Consolidated Financial Statements - WEQ · Suite 910, 925 West Georgia Street • Vancouver •...

Suite 910, 925 West Georgia Street • Vancouver • British Columbia • Canada • V6C 3L2 • Telephone (604) 678-4042 • Fax (604) 681-5969

Consolidated Financial Statements

Years ended December 31, 2011 and 2010

Suite 910, 925 West Georgia Street • Vancouver • British Columbia • Canada • V6C 3L2 • Telephone (604) 678-4042 • Fax (604) 681-5969

MANAGEMENT’S RESPONSIBILITY

To the Unitholders of WesternOne Equity Income Fund (the “Fund”):

Management is responsible for the preparation and presentation of the accompanying financial

statements, including responsibility for significant accounting judgments and estimates in accordance

with International Financial Reporting Standards and ensuring that all information in the annual report

is consistent with the statements. This responsibility includes selecting appropriate accounting

principles and methods, and making decisions affecting the measurement of transactions in which

objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the financial statements,

management designs and maintains the necessary accounting systems and related internal controls

to provide reasonable assurance that transactions are authorized, assets are safeguarded and

financial records are properly maintained to provide reliable information for the preparation of financial

statements.

The Audit Committee of the Board of Trustees of the Fund is responsible for overseeing management

in the performance of its financial reporting responsibilities, and for recommending to the Board of

Trustees to approve the financial information included in the annual report. The Audit Committee

fulfils these responsibilities by reviewing the financial information prepared by management and

discussing relevant matters with management and external auditors. The Audit Committee is also

responsible for recommending the appointment of the Fund’s external auditors.

KPMG LLP, an independent firm of Chartered Accountants, has been appointed by the Audit

Committee to audit the financial statements and report directly to the Unitholders; their report follows.

The external auditors have full and free access to both the Audit Committee and management to

discuss their audit findings.

March 9, 2012

“Darren Latoski”

Chief Executive Officer WesternOne Equity Income Fund

KPMG LLP Chartered Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada

Telephone (604) 691-3000 Fax (604) 691-3031 Internet www.kpmg.ca

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.

INDEPENDENT AUDITORS’ REPORT

To the Unitholders of WesternOne Equity Income Fund

We have audited the accompanying consolidated financial statements of WesternOne Equity Income Fund, which

comprise the consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1,

2010, the consolidated statements of comprehensive income (loss), changes in unitholders’ equity and cash flows for the

years ended December 31, 2011 and December 31, 2010, and notes, comprising a summary of significant accounting

policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in

accordance with International Financial Reporting Standards, and for such internal control as management determines is

necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether

due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted

our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply

with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material

misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,

we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial

statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as

well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial

position of WesternOne Equity Income Fund as at December 31, 2011, December 31, 2010 and January 1, 2010, and its

consolidated financial performance and its consolidated cash flows for the years ended December 31, 2011 and

December 31, 2010 in accordance with International Financial Reporting Standards.

Chartered Accountants March 9, 2012 Vancouver, Canada

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WESTERNONE EQUITY INCOME FUND Consolidated Statements of Financial Position (Expressed in thousands of Canadian dollars)

December 31, December 31, January 1, Notes 2011 2010 2010

Assets Current assets:

Cash and cash equivalents $ 13,041 $ 3,992 $ 2,070 Accounts receivable 14 18,219 9,476 6,139 Inventories 6 14,960 2,059 1,455 Deposits and prepaid expenses 1,630 576 512

47,850 16,103 10,176 Property and equipment 4 59,439 35,672 29,383 Intangible assets 5 49,540 22,332 24,507 Goodwill 5 46,466 9,493 8,430 Deferred income tax assets 8 9,111 7,868 6,556

Total assets $ 212,406 $ 91,468 $ 79,052

Liabilities and Unitholders’ Equity Current liabilities:

Operating loans 7 $ 2,456 $ 2,608 $ 1,741 Accounts payable and accrued liabilities 16,032 4,008 3,294 Distributions payable 912 694 692 Series A Debentures 13 - 9,779 - Current portion of Units 9 - 600 600 Capital and acquisition loans 7 60,098 30,445 32,768 Other current liabilities 1,350 366 339

80,848 48,500 39,434 Series A Debentures 13 - - 9,800 2010 Debentures (face value $21,714) 13 27,143 27,876 - 2011 Debentures (face value $86,250) 13 84,956 - - Exchangeable units 9 748 495 473 Fund Units 9 - 45,492 45,268 Finance leases obligation 12 825 570 268 Unit based compensation 10 1,426 207 96 Other long-term liabilities 1,089 306 624

197,035 123,446 95,963 Unitholders’ equity:

Fund Units 9 71,476 - - Non-controlling interest 646 - - Foreign currency translation reserve 43 - - Accumulated deficit (56,794) (31,978) (16,911)

15,371 (31,978) (16,911)

Total liabilities and Unitholders’ equity $ 212,406 $ 91,468 $ 79,052

Subsequent events (note 20) See accompanying notes to consolidated financial statements.

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WESTERNONE EQUITY INCOME FUND Consolidated Statements of Comprehensive Income (Loss) (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010

Notes 2011 2010

Revenue:

Modular building and equipment rentals $ 34,620 $ 24,918 Modular building and equipment sales 50,744 2,921 Parts, fuel, service and others 24,068 20,334

109,432 48,173

Cost of sales: Cost of modular building and equipment rentals,

excluding depreciation and amortization of operating and intangible assets 19,016 14,341

Cost of modular and equipment sold 37,524 2,599 Depreciation of rental equipment 9,551 7,922 Parts, fuel, service and others 10,536 8,324

76,627 33,186 Gain on sale of property and equipment 1,300 280

Gross profit 34,105 15,267

Operating expenses: General and administration (including depreciation

and amortization of operating and intangible assets) 26,731 14,678 Business acquisition costs 15 1,010 431

27,741 15,109

Other expenses: Finance costs 7, 13 17,525 4,680 Debenture issuance costs 13 4,885 1,733 Distributions to Unitholders 9 4,550 8,399 Franchise termination fee - 816 Impairment of goodwill and intangible assets 561 910

27,521 16,538

Loss before income taxes (21,157) (16,380)

Deferred income tax recoveries 8 1,242 1,313

Net loss (19,915) (15,067)

Loss attributable to non-controlling interest 349 -

Net loss attributable to Unitholders (19,566) (15,067)

Unrealized gain from foreign exchange translation 43 -

Net and comprehensive loss $ (19,523) $ (15,067)

Basic and diluted weighted average loss per Unit $ (1.21) $ (1.08) Basic and diluted weighted average number of Units 16,133,105 13,995,559

See accompanying notes to consolidated financial statements.

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WESTERNONE EQUITY INCOME FUND Consolidated Statement of Changes in Unitholders’ Equity (Expressed in thousands of Canadian dollars)

Foreign currency Non-controlling translation Accumulated Fund Units interest reserve deficit Total

Balance, January 1, 2010 - $ - $ - $ (16,911) $ (16,911) Net and comprehensive loss

for the year - - - (15,067) (15,067)

Balance, December 31, 2010 - - - (31,978) (31,978) Reclassification of Fund Units 56,568 - - - 56,568 Issuance of Units from

conversion of debentures 9,674 - - - 9,674 Issuance of Units from exercise

of options 263 - - - 263 Distribution declared - - - (5,250) (5,250) Investment from non-controlling

interest - 995 - - 995 Unrealized gain from foreign

exchange translation - - 43 - 43 Issuance of Units from offering

(net of issuance costs) 4,971 - - - 4,971 Net loss for the year - (349) - (19,566) (19,915)

Balance, December 31, 2011 71,476 $ 646 $ 43 $ (56,794) $ 15,371


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WESTERNONE EQUITY INCOME FUND Consolidated Statements of Cash Flows (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010

Notes 2011 2010

Cash provided by (used in): Operating activities:

Net loss $ (19,915) $ (15,067) Items not affecting cash:

Amortization of tangible and intangible assets 4, 5 15,601 12,899 Interest expense relating to amortization of

transaction cost, conversion of convertible debentures and loss (gain) on derivatives 360 (104)

Deferred tax recoveries 8 (1,242) (1,313) Unit based compensation 10 1,276 111 Increase in fair value of convertible debentures and

exchangeable units 8,588 497 Gain on sale of property and equipment (1,300) (280) Business acquisition costs 1,010 431 Debenture issuance costs 4,885 1,733 Finance costs 8,467 4,241 Franchise termination fee - 816 Impairment of goodwill and intangible assets 561 910 Distributions 4,550 8,399

22,841 13,273 Changes in non-cash working capital balances:

Accounts receivable 2,338 (2,540) Inventories (7,537) (297) Deposits and prepaid expenses (491) (3) Accounts payable and accrued liabilities 7,497 528 Other current liabilities 362 (9)

Net cash from operating activities 25,010 10,952 Investing activities:

Purchase of property and equipment (19,014) (8,185) Proceeds from the sale of property and equipment 4,199 2,080 Payment for franchise termination - (816) Business acquisition (100,947) (13,759)

Net cash used in investing activities (115,762) (20,680) Financing activities:

Units issued for cash, net of expenses 4,971 - Debentures issued for cash, net of expenses 13 81,365 25,867 Distributions paid (9,583) (8,396) Interest received 110 47 Interest paid (8,577) (4,291) Proceeds from option exercise 148 - Investment from non-controlling interest 995 - Repayment of Series A Debentures (306) - Advance (repayment) of loans payment and term mortgage 30,678 (1,577)

Net cash from financing activities 99,801 11,650

Increase in cash and cash equivalents 9,049 1,922

Cash and cash equivalents, beginning of year 3,992 2,070

Cash and cash equivalents, end of year $ 13,041 $ 3,992


WESTERNONE EQUITY INCOME FUND Notes to Consolidated Financial Statements (Expressed in thousands of Canadian dollars, except Units, Debenture units and per Unit amounts) Years ended December 31, 2011 and 2010

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1. Corporate information:

WesternOne Equity Income Fund (the “Fund”) is an unincorporated, open-ended, limited purpose trust

created on June 14, 2006 and under the declaration of trust governed by the laws of British Columbia (“BC”),

Canada. The Fund is authorized to issue an unlimited number of units (“Units”) and special voting units.

Each holder of a Unit of the Fund (“Unitholder”) participates pro rata in any distribution of the Fund. The

Fund was established to indirectly acquire investments as the trustees of the Fund (the “Trustees”) may

determine. The Fund commenced operations on August 15, 2006 when it completed its initial public offering

(the “Offering”).

The Fund is based in Vancouver, BC, and has been established to seek opportunities to acquire and grow

businesses in the sector of construction and infrastructure services in order to generate stable and growing

distributions for its Unitholders as well as to achieve overall capital appreciation.

The Fund structures its operations in two principal business platforms:

Equipment rentals, sales and fuel distribution: The Fund has acquired six businesses in this sector

since its initial public offering in August 2006, and has integrated the operations of these business Units

under the brand name “WesternOne Rentals & Sales” (“WRS”). This business specializes in providing

aerial equipment rentals for construction, film production, and shipyards; construction heat, general

construction equipment rentals, and sales of equipment and related services. WRS has 12 locations in

Western Canada servicing markets in all major cities.

