Annual Report - Cervus Equipment

Transcription

2006
Annual Report
STRE NGTH I N N UM BE RS
PARTNERSHIP PROFILE
Cervus LP is in the business of acquiring and operating authorized agricultural and industrial equipment dealerships
by facilitating dealership succession and providing capital, resources, training and opportunity for the next
generation of equipment dealers in Canada. The Partnership is the owner of the largest group of John Deere
agricultural equipment dealers in Canada, and with the acquisition of the Bobcat, JCB and JLG dealerships of
Alberta, has secured a significant presence in the growing construction and industrial equipment sectors. The
Partnership operates through 15 dealer stores in 13 locations across Alberta, Saskatchewan and western Manitoba,
and is a public limited partnership listed on the TSX Venture Exchange, trading under the symbol CVL.UN.
FINANCIAL HIGHLIGHTS
269.1
107.5
8.6
89.2
182.4
4.9
141.6
3.7
33.4
26.2
56.4
03
04
05
06
REVENUE ($ Millions)
03
2.1
04
05
06
03
TOTAL ASSETS ($ Millions)
04
05
06
NET EARNINGS ($ Millions)
Years ended December 31
2006
2005
2004
2003
Revenue ($ millions)
269.1
182.4
141.6
56.4
8.6
4.9
3.7
2.1
36.2
25.0
7.7
5.1
9.3
7.6
7.6
5.6
107.5
89.2
33.4
26.2
Net earnings available to partners ($ millions)
Total partners equity ($ millions)
Total long term liabilities ($ millions)
Total Assets
Norman Hoeflicher Farm & Garden Centre
Saskatoon, Saskatchewan
Cervus Values
EXPERIENCE + LOYALTY
One outstanding resource creates a future for Cervus LP
that is diversified and positioned for continued success:
OUR PEOPLE.
Our people are a dynamic team who commit to providing genuine customer value, each and every
day. With pride, skill and innovation, they ensure Cervus LP leads our industry as a profitable and
competitive organization backed by the world’s dominant agricultural and industrial brands.
THEIR WORKMANSHIP AND LOYALTY TRANSLATES INTO SUPERIOR FINANCIAL AND
OPERATIONAL RESULTS, AND CREATES STRENGTH IN NUMBERS FOR CERVUS LP.
LETTER TO THE PARTNERS
Dear Partners,
On behalf of every member of the Cervus LP team, I am proud to
present the Partnership’s achievements for the fiscal year 2006.
The pages of this annual report introduce you to six of the more than
400 skilled and knowledgeable people who every day contribute to
the success of the Cervus LP, proving that when it comes to our people,
our industry-leading products, our continuing growth and outstanding
results, there is indeed “Strength in Numbers”.
FINANCIAL HIGHLIGHTS
Cervus LP achieved a strong, balanced performance in 2006, posting record sales and earnings results. The Partnership achieved
revenues of $269 million, compared to $182 million in 2005. This was an impressive increase of 47% over 2005’s results.
We increased our EBITDA to $12.95 million from $6.62 million in 2005, an increase of 96%. Our EBITDA per unit – diluted was
$1.94 per unit compared to $1.43 per unit in 2005 and our earnings per unit – diluted increased to $1.29 per unit from $1.05 per
unit in 2005, an increase of 23%. In addition, net earnings increased to $8.6 million from $4.8 million in 2005, an increase of 79%.
Basic net earnings per unit increased to $1.38 per unit for 2006 compared to $1.15 per unit for 2005.
As a result of these successes, Cervus LP remains committed to paying Unitholders a monthly distribution. Our increased
earnings are providing us greater capacity for higher distributions – a success that we balance with the need to maintain a very
strong balance sheet and the ability to pay consistent and sustainable distributions in the future.
AGRICULTURE DIVISION HIGHLIGHTS
Our Agriculture Division - Cervus LP’s dealership group of 10 John Deere stores in Western Canada - together contributed
$8.6 million to the Partnership’s $86.7 million revenue increase over 2005. During 2006, the agricultural equipment division
accounted for 67% of the Partnership’s overall gross revenue.
Over the course of the year, the Partnership reaffirmed our commitment to growth both organically and through acquisitions.
We completed a private placement of 400,000 units to eliminate certain outstanding debt and raise capital for the purchase of a
dealership in Watrous, Saskatchewan. To this end, we completed the purchase of all of the outstanding shares of Westby Tractor
and Equipment Ltd. (“Westby”), a Saskatchewan corporation, in 2006.
While we grew through the acquisition of the John Deere dealership in Waterous, Saskatchewan in 2006, we also closed a
dealership in Wawota, Saskatchewan effective January 1, 2007. This closure was in response to changing market conditions in
southeastern Saskatchewan, and was a proactive step taken by management when a review of our holdings in Wawota revealed
that our investment was not providing the consistent returns necessary to the Partnership’s continued growth.
The John Deere brand is among the strongest in the marketplace, and has earned us significant market share in the areas we
serve. However, the majority of our new equipment sales in the Agriculture Division are accompanied by trade-ins of used
equipment. In 2006, we found ourselves with a growing used equipment inventory. As a result, writedowns of this used inventory
were necessary, negatively impacting the overall profitability of the Division. This outcome requires improvement, and will be a
priority for change moving into 2007.
In contrast, various factors are positively impacting the Canadian agriculture industry, many of which could cause a long-term
significant improvement in grain prices and profitability for our farm customers. Several influences are driving demand, the most
significant factor being an increased demand for corn for ethanol plants in the United States. As more corn is planted to meet the
extra demand for ethanol plants, fewer other crops are grown, which could lead to shortages in the grains currently produced
by our customer base.
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l Cervus LP l Annual Report 2006
425
dedicated employees across Western Canada
Demand for Canadian crops is also being positively affected by improvements in the standard of living in populous countries
such as China and India. This trend will also increase demand for food products at a time when carryover inventories are at
historic lows.
Looking toward 2007, there is a strong sense of optimism among our agriculture customers. As a result, new and used tractor
inventory is selling quickly, and a late spring could increase demand for used combines and other equipment later in the year.
CONSTRUCTION DIVISION HIGHLIGHTS
The Partnership’s acquisition of the Bobcat, JCB and JLG dealerships of Alberta played a key role in achieving our growth
objectives in 2006. The addition of the Construction Division on November 16, 2005 accounted for $78.1 million of Cervus LP’s
$86.7 million revenue increase.
The Construction Division accounted for 33% of overall gross revenue in 2006, and secured a significant presence for Cervus
LP in the growing construction and industrial equipment sectors. Alberta’s booming economy, fueled by the oil and gas and
construction industries, shows no signs of diminishing, nor does the burgeoning Saskatchewan natural resources industry. The
housing markets in our trading areas also remain strong, and have had a direct and positive effect on sales of Bobcat and JCB
construction equipment.
To realize efficiencies in the accounting and administration of the Construction Division’s five Alberta dealerships, we created a
single administrative arm in Calgary to serve the needs of the entire organization. This new group, Cervus Shared Resources, was
created during 2006, and we are already reaping the benefit of the efficiencies now available through centralized processing.
STRENGTH IN NUMBERS - THE PEOPLE BEHIND CERVUS LP
We expect our growth to continue in 2007, due to both a strong economy in Western Canada and to a strengthening agriculture
base created by anticipated increases in crop prices. The key to ensuring these economic indicators translate into success for the
Partnership, however, lies within our employees. Undeniably, our people are our most valuable resource, and their dedication
and commitment to our customers has been the driving force behind our accomplishments. We believe it is the people in a
business who make a business, and thus, have a strong commitment to employee ownership. In 2006, Cervus LP introduced an
Employee Stock Purchase Plan designed to encourage our employees to share in the ownership of Cervus LP. Participation has
been strong, and is indicative of our employees’ belief in the potential of the organization.
The booming economy has created well–publicized labour challenges in Western Canada. We continue to attract and retain
quality employees by offering competitive wages, opportunities for personal growth and development, and by ensuring our
employees are active partners in Cervus LP’s future.
ACKNOWLEDGEMENTS
We thank and appreciate our 425 employees who work diligently to exceed the expectations of our customers. Their commitment
to the Partnership’s core values of teamwork, innovation and pride creates genuine customer and shareholder value, and ensures
Cervus LP continues to achieve our corporate objectives.
Thank you also to our Unitholders for your enduring confidence. We are committed both to delivering a superior return on your
investment and to ensuring Cervus LP remains on a path of continued growth and profitability.
Sincerely,
Peter Lacey
Cervus Limited Partnership
Cervus LP
l Annual Report 2006 l 03
STRENGTH IN NUMBERS
Fort McMurray
Edmonton
Ponoka
Stettler
Coronation
Red Deer
Trochu
Calgary
Rosthern
Saskatoon
Watrous
Russell
Moosomin
WITH 15 DEALER STORES IN 13 LOCATIONS ACROSS WESTERN CANADA, CERVUS LP IS DEDICATED
TO ENSURING THE ADVANCEMENT OF THE JOHN DEERE, JCB, BOBCAT AND JLG BRANDS THROUGH
PARTNERSHIP WITH THEIR MANUFACTURERS, BY FACILITATING DEALERSHIP SUCCESSION, AND BY
POSITIONING THE NEXT GENERATION OF DEALERS FOR PROFITABILITY AND GROWTH. 04
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dealer stores in 13 locations in Alberta, Saskatchewan and Manitoba
Cervus Values
TEAMWORK + SERVICE
Ashley Beams Bobcat of Calgary
Calgary, Alberta
Cervus LP
CONSTRUCTION
AGRICULTURE
OUR FAMILY OF PRODUCTS
ONE OF THE BIGGEST COMPETITIVE ADVANTAGES FOR CERVUS LP IS THE JOHN DEERE
NAME AND BRAND. SINCE 1837, THE NAME JOHN DEERE HAS STOOD FOR QUALITY
PRODUCTS AND SERVICE.
Deere & Company has been manufacturing John Deere agricultural equipment for over 168 years, and is one of
North America’s oldest and most respected brands. Working closely with John Deere Limited, Cervus LP facilitates
dealership succession in the farm equipment industry, unifying operations in the same manner as the many farms
that have been consolidated into large, commercial businesses.
IN ALBERTA’S BOOMING ECONOMY, JCB’S WORLD-RENOWNED LINE OF MACHINERY
PRESENTS A GROUNDBREAKING OPPORTUNITY FOR CERVUS LP.
JCB is a global brand that is equipped to meet the demands of the global community. Whatever the type of
environment, whatever the kind of application, Cervus LP stands behind the JCB commitment to deliver the goods
and supports our products in the field. Great ideas. Brilliant engineering solutions. Superb service. Reliable backup. They all combine to create the guaranteed JCB performance standard.
BOBCAT HAS ESTABLISHED ITSELF AS THE LEADER IN THE THRIVING ALBERTA MARKET
FOR THE MANUFACTURE AND DELIVERY OF LIGHT CONSTRUCTION EQUIPMENT.
In fact, Bobcat has the largest market share in this niche in the province. Throughout Alberta, Cervus LP markets
a wide range of Bobcat products including: mini track loaders, skid-steer loaders, all-wheel steer loaders, loader
backhoes, compact hydraulic “mini” excavators, telescopic tool carriers, utility vehicles and attachments. The
Partnership’s dealerships are dedicated to ensuring operational excellence by exceeding customer expectations
and responding to their specific needs for parts, rentals, new and used sales, service and after-market care.
06
3
industry-leading agricultural and industrial brands
Cervus Values
INTEGRITY + PRIDE
Ron Smith Bobcat of Edmonton
Edmonton, Alberta
Cervus LP
7
core values that all team members share
CERVUS VALUES
ACHIEVEMENT + ACCOUNTABILITY
Ramona Nahayowski Bobcat of Edmonton
Edmonton, Alberta
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Management’s
Discussion & analysis
for the year ended December 31, 2006
to assist readers in understanding Cervus LP’s financial performance for the year ended December 31, 2006 and
Cer vus LP
The following Management’s Discussion & Analysis (“MD&A”) was prepared as of March 30, 2007 and is provided
l
with the accompanying consolidated financial statements for the year ended December 31, 2006 and the notes
contained therein. The accompanying consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles (“GAAP”) and Cervus LP’s reporting currency is the
Canadian dollar. Cervus LP is a reporting issuer in the provinces of Alberta and British Columbia, Canada.
Cervus LP’s units trade on the TSX Venture Exchange under the symbol “CVL.UN”
Additional information relating to Cervus LP is available on the System for Electronic Document Analysis and
Retrieval (“SEDAR”) web site at www.sedar.com.
A n n u a l R e p o r t 2 0 0 6 | M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s
significant trends that may affect future performance of Cervus LP. This MD&A should be read in conjunction
This MD&A contains forward-looking statements. Please see the section “Note Regarding Forward-Looking
Statements” for a discussion of the risks, uncertainties and assumptions relating to those statements. This
MD&A also makes reference to certain non-GAAP financial measures to assist users in assessing Cervus LP’s
performance. Non-GAAP financial measures do not have any standard meaning prescribed by GAAP and
are therefore unlikely to be comparable to similar measures presented by other issuers. These measures are
identified and described under the section “Non-GAAP Financial Measures”.
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Selected Consolidated Financial information
$ thousands, December 31,
December 31,
December 31,
2006
2005
2004
269,134
182,450
141,617
Gross profit
Gross margin
44,104
16.4%
27,869
15.3%
21,157
14.9%
EBITDA EBITDA margin1
Per Unit - diluted
12,950
4.8%
1.94
6,617
3.6%
1.43
4,724
3.3%
1.2
Net earnings
Per unit - Basic Per unit - Diluted 8,597
1.38
1.29
4,850
1.15
1.05
3,701
0.97
0.94
Cash flow from operations
3,847
4,639
1,804
Funds from operations1
Per unit - diluted
11,652
1.75
5,424
1.17
3,741
0.95
Distributions declared
Per unit
7,048
1.04
4,282
0.96
321
0.08
Weighted average units outstanding
Basic
6,245
4,204
Diluted
6,661
4,614
3,823
3,925
except per unit amounts
Revenues 107,515
89,212
33,434
Long-term liabilities
9,276
7,653
7,649
Unitholders’ equity
36,160
25,036
7,726
Total assets
Notes: (1) These financial measures are identified and defined under the section “Non-GAAP Financial Measures”.
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Highlights
of the year
2006
• We wrote down used agriculture equipment inventory by $3.1 million as a result of the shift in demand for the equipment and due to the strengthening Canadian/US dollar exchange rate.
• Revenue has increased to $269.1 million for the year ended December 31, 2006, an increase of $86.7 million or 47% over gross revenue of $182.4 million in 2005.
•
Net earnings have increased to $8.6 million in 2006, an increase of $3.7 million or 76% over net earnings of $4.9 million in 2005. The agricultural equipment segment contributed $1.5 million and the construction equipment segment contributed $7.1 million of the 2006 net earnings available to partners.
• We completed a private placement of 400,000 units to liquidate certain outstanding debt and
to raise capital for the purchase of the John Deere dealership in Watrous, Saskatchewan.
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• We completed the purchase of a John Deere dealership in Watrous, Saskatchewan, adding another store to the Farm & Garden dealership group.
Cer vus LP
• We completed the purchase of the remaining minority interest in Farm & Garden Centre located in Saskatoon and Rosthern, Saskatchewan.
• Basic net earnings per unit increased to $1.38 per unit for 2006 compared to $1.15 per unit
for 2005.
• Effective January 1, 2007, we closed a dealership store in Wawota, Saskatchewan in response
to changing market conditions in south-eastern Saskatchewan.
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Overall Performance
Since becoming a publicly traded limited partnership in 2003, we have been able to accelerate our growth
strategy by completing strategic business acquisitions. In November 2005, we were also able to achieve sector
diversification by purchasing and investing in our construction equipment segment. We also completed the
purchase of another John Deere dealership in Watrous, Saskatchewan in June 2006, and though we closed our
dealership in Wawota, Saskatchewan, at the end of 2006, we believe we have been able to achieve net growth by
accommodating changing market conditions. These investments have been critical in achieving our mission.
We are pleased with our progress towards our objectives and in 2006; we achieved revenues of $269 million compared to $182
million in 2005. This was an increase of 47% over the 2005 results. In addition, we increased our EBITDA (see “Non-GAAP
Financial Measures) to $12.95 million from $6.62 million in 2005, an increase of 96% and increased our net earnings to $8.6
million from $4.8 million in 2005, an increase of 77%. These results show a significant improvement over those reported in
2005.
