Rockwater Announces Fiscal 2006 Financial Results



    Toronto Stock Exchange Symbol: RCC

    TORONTO, March 30 /CNW/ - Rockwater Capital Corporation ("Rockwater" or
the "Company"), (TSX: RCC), a leading independent diversified financial
services company, today announced its financial results for the fourth quarter
and fiscal year ended December 31, 2006.

    
    Q4 2006 Highlights
    ------------------

    -   Total revenue was $55.0 million, down from $58.2 million in Q4 2005
    -   EBITDA(1) of $3.9 million, compared with $11.0 million in Q4 2005
    -   Net earnings were $1.6 million ($0.07 per diluted share), compared
        with $3.4 million ($0.15 per diluted share) in Q4 2005

    Fiscal 2006 Highlights
    ----------------------

    -   Total revenue increased 4.3% to $220.5 million
    -   EBITDA of $25.7 million, compared with $35.1 million in 2005
    -   Net loss of $20.3 million ($0.97 per diluted share), which includes a
        one-time, non-cash impairment charge of $29.5 million for goodwill
        and intangible assets related to the acquisition of KBSH
    -   Excluding the impairment charge, net earnings were $4.3 million,
        compared with net earnings of $8.6 million in 2005
    -   Assets under administration (AUA(1)) increased 15% over the prior
        year to $9.0 billion
    -   Continued recruiting success in all business segments
    

    Total revenue in the fourth quarter was $55.0 million, compared with
$58.2 million in the same period last year. Fourth-quarter EBITDA was
$3.9 million, compared with $11.0 million in the fourth quarter of 2005. The
decrease in consolidated EBITDA mainly reflects lower EBITDA in the Capital
Markets and Asset Management businesses. The performance of the Capital
Markets business was affected by a reduction in underwriting activity compared
with the fourth quarter of 2005, primarily related to the changes in the tax
rules with respect to income trusts. In addition, operating expenses increased
over the prior year with the expansion and strengthening of the Capital
Markets team. The decline in Asset Management EBITDA mainly reflects lower
asset levels following the loss of wrap mandates and institutional accounts at
KBSH over the previous 12 months.
    The Company recorded net earnings of $1.6 million ($0.07 per diluted
share) in the fourth quarter, compared with net earnings of $3.4 million
($0.15 per diluted share) last year.
    For fiscal 2006, total revenue increased 4.3% over the prior year to
$220.5 million. The Company recorded EBITDA of $25.7 million in fiscal 2006,
compared with $35.1 million in fiscal 2005. Net loss for the year was
$20.3 million ($0.97 per diluted share), compared with net earnings of $8.6
million ($0.42 per diluted share) in 2005. Net loss for the period includes a
non-cash charge of $29.5 million for impairment of the goodwill and intangible
assets related to the acquisition of KBSH. Excluding impairment charges, the
Company recorded net earnings of $4.3 million.


    ----------------------------
    (1) See "Non-GAAP Measures"

    Fiscal 2006 Business Segment Highlights

    Wealth Management
    Wealth Management revenue increased 7.7% over the prior year to $139.5
million, driven primarily by higher fee-based revenue. EBITDA was $16.3
million, compared with $16.1 million in 2005. AUA increased 15.4% over the
prior year to $9.0 billion (as at December 31, 2006). It was a highly
successful year from a recruitment perspective, as the Company recruited 21
new investment advisors (IA) who administered, on average, $71.5 million in
client assets prior to joining the firm. This helped increase the average AUA
per IA from $43.5 million in 2005 to $50 million at the end of 2006.

    Capital Markets
    Capital Markets revenue rose 9.8% to $49.2 million, led by a 43.1%
increase in sales & trading revenue. This increase reflects the growth in the
Company's U.S. institutional client base and higher market share of
institutional trading activity on the TSX. The increased revenue from sales &
trading was partially offset by a 2.5% decrease in investment banking revenues
compared with 2005, primarily related to the change in the tax rules with
respect to the income trusts. Operating expenses in 2006 increased
$7.5 million over last year to $41.5 million due to increased compensation as
the Company made key hires in research, investment banking and sales &
trading. EBITDA for 2006 was $7.7 million, compared with $10.8 million last
year.

    Asset Management
    AUM(1) decreased to $4.0 billion at the end of 2006, from $6.3 billion at
the end of 2005. AUM attributable to KBSH declined to $3.6 billion at
December 31, 2006 from $5.5 billion at December 31, 2005. This decline is
related to the loss of KBSH wrap mandates and institutional accounts over the
previous 12 months. Revenue was $28.1 million, down from $34.5 million last
year, and EBITDA was $4.5 million, compared with $10.7 million in 2005. In
2006, the Company implemented several initiatives to drive future asset
growth, including strengthening the investment counseling team at Knight Bain
Private Counsel, a division of KBSH, and establishing a proprietary retail
mutual fund platform, Lakeview Asset Management.

    Rockwater's complete Management's Discussion and Analysis and
Consolidated Financial Statements for the fiscal year ended December 31, 2006
are available at www.rockwater.ca and on SEDAR at www.sedar.com.

    Recent Developments - Transaction with CI Financial Income Fund
    As previously announced, Rockwater has entered into a support agreement,
as amended, with CI Financial Income Fund ("CI") whereby CI agreed to make an
offer (the "Offer") to acquire all the outstanding common shares of Rockwater
on a fully diluted basis by way of a take-over bid. Under the Offer, CI will
acquire the Rockwater common shares at a price of $7.62 per share, which
values the transaction at approximately $251 million. The Offer, which is
expected to close in April 2007, is conditional upon a minimum of 66 2/3% of
the fully diluted Rockwater common shares being deposited to the Offer,
receipt of all necessary regulatory approvals and other customary conditions.

    About Rockwater Capital Corporation
    Rockwater (TSX: RCC) is an independent diversified financial services
company that offers a broad range of products and services to individuals,
corporations and institutions. Rockwater's goal is to establish a leading
presence in three distinct, yet related businesses: Asset Management, Wealth
Management and Capital Markets. Rockwater's asset management business is
comprised of KBSH Capital Management Inc., which offers investment counseling
and portfolio management, and Lakeview Asset Management Inc., a retail
investment management platform. Rockwater's wealth management and capital
markets businesses operate under Blackmont Capital Inc., a full service
investment dealer.
    For more information on Rockwater please visit www.rockwater.ca.

    Forward-looking Statements
    This press release may contain forward-looking statements relating to
expected future events and financial and operating results of Rockwater that
involve risks and uncertainties. Actual results may differ materially from
management expectations as projected in such forward-looking statements for a
variety of reasons, including market and general economic conditions and the
risks and uncertainties detailed in Rockwater's most recent Management
Discussion and Analysis, Annual Report, Annual Information Form and other
continuous disclosure documents filed by Rockwater with the Canadian
securities regulatory authorities which are available on SEDAR at
www.sedar.com or upon request from the Company. Due to the potential impact of
these factors, Rockwater disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, unless required by applicable law.
    Past performance is not indicative of future returns.

    Non-GAAP Measures
    The following are non-GAAP measures disclosed in this press release and
which the Corporation uses to evaluate and assess its overall financial
performance and the financial performance of its business segments: earnings
before interest expense, income taxes, amortization of capital and intangible
assets, and amortization of deferred charges ("EBITDA"); assets under
administration ("AUA"); assets under management ("AUM"); and total client
assets. The Corporation believes these non-GAAP measures are important
indicators of operating performance. There are no prescribed standards or
definitions applicable to non-GAAP measures, and, as such, the non-GAAP
measures employed by the Corporation are specific to the Corporation.
Therefore, these non-GAAP measures are unlikely to be comparable to similar
measures presented by other companies. Please see the "Non-GAAP Measures"
section in the Corporation's MD&A for the fiscal year ended December 31, 2006
(available on SEDAR at www.sedar.com and at www.rockwater.ca) for a more
detailed description of these measures.


    
    Rockwater Capital Corporation

                         CONSOLIDATED BALANCE SHEETS
                     (in thousands of Canadian dollars)

           As at December 31

                                                           2006         2005
                                                              $            $

    ASSETS
    Current
    Cash and cash equivalents                             5,173        2,247
    Accounts receivable and prepaid expenses            529,954      504,806
    Securities owned, at market                          44,981       38,435
    -------------------------------------------------------------------------
    Total current assets                                580,108      545,488
    -------------------------------------------------------------------------
    Capital assets, net                                  13,622       11,545
    Goodwill and other intangible assets                 86,658      113,735
    Deferred charges, net                                37,859       22,389
    Other assets                                            342          213
    -------------------------------------------------------------------------
    Total assets                                        718,589      693,370
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities            479,597      449,730
    Securities sold short, at market                     23,948       14,394
    Short-term borrowing                                 45,872       36,905
    Subordinated loan                                     4,000        2,000
    -------------------------------------------------------------------------
    Total current liabilities                           553,417      503,029
    -------------------------------------------------------------------------
    Future taxes                                          3,939       10,583
    Convertible debentures                               34,236       34,078
    Preferred shares issued by subsidiaries              20,663       20,663
    Other liabilities                                       404            -
    -------------------------------------------------------------------------
    Total liabilities                                   612,659      568,353
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock                                       137,165      142,191
    Contributed surplus                                  15,540        9,336
    Deficit                                             (46,775)     (26,510)
    -------------------------------------------------------------------------
    Total shareholders' equity                          105,930      125,017
    -------------------------------------------------------------------------
                                                        718,589      693,370
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Rockwater Capital Corporation

                         CONSOLIDATED STATEMENTS OF
                           OPERATIONS AND DEFICIT
         (in thousands of Canadian dollars, except per share amounts)

    Years ended December 31
                                                           2006         2005
                                                              $            $
    -------------------------------------------------------------------------

    REVENUES
    Wealth management                                   139,494      129,529
    Capital market                                       49,203       44,808
    Asset management                                     28,130       34,474
    Other                                                 3,692        2,710
    -------------------------------------------------------------------------
                                                        220,519      211,521
    -------------------------------------------------------------------------

    EXPENSES
    Compensation and benefits                           139,757      130,721
    General and administrative                           17,830       12,944
    Trading, advisory and distribution costs             16,685       13,211
    Occupancy                                            11,451       11,007
    Amortization of deferred charges                     10,918       10,695
    Communications and technology                         9,065        8,509
    Interest                                              7,855        5,731
    Amortization of capital and intangible assets         5,476        4,668
    -------------------------------------------------------------------------
                                                        219,037      197,486
    Goodwill and intangible assets impairment            29,500            -
    Gain on sale of subsidiary                           (5,232)           -
    -------------------------------------------------------------------------
                                                        243,305      197,486
    -------------------------------------------------------------------------
    Earnings (loss) before income taxes                 (22,786)      14,035
    Provision for (recovery of) income taxes
      Current                                             4,135        3,857
      Future                                             (6,656)       1,617
    -------------------------------------------------------------------------
                                                         (2,521)       5,474
    -------------------------------------------------------------------------
    Net earnings (loss) for the year                    (20,265)       8,561

    Deficit, beginning of year                          (26,510)     (34,791)
    Excess on acquisition of common and
     preferred shares                                         -         (280)

    -------------------------------------------------------------------------
    Deficit, end of year                                (46,775)     (26,510)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per common share-basic
     and diluted                                         $(0.97)       $0.42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Rockwater Capital Corporation

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                     (in thousands of Canadian dollars)

    Years ended December 31

                                                           2006         2005
                                                              $            $
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net earnings (loss) for the year                    (20,265)       8,561
    Add (deduct) items not affecting cash
      Amortization of capital and intangible assets       5,476        4,668
      Amortization of deferred charges                   10,918       10,695
      Goodwill and intangible assets impairment          29,500            -
      Future income taxes                                (6,656)       1,617
      Gain on sale of subsidiary                         (5,232)           -
      Stock-based compensation                            7,611        5,025
      Other                                                 158          144
    -------------------------------------------------------------------------
                                                         21,510       30,710
    Net change in non-cash working capital balances
     related to operations                                7,868      (60,364)
    -------------------------------------------------------------------------
    Cash provided by (used in) operating activities      29,378      (29,654)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Deferred charges                                    (26,388)     (16,238)
    Purchase of capital assets                           (5,392)      (1,787)
    Proceeds on deposition of subsidiary                    400            -
    Corporate investments                                   394        1,680
    -------------------------------------------------------------------------
    Cash used in investing activities                   (30,986)     (16,345)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Proceeds from (repayment of) short-term borrowing     8,967      (23,095)
    Issuance (repurchase) of common shares, net          (6,433)      25,216
    Increase in subordinated loan                         2,000            -
    Issuance of convertible debentures                        -       35,000
    Decrease in preferred shares issued by subsidiaries       -       (3,453)
    -------------------------------------------------------------------------
    Cash provided by financing activities                 4,534       33,668
    -------------------------------------------------------------------------

    Net increase (decrease) in cash and cash
     equivalents during the year                          2,926      (12,331)
    Cash and cash equivalents, beginning of year          2,247       14,578
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year                5,173        2,247
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
    Interest paid                                         7,697        5,587
    Income taxes paid                                     7,198           28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    







For further information:

For further information: Bill Packham, President & CEO, Rockwater
Capital, Telephone: (416) 864-2100, Email: packham@rockwater.ca; Gordon H.
Weir, Chief Financial Officer, Rockwater Capital, Telephone: (416) 864-2100,
Email: weir@rockwater.ca

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ROCKWATER CAPITAL CORPORATION

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