Modular building manufacturing and leasing: The Fund, through its wholly-owned subsidiary, WEQ

Britco LP (“Britco”), acquired Britco Structures LLP and Britco Leasing Ltd. on June 1, 2011 (see

note 15). Britco has four manufacturing facilities, three locations in Canada in Agassiz and Penticton,

BC, and Edmonton, Alberta, and one located in the United States in Waco, Texas. Britco has a lease

fleet of over 1,200 Units and five branch offices across BC and Alberta. Britco provides permanent and

temporary modular building solutions for offices, hotels, resorts and special purpose housing, and

provides modular workforce housing units to the oil and gas and mining industries.

2. Basis of preparation:

(a) Statement of compliance:

The Fund prepares its financial statements in accordance with International Financial Reporting

Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These are the

Fund’s first annual consolidated financial statements prepared in accordance with IFRS and, as a result,

IFRS 1, First Time Adoption of International Financial Reporting Standards, has been applied. In these

financial statements, the term “Canadian GAAP” refers to Canadian Generally Accepted Accounting

Principles before the adoption of IFRS. The Fund has consistently applied the accounting policies used

in the preparation of its opening IFRS statement of financial position as at January 1, 2010 throughout

all periods presented, as if these policies had always been in effect.

An explanation of how the transition to IFRS has impacted the reported financial position, financial

performance and cash flows of the Fund is provided in note 21. This note includes reconciliations of

equity and total comprehensive income for comparative periods reported under Canadian GAAP to

those reported under IFRS.


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2. Basis of preparation (continued):

(a) Statement of compliance (continued):

The consolidated financial statements were authorized for issue by the Trustees of the Fund on

March 9, 2012.

(b) Basis of measurement:

The consolidated financial statements have been prepared on the historical cost basis except for the

following material items in the statement of financial position:

derivative financial instruments are measured at fair value;

financial instruments, including debentures and exchangeable units, at fair value through profit or

loss are measured at fair value; and

liabilities for cash settled Unit based payment arrangements are measured at fair value.

(c) Functional and presentation currency:

The consolidated financial statements of the Company are presented in Canadian dollars.

Transactions in foreign currency:

Each entity within the consolidated group records transactions using its functional currency, being

the currency of the primary economic environment in which it operates. Foreign currency

transactions are translated into the respective functional currency of each entity using the foreign

currency rates prevailing at the date of the transaction. Period end balances of monetary assets

and liabilities in foreign currency are translated to the respective functional currencies using period

end foreign currency rates. Foreign currency gains and losses arising from settlement of foreign

currency transactions are recognized in earnings.

Foreign operations translation:

The assets and liabilities of foreign operations are translated into Canadian dollars at period end

foreign currency rates. The results of foreign operations are translated into Canadian dollars at

average rates for the period. Foreign currency translation gains and losses are recognized in other

comprehensive income. The relevant amount in cumulative foreign currency translation adjustment

is reclassified into earnings upon disposition of a foreign operation.

(d) Use of estimates and judgments:

The preparation of the consolidated financial statements in conformity with IFRS requires management

to make judgments, estimates and assumptions that affect the application of accounting policies and the

reported amounts of assets, liabilities, income and expenses.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimates are revised and in any future periods

affected.


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(d) Use of estimates and judgments (continued):

The following describes the key sources of estimation uncertainty and judgments used in preparing the

Fund’s financial statements that can have a significant impact on the carrying value of the Fund’s assets

and liabilities:

Impairment - The Fund assesses impairment at each reporting date by evaluating conditions

specific to the Fund that may lead to asset impairment. The recoverable amount of an asset or a

cash generating unit (“CGU”) is determined using the greater of fair value less costs to sell and

value in use which requires the use of various judgments, estimates and assumptions. The Fund

identifies CGUs as identifiable groups of assets that are largely independent of the cash inflows

from other assets or groups of assets. Value in use calculations require estimations of discount

rates and future cash flows derived from revenue growth, gross margin and operating costs. Fair

value less costs to sell calculations require the Fund to estimate fair value of an asset or a CGU

using market values of similar assets as well as estimations of the related costs to sell. For the

year ended December 31, 2011, goodwill impairment of $561 (2010 - $nil) was recorded, as

described in note 5.

Revenue recognition - The Fund recognizes revenue for its construction contracts based on the

stage of completion of each contract. Stage of completion of a contract is based on costs incurred

to date compared to the expected total costs for completing the contract. The assessment of the

total expected costs to complete a contract is subject to judgment, and is impacted by factors such

as prices of raw materials, wages, and other operating costs. Periodic reviews on cost estimates

are performed to ensure latest available information is used when making such estimates. As at

December 31, 2011, the Fund recorded work in progress inventory of $9,052 as described in

note 6.

(e) New accounting standards not yet adopted:

(i) IFRS 9 - Financial Instruments:

In November 2009, the IASB issued IFRS 9, Financial Instruments, which is the first step in its

project to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9

establishes the measurement and classification of financial assets. Under IFRS 9, financial assets

are measured either at fair value through earnings or at amortized cost if certain conditions are

met. The effective date of this standard is January 1, 2015, but early adoption is permitted. The

Fund will apply this standard to its financial statements beginning on January 1, 2015. The Fund is

currently evaluating the impact of IFRS 9 on its financial statements.

(ii) IFRS 10 - Consolidated Financial Statements:

In May 2011, the IASB issued IFRS 10, Consolidated Financial Statements. The objective of IFRS

10 is to establish principles for the presentation and preparation of consolidated financial

statements when an entity controls one or more other entities. The effective date of this standard is

January 1, 2013, but early adoption is permitted. The Fund will apply this standard to its financial

statements beginning on January 1, 2013. The adoption of IFRS 10 is not expected to have a

significant impact on the Fund’s consolidated financial statements.


8


(e) New accounting standards not yet adopted (continued):

(iii) IFRS 12 - Disclosure of Interests in Other Entities:

In May 2011, the IASB issued IFRS 12, Disclosure of Interests in Other Entities. The objective of

IFRS 12 is to require the disclosure of information that enables users of financial statements to

evaluate the nature of, and risks associated with, its interests in other entities and the effects of

those interests on its financial position, financial performance and cash flows. The effective date of

this standard is January 1, 2013, but early adoption is permitted. The Fund will apply this standard

to its financial statements beginning on January 1, 2013. The adoption of IFRS 12 is not expected

to have a significant impact on the Fund’s consolidated financial statements.

(iv) IFRS 13 - Fair Value Measurement:

In May 2011, the IASB issued IFRS 13, Fair Value Measurement. The objective of IFRS 13 is to

define fair value, set out in a single IFRS the framework for measuring fair value, and establish

disclosure requirements regarding fair value measurements. The effective date of this standard is

January 1, 2013, but early adoption is permitted. The Fund will apply this standard to its financial

statements beginning on January 1, 2013. The Fund is currently evaluating the impact of IFRS 13

on its financial statements.

(v) IAS 1 - Presentation of Financial Statements:

In June 2011, the IASB published amendments to IAS 1, Presentation of Financial Statements:

Presentation of Items of Other Comprehensive Income. The objective of IAS 1 is to set out the

overall requirements for the presentation of financial statements, guidelines for their structure and

minimum requirements for their content. The effective date of this standard is January 1, 2013 but

early adoption is permitted. The Fund will apply this standard to its financial statements beginning

on January 1, 2013. As the amendments only require changes in the presentation of items in other

comprehensive income, the Fund does not expect the amendments to IAS 1 to have a material

impact on the Fund’s consolidated financial statements.


9

3. Significant accounting policies:

The accounting policies set out below have been applied consistently by the Fund and all of its subsidiaries

to all periods presented in these consolidated financial statements.

(a) Basis of consolidation:

Subsidiaries

The Fund has consolidated the assets, liabilities and equity of all subsidiaries after the elimination of

inter-entity transactions and balances. The condensed consolidated financial statements include the

accounts of the Fund, and its wholly owned subsidiaries, WesternOne Equity GP Inc. and WesternOne

Equity Operating Trust. These two subsidiaries in turn include the accounts of their subsidiaries as

listed in the following table:

Direct and Subsidiary indirect ownership

WesternOne Equity LP 100% WEQ Production Equipment GP Inc. 100% WEQ Production Equipment LP 100% WEQ Old Country Rentals GP Inc. 100% WEQ Old Country Rentals LP 100% WEQ C&N Rentals GP Inc. 100% WEQ C&N Rentals LP 100% WEQ Deerfoot Rentals GP Inc. 100% WEQ Deerfoot Rentals LP 100% WEQ Heat & Propane GP Inc. 100% WEQ Heat & Propane LP 100% WEQ Britco GP Inc. 100% WEQ Britco LP 100% WEQ USA Inc. 100% WEQ Britco USA LLC 81% Britco Structures USA LLC (“BUSA”)* 44%

*

The Fund has control of BUSA through its right to appoint the majority of the board of directors of BUSA.

Subsidiaries are those entities controlled by the Fund. The financial statements of subsidiaries are

included in the consolidated financial statements from the date that control commences until the date

that control ceases.


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3. Significant accounting policies (continued):

(b) Business combinations:

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition

is measured at the aggregate of the fair values, at the date of exchange of assets given, liabilities

incurred or assumed, and equity instruments issued in exchange for control of the acquiree. The

acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition

under IFRS 3, Business Combinations as issued in January 2008 are recognized at their fair values at

the acquisition date, except for non-current assets that are classified as held-for-sale in accordance with

IFRS 5, Non-current Assets Held for Sale and Discontinued Operations which are recognized and

measured at fair value, less costs to sell.

On an acquisition-by-acquisition basis, any non-controlling interest is measured either at fair value of

the non-controlling interest or at the fair value of the proportionate share of the net assets acquired.

Transaction costs, other than those associated with the issue of senior debt or equity securities, that the

Fund incurs in connection with a business combination are expensed as incurred.

(c) Property and equipment:

Items of property and equipment are measured at cost less accumulated depreciation and accumulated

impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing

the proceeds from disposal with the carrying amount of property, plant and equipment, and are

recognized in profit or loss.

The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss

as incurred.

(i) Depreciation:

Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its

residual value.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of

each part of an item of property, plant and equipment, since this most closely reflects the expected

pattern of consumption of the future economic benefits embodied in the asset.

The estimated useful lives for the current and comparative periods are as follows:

Equipment rental fleet 1-8 years Modular building rental fleet 20 years Building 25 years Automotive, tractors and trailers 3-7 years Furniture, fixtures and equipment 3-5 years Computer equipment 2-5 years Leasehold improvements lesser of 5 years and the remaining term of the lease


11


(c) Property and equipment (continued):

(i) Depreciation (continued):

Depreciation methods, useful lives and residual values are reviewed at each financial year end and

adjusted if appropriate.

(d) Goodwill and Intangible assets:

(i) Goodwill:

Goodwill is not amortized and is reviewed for impairment at least annually or whenever events or

changes in circumstances indicate that the carrying amount may be impaired. Goodwill is allocated

to the CGU to which it relates.

(ii) Other intangible assets:

Finite life intangible assets are carried at cost less any accumulated amortization and any

accumulated impairment loss and are amortized on a straight line basis over their estimated useful

lives.

Indefinite life intangible assets are carried at cost less any accumulated impairment loss.

Amortization is calculated based on the cost of the asset, less its residual value.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of

intangible assets, other than goodwill and indefinite life intangible assets, from the date that they

are available for use, since this most closely reflects the expected pattern of consumption of the

future economic benefits embodied in the asset.