Our successful growth depends on our ability to provide accretive cash flow and earnings growth to our Unitholders on a
per unit basis. We were successful in achieving this goal in 2006. Our EBITDA per unit – diluted (see “Non-GAAP Financial
Measures”) was $1.94 per unit compared to $1.43 per unit in 2005 and our earnings per unit – diluted increased to $1.29 per
unit from $1.05 per unit in 2005, an increase of 23%.
We expect our growth to continue in 2007 due to a strong Western Canada economy, especially in Alberta for our construction
equipment segment and a strengthening agriculture base due to anticipated higher crop prices. The key to our success has
been and will continue to be our employees. Through the dedication and hard work of our employees we have successfully
grown the business over the past years.
Our Business
Cervus LP is in the business of acquiring and operating authorized agricultural and construction equipment
dealerships. Cervus LP is the owner of the largest group of John Deere agricultural equipment dealers in
Canada. With the recent acquisition of the Bobcat, JCB and JLG dealerships in Alberta, Cervus LP now also has
a significant presence in the construction equipment sector. Cervus LP does business through 15 dealer stores
in 13 locations across Alberta, Saskatchewan and western Manitoba.
The manufacturers of products enter into dealership agreements providing the dealer the right to sell their products within a
specified geographical territory. These agreements include performance criteria such as market share, customer satisfaction
and financial objectives.
There is a growing need among first and second generation owners of dealerships for viable exit strategies. However, the
cost and complexity of owning and operating a dealership has increased considerably over the years. With access to capital
markets, experienced managers, stable operating results and effective incentive programs, Cervus LP is able to provide
a means by which these owners can realize their investments while at the same time provide a strong succession plan for
the dealership. These owners can become equity holders of Cervus LP. The consolidation of dealerships is a strategy
encouraged by the manufacturers. We see this trend among all equipment dealership sectors, regardless of the type of
equipment that is sold.
We are dedicated to ensuring the advancement of these brands through partnership with the manufacturers and
facilitating dealership succession.. Cervus LP is divided into two divisions, the Agriculture Division and the Construction
Division. We have done this to better focus on the various markets. Wherever feasible, Cervus LP is committed to having a
separate store for each major product line as a means to enhance brand commitment and focus. We believe that increased
focus on the market and specific brand line has a direct, positive impact on sales.
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Mission, Values
and Philosophy
OUR MISSION
• Continuous improvement and innovation.
• Customer centric approach to the design and delivery of our products and services.
• Genuine customer value at the dealership level.
• Workmanship that is of the highest quality.
• Personal and corporate growth.
• Employee safety, pride and integrity.
• Teamwork and shared achievement.
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OUR VALUES
Cer vus LP
Cervus LP is in the business of acquiring and operating authorized agricultural and construction
equipment dealerships by facilitating dealer succession and providing capital, resources, training
and opportunity for the next generation of dealers to effectively position them for profitability and
growth.
.
OUR PHILOSOPHY
• Open information sharing.
• Decision making as close to the customer as possible.
• Personal challenge, accountability and trust.
• Accepting risk as a key component of innovation and competition.
• Celebration of accomplishments.
• Our team members are owners of Cervus.
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47
percent increase in revenue over 2005’s results
Cervus Values
TECHNOLOGY + INNOVATION
Jason Wiens Greenline Equipment
Moosomin, Saskatchewan
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Managed growth
We intend to grow the business organically and through acquisitions. Over the last number of years,
Cervus LP has undertaken a series of business acquisitions which have played a key role in achieving
our growth strategies. Below is a summary of key business acquisitions of Cervus LP.
We created Cervus LP through the transfer of the Calgary, Trochu, Stettler, Coronation, and Ponoka
Alberta dealerships.
•
We purchased the John Deere dealerships in Saskatoon and Rosthern, Saskatchewan.
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•
Cer vus LP
2003
•
We acquired a majority interest in Greenline Equipment Ltd with dealerships located in Moosomin and Wawota, Saskatchewan and Russell, Manitoba..
2005
•
We completed a private placement of units and raised $16,500,000 for the purchase of A.R. Williams Contractors Equipment Ltd.
•
Cervus LP purchased the remaining minority interest in Greenline Equipment Ltd.
2006
•
We completed a private placement of 400,000 units to eliminate certain outstanding debt and raise capital for the purchase of the Watrous, Saskatchewan dealership.
•
We completed the purchase of the John Deere dealership in Watrous, Saskatchewan, adding another store to the
Farm & Garden dealership group.
•
We purchased the remaining minority interest in Farm & Garden Centre located in Saskatoon and
Rosthern, Saskatchewan.
•
We closed the dealership in Wawota, Saskatchewan in response to changing market conditions in south-eastern Saskatchewan.
2004
OUR BUSINESS GROWTH STRATEGY IS COMPRISED OF THE FOLLOWING
KEY ELEMENTS:
1. STICK TO WHAT WE DO BEST; our success has come from being efficient and effective operators of dealerships. We
believe that our greatest potential for sustainable growth comes from leveraging this experience. We intend to stick close to
what we do best.
2. LEVERAGING OUR RESOURCES THROUGH CLUSTERING; we believe that the largest impact to the bottom line will
be realized through acquisitions that can either be joined with an existing cluster and thereby realize immediate synergies
as they are integrated into those operations, or by acquiring existing clusters possessing existing economies of scale and
leverage of resources. In keeping with this strategy we acquired the John Deere Dealership in Watrous, Saskatchewan, a
contiguous dealership area to our existing dealership cluster operated out of Saskatoon, Saskatchewan.
3. MITIGATE OVERALL RISK THROUGH DIVERSIFICATION; our core business of agricultural and construction
dealerships possesses intrinsic geographical and market risks. We intend to mitigate those risks through acquisitions that
provide diversification.
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4. PROVEN SUCCESS; Each business we acquire must have a proven track record of success. We target value in our
acquisitions. We acquire businesses that have generated strong profits over consecutive years and have demonstrated an
ability to grow successfully. We are committed to this strategic indicator long after the acquisition has taken place and
constantly review our holdings to ensure they continue to perform as expected. Where an investment is proving not to
provide consistent returns we will take corrective action and, if necessary, divest, as we did with the closing of our dealership
in Wawota, Saskatchewan at the end of 2006.
5. SKILLED, KNOWLEDGEABLE PEOPLE; We believe that our most important resource is our people. As we continue to
grow the business we have an ever increasing need for skilled, knowledgeable, motivated individuals to run the operations.
This is a key consideration when evaluating a potential acquisition and critical to the ongoing growth and success of the
organization.
Our people truly are our most valuable resource. It has proven to be a challenging labour market this past year, due mainly
to the booming Alberta economy. However, the store managers, who are themselves owners of Cervus LP, have built and
maintained a positive work environment which has allowed us to retain and attract the skilled labour needed to meet market
demands.
In a continued effort to attract and retain great people, Cervus introduced an Employee Stock Purchase Plan in 2006 which
allows our employees to participate in the ownership of Cervus LP. The partnership provides a matching component based
on the past year’s performance of the individual dealerships. The participation, though not mandatory, has been strong, and
is indicative of our employee’s commitment to be involved and participate in the success of the organization.
6. EFFECTIVE DUE DILIGENCE AND INTEGRATION PLANNING; we review all potential acquisitions carefully to
ensure they complement our existing operations and to avoid surprises. Time is also spent identifying integration issues to
ensure that the merger into existing operations will take place as smoothly as possible. We are currently in the process of
updating our operating process and procedure documentation, with the intent of not only identifying improvements within
our current operations but as a means to facilitate quick integration of acquired dealerships.
Much effort and energy was expended in 2006 understanding the construction equipment segment we had acquired in
late 2005. The accounting and administration for these dealerships continued to be performed by the vendor until we
were able to create a new administrative team in a new location in Calgary that would serve the administrative needs of the
entire organization. The administrative functions for our Contractors Equipment division transitioned to the newly formed
Cervus Shared Resources team in January 2007. Although there is more work to be done, we are experiencing many of the
administrative synergies we expected when we acquired this group of dealerships.
7. DO NOT OVERPAY; a business acquisition must provide long-term value. It must be accretive to EBITDA (see “non-GAAP
Financial Measures”) and earnings per unit. We will not acquire a company just for the sake of growth.
EXECUTING OUR GROWTH STRATEGY IN 2006
ORGANIC GROWTH
We experienced approximately 2.6% organic growth in 2006 in our Agricultural Equipment Division, as measured by gross
sales. The average sales growth in our Alberta John Deere stores was 10%, with approximately a 7.3% increase in our central
Saskatchewan stores and an approximately 22% average decrease in our southeast Saskatchewan and Manitoba stores.
The Contractors Equipment Division was purchased in late 2005. Gross sales for this segment for 2006 compared to the
unaudited gross sales for the twelve months of 2005 showed an increase of approximately 31.3%.
EXPANSION THROUGH ACQUISITION
Cervus LP completed the purchase of all of the outstanding shares of Westby Tractor and Equipment Ltd. (“Westby”), a
Saskatchewan corporation, in 2006. Westby is an exclusive distributor of John Deere agricultural equipment operating out
of Watrous Saskatchewan. The dealership contributed 2.4% of the consolidated sales growth experienced during the year.
CAPITAL INVESTMENT
We invested approximately $3.7 million, net of disposals, in operational capital expenditures in 2006, including $3.8 million
in rental equipment. We anticipate the 2007 capital expenditure needs to be approximately $5.5 million, $3.5 million of
which is for the further expansion of our construction equipment rental fleet, $2.0 million for equipment and leasehold
improvements
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KEY SUCCESS FACTORS
EFFECTIVE, EFFICIENT OPERATIONS
We are migrating to a system of centralized processing and administration in order to realize on the efficiencies now available
through centralized processing. Our Cervus Shared Resources team has been set up in Calgary and the majority of the
administration was transitioned to this team during 2006. The remainder of the transition is expected to be completed in
early 2007.
Cer vus LP
In addition, we have completed a selection process and entered into an agreement with a software provider that will supply
us with an integrated business system for all our dealerships. Currently our agricultural equipment dealerships are on a
separate system than our construction equipment dealerships. We are working with this provider to modify their existing
program to better meet our needs. We anticipate the implementation of this new system sometime in the fourth quarter of
2007. We are intentionally taking a very cautious approach to this transition. We are not willing to in anyway risk our ability
to provide continued excellent service to our customers.
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Our employees are critical to our long-term success and viability. Due mainly to the high growth of the Alberta economy,
we are experiencing a very high demand for skilled labour. Our future success depends heavily on our ability to attract and
retain key personnel.
To attract and retain quality employees, we need to offer competitive wages, opportunities for personal growth and
development, and ensure that our employees are engaged as partners in Cervus LP’s future. We have a strong commitment
to employee ownership. This ensures our employees have a vested interest in Cervus LP’s performance and enjoy the fruits
of their labour. This approach is somewhat unique to the owner-operator model prevalent in our industry and we believe it
provides us with a competitive advantage.
As of March 30, 2007 Cervus LP’s officers and senior managers owned approximately 45% of Cervus LP’s outstanding LP units.
We believe this is important because it ensures management’s interests are aligned with those of our Unitholders.
DIVERSIFIED, WELL CAPITALIZED DEALERSHIP NETWORKS
We need to grow in order to enhance the range and depth of services we offer our customers and keep pace with the
consolidation that is taking place in the agriculture sector. There are significant growth opportunities that we need to take
advantage of including the following:
•
Consolidation of equipment dealerships: The equipment dealership business is relatively mature and generally owner
operated. The increasing price of equipment over the years has resulted in the need for significant capital investment in
inventories. This has made it more difficult for young entrepreneurs to step into an ownership position of a dealership.
As a result, these owner-operators find they have very limited opportunities for divesting of their investment in these
dealerships. We have the opportunity to lever our access to capital markets and management experience to provide a
viable exit strategy for these dealer owners and entry for young entrepreneurs. While there is growth potential in each of
the dealerships we currently own, the opportunity for consolidation also remains very high.
•
Geographical and market diversification: Many of the risks inherent in our core business such as weather, seasonality
and regional economic conditions can be mitigated through diversification into other regions or markets. Our intention
is to continue to seek out opportunities that complement our current business while mitigating these inherent risks in
our core business.
ATTRACTING AND RETAINING SKILLED, QUALITY EMPLOYEES
ENSURING OUR GROWTH IS PROPERLY FINANCED
We must have sufficient capital to realize the growth opportunities. We obtain this financing through operating cash flows
that we retain, the private placement of Cervus LP units, through debt financing and through the dividend reinvestment
plan.
In addition, we have floor plan facilities in place for financing our inventory requirements. The facilities are assessed on a
periodic basis and the availability adjusted as required.
Our equity offerings and credit facilities have provided us the financial flexibility that we have needed to pursue and take
advantage of growth opportunities. However, we will need to obtain additional growth capital from both internal and external
resources in the future to achieve our on-going growth opportunities.
17
MANAGING THE COMPETITIVE ENVIRONMENT
Our dealerships operate in very competitive environments. We believe that in order for Cervus LP to have sustainable
earnings we must answer the competitive threat on three levels: attention to our customers, partnering with our suppliers,
and strong market presence.
Our product brands are among the strongest in the marketplace which has contributed to strong market share in the areas
we serve. However, there is a balance that must be struck between maintaining strong market share for new equipment sales,
healthy margins and inventory risk. The vast majority of our new equipment sales in the agriculture sector are accompanied
with trade-ins of used equipment. As we focus on market share, as measured by new equipment sales, we must constantly be
aware of the used equipment market in order to ensure that we can sell the trade-in at an acceptable margin in an acceptable
timeframe. Without proper attention to both markets we could find ourselves with a growing used equipment inventory and
increased risk.
CUSTOMER FOCUS
Customer satisfaction is a key performance criteria used in evaluating dealership performance. Customer input is obtained
formally and informally and is used to modify dealership processes to improve our customer service.
PARTNERING WITH SUPPLIERS
A strong relationship with our manufacturers is critical to ensuring product delivery, price competition and quick response to
competitive pressures. We enjoy a good relationship with all of our manufacturer suppliers.
Analysis of Operating and
Financial Results
MEASURING FINANCIAL SUCCESS
At the end of the day, investors will evaluate how successful we were in meeting our goals. A key
measure is our corporate growth and profitability. So how do we measure financial success?
We measure it over the long-term. We do not measure success based on what our financial results
looked like yesterday or what they will look like tomorrow, but what our financial performance will be
over the long-term. This is because both our vision and unit holders are focused on the long-term.
We measure the success of our growth strategies by tracking our performance using key financial and
non-GAAP financial measures.
REVENUE
Revenue growth drives all of our other financial performance measures. Cervus LP has achieved year over-year revenue
growth and we believe this trend will continue. We believe that continuing to achieve strong year-over-year revenue
growth will allow us to be the dominant service supplier in our territories.
CASH FLOWS FROM OPERATIONS
Cash flows from operations before changes in non-cash operating working capital are important as they provide us with
an indication of our ability to grow our operations and to distribute income.
EBITDA
EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) provides us an indication of the financial
results generated by our principal business activities prior to consideration of how these activities are financed or how
the results are taxed in various jurisdictions and before non-cash amortization expense. We also use EBITDA as a key
performance measure in assessing the profitability and value of potential business acquisitions (see “non-GAAP Financial
Measures”).
NET EARNINGS
Growing our revenue, EBITDA, and cash flow should contribute to an increase in our net earnings. Net earnings represent
our bottom line, and growing our net earnings per unit drives Unit holder value.
18
RESULTS FROM OPERATIONS
REVENUE
Revenue has increased to $269.1 million from $182.4 million for the year ended December 31, 2006 when compared to the same
period during 2005. This is an increase of $86.7 million or 47% over the prior year. The addition of the construction equipment
division on November 16, 2005 accounted for $78.1 million and the agricultural equipment division accounted for $8.6 million
of the increase. The increase in the agriculture division was mainly due to $4.1 million from the acquisition of the Watrous
dealership and a $3.8 million increase in the lawn and garden equipment sales. During 2006, the agricultural equipment
division accounted for 67% and the construction equipment division accounted for 33% of overall gross revenue.
