CALGARY, ALBERTA - (CCNMatthews - Oct. 16, 2006) -
Not for distribution to US Newswire Services or for dissemination in the United States.
Black Diamond Income Fund ("Black Diamond" or the "Fund") (TSX:BDI.UN) completed its initial public offering of 3,500,000 trust units at a price of $10.00 per unit for gross proceeds of $35 million on September 26, 2006. The net proceeds to the Fund from the offering were approximately $32.1 million, which were used to acquire the workforce accommodation and temporary workspace business formerly operated by Black Diamond Leasing Inc.
The Fund also wishes to provide an update to investors on the business of Black Diamond Leasing Inc. Accordingly, attached to this press release are management's discussion and analysis and comparative financial statements for Black Diamond Leasing Inc. as at and for the nine-month period ended August 31, 2006. Investors should note that these are not the financial statements of the Fund (which will be prepared on a going forward basis), but are the financial statements of the acquired business.
About Black Diamond Income Fund
The Fund is an unincorporated open ended investment trust governed by the laws of the Province of Alberta. The principal undertaking of the Fund, through its indirect wholly-owned subsidiary, Black Diamond Limited Partnership, is to rent modular structures for use as a workforce accommodation and temporary workspace, and to provide complementary services including transportation, installation, dismantling, repair and maintenance of modular structures, as well as related services through three operating divisions consisting of Black Diamond Camps, BOXX Modular and Black Diamond Site Services.
This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction. All sales will be made through registered securities dealers in jurisdictions where the offering has been qualified for distribution. The securities offered are not, and will not be, registered under the securities laws of the United States of America, nor any state thereof and may not be sold in the United States of America absent registration in the United States or the availability of an exemption from such registration.
Forward-Looking Statements
Certain information set forth in this press release, including a discussion of future plans and operations, contains forward looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond management's control, including but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of exchange rates, environmental risks, industry competition, availability of qualified personnel and management, stock market volatility, timely and cost effective access to sufficient capital from internal and external sources. Actual results, performance or achievement could differ materially from those expressed in or implied by these forward-looking statements.
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Black Diamond Announces Third Quarter Results - October 13, 2006
Black Diamond Income Fund completed its initial public offering of trust units on September 26, 2006. In conjunction with the filing of the final prospectus dated September 19, 2006, Black Diamond Income Fund acquired all of the assets and liabilities of Black Diamond Leasing Inc. (the 'Company').
Black Diamond Income Fund is pleased to announce its financial results for the three and nine months ended August 31, 2006 of Black Diamond Leasing Inc. (the business that was acquired), with comparisons to the comparable periods of the prior year.
PROFILE
Black Diamond Income Fund ('Black Diamond' or 'The Fund') is in the business of renting modular structures for use as workforce accommodation and temporary work space. Black Diamond also provides complementary services for the transportation, installation, dismantling, repair and maintenance of modular structures. We have been in the business of renting modular structures since 2003 and currently conduct our business through three operating divisions: Black Diamond Camps; BOXX Modular; and Black Diamond Site Services. Black Diamond Camps provides workforce accommodation solutions to a diversified client base which includes oil and gas exploration and development companies, oilsands development projects, and large infrastructure construction projects. Boxx Modular provides high quality, cost effective modular space solutions to a diversified client base which includes general contractors, construction trades, real estate developers, manufacturers, commercial businesses, government agencies, and various companies involved in the oil and gas industry. Black Diamond Site Services repairs, installs, dismantles and renovates modular buildings. These services are provided to modular building fleet operators in Alberta and Northeastern British Columbia as well as offering services to Black Diamond's workforce accommodation and space rentals customers as turnkey solutions.
FINANCIAL & OPERATING HIGHLIGHTS
The following is a summary of selected financial and operating information that has been derived from and should be read in conjunction with the consolidated financial statements for the Company.
Three months ended Nine months ended
August 31 August 31
------------------------- -------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Financial Highlights
Revenue $ 4,117,224 $ 593,586 $14,305,425 $ 2,321,197
Gross profit 1,898,048 315,342 7,187,181 1,477,352
Selling, general &
administrative 787,745 271,569 2,697,484 585,431
EBITDA prior to
stock-based
compensation 1,145,959 233,058 5,242,641 1,127,936
Stock-based
compensation 35,300 111,775 752,588 158,505
EBITDA(1) 1,110,659 121,283 4,490,053 969,431
------------ ------------ ------------ ------------
Net earnings $ 184,583 $ (85,737) $ 1,472,148 $ 237,481
------------ ------------ ------------ ------------
Capital expenditures 4,696,845 2,768,566 15,540,223 6,485,745
------------ ------------ ------------ ------------
Property and
equipment (net) 28,847,630 8,392,466 28,847,630 8,392,466
------------ ------------ ------------ ------------
Total assets (as at
period end) 32,830,909 9,122,523 32,830,909 9,122,523
------------ ------------ ------------ ------------
Long term
obligations 14,493,000 4,899,800 14,493,000 4,899,800
Operational
Highlights
Workforce units in
operation at end of
period 295 106 295 106
Average units in
operation for the
period 183 27 206 39
Utilization 64% 29% 78% 55%
BOXX Modular units
in operation at end
of period 348 8 348 8
Average units in
operation for the
period 273 5 218 2
Utilization 81% 100% 80% 100%
Notes:
(1) EBITDA is not a recognized measure of GAAP and does not have a
standardized meaning prescribed by GAAP. Therefore EBITDA may not be
comparable to similar measures presented by other issuers. See
"Non-GAAP Measures" section for further details.
