Resolve Business Outsourcing Income Fund
TSX : RBO.UN

Resolve Business Outsourcing Income Fund

May 10, 2006 08:05 ET

Resolve Business Outsourcing Income Fund Reports First Quarter Results and June Distribution

Results Consistent with Management Expectations for the Period

TORONTO, ONTARIO--(CCNMatthews - May 10, 2006) -

Attention Business Editors:

Resolve Business Outsourcing Income Fund (the "Fund")(TSX:RBO.UN) today announced its first quarter financial results for the period ended March 31, 2006. These results reflect two weeks of operations following the completion of the Fund's establishment and initial public offering on March 17, 2006. The Fund also announced a distribution of $0.0833 per unit payable June 15, 2006.

First Quarter Highlights

- Successfully completed initial public offering of 22.5 million ordinary trust units at $10 per unit, for gross proceeds