1% increa s e or decrease in the applicable Revolving Operating and Term Facility interest rate
resultsinacorresponding$441decreaseorincreaseintheFund’snetearnings(loss),respectively(year
endedDe
cember31,2009‐$411).
CurrencyRisk
The Fund has operations in Cana
da, UK, US, Australia and in other countries across Asia and,
therefore,hasexposuretocurrencyrisk. The Canadian operations have an insignificant amountof
foreign denominated monetary assets and liabilities, resulting in minimal exposure. There is,
however,si
gnificantexposuretofore
ignexchangetranslationriskontheconsolidationoftheFund’s
self‐sustaining foreign subsidiaries. Assets and liabilities of self‐sustaining foreign subsidiaries are
translated at the period end exchange rate and, therefore, have different values depending on
exchange rate fluctuations. As provided by the accounting standard s adopted, the effect
s of such
variationsarerecognizedinothercomprehensiveincome(loss).
The statement of earnings (loss) of the foreign operations are translatedinto Canadian Dollars using
theperiod’saverage exchangerateand,accordingly,exchangeratefluctuationsimpactrevenuesand
expenses,denominatedinCanadianDollars.
TheFundmonitorsitsforeignexchangeexposureandit
shedgingstrategyonanongoingbasis.
Thef
ollowingtablesummarizestheeffectofa10%strengtheningoftheCanadianDollarontheFund’s
earnings(loss)beforeincometaxesandnon‐controllinginterestasaresultoftranslatingthestatement
ofearnings(loss)offoreignoperations,assumingallothervariablesremainuncha
nged:
Yearended
December31,2010
Yearended
December31,2009
Foreignexchangerisk:
UK
$(195)
$(92)
Australia
227
136
Asia
303
(54)
US
(81)
(21)
A 10% weakening of the Canadian Dollar would have an equal but opposite effect on the above
currenciestotheamount s shownabove,assumingallothervariablesremainunchanged.
97
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
17. FinancialInstruments,cont’d
Non‐marketRisk
CreditRisk
TheFundisexposedtocreditriskwithrespecttoaccountsreceivable.Creditriskisnotconcentrated
inanyparticular clientorgeographic sectorbutthereisexposuretotherealestateandoilandgas
sectors. Accounts receivable are monitored on an ongoing basis with respect to their colle
ctability
and, where appropriate, a specific rese
rve is recorded. In addition, a general reserve is set up on
accountsreceivableinaccordancewiththeFund’saccountingpolicies.
At December 31, 2010, gross accounts receivable are $65,918 (December 31, 2009 – $58,820). The
al
lowance for doubtful accounts is $5,575 (Dece
mber 31, 2009 – $5,860). The decrease in the
allowancefordoubtfulaccountsof$285(yearendedDecember31,2009‐$1,939)isduetoamounts
previouslyprovidedforthat havenowbeen written off. Amountspa st due whichare outstanding
over 60 days but not considered impa
ired, are estimated at $4,3
04 (December 31, 2009‐$3,329). A
specificreserveisrecordedforbalancesgreaterthan365days.
LiquidityRisk
Liquidityrisk istheriskthat the Fund will not be able to meet itsfinancial obligationsas they fall
due.TheFundmanagesliquidityriskthroughthema
nagementofitscapitalstructureandfinancial
lever
age.Italsomanagesliquidityriskbycontinuouslymonitoringactualandprojectedcashflows,
taking into account the seasonality of the Fund’s revenues and receipts and maturity profile of
financialassetsandliabilities.TheBoardofTrusteesreviewsandapprovestheFund’soperatingan
d
capitalbudgets,aswellasanymater
ialtransactionsoutoftheordinarycourseofbusiness,including
proposalsonmergers,acquisitionsorothermajorinvestments.
Managementbelievesthatfundsgeneratedbyoperatingactivitiesandavailablecreditfacilitieswill
allow the Fund to satisfy its requirements for purposes of working capit
al, investment and debt
repaymentatmaturity.