THIRD QUARTER 2006 HIGHLIGHTS
Both rental divisions continued to add units to their fleets as we take delivery from manufacturers in accordance with our capital expenditure program. Absorption rates remained healthy as demonstrated by the utilization rates generated by both the Black Diamond Camps and Boxx Modular divisions. Our Black Diamond Site Services division has continued to successfully add to its backlog of installation and maintenance projects. We anticipate our utilization rates and service backlog to continue into the fourth quarter.
The capital expenditure program is on schedule and we still anticipate exiting 2006 with approximately 980 rental units on a consolidated basis. Subsequent to the quarter end, we have made commitments for additional equipment for delivery in mid and late 2007 to enable us to continue to service our markets and maintain our rate of growth. These commitments amount to approximately $12.3 million.
Black Diamond Camps
- Added 36 units in the quarter increasing fleet size to 295 units
- Maintained a utilization rate of 64%
- Signed 15 rental contracts in the period representing 104 units and having an extended contract value of $6.8 million
- Completed the purchase and resale of fleet and third party equipment for gross revenue of $1.1 million
- Average outstanding contract term at the end of the quarter was approximately 36 months
BOXX Modular
- Added 18 units in the quarter increasing fleet size to 348 units
- Maintained a utilization rate of 81%
- Signed 133 sales and rental contracts having an extended contract value of $945 thousand.
Black Diamond Site Services
- Continue to add personnel and capacity
- Maintained a significant backlog of projects
MANAGEMENT DISCUSSION AND ANALYSIS ('MD&A')
This MD&A for the Fund, dated October 13, 2006, focuses on key statistics from the consolidated financial statements and pertains to known risks and uncertainties relating to the industry in which it operates. This discussion should not be considered all-inclusive, as it excludes changes that may occur in general economic, political and environmental conditions. This discussion and analysis of the financial condition and results of operations for the three and nine months ended August 31, 2006 should be read in conjunction with the unaudited interim consolidated financial statements for the three and nine months ended August 31, 2006 and related notes and material therein. As well, this discussion and analysis of the financial condition and results of operations for the three and nine months ended August 31, 2006 should be read in conjunction with the audited consolidated financial statements for the year ended November 30, 2005 and related notes and material contained in the Fund's Initial Public Offering Prospectus dated September 19, 2006. The consolidated financial statements and MD&A contained in this interim report have been prepared by management in accordance with Canadian generally accepted accounting principles ('GAAP').
This MD&A may contain certain "forward looking statements". These statements relate to future events or future performance and reflect our expectations and belief regarding our growth, results of operations, performance, business prospects, opportunities or industry performance and trends. These forward looking statements reflect our current internal projections, expectations or beliefs and are based on information currently available to us. In some cases, forward looking statements can be identified by words such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these words or other comparable terminology. A number of factors could cause actual events or results to differ materially from the results discussed in the forward looking statements. Actual results may differ materially from any forward looking statement. Although we believe that the forward looking statements contained in this MD&A are based upon reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this MD&A, and we do not assume any obligation to update or revise them to reflect new events or circumstances, except as required pursuant to applicable securities laws.
RESULTS OF OPERATIONS
Revenue
Revenues generated for the three months ended August 31, 2006 were $4.12 million as compared to $0.59 million for the three months ended August 31, 2005 - an increase of 598%. For the nine month period ended August 31, 2006, revenues generated were $14.31 million or an increase of 517% over the $2.32 million of revenue generated in the comparable period of 2005. This was due to the increase in the operational fleet deployed by the Company. Workforce accommodation revenues were $10.86 million for the nine month period to August 31, 2006. Utilization of the workforce accommodation fleet averaged 78% for these nine months ranging from 60% in July 2006 to fully contracted utilization in February 2006. Revenues for the workforce accommodations for the nine months ended August 31, 2005 were $1.79 million. Utilization of the workforce accommodation fleet during the nine months ended August 31, 2005 averaged 55% ranging from 8% in May 2005 to 100% utilization in February 2005. The increase in the average utilization year over year is a reflection of the type of equipment the company has in operation as well as the longer term nature of the rental contracts the company has favored during the 2006 year. Revenues for the space rentals division for the nine months ended August 31, 2006 were $1.99 million as compared to $0.01 million for the nine month period ended August 31, 2005. This increase was due to the operations of the space rentals division of the company not beginning until July of 2005. Utilization of the space rental fleet for the nine months ended August 31, 2006 averaged 80% as compared to the 100% utilization of the few units in operation for the comparable period of 2005. The Company's service division generated $2.01 million of revenue for the nine months ended August 31, 2006 as compared to the generation of $0.53 million for the nine month period to August 31, 2005.
Direct Costs & Gross Profit
Direct costs were $2.22 million for the three month period ended August 31, 2006 resulting in a gross profit of $1.90 million. This is a 494% increase from the gross profit of $0.32 million achieved in the three month period ended August 31, 2005. For the nine months ended August 31, 2006, the gross profit was $7.19 million (50%) as compared to a $1.48 million (64%) gross profit generated during the comparable period of 2005. Direct costs attributable to the revenues in arriving at the gross profit are the labor, fuel, freight and maintenance required in maintaining, servicing and moving the units to the contracted sites. In addition, there are often opportunities for the Company to sell some items from fleet assets, rent equipment from third parties and re-rent the equipment, provide transportation services or to provide installation and other services to customers. These ancillary revenue streams are generally at lower gross margins than the fleet rental operations. Therefore, depending on the level of activity of these other areas of operations in a period, the gross profit margins may be affected.
Selling, General & Administrative Costs
Selling, general & administrative costs ('SG&A') for the three months ended August 31, 2006 were $0.788 million versus $0.272 million for the comparable period of 2005. SG&A costs increased to $2.70 million for the nine months ended August 31, 2006 from $0.59 million for the same period in 2005. The year over year increase of $2.11 million due in large part to the number of personnel employed at the Company. The salary and wages costs increased by 317% to $1.09 million and the stock-based compensation charges incurred increased by 375% to $0.753 million as the Company more than doubled its staff complement to 37 personnel. The additional personnel and increased operations resulted in increases in the travel, promotion and administrative costs incurred. Insurance costs also increase year over year due to the growth in the fleet assets of the Company.