The estimated useful lives for the current and comparative periods are as follows:

Customer relationships 10 years Non-competition agreements 3-5 years Software 1-5 years Brand name indefinite


12


(e) Impairment:

The carrying amounts of the Fund’s non-financial assets, inventories and deferred tax assets are

reviewed at each reporting date to determine whether there is any indication of impairment. If any such

indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets

that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated

each year at the same time.

Impairment is determined by assessing if the carrying value of a CGU, including the allocated goodwill,

exceeds its recoverable amount determined as the greater of the estimated fair value less costs to sell

or the value in use. Impairment losses are recognized in profit or loss in the period in which the

impairment is identified. Impairment losses recognized in respect of a CGU are allocated first to reduce

the carrying value of goodwill allocated to the CGU and any excess is allocated to the carrying amount

of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not subsequently reversed. In respect of other assets,

impairment losses recognized in prior periods are assessed at each reporting date for any indications

that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a

change in the estimates used to determine the recoverable amount. An impairment loss is reversed

only to the extent that the asset’s carrying amount does not exceed the carrying amount that would

have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(f) Inventories:

New and used equipment inventories of the equipment rental business, as well as raw materials, work

in progress and finished goods inventories of the modular building manufacturing business are recorded

at the lower of cost and net realizable value, with cost determined on a specific item basis. Inventory

write-downs are included in cost of sales.

Parts inventories are valued at the lower of cost and net realizable value, with cost generally being

determined on a weighted-average basis. Parts inventory write-downs are included in cost of sales.

(g) Revenue recognition:

Revenue from rental contracts and logistical support is recognized in the period in which the related

services have been provided and collectability is reasonably assured.

Service and parts revenue, relating to sales of parts and equipment servicing, is recognized when the

parts are delivered, the related services have been rendered, and collectability is reasonably assured.

Revenue from fuel sales is recognized at the time when the fuel is delivered, the related services have

been rendered, and collectability is reasonably assured.

Revenue from equipment sales is recognized at the time the contract is signed by the purchaser, all

significant risks and rewards of ownership have been transferred to the purchaser, and collectability is

reasonably assured.


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(g) Revenue recognition (continued):

Revenue from manufacturing and sales of modular Units is accounted for under IAS 11, Construction

Contracts. Contract revenue includes the initial amount agreed to in the contract plus any variations in

contract work, claims, and incentive payments, to the extent that it is probable that they will result in

revenue and can be measured reliably. As soon as the outcome of a construction contract can be

estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of

completion of the contract. Contract expenses are recognized as incurred unless they create an asset

related to future contract activity.

The stage of completion is assessed by the proportion that contract costs incurred for work performed

to date bear to the estimated total contract costs. When the outcome of a construction contract cannot

be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that

are likely to be recoverable. An expected loss on a contract is recognized immediately in profit or loss.

Construction contracts not yet complete at the end of a reporting period are recorded as work in

progress inventory.

(h) Leases:

(i) Lessee accounting:

Leases in terms of which the Fund assumes substantially all the risks and rewards of ownership

are classified as finance leases. Upon initial recognition, the leased asset is measured at an

amount equal to the lower of its fair value and the present value of the minimum lease payments.

Subsequent to initial recognition, the asset is accounted for in accordance with the accounting

policy applicable to that asset.

Minimum lease payments made under finance leases are apportioned between the finance

expense and the reduction of the outstanding liability. The finance expense is allocated to each

period during the lease term so as to produce a constant periodic rate of interest on the remaining

balance of the liability.

Other leases are operating leases and are not recognized in the Fund’s statement of financial

position. Payments under operating leases are recognized in the income statement on a straight-

line basis over the term of the lease. Lease incentives received are recognized in the income

statement as an integral part of the total lease expense.

(ii) Lessor accounting:

The Britco segment of the Fund acts as the lessor when leasing modular buildings to customers.

On average, these leases are from 3-24 months in length. The Fund makes a determination as to

whether each lease should be classified as a finance lease or an operating lease using the same

criteria as described above. Any leases determined to be finance type result in the removal of the

leased asset from the Fund’s statement of financial position, and is replaced with a finance lease

receivable. As at December 31, 2011, the Fund did not record any finance type leases where the

Fund was the lessor.


14


(i) Income tax:

Deferred income tax assets and liabilities are determined based on the temporary differences between

the tax basis of the Fund’s assets and liabilities and the amounts reported in the financial statements, to

the extent that such temporary differences are expected to reverse.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary

differences, to the extent that it is probable that future taxable profits will be available against which they

can be utilized. The carrying amount of deferred tax assets are reviewed at each reporting date and are

reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets are measured at the tax rates that are expected to apply to the year when the asset

is realized, based on the tax rates and laws that have been enacted or substantively enacted at the

balance sheet date.

(j) Warranty provision:

Warranties are extended to customers upon sales of modular buildings. A warranty provision is

recognized when products are sold. The provision is based on historical warranty data. Actual

warranty costs in the future may differ from the estimates based on historical performance. The level of

warranty provision required is reviewed on a product by product basis and adjusted accordingly in light

of actual experience.

(k) Unit based payment and long-term incentive plan:

The Fund issues Unit based awards to certain employees, directors and Trustees under the Fund’s Unit

option plan (see note 10) and long term incentive plan (“LTIP”). Under the terms of the LTIP, 15% to

20% of distributable cash in excess of an established threshold may be set aside, subject to approval of

the Fund’s compensation committee, to purchase Units of the Fund, as required, in the market for the

LTIP participants.

The expense of the Unit based awards is determined based on the fair value of the liability at the end of

the reporting period until the awards are settled.

(l) Finance costs:

Finance costs comprise interest expense on borrowings, changes in fair value of financial assets,

financial liabilities and derivatives at fair value through profit or loss.

(m) Employee benefits:

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed

contributions into a separate entity and will have no legal or constructive obligation to pay further

amounts. Obligations for contributions to defined contribution pension plans are recognized as an

employee benefit expense in profit or loss in the periods during which services are rendered by

employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a

reduction in future payments is available. Contributions to a defined contribution plan that are due more

than 12 months after the end of the period in which the employees render the service are discounted to

their present values.


15


(n) Provisions:

A provision is recognized if, as a result of a past event, the Fund has a present legal or constructive

obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be

required to settle the obligation. Provisions are determined by discounting the expected future cash

flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks

specific to the liability. The unwinding of the discount is recognized as finance cost.

(o) Financial instruments:

(i) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted

in an active market. The Fund initially recognizes loans and receivables on the date that they

originate. The loans and receivables are derecognized when the contractual rights to the cash

flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the

financial asset in a transaction in which substantially all the risks and rewards of ownership of the

financial asset are transferred. Such assets are recognized initially at fair value plus any directly

attributable transaction costs. Subsequent to the initial recognition, loans and receivables are

measured at amortized cost using the effective interest method, less any impairment losses.

Assets in this category include accounts receivable and cash and cash equivalents. Cash and

cash equivalents consist of cash on hand and balance, plus short term investments with stated

maturity dates of 90 days or less.

(ii) Financial liabilities at fair value through profit or loss:

Financial instruments in this category are recognized initially and subsequently at fair value.

Transaction costs are expensed in the statement of comprehensive income. Gains and losses

arising from changes in fair value are presented in the statement of comprehensive income within

finance costs in the period in which they arise. Financial liabilities at fair value through profit or loss

are classified as current except for the portion expected to be realized or paid beyond twelve

months of the date of the statement of financial position, which are classified as non-current. The

Fund has the following financial liabilities at fair value through profit or loss: 2010 Debentures,

2011 Debentures and exchangeable units.

(iii) Non-derivative financial liabilities:

The Fund initially recognizes debt securities issued and subordinated liabilities on the date that

they originate. All other financial liabilities are recognized initially on the trade date at which the

Fund becomes a party to the contractual provisions of the instrument.


16


(o) Financial instruments (continued):

(iii) Non-derivative financial liabilities (continued):

The Fund derecognizes a financial liability when its contractual obligations are discharged or

cancelled or expired. Financial assets and liabilities are offset and the net amount presented in the

statement of financial position when, and only when, the Fund has a legal right to offset the

amounts and intends either to settle on a net basis or to realize the asset and settle the liability

simultaneously. Such financial liabilities are recognized initially at fair value plus any directly

attributable transaction costs. Subsequent to initial recognition, these financial liabilities are

measured at amortized cost using the effective interest method.

Interest, losses and gains relating to the financial liability are recognized in profit or loss.

The Fund has the following non-derivative financial liabilities: operating loans, accounts payable

and accrued liabilities, distributions payable, capital and acquisition loans, equipment financing

payable, term mortgage, and loan from non-controlling interest.

(iv) Financial derivatives not using hedge accounting:

The Fund holds derivative financial instruments at times to hedge its interest rate exposure.

Financial derivatives not using hedge accounting are recognized initially at fair value; attributable

transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition,

derivatives are recognized at fair value and changes therein are accounted for in profit or loss.

(v) Fair value hierarchy:

Fair value measurements recognized in the statement of financial position are categorized in

accordance with the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

Level 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

(p) Segment reporting:

The Fund’s operating segments are organized based on the operating structure of the Fund’s business

and are reported in a manner consistent with the internal reporting provided to the chief operating

decision maker (“CODM”). The chief executive officer has authority for resource allocation and

assessment of the Fund’s performance and is therefore the CODM.


17

4. Property and equipment: Tractors Furniture, Rental and fixtures and Computer Leasehold fleet Building Land trailer equipment equipment improvements Total

Cost: January 1, 2010 $ 35,913 $ 128 $ 481 $ 1,972 $ 1,157 $ 147 $ 401 $ 40,199 Business acquisition 7,572 - - 718 74 80 - 8,444

Additions 7,205 - - 1,030 208 - 60 8,503 Disposals (2,705) - - (32) (7) (74) - (2,818)

December 31, 2010 47,985 128 481 3,688 1,432 153 461 54,328 Business acquisition 16,921 - - 53 1,042 33 33 18,082

Additions 15,632 1,165 116 1,420 533 100 798 19,764 Disposals (4,462) - - (194) (251) - (13) (4,920) Fully depreciated assets (952) - - - - - - (952)

December 31, 2011 $ 75,124 $ 1,293 $ 597 $ 4,967 $ 2,756 $ 286 $ 1,279 $ 86,302

Accumulated depreciation: January 1, 2010 $ 9,860 $ 13 $ - $ 418 $ 328 $ 59 $ 138 $ 10,816 Depreciation 7,922 6 - 399 266 72 87 8,752 Disposals (879) - - (32) (1) - - (912)

December 31, 2010 16,903 19 - 785 593 131 225 18,656 Depreciation for the period 9,551 22 - 607 350 90 206 10,826

Disposals (1,512) - - (19) (130) (6) - (1,667) Fully depreciated assets (952) - - - - - - (952)

December 31, 2011 $ 23,990 $ 41 $ - $ 1,373 $ 813 $ 215 $ 431 $ 26,863

Carrying amount: January 1, 2010 $ 26,053 $ 115 $ 481 $ 1,554 $ 829 $ 88 $ 263 $ 29,383 December 31, 2010 31,082 109 481 2,903 839 22 236 35,672 December 31, 2011 51,134 1,252 597 3,594 1,943 71 848 59,439

A general security agreement providing a charge over all the assets of the Fund has been provided as

collateral to the bank.