98
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
17. FinancialInstruments,cont’d
ThefollowingtablesetsouttheundiscountedcontractualobligationsrelatedtotheFund’sfinancial
liabilities:
December31,2010
Carrying
amount
Contractual
cashflows
Lessthan
1year
1–3
years
4–5
years
After
5years
Total
Accountspayableand
accruedliabilities$31,414$31,414$31,414$‐ $‐ $‐
$31,414
Payablestovendors 7,580 9,135 1,731 7,404‐‐
9,135
Obligationsunder
capitalleases
399 426 264 162‐‐
426
Othercurrentand
long‐termliabilities 1,410 1,440 1,165 146 49 80
1,440
Convertible
debentures 43,019 50,000‐‐‐50,000
50,000
Long‐termdebt 90,373 90,462 227 89,921 122 192
90,462
Interestrateswaps 547 17,862 3,373 7,905 6,584‐
17,862
18. IncomeTaxes
Significantco mponentsofincometaxexpense(recovery)areasfollows:
Yearended
December31,2010
Yearended
December31,2009
Current:
Earnings(loss)beforeincometaxes,non‐controllinginterestand
equityaccountedearnings(loss) $2,779
$1,556
IncomenottaxableintheFund,eliminatedonconsolidation
(10,782)
(13,684)
(8,003)
(12,128)
Taxexpense(recovery)atstatutoryincometaxrates
(2,398)
(3,823)
ChangeinsubstantivelyenactedSIFTRules
130
212
Operatingincountrieswithdifferenttaxrates
252
(71)
Other
(332)
64
$(2,348)
$(3,618)
99
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
18. IncomeTaxes,cont’d
December31,2010
December31,2009
Futureincometaxassets:
Current:
Issuancecosts
$‐
$246
Non‐capitalincometaxlosscarry‐forwards
2,784
944
Other
1,402
846
4,186
2,036
Non‐current:
Issuancecosts
87
68
Taxdeductiblegoodwill
4,519
4,144
Non‐capitalincometaxlosscarry‐forwards
3,473
3,986
Other
207
243
8,286
8,441
$12,472
$10,477
Futureincometaxliabilities:
Current:
Work‐in‐process
(1,171)
(984)
Other
(73)
‐
(1,244)
(984)
Non‐current:
Intangibleassets
(7,929)
(10,089)
Property,plantandequipment
(1,235)
(604)
Other
(79)
‐
(9,243)
(10,693)
$(10,487)
$(11,677)
100
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
18. IncomeTaxes,cont’d
AsatDecember31,2010,therearenon‐capital‐losscarryforwardsfromaCanadiansubsidiaryofthe
Fund,whichmaybeappliedagainsttaxableincomeoffutureyears,notlaterthanasfollows:
2013
2014
2015
2024
2025
2026
2027
2028
2029
2030
$120
94
112
1,139
104
8
9
4,420
1,209
2,456
$9,671
There are non‐capital losses that have been generated in a UK subsidiary and may be carried
forward indefinitely in the amount of $11,553. In addition, there are non‐capital losses that have
beengeneratedbyAustraliansubsidiariesintheamountof$1,204,byaHongKongsubsidiaryinthe
amountof$77andbyaSi
ngaporesubsidiaryintheamountof$12
3,whichmaybecarriedforward
indefinitely.
19. ObligationsUnderCapitalLeases
Futureminimumleasepaymentsrequiredundercapitalleases,whichexpirebetween2011and2013,
areasfollows:
2011
2012
2013
$264
149
13
426
Less:amountsrepresentinginterest(6%to13.4%) (27)
399
Less:currentportion(note13) 243
Long‐termportion(note14)$156
Interest on obligations under capital leases for the year ended December 31, 2010 was $35 (year
endedDecember31,2009‐$48).
101
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
20. Units
The beneficial interests in the Fund are divided into two classes, described and designated as
“Units”and“SpecialVotingUnits”. Thereis anunlimitednumber ofauthorizedUnits andSpecial
VotingUnits.
FundUnits
Each Unit is transferable and represents an equal undivided beneficial interest in any distribution
fromtheFun
dandinanyoftheFundassetsnetofFundliabilit
ies,orinanyothernetassetsofthe
Fundintheeventofterminationorwinding‐upoftheFund.AllUnitsoutstandingfromtimetotime
shallbeentitledtoequalsharesinanydistributionsbytheFu
ndand,intheeventofterminat
ionor
winding‐upoftheFund,intheFundnetassets.AllUnitshaveequalrightsandprivileges.EachUnit
shall entitle the holder of record thereof to one vote at all meetings of Unitholders and holders of
SpecialVotingUnits,orinrespectofan
ywrittenresolutionsoftheUnit
holders.
Units are redeemableatany time, at the option of the holder, at amounts related to market prices.
Cashredemptionsarelimitedtoamaximumof$50inanyparticularmonth.Thislimitationmaybe
waivedatthediscretionoftheTrusteesoftheFu
nd.
AltusLPSeries1ClassBlimitedpartn
ershipunits
Theseunitsareheldbythevendorsofcertainacquiredbusinessesandcertainemployees.
On closing of the Fund’s initial public offering, the Fund, Altus Operating Trust, Altus Group
General Partner Corporation, Altus Group LP, Altus Investors Man
agement Partnership and the
vendorsofthepredecessoroperatingentitiesholdingAltusLPSe
ries1ClassBlimitedpartnership
unitsandAltusLPSeries2ClassBlimitedpartnershipunitsenteredintoanExchangeAgreement.
The Exchange Agreement grants the holders of the Altus LP Series 1 Class B limited p
artnership
unitsandAltusLPSeries
2ClassBlimitedpartnershipunitstherighttoeffectivelyexchangeallor
any portion of their Class B limited partnership units for Fund Units after a conversion date
prescribed in the Altus LP Partnership Agreement, on the condition that certain earnings and
distributionthresholdshav
ebeenmet.
As at December 31, 2007, Altus LP sa
tisfied the earnings and distribution thresholds such that the
Altus LP Series 1 Class B limited partnership units are no longer subordinated to the Fund Units.
Accordingly,theseunitsareexchangeableandareclassifiedasUnits.