Depreciation & Amortization
The three months ended August 31, 2006 charge for depreciation and amortization was $0.58 million. This was a $0.438 million (308%) increase from the $0.142 million charge incurred in the comparable period of 2005. For the nine months ended August 31, 2006, depreciation and amortization charges were $1.55 million versus the $0.38 million charged for the nine months ended August 31, 2005. The increases are due to the continued capital spending and build up of the fleet asset base of the Company.
Interest Expenses
Interest expense on long-term debt, debentures and the note payable for the three months ended August 31, 2006 was $0.253 million as compared to $0.052 million for the comparable period of 2005 - an increase of $0.201 million. For the nine months ended August 31, 2006, the interest charges for long-term debt, debentures and the note payable were $0.628 million versus $0.145 million incurred in the same period of 2005 - an increase of $0.483 million. The period over period increases are due to the increase in the level of long term debt utilized by the company. The debt levels have increased as a result of the capital expenditures the Company has incurred in building up the fleet. The debentures issued in June of 2005 were settled in exchange for common shares in January 2006. The company also financed part of the fleet acquisition done in October 2005 through the issuance of a note payable of $1.07 million. This note was repaid in full on August 15, 2006.
Income Tax Expenses
A future income tax charge of $0.093 million was incurred for the three month period ended August 31, 2006 as compared to $0.013 million in the corresponding period of 2005. The future tax expense for the nine months ended August 31, 2006 totaled $0.84 million compared to $0.21 million in the corresponding period. The increase period over period is a reflection of the increase in the income before tax. At the expected combined federal and provincial tax rate of 32.49% net earnings before tax of $2.32 million would have resulted in a charge of $0.75 million as compared to the $0.84 million actual provision. The variance of $0.09 million arises from an increase in the provision of $0.26 million for non-deductible items for income tax purposes and a reduction of $0.17 million as a result of announced reductions in the federal and provincial corporate tax rates.
LIQUIDITY & CAPITAL RESOURCES
As of August 31, 2006, the Company had a working capital deficit of $0.15 million. The Company also had an operating credit facility of $2.0 million and an acquisition credit facility of $22.0 million. As at August 31, 2006, the Company had drawn $0.80 million and $14.49 million on these facilities respectively. The operating line of credit is charged interest at prime plus 0.5% and the acquisition facility is charged interest at prime plus 0.75%. Both facilities are interest-only with no principle obligations. All covenants as at August 31, 2006 had been satisfied. The Company does not anticipate any covenant issues or restrictions in the future financing of its operations and capital expenditure programs.
On September 26, 2006, the Fund completed its initial public offering of 3,500,000 units at $10 raising a gross total of $35 million. The net proceeds of $32.1 million were used as follows: $15 million in a secondary offering to purchase shares held by former shareholders of Black Diamond Leasing Inc., $17 million in the repayment of debt facilities then outstanding, and the remainder as an addition to working capital of the Company. Therefore, as at the day of closing of the offering, the Company had no outstanding long term debt and had access to the entire operating credit facility of $2.0 million and acquisition credit facility of $22.0 million.
Management believes that the ongoing cash generated from operations will be sufficient to allow it to meet ongoing requirements for maintenance costs, general and administrative costs of the business, interest costs incurred as well as distributions to unitholders. Black Diamond's actual cash generated from operations will be dependent upon future financial performance, which in turn will be subject to financial, tax, business and other factors, including elements beyond Black Diamond's control.
Capital Expenditures
For the nine months ended August 31, 2006, the Company expended $15.54 million on additions to property and equipment. The additions to the property and equipment consisted of:
- $11.30 million on workforce accommodation structures and ancillary equipment rented along with these units
- $4.15 million on space rental structures with some ancillary equipment rented along with these units
- $0.09 million on computers, furniture and equipment
At August 31, 2006, the Company had capital expenditure commitments in the amount of $19.82 million with suppliers of equipment. The delivery of this equipment is expected to be completed by January 31, 2007. It is management's intention to meet the funding requirements for these commitments through a combination of internally generated cash flow and available funds from credit facilities.
Outstanding Share/Unit Data
The following is a summary reconciliation of the share capital for the Company for the nine month period ended August 31, 2006:
Outstanding at December 1, 2005 1,740,783
Issued for cash 351,245
Issued - exercise of options 193,773
Issued - exercise of warrants 270,908
Issued - Conversion of debenture 91,354
-----------
Outstanding at August 31, 2006 2,648,063
-----------
Subsequent to August 31, 2006, as a result of the initial public offering and the restructuring associated with the offering, the following summarizes the capitalization of the Fund as at September 30, 2006:
Trust units 5,353,954
Exchangeable partnership units 2,346,046
Trust unit options 86,120
FINANCIAL INSTRUMENTS
All of the Fund's financial instruments as at August 31, 2006 related to standard working capital and financing items. There are no significant differences between the carrying value of these financial instruments and their estimated fair values. There are no unusual off balance sheet arrangements or any unusual financial instruments such as derivatives. Of Black Diamond's financial instruments, only accounts receivable represents credit risk, and Management views the concentration and credit risk related to accounts receivable as minimal.
RELATED PARTY TRANSACTIONS
During the nine months to August 31, 2006, the Company sold and leased equipment to a company controlled by the President of the Company. The value of these transactions was recognized on terms and conditions consistent with third parties for $0.02 million. The Company also paid management fees to companies controlled by the President and Treasurer of the Company of $0.17 million for the nine months ended August 31, 2006. No amounts were outstanding owing to or from related parties at August 31, 2006.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
Management believes that the accounting policies that are critical to the business relate to the use of estimates regarding the depreciation of property and equipment and the provision for repair and maintenance costs.