For the year ended December 31, 2011, the Fund acquired $652 of assets under finance lease (2010 -

$515). The net exchange difference arising from the translation of a foreign operation into the presentation

currency for the year ended December 31, 2011 was $43 (2010 - $nil).


18

5. Goodwill and intangible assets: Customer Brand Franchise Non-compete Goodwill relationships names agreement agreement Software Total

Cost: January 1, 2010 $ 8,430 $ 27,517 $ 782 $ 1,164 $ 3,064 $ 224 $ 41,181 Additions - - - - - 109 109 Fully amortized intangible assets - - - - (49) - (49)

Impairment - - - (1,164) - - (1,164) Acquisition 1,063 2,637 - - 136 - 3,836

December 31, 2010 9,493 30,154 782 - 3,151 333 43,913 Additions - - - - - 11 11 Fully amortized intangible assets - - - - (3,151) - (3,151)

Impairment (561) - - - - - (561) Acquisition 37,534 14,677 15,895 - 1,400 - 69,506 December 31, 2011 $ 46,466 $ 44,831 $ 16,677 $ - $ 1,400 $ 344 $ 109,718

Accumulated amortization: January 1, 2010 $ - $ 6,580 $ - $ 181 $ 1,412 $ 71 $ 8,244 Amortization - 2,950 - 73 1,114 10 4,147 Fully amortized intangible assets - - - - (49) - (49)

Impairment - - - (254) - - (254)

December 31, 2010 - 9,530 - - 2,477 81 12,088 Amortization - 3,871 - - 838 66 4,775 Fully amortized intangible assets - - - - (3,151) - (3,151)

December 31, 2011 $ - $ 13,401 $ - $ - $ 164 $ 147 $ 13,712

Carrying amount: January 1, 2010 $ 8,430 $ 20,937 $ 782 $ 983 $ 1,652 $ 153 $ 32,937 December 31, 2010 9,493 20,624 782 - 674 252 31,825 December 31, 2011 46,466 31,430 16,677 - 1,236 197 96,006

As at December 31, 2011, all goodwill and intangible assets held by the Fund were acquired as part of

business combinations. Amortization was recognized in general and administrative expenses in the

statement of comprehensive income.

The customer relationship and non-compete agreements had remaining useful lives of 4.5 to 9.5 years, and

4.5 years, respectively.

Brand names are related to previous business acquisitions. Based on the expected future use of the brand

names, they have been assigned an indefinite life. All other intangible assets’ useful lives are finite.

For the purpose of impairment testing, goodwill is allocated to the Fund’s CGUs. CGUs are the Fund’s

operating divisions that represent the lowest level within the Fund at which the goodwill is monitored for

internal management purposes. CGUs are sub-levels of the Fund’s operating segments.


19

5. Goodwill and intangible assets (continued):

The aggregate carrying amounts of goodwill allocated to each CGU are as follows:

December 31, December 31, January 1, 2011 2010 2010

WEQ Old Country Rentals LP $ 2,166 $ 2,166 $ 2,166 WEQ C&N Rentals LP - 561 561 WEQ Deerfoot Rentals LP 1,827 1,827 764 WEQ Heat & Propane LP 4,939 4,939 4,939 WEQ Britco LP - manufacturing 33,782 - - WEQ Britco LP - leasing 3,752 - -

$ 46,466 $ 9,493 $ 8,430

The aggregate carrying amounts of intangibles with indefinite lives allocated to each CGU are as follows:


WEQ Heat & Propane LP $ 782 $ 782 $ 782 WEQ Britco LP - manufacturing 14,346 - - WEQ Britco LP - leasing 1,549 - -

$ 16,677 $ 782 $ 782

The Fund performed its annual test for goodwill impairment during 2011 in accordance with its policy

described in note 3. The recoverable value of each CGU was determined based on the higher of its fair

value less cost to sell and its value in use. The fair value less cost to sell was determined based on the

predicted future earnings and the applicable earnings based purchase price multiple for merger and

acquisition transactions. The value in use of a CGU was determined by discounting the predicted future

cash flows generated from the continuing operation of the CGU. For the 2011 annual goodwill impairment

test, the recoverable value for each CGU was determined based on the value in use. As a result of the

changes in discount rates and a slower than anticipated recovery from the economic downturn, a goodwill

impairment of $561 was recognized in 2011 for one of the Fund’s CGUs. In 2010, impairment on intangible

assets of $910 was recognized as a result of terminating a franchise agreement.

For the 2011 annual goodwill impairment test, revenue, operating margins and cash flows for each CGU in

the next five years were projected and perpetual long term growth rates from 2.5% were applied thereafter.

In arriving at the forecasts, past experience, actual operating results, expected growth and inflation as well

as industry and market trends were considered.

Discount rates based on each CGU’s weighted average cost of capital were used to calculate the present

value of the CGU’s future cash flows. The discount rates ranged from 14% to 17%.


20

6. Inventories:

For the year ended December 31, 2011, changes in inventory recognized as cost of sales amounted to

$47,296 (2010 - $10,088) and the write-down of inventories to net realizable value amounted to $nil (2010 -

$nil).

2011 2010

Raw materials $ 3,471 $ - Work in progress 9,052 - Finished goods 2,437 2,059

$ 14,960 $ 2,059

As at December 31, 2011, the Fund’s operating loan was secured by 50% of the Fund’s acceptable

inventory balance (as defined in the operating loan agreement).

The Fund’s construction contract revenue was derived from the manufacture of modular buildings and

amounted to $46,005 for the year ended December 31, 2011 (2010 - $nil).


21

7. Credit facilities:

The Fund’s credit facilities consist of the following:

December 31, December 31, 2011 2010 Approved Carrying value Carrying value

Operating loans $ 5,750 $ 2,456 $ 2,608

Capital loans:

Non-revolving 1,180 1,180 1,639 Revolving:

Loan #1 14,500 5,092 6,089 Loan #2 - 1,807 2,089 Loan #3 - 585 720 Loan #4 - 1,359 1,691 Loan #5 - 773 972 Loan #6 - - 693 Loan #7 - 1,111 - Loan #8 - 673 - Loan #9 - 529 - Loan #10 - 888 - Loan #11 - 991 - Other - - 969

15,680 14,988 14,862 Acquisition loans:

Loan #1 4,896 4,896 6,255 Loan #2 7,580 7,580 9,328 Loan #3 32,634 32,634 -

45,110 45,110 15,583

Capital and acquisition loans 60,790 60,098 30,445

Total credit facilities $ 66,540 $ 62,554 $ 33,053

The following amounts were outstanding as at January 1, 2010: operating loans of $1,741; capital loans of

$10,248; acquisition loans of $22,520 for total credit facilities of $34,509.


22

7. Credit facilities (continued):

The following table illustrates the funding dates, maturity dates and interest rates as at December 31, 2011

for the capital and acquisition loans described above:

Interest rate at Loan Funding date Maturity date December 31, 2011

Non-revolving February 15, 2008 September 1, 2013 4.20% Revolving:

Loan #1 July 2, 2010 July 2, 2014 4.00% Loan #2 July 2, 2010 July 2, 2015 4.50% Loan #3 September 14, 2010 September 1, 2015 4.50% Loan #4 September 15, 2010 September 1, 2015 4.30% Loan #5 September 28, 2010 September 28, 2015 4.50% Loan #7 June 20, 2011 June 20, 2016 4.50% Loan #8 June 20, 2011 June 20, 2016 4.50% Loan #9 July 13, 2011 July 12, 2016 4.70% Loan #10 August 10, 2011 August 10, 2016 4.70% Loan #11 October 6, 2011 October 6, 2016 4.70%

Acquisition loans:

Loan #1 February 15, 2008 February 14, 2013 4.30% Loan #2 October 1, 2008 September 30, 2013 4.30% Loan #3 May 31, 2011 May 30, 2016 4.30%

A single Canadian chartered bank (the “Bank”) has made the above credit facilities available to various

entities indirectly owned by the Fund to finance day-to-day operations, capital expenditures, and

acquisitions.

The Bank has provided the operating loans payable upon demand. The operating loans are at the Bank’s

prime rate plus 1.00% and are secured by 50% of acceptable inventory and 75% of acceptable accounts

receivable (as defined in the operating loan agreement), minus priority claims. The operating loan has no

stated maturity date and is due on demand.

The capital and acquisition loans are repayable on demand, and unless and until demanded in monthly

installments with interest, at the Fund’s option, at the Bank’s prime rate plus a range of 1.20% to 1.70%, or

the Bank’s banker’s acceptance rate plus a stamping fee with a range of 2.70% to 3.20%. Unless repaid on

demand to the Bank, the non-revolving capital loan shall be repaid in full by September 1, 2013. Unless

repaid on demand to the Bank, the revolving capital and acquisition loans shall be repaid in full on the fourth

or fifth anniversary of the date of such advance made. The costs of obtaining the capital and acquisition

loans are being amortized over the terms of the respective loans, resulting in an effective interest rate for the

year ended December 31, 2011 of 4.32% (2010 - 4.53%) for the capital loans and 4.34% (2010 - 4.61%) for

the acquisition loans.

On August 10, 2011, the Fund entered into an interest rate swap with the Bank. The swap had a three-year

term, a notional value of $20,000 at the commencement of the swap, and a fixed rate of 1.43% plus a

stamping fee of 3.00% as at December 31, 2011. The Fund has not applied hedge accounting to this swap,

and as a result recorded a financial derivative liability of $137 based on the fair value of the swap at


23

7. Credit facilities (continued):

December 31, 2011. The Fund marks the value of this derivative to market every quarter, and any resulting

gains/losses are recorded in net income. In accordance with Level 2 of the fair value hierarchy, the fair value

of the interest rate swap is determined based on inputs that are readily available in public markets or can be

derived from information available in publicly quoted markets.

The fair value of the interest rate swap was determined by discounting the future expected net cash flows of

the fixed and variable interest payments using observable market data. The Fund’s credit risk was

considered in the fair value calculation of the interest rate swap.

The credit facilities have covenants specifying a minimum current ratio of 1.25 to 1.0, a maximum funded

debt to earnings (as defined in the credit facilities agreement) ratio of 3.0 to 1.0, a minimum debt service

coverage ratio of 1.25 to 1.0, and a restriction on increases in distributions to Unitholders and future

acquisitions without prior written consent of the Bank. For purposes of calculating the current ratio, 25% of

the capital and acquisition loans that are due within one year are included in current liabilities. As at

December 31, 2011 the Fund was in compliance with all bank covenants.

A general security agreement providing a charge over all assets of the Fund has been provided as collateral

to the Bank.

Assuming that the contractual requirements of the capital and acquisition loans are met, and the demand

feature is not exercised by the Bank, the required minimum principal repayments are as follows:

2012 $ 10,641 2013 16,973 2014 9,616 2015 7,749 2016 15,341

60,320 Balance of transaction costs to amortize (222)

$ 60,098

8. Deferred income tax:

On January 1, 2011, legislative changes to the tax treatment of income trusts (the “SIFT Tax”) became

effective. Under SIFT Tax legislation, the Fund is subject to tax at the prevailing corporate rate beginning on

January 1, 2011. The SIFT Tax rate is 26.5% for 2011 and 25% for 2012 and later taxation years.