During the year ended De
cember 31, 2010, 567,445 Altus LP Series 1 Cla
ss B limited partnership
unitsvaluedat$6,611wereexchangedforFundUnits.
102
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
20. Units,cont’d
FundUnits
AltusLPSeries1
ClassBunits Total
Number
ofUnits Amount
Number
ofUnits Amount
Number
ofUnits Amount
BalanceasatDecember31,2008 15,590,920$194,329 3,031,857$34,671 18,622,777$229,000
ExchangeofAltusLPSeries1
ClassBlimitedpartnershipunits
intoFundUnits 374,078 4,102 (374,078) (4,102)‐‐
Issuedonacquisitions(note2) 758,144 5,815 130,909 1,440 889,053 7,255
Issuedonpurchaseprice
adjustments(note2)‐‐46,791 525 46,791 525
Issuedascompensationto
Trustees
3,552 32‐‐3,552 32
IssuedforDeferredPerformance
Plan(note29) 18,486 120 89,747 585
108,233 705
Unitsrepurchasedandcancelled
inrelationtoDeferred
PerformancePlan(note29) (5,407) (35) (2,980) (19) (8,387) (54)
BalanceasatDecember31,2009 16,739,773$204,363 2,922,246$33,100 19,662,019$237,463
ExchangeofAltusLPSeries1
ClassBlimitedpartnershipunits
intoFundUnits
567,445 6,611 (567,445) (6,611)‐‐
Issuedonacquisitions(note2) 257,090 3,509 9,868 120 266,958 3,629
IssuedunderUnitOptionPlan
(note29) 207,012 1,698‐‐207,012 1,698
Issuedascompensationto
Trustees 5,172 68‐‐5,172 68
IssuedforDeferredPerform
ance
Plan(note29)
16,154 230 95,426 1,361 111,580 1,591
Issuedascompensationtoothers‐‐4,193 60 4,193 60
Fractionalunitsredeemed
‐ ‐
(127) (1) (127) (1)
BalanceasatDecember31,2010 17,792,646$216,479 2,464,161$28,029 20,256,807$244,508
103
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
20. Units,cont’d
SpecialVotingUnits
ASpecialVotingUnitshallnotentitletheholderthereoftoanyinterestorshareintheFund,inany
distributionfromtheFundorinthenetFundassetsintheeventofaterminationorwinding‐upof
the Fund. Special Voting Units are i
ssued only to holders of Altus LP Seri
es 1 Class B limited
partnershipunitsandAltusLPSeries2ClassBlimitedpartnershipunitsandareevidencedonlyby
the certificate or certificates representing such Altus LP Class B limited partnership units.
Accordingly, the number of Special Voting Un
its outstanding at any given ti
me is equal to the
numberofAltusLPSeries1ClassBlimitedpartnershipunitsandAltusLPSeries2ClassBlimited
partnershipunits outstanding atthetime.AtDecember31,2010,there are4,823,588Special Voting
Unitsoutstanding(December31,2009–5,281,674).ASpecialVot
ingUnitmaybetransferredsolely
with the tra
nsfer of the Altus LP Class B limited partnership unit with which it is associated. A
holder of record of Special Voting Units shall be entitled to that number of whole votes (rounded
downtothenearestwholevote)atallmeetingsofFu
ndUnitholdersthatisequaltothenumberof
FundUnitsintowhichtheAl
tusLPClassBlimitedpartnershipunitstowhichsuchSpecialVoting
Unitrelates is,directlyorindirectly, exchangeable(otherthan inrespect of units that havebeen so
exchanged and are held by the Fund or an af
filiate thereof). Upon the exchange, conversion or
cancella
tion of an Altus LP Class B limited partnership unit, the Special Voting Unit that is
associatedwithsuchAltusLPClassBlimitedpartnershipunitwillimmediatelybecancelledforno
consideration without any further action of the Tru
stees, and the former holder of such Special
VotingUnitwillceasetohaveany
rightswithrespectthereto.
21. Non‐controllingInterest
AltusLPSeries2ClassBlimitedpartnershipunits
Aspart oftheformationofthe Fund, 2,296,439AltusLP Series2ClassBlimited partnershipunits
,
each of which also represents a Special Voting Unit of the Fund, were
issued by Altus LP to the
sellersofthepredecessoroperatingentities.TheseunitsareexchangeableintoFundUnitsonaone‐
for‐onebasis,subjecttoadjustment,afterDecember31,2010.
104
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
21. Non‐controllingInterest,cont’d
AltusUKLLPClassBandClassDlimitedliabilitypartnershipunits
As part of the formation of Altus UK LLP, 455,418 Class B limitedliability partnership units were
issued to the sellers of the predecessor operating entity, who are also current member‐partners of
AltusUKLL
P,and293,818ClassDlimitedli
abilitypartnershipunitswereissuedforthebeneficial
interest of certain employees of the predecessor operating entity. Each Altus UK LLP Class B and
ClassDlimitedliabilitypartnershipunitisentitledtoanallocationfromprofitsinanamountequal
to the cash distrib
utions declared and paid on the same number
of Altus LP Class B limited
partnershipunitsinrespectofthesameaccountingperiod.TheClassBandClassDlimitedliability
partnershipunitshavenoadditionalinterestintheequityofthepartnershipandarenotincludedin
thecalc
ulationofdilutedearn
ingsperunit.