PARTS 11.9%
SERVICE DEPARTMENT 6.6%
RENTALS AND OTHER 2.4%
2005 GROSS SALES
EQUIPMENT AND SALES 79.1%
l
2006 GROSS SALES
Cer vus LP
Revenue is comprised of new and used equipment sales, parts, service and rental and other. The LP has seen increases in
all department revenues and their contributions to gross revenue during 2006 are consistent with 2005. Equipment sales
increased to $212.9 million in 2006 from $148.0 million during 2005, an increase of 44%. Parts revenue increased to $32.1 million
in 2006 from $22.0 million in 2005, an increase of 46%. Service revenue increased to $17.8 million during 2006 compared to
$10.6 million in 2005, an increase of 67%, and rentals and other revenue increased to $6.3 million in 2006 from $1.8 million in
2005, an increase of $5.2 million or 473%.
EQUIPMENT AND SALES 81.1%
PARTS 12.0%
SERVICE DEPARTMENT 5.8%
RENTALS AND OTHER 1.1%
COST OF SALES
Cost of sales was $225.0 million for the year ended December 31, 2006 compared to $154.6 million for the same period
during 2005. The agricultural equipment segment accounted for $154.4 million (2005 - $146.1 million) and the construction
equipment segment accounted for $70.6 million (2005 - $8.5 million). Included in cost of sales is $1.7 million (2005 - $219,000)
of amortization related to the construction equipment division rental equipment. In addition, the agricultural equipment
segment included $3.1 million (2005 - $839,000) of used equipment write-downs.
19
The strengthening Canadian dollar compared to the U.S. dollar has caused a lower relative price for new equipment, which
has resulted in downward pressure on the new and used equipment values. The ease with which customers can compare
prices and purchase equipment from the U.S. has applied further pressure to equipment prices in our territories. This crossborder activity had become a greater threat with the changes in the exchange rates.. As a result, management believed that
a used equipment write-down was warranted and has included in cost of sales, $3.1 million of used equipment write-downs
for 2006 compared to $839 thousand for 2005.
GROSS PROFIT MARGINS
Gross profit margin was $44.1 million or 16.4% of gross sales during 2006 compared to $27.9 million or 15.3% of gross sales for
2005. The agricultural equipment segment contributed $25.5 million (2005 - $25.1 million) and the construction equipment
segment contributed $18.6 million (2005 - $2.8 million) to the LP’s gross margin.
The agricultural equipment segment experienced an overall decrease in gross margin of 0.5% to 14.2% in 2006 from 14.7%
in 2005. The primary reason for the decrease was caused by the write-downs in used equipment recorded during 2006 as
explained above. Gross margin as a percentage of gross sales in the agricultural equipment segment consisted of 4.6% (2005
– 6.2%) for equipment sales, 54.7% (2005 – 56.1%) for service, 28.8% (2005 – 26.8%) for parts, and 15.4% (2005 – 13.6%) for
consumer products. Rental and other income was negligible for the both 2006 and 2005. During 2006, the Alberta labour
market and increased cost of labour was the primary reason for decreasing margins in the service department.
The construction equipment segment experienced an overall increase in gross margin of 0.6% to 20.8% in 2006 compared
to 20.2% in 2005. Gross margin as a percentage of gross sales was 14.3% (2005 – 14.8%) for equipment sales, 66.1% (2005
– 59.5%) for service, 32.6% (2005 – 28.7%) for parts and 35.7% (2005 – 32.8%) for rental and other.
44.1
2006 GROSS PROFIT CONTRIBUTION
millions
TOTAL GROSS PROFIT
19.7
EQUIPMENT SALES
10.4
9.5
2.4
PARTS
2.1
CONSUMER PRODUCTS
RENTAL AND OTHER
SERVICE
27.9
2005 GROSS PROFIT CONTRIBUTION
millions
TOTAL GROSS PROFIT
13.1
EQUIPMENT SALES
6.4
6.1
1.3
1.0
PARTS
CONSUMER PRODUCTS
RENTAL AND OTHER
SERVICE
20
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $33.0 million (2005 - $21.4 million) or 12.3% of gross sales in 2006 compared
to 11.7% of gross sales in 2005. The agricultural equipment segment accounted for $22.5 million or 68% and the construction
equipment segment accounted for $10.5 million or 32% of the total expenditures during 2006.
Cer vus LP
The agricultural equipment segment had an increase in selling, general and administrative expenses of approximately $2.7
million from 2005 to 2006. The primary reason for the increase was due to an increase in personnel costs of approximately
$2.2 million due to general wage and benefit increases and increased commission expenses to sales people due to higher
sales volume, and an increase of approximately $500 thousand in each of general operating and occupancy costs from 2005
to 2006. General operating costs increased as a direct result of increased gross sales, requiring more administrative costs to
be incurred. Occupancy costs have increased primarily due to changes in lease amounts for the LP’s operating premises due
to a new facility in one location and the addition of Watrous, SK during the year. This also provided for increases in insurance
and related utility costs. This segment is experiencing approximately 13% of selling, general and administrative expenses as
a percentage of gross sales.
l
INTEREST
Interest expense is comprised primarily of the LP’s financing of its short-term operating loan debt and long-term debt related
to certain equipment financing arrangements entered into during the current and prior year. Total interest expense was $1.1
million during 2006 compared to $1.0 million during 2005. Though the LP is experiencing a higher short-term borrowings
under its operating line of credit, the LP has been able to reduce other interest costs related to equipment financing through
the use of bonus pool funds provided by its equipment supplier John Deere. These bonus pool funds are provided by the
supplier based on new equipment sales, primarily combines, and the LP has earned significantly more funds from John Deere
during 2006 when compared to 2005. The LP is able to utilize these funds to reduce costs of floor plan financing related to
specified types of equipment. In addition, the LP’s private placement completed during the year was utilized to repay loans
and notes payable to Proventure Income Fund, thereby reducing interest paid to the related party during the year.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is comprised of systematic charges to the statement of earnings for the LP’s investment in
capital assets which are comprised primarily of automotive and trucks, furniture and fixtures, parts and shop equipment,
computers and software and leasehold improvements as well as the amortization of other assets comprised of dealership
distribution agreements, customer lists and non-competition agreements. As explained earlier, the LP’s investment in its
short term rental equipment is depreciated and expensed through cost of sales.
Depreciation and amortization were approximately $3.2 million ($1.7 million recorded in cost of sales) during 2006 and
approximately $758,048 ($219,000 recorded in cost of sales) in 2005, an increase of $2.4 million. $676,000 (2005 - $32,100) of
the increase in depreciation and amortization relates to other asset amortization.
The construction equipment segment has completed its first full year of operations in the LP and its overall selling, general
and administrative expenses have increased to approximately $10.5 million in 2006 compared to $1.5 million in 2005. This
segment incurred approximately 12% of selling, general and administrative expenses as a percentage of gross sales.
The agricultural equipment segment accounted for approximately $355,701 and the construction equipment segment
accounted for approximately $2.3 million of the increase during 2006. The increase in the agricultural equipment segment is
primarily due to an increase in overall capital asset additions during the year and the increase in the construction equipment
segment is primarily due to an increase in the short term rental equipment of approximately $1.5 million and a full year of
operations included in 2006.
INCOME TAXES
Income taxes are the responsibility of the individual partners except for the LP’s corporate subsidiaries. Therefore, no
income taxes have been provided for in 2006 and 2005 as the taxable income is passed through to the limited partners.
The LP calculates the taxable income which flows through to the partners based on their proportionate share of the units
owned by each partner at December 31 of each taxation year. Any difference between taxable income allocations and the
distributions received during they year is considered to be on account of capital.
On October 31, 2006, the Government of Canada announced proposed changes in income tax legislation that will affect
future distributions from publicly traded income trusts and limited partnerships. The proposed tax changes would treat
Cervus LP’s taxable income in a similar manner as the taxable income of corporations. The proposal includes a four year
transition delay for Cervus LP and will be effective in the 2011 taxation year. Given these proposed rules have not been
substantively enacted into law, there has been no adjustment to future income taxes in regards to this announcement. We
continue to monitor the effect of the proposed changes on the LP’s operations.
21
NET EARNINGS
Net earnings per unit increased to $1.38 in 2006 from $1.15 in 2005. Fully diluted earnings per unit also increased to $1.29
per unit in 2006 from $1.05 in 2005. Net earnings were $8.6 million for the year ended December 31, 2006 compared to $4.9
million for the year ended December 31, 2005. The agricultural segment contributed $1.5 million (2005 - $3.9 million) and the
construction equipment segment has contributed $7.1 million (2005 - $10 million) of net earnings to the LP for the year.
The construction equipment segment continues to be a strong performer due to the strong Alberta economy since its
purchase in November 2005 contributing approximately 7.9% return on total sales and the agriculture equipment segment
contributing 0.8% of total sales to net earnings. The primary reason for the decrease in the agriculture equipment segment
is due to used equipment write-downs totaling approximately $3.1 million during 2006 and overall decrease in gross margins
on new and used equipment sales.
EBITDA
For the year ended December 31, 2006, EBITDA (see “Non-GAAP Financial Measures”) has increased to $12.9 million or
4.8% of gross revenue from $6.6 million or 3.6% of gross revenue for the year ended December 31, 2005. The agricultural
equipment segment contributed $3.1 million (2005 - $5.4 million) and the construction equipment segment contributed $9.8
million (2005 – $1.2 million) of EBITDA. The decrease in the agricultural equipment segment is primarily related to decreased
gross profit margins being earned on new and used equipment sales, complemented by an increase in the used equipment
write-downs recorded during 2006. The construction equipment segment increase is a combination of increased revenues
caused by increases in gross sales and the fact that the operations have been included for a full year in 2006 versus a month
and one-half for 2005.
ASSETS
Total assets have increased to $107.5 million at December 31, 2006 from $89.2 million at December 31, 2005, an increase
of $18.3 million during the year. The contributing factors to the increase in assets are primarily a result of increases in
inventories, accounting for $11.1 million of the increase and accounts receivable, accounting for $4.2 million of the increase.
Of the $107.5 million in total assets, the agricultural segment is approximately $64.5 million and the construction equipment
segment is approximately $43 million.
ACCOUNTS RECEIVABLE
Accounts receivable is primarily comprised of customer accounts receivable, contracts in transit and warranty receivables.
Accounts receivable at December 31, 2006 totaled $10.7 million (2005 - $6.5 million). The agricultural equipment segment
accounts for $4.2 million of the total consisting of $1.6 million of customer and warranty receivables and $2.6 million of
contracts in transit from John Deere. The construction equipment segment accounts for $6.5 million of the total accounts
receivable and this primarily consists of customer trade receivables. We have provided for approximately $467 thousand
(2005 - $315 thousand) of allowance for doubtful collections at December 31, 2006, representing approximately 5% of the
total customer and warranty accounts receivable outstanding at December 31, 2006 and 2005.
INVENTORIES
At December 31, 2006, inventories have increased by $11.1 million to $72.1 million from $61.0 million at December 31, 2005.
The most significant increases are in new equipment inventories, accounting for approximately $6 million (a decrease of
approximately $1.8 million in the agricultural equipment segment and an increase of approximately $7.8 million in the
construction equipment segment) and used equipment inventories, accounting for $4.4 million increase ($3.2 million from
the agricultural equipment segment and $1.2 million from the construction equipment segment).
The general increases seen in new equipment inventories for the construction equipment segment are primarily related to
the need, which we believe necessary, to sustain the current level of operations in the Alberta construction segment. Used
equipment inventories have primarily increased in the Agricultural equipment segment due to increased new equipment
market share achieved by the LP during the current year and overall increased sales activity. Market share is measured by new
equipment sales and as most new equipment sales in the agricultural sector have trade-ins of used equipment, the increased
market share has had a direct impact on the LP’s carrying amounts for used equipment inventories.
The market value of used equipment in the agricultural equipment segment has been affected due to the stronger Canadian
dollar throughout the year, providing for less expensive new equipment, causing downward pressure on used equipment
pricing. We believe that the write-downs recorded during 2006 were warranted based on current market conditions and have
reacted to changes observed in the used equipment market to properly value the used equipment inventories.
PROPERTY AND EQUIPMENT
Buildings and equipment net carrying value increased to $10.6 million at December 31, 2006 from $8.9 million at December
31, 2005, an increase of approximately $1.7 million during the year. This increase can be attributed to approximately $6.6
million of equipment additions and $2.9 million of equipment disposals during the year for a net purchase of approximately
$3.7 million during 2006. This amount is decreased by the depreciation recorded of approximately $2.6 million related to the
assets. In addition, there was approximately $650 thousand of non-cash additions to property and equipment through the
purchase of Westby.
22
The most significant increase in equipment additions was due primarily to the LP’s increase in its short term rental equipment
fleet in the construction equipment segment. This accounted for approximately $3.8 million of the net increase in the cost
of equipment during 2006. The balance of the additions to cost of equipment is directly attributed to the LP’s capital
replacement and ongoing normal business operations.
GOODWILL
OTHER ASSETS
Our investments primarily consist of investments in John Deere sprayer companies in Alberta and Saskatchewan in which
we hold a 27% to 38% equity interest. The increase in investments during 2006 is primarily related to equity earnings of
approximately $277,000 (2005 - $126,433) recorded during the year. We also increased our investment in Greenway Sprayers
(a Saskatchewan company) to 38% from 19% with the purchase of Westby.
NOTES PAYABLE AND ADVANCES TO PROVENTURE INCOME FUND
Proventure Income Fund (“Proventure”) is a related party due to a common board of directors, common senior management
personnel and a controlling Unitholder. During 2006, the LP satisfied all obligations to Proventure through a combination
of cash and the issuance of 136,610 partnership units aggregating $1.64 thousand as part of the August 3, 2006 private
placement. At December 31, 2006, the LP has approximately $110 thousand due from Proventure (2005 - $nil). The notes
payable repaid during the year bore interest at the rate of 8% per annum. Advances are unsecured, bear no interest and are
repayable on demand. At December 31, 2005, the LP had $1.01 million of advances and $4.02 million of notes payable due to
Proventure. During the year, the LP paid approximately $87 thousand (2005 - $287 thousand) of interest on the notes payable
to Proventure.
UNIT PURCHASE FINANCING
On August 3, 2006, the LP issued partnership unit purchase loans to key employees and/or companies controlled by key
employees as part of a private placement. Provided the employees remain as officers or employees of the LP, the loans will be
forgiven under the principal portion repayment terms of the related agreements. The loans are repayable on a straight-line
basis over terms of two to five years and bear interest at the rate of 4% per annum. The loans are secured by Hypothecation
Agreements. The employee loans, less earned forgiveness outstanding, are accounted for in the accompanying balance
sheet as unit purchase financing and as a result are deducted from Partners’ Equity. The related earned forgiveness will be
accounted for as compensation expense in the statement of earnings. No compensation expense was incurred in 2006 and
the current portion of the related forgiveness, assuming contractual obligations are met, will be approximately $173,000
during 2007.
INVESTMENTS
l
Other assets is comprised of $9.1 million of intangible assets related to the purchase of A.R. Williams Contractors Equipment
Ltd. (“AR Williams”), Westby and the minority interest in Farm & Garden which included $6.7 million allocated to dealer
distribution agreements, $1.4 million to customer lists and $1.0 million to non-competition agreements. Amortization is
provided for at 20 years straight-line for the dealer distribution agreements and 5 years straight-line for customer lists and
non-competition agreements. $676 thousand of amortization has been recorded for the year ended December 31, 2006
compared with $31.25 thousand in 2005.
Cer vus LP
Goodwill increased $0.3 million during the year to $2.6 million at December 31, 2006 from $2.3 million at December 31, 2005.
The increase in goodwill is attributed to the LP’s purchase of the remaining 20.2% in Farm & Garden Centre of Saskatoon
Ltd. on June 29, 2006, accounting for approximately $159,000 of the increase and the LP’s purchase of Westby in Watrous,
Saskatchewan on July 1, 2006 accounting for approximately $167,000 of the increase. Based on our assessment of the ongoing
operations included in goodwill, we believe that no impairment of the carrying amounts is required and therefore, no writedown to the carrying value of goodwill has been recorded during the year.
UNITHOLDERS EQUITY
As of December 31, 2006, the LP had 6,863,379 partnership units outstanding, compared to 4,411,421 at December 31, 2005.
The LP declared monthly distributions from January through April 30, 2006 of $0.08 per unit and May through December 2006
of $0.09 per unit. Total distributions have been $6.6 million to limited partners during the year ended December 31, 2006 of
which 47.3% or $3.1 million has been reinvested through the LP’s Distribution Reinvestment Plan (“DRIP”).