Deferred income taxes are recorded on temporary differences arising between the accounting and tax bases

of assets and liabilities. The Fund recorded a deferred income tax recovery of $1,242 for the year ended

December 31, 2011 (2010 - $1,313) and a corresponding change in the deferred income tax asset from

$7,868 at December 31, 2010 to $9,111 at December 31, 2011. This expense had no impact on the Fund’s

cash flow for the year.


24

8. Deferred income tax (continued):

The reconciliation to statutory tax rate is as follows:

2011 2010

Loss before income taxes $ (21,157) $ (16,380)

Statutory tax rate(1) 26.5% 28.2% Expected tax recovery $ (5,607) $ (4,619) Amounts not deductible for tax purposes 4,365 4,619 Increase in future income tax recovery resulting from a change

during the period in temporary differences expected to reverse after 2011 - (1,313)

Deferred income tax recovery $ (1,242) $ (1,313)

(1) Statutory tax rate is the sum of: (i) the federal statutory tax rate and (ii) the weighted average of the provincial statutory

tax rate of BC and Alberta based on the proportion of revenue generated from each province.

The Fund’s consolidated effective tax rate is mainly affected by changes in the fair value of convertible

debentures and distributions to Unitholders, which are non-deductible expenses for tax purposes.

The tax effect of temporary differences that give rise to the deferred income tax asset are as follows:


Deferred income tax asset (liability):

Issue costs $ 1,339 $ 598 $ 236 Intangible assets 3,083 3,238 2,690 Property and equipment 4,685 4,034 3,576 Others 4 (2) 54

$ 9,111 $ 7,868 $ 6,556

9. Fund Units:

An unlimited number of Units may be created and issued by the Fund pursuant to the Fund’s declaration of

trust. Each Unit is transferable and represents an equal undivided beneficial interest in any distributions

from the Fund. The Units are not subject to future calls or assessments, and entitle the Unitholders thereof

to one vote at all meetings of voting Unitholders. The Units are redeemable at any time on demand by the

holders thereof, in accordance with certain terms and conditions, including total cash redemptions in any

one month cannot exceed $50 without the authorization of the Trustees of the Fund. Redemptions in

excess of this limitation are to be paid by way of a distribution in specie of assets of the Fund. The Fund’s

Units have no set par value.


25

9. Fund Units (continued):

As at January 1, 2010, the Units were classified as financial liabilities as the Units are redeemable and the

Fund’s declaration of trust contains a mandatory annual distribution requirement to distribute all

undistributed income within the Fund, which constitutes a contractual obligation to deliver cash under IAS

32, Financial Instruments: Presentation. On June 6, 2011, the Fund’s Unitholders approved the amendment

of certain terms of the Fund’s declaration of trust, effective June 30, 2011. This amendment removed the

mandatory annual distribution requirement of the Units. As a result of this amendment, although the Units

remained as puttable instruments, they met the definition of equity instruments under IAS 32 and therefore,

the Units were reclassified to equity from liabilities on a carryover basis on June 30, 2011.

Subsequent to the reclassification of Units from liabilities to equity, the Fund measures the Units at

amortized cost and distributions are recorded directly to Unitholders’ equity. All issued Units are fully paid.

On November 29, 2011, the Fund issued 929,150 Units for net proceeds of $4,971 after deducting issuance

costs of $57.

The following table summarizes the changes to the Units for the year ended December 31, 2011:

Fund Units and Exchangeable exchangeable Fund Units units Issued capital units(1)(2)(3) outstanding outstanding(2)

Balance as at January 1, 2010 $ 46,341 13,838,634 125,000 Increase in fair value of exchangeable units 23 - - Issuance of Units from conversion of debentures 223 50,386 -

Balance as at December 31, 2010 46,587 13,889,020 125,000 Issuance of Units from conversion of debentures 20,077 3,360,632 - Issuance of Units from offering 4,971 929,150 - Options exercised 336 54,000 - Increase in fair value of exchangeable units 253 - - Balance as at December 31, 2011 $ 72,224 18,232,802 125,000

(1) Amounts are net of transaction costs where applicable. (2)

On February 15, 2008, pursuant to the acquisition of the assets of Deerfoot Equipment Rental Inc., WEQ Deerfoot Rentals LP, an indirect subsidiary of the Fund, issued 125,000 exchangeable units (“exchangeable units”) at $4.00 per unit for net proceeds of $500. Under the terms of the exchange agreement dated February 15, 2008, the exchangeable units are convertible to Units of the Fund on a one-for-one basis at the option of the holder. The exchangeable units do not have voting rights, but have economic rights equivalent to the Fund’s Units. The exchangeable units are measured at fair value through profit and loss based on Level 2 of the fair value hierarchy.

(3) Amount includes the exchangeable units of $748 as at December 31, 2011.


26

10. Unit based compensation:

Since August 14, 2006, the Fund has had the 2006 Incentive Unit Option Plan (the “Option Plan”) in place

for its senior executives, directors, Trustees and certain employees and can issue Units according to the

criteria detailed in the Fund’s declaration of trust. Pursuant to the Option Plan, Unit options of up to 10% of

the issued and outstanding Units can be reserved for issuance on a rolling basis. As at December 31, 2011,

a maximum of 1,823,280 Unit options were reserved for issuance, of which 285,780 Unit options were

available for grant. The options to acquire Units represent an option to acquire a puttable instrument, and as

a result, grants under this plan are classified as cash settled awards and are accounted for according to the

fair value based method of accounting for Unit based compensation and the number of options expected to

be vested. The maximum term of an option is 10 years from the date of grant.

On February 10, 2010, the Fund’s board of Trustees granted options to senior executives, directors,

Trustees and certain employees to purchase, in aggregate, 503,000 Units under the Option Plan. Each

option provides the holder with the right for up to ten years to purchase one Unit at an exercise price of

$4.30. Vesting of the options occurs equally over the next five years.

On May 10, 2011, the Fund’s board of Trustees granted options to certain employees to purchase in

aggregate, 165,000 Units under the Option Plan and 135,000 Units under a special option grant. Each

option provides the holder with the right for up to 10 years to purchase one Unit at an exercise price of

$5.89. Vesting of the options occurs equally over the next five years of employment with the Fund.

On May 10, 2011, the Fund’s board of Trustees granted rights to certain employees to receive, in aggregate,

76,500 Units from the Fund (the “Unit Rights”). These rights will be vested and the related Units will be

issued on May 30, 2012.

On August 24, 2011, the Fund’s board of Trustees granted options to senior executives, directors, Trustees

and certain employees to purchase, in aggregate, 364,500 Units under the Option Plan. Each option

provides the holder with the right for up to 10 years to purchase one Unit at an exercise price of $5.97.

Vesting of the options occurs equally over the next five years of employment with the Fund.

On December 14, 2011, the Fund’s board of Trustees granted options to certain employees to purchase, in

aggregate, 105,000 Units under the Option Plan. Each option provides the holder with the right for up to 10

years to purchase one Unit at an exercise price of $6.29. Vesting of the first one fifth of the options occurred

immediately on the grant date while vesting of the remaining options occurs over the next four years.


27

10. Unit based compensation (continued):

A summary of the details of the options granted is as follows:

Number of Weighted average options Exercise price exercise price

Outstanding, at January 1, 2010 463,000 $ 4.90 $ 4.90 Granted 503,000 4.30 4.30 Exercised - - - Forfeited (9,000) 4.30-4.90 4.57

Outstanding, at December 31, 2010 957,000 4.30-4.90 4.59 Granted 769,500 5.89-6.29 5.98 Exercised (54,000) 4.30-6.29 5.19 Forfeited - - -

Outstanding, at December 31, 2011 1,672,500 $ 4.30-6.29 $ 5.21

Weighted average fair value of options outstanding at December 31, 2011 $ 1.19 Weighted average Unit price of options exercised during 2011 $ 6.18

The following table summarizes the additional information relating to the options outstanding at

December 31, 2011:

Outstanding Options Options Exercisable Number Weighted Number outstanding average Weighted exercisable Weighted Range of December 31, remaining average December 31, average exercise price 2011 contractual life exercise price 2011 exercise price

$ 4.90 449,000 6.5 years $ 4.90 265,800 $ 4.90 4.30 475,000 8.1 years 4.30 76,600 4.30 5.89 300,000 9.4 years 5.89 - - 5.97 364,500 9.7 years 5.97 - - 6.29 84,000 9.9 years 6.29 - -


28

10. Unit based compensation (continued):

The Fund expenses the fair value of the Unit options that are expected to vest over the vesting period. The

fair value of each option granted is estimated at the end of each reporting period using the Black-Scholes

options pricing model. Expected volatility is estimated by considering historic average Unit price volatility.

The following table illustrates the assumptions:

Annual dividend Expected Grant date Unit Exercise yield Risk-free remaining life of options price price of options Volatility interest rate of the options

December 31, 2011: July 9, 2008 $6.65 $4.90 9.02% 42.79% 1.52% 6.5 years February 10, 2010 6.65 4.30 9.02% 42.79% 1.52% 8.1 years May 10, 2011 6.65 5.89 9.02% 42.79% 1.96% 9.4 years August 24, 2011 6.65 5.97 9.02% 42.79% 1.96% 9.7 years December 14, 2011 6.65 6.29 9.02% 42.79% 1.96% 9.9 years

December 31, 2010: July 9, 2008 $4.40 $4.90 13.64% 44.71% 2.73% 7.5 years February 10, 2010 4.40 4.30 13.64% 44.71% 3.16% 9.1 years

The Fund expenses the fair value of Unit Rights that are expected to vest over the vesting period. The fair

value of each Unit Right is estimated at the end of each reporting period based on the closing price of the

Units at the Toronto Stock Exchange (the “Exchange”).

For the year ended December 31, 2011, the Fund recognized $1,276 of Unit based compensation expense

(2010 - $111). At December 31, 2011, the Fund recorded a liability for cash-settled Unit based

compensation of $1,426 (2010 - $207). The intrinsic value of the vested awards outstanding as at

December 31, 2011 was $645 (2010 - $nil).


29

11. Operating lease commitments:

The Fund, through its indirectly owned subsidiaries, has entered into operating lease agreements for certain

operating assets.

Non-cancellable operating lease rentals are payable as follows:


Less than one year $ 4,953 $ 2,220 $ 1,918 Between one and five years 13,932 4,776 4,630 More than five years 2,077 2,632 3,184

$ 20,962 $ 9,628 $ 9,732

For the year ended December 31, 2011, an amount of $3,995 was recognized as an expense in profit or

loss in respect of operating leases (2010 - $2,334).

The Fund’s most significant operating leases are related to land and building with no purchase options.

Certain of the land and building operating leases have renewal options.

12. Finance lease commitments:

The Fund, through its indirectly owned subsidiaries, has entered into finance lease agreements for certain

assets that are part of the property and equipment. All finance lease agreements have the option or

requirement to purchase the assets with a pre-determined price or market price at the end of the lease.

These assets are being amortized consistent with the fund’s amortization policy (see note 3), and as at

December 31, 2011 had a net carrying value of $1,139.

Finance lease liabilities are payable as follows:

December 31, 2011 December 31, 2010 January 1, 2010 Present Present Present Future value of Future value of Future value of minimum minimum minimum minimum minimum minimum lease lease lease lease lease lease payments payments payments payments payments payments

Less than one year $ 386 $ 314 $ 219 $ 162 $ 170 $ 146 Between one and five

years 907 825 623 570 305 268

$ 1,293 $ 1,139 $ 842 $ 732 $ 475 $ 414


30

13. Debentures:

(a) Series A Debentures:

On July 29, 2011, the Fund redeemed all outstanding Series A Debentures.