Thenon‐controllinginterestisasfollows:
AltusUKLLP
ClassBunits
AltusUKLLP
ClassDunits
AltusLPSeries2
ClassBunits Total
Number
ofUnits Amount
Number
ofUnits Amount
Number
ofUnits Amount
Amount
BalanceDecember31,2008 455,418$6,092 293,818$3,931 2,359,428$18,788$28,811
Redemptionofunits (170,291) (2,278) (66,900) (895)‐‐(3,173)
Shareofnetearnings‐468‐285‐418 1,171
Distributions‐(468)‐(285)‐(2,831) (3,584)
BalanceDecember31,2009 285,127$3,814 226,918$3,036 2,359,428$16,375$23,225
Redemptionofunits (6,375) (85) (49,948) (668) (1)‐(753)
Shareofnetearnings‐342‐226‐373 941
Distributions‐(342)‐(226)‐(2,831) (3,399)
BalanceDecember31,2010 278,752$3,729 176,970$2,368 2,359,427$13,917$20,014
105
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
21. Non‐controllingInterest,cont’d
OnJanuary30,2009,26,466AltusUKLLPClassDlimitedliabilitypartnershipunitswereredeemed
forcashof$7.75perunit.OnApril1,2009,40,434AltusUKLLPClassDlimitedliabilitypartnership
units were redeemed for cash of $6.50 per unit. On July 1, 2009
, 122,125 Altus UK LLP Class B
limitedliabilitypartnershipunitswereredeemedatavalueof$8.22perunit,proceedsofwhichare
being held in trust for a two year period. On December 24, 2009, 48,166 Altus UK LLP Class B
limited liability partnership units were redeemed at a value of $12
.43 per unit, proceeds of which
have been issued in escrow. On Apr
il 16, 2010, 49,948 Altus UK LLP Class D limited liability
partnershipunitswereredeemedforcashof$14.17perunit.OnNovember4,2010,6,375AltusUK
LLPClassBlimitedliabilitypartnershipunitswerere
deemedatavalueof$15.39perunit,proceeds
ofwhicharebeingheldintrustforatwoyearperiod.Thedi
fferencebetweentheredemptionprices
totalling$2,877 and the historical cost per unit of $13.38, totalling $3,926, resulted in a contributed
surplusadjustmentof$1,049(note25).
22
. AccumulatedOtherCom
prehensiveIncome(Loss)
December31,2010
December31,2009
Fairvalueofcashflowhedgesof$(547),netoffuturetax
recoveryof$114
$(433)
$(577)
Unrealizedlossontranslatingfinancialstatementsofself‐
sustainingforeignoperations
(12,169)
(8,597)
$(12,602)
$(9,174)
23. PensionPlan
The Fund maintains a defined contribution pension plan for the employees in two of the practice
areas. The Fund is in the process of winding up the defined contribution pension plan for one of
these practice areas and there were no contributions made to this plan in 201
0 or 2009. Pensio
n
expenseduringtheyearendedDecember31,2010was$8(yearendedDecember31,2009‐$24).
106
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
24. EarningsperUnit
Basic net earnings (loss) per unit are calculated by dividing net earnings (loss) by the weighted
averagenumberofunitsoutstandingduringtheperiod.Dilutednetearnings(loss)perunitincludes
AltusLPSeries2ClassBlimitedpartnershipunits,usingthe“ifconverted”method.Underthe“i
f‐
converted”method, earning
s (loss) are adjustedfor earnings (loss)allocatedto the non‐controlling
interest, and the weighted average number of units is adjusted for the conversion of the Altus LP
limitedpartnershipunits.Thedilutiveimpactoftheconvertibledebenturesisalsodeterminedusing
the“ifconverted”method.Thedilutivee
ffectofstockoptionsisdeterminedusingthetreasurystock
method. The diluti
ve effect of contingently issuable units is determined based on the number of
units, if any, that would be issuable if the end of the reporting period were the end of the
contingency period. The contingently iss
uable units are include
d in the denominator of diluted
earnings per unit as of the beginning of the period, or as of the date of the contingent unit
agreement,iflater.Forthepurposesoftheweightedaveragenumberofunits outstanding,unitsare
determinedtobeoutstandingfromthedatetheyareissued.