During 2006, the LP has added 2,451,958 partnership units to its outstanding amount. Of these, 1,484,600 of the units were
added from the exercise of subscription receipts on the completion of the 2005 private placement for the purchase of AR
Williams, 155,924 units were incurred for the purchase of Farm & Garden, 112,655 units were added due to the purchase of
Westby, 400,000 units were issued as part of the August 2006 private placement, 289,779 units were attributed to our DRIP
plan, and 9,000 units were issued for the settlement of an employee stock option agreement.
23
DISTRIBUTIONS
DISTRIBUTION POLICY
Cervus LP, in accordance with its Limited Partnership Agreement, is entitled, at the discretion of the Board of Directors, to
make cash distributions to its Limited Partnership Unit Holders. It is the intention of the Board of Directors to distribute
the net earnings of Cervus LP earned in the current fiscal period, over the subsequent fiscal period after accounting for
such items as maintenance capital expenditures (see – “Non-GAAP Financial Measures) and principal repayments of debt
agreements and other discretionary funding requirements. We have continued to distribute $0.09 per unit for the periods
January through March 2007.
The following table summarizes our distributions during the year ended December 31, 2006 ($ thousands, except per unit
amounts):
Record Date
Distribution per Unit
Distribution
Payable
0.08 0.08 0.08 0.08 0.09
0.09 0.09 0.09 0.09 0.0 0.09 0.09 473
475
476
478
540
556
558
597
609
612
615
618
225
227
228
231
265
266
263
279
280
283
285
294
248
248
248
247
275
290
295
318
329
329
330
324
1.04
6,607
3,126
3,481
Fixed Value Units
20
20
General Partner
31
31
Preferred Units
390
390
January 31, 2006
February 28, 2006
March 30, 2006
April 29, 2006
May 31, 2006
June 30, 2006
July 29, 2006
August 31, 2006
September 30, 2006
October 31, 2006
November 30, 2006
December 31, 2006
Total Distributions
7,048
Distribution
Reinvested
3,126
Net Distributions
Paid
3,922
Cash distributions are normally paid by Cervus LP on a monthly basis to Unitholders of record on the last business day of each
month. Distributions are payable on or about the 15th day of the month following the record date.
DISTRIBUTION REINVESTMENT PLAN
During the year we declared total distributions to the Unitholders of $1.04 per unit for an aggregate distribution of $6.6
million. In addition, we paid $20 thousand to the holders of the fixed value units; $390 thousand to the holders of the
preferred units and $31 thousand to the General Partner. Of the $6.6 million to issued to the Unitholders, $3.1 million was
reinvested in the LP’s DRIP plan resulting in the issuance of approximately 290 thousand units.
The DRIP was implemented in 2004 and allows Unitholders to reinvest monthly distributions into additional Cervus LP units.
Unitholders who elect to participate will see their periodic cash distributions automatically reinvested in Cervus LP units at a
price equal to 95% of the volume-weighted average price of all units traded on the TSX Venture Exchange for the ten trading
days preceding the applicable record date. Eligible Unitholders may participate in the DRIP by directing their broker, dealer,
or investment advisor holding their Fund units to notify the plan administrator, Computershare Trust Company of Canada
Ltd., through CDS Clearing and Depository for Services Inc. (“CDS”).
TAXATION OF DISTRIBUTIONS
Our distributions can consist of taxable and non-taxable components. The taxable amount of our distributions in 2006 was
based on the taxable income of the LP for the year ended December 31, 2006. For the year ended December 31, 2006, the
taxable income amounted to approximately $1.50 per unit. The difference between the taxable income per unit and the cash
distribution was caused by the timing of recording certain amounts for accounting purposes versus deducting them for tax
purposes.
24
CAUTIONARY NOTE REGARDING DISTRIBUTIONS
Although we intend to continue making monthly distributions to our Unitholders, cash distributions are not assured and
may be reduced or suspended. Our ability to continue making cash distributions and the actual amount distributed will
depend on our financial performance, debt covenant obligations and our ability to meet our debt obligations and capital
requirements. In addition, the market value of the units may decline if we were unable to meet our cash distribution targets
in the future, and that decline may be significant.
As terms under our credit facilities, we are restricted from declaring distributions or distributing cash if the LP is in breach of
its debt covenants.
Year ended
December 31, 2006
December 31, 2005
3,847
4,639
Add (deduct):
Net change in non-cash operating working capital
7,805
Maintenance capital expenditures1
(2,066)
785
(977)
Cash available for distribution and growth (a)
Per unit – diluted
9,586
1.44
4,447
0.96
Gross distributions declared to all equity holders (b)
7,047
4,297
73%
97%
3,128
2,528
33%
56%
Payout ratio (b)/(a)
Net distributions declared, net of DRIP (c)
Payout ratio (c)/(a)
Notes: 1. These terms are identified and defined under the section “Non-GAAP Financial Measures)
Our distribution policy is to maintain an annual payout equal to the prior year’s net earnings. Cash available for distribution
and growth in excess of distributions we declare reflects our reserves for such things as future working capital requirements
and future capital expenditures. In additions, cash retained through the participation of Unitholders in our DRIP is also used
to fund future capital expenditures.
Year ended
except per unit amounts l
$ thousands, Cer vus LP
DISTRIBUTABLE CASH CALCULATED:
Our payout ratio for the current year of 73%, a decrease of 24% from 2005 included the results of operations from our
contractor’s equipment segment as if it was included in operations for the entire year of 2005 as we believed the current
year’s operations would provide the funding requirements to include those amounts.
Cash available for distribution and growth reported for the years ended December 31, 2006 and 2005 are net of maintenance
capital expenditures. Maintenance capital expenditures are the capital expenditures incurred during the period to maintain
our existing levels of service. This includes capital expenditures used to replace buildings and equipment and enhance the
operational life of existing equipment. These capital expenditures can fluctuate significantly, year-to-year depending on
our identified needs. If maintenance capital expenditures increase in future periods, our cash available for distribution and
growth would be negatively impacted.
We estimate our unfunded maintenance capital expenditures to be approximately $2 million for the year ended December
31, 2007 (see “Note Regarding Forward-Looking Statements). We based this estimate on our preliminary replacement
expectations for equipment, net of funding resources received. The actual timing of the replacements is subject to a number
of variables that cannot necessarily be predicted and though we believe these estimates to be appropriate, our actual
maintenance capital expenditures may differ materially from our original estimates.
25
SUMMARY OF
QUARTERLY INFORMATION
$ thousands, December 31, September 30,
June 30,
March 31,
2006
2006
2006
2006
67,335
79,634
77,478
44,687
EBITDA1
2,293
4,450
5,258
949
Cash flow2
2,366
4,314
4,479
493
Net earnings (loss)
970
4,002
3,813
(188)
Basic earnings (loss) per unit
0.16
0.67
0.65
(0.03)
Diluted earnings (loss) per unit
0.15
0.62
0.60
(0.03)
Actual Units outstanding
6,863
6,767
6,175
5,956
Fully diluted units outstanding
6,661
6,367
6,310
6,175
December 31, September 30,
June 30,
March 31,
2005
2005
2005
2005
Revenues
49,590
63,530
49,582
19,748
EBITDA1
1,490
2,937
2,541
(351)
Cash flow2
1,161
2,624
2,237
(598)
Net earnings
561
2,592
2,284
(587)
Basic earnings (loss) per unit
0.14
0.61
0.55
(0.15)
Diluted earnings (loss) per unit
0.13
0.59
0.54
(0.14)
Actual Units outstanding
4,411
4,156
4,106
4,051
Fully diluted units outstanding
4,614
4,223
4,195
4,138
Revenues $ thousands, except per unit amounts
Notes: 1. EBITDA is earnings before depreciation and amortization, interest and income taxes. EBITDA is a
non-GAAP measure. (see “Non-GAAP Financial Measures”)
26
2. Cash flows from operations before changes in non-cash working capital.
FINANCIAL CONDITION
AND LIQUIDITY
$ thousands, except ratio amounts
December 31, 2005
83,672
69,008
107,515
89,212
62,079
56,523
Long-term liabilities
9,276
7,653
Unitholders’ equity
36,160
25,036
Working capital
21,593
12,485
1.35
1.22
Current assets
Total assets
Cer vus LP
December 31, 2006
l
Working capital ratio1
Notes: 1. Working capital is calculated as current assets minus current liabilities. Working capital ratio is
calculated as current assets divided by current liabilities (see “Non-GAAP Financial Measures).
WORKING CAPITAL
Our working capital (see “Non-GAAP Financial Measures) improved to $21.6 million at December 31, 2006 compared to $12.5
million at December 31, 2005. The increase in working capital during 2006 was a result of strong cash flows from operations
during 2006, combined with an increase in equity in our financed inventories (inventories financed with floor plans) which have
gone from 66% financed in 2005 to 64% financed in 2006.
BANK INDEBTEDNESS
At December 31, 2006 the LP has an operating bank line of credit in the amount of $12 million (2005 - $10 million). The
operating line of credit bears interest at rates ranging from prime plus 0.25% to prime plus 0.75% based on certain financial
covenants and is secured by a general security agreement, a priority agreement, trade accounts receivable, unencumbered
inventories, assignment of insurance and guarantees from the LP’s subsidiaries and Cervus GP Ltd. At December 31, 2006
the LP had drawn $4,063,783 (2005 - $Nil) on this operating line.
Current liabilities
The bank indebtedness is also subject to certain financial and negative covenants in which we are in compliance with at
December 31, 2006 and to the date of this report.
FLOOR PLAN PAYABLES
Floor plan payables consist of financing arrangements for the LP’s inventories. At December 31, 2006, floor plan payables
are $46.1 million (2005 - $40.4 million), an increase of $5.7 million during the year. The increase in floor plan payables is
directly linked to the increases in new and used equipment inventories and represents approximately 64% (2005 – 66%) of
the carrying value of our inventories.
Our floor plan facilities are provided by our equipment manufacturers directly or through partnering arrangement that they
have with third party lenders. We currently have an aggregate facility of approximately $80 million available for equipment
inventory financing, which we believe is sufficient to meet our market share targets for 2007.
TERM DEBT
Term debt consists of financing arrangements for our short term rental equipment financing, agricultural equipment segment
rental fleet and to finance some of our automotive and truck purchases. Term debt also consists of a $5 million term loan
acquired when we purchased AR Williams. The term debt carries interest at rates ranging from 0% to 7.25%. Term debt
increased approximately $1.76 million during 2006 and this is primarily related to an increase in the construction equipment
segments short term rental equipment. In addition, the $5 million term loan was interest bearing only during 2006 and will
require monthly principal payments of $104,167 beginning in January 2007.
27
CASH FLOWS FROM OPERATIONS
Cash flows provided by operations were approximately $11.6 million for the year ended December 31, 2006 versus $5.4 million
for the year ended December 31, 2005. Working capital adjustments required a use of operating cash of $7.8 million at
December 31, 2006 (2005 - $784,000) resulting in net cash flows from operating activities to be $3.8 million for the year ended
December 31, 2006 (2005 - $4.6 million). The significant working capital changes included cash flows used for increases in
accounts receivable ($4.2 million), increases in inventories ($11.1 million) and the payment of 2005 income taxes related to the
acquisition of AR Williams ($1.1 million) and cash flows provided by increasing floor plan payables ($5.7 million).
CASH FLOWS FROM FINANCING
During the year ended December 31, 2006, we used $5.4 million in financing activities versus $9.5 million provided by financing
activities for the year ended December 31, 2005. The primary sources of cash were the issuance of limited partnership units
through the business acquisition of Westby and Saskatoon Farm & Garden Ltd. and the private placement and the proceeds
from long-term debt to finance increases in the construction equipment segment rental fleet. The primary uses of cash were
distributions to limited partners and the repayment of loans and notes payable to Proventure Income Fund.
CASH FLOWS FROM INVESTING
During the year ended December 31, 2006, we used $4.5 million of cash flow for investing activities versus $12.9 million for
the year ended December 31, 2005. The use of cash for investment activities was for the purchase of equipment comprised
primarily of short term rental equipment.
BUSINESS RISKS
AND UNCERTAINTIES
Cervus LP’s primary source of income is from the sale of farm and construction equipment and
products and services pursuant to agreements to act as an authorized dealer. The agreement with
John Deere Limited provides a framework under which John Deere Limited can terminate a John
Deere dealership if such dealership fails to maintain certain performance and equity covenants. Each
contract also provides a one-year remedy period whereby Cervus LP has one year to restore any
deficiencies.
Cervus also has dealership agreements in place with Bobcat, JCB and JLG. These agreements are
one year agreements; however the agreements are normally renewed on a year by year basis.
Currently all of our dealership contracts are in good standing with our suppliers.
There can be no guarantee that circumstances will not arise which gives these equipment manufacturers
the right to terminate their dealership agreements.
DEPENDENCE ON INDUSTRY SECTORS
Authorized John Deere agricultural dealerships sell John Deere agricultural and lawn and garden products and equipment.
The majority of sales are derived from the agricultural sector. Consequently, grain and livestock prices, weather conditions,
Canadian vs. U.S. currency exchange rates, interest rates, disease, Canadian and U.S. government trade policies and customer
confidence have an impact on demand for equipment, parts and service.
The retail farm equipment industry is very competitive. Cervus LP faces a number of competitors, including other “in-line”
John Deere dealerships and other competitors including authorized Agco, Case, Caterpillar, Kubota and New Holland
dealerships that may be located in communities of Cervus LP’s dealerships or are located in communities surrounding
Cervus LP’s dealerships. Presently, Deere & Company has a reputation for the manufacture and delivery of high quality,
competitively priced products. John Deere has the largest market share of manufacturing and sales of farm equipment in
North America. There can be no assurance that John Deere will continue to manufacture high quality, competitively priced
products or maintain its market share in the future.
28
We have mitigated these risks by geographical diversification in Western Canada within the agricultural sector and industry
diversification into the construction sector in Alberta.
The construction segment sells light and medium construction equipment and is comprised of several companies
manufacturing and selling various lines of equipment. The major competitors are Caterpillar, Komatsu, CNH (Case), John
Deere, Volvo, Hitachi and Liebherr. The light and medium construction equipment market is very much dependant upon
residential construction of new housing. Over the past few years the residential construction markets in Alberta have been
very strong and we believe that this will continue over the near term. However, there can be no guarantee that factors could
not arise that would change the housing starts quickly and suddenly.
$ in thousands
Total
Due 2007 Due 2008
Due 2011
through 2010
through 2012
Due thereafter
Long-term debt
11,208
3,206
7,896
106
-
Operating leases
9,335
2,456
4,590
1,280
1,009
20,543
5,662
12,486
1,386
1,009
Total contractual obligations
The LP has certain contractual obligations including payments under long-term debt agreements and
operating lease commitments. A summary of the LP’s obligations is as follows:
l
CONTRACTUAL OBLIGATIONS
Cer vus LP
Presently the majority of the construction equipment divisions revenue is derived from the sale of Bobcat equipment and
products. Bobcat has established itself as an industry leader in the Alberta market for the manufacture and delivery of light
construction equipment. Bobcat has the largest market share in this niche in the Alberta market. There can be no assurance
however that Bobcat will continue to manufacture high quality, competitively priced products or maintain its market share
in the future.
Capital Resources
We use our capital to finance our current operations and growth strategies. Our capital consists
of both debt and equity and we believe the best way to maximize our Unitholder value is to use a
combination of equity and debt financing to leverage our operations.
We invested $3.7 million, net of capital disposals in operational capital expenditures in 2006. The primary capital expenditure
was $3.8 million in rental equipment. We have budgeted 2007 capital needs to be approximately $5.5 million, $3.5 million
of which is for the further expansion of our construction equipment rental fleet through floor plan financing of terms up to 4
years and $1.5 million for equipment and leasehold improvements through operating funds and long-term debt.
29
Off-Balance
Sheet Arrangements
In the normal course of business, we enter into agreements that include indemnities in favor of third
parties, such as engagement letters with advisors and consultants, and service agreements. We have
also agreed to indemnify our general partner’s directors, officers, and employees in accordance with
our limited partnership agreement and other agreements. Certain agreements do not contain any
limits on our liability and, therefore, it is not possible to estimate our potential liability under these
indemnities. In certain cases, we have recourse against third parties with respect to these indemnities.
Further, we also maintain insurance policies that may provide coverage against certain claims under
these indemnities.
John Deere Credit Inc. (“Deere Credit”) provides financing to certain of the LP’s customers. A portion of this financing is
with recourse to the LP if the amounts are uncollectible. At December 31, 2006, payments in arrears by such customers
aggregated $878,225 (2005 - $508,000). In addition, the LP is responsible for assuming all lease obligations held by its
customers with Deere Credit for the net residual value of the lease outstanding at the maturity of the contract. At December
31, 2006, the net residual value of such leases aggregated $27,747,308 (2005 - $23,700,000).