(b) 2010 Debentures:

On February 26, 2010, the Fund completed a public offering of 27,600 8.50% unsecured convertible

subordinated debentures (the “2010 Debentures”) at $1,000 per debenture, for gross proceeds of

$27,600. The 2010 Debentures will mature on December 31, 2015.

On and after December 31, 2013 and prior to December 31, 2014, the 2010 Debentures are

redeemable in whole or in part from time to time at the Fund’s option at par plus accrued and unpaid

interest, provided that the volume-weighted average trading price of the Units on the Exchange during

the 20 consecutive trading days ending on the fifth trading day preceding the date on which notice of

redemption is given is not less than 125% of the conversion price of $5.25 per Unit. On and after

December 31, 2014, the 2010 Debentures are redeemable at the Fund’s option at any time at par plus

accrued and unpaid interest. The redemption can be settled in cash or through the issuance of Units.

At maturity on December 31, 2015, the Fund has the option, upon not more than 60 nor less than 40

days’ prior notice, to satisfy its obligations to pay on maturity, the principal amount of the 2010

Debentures, in whole or in part, by delivering freely tradeable Units. Any accrued and unpaid interest

will be paid in cash. In such event, payment will be satisfied by delivering for each $1 due, that number

of freely tradeable Units obtained by dividing $1 by 95% of the volume-weighted average trading price

of the Units on the Exchange for the 20 consecutive trading days ending five trading days prior to the

date of maturity.

The 2010 Debentures are convertible at the holder’s option into fully paid Units at any time prior to the

close of business on the earlier of maturity and the business day immediately preceding the date fixed

for redemption by the Fund at a conversion price of $5.25 per Unit, subject to anti-dilutive provisions.

The Fund has elected to measure the 2010 Debentures at fair value through profit or loss, with the fair

value based on the closing price at the Exchange as at the end of each financial period.

Cash financing costs in the amount of $1,733 were incurred in the issuance of the 2010 Debentures.

The financing costs were expensed when incurred.


31

13. Debentures (continued):

(b) 2010 Debentures (continued):

The following summarizes the face and carrying value of the 2010 Debentures at December 31, 2010

and December 31, 2011:

Face value Carrying value

Balance as at December 31, 2010 $ 27,600 $ 27,876 Conversion to Units (5,886) (6,910) Mark to market as at December 31, 2011 - 6,177

Balance as at December 31, 2011 $ 21,714 $ 27,143

The payment of the principal of, and interest on, the 2010 Debentures are subordinated in right of

payment to all senior obligations of the Fund, including all senior security and Series A Debentures.

The 2010 Debentures rank pari passu with other series of debentures issued under the trust indenture

of the 2010 Debentures, and rank senior to the Units.

As at December 31, 2011, the fair value of the 2010 Debentures was $27,143 (2010 - $27,876), which

was determined using the closing price at the Exchange as at December 31, 2011 in accordance with

Level 1 of the fair value hierarchy.

(c) 2011 Debentures:

The Fund completed a public offering on June 1, 2011 of 75,000 and an overallotment on June 6, 2011

of 11,250 8.00% extendible convertible series 2 unsecured subordinated debentures (collectively, the

“2011 Debentures”) at $1 per debenture, for gross proceeds of $86,250. The 2011 Debentures will

mature on June 30, 2018.

On and after June 30, 2014 and prior to June 30, 2016, the 2011 Debentures are redeemable in whole

or in part from time to time at the Fund’s option at par plus accrued and unpaid interest, provided that

the volume-weighted average trading price of the Units on the Exchange during the 20 consecutive

trading days ending on the fifth trading day preceding the date on which notice of redemption is given is

not less than 125% of the conversion price of $7.50 per Unit. On and after June 30, 2016, the 2011

Debentures are redeemable at the Fund’s option at any time at par plus accrued and unpaid interest.

The redemption can be settled in cash or through the issuance of Units.

At maturity on June 30, 2018, the Fund has the option, upon not more than 60 nor less than 40 days’

prior notice, to satisfy its obligations to pay on maturity, the principal amount of the 2011 Debentures, in

whole or in part, by delivering freely tradeable Units. Any accrued and unpaid interest will be paid in

cash. In such event, payment will be satisfied by delivering for each $1 due, that number of freely

tradeable Units obtained by dividing $1 by 95% of the volume-weighted average trading price of the

Units on the Exchange for the 20 consecutive trading days ending five trading days prior to the date of

maturity.


32

13. Debentures (continued):

(c) 2011 Debentures (continued):

The 2011 Debentures are convertible at the holder’s option into fully paid Units at any time prior to the

close of business on the earlier of maturity and the business day immediately preceding the date fixed

for redemption by the Fund at a conversion price of $7.50 per Unit, subject to anti-dilutive provisions.

The Fund has elected to measure the 2011 Debentures at fair value through profit or loss, with the fair

value based on the closing price at the Exchange as at the end of each financial period.

Cash financing costs in the amount of $4,885 were incurred in the issuance of the 2011 Debentures.

The financing costs were expensed when incurred.

The following summarizes the face and carrying value of the 2011 Debentures at December 31, 2011:

Face value Carrying value

Issuance in June 2011 $ 86,250 $ 86,250 Mark to market as at December 31, 2011 - (1,294)

Balance as at December 31, 2011 $ 86,250 $ 84,956

The payment of the principal of, and interest on, the 2011 Debentures are subordinated in right of

payment to all senior obligations of the Fund, including all senior security. The 2011 Debentures rank

pari passu with other series of debentures issued under the trust indenture of the 2011 Debentures, and

rank senior to the Units.

As at December 31, 2011, the fair value of the 2011 Debentures was $84,956 (2010 - $nil), which was

determined using the closing price at the Exchange as at December 31, 2011 in accordance with

Level 1 of the fair value hierarchy.

14. Financial instruments:

(a) Comparison of fair value to carrying value:

Financial instruments consist of cash and cash equivalents, accounts receivable, financial derivatives,

operating loans, accounts payable and accrued liabilities, distributions payable, capital and acquisition

loans, mortgage payable, equipment financing payable, 2010 Debentures, 2011 Debentures and

exchangeable units. The carrying values of the financial instruments, except for the financial

derivatives, capital and acquisition loans, mortgage payable, equipment financing payable, 2010

Debentures, 2011 Debentures and exchangeable units, are considered to approximate their fair values

due to their short term nature. The face values of the capital and acquisition loans approximate their

fair values as they are due on demand. The fair value of exchangeable units is based on observable

market prices and is disclosed in note 9. The fair values of the 2010 Debentures and 2011 Debentures

are also based on observable market prices and are disclosed in note 13. The carrying and fair values

of the financial derivatives, mortgage payable and equipment financing payable are not considered

material to these financial statements.


33

14. Financial instruments (continued):

(b) Credit risk:

Credit risk is the risk of financial loss to the Fund if a customer or counterparty to a financial instrument

fails to meet its contractual obligation. The maximum exposure to credit risk is the full carrying value of

the financial instrument.

The Fund is exposed to credit risk with respect to its trade receivables, particularly from customers in

the construction and resource industries in British Columbia and Alberta due to the Fund’s

concentration of business in these sectors. The Fund mitigates the risk by means of a diverse customer

base in the construction (industrial, commercial, infrastructure, and residential), resource (oil & gas,

mining and forestry) as well as other sectors. As at December 31, 2011, two of the Fund’s accounts

receivable balances were in excess of 10% of the Fund’s consolidated accounts receivable balance. In

assessing the credit risks in relation to these two accounts receivable balances, management

considered the financial health of the respective companies in terms of working capital position,

financial leverage, ability to generate operating cash flow, revenue base and profitability. Management

also reviewed the payment history and average collection cycle of these accounts and made provisions

where necessary. In general, the Fund mitigates the risk by following a program of credit evaluations of

customers and limits the amount of credit extended when deemed necessary.

The allowance for doubtful accounts in respect of trade receivables is used to record impairment losses

unless the Fund is satisfied that a recovery of the amount owing is extremely remote, at which point the

amounts are considered irrecoverable and are written off against the trade receivables directly.

Objective evidence that trade receivables are impaired can include default or delinquency by a debtor

and indications that a debtor will enter bankruptcy.

Aging of receivables is as follows:


Trade receivables, gross:

Outstanding 1 - 30 days $ 6,297 $ 5,029 $ 3,852 Outstanding 30 - 60 days (past due) 7,745 2,630 1,276 Outstanding over 60 days (past due) 2,772 824 697

16,814 8,483 5,825 Allowance for doubtful accounts (466) (163) (239)

Trade receivables, net 16,348 8,320 5,586 Sales tax and other receivables 1,871 1,156 553

Accounts receivable $ 18,219 $ 9,476 $ 6,139


34


(b) Credit risk (continued):

The movement in the allowance for doubtful accounts in respect of trade receivables during the years

ended December 31, 2011 and 2010 were as follows:

2011 2010

Balance as at January 1 $ 163 $ 239 Acquisition 277 - Bad debt expenses 559 154 Wrote-off against trade receivables (533) (230)

Balance as at December 31 $ 466 $ 163

Based on historical default rates, the Fund believes that no impairment allowance is necessary in

respect of trade receivables that are not past due.

(c) Liquidity risk:

Liquidity risk is the risk that the Fund will not be able to meet its obligations as they fall due.

The Fund manages its liquidity risk through cash and debt management including monitoring debt

covenants and timely collection of accounts receivables. As at December 31, 2011, the Fund had

available unused approved credit facilities of $3,986. The Fund also has accounts receivable of

$18,219, and cash and cash equivalents totalling $13,041.

A centralized treasury function ensures that the Fund maintains funding flexibility by assessing future

cash flow expectations and by maintaining sufficient headroom on its committed borrowing facilities.

Cash flow estimates are based on rolling forecasts of operating, investing and financing cash flows.

Such forecasting also takes into account borrowing limits, cash restrictions and compliance with debt

covenants.

Cash which is surplus to working capital requirements is managed by the centralized treasury function

which invests it in money market funds or bank money market deposits, choosing maturities which are

aligned with expected cash needs based on the rolling forecast process.

While the Fund has a long term contractual repayment schedule for the capital and acquisition loans, as

described in note 7, these loans are repayable upon demand, which creates a liquidity risk. The Fund

uses these demand loans in order to minimize interest expense and believes it could convert these

loans into long term if desired, albeit with a higher interest cost. In 2010, the Fund successfully

renegotiated these loans. As at December 31, 2011, the Fund was in compliance with all bank

covenants, made all required principal repayments, and consistently generated positive cash flow from

operations.


35


(c) Liquidity risk (continued):

Based on the performance of the Fund to date, the renegotiation of the capital and acquisition loans

during 2010, and the support from the Bank to date, the Fund believes that the liquidity risk described

above is minimal and has implemented a number of measures, including regular monitoring of debt

covenants and cash flows in order to support this conclusion.