Thefol
lowingtablereconcile
sthebasicnetearnings(loss)tothedilutednetearnings(loss):
Yearended
December31,2010
Yearended
December31,2009
Basicnetearnings(loss)
$3,148
$3,388
Non‐controllinginterestrelatingtoAltusLPpartnershipunits
(note21)
373
418
Adjustednetearnings(loss)
$3,521
$3,806
Thefollowingtablereconcilesthebasicweightedaveragenumberofunitsoutstandingtothediluted
weightedaverageofunitsoutstanding:
Yearended
December31,2010
Yearended
December31,2009
FundUnits
17,315,721
16,119,955
AltusLPSeries1ClassBlimitedpartnershipunits
2,628,102
3,004,976
Weightedaveragenumberofunitsoutstanding–basic
19,943,823
19,124,931
AltusLPSeries2ClassBlimitedpartnershipunits
2,359,428
2,359,428
DilutiveFundUnitoptions
269,743
165,177
Contingentlyissuableunits
6,498
‐
Weightedaveragenumberofunitsoutstanding–diluted
22,579,492
21,649,536
For the year ended December 31, 2010, the convertible debentures were excluded from the diluted
earnings(loss)perunitastheimpactwouldhavebeenanti‐dilutive.
107
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
25. ContributedSurplus
Amount
BalanceDecember31,2008$198
RedemptionofAltusUKLLPClassBandDlimitedliability
partnershipunits(note21)1,102
ExecutiveCompensationPlan(note29)1,860
UnitsissuedforDeferredPerformancePlan(note29)(705)
RepurchaseofunitsfromDeferredPerformancePlan(note29)43
BalanceDecember31,2009$2,498
RedemptionofAltusUKLLPClassBandDlimitedliability
partnershipunits(note21)(53)
ExecutiveCompensationPlan(note29)3,430
UnitsissuedforDeferredPerformancePlan(note29)
(1,591)
UnitsissuedunderUnitOptionPlan(note29)
(191)
BalanceDecember31,2010$4,093
26. RelatedPartyTransactions
TheFundhad the followingtransactions with related parties during the period, which were in the
normalcourseofoperationsandmeasuredattheexchangeamount.
Yearended
December31,2010
Yearended
December31,2009
Rentremittedtoentitiescontrolledbyemployeeunitholders
$501
$311
The Fund has a consulting agreement with the principals of one of the original entities, Altus
Québec, pursuant to which the principals agreed to provide consulting services for a period of 10
yearsinrespectofcertaininformationtechnologydevelopedby theprincipals andacquiredbythe
Fund on May 19, 200
5. In consideration for provision of the cons
ulting services, the principals are
entitled to a fee, payable only to the extent that earnings exceed certain thresholds. For the year
ended December 31, 2010, $151 has been accruedandis included in accounts payable andaccrued
liabilities(yearendedDecember31,2009‐
$Nil).
108
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
26. RelatedPartyTransactions,cont’d
The Fund has a consulting agreement with the former owner of the business assets of InSite to
providecertainservicestoAltusGroupLimited,relatedtothebusinessofAltusInSite,foraperiod
ofsixyears.Theagreementprovidesthatthecompanywillbere
imbursed,withnomark‐up,forall
reasonab
le third‐party costs incurred in connection with the provision of the services. In
considerationforprovidingtheservices,thecompanyisentitledtoafeeinyearstwothroughsixof
the agreement. The fee is payable only to the extent that earnings excee
d certai
n thresholds. No
amountispayableinrespectoftheperiodJanuary1toDecember31,2010(yearendedDecember31,
2009–$Nil).
During the year ended December 31, 2010, the Fund recorded expenses of $394 (year ended
December 31, 2009‐$78), as per the Referral and Services A
greement between Altus Resi
dential
Limited and Real Matters. Included in accounts payable and accrued liabilities is $153 payable to
RealMatters as at December 31, 2010 (December 31, 2009‐$48). Included in accountsreceivable is
$123receivablefromRealMattersasatDecember31,2010(December31,2009‐$75).
Duringtheye
arendedDecember31,20
10,theFundhadrevenuesof$41(yearendedDecember31,
2009‐$26),forappraisalservicesprovidedtoRealMatters.
27. DistributionstoUnitholders
With the exception of monthly and quarterly distributions paid in December 2010, which had a
record date of December 21, 2010 an
d were paid on December 31, 20
10 in order to facilitate the
conversion of the Fund’s income trust structure into a corporation,the timing of distributions was
unchangedfrompreviousyearsasoutlinedbelow.
TheFunddeclareddistributionsonamonthlybasistoUnitholdersofrecordasofthelastbusine
ss
dayofeachmonthwithdistributionspaidonthe15
th
dayofthefollowingmonth.AltusLPdeclared
distributionsonamonthlybasistotheAltusLPSeries 1ClassBlimitedpartnershipunitholdersof
record as of the last business day of each month with distributions paid on the 15
th
day of the
followingmonth.AltusLPdeclareddistributionsonaquarterlybasistotheAltusLPSeries2Class
B limited partnership unitholders of record as of the last business day of each quarter with
distributionsbeingpaidonthe15
th
dayofthemonthfollowingquarterend.AltusUKLLPdeclared
distributionsona quarterlybasistounitholdersofrecordasofthelastbusinessdayofeachquarter
withdistributionspaidonthe15
th
dayofthemonthfollowingtheendofthequarter.
109
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
28. CapitalDisclosures
TheFund’s objectiveinmanagingcapitalisto ensurethatadequateresourcesareavailabletofund
organicgrowthandtoenableittoundertakestrategicacquisitions.TheFund’scapitaliscomposed
ofnetdebt,non‐controllinginterestandUnitholders’equity.