The LP is liable for a portion of the deficiency in the event that the customer defaults on their lease obligation. Deere
Credit retains 1% of the face amount of the finance or lease contract for amounts that the LP owes Deere Credit under
this obligation. The deposits are capped at 3% of the total dollar amount of the lease finance contracts outstanding. The
maximum liability that may arise related to these arrangements is limited to the deposits of $1,287,120 (2005 - $1,255,494).
Deere Credit reviews the deposit account balances quarterly and if the balances exceed the minimum requirements, Deere
Credit refunds the difference to the LP.
Transactions with
Related Parties
During the years ended December 31, 2006 and 2005, the LP had the following transactions with
Proventure Income Fund:
2006
Equipment and real estate rentals
$ 1,043,982
Interest on notes payable
2005
$
901,770
87,491
287,110
Interest on fixed value units
20,100
40,200
Guarantee fees
145,500
145,500
$ 1,297,073
$
1,374,580
The Chief Executive Officer (“CEO”) of the LP is the CEO of the general partner and the CEO of Proventure, a publicly traded
fund. In addition, the CEO is the single largest equity holder of each of these entities. Under an agreement between the
LP and Proventure, Proventure is entitled to reimbursement for costs incurred and allocation of insurance costs, allocation
of data services, guarantee fees based on 3% of the guarantee amounts to John Deere payable to either Proventure or the
individual providing the guarantees, interest on any overdraft balances, interest on any outstanding indebtedness, building
lease charges based on lease agreements, and other direct expenses reimbursable with no handling fees or markup.
30
Certain officers and dealer managers of the LP have provided guarantees to John Deere aggregating $5,650,000 (2005
- $5,200,000). During 2006, the LP paid these individuals $73,500 (2005 -$156,000) for providing these guarantees; these
transactions were recorded at the amount agreed to by the parties.
During the year, equipment and real estate rentals of $nil (2005 - $250,836) were paid to officers, directors and unit holders
of the LP. These transactions are recorded at the amount agreed to by the parties.
Notes payable to other related parties:
Cer vus LP
The general partner of Cervus LP is Cervus GP Ltd., a private company. Cervus GP Ltd is owned by the major shareholders of
the LP. Under the amended and restated limited partnership agreement, Cervus GP Ltd. is entitled to reimbursement of all
reasonable direct and indirect costs incurred on behalf of the LP and to 1% of the net earnings. For the year ended December
31, 2006, this amounted to $86,575 (2005-$31,731)
l
2005
-
511,620
Notes payable, non-interest bearing and unsecured, repaid
-
$ 1,125,000
$
298,652
5% notes payable, unsecured, repaid
-
810,272
6% unsecured notes payable are owed to certain individuals that became related parties pursuant to employment agreements
entered into with the LP as part of the acquisition of the net assets of Westby (see note 3).
During the year, interest in the amount of $28,125 (2005: $21,545) was paid on the notes payable to related parties.
2006
6% notes payable, unsecured
$ 1,125,000
$
31
Fourth Quarter Results
$ thousands, Three months ended
Three months ended
December 31, 2006
December 31, 2005
Revenues 67,335
49,590
Cost of sales, includes amortization of $470 (2005 - $219)
56,671
41,531
Gross profit
10,664
8,059
Gross margin
15.8%
16.3%
Administrative and general
8,809
6,711
Amortization
596
354
Interest
257
356
51
-
Equity earnings of significantly influenced companies
(19)
77
Net earnings
970
561
Net earnings
Per unit - Basic 0.16
Per unit - Diluted 0.15
0.14
0.13
2,293
1,490
3.4%
0.34
3.0%
0.32
Per unit - diluted
2,366
0.36
1,161
0.25
Distributions declared
Per unit
1,845
0.27
1,049
$0.24
Weighted average units outstanding
Basic
6,245
Diluted
6,661
4,204
4,614
Loss on disposal of property and equipment
EBITDA1
EBITDA margin1
Per Unit - diluted
Notes: (1) These financial measures are identified and defined under the section “Non-GAAP
Financial Measures”.
REVENUE
Revenue for fourth quarter of 2006 was $67.3 million compared to $49.6 million for the fourth quarter of 2005. This was an
increase of $17.7 million or 36%. The increase in revenue was primarily due to an increase in the construction equipment
segment which accounted for $15.7 million of the increase while the agricultural equipment segment accounted for $2.0
million of the increase. Revenues for the construction equipment segment increased due primarily to having three months
of operations included in the fourth quarter of 2006 compared to one and one-half months included in the fourth quarter of
2005.
GROSS MARGIN
Gross margin for the fourth quarter of 2006 was 15.8% compared to 16.3% in the fourth quarter of 2005. The primary reason
for the decrease in the margin was due to lower margins in the agricultural equipment segment caused by Cervus LP trying
to decrease its used equipment inventories.
32
ADMINISTRATIVE AND GENERAL
Administrative and general expenses were $8.8 million in the fourth quarter of 2006 compared to $6.7 million in the fourth
quarter of 2005. This is an increase of $2.1 million or 31%. $1.9 million of the increase was due to having a full quarter’s results
included for the contractors equipment segment compared to only half of a quarter’s results included in the fourth quarter
of 2005.
NET EARNINGS AND EBITDA
Net earnings increased to $970 thousand in the fourth quarter of 2006 from $561 thousand in the fourth quarter of 2005. The
primary reason for the increase was due to the full quarter inclusion in operations of the construction equipment segment
compared to only one-half of a quarter’s inclusion in operations in 2005.
We perform ongoing credit evaluations of our customers and grant credit based upon past payment history, financial
condition, and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful
accounts is established based upon specific situations and overall industry conditions. Our history of bad debt losses has
been within expectations and is generally limited to specific customer circumstances. However, given the cyclical nature of
the agricultural business in which many of our customers operate, a customer’s ability to fulfill its payment obligations can
change suddenly and without notice.
PROVISION FOR DOUBTFUL ACCOUNTS RECEIVABLE
l
Preparation of consolidated financial statements requires that we make assumptions regarding
accounting estimates for certain amounts contained within the consolidated financial statements. Our
significant accounting estimates include estimating bad debts on accounts receivable; amortization of
intangible assets and property, plant, and equipment; the fair value of assets and liabilities acquired
in business combinations; estimated impairment of long-lived assets; the fair value of unit-based
awards; asset retirement obligations; the fair value of reporting units for goodwill impairment testing
purposes; and estimates of various taxation matters. We believe that each of our assumptions and
estimates is appropriate to the circumstances and represents the most likely future outcome. However,
because of the uncertainties inherent in making assumptions and estimates regarding unknown future
outcomes, future events may result in significant differences between estimates and actual results.
Cer vus LP
Critical Accounting
Estimates
DEPRECIATION AND AMORTIZATION OF INTANGIBLE ASSETS
AND PROPERTY AND EQUIPMENT
Our intangible assets and property, plant, and equipment are depreciated and amortized based upon estimated useful
lives and salvage values. We review our historical experience with similar assets to help ensure that these amortization rates
are appropriate. However, the actual useful life of the assets may differ from our original estimate due to factors such as
technological obsolescence and maintenance activity.
FAIR VALUE OF ASSETS AND LIABILITIES ACQUIRED
IN BUSINESS COMBINATIONS
The value of acquired assets and liabilities on the acquisition date require the use of estimates to determine the purchase
price allocation. Estimates are made as to the valuations of property, plant, and equipment, intangible assets, and goodwill,
among other items. In certain circumstances, such as the valuation of property, plant, and equipment and intangible assets
acquired, we rely on independent third party valuations.
ASSET IMPAIRMENT
We assess the carrying value of long-lived assets, which include property, plant, and equipment and intangible assets, for
indications of impairment when events or circumstances indicate that the carrying amounts may not be recoverable from
estimated cash flows. Estimating future cash flows requires assumptions about future business conditions and technological
developments. Significant, unanticipated changes to these assumptions could require a provision for impairment in the
future.
33
Goodwill is assessed for impairment at least annually. This assessment includes a comparison of the carrying value of the
reporting unit to the estimated fair value to ensure that the fair value is greater than the carrying value. We arrive at the
estimated fair value of a reporting unit using valuation methods such as discounted cash flow analysis. These valuation
methods employ a variety of assumptions, including future revenue growth, expected earnings, and earnings multiples.
Estimating the fair value of a reporting unit is a subjective process and requires the use of our best estimates. If our estimates
or assumptions change from those used in our current valuation, we may be required to recognize an impairment loss in
future periods.
TAXATION MATTERS
Income tax provisions, including current and future income tax assets and liabilities, may require estimates and interpretations
of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to our
specific situation. Although there are tax matters that have not yet been confirmed by taxation authorities, we believe that
the provision for income taxes is adequate.
FAIR VALUE OF UNIT-BASED AWARDS
The fair value of unit options granted is determined at the date of grant using the Black-Scholes option-pricing model.
The Black-Sholes option valuation model was developed for use in estimating the fair value of traded options that are fully
transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected unit
price volatility. Because changes in subjective input assumptions can materially affect the fair value estimate, the existing
models do not necessarily provide a single reliable measure of the fair value of our unit options granted.
Internal Controls
over Disclosure and
Financial Reporting
EVALUATION OF DISCLOSURE CONTROLS
Cervus LP maintains a Disclosure Committee (the “Committee”) that is responsible for ensuring that all public and regulatory
disclosures are sufficient, timely and appropriate, and that disclosure controls and procedures are operating effectively. The
Committee includes select members of senior management, including the Chief Executive Officer and the Chief Financial
Officer. As at the end of the period covered by this report, under the supervision of the Committee, the design and operating
effectiveness of Cervus LP’s disclosure controls were evaluated. According to this evaluation, we have concluded that Cervus
LP’s disclosure controls and procedures are effective to ensure that any material, or potentially material, information is made
known to a member of the Committee and is appropriately included in this report
FINANCIAL REPORTING
Canadian Securities Administrators are proposing significant changes regarding CEO and CFO certification of internal
controls. The CEO and CFO are now required to certify the design of the Cervus LP’s internal controls over financial reporting
for the current reporting year and, under the proposal, these certifications are expanding to include an evaluation of the
effectiveness of Cervus LP’s internal control over financial reporting. The proposed changes also require disclosure in the
Cervus LP’s MD&A as of the end of the financial year regarding the effectiveness of internal control as well as a description
of the evaluation process followed. The required expanded certification on the effectiveness of internal control may be
implemented as early as fiscal years ending in 2008.
With regard to the design of the Cervus LP’s internal controls over financial reporting, there have been no material weaknesses
noted other than those arising from the lack of segregation of duties that exist because of the size of our dealership operations.
We designed our control environment to achieve a balance of preventative and detective controls and believe that these
inherent weaknesses are mitigated through the use of detective controls such as the active involvement of store managers in
the supervision of staff and the review of financial results and key operating measurements by management. We used a risk
based approach in the assessment of the effectiveness of the design of internal controls over financial reporting.
As a result of the work conducted, the CEO and CFO have certified that Cervus LP’s internal controls over financial reporting
have been appropriately designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Notwithstanding the foregoing, due to the inherent limitation of internal control over financial reporting, including the
34
possibility of collusion, omission of information, or improper management override of controls, we cannot provide absolute
assurance that our internal control over financial reporting systems will detect or prevent all material misstatements from
occurring.
During the next year we plan to work towards improving the operation of certain preventative controls, including controls
over segregation of duties, to achieve an efficient, cost effective mix of controls over financial reporting.
Cer vus LP
Non-GAAP Financial
Measures
l
EBITDA; is defined as earnings before interest, taxes, depreciation, and amortization. We believe, in addition to net earnings,
EBITDA is a useful supplemental earnings measure as it provides an indication of the financial results generated by our
principal business activities prior to consideration of how these activities are financed or how the results are taxed in various
jurisdictions and before non-cash amortization expense.
The following is a reconciliation of EBITDA to net earnings for each of the three years ended December 31:
$ thousands, December 31,
December 31,
December 31,
2006
2005
2004
Net earnings
8,596
4,850
3,701
Add:
Income taxes
-
-
Interest
1,102
1,008
Amortization
3,252
759
(38)
805
256
EBITDA margin1
Per Unit - diluted
Net earnings
Per unit - Basic 12,950
1.94
6,617
1.43
4,723
1.20
8,597
1.38
4,850
1.15
3,701
0.97
This MD&A contains certain financial measures that do not have any standardized meaning prescribed
by Canadian generally accepted accounting principles (“GAAP”). Therefore, these financial measures
may not be comparable to similar measures presented by other issuers. Investors are cautioned
that these measures should not be construed as an alternative to net earnings or to cash flow from
operating, investing, and financing activities determined in accordance with Canadian GAAP as
indicators of our performance. These measures are provided to assist investors in determining our
ability to generate earnings and cash flow from operations and to provide additional information on
how these cash resources are used. These financial measures are identified and defined below:
EBITDA MARGIN; EBITDA margin is calculated as EBITDA divided by revenue.
CASH FLOW FROM OPERATIONS BEFORE CHANGES IN NON-CASH OPERATING WORKING CAPITAL; cash
35
flow from operations before changes in non-cash operating working capital is derived from the consolidated statements of
cash flows and is calculated as cash provided from operating activities before changes in non-cash operating working capital.
Per unit amounts refer to cash flow from operations before changes in non-cash operating working capital divided by the
weighted average number of units outstanding during the period.
WORKING CAPITAL; working capital is calculated as current assets less current liabilities. Working capital ratio is calculated
as current assets divided by current liabilities.
MAINTENANCE CAPITAL EXPENDITURES; maintenance capital expenditures are the capital expenditures incurred
during the period to maintain our existing levels of service. This includes capital expenditures used to replace buildings and
equipment and enhance the operational life of existing equipment.
NOTE REGARDING
FORWARD-LOOKING
STATEMENTS
Certain statements contained in this MD&A constitute “forward-looking statements.” All statements,
other than statements of historical fact, that address activities, events, or developments that Cervus
LP or a third party expects or anticipates will or may occur in the future, including our future growth,
results of operations, performance and business prospects and opportunities, and the assumptions
underlying any of the foregoing, are forward-looking statements. These forward-looking statements
reflect our current beliefs and are based on information currently available to us and on assumptions
we believe are reasonable. Actual results and developments may differ materially from the results
and developments discussed in the forward-looking statements as they are subject to a number of
significant risks and uncertainties, including those discussed under “Business Risks” and elsewhere
in this MD&A. Certain of these risks and uncertainties are beyond our control. Consequently, all of
the forward-looking statements made in this MD&A are qualified by these cautionary statements
and other cautionary statements or factors contained herein, and there can be no assurance that the
actual results or developments will be realized or, even if substantially realized, that they will have the
expected consequences to, or effects on, Cervus LP. These forward-looking statements are made as
of the date of this MD&A, and we assume no obligation to update or revise them to reflect subsequent
information, events, or circumstances unless otherwise required by applicable securities legislation.
Subsequent events
We are not aware of any significant subsequent events as of the date of this report.
36
Outlook for 2007
Cer vus LP
The volatility of the Canadian dollar in comparison to the US dollar had placed downward pressure
on the valuation of used equipment during 2006. As the Canadian dollar has weakened over the last
quarter of 2006, we have not incurred the same pressures as endured during the previous 3 quarters
of 2006. As the LP receives most of its new equipment from US manufacturers, the value of the used
equipment market has been significantly impacted for items that have remained in LP’s inventories.
We are uncertain as to the outlook on the foreign currency market, particularly the Canadian to US
dollar exchange rate and until these factors are known, it is uncertain whether further adjustments to
our used equipment inventories will be required.
l
AGRICULTURE SECTOR:
There are certain macro-economic factors that are coming to the forefront that indicate a potential long term positive
fundamental shift in future agricultural related commodities:
Largest and most immediate factor is the demand for grains that can produce ethanol and bio diesel related products.
Ethanol production alone is expected to increase significantly with the number of current plants that are being built.
There is a world wide political push in favor of ethanol production to reduce the demand for fossil fuels. Targets for
percentage usage in the U.S. of ethanol currently exceed current corn production in US when combined with current
domestic use. This demand spills over to other crops as more acreage is diverted to corn production.
Current inventories of grains are at lows not seen since the 70’s and any spike in demand could exhaust current inventories
very quickly.
Cash flows from farming operations appear to be improving due to crop qualities and conditions which are generally ahead of
the prior year. We have recently experienced a significant increase in demand for tractors and 4 wheel drive tractors resulting
in part to the greater optimism that is evident with our customers today. Our current levels of used inventories for those
products is decreasing
We will continue to focus on decreasing used equipment inventories, controlling variable expenses,
particularly in our southeastern Saskatchewan dealership as well as performing detail process reviews
to reduce selling, general and administrative costs.
CONSTRUCTION SECTOR:
The construction equipment segment appears to remain strong primarily based on the construction and housing market
in Calgary and Edmonton, Alberta, combined with an overall strong economy for the entire Province. We believe that the
segment will continue to provide strong financial performance in the near future.
37
8.6
million dollars - Cervus LP’s net earnings in 2006, up from $4.7 million in 2005
Cervus Values
EXPERTISE + COMMITMENT
Walter Solvason Agro Coronation
Coronation, Alberta
38
Consolidated annual
FINANCIAL STATEMENTS
Years ended December 31, 2006 and 2005
Cer vus LP
MANAGEMENTS RESPONSIBILITY TO THE
LIMITED PARTNERS OF CERVUS LIMITED PARTNERSHIP:
l
Peter Lacey
Cheif Executive Officer
Randall Muth
Chief Financial Officer
AUDITORS’ REPORT TO THE PARTNERS
We have audited the consolidated balance sheets of Cervus LP as at December 31, 2006 and 2005 and the
consolidated statements of earnings, accumulated earnings and cash flows for the years then ended. These
financial statements are the responsibility of the general partner of the partnership. Our responsibility is to
express an opinion on these financial statements based on our audits.
A n n u a l R e p o r t 2 0 0 6 | C o n s o l i d a t e d A n n u a l F i n a n c i a l Sta t e m e n t s
Management has responsibility for preparing the accompanying consolidated financial statements. This
responsibility includes selecting appropriate accounting principles and making objective judgments
and estimates in accordance with Canadian Generally Accepted Accounting Principles. In discharging its
responsibilities for the integrity and fairness of the consolidated financial statements, management designs
and maintains the necessary accounting systems and related internal controls to provide reasonable insurance
that transactions are authorized, assets safeguarded and proper records maintained. External auditors are
appointed by the shareholders to audit the consolidated financial statements and report directly to them. Their
report follows. The external auditors have full and free access to, and meet periodically with, management and
the Board of Directors to report their findings.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of Cervus LP as at December 31, 2006 and 2005 and the results of its operations and its cash flows for
the years then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Calgary, Canada
March 30, 2007
39
Consolidated
BALANCE SHEETS
December 31, 2006 and 2005
2006
2005
Assets
Current assets:
Cash
$
-
$
1,135,179
10,712,721
6,479,436
Trade accounts receivable
109,680
Advances to Proventure Income Fund (note 4)
72,160,486
61,025,472
Inventories (note 5)
689,821
368,749
Prepaid expenses and deposits 83,672,708
69,008,836
815,589
481,174
Investments (note 6)
1,287,120
1,255,494
Deposits with John Deere (note 7)
8,452,750
7,168,750
Other assets (note 8)
10,629,911
8,967,078
Buildings and equipment (note 9)
2,657,462
2,330,969
Goodwill (note 3)
$ 107,515,540
$
89,212,301
Liability and Partners’ Equity
Current liabilities:
Bank indebtedness (note 10)
$
4,955,294
$
7,177,991
5,266,554
Accounts payable and accrued liabilities
-
1,500,000
Note payable
-
1,145,389
Income taxes payable
46,121,220
40,442,630
Floor plan payables (note 11)
-
1,014,375
Advances from Proventure Income Fund (note 4)
617,704
383,064
Distribution payable
3,206,423
6,771,227
Current portion of term debt (note 12)
62,078,632
56,523,239
8,002,541
2,677,639
Term debt (note 12)
-
4,015,868
Notes payable to Proventure Income Fund (note 4)
Notes payable (note 3)
1,125,000
810,272
149,000
149,000
Future income taxes payable (note 13)
71,355,173
64,176,018
Partners’ equity:
26,672,625
16,828,820
Partners’ capital (note 14)
(508,680)
Unit purchase financing (note 15)
3,000,000
3,000,000
Preferred partnership units (note 16)
602,653
362,500
Contributed surplus (note 17)
6,393,769
4,844,963
Accumulated earnings
36,160,367
25,036,283
Commitments and contingencies (note 18)
$ 107,515,540
$
89,212,301
See accompanying notes to consolidated financial statements.
Approved by the Board of the General Partner:
Peter Lacey
Director
40
Steven Collicutt
Director
-
Consolidated Statement
of Earnings
Cer vus LP
l
2006
2005
Revenue:
Equipment sales
$ 212,980,983
$ 148,025,037
32,087,873
21,950,802
Parts
17,785,186
10,636,865
Service
6,279,084
775,017
Rentals
813
1,061,867
Other
269,133,939 182,449,588
Cost of sales, includes
depreciation of $1,657,943 (2005-$218,946) 225,030,331 154,580,893
44,103,608
27,868,695
Gross profit
Expenses:
33,007,982
21,421,741
Selling, general and administrative (17,333)
175,500
Unit-based compensation (note 14(c))
120,445
59,797
Interest on long-term debt 980,933
948,468
Interest 1,594,190
539,102
Depreciation and amortization 8,417,391
4,724,087
Earnings before the following
(97,652)
Loss on disposal of property and equipment
277,047
126,433
Equity earnings of significantly influenced companies
Net earnings available to partners
$
8,596,786
$
4,850,520
Net earnings per unit (note 14):
Basic
$
1.38
$
1.15
Diluted
$
1.29
$
1.05
41
Consolidated Statement of
Accumulated Earnings
Preferred
General Limited
Partnership
Partner
Partners
Units
Limited
Partnership
Fixed Value
Units
Total
Balance, December 31, 2004
$ 58,115
$ 4,166,810
$
-
$ 67,000
$ 4,291,925
Net earnings available to partners 48,505
4,746,815
15,000
40,200 4,850,520
Distributions declared (105,040) (4,070,242) (15,000) (107,200) (4,297,482)
1,580 4,843,383
-
- 4,844,963
81,867
8,104,819 390,000
20,100 8,596,786
Distributions declared (31,280) (6,606,600) (390,000) (20,100) (7,047,980)
$ 52,167
$ 6,341,602
$
-
$
-
$ 6,393,769
42
Consolidated Statement
of CASH FLOWS
2006
2005
Cer vus LP
l
Cash flows from (used in):
Operations:
Net earnings
$
8,596,786
$
4,835,520
Add items not affecting cash:
3,252,133
539,102
Depreciation and amortization expenses
(17,333)
175,500
Unit-based compensation expenses
97,652
Loss on disposal of buildings and equipment
(277,047)
(126,443)
Earnings of significantly influenced companies
11,652,191
5,423,679
(7,805,029)
(784,679)
Net change in non-cash working capital
3,847,162
4,639,000
Financing:
5,711,172 13,581,845
Issuance of limited partnership units and subscription receipts
6,173,515
5,059,297
Proceeds from term debt
(4,559,837)
(1,812,150)
Repayment of term debt
(6,813,340)
(4,220,739)
Distributions to the limited partners
(4,304,572)
(2,757,095)
Repayment on notes and advances to Proventure Income Fund
118,353
(383,350)
Increase in deposits with John Deere finance
-
187,860
Advances on notes payable
(1,798,582)
(92,380)
Repayments on notes payable
(5,473,291)
9,563,288
Investments:
(824,293) (12,000,000)
Business acquisitions, net of cash acquired
(6,605,804)
(1,111,748)
Purchase of equipment
2,925,785
134,436
Proceeds from disposal of building and equipment
39,968
74,867
Return of capital from long-term investments
(4,464,344) (12,902,445)
(6,090,473)
1,299,843
Increase (decrease) in cash
1,135,179
(164,664)
Cash (bank indebtedness), beginning of year
Cash (bank indebtedness), end of year
$ (4,955,294)
$
1,135,179
The following cash payments have been included in the
determination of net earnings:
Cash interest paid
$
1,101,378
$
849,554
1,145,389
Cash income taxes paid
Supplemental disclosure of non-cash financing and investing
activities not included in the statement of cash flows:
Issuance of partnership units and notes payable
4,171,088
for business acquisitions
508,680
Issuance of partnership units for notes receivable from employees
1,387,041
Issuance of partnership units to repay debt 803,969
Issuance of partnership units to redeem fixed value units See accompanying notes to consolidated financial statements.
43
Notes to the Consolidated
Financial Statements
1. DESCRIPTION OF BUSINESS:
Cervus LP (the “LP”) was incorporated under the laws of Alberta as a limited partnership on March 14, 2003. The general
partner is Cervus GP Ltd. The LP is a retailer of agricultural and construction equipment and parts and services.
2. SIGNIFICANT ACCOUNTING POLICIES:
(A) BASIS OF CONSOLIDATION:
These consolidated financial statements include the accounts of the LP at each of its dealership locations (Agro Equipment,
Farm and Garden Centre Saskatoon and Greenline Equipment) and its subsidiaries, Contractors Equipment Ltd. and Questus
Investment Corp. and their subsidiaries.
(B) INVENTORIES:
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the specific identification
method for new and used equipment, average cost for parts and a specific job basis for work-in-progress.
(C) BUILDINGS AND EQUIPMENT:
Buildings and equipment are recorded at cost. Depreciation is provided for using the declining balance method at annual
rates intended to depreciate the cost of the assets over their estimated useful lives as follows:
Asset
Rate
Buildings
4%
Automotive and trucks
30%
Furniture and fixtures
20%
Parts and shop equipment
20%
Computers and software
30%
Short term rental equipment is depreciated on a straight-line basis at rates ranging from 12% to 20% per annum. Leasehold
improvements are depreciated on a straight-line basis over the term of the lease or their estimated useful life, whichever is
less. .
(D) IMPAIRMENT OF LONG-LIVED ASSETS:
Buildings and equipment are reviewed for impairment whenever events or changes in circumstance indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by
which the carrying amount of the asset exceeds the estimated fair value of the asset.
(E) OTHER ASSETS:
Other assets are intangible assets, which comprise dealership distribution agreements, customer lists and non-competition
agreements, are recorded at cost and are amortized on a straight-line basis. Dealership distribution agreements and noncompetition agreements are amortized over the expected term of the agreements, being twenty years for the dealership
distribution agreements and five years for the non-competition agreements. Customer lists are amortized over the estimated
useful life of the lists, being five years. The LP assesses the recoverability of intangible assets by determining whether the
amortization of the asset balances over their remaining lives can be recovered through undiscounted future operating cash
flows of the dealerships. If such a review indicates impairment, the LP uses fair value in determining the amount that is written
off.
(F) GOODWILL:
Goodwill is the residual amount that results when the purchase price of an acquired dealership exceeded the sum of the
amounts allocated to the estimated fair value of assets acquired and liabilities assumed.
Goodwill is not amortized and is tested for impairment annually, or more frequently, if events or changes in circumstances
indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step, the carrying
44
amount of a dealership is compared with its estimated fair value. When the fair value of a dealership exceeds its carrying
amount, goodwill is considered not to be impaired and the second step of the impairment test is unnecessary.
The second step is carried out when the carrying amount of a dealership exceeds its fair value, in which case, the implied fair
value of the goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied
fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination
described in the preceding paragraph, using the fair value of the dealership as if it was the purchase price. When the carrying
amount of dealership goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount
equal to the excess and is presented as a separate line item in the statement of earnings before extraordinary items and
discontinued operations.
The investments in significantly influenced companies are accounted for using the equity method. Under the equity method,
the original cost of the shares is adjusted for the LP’s share of post-acquisition earnings or losses less dividends.
Cer vus LP
(G) LONG-TERM INVESTMENTS:
l
Income taxes are the responsibility of the individual partners and accordingly are not reflected in these financial statements,
except for income taxes of corporate subsidiaries. The subsidiaries follow the asset and liability method of accounting for
income taxes. Under the liability method, future tax assets and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities, and measured using the substantially enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
(I) PER UNIT AMOUNTS:
Basic per unit amounts are computed by dividing earnings by the weighted average number of units outstanding for the
period. Diluted per unit amounts are calculated giving effect to the potential dilution that would occur if unit options or other
dilutive instruments were exercised or converted to units. The treasury stock method is used to determine the dilutive effect
of unit options, convertible preferred units and other dilutive instruments. This method assumes that any proceeds upon the
exercise or conversion of dilutive instruments, for which market prices exceed exercise price, would be used to purchase units
at the average market price of the units during the period.
(J) UNIT-BASED COMPENSATION:
The LP has a unit-based compensation plan, which is described in note 14. The LP accounts for employee unit options
granted using the fair value based method. Consideration paid by employees on the exercise of unit options is recorded as
partners’ capital. Compensation cost is recognized over the awards’ vesting period.
(K) REVENUE RECOGNITION:
Revenue on agriculture equipment is recorded once all financial obligations have been received and settled. This includes,
but is not limited to, the receipt of required equipment deposits, approval of debt loan arrangements, if required, and
substantial completion of all required pre-sale work orders and delivery of equipment to customers. Revenue on construction
equipment is recorded upon the customer receiving receipt of the related equipment. Rental and service revenue are
recognized at the time the service is provided.
(H) INCOME TAXES:
Revenue is not recognized before there is persuasive evidence that an arrangement exists, delivery has occurred, the rate
is fixed and determinable, and the collection of outstanding amounts is considered probable. The LP considers persuasive
evidence to exist when a formal contract or purchase order is signed and required deposits have been received. Sales terms
do not include provision for post service obligations.
(L) USE OF ESTIMATES:
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reported period. Actual results could differ from these estimates.
Significant areas requiring the use of management estimates relate to the valuation allowance for trade accounts receivable,
the net realizable value of inventories, recovery of other assets and goodwill, the useful life of buildings and equipment for
depreciation purposes and evaluation of their net recoverable amount and the determination of the valuation allowance
related to future income tax assets. Consequently, actual results could differ from those estimates.
(M)COMPARATIVE INFORMATION:
Certain of the 2005 comparative figures have been reclassified to conform to the financial statement presentation adopted
for the current year.
45
3. BUSINESS ACQUISITIONS:
a. On July 1, 2006 the LP acquired all the business assets of Westby Tractor & Equipment Ltd. (“Westby”), a private
agriculture equipment dealership, for $3,124,293. The acquisition has been accounted for using the purchase method
whereby the purchase price is allocated to the net assets acquired based on their fair values as follows:
Net assets acquired:
Working capital
$
Property and equipment
Term debt
Other assets
Deposits with John Deere finance
Long-term investments
Goodwill
$
1,439,704
656,599
(146,420)
760,000
149,979
97,336
167,095
3,124,293
Financed by:
Cash, net of cash acquired of $336,963
$
Limited partnership units (112,655 units)
Note payable due January 31, 2011
$
824,293
1,175,000
1,125,000
3,124,293
b. On June 29, 2006 the LP acquired the remaining 20.2% interest of the issued and outstanding shares of Farm & Garden
Centre of Saskatoon Ltd. (“Farm & Garden”) that was not previously owned by the LP. The purchase price paid was
$1,871,088 by way of the issuance of 155,924 limited partnership units at $12 per unit and was allocated as follows:
Other assets
$
1,200,000
Reduction in notes payable to the vendor
511,690
Goodwill
159,398
$
$1,871,088
c. On November 16, 2005 the LP acquired all the business assets of AR Williams Contractors Equipment Ltd. for $16,500,000.
The acquisition has been accounted for using the purchase method whereby the purchase price is allocated to the net
assets acquired based on their fair values as follows:
46
Net assets acquired:
Working capital
$
Equipment
Term debt
Other assets
Goodwill
Future income taxes
$
7,359,000
6,361,000
(5,798,000)
7,200,000
1,527,000
(149,000)
16,500,000
Financed by:
Cash
$
Preferred partnership units
Note payable due January 16, 2006
$
12,000,000
3,000,000
1,500,000
16,500,000
4. DUE FROM (TO) PROVENTURE INCOME FUND:
Proventure Income Fund (“Proventure”) is a related party by virtue of common directors, common senior management
personnel and common significant shareholders.
At December 31, 2005, the LP had $1,014,375 of advances and $4,015,868 of notes payable to Proventure. In addition,
Proventure held the 803,969 in fixed value units (see note 14). The notes payable and fixed value units bore interest at the
rates of 8% and 5% per annum, respectively; the advances were non-interest bearing. In 2006, the LP paid interest in the
amounts of $87,491 (2005: $287,110) and $20,100 (2005: $40,200) on the notes payable and fixed value units, respectively.
At December 31, 2006, Proventure owes the LP $109,680 in non-interest bearing advances that are repayable on demand.
Cer vus LP
In 2006 the LP repaid the balances due to Proventure by cash paid of $4,304,572 and the issuance of 136,610 limited partner
units (see note 14).
l
2006 New equipment
$ 34,694,706
$
Used equipment 29,130,970
Parts and accessories
7,592,994
741,816
Work-in-progress
$ 72,160,486
$
2005
28,660,718
24,699,900
6,849,066
815,788
61,025,472
6. INVESTMENTS:
2006
2005
Investment in significantly influenced companies, at equity
101034350 Saskatchewan Ltd. (33% interest)
$
332,948
$
244,805
118,416
1
Greenway Sprayers (38% interest, 2005 – 19%)
311,911
191,155
Deer Star Systems Inc. (27%)
Investment in companies, at cost
7,101
Mid-Sask Terminal Ltd.
45,213
45,213
Proventure Income Fund (market value - $32,852)
$
815,589
$
481,174
5. INVENTORIES:
7. DEPOSITS WITH JOHN DEERE:
John Deere Credit Inc. (“Deere Credit”) provides and administers financing for retail purchases and leases of new and used
equipment. Under the financing and lease plans, Deere Credit retains the security interest in the financed equipment. The
LP is liable for a portion of the deficiency in the event that the customer defaults on their lease obligation. Deere Credit
retains 1% of the face amount of the finance or lease contract for amounts that the LP may have to pay Deere Credit under this
arrangement. The deposits are capped at 3% of the total dollar amount of the lease finance contracts outstanding.
The maximum liability that may arise related to these arrangements is limited to the deposits of $1,287,120 (2005 - $1,255,494).
Deere Credit reviews the deposit account balances quarterly and if the balances exceed the minimum requirements, Deere
Credit refunds the difference to the LP.
47
8. OTHER ASSETS:
Accumulated
2006
Cost
amortization
Dealership distribution agreements
$ 6,700,000
$ 282,250
$
Customer lists 1,400,000 225,000
Non-competition agreements 1,060,000 200,000
$ 9,160,000
$ 707,250
$
2005
Cost
Dealership distribution agreements
$
Customer lists
Non-competition agreements
$
Net book
value
6,417,750
1,175,000
860,000
8,452,750
Accumulated Net book
amortization
value
5,200,000
$
1,100,000
900,000
7,200,000
$
22,250
$
5,000
4,000
31,250
$
5,177,750
1,095,000
896,000
7,168,750
9. BUILDINGS AND EQUIPMENT:
2006
Cost
depreciation
value
Buildings
$
66,272
$
7,956
$
58,316
Short term rental equipment
9,903,359 2,450,139
7,453,220
1,851,658 910,784
940,874
1,491,078 767,561
723,517
Parts and shop equipment 1,063,863 573,649
490,214
1,008,153 683,879
324,274
Leasehold improvements 1,081,333 441,837
639,496
$ 16,465,716
$5,835,805
$ 10,629,911
2005
Cost
depreciation
value
Buildings
$
66,273
$
4,888
$
Short term rental equipment
6,100,840
161,535
1,336,212 450,805
1,012,367 362,457
Parts and shop equipment
770,550
266,119
Leasehold improvements
682,936
74,004
609,671
291,963
$ 10,578,849
$ 1,611,771
$
48
61,385
5,939,305
885,407
649,910
504,431
608,932
317,708
8,967,078
10. BANK INDEBTEDNESS:
At December 31, 2006 the LP has an operating bank line of credit to a maximum amount of $12 million (2005 - $10 million). The
operating line of credit bears interest at rates ranging from prime plus 0.25% to prime plus 0.75% based on certain financial
covenants and is secured by a general security agreement, a priority agreement, trade accounts receivable, unencumbered
inventories, assignment of fire insurance and guarantees from the LP’s subsidiaries and the general partner. At December 31,
2006 the LP had drawn $4,063,783 (2005 - $Nil) on this operating line.
2006
2005
Bank term loan, interest at rates ranging from prime
plus 0.25% to prime plus 0.75% and principal installments
of $104,167 per month plus interest commencing
January 1, 2007. For security, see note 10.
$ 5,000,000 $ 5,000,000
Finance company, payable in monthly installments of
approximately $134,768 including interest at 6.25%,
secured by short term rental equipment
5,079,939
3,937,223
Finance contracts and fixed rate bank term loans repayable
in monthly installments ranging from $440 to $4,194 per
month including interest up to 7.25%, secured by related
1,129,025
511,643
equipment, due at various dates through 2011
9,448,866
3,206,423
Less: current portion
6,771,227
$ 8,002,541
$
2,677,639
12.TERM DEBT:
l
The LP utilizes floor plan financing arrangements with various suppliers for inventory purchases. The terms of these
arrangements may include a one to ten-month interest-free period followed by a term during which interest is charged
ranging from prime plus 0.5% to prime plus 1%. Settlement of the floor plan liability occurs at the earlier of sale of the
inventory or in accordance with terms of the financing arrangement. Floor plan payables are secured by specific new and
used equipment inventories.
Cer vus LP
11.FLOOR PLAN PAYABLES:
Estimated principal repayments required over the next five years and thereafter are as follows:
2007
$
2008
2009
2010
2011
$
3,206,423
3,121,623
3,103,443
1,671,204
106,271
11,208,964
Included in cost of sales is $236,019 (2005 - $29,502) of interest expense related to finance company debt for rental
equipment financing.
In addition to the above noted term debt arrangements the LP has arranged a $500,000 term loan for the purchase of
a new computer system and application software program. The loan will be repayable over a three year period from
the date of drawdown and bear interest at rates ranging from prime plus 0.25% to prime plus 0.75%. See note 10 for a
description of the security. No drawdown has been made on the loan at December 31, 2006.
49
13.INCOME TAXES:
The tax effects of temporary differences that give rise to significant portions of the future income tax assets and
liabilities are presented below:
Buildings and equipment
$
Non-capital losses carried forward
Valuation allowance
$
2006
(401,000)
$
252,000
-
(149,000)
$
2005
(273,344)
231,836
(107,492)
(149,000)
The provision for income taxes (recovery) differs from that calculated from using the federal and provincial statutory
rates due to the following:
2006
Combined statutory tax rates
33.6%
Income taxes calculated at above rate
$ 2,888,520
$
(2,996,012)
Impact of flow thru partnership income and equity earnings
107,492
Change in valuation allowance
$
-
$
2005
38.0%
1,881,198
(1,880,061)
(1,137)
-
The excess of the carrying values of the LP’s net assets and liabilities over their tax bases was approximately $509,000
at December 31, 2006 (2005 - $451,000).
On October 31, 2006, the Federal Government proposed draft legislation, which could affect the status of the LP
under the Income Tax Act (Canada). If this legislation is enacted, it is expected to result in the recognition of future
income tax assets and liabilities with a corresponding impact on the LP’s partners’ equity or statement of earnings.
The amount of the impact would be calculated by reference to the temporary differences expected to reverse after
the date that the changes take effect.
50
14. PARTNERS’ CAPITAL:
(A) AUTHORIZED:
Unlimited number of partnership units
Unlimited number of Series A preferred partnership units
803,969 fixed value units, non-voting, entitling the holder to an annual distribution of 5% of the face value; redeemable
at the option of the LP at face value
(B) ISSUED:
Number of
units
General
partner
Limited
partner
Fixed value
units
Total
Cer vus LP
l
Balance December 31, 2005
Redeemed (note 4)
Subscriptions exercised
Issued on exercise of options
Contributed surplus adjustment
for exercise of unit options
Issued for business acquisitions
Units issued for cash
Units issued for unit purchase
loans (note 15)
Units issued for settlement of
obligations to Proventure
Income Fund (note 4)
Unit issue costs
Contributed surplus adjustment
for warrants issued (note 14(d))t
Issued under DRIP plan
4,411,421
-
1,484,600
9,000
100
-
-
-
16,024,751
-
-
73,800
-
268,579
220,985
-
-
-
26,771
3,046,088
2,651,820
-
-
-
26,771
3,046,088
2,651,820
42,405
-
508,860
-
508,860
136,610
-
-
1,639,320
-
1,639,320
-
(73,771)
-
(73,771)
-
289,779
6,863,379
$
-
(284,256)
-
3,059,142
100
$ 26,672,525 $
803,969 16,828,820
(803,969)
(803,969)
-
-
73,800
4,016,510
$ 100
$ 2,585,906
$ 803,969
$ 3,389,975
Issued on exercise of options
41,500
-
83,000
-
83,000
Exercise of unit options
-
-
12,000
-
12,000
Issued under DRIP plan
338,011
- 2,460,648
- 2,460,648
Issue for cash
15,400
-
123,200
-
123,200
Subscription receipts
-
- 11,876,800
- 11,876,800
Unit issue costs
-
-
(1,116,803)
- (1,116,803)
-
(284,256)
-
3,059,142
-
$ 26,672,625
51
(C) UNIT OPTION PLAN:
The LP has a unit option plan available to officers, directors and employees with grants under the plan approved from
time to time by the board of directors of the general partner. The exercise price of each option equals the market price
of the partnership units at the date of grant. The plan provides for vesting, at the discretion of the board, and the options
expire after five years from the date of grant.
Changes in the outstanding options are as follows:
Number outstanding
Weighted average
exercise price
Outstanding and exercisable, December 31, 2004
Exercised
Granted under unit option plan
142,500
$
(41,500)
59,000
2.00
2.00
8.20
Cancelled
Granted under unit option plan
Exercised
160,000
(101,000)
10,000
(9,000)
4.29
2.00
9.00
8.20
The weighted average remaining life of the options is 3.63 years (2005 – 3.56 years) and exercise prices range from $8.20
to $9.00 (2005: $8.20).
The fair value of options issued during 2006 was $1.47 per option (2005 - $1.11 per option). The following weighted
average assumptions were used to determine the fair value of options on the date of grant:
60,000
$
8.33
2006
2005
4.25%
5 years
5 years
$1.08
41%
3.5%
5 years
5 years
$0.96
59%
Risk free interest rate
Expected life
Maximum life
Expected annual distribution
Expected unit price volatility
Compensation expense for the year was a recovery of $17,333 which included $14,668 (2004 - $175,500) of compensation
expense related to options granted and a recovery of $32,001 (2005 - $nil) for options cancelled during the year.
(D) WARRANTS:
52
The LP issued 200,000 warrants to participants of the August 3, 2006 private placement. These warrants were immediately
exercisable and expire on August 3, 2008. The fair value of the warrants, as calculated using the Black-Scholes option
pricing model was $1.42 per warrant for an aggregate amount of $284,256. The value was reflected as unit issue costs and
contributed surplus. The following weighted average assumptions were used to determine fair value of the warrants.
Risk free interest rate
Expected life
Maximum life
Expected annual distribution
Expected unit price volatility
In addition, during 2005 the LP issued 97,500 warrants to brokers as part of the 2005 private placement. The LP recorded
$155,000 of unit issue costs related to those warrants.
4.25%
2 years
2 years
$1.08
44%
(E) PER UNIT AMOUNTS:
The earnings per unit have been calculated based on the weighted average number of units outstanding for the year
ended December 31, 2006 of 6,245,338 (2005 - 4,204,105). In computing diluted earnings per unit 415,854 (2005 - 410,842)
units were added to the weighted average number of units for the dilutive effect of subscription receipts, broker warrants,
private placement warrants, preferred units and unit options.
(F) DISTRIBUTION REINVESTMENT PLAN:
(G) EMPLOYEE UNIT PURCHASE PLAN:
During 2006 the LP provided loans to certain employees for limited partnership units issued under the LP’s private placement
offering. The loans bear interest at the rate of 4% per annum. The employees have provided the units as security for the
loans.
The loan agreements provide that the principal and interest components of the loans will be forgiven if the employees meet
specified terms of service.
The loans are classified as a reduction from partner’s equity. The forgiveness of interest and principal is accounted for as a
compensation expense in the accompanying statement of earnings. No compensation expense has been recognized during
2006.
16. PREFERRED PARTNERSHIP UNITS:
In 2005, the LP issued 375,000 Series A preferred partnership units at a value of $3,000,000. Each unit is convertible at
the option of the holder into one limited partnership unit. These Series A units are non-voting and entitle the holder to a
minimum annual distribution of 4% of $3,000,000 and a further distribution up to the distribution per unit amount available to
the limited partners in any particular year. The LP can require conversion to limited partnership units on July 31, 2010.
15. UNIT PURCHASE FINANCING:
l
The LP has an employee unit purchase plan available to all employees on a voluntary basis. Under the plan, employees
are able to contribute 2% to 4% of their annual salaries, based on years of service. Cervus contributes at a minimum of
15% to 100% on a matching basis to a maximum of $5,000 per year, per employee. The partnership units are purchased
on the open market through a trustee; therefore, there is no dilutive effect to existing Unitholders. Included in general,
sales and administrative expenses are $64,791 (2005 - $nil) of contributions made on behalf of the LP’s employees.
Cer vus LP
In 2004, the LP instituted a Distribution Reinvestment Plan (“DRIP”) entitling limited partners to reinvest cash distributions
in additional units. The DRIP allows limited partners to reinvest distributions into new units at 95 percent of the average
unit price of the previous 10 trading days prior to distribution. In 2006 the LP issued 289,779 (2005 - 338,011) limited
partner units under this plan at an average issue price of $10.56 per unit (2005-$7.28).
17. CONTRIBUTED SURPLUS:
$
Unit-based compensation expense
Fair value of broker warrants
Unit based compensation expense
Fair value of private placement warrants
$
44,000
175,500
(12,000)
155,000
362,500
(17,333)
284,256
(26,770)
602,653
53
18. COMMITMENTS AND CONTINGENCIES:
(a) Deere Credit provides financing to certain of the LP’s customers. A portion of this financing is with recourse to the LP
if the amounts are uncollectible. At December 31, 2006, payments in arrears by such customers aggregated $878,225
(2005 - $508,000). In addition, the LP is responsible for assuming all lease obligations held by its customers with Deere
Credit for the net residual value of the lease outstanding at the maturity of the contract. At December 31, 2006, the net
residual value of such leases aggregated $27,747,308 (2005 - $23,700,000).
Management believes that the potential liability in relation to the amounts outstanding is negligible and consequently,
no accrual has been made in these financial statements in relation to any potential loss on assumed lease obligations.
(b) The LP is committed to the following minimum payments under operating leases for equipment, land and buildings:
2007
$
2008
2009
2010
2011
Thereafter
$
2,456,288
2,010,402
1,364,513
1,214,710
640,358
1,648,272
9,334,543
19. ECONOMIC DEPENDENCE:
The LP’s primary source of revenue is from the sale of farm equipment products and services pursuant to agreements to
act as an authorized dealer for John Deere Limited. The agreement with John Deere Limited provides a framework under
which John Deere Limited can terminate a John Deere dealership if such dealership fails to maintain certain performance
and equity covenants. Each contract also provides a one-year remedy period whereby the LP has one year to restore any
deficiencies.
The LP has dealership agreements with Bobcat, JCB and JLG.
Management is not aware of any deficiencies or non-renewal of its current dealership agreements that would have a material
affect on the LP’s ability to continue as a going concern.
20. FINANCIAL INSTRUMENTS:
(A) FAIR VALUES:
The fair values of trade accounts receivable, advances to Proventure, deposits, bank indebtedness, accounts payable
and accrued liabilities, income taxes payable, interest payable, floor plan payables and distribution payable approximate
their carrying amounts due to the short term maturity of those instruments.
The fair value of debt approximates carrying amount as the interest rates are not significantly different from current rates
awarded to the LP for debt with similar terms and conditions.
(B) CREDIT RISK:
A substantial portion of the trade accounts receivable are with customers who are dependent upon the agriculture and
construction industries, and are subject to normal industry credit risks. At December 31, 2006 there was no significant
allowance for uncollectible amounts.
(C) CURRENCY RISK:
The LP is exposed to foreign currency fluctuations as some products sold are referenced to U.S. dollar denominated
prices.
(D) INTEREST RATE RISK:
54
The LP is exposed to interest rate fluctuations on its floating rate debt in the amount of $11,084,319 (2005 - $10,030,243)
21. RELATED PARTY TRANSACTIONS:
(a) During the years ended December 31, 2006 and 2005, the LP had the following additional transactions with Proventure
Income Fund (see note 4):
1,043,982
$
87,491
20,100
145,500
1,297,073
$
2005
901,770
287,110
40,200
145,500
1,374,580
Cer vus LP
Equipment and real estate rentals
$
Interest on notes payable
Interest on fixed value units
Guarantee fees
$
2006
l
Under an agreement between the LP and Proventure, Cervus LP is entitled to reimbursement for costs incurred and
allocation of insurance and data service costs, guarantee fees based on 3% of the guarantee amounts to John Deere
payable to either Proventure or the individual providing the guarantees, interest on any overdraft balances, interest
on any outstanding indebtedness, building lease charges based on lease agreements, and other direct expenses
reimbursable with no handling fees or markup.
(b) Certain officers and dealer managers of the LP have provided guarantees to John Deere aggregating $5,650,000 (2005
- $5,200,000). During 2006, the LP paid these individuals $73,500 (2005 -$156,000) for providing these guarantees; these
transactions were recorded at the amount agreed to by the parties.
(c) In 2006 the LP repaid notes payable to Proventure and redeemed the issued fixed value units (see note 4).
(d) During 2005, equipment and real estate rentals of $250,836 were paid to officers, directors and unit holders of the LP.
These transactions are recorded at the amount agreed to by the parties.
(e) In December 2005 the LP purchased equipment from Proventure for an amount equal to Proventure’s book value of
$1,189,867. The consideration paid was the assumption of $201,324 of related debts and a payable of $988,543 to
Proventure.
(f) Cervus Corporation resigned as general partner of the LP effective May 31, 2005. During 2005, Cervus Corporation
was paid $16,774 as general partner. The new general partner is Cervus GP Ltd., a private company. Cervus GP Ltd.’s
shareholders own approximately 52 percent of the outstanding units of the LP. Under the amended and restated limited
partnership agreement, Cervus GP Ltd. is entitled to reimbursement of all reasonable direct and indirect costs incurred
on behalf of the LP and to 1% of the net earnings. For the year ended December 31, 2006, this amounted to $86,575
(2005-$31,731).
(g) Notes payable to other related parties:
2006
6% notes payable, unsecured
$
1,125,000
$
-
5% notes payable, unsecured, repaid
-
Notes payable, non-interest bearing and unsecured $
1,125,000
$
2005
511,620
298,652
810,272
6% unsecured notes payable are owed to certain individuals that became related parties pursuant to employment
agreements entered into with the LP as part of the acquisition of the net assets of Westby (see note 3).
During the year, interest in the amount of $28,125 (2005: $21,545) was paid on the notes payable to related parties.
55
22. SEGMENT INFORMATION:
Following the acquisition of AR Williams Contractors Equipment Ltd. on November 16, 2005, the LP operates in two main
industry segments with all of the operations being in Canada. These segments are agricultural and construction equipment.
The segment amounts are as follows:
AgriculturalConstruction
2006 Equipment Equipment
Total
Revenue
$ 179,926,946
$ 89,206,993
$ 269,133,939
1,542,052
7,054,734
8,596,786
Earnings of significantly influenced Companies
277,047
-
277,047
Depreciation and amortization
611,407
2,613,923
3,249,825
Capital expenditures
871,188
5,734,616
6,605,804
Goodwill 1,130,462
1,527,000
2,657,462
Agricultural Construction
2005
Equipment Equipment
Total
Revenue
$ 171,358,175
$
11,091,413
$ 182,449,588
3,946,614
903,906
4,850,520
Earnings of significantly influenced companies
126,443
-
126,443
Depreciation and amortization
255,706
283,396
539,102
Capital expenditures
1,591,079
710,536
2,301,615
Goodwill 803,969
1,527,000
2,330,969
56
GENERAL PARTNER DIRECTORS AND SENIOR OFFICERS
Peter Lacey
Director and Chief Executive Officer
Randall Muth
Chief Financial Officer
Graham Drake
Director and Vice President Operations
Steven Collicutt
Director
CEO - Collicutt Energy Services Ltd.
Gary Harris
Director
President - Westward Parts Ltd.
David Heide
Director
President - Heide Farms Ltd.
Arnie Charbonneau
Director
President - A.R. Williams Group of Companies
Principal Bank
TD Canada Trust
Auditors
KPMG LLP
Legal Counsel
Shea, Nerland, Calnan
Calgary, Alberta
Transfer Agent
Computershare Trust
Company of Canada
Trading Symbol
“CVL.UN” TSX Venture Exchange
Annual Special Meeting
June 5, 2007
3:00 p.m.
Delta Calgary Airport
2001 Airport Road NE,
Calgary, Alberta
CVL.UN
CORPORATE INFORMATION
GORDON ACKERMANN, DOUGLAS ACTON, HOWARD AIRTH, JASON ALBRECHT, BRADLEY ALLISON, VICTORALLISON, ROBERT AMUNDSON, DAVID
ANCION, KYLE ANDERSON, FRAZER ANDIEL, MARLENE ANTONIUK, RALPH ARMSTRONG, CRAIG ARNDT, IBUKUN ARULEBA, AMAL AYOUB, DENNIS
BARRY, ASHLEY BEAMES, JASON BERES, BRADA BERG, TOM BERGEN, LEIGH BERKEY, MICHAEL BERTIN, CHANCELOR BERTSCH, TREVOR BILLAU, DOUG
BILLEY, BRENDA BLAIR, MEGAN BLUMHAGEN, MIKE BOBREL, ROBIN BOLT, NEAL BONE, KENNETH BOOTH, GLENDA BOTROS, JILL BOWEY, STEVE
BOYD, MARK BRADLEY, ASHLEY BRAGG, LEAH BRAUN, TREVOR BROWN, ADAM BUCHANAN, CHRISTINA BUECKERT, TREVOR BUECKERT, YVONNE
BUNKER, SHAWN BUNTON, BERNARD BURKE, DAVID BURKITT, JEFFREY BURR, JAMES CADE, SUE CAMERON, JOHN CAMPBELL, JASON CANDLISH,
TYREL CARDINAL, DARYL CARPENTER, BOB CHAMBERS, ERIC CHAPMAN, DONNA CHARLES, MELAINE CHEATER, JAMES CHRISTIE, RYAN CHRISTIE,
RYAN CHRISTMANN, RANDY CHUCKREE, ANTHONY CHWALUK, CLIFF CLAMPITT, LESLIE CLAMPITT, JASON CLINE, RICHARD CLINE, RICHARD COLLEY,
ALLEN COMSTOCK, MARIANNE CONNOLLY, WADE COOK, ERIN CORRIN, DON COTTERHILL, ELIZABETH COURCHENE, MARK COWAN, MARK COWELL,
CONNIE COX, ARCHIE CROUSE, DAVID CURRIE, MURRAY DAGENAIS, CAROLYN DAHL, RYAN DAHL, TIM DAHL, IVAN DANSIE, CHAD DAVIDGE, EDWARD
DAVIDSON, RAY DAVISSON, DAN DAY, DENNIS DEETER, TERRY DENEIKO, DARREN DENGLER, TENNILLE DENTON, CURTIS DOANE, WILBERT DOWN,
GRAHAM DRAKE, NEALE DRIVER, GARRY DUCKETT, JASON DUMONT, ED DUNN, ENA DUNN, RON DUNNING, TODD DUTCHAK, MARK EASTMAN,
DAVE EBERTS, TODD EDDY, JAMIE EDWARDS, DOUG ELIUK, KEITH ENGELE, RODNEY ENS, KEITH ERLANDSON, WILLIAM EVANS, PAUL EWANKIW,
TREVOR FARNHAM, BRETT FAY, TANYA FELKER, CARMEN FELZIEN, JAMES FINDLAY, JEREMY FINDLAY, MARK FISHER, AIMEE FRANKE, ABE FRIESEN,
KEVIN FRIESEN, KURTIS FRIESEN, BRIAN GABRUCK, CLAIRE GALT, ALLEN GAMROTH, ROGER GASKELL, ANDREW GAUDIN, FRANCIS GAUTHIER, SCOTT
GAY, CRYSTAL GEDDES, DOUG GEIER, ROBERT GEISLER, SHELDON GELLNER, GEN GELSI, SHAUN GETTIS, TANNER GOGEL, KENNETH GOLBY, DARREN
GOODKEY, DIANNA GORDON, TIM GORE, GERRY GREENWOOD, KYLE GREY, MARCELO GUERRERO, KYLE HALLET, JONATHAN HAMILTON, SCOTT
HAMILTON, TERRY HAMRE, KAREN HANSON, SAMANTHA HARASYN, KURT HARRISON, MICHELLE HAUKENESS, MIKE HAVENS, JOSH HAWKINS,
JENNIFER HEELEY, IAN HENDERSON, NEAL HENDRY, TAMMY HENDRY, BOB HEPTONSTALL, ELIZABETH HERDMAN, SUZANNE HILLENGA, NELLIE
HIROS, DALE HOAR, NORMAN HOEFLICHER, CODY HOGG, MARY HRADOWY, ROBERT HRONEK, MARLIN HUBER, JOSH HUBERDEAU, BOBBIE HUGHES,
ALEX HUISMAN, ELIZABETH HUMTING, BRIAN HURFORD, BRENT HUSKA, TERRI IMHOFF, LEEANNA INGRAM, DAVID IRELAND, GENE ISAAC, JACK
ISABELLE, JACK ISHERWOOD, RYAN JAKUBOWSKI, ROBERT JANSEN, CALVIN JOHNSON, DUSTIN JOHNSON, JOHN JOHNSON, RAYLYNN JOHNSON,
ADAM JONES, GREG JONES, VICTOR JONES, CHRISTIE JONSSON, ANTHONY JORDAN, RYAN KATCHIN, KEN KEENAN, GALE KELLINGTON, BRUCE
KEMMER, SHANE KEMPS, LYNNE KETCHESON, BRETT KETTENBACH, KELLY KIESER, DURWIN KING, DON KLASSEN, SAMUEL KLIMEC, RUTHANN
KOOP, DARREN KOWALCZYK, JEFF LABELLE, PETER LACEY, TRAVIS LANDRY, SHAWN LARCOMBE, RHYS LEGGOTT, BRENT LEISCHNER, BENJAMIN LEO,
COREY LEONARD, RODNEY LESHCHYSHYN, ALISON LEWIS, BRYCE LIDDLE, GREG LIGHT, JAIME LIGHT, SCOTT LINDSTROM, RYAN LONGMUIR, ANNA
LOREE, BRIAN LUMMIS, WAYNE LUTES, ANGELA MACDONALD, DAN MACDONALD, KELLY MACDONALD, MICHAEL MACKIE, JESSIE MACRAE, TERRY
MACTAVISH, ANDREW MADLAND, ROB MAINVILLE, SHAWN MANTYKA, CRAIG MARSHALL, SCOTT MARSHALL, COLIN MAXWELL, WAYNE MAXWELL,
WENDY MAXWELL, ASHLEY MAY, WADE MCAULEY, DARCY MCCANDLISH, GERALD MCCLAFLIN, RANDY MCCOLEMAN, MELISSA MCCOMISH, CAMERON
MCCRACKEN, JOEY MCEVOY, BLAIR MCGEOUGH, TERRY MCGEOUGH, KEITH MCHARG, TOM MCKIE, MATT MCRAE, MARYANN MCWILLIE, COLIN
MENNIE, JEAN MERCIER, RHONDA MERGEART, CRAIG MILLER, CHRIS MINHINNETT, MICKEY MITCHELL, NORMAN MONICH, JASON MORGAN, AMIE
MORRISON, DON MOSS, EDWARD MOTELAGO, JASON MOXLEY, LAURA MUNN, JAMES MURPHY, SHANE MURRAY, KEVIN MUSHUMANSKI, RANDALL
MUTH, LORNE NAGEL, RAMONA NAHAYOWSKI, ANITA NELSON, DEAN NELSON, JOAN NIXON, ZACHARY OLTHUIS, JOSEPH OMELIAN, IDOWU OMO,
DWAYNE ONUFREYCHUK, WARREN ORTH, JERICO OSTAPCHUK, DIANE PANKHURST, DARRALL PEARSON, KYLE PEPPER, ROY PERRIN, KRISTY PETERS,
JUSTIN PHILIPPO, COR PIKKERT, CLINTON PITZEL, DEAN PLEWES, MICHAEL POPLETT, BEN PREISS, BRADIE PREISS, TYRELL PREISS, NICK PUDDE, SEAN
PYRAH, LYLE RADKE,JOSH RAIRDAN, JAMIE RANDELL, ANDY RATZLAFF, ZACHARY REGIER, KENNETH REGUSH, JEFFERY REIMER, BRAD REMYN,
STACEY RENAUD, BRENDA RENNEBERG, ANDREW RITCHIE, STACEY ROBBIE, BRIAN ROBERTS, TRACY ROBINSON, PAT ROLLINGSON, STEVE ROSE,
DENIS ROUFOSSE, SCOTT ROY, BRYAN RUDOLFSEN, PATRICK RUHLAND, ELVIN RURKA, COLIN RUSH, ERNEST RUSHTON, CHRISTOPHER RUTHERFORD,
VERNON SACCUCCI, JOSHUA SAINT, CARTNEY SAMSON, RUBEN SANDOVAL, MICHAEL SAUNDERS, VERN SCHEIDT, JAMES SCHIELKE, CINDY SCHMIDT,
DON SCHULTZ, KYLER SCHULTZ, BRIAN SCOFIELD, JAMES SCOTT, MARK SCREPNEK, TREVOR SEDGWICK, ROBIN SENGER, DONNA SENNETT, JAMES
SHARPE, CHERYLYN SHEEHAN, JOHN SHEPPARD, BO SHIERMAN, KIRK SHOEMAKER, STEVE SIMMONS, BRENDAN SIMPSON, GARVIN SIROIS, FRED
SIROTA, RICHARD SKOW, JENNIFER SMITH, LENARD SMITH, RON SMITH, WALTER SOLVASON, GARY SORENSEN, DAN SPECHT, PHILLIP SPEED, JOHN
SPENCER, DEREK SQUAIR, BRANDON SQUIRE, PABLO ST. AMOUR, BRIAN STAHN, JOHN STALKER, LORI STANEK, JACK STATZ, VERNON STEINBRECKER,
BRIAN STEINER, BRYCE STEPHENS, ANDREW STEWART, LEN STILES, RYAN STOOSHNOFF, ANITA STROHSCHEIN, REAGAN STUCKEY, MEGAN STURKO,
NEVIN STUTT, ALAN STYLES, DANIEL SWAINSON, BRIAN SWAINSTON, LEE SWANSON, TREVOR TANCOCK, DANNY TARKA, DOMINIC TAYLOR, BERT
TESSIER, MURRAY THOMAS, MURRAY THOMAS, GREG THOMPSON, WAYNE TODD, DANNY TRANBERG, DARCY TREBLE, MURRAY TREBLE, DARIN
TUDOR, TOM TYESS, HAL VALENTINE, RYAN VANDERBURG, DAVE VARLEY, FRED VONKROGH, GRANT WAHL, MYRONE WAHL, TREVOR WAKEFIELD,
ROBERT WALDHOFF, DARREN WALKER, ISAAC WARRENER, DANIEL WASYLESHKO, KEITH WATSON, RYAN WATSON, JENNIFER WEISS, AARON WEST,
BRADLEY WESTBY, GERHARD WIEBE, JASON WIENS, DOUG WIGHT, RIANNE WIGHT, STEVE WILDEBOER, JON WILLAN, BARRY WILSON, TERRY WINDER,
COLBY WISE, JIM WOOD, JOHN WOYNOROWSKI, BLAIR WRIGHT, RICHARD YAKIMCHUK, ROSIE YANIKYAN, GEORGE YAWORSKI, GLENN YINGST, BILL
YURKEWICH, LEN ZACHARIAS, DENNIS ZACHARUK, JULIAN ZAKRESKI, LAROCQUE ZDUNICK, ROBERT ZEREBESKI, DARCY ZIMMER, RONALD ZOOK
THESE ARE THE PEOPLE OF CERVUS LP
205, 120 Country Hills Landing NW
Calgary, Alberta Canada T3K 5P3
www.cervuslp.com
Tel.
403-567-0339
Fax.
403-567-0309
“CVL.UN” TSX Venture Exchange

Annual Report - Cervus Equipment

Transcription

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