The timing of estimated cash outflows relating to financial liabilities and finance lease obligations are

outlined in the table below:

Beyond Carrying 1 year 2-3 years 4-5 years 5 years Total value

Non-derivative financial statements:

Accounts payable and accrued liabilities 16,032 - - - 16,032 16,032

Distributions payable 912 - - - 912 912 Finance leases 386 705 202 - 1,293 1,139 Term mortgage 309 - - - 309 309 Capital and acquisition loans * 60,320 - - - 60,320 60,098

Debentures 8,746 17,491 37,360 96,600 160,197 112,099 Derivative financial liability:

Interest rate swap 61 104 - - 165 137

Total 86,766 18,300 37,562 96,600 239,228 190,726

* As required by IFRS 7, Financial Instruments: Disclosures, due to the demand feature of the Fund’s capital and acquisition loans,

the entire balance payable has been included in the 1 year category even though the Fund has a long term contractual repayment schedule for these loans as described in note 7.

(d) Market risk:

(i) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates.

The Fund’s credit facilities bear interest at variable rates. For the year ended December 31, 2011,

the increase or decrease in net earnings for each one percent change in interest rates on floating

rate debt amounts to $504. The Fund is managing its interest rate risk, in part, through an interest

rate swap (see note 7).

The Fund’s 2010 and 2011 Debentures bear a fixed interest rate of 8.5% and 8.0% respectively,

throughout the term of the debentures and thus are not exposed to any interest rate risk.

The Fund’s mortgage payable bears a fixed interest rate of 6.5% throughout the four-year term and

thus is not exposed to any interest rate risk.


36


(d) Market risk (continued):

(i) Interest rate risk (continued):

The Fund’s equipment financing payable bears fixed interest rates of up to 4.9% throughout the

terms of the respective financing and thus is not exposed to any interest rate risk.

The Fund’s finance leases payable bear fixed interest rates from 4.20% to 14.08% throughout the

terms of the leases and thus are not exposed to any interest rate risk.

Units and exchangeable units are not exposed to interest rate risk as distributions paid are

discretionary.

Finance costs consist of the following:

2011 2010

Interest $ 8,795 $ 4,063 Increase (decrease) in fair value of convertible

debentures 8,335 581 Increase (decrease) in fair value of derivative liability 142 14 Others 253 22

$ 17,525 $ 4,680

(ii) Foreign exchange risk:

Foreign exchange risk is the risk that the fair value or future cash flow of a financial instrument will

fluctuate because of changes in foreign exchange rate.

The Fund’s cash flow exposure to foreign currency is due mainly to purchases of rental equipment

and replacement parts from suppliers in the United States.

As at December 31, 2011, the Fund’s consolidated balance sheet included $1,684 of accounts

payable (2010 - $135), and $683 of cash (2010 - $44) which were U.S. currency denominated.

Increases or decreases in the exchange rate on these balances are not considered material to

these financial statements.

The Fund does not use hold or issue financial instruments for trading or speculative purposes. At

December 31, 2011, the Fund had no foreign exchange contracts outstanding.


37


(e) Capital risk management:

As at December 31, 2011, the Fund’s capital was comprised of cash and cash equivalents of $13,041,

credit facilities of $62,554 (including capital and acquisition loans), debentures of $112,099 and issued

unit capital (including exchangeable units) of $72,224, for a total capitalization of $259,918 (2010 -

$121,287).

The Fund’s objective when managing capital is to maximize long-term Unitholder value by:

Maintaining a flexible capital structure that optimizes the cost of capital at acceptable risk and

preserves the ability to meet financial obligations; and

Providing a return to Unitholders by delivering monthly cash distributions.

In managing its capital structure, the Fund monitors performance throughout the period to ensure

anticipated cash distributions, working capital requirements and maintenance capital expenditures are

funded from operations, available cash on deposit and where applicable, bank borrowings. The Fund

will make adjustments to its capital structure to meet the objectives of the broader corporate strategy or

in response to changes in economic conditions and risks. In order to maintain or adjust the capital

structure, the Fund may adjust the amount of cash distributions to Unitholders, borrow funds and/or

issue new Units.

The Fund’s credit facilities have restrictive covenants relating to debt incurrence and distributions to

Unitholders. Furthermore, the credit facilities contain financial covenants, as described in note 7, that

also form the basis for the Fund to monitor its capital. The Fund closely monitors the business

performance to evaluate compliance with the covenants. As at December 31, 2011, the Fund was in

compliance with all such covenants.

(f) Financial instruments held at fair value through profit or loss:

Financial assets held at fair value through profit or loss comprise of financial derivatives, debentures

and exchangeable units.

The net fair value increase on the 2010 Debentures without changes in credit risk would have been

$7,261; however as a result of changes in credit risk, it was reduced to $6,177.

The net fair value increase on the 2011 Debentures without changes in credit risk would have been

$4,700; however as a result of changes in credit risk, it was a decrease of $1,294.

The changes in fair value of the debentures attributable to credit risk has been determined as the

amount of change in the fair value of the debentures that is not attributable to changes in market

conditions that give rise to market risk, as prescribed by IFRS 7.


38

15. Business combinations:

On May 16, 2011, WEQ Britco LP (“Britco”), a subsidiary of the Fund, entered into an acquisition agreement

with Britco Structure LLP and Britco Leasing Ltd (collectively, the “Britco Group”) pursuant to which Britco

agreed to acquire the assets and the business of the Britco Group (the “Acquisition”). The aggregate

purchase price was paid in cash and is subject to an earn-out provision whereby the previous owners of the

Britco Group will receive a portion of any earnings above a prescribed threshold for the year ending May 31,

2012. The Acquisition was completed on June 1, 2011.

Britco designs, manufactures and leases commercial portable and permanent modular buildings.

Management of the Fund believes the Acquisition is beneficial to the Fund for a number of reasons,

including:

the Acquisition represents a diversification of the Fund’s equipment rentals, sales and services platform;

the business platform of Britco benefits from the Fund’s business networks and the Fund is able to offer

an expanded range of products and services to a wider customer base;

Britco’s first on-site presence through its modular offices or workforce accommodation units at its

customers’ locations provides an in-road for the Fund’s other product and service offerings.

the Acquisition gives the Fund economies of scale, improving the Fund’s information technology

infrastructure and leveraging sales and marketing efforts; and

the Acquisition gives the Fund’s existing construction and infrastructure businesses a marketing and

sales channel in the high growth oil and gas sector in Alberta.

The purchase price was paid in cash, and the acquisition was accounted for using the purchase method.

The allocation of the purchase price to the estimated fair value of the net assets acquired is as follows:

Allocation of purchase price:

Accounts receivable $ 10,949 Inventories 5,364 Prepaids 563 Accounts payable (4,527) Property and equipment 18,082 Intangible assets:

Customer relationships 14,677 Brand name 15,895 Non-compete agreements 1,400

Goodwill 37,534

$ 99,937

Consideration:

Cash $ 99,391 Earn-out provision 546


39

15. Business combinations (continued):

The purchase price above includes contingent consideration that may be paid out to the shareholders of the

Britco Group subject to completion of financial statements for Britco for the twelve months ended May 31,

2012. The contingent consideration is a percentage of earnings above a certain threshold that was agreed

upon by both parties and has no maximum threshold. At the end of each reporting period, until its

settlement, the Fund determines the fair value of this contingent consideration, with changes in the fair value

being recorded in profit and loss.

Subsequent to the initial preparation of this purchase price allocation as reported in the Fund’s condensed

consolidated interim financial statements for the three and six month period ended June 30, 2011, the

amount of inventories and property and equipment acquired have been reduced by $116 and $118

respectively, thereby contributing to an increase in goodwill of $234. These changes have been reflected in

the purchase price allocation above.

The trade receivables comprise gross contractual amounts due of $10,949, of which $nil was expected to be

uncollectible at the acquisition date.

The goodwill is attributable mainly to (i) Britco’s strong business model which will enhance future growth in

operation; (ii) the synergies with the Fund’s other businesses expected to be achieved from the reasons

discussed above; and (iii) Britco’s assembled workforce. 75% of the goodwill is expected to be deductible

for tax purposes pursuant to the Canadian Income Tax Act.

For the seven months ended December 31, 2011, Britco contributed revenue of $51,982 and profit of

$5,768. If the acquisition had occurred on January 1, 2011, management estimates that the Fund’s

consolidated revenue and consolidated loss would have been $143,552 and $17,032, respectively for the

year ended December 31, 2011. Management has determined these amounts based on combining Britco’s

actual results for the period from June 1, 2011 to December 31, 2011, with Britco’s actual results for the

period from January 1, 2011 to May 31, 2011 based on internally prepared financial results obtained from

the vendors. These pro-forma amounts reflect adjustments for depreciation and other costs associated with

the acquisition assuming the fair values attributed in the purchase price allocation occurred on January 1,

2011. These pro-forma results may not necessarily be indicative of actual results had the acquisition

occurred on January 1, 2011.


40

16. Operating segments:

As mentioned in note 1, the Fund structures its operations in two operating and reportable segments: (i)

equipment rentals, sales and fuel distribution (“WesternOne Rentals & Sales” or “WRS”); and (ii) modular

building manufacturing and leasing (“Britco”), based on the way that management organizes the Fund’s

businesses for making operating decisions and assessing performance.

The seasonality of the Fund's business segments impact its quarterly operating results as follows:

(a) WesternOne Rentals & Sales:

The aerial and general construction equipment rental business is generally lower from January through

March as the winter weather hampers construction activity. Construction heater rentals and related fuel

distribution and wholesale during the winter months compensate for the slow winter business cycle in

the aerial and general construction equipment rental sector. From April through July, the rental demand

for aerial and general construction equipment grows gradually as rental activities accelerate into the

summer months. Expenditures on inventory for sale and rental fleet are mostly incurred during these

months in anticipation of equipment rental and sales in the summer and fall. From August through

November the demand for rental equipment continues as construction companies strive to meet

construction targets prior to the start of the holiday season in December. The construction heater

rentals and fuel distribution business in Alberta starts in November and continues through to the spring

of the following year.

(b) Britco:

Britco’s modular building manufacturing business does not follow a specific seasonal trend. Modular

buildings are pre-fabricated buildings that are manufactured in Britco’s four production facilities (Agassiz

and Penticton, BC, Edmonton, Alberta and Waco, Texas) throughout the year, and are not subject to

external weather conditions. Production is scheduled based on the level of project backlogs, timing of

contracts signed and job orders issued, product type and timing of delivery. Similarly, Britco’s modular

leasing business has not historically been subject to seasonality. Common applications of modular

space Units include work camp accommodations, classrooms, temporary offices, construction site

offices, sales offices, special event headquarters and storage containers. Unlike WRS which typically

has daily, weekly or monthly rental contracts with its customers, Britco’s lease terms are typically longer

(up to two years), with the exception of short-term event-driven modular space rentals, which typically

experience a higher level of activity during the summer months.

The method used for the allocation of assets jointly used by the operating segments and costs and liabilities

jointly incurred (mostly corporate costs) between the operating segments is based on a proportion of each

segment’s assets, and for revenues and expenses on a proportion of each segment’s revenue.