Operating cash flows are used to provide su
stainable cash distributi
ons to unitholders and fund
capitalexpendituresinsupportoforganicgrowth.Inaddition,operatingcashflows,supplemented
throughout the year with a revolving operating facility, are used to fund working capital
requirements.
Arevolvingtermfacilityandequityareusedtofinancecontrollinginterestinstrategicacquisitions.
Addition
ally,vendorsofacquired
businessesarerequiredtoreceiveaportionofthepurchaseprice
inequityintheacquiringoperatingentitiesofAltus.
Non‐controllinginterestariseswhenequityisissuedtoavendorfroma foreignsubsidiaryor with
respect to the Altus LP Series 2 limited partnership units wh
ich are not exchangeable until aft
er
December31,2010.
TheFund’scapitalizationissummarizedinthefollowingchart:
December31,2010
December31,2009
Convertibledebentures
$43,019
$‐
Otherlong‐termdebt(note12)
88,615
70,029
Cashflowhedges(note17)
547
577
Obligationsundercapitalleases(note19)
399
551
Totaldebt
132,580
71,157
Less:cashandcashequivalents
(42,627)
(8,995)
Netdebt
89,953
62,162
Non‐controllinginterest(note21)
20,014
23,225
Unitholders’equity
174,805
186,033
Totalcapitalization
$284,772
$271,420
110
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
28. CapitalDisclosures,cont’d
TheFundmonitorscertainratiosinlinewithitsbankingagreement.AtDecember31,2010,theFund
isincompliancewiththefinancialcovenantsofthecreditfacilitiesasillustratedbelow:
December31,2010
December31,2009
Fundeddebt
(1)
toEBITDA(maximum2.50:1)
1.34:1
1.68:1
EBITDAtointerestexpense(minimum4.50:1)
9.62:1
10.55:1
Workingcapitalratio(minimum1.25:1)
3.75:1
2.47:1
(1)
Funded debt includes long‐term debt, obligationsunder capital leases, cash flow hedge, bank indebtednessless cash on
hand.
Underthetermsofthecreditfacilities,theFundmayelecttohavethefundeddebttoEBITDAratio
maximum raised from 2.0:1 to 2.5:1 for the next four consecutive quarters after completing an
approved acquisition funded with debt. Further, the election provides that the ratio shall not be
greaterthan2.0
:1attheendoftheelectionperiod. Duringthequ
arterendedSeptember30,2010and
as a result of the PwC Appraisal Management Practice acquisition, the Fund gave notice to its
lenderstoapplythiselection.
29. ExecutiveCompensationPlan
In May 2008, the Fund commenced an equity‐ba
sed Executive Compens
ation Plan that comprises
twoelements:aUnitOptionPlanandaDeferredPerformancePlan.DuringthequarterendedJune
30,2010,Unitholdersapproveda specialresolutiontoincreasethenumberofFund Unitsavailable
for issuance under the Unit Option Plan and the Deferred Performance Plan from 1,831,454 to
2,
213,668.
UnitOption
Plan(“OptionPlan”)
The options, which have a maximum term of 48 months, shall be allocatedand granted to certain
keyemployees.TheAdministratorsoftheOptionPlanhave discretionastothenumberofoptions
issued,theexercisepriceofeachoption,theexpirationdateofea
choption,theextenttowhicheach
optionis exercisable duringtheterm of the option, andany
other terms and conditions relatingto
eachoption.However, ifnospecificdeterminationismadebytheAdministrators,(i)anoptionshall
vest no earlier than 12 months from the date of it
s grant (the “Vesting Date”); and (ii) the period
during
whichtheoptionshallbeexercisableshallbe12monthsfromtheVestingDate.Theexercise
pricefortheoptionsundertheOptionPlaniscalculatedastheweightedaverageclosingpriceofthe
Fund Units on the Toronto Stock Exchange for the fi
ve business days immediately prece
ding such
grantdate.Exceptinspecificdefinedcircumstances,anoptionandallrightstopurchaseFundUnits
terminateupontheoptioneeceasingtobeanemployeeofAltus.
111
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
29. ExecutiveCompensationPlan,cont’d
ThechangesinoptionsundertheOptionPlanareasfollows:
NumberofOptions
WeightedAverage
ExercisePrice
BalanceasatDecember31,2008‐‐
GrantedonMay4,2009 730,000 $7.28
Exercised ‐ ‐
Terminated (22,591) $7.28
BalanceasatDecember31,2009 707,409 $7.28
GrantedonMay7,2010 730,000 $13.86
Exercised (207,012) $7.28
Terminated (35,650) $10.91
BalanceasatDecember31,2010 1,194,747 $11.19
Theoptionsgrantedin2009and2010vestovera periodfrom12to36months.Thefairvalueofeach
option granted was estimated on the date of grant using the Black‐Scholes option pricing model
withthefollowingassumptions:
May2010Grant
May2009Grant
Risk‐freeinterestrate 1.60% 0.83%
Expectedyield 10.37% 9.68%
Expectedvolatility 40% 39%
Expectedoptionlife 1‐4years 1‐4years
Weightedaveragegrant‐datefairvalueperunitoption $1.82 $0.94
Information about the Fund’s options outstanding and exercisable at December 31, 2010 is as
follows:
ExercisePrice
Numberof
optionsoutstanding
Weightedaverage
remainingcontractuallife
Numberof
optionsexercisable
$7.28 484,397 1.75years 28,788
$13.86 710,350 2.35years‐
$11.19 1,194,747 2.11years 28,788
Duringthe year ended December 31, 2010, the Fund recordedcompensation expense of$773(year
ended December 31, 2009 – $269) related to Fund Unit options granted to employees with a
correspondingadjustmenttocontributedsurplus(note25).
112
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
29. ExecutiveCompensationPlan,cont’d
DeferredPerformancePlan(“PerformancePlan”)
The Performance Plan provides for a notional account, (the “Distribution Account”), equal to the
distributionsdeclaredandpaidbytheFundin respectof2,213,668(December31, 2009‐1,831,454)
underlyingUnitsapprovedforissuance.UnderthetermsofthePerformancePlan,thePer
formance
PlanisfundediftheFundmeetscertainperforma
nceobjectivestiedtoarangeoftheFund’spayout
ratio,whicharesetannuallyduringthebudgetprocessandapprovedbytheAdministratorsofthe
PerformancePlan.OnApril1eachyear,anamountequaltotheDistributionAccountfo
rtheprior
yearwillbeusedtoacqui
reequity.Therefore,thevalueoftheissuedsecuritieswillbeequaltothe
valueoftheDistributionAccount.TheAdministratorsmayissuethesesecuritiesintheformofFund
Units, Class B LP units, or a newly created class of non‐votin
g shares (the “Non‐Voti
ng Special
Shares”) created by Altus Group Limited. Any Fund Units or Class B LP units issued under the
Performance Plan will be issued to the Altus Group Income Fund Employee Benefit Plan Trust
(“AltusEBT”) to be held for two yearspriortodistributiontoany part
icipantwho is a continuing
employeeofAltus.Distrib
utionsdeclaredonFundUnitsintheordinarycourseoftheFundwillbe
paidtotheAltusEBT.ItisanticipatedAltusEBTwilldistributeallofitsincometoitsbeneficiaries
onanannualbasisafterpaymentofAltusEBT’sexpenses.Inspec
ifiedcircumstances,theFundwill
repurchaseunitsissu
edtoAltus EBTfornominalconsideration.Duringthefourthquarterof2009,
theTrusteesoftheAltusEBTapprovedavariationtothevestingperiodthatpermittedunitsissued
for the 2008 Deferred Performance Plan to vest in January 2010 and the units iss
ued for the 2009
Deferre
dPerformancePlantovestinApril2010.
Duringthesecondquarterof2009,theFundissued18,486FundUnitsand89,747AltusLPSeries1
ClassBlimitedpartnershipunitstotaling$705(note20)intotheAltusEBTwithrespecttothe2008
Deferre
dPerformancePlanwithacorrespondingadju
stmenttocontributedsurplus(note25).
During the fourth quarter of 2009, the Fund cancelled 1,737 Altus LP Series 1 Class B limited
partnershipunitstotaling$11that wereissuedwithrespect tothe2008DeferredPerformancePlan
(note20).Also,duringthefourthquarterof2
009,theFundrepurchased5,40
7FundUnitsand1,243
Altus LP Series 1 Class B limited partnership units, that were issued with respect to the 2008
Deferred Performance Plan, for nominal consideration which resulted in a contributed surplus
adjustmentof$43(notes20and25).
Duringthesecondquarterof2
010,theFundissued16,154FundUni
tsand95,426AltusLPSeries1
ClassBlimitedpartnershipunitstotaling$1,591(note20)intotheAltusEBTwithrespecttothe2009
DeferredPerformancePlanwithacorrespondingadjustmenttocontributedsurplus(note25).
FortheyearendedDecember31,2010,astheact
ualpay‐outratiofel
lwithinthe establishedrange,
the Fund recorded an expense of $2,657 (year endedDecember 31,2009‐$1,591) in relation to the
Fund’s Deferred Performance Plan with a corresponding adjustment to contributed surplus (note
25).
113
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
30. SubsequentEvents
CorporateConversi on
OnDecember8,2010,unitholdersandholdersofthespecialvotingunitsoftheFundapprovedthe
reorganization of the Fund’s income trust structure into a corporation, pursuant to a plan of
arrangement under the Business Corporations Act (Ontario) (the “Arrangement”). The effective date
oftheA
rrangementwasJanuary1,2011.
Purs
uant to the Arrangement, unitholders of the Fund and holders of Class B limited partnership
units of Altus LP exchanged their units for common shares of the newly formed, wholly owned
subsidiary of the Fund on a one‐for‐one basis. The new amalgamated corporation, Al
tus Group
Limited,willcontinuetooperatethebusinessoftheFund.AltusLP,AltusOperatingTrustandthe
Fundwe
reliquidatedanddissolved.
Altus Group Limited assumed the obligation of the Fund in respect of outstanding Fund Unit
options. Upon exercise of the outstanding Fund Unit options, holders will re
ceive the number of
common shares equal to the number of Fund Unit
s they would have been entitled to receive in
accordancewiththeFund’sUnitOptionPlan.
In connection with the Arrangement, Altus Group Limited assumed all of the obligations of the
Fund relating to the outstanding convertible debentures. The conv
ertible debentures have become
convertibleunsecu
redsubordinateddebenturesofAltusGroupLimitedandholdersareentitledto
receive common shares, rather than Fund Units, at the same conversion price at which the Units
werepreviouslyissuableuponconversion.
The Trustees of the Fund have become the Board of Directors of Altus Group Limited and the
officers and ma
nagement of the Fund have become officers and ma
nagement of Altus Group
Limited.
AmendmenttoCreditFacilities
As a result of the corporate conversion, amendments were required to the Credit Facilities. The
amended Credit Facilities are effective January 1, 2011 and have a revised ma
turity date of
December 31, 2015. The R
evolving Operating Facility limit has increased from $12,500 to $20,000.
TheRevolvingTermFacilitylimithasincreasedfrom$97,931to$110,000,withanaccordionfeature
whichallowsAltusGroupLimitedtoincreasethelimitfurtherto$150,000.Interestratescontinueto
beba
sedontheCanadianDollarprimerate,ba
nkers’acceptancerates,USbaseratesorLIBORrates
plus, in each case, an applicable margin to those rates. The margin ranges from 1.0% to 3.5%
dependingonthecalculationofthefundeddebttoEBITDAratioandthefacilityused.
114
AltusGroupIncomeFund
NotestoConsolidatedFinancialStatements
December31,2010and2009
(ExpressedinThousandsofDollars,ExceptforUnitsandPerUnitAmounts)
30. SubsequentEvents,cont’d
UndertheamendedCreditFacilities,certainsubsidiariesoftheFundmustaccountforaminimum
of 80% of EBITDA at the end of each fiscal quarter, as compared to 85% of EBITDA previously.
Further, certain subsidiaries of the Fund must now also provide a minimum of 80
% of total
consolidatedassetsattheendofeachfisca
lquarter.
The amended agreement also resulted in new and revised financial covenants. These have been
summarizedbelow:
FundeddebttoEBITDAratio:maximumof2.50:1
Minimumfixedchargecoverageratio:minimumof1.25:1
Maximumfundeddebttocapitalizationratio:ma
ximumof0.5:1
Theagreementprovidesforan electionto have the fu
ndeddebt to EBTIDA ratiomaximumraised
from2.50:1to3.00:1forthenexttwoconsecutivequartersaftercompletinganapprovedacquisition
fundedwithdebt.
RepaymentofRevolvingOperatingFacilityandCancellationof$12,500InterestRateSwap
On Janu
ary 5, 2011, Altus Group Limite
d repaid $12,500 on the Revolving Operating Facility and
cancelledits$12,500interestrateswapagreement,incurringapenaltyof$145.
ConvertibleNoteReceivabletoRealMatters
OnFebruary 25, 2011, Altus GroupLimited issueda convertible note receivabletoReal Matters in
theam
ountof$1,000.Theconvertible note receiv
ablehasa maturitydateofFebruary20,2012and
bearsinterestat7%perannum,compoundedannually,payableatmaturity.Duringtheperiodupto
May 31, 2011, Altus Group Limited may, at its option, convert the receivable into shares using a
conversionpriceof$
1.7848pershare.
Non‐bindin
gLetterofIntent
OnMarch7,2011,AltusGroupLimitedenteredintoanon‐bindingletterofintenttoacquire100%of
thesharesofathirdparty.AltusGroupLimitedmayberequiredtopay$3,000USDollarsincertain
circumstances if the acq
uisition is not completed. At this time, there can be no
assurance that any
transactionwilloccur,orassuranceastothetiming,structureortermsofanysuchtransaction.The
fullimpactoftheacquisitiononfuturefinancialresultscannotbedeterminedatthistime.
31. ComparativeFigures
Certa
in comparativ
e amounts have been reclassified to conform to the financial statement
presentationadoptedin2010.
115
LISTING
TorontoStockExchange
Stocktradingsymbol:AIF
AUDITORS
RSMRICHTERLLP
LAWYERS
GOODMANSLLP
TRANSFERAGENT
CIBCMELLONTRUSTCOMPANY
P.O.Box7010
AdelaideStreetPostalStation
Toronto,Ontario,CanadaM5C2W9
Toronto:(416)643‐5500
Toll‐freethroughoutNorthAmerica:1(800)387‐0825
Facsimile:(416)643‐5501
FUNDHEADQUARTERS
17075LeslieStreet,Unit7
Newmarket,Ontario,CanadaL3Y8E1
Telephone:(905)953‐9948
Toll‐freeTelephone:1(877)953‐9948
Facsimile:(905)953‐0018
Website:www.altusgroupincomefund.com