The preparation of financial statements in accordance with GAAP requires our management to make assumptions and estimates that can have a material impact on the results of operations as reported on a periodic basis.
Property and equipment is carried at cost less accumulated depreciation. Depreciation on fleet units related to workforce accommodation is calculated on the basis of its original cost on a 10% declining balance basis. Depreciation on fleet units related to the space rentals is calculated on the basis of its original cost on a 6% declining balance basis. Depreciation on computer equipment, service equipment and furniture and fixtures is calculated on the basis of its original cost on a 30% declining balance basis. The estimated useful life has a direct impact on the amount of depreciation expense; however, there is measurement uncertainty with respect to the remaining useful life of the property and equipment.
While management applies judgment based on assumptions believed to be reasonable in the circumstances, actual results can vary from these assumptions. It is possible that materially different results would be reported using different assumptions.
NON-GAAP MEASURES
The financial statements have been prepared in accordance with Canadian generally accepted accounting principles ('GAAP'). Certain supplementary information and measures not recognized under GAAP are provided where Management believes they assist the reader in understanding Black Diamond's results. These measures include:
EBITDA refers to earnings as determined in accordance with generally accepted accounting principles before interest expense, tax expense and depreciation and amortization. Black Diamond uses EBITDA primarily as a measure of operating performance. Management feels that the operating performance as determined by EBITDA is meaningful because it presents the performance of the operation on a basis which excludes the impact of how it has been financed.
The following is a reconciliation of Net Income to EBITDA.
Three months ended Nine months ended
August 31 August 31
---------------------- ---------------------
2006 2005 2006 2005
--------------------------------------------
Net income (loss) 184,583 (85,737) 1,472,148 237,481
Add:
Depreciation and
amortization 580,296 141,628 1,545,880 381,435
Income taxes 93,067 13,187 843,921 205,623
Interest 252,713 52,205 628,104 144,892
--------------------------------------------
EBITDA 1,110,659 121,283 4,490,053 969,431
--------------------------------------------
Gross Profit refers to revenues less direct costs, and prior to the deduction of selling, general and administrative costs, interest expense, tax expense, depreciation and amortization and any gains or losses on disposal of assets. Management believes that, in addition to net earnings, Gross Profit is a useful supplemental measure as it provides information of the contribution to earnings from the Company's principal business activities.
Readers are cautioned that the Non-GAAP measures are not alternatives to measures under GAAP and should not, on their own, be construed as an indicator of the Company's performance or cash flows, a measure of liquidity or as a measure of actual return on the Units. These Non-GAAP measures should only be used in conjunction with the consolidated financial statements of Black Diamond Leasing Inc.
RISKS AND UNCERTAINTIES
The operations of Black Diamond face a number of risks and uncertainties in the normal course of business that may be beyond its control, but which could have a material adverse effect on the businesses financial condition, results of operations or cash flow, and therefore possibly on the cash available for distribution. Some of these risks and uncertainties are summarized in the Initial Public Offering Prospectus dated September 19, 2006. During the nine month period ended August 31, 2006, there have been no significant changes to those risks and uncertainties.
OUTLOOK
The outlook for the remainder of the year is positive for Black Diamond. Demand for our Black Diamond Camps divisions workforce accommodation structures remains high with continued weighting towards large scale workforce housing facilities as are required at the various oilsands development and related infrastructure projects. A number of additional drill camps have been contracted for delivery and are being delivered for use starting this winter on 3 contract terms with rent paid monthly. Additional dormitories, kitchen/diner units, and recreation facility units for use at large construction sites have been contracted for and are being delivered through to the end of the year to meet commitments for long-term rental contracts entered into by Black Diamond with certain of its customers. This gives us good visibility as to the revenue and cash generation for the immediate future.
Utilization and rental rates for our BOXX Modular division's space rentals units remain consistent and high. With manufacturing contracted for additional units for delivery before the end of the year, the growth of the revenues and cash flow from this division are promising for the next year.
The Black Diamond Site Services division continues to grow adding additional personnel and capacity to meet its current backlog of installation and maintenance commitments which it has negotiated with a variety of customers in various locations throughout Alberta and British Columbia.
Despite the recent declines in oil and gas commodity prices, we continue to find opportunities to deploy our rental equipment on long term contracts. Management believes that these long term commitments, which are predominantly related to the oilsands development projects in Northern Alberta, will continue to provide a stable revenue stream and continued growth opportunities for the Fund. Management further believes that these large oilsands related projects remain viable in the current commodity price environment.
Additional information relating to the Company is available on the System for Electronic Document Analysis and Retrieval ('SEDAR') at www.sedar.com or at the Company's website at www.blackdiamondincomefund.com.
Trevor Haynes, Michael Burnyeat,
President & Vice President Finance &
Chief Executive Officer Chief Financial Officer
Unaudited Interim Consolidated Financial Statements
Black Diamond Leasing Inc.
For the three and nine months ended August 31, 2006
Black Diamond Leasing Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
As at
August 31, November 30,
2006 2005
$ $
------------------------------------------------------------------------
ASSETS (notes 6 & 8)
Current
Cash - 774,433
Accounts receivable 3,760,106 2,557,302
Notes receivable (note 3) - 126,086
Prepaid expenses 111,277 32,951
------------------------------------------------------------------------
3,871,383 3,490,772
Property and equipment (note 4) 28,847,630 14,834,611
Deferred financing fees (note 5) 111,896 51,040
------------------------------------------------------------------------
32,830,909 18,376,423
------------------------------------------------------------------------
------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (note 6) 800,000 -
Accounts payable and accrued liabilities 3,201,273 1,088,411
Current portion of long-term debt (note 8) - 1,600,000
Interest payable - 34,351
Deferred revenue 24,291 131,761
------------------------------------------------------------------------
4,025,564 2,854,523
Long-term debt (note 8) 14,493,000 7,119,800
Future income taxes 1,246,268 402,347
Debentures (note 9) - 1,005,000
Note payable (note 7) - 1,070,000
------------------------------------------------------------------------
19,764,832 12,451,670
------------------------------------------------------------------------
Commitments (note 17)
Shareholders' equity
Share capital (note 10) 11,113,100 5,204,973
Contributed surplus (note 11) 35,300 274,250
Retained earnings 1,917,677 445,530
------------------------------------------------------------------------
13,066,077 5,924,753
------------------------------------------------------------------------
32,830,909 18,376,423
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements
Black Diamond Leasing Inc.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
For the
Three months ended Nine months ended
August 31, August 31,
----------------------- -------------------------
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------
Revenue 4,117,224 593,586 14,305,425 2,321,197
Direct costs 2,219,176 278,244 7,118,244 843,845
------------------------------------------------------------------------
1,898,048 315,342 7,187,181 1,477,352
------------------------------------------------------------------------
Expenses
Amortization of
property and equipment 571,536 127,919 1,527,560 365,865
Salary, wages and
management fees 443,944 79,912 1,093,099 262,096
Interest on long-term
debt 234,889 31,940 557,464 104,582
Insurance, rent and
administrative costs 177,293 44,159 445,569 86,680
Travel, entertainment
and promotion 80,195 31,502 241,409 59,649
Professional fees 41,409 3,000 142,488 15,709
Stock-based
compensation (note 12) 35,300 111,775 752,588 158,505
Interest on note
payable 17,824 - 60,507 -
Interest and bank
charges 9,604 1,221 22,332 2,792
Amortization of
deferred financing
fees 8,760 13,709 18,320 15,570
Interest on debentures - 20,265 10,133 40,310
------------------------------------------------------------------------
1,620,754 465,402 4,871,469 1,111,758
------------------------------------------------------------------------
Other income
Gain on disposal of
property and equipment 356 77,510 356 77,510
------------------------------------------------------------------------
Income (loss) before
income taxes 277,650 (72,550) 2,316,068 443,104
------------------------------------------------------------------------
Income taxes
Future 93,067 13,187 843,921 205,623
------------------------------------------------------------------------
93,067 13,187 843,921 205,623
------------------------------------------------------------------------
Net income (loss) 184,583 (85,737) 1,472,147 237,481
Retained earnings,
beginning of period 1,733,094 359,044 445,530 35,826
------------------------------------------------------------------------
Retained earnings,
end of period 1,917,677 273,307 1,917,677 273,307
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) per
share (note 10)
Basic 0.08 (0.07) 0.70 0.19
Diluted 0.08 (0.05) 0.70 0.17
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements
Black Diamond Leasing Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the
Three months ended Nine months ended
August 31, August 31,
----------------------- -------------------------
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------
Operating activities
Net income 184,583 (85,737) 1,472,147 237,481
Add (deduct) non-cash
items:
Amortization of
property and
equipment 571,536 127,919 1,527,560 365,865
Amortization of
deferred financing
costs 8,760 13,709 18,320 15,570
Gain on disposal of
property and
equipment (356) (77,510) (356) (77,510)
Other - - (106) -
Stock-based
compensation expense 35,300 111,775 752,588 158,505
Future income tax
expense 93,067 13,187 843,921 205,623
------------------------------------------------------------------------
892,890 103,343 4,614,074 905,534
Change in non-cash
working capital
related to operating
activities (note 13) 806,465 (26,765) 689,911 481,901
------------------------------------------------------------------------
1,699,355 76,578 5,303,985 1,387,435
------------------------------------------------------------------------
Investing activities
Purchase of property
and equipment (4,696,845) (2,768,566) (15,540,223) (6,485,745)
Proceeds on sale of
property and
equipment - - - 300,000
------------------------------------------------------------------------
(4,696,845) (2,768,566) (15,540,223) (6,185,745)
------------------------------------------------------------------------
Financing activities
Issuance of share
capital - 58,400 3,911,695 253,900
Repayment of note
payable (1,070,000) - (1,070,000) -
Increase in bank
indebtedness 50,000 - 800,000 -
Proceeds from
debentures - 502,500 - 1,005,000
Proceeds from
long-term debt 3,885,000 3,944,800 17,115,000 4,868,480
Repayment of long-term
debt (391,800) (2,551,361) (11,341,800) (2,981,713)
Funds received through
private offering - 422,023 - 422,023
Deferred financing
fees - (38,500) (79,176) (42,500)
Change in non-cash
working capital items
related to financing
activities (note 13) 105,405 (67,647) 126,086 (23,257)
------------------------------------------------------------------------
2,578,605 2,270,215 9,461,805 3,501,933
------------------------------------------------------------------------
Decrease in cash (418,885) (421,773) (774,433) (1,296,377)
Cash, beginning of
period 418,885 343,962 774,433 1,218,566
------------------------------------------------------------------------
Cash, end of period - (77,811) - (77,811)
------------------------------------------------------------------------
------------------------------------------------------------------------
Cash interest paid 252,713 52,205 628,104 144,892
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements
Black Diamond Leasing Inc.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As at and for the three and nine months ended August 31, 2006
1. DESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION
1072727 Alberta Ltd. was incorporated on October 23, 2003 under the Alberta Business Corporations Act with nominal share capital and commenced operations in December 2003. On June 23, 2005, 1072727 Alberta Ltd. changed its name to Black Diamond Leasing Inc. (the "Company").
The Company rents and sells modular structures for use as work force housing, temporary office space rentals and site services to various industries.
2. SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles. The unaudited interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the fiscal year ended November 30, 2005, except that certain disclosures required in annual financial statements have been condensed or omitted. Accordingly, the unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes to the Company's consolidated financial statements as at and for the year ended November 30, 2005, contained in the Company's prospectus dated September 19, 2006. The results of operations for the three and nine month periods ended August 31, 2006 may not be indicative of the results for the 2006 fiscal year.
3. NOTES RECEIVABLE
The notes receivable are due from two employees of the Company as a result of the issuance of common shares. The notes bear interest at 1% above the prime rate (August 31, 2006 - effective rate of 7.00%; November 30, 2005 - effective rate of 5.75%), are secured by the shares and are due on demand. On June 30, 2006, payment was received in full for the notes receivable balances outstanding.
4. PROPERTY AND EQUIPMENT
August 31, 2006
--------------------------------------
Accumulated Net book
Cost Amortization value
$ $ $
------------------------------------------------------------------------
Computers, furniture and service
equipment 285,414 57,487 227,927
Space rentals fleet equipment 6,653,106 227,665 6,425,441
Workforce housing fleet equipment 22,029,175 1,881,581 20,147,594
Deposit on equipment 2,046,668 - 2,046,668
------------------------------------------------------------------------
31,014,363 2,166,733 28,847,630
------------------------------------------------------------------------
------------------------------------------------------------------------
November 30, 2005
--------------------------------------
Accumulated Net book
Cost Amortization value
$ $ $
------------------------------------------------------------------------
Computers, furniture and service
equipment 187,586 22,825 164,761
Space rentals fleet equipment 2,782,252 28,634 2,753,618
Workforce housing fleet equipment 11,599,077 666,349 10,932,728
Deposit on equipment 983,504 - 983,504
------------------------------------------------------------------------
15,552,419 717,808 14,834,611
------------------------------------------------------------------------
------------------------------------------------------------------------
Deposit on equipment represents non-refundable deposits ranging from 10%
to 15% of the total commitments due in the next fiscal period.
5. DEFERRED FINANCING FEES
August 31, November 30,
2006 2005
$ $
------------------------------------------------------------------------
Deferred financing fees 141,237 76,560
Less: accumulated amortization 29,341 25,520
------------------------------------------------------------------------
111,896 51,040
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6. BANK INDEBTEDNESS
The Company has a revolving demand loan authorized to a maximum of $2,000,000 or 75% of recoverable Canadian accounts receivable under 90 days old, accessible in multiples of $50,000. The facility bears interest at prime plus 0.50% (August 31, 2006 - effective rate of 6.50%) per annum and is payable on demand. The facility is collateralized by a general security agreement covering all present and after-acquired property as well as general assignment of book debts, promissory notes, personal guarantees from two directors in the amount of $425,000 each, a personal guarantee from an additional director in the amount of $150,000, and postponement and subordination of all debentures and notes payable (see note 18).
7. NOTE PAYABLE
On October 1, 2005, the Company purchased mobile equipment from Amtec Leasing Ltd. The purchase price was $2,600,000 for the acquisition of mobile equipment by way of a note payable of $1,070,000 and $1,530,000 cash consideration. The note bears interest at 8% per annum payable quarterly, is unsecured and is due in full on December 1, 2006. This note was repaid in full on August 15, 2006.
8. LONG-TERM DEBT
August 31, November 30,
2006 2005
$ $
------------------------------------------------------------------------
Committed Revolving Term Loan bearing interest
at prime plus 0.75% (August 31, 2006 -
effective rate of 6.75%) per annum. The
committed facility is $22,000,000 to April 30,
2010 and may not exceed 60% of net book value
of fixed assets. No set principal repayment has
been established as the facility is interest
only payable monthly in arrears. Any advances
and repayments under the facility are in
minimum amounts of $250,000. Prepayment of any
borrowings under the facility can be done at
any time without penalty. The facility is
collateralized by a general security agreement,
general assignment of book debts, promissory
notes, letters of guarantee from each of the
Company's three subsidiary companies,
assignment of monies due from insurance,
personal guarantees from two directors in the
amount of $425,000 each, personal guarantee
from one additional director in the amount of
$150,000, and the $1,070,000 note payable (see
note 18). 14,493,000 -
Loan bearing interest at prime plus 0.75%
(August 31, 2006 - effective rate of 6.75%;
November 30, 2005 - effective rate of 5.50%)
per annum, authorized to a maximum of
$7,000,000 or 60% of net book value of new and
existing equipment, repayable in monthly
blended payments established upon each draw.
The loan matures on December 26, 2008 and is
collateralized by a general security agreement,
general assignment of book debts, promissory
notes, assignment of monies due from insurance,
personal guarantees from two directors in the
amount of $425,000 each, personal guarantee
from one additional director in the amount of
$150,000, and postponement and subordination of
debentures and the $1,070,000 note payable. - 5,919,800
Loan bearing interest at prime plus 0.75%
(August 31, 2006 - effective rate of 6.75%;
November 30, 2005 - effective rate of 5.50%)
per annum, authorized to a maximum of
$3,000,000 or 60% of net book value of new and
existing equipment, repayable in monthly
principal payments of $50,000. The loan matures
on August 26, 2008 and is collateralized by a
general security agreement, general assignment
of book debts, promissory notes, assignment of
monies due from insurance, personal guarantees
from two directors in the amount of $425,000
each, personal guarantee from one additional
director in the amount of $150,000, and
postponement and subordination of debentures
and the $1,070,000 note payable. - 2,800,000
------------------------------------------------------------------------
14,493,000 8,719,800
Amounts payable within one year - (1,600,000)
------------------------------------------------------------------------
14,493,000 7,119,800
------------------------------------------------------------------------
------------------------------------------------------------------------
9. DEBENTURES
During fiscal 2005, the Company issued $1,005,000 in subordinated redeemable debentures bearing interest at 8% per annum, payable quarterly in interest-only payments and maturing November 30, 2009. The debentures are collateralized by all assets and undertakings of the Company and its subsidiaries and are redeemable at the sole option of the Company. On January 15, 2006 the debentures were settled for 91,354 Class A common shares at $11 per share.
10. SHARE CAPITAL
Authorized
Unlimited Class A, B, C, D, E and F common voting shares with no par
value
Unlimited Class G preferred voting shares
Unlimited Class H and I preferred non-voting shares
Issued
Class A common shares
August 31, 2006
------------------------
Number $
------------------------------------------------------------------------
Outstanding, beginning of period 1,740,783 5,204,973
Issued for cash 351,245 3,863,695
Issued - exercise of options 193,773 667,626
Issued - exercise of warrants 270,908 371,912
Issued - settlement of debentures (note 10) 91,354 1,004,894
------------------------------------------------------------------------
Outstanding, end of period 2,648,063 11,113,100
------------------------------------------------------------------------
------------------------------------------------------------------------
November 30, 2005
------------------------
Number $
------------------------------------------------------------------------
Outstanding, beginning of period 939,120 1,202,334
Issued for cash 680,283 3,722,389
Issued - exercise of purchase warrants 100,500 251,250
Add: subscription receivable 20,880 29,000
------------------------------------------------------------------------
Outstanding, end of period 1,740,783 5,204,973
------------------------------------------------------------------------
------------------------------------------------------------------------
Per Share Information
Per share amounts have been calculated using the weighted average number
of common shares outstanding as follows:
Three months ended Nine months ended
August 31, August 31,
------------------------ ------------------------
2006 2005 2006 2005
Basic 2,231,635 1,298,979 2,094,248 1,219,329
Diluted 2,268,157 1,589,524 2,106,511 1,380,300
11. CONTRIBUTED SURPLUS
The fair value of stock options is expensed over their vesting period, with a corresponding amount recorded to contributed surplus. As stock options are exercised, the related stock option compensation previously recognized is debited to contributed surplus with a corresponding increase in share capital. No adjustment is made for stock options that expire.
August 31, November 30,
2006 2005
$ $
------------------------------------------------------------------------
Outstanding, beginning of period 274,250 -
Stock-based compensation 752,588 274,250
Stock options and warrants exercised (991,538) -
------------------------------------------------------------------------
Outstanding, end of period 35,300 274,250
------------------------------------------------------------------------
------------------------------------------------------------------------
12. STOCK-BASED COMPENSATION
The Company has a stock option plan (the "plan") reserving 40,000 (November 30, 2005 - 164,000) common shares for issuance to employees, directors and key executives. Options granted under the plan vest equally over three years and the option term is five years from the date of grant.
The following table summarizes information about outstanding and
exercisable stock options:
Nine months ended
August 31, 2006 November 30, 2005
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
Number of price Number of price
shares $ shares $
------------------------------------------------------------------------
Balance, beginning of period 164,000 3.64 - -
Granted 144,000 12.31 164,000 3.64
Exercised (268,000) (5.18) - -
------------------------------------------------------------------------
Balance, end of period 40,000 17.22 164,000 3.64
------------------------------------------------------------------------
------------------------------------------------------------------------
As at August 31, 2006, 40,000 stock options were outstanding. None of the outstanding stock options are exercisable as at August 31, 2006. The outstanding stock options have an exercise price of $17.22 and a remaining contractual life of 4.77 years.
Special warrants
The Company has nil (November 30, 2005 - 129,412) special warrants outstanding entitling the holders thereof the right to purchase one common share for each special warrant held.
Performance warrants
The Company has approved the issuance of performance warrants equal to a maximum of 10% of the issued and outstanding common shares. These warrants vest upon the issuance of additional equity at a share price in excess of 50% higher than the exercise price. These warrants expire five years from the date of issuance.
The Company has nil (November 30, 2005 - 174,071) performance warrants outstanding entitling the holders thereof the right to purchase one common share for each performance warrant held.
The exercise price of these warrants reflects the fair value of the underlying shares on the grant date.
The weighted average fair value of the warrants on the date of grant was $4.91 per warrant (November 30, 2005 - $0.89).
The warrants were issued as follows:
August 31, 2006 November 30, 2005
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
Number of price Number of price
warrants $ warrants $
------------------------------------------------------------------------
Balance, beginning of period 174,071 4.39 - -
Granted 44,260 11.00 174,071 4.39
Exercised (218,331) (5.73) - -
------------------------------------------------------------------------
Balance, end of period - - 174,071 4.39
------------------------------------------------------------------------
------------------------------------------------------------------------
During the three and nine month periods ended August 31, 2006, the Company recorded stock-based compensation expense of $35,300 and $752,588, respectively, (2005 - $111,775 and $158,505) related to options and warrants granted and vested under the plan. The fair value of the options and warrants issued during the three month period ended August 31, 2006 was estimated using the Black-Scholes pricing model with the following assumptions: risk free interest rate ranging from 4.0% to 4.3%; volatility of 45%; life of 5 years and a dividend yield of nil.
On August 25, 2006, the Company issued 445,481 common shares in respect of options and warrants outstanding as at that date. Settlement was completed on a non-cash, net share basis taking the in-the-money value of the 248,800 options, 129,412 special warrants and 218,331 performance warrants and converting them to 174,573, 109,412 and 161,496 common shares respectively. Contributed surplus was reduced and share capital increased by $991,538 (2005 - $nil) to reflect the options and warrants exercised during the nine month period.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash working capital for the three and nine months ended August 31 was as follows:
Three months ended Nine months ended
August 31, August 31,
----------------------- -----------------------
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------
Accounts receivable (944,778) (352,556) (1,202,805) (455,602)
Prepaid expenses 58,194 (14,276) (78,326) (7,847)
Notes receivable 105,405 (67,647) 126,086 (23,257)
Accounts payable and
accrued liabilities 1,732,805 340,067 2,112,862 945,350
Interest payable (13,837) - (34,351) -
Deferred revenue (25,919) - (107,470) -
------------------------------------------------------------------------
911,870 (94,412) 815,996 458,644
Attributable to
financing activities 105,405 (67,647) 126,086 (23,257)
------------------------------------------------------------------------
Attributable to
operating activities 806,465 (26,765) 689,910 481,901
------------------------------------------------------------------------
------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS
The Company is related to the following entities it conducts business with:
a) Kettleby Group Inc. - controlled by the President of the Company
b) Kettleby Investment Management Corporation - controlled by the President of the Company
c) 1057127 Alberta Ltd. - o/a Brockmeyer Co. - controlled by the President of the Company
d) Claryn Management Inc. - controlled by the President of the Company
e) S. S. Madison Ltd. - controlled by the Treasurer of the Company
During the three and nine month periods ended August 31, 2006, the Company received leasing revenue from related parties in the amount of $nil and $18,333, respectively, (2005 - $6,000 and $15,000). During the three and nine month periods ended August 31, 2006, the Company also paid management fees to related companies totalling $40,000 and $168,000, respectively, (2005 - $157,847 and $122,461).
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. No amounts were owing to or from any related parties at August 31, 2006.
15. SEASONAL RISK
The Company's ability to relocate certain types of equipment in the traditional Canadian exploration and production areas is dependent on weather conditions. With the onset of spring, melting snow together with frost leaving the ground render many secondary roadways incapable of supporting the weight of heavy equipment until such time as they have thoroughly dried out. In addition, the exploration areas of northern Canada are typically only accessible during winter months, when the surface is frozen hard enough to support heavy equipment. These periods of "spring break-up" and "winter freeze-up" have a direct bearing upon activity levels. Accordingly, the Company's prime operating seasons are late September through mid-March and June through late September.
16. SEGMENTED INFORMATION
The Company determines its reportable segments based on the structure of its operations, which are primarily focused in three principal business segments - Workforce Accommodations, Space Rentals and Site Services.
Three months ended Nine months ended
August 31, August 31,
----------------------- -----------------------
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------
Revenue
Workforce
Accommodations 2,839,562 327,442 10,864,695 1,787,002
Space Rentals 811,497 8,215 1,994,612 8,215
Site Services 847,121 257,929 2,010,412 525,980
Intersegment
eliminations(1) (380,956) - (564,294) -
------------------------------------------------------------------------
4,117,224 593,586 14,305,425 2,321,197
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) All intersegment revenue eliminated is in respect of the Site
Services segment providing services to the Workforce Accommodations
and Space Rentals segments.
Net Income
Workforce
Accommodations 648,375 (305,319) 3,499,542 168,712
Space Rentals 146,757 (36,427) 306,945 (36,427)
Site Services 133,522 51,586 367,650 105,196
Corporate and other (744,071) 204,423 (2,701,989) -
------------------------------------------------------------------------
184,583 (85,737) 1,472,148 237,481
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital Expenditures
Workforce
Accommodations 4,429,126 2,996,134 11,302,899 6,404,213
Space Rentals 257,303 72,432 4,148,044 72,432
Site Services 4,331 - 44,191 9,100
Corporate and other 6,085 - 45,089 -
------------------------------------------------------------------------
4,696,845 3,068,566 15,540,223 6,485,745
------------------------------------------------------------------------
------------------------------------------------------------------------
Property and Equipment
(net)
Workforce
Accommodations 21,967,884 8,312,052 21,967,884 8,312,052
Space Rentals 6,701,869 71,314 6,701,869 71,314
Site Services 77,906 9,100 77,906 9,100
Corporate and other 99,971 - 99,971 -
------------------------------------------------------------------------
28,847,630 8,392,466 28,847,630 8,392,466
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Assets
Workforce
Accommodations 24,601,258 8,540,049 24,601,258 8,540,049
Space Rentals 7,267,947 573,374 7,267,947 573,374
Site Services 526,690 9,100 526,690 9,100
Corporate and other 435,014 - 435,014 -
------------------------------------------------------------------------
32,830,909 9,122,523 32,830,909 9,122,523
------------------------------------------------------------------------
------------------------------------------------------------------------
17. COMMITMENTS
The Company rents premises under multiple operating leases with varying expiration dates. The minimum lease payments under these leases over the next five fiscal years are as follows:
$
2006 28,992
2007 108,723
2008 97,099
2009 -
2010 -
------------------------------------------------------------------------
234,814
------------------------------------------------------------------------
------------------------------------------------------------------------
The Company has committed to purchase $19,819,089 of fleet equipment for delivery prior to January 31, 2007.
18. SUBSEQUENT EVENTS
On September 26, 2006, Black Diamond Income Fund (the "Fund"), in conjunction with the acquisition of the business of the Company, completed its initial public offering of trust units for $10 per trust unit (the "Offering"). The gross proceeds from the Offering were $35 million. The net proceeds of $32.1 million were used as follows: $15 million in a secondary offering to purchase shares held by shareholders of Black Diamond Leasing Inc., $17 million in the repayment of debt facilities then outstanding, and the remainder as an addition to working capital of the Company.
Prior to the closing of the Offering, a reorganization was completed pursuant to which all of the assets and liabilities of the Company were transferred to Black Diamond Limited Partnership. Black Diamond Limited Partnership is an indirect, wholly-owned subsidiary of the Fund.
The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.
Website: www.blackdiamondincomefund.com
Tags: ,Real Estate and Construction,Construction,EARNINGS
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