41

16. Operating segments (continued):

WesternOne Rentals & Sales Britco Consolidated 2011 2010 2011 2010 2011 2010

Total segment revenue $ 57,059 $ 48,173 $ 52,373 $ - $ 109,432 $ 48,173 Revenue with other

segment (eliminated in consolidation) 24 - 2 - 26 -

Depreciation and amortization of:

Property and equipment 9,950 8,752 876 - 10,826 8,752 Intangible and other assets 3,755 4,147 1,020 - 4,775 4,147

Impairment of goodwill and intangible assets 561 910 - - 561 910

Finance cost 9,717 4,680 7,808 - 17,525 4,680 Deferred income tax recoveries 655 1,313 587 - 1,242 1,313

Earnings before distributions, finance costs, taxes, depreciation, amortization, write down of assets, foreign exchange gains (losses), business acquisition costs and unit based compensation expense 16,549 13,473 7,828 - 24,377 13,473

Purchase of property and equipment (net of business acquisitions) 15,676 8,185 3,338 - 19,014 8,185

Total identifiable assets 87,674 91,468 124,732 - 212,406 91,468

Canada USA Consolidated 2011 2010 2011 2010 2011 2010

Total revenue $ 109,040 $ 48,173 $ 392 $ - $ 109,432 $ 48,173 Non-current assets 163,107 75,365 1,449 - 164,556 75,365


42

16. Operating segments (continued):

On September 15, 2011, the Fund and two other minority investors signed an agreement to form Britco

Structures USA LLC (“BUSA”), a modular manufacturing business in Texas, USA, with investments of

$892 and $995, respectively. On September 15, 2011, one of the minority investors issued a

promissory note to BUSA with a principal amount of $1,204. The promissory note is repayable in five

years with equal annual instalments, and bears interest at an annual rate of 10% until March 12, 2012

and within a range from 8.5% to 12.0% thereafter. The promissory note will mature on September 14,

2016.

17. Related parties:

(a) Purchase of equipment:

The Fund purchased equipment from a company in which a board member of the Fund has a

controlling interest, for $346 (2010 - $437) for the year ended December 31, 2011. These transactions

arose during the normal course of business and were recorded at fair market value.

(b) Rental obligations:

The Fund currently rents premises in various locations from companies in which employees of the Fund

hold certain interests. The Fund paid $824 (2010 - $811) in such rent for the year ended December 31,

2011 and a rental deposit of $37 (2010 - $37) for such premises at December 31, 2011. The rent

between the parties was recorded at fair market value.

(c) Key management personnel compensation:

The following table summarizes the compensation of the Fund’s key management:

2011 2010

Short term employee salary and benefits $ 1,272 $ 545 Post employment benefits - - Other long term benefits - - Termination benefits - - Share based payments 311 37

(d) Non-brokered private placement offering

On November 29, 2011, the Fund issued 929,150 Units at $5.41 per Unit for net proceeds of $4,971

after deducting issuance costs of $57. The Units were issued to employees of the Fund and its

subsidiaries including certain insiders.


43

18. General and administrative expenses:

The following table presents the Fund’s general and administrative expenses according to their nature:

2011 2010

Employee salary and benefits $ 9,794 $ 4,102 Rent 2,750 1,911 Unit based compensation expense 1,276 111 Depreciation of property and equipment 1,275 830 Amortization of intangible assets 4,775 4,147 Professional fees 1,575 565 Insurance 858 470 Office expenses 1,695 997 Property and business taxes 263 95 Bad debt expense 559 154 Other 1,911 1,296

Total $ 26,731 $ 14,678

19. Cost of sales:

The following table presents the components of the Fund’s cost of sales according to their nature:

2011 2010

Depreciation of rental fleet $ 9,551 $ 7,922 Cost of inventory sold 47,296 10,088 Freight expense 5,850 4,140 Selling expense 4,551 3,027 Service expense 6,639 4,784 Rental expense 1,975 1,473 Other 765 1,752

Total $ 76,627 $ 33,186

20. Subsequent events:

(a) On February 1, 2012, WEQ Britco LP acquired the assets and business of Alberta Modulars Inc. (“AMI”)

for $2,835 (the “AMI Acquisition”). The Fund paid for the AMI Acquisition using existing cash. The

purchase price is subject to certain working capital, capital expenditure and other adjustments that will

be determined on a post-closing basis.

AMI is a manufacturer of modular buildings and primarily serves the oil and gas-related workforce

accommodation sector in Alberta. AMI operates out of a 57,000 sq. ft. facility in Northwest Edmonton

and employs approximately 75 staff. The AMI Acquisition provides Britco with additional production

capacity and complements Britco’s modular manufacturing facilities in Agassiz and Penticton, British

Columbia and in Waco, Texas.

As at March 9, 2012, the accounting for the AMI Acquisition has not yet been completed. As a result,

the Fund is unable to make all of the disclosures required by IFRS 3 paragraph B64.


44

20. Subsequent events (continued):

(b) From January 1, 2012 to March 9, 2012, 900,218 Units were issued as a result of the conversion of

$4,691 principle amount of the 2010 Debentures, thereby reducing the balance of 2010 Debentures and

increasing the balance of Units.

21. Transition note to IFRS:

These consolidated financial statements represent the first financial statements of the Fund and its

subsidiaries prepared in accordance with IFRS, as issued by the IASB. The Fund adopted IFRS in

accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards”. The first date

at which IFRS was applied was January 1, 2010 (“Transition Date”). In accordance with IFRS, the Fund has:

provided comparative financial information;

applied the same accounting policies throughout all periods presented;

retrospectively applied all effective IFRS standards as of January 1, 2010, as required; and

applied certain optional exemptions and certain mandatory exceptions as applicable for first time IFRS

adopters.

The Fund's consolidated financial statements were previously prepared in accordance with Canadian GAAP.

Set forth below are the IFRS 1 applicable exemptions and exceptions applied in the conversion from

Canadian GAAP to IFRS.

(a) IFRS exemption options:

Business Combinations - IFRS 1 provides the option to apply IFRS 3, retrospectively or prospectively

from the Transition Date. The retrospective basis would require restatement of all business

combinations that occurred prior to the Transition Date. The Fund elected not to retrospectively apply

IFRS 3 to business combinations that occurred prior to its Transition Date and such business

combinations have not been restated. Any goodwill arising on such business combinations before the

Transition Date has not been adjusted from the carrying value previously determined under Canadian

GAAP as a result of applying these exemptions.

(b) IFRS mandatory exceptions:

Estimates - Hindsight is not used to create or revise estimates. The estimates previously made by the

Fund under Canadian GAAP were not revised for application of IFRS except where necessary to reflect

any difference in accounting policies.


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21. Transition note to IFRS (continued):

(c) Reconciliation of Canadian GAAP to IFRS:

The following is a reconciliation of the Fund’s comprehensive income reported in accordance with

Canadian GAAP to IFRS:

Effect of Canadian transition to Year ended December 31, 2010 Notes GAAP IFRS IFRS

Revenue:

Equipment rental $ 24,918 $ - $ 24,918 Equipment sales 2,921 - 2,921 Parts, fuel, service and others 20,334 - 20,334

48,173 - 48,173 Cost of sales:

Cost of equipment rentals, excluding depreciation 14,341 - 14,341

Depreciation of rental equipment 7,922 - 7,922 Equipment sold 2,599 - 2,599 Parts, fuel, service and others 8,324 - 8,324

33,186 - 33,186 Gain on sale of property and equipment 280 - 280

Gross profit 15,267 - 15,267

Operating expenses: General and administration ii 14,648 30 14,678 Business acquisitions i - 431 431

14,648 461 15,109

Results from operating activities 619 (461) 158 Finance costs iii, iv 5,167 1,246 6,413 Distributions to Unitholders iv - 8,399 8,399 Franchise termination fee 816 - 816 Impairment of intangible assets 910 - 910

Loss before income tax (6,274) (10,106) (16,380) Deferred income tax recovery i, iii 798 515 1,313 Total comprehensive loss $ (5,476) $ (9,591) $ (15,067)


46


(c) Reconciliation of Canadian GAAP to IFRS (continued):

The following is a reconciliation of the Fund’s retained earnings reported in accordance with Canadian

GAAP to IFRS:

January 1, December 31, Note 2010 2010

Canadian GAAP $ (12,839) $ (26,714) Unit based compensation expense ii (20) (50) Amortization of Unit issuance costs iv (4,438) (4,438) Fair value and conversion of debentures iii (956) (4,745) Reversal of equity component of debentures iii 1,093 3,657 Fair value of exchangeable units iv 27 5 Deferred income tax iii 222 738 Business acquisition costs - (431)

IFRS $ (16,911) $ (31,978)

(d) Explanation note of transition to IFRS:

(i) Business combinations:

Acquisition-related costs incurred by the Fund were included as part of goodwill under previous

Canadian GAAP.

Starting from January 1, 2010 the Fund is required to expense acquisition related costs in

accordance with IFRS 3. This also led to an increase in the temporary difference between the

accounting basis and tax basis of the intangible assets (including goodwill) compared to Canadian

GAAP.

(ii) Unit based compensation:

The Fund granted options to acquire Units for its directors, Trustees and other employees. These

options vest evenly over five years. Under previous Canadian GAAP, these options were

accounted for as equity settled options and the Fund had expensed the fair value of these options

with an equal amount every year over the respective vesting periods. Under IFRS 2, Share-Based

Payment, these options are cash settled options and the Fund is required to account for each

tranche of the options with graded vesting as a separate option grant and recognize the related

expense and liabilities accordingly.


47


(d) Explanation note of transition to IFRS (continued):

(iii) Financial instruments:

Under previous Canadian GAAP, the Series A Debentures and the 2010 Debentures (collectively,

the “Debentures”) were bifurcated between the equity and liability components using the residual

method and the related transaction costs were deferred and amortized through the life of the

Debentures. Under IAS 39, Financial Instruments: Recognition and Measurement, the Fund

elected to record its debentures at their fair values based on the trading price at the Exchange.

Furthermore, since the Units were classified as liabilities under IAS 39, no bifurcation between the

equity and the liability components of the debenture was required. Also under IAS 39, the related

transactions costs for issuing the debentures were expensed when incurred. This led to an

increase in the temporary difference between the accounting basis and tax basis of the deferred

transaction costs compared to Canadian GAAP.

(iv) Financial instrument classification and presentation:

The Fund’s Units and exchangeable units were classified as equity under previous Canadian

GAAP. Under IAS 32, since the Units are redeemable and the Fund has a contractual obligation to

distribute the Fund’s income according to the Fund’s declaration of trust, the Units and

exchangeable units are required to be classified as liabilities and the Units that are redeemable

within 12 months from the date of the statement of financial position are required to be classified as

current liabilities. Refer to note 9 for subsequent changes to the classification of Units.

(v) Fund Units:

The related issuance costs of the Units have been amortized fully using the effective interest rate

method in accordance with IAS 39 as the Fund’s Units are carried at amortized cost. Distributions

declared are recorded as part of the Fund’s comprehensive income in accordance with IAS 32.

(vi) Exchangeable units:

The exchangeable units are carried at fair value through profit or loss with changes in their fair

value being recorded as part of the Fund’s comprehensive income.

(e) Changes to the presentation of statement of comprehensive income:

Under IFRS, the Fund has elected to present its revenue and expenses by function. As a result, the

following changes were made to the presentation of the Fund’s statement of comprehensive income

(loss):

The gross profit generated from the sale of used rental fleet equipment is now shown on a net

basis, whereas under Canadian GAAP, this was presented on a gross basis as revenue and cost of

sales.

Cost of equipment rentals and depreciation of the rental fleet are now included in cost of sales,

whereas under Canadian GAAP, these balances were classified as operating expenses.


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(f) Changes to the presentation of statement of cash flows:

In the statement of cash flows under IFRS for the year ended December 31, 2010, the net financing

costs and the franchise termination fee were included in financing activities and investing activities,

respectively. These costs were included in the operating activities of the statement of cash flows under

Canadian GAAP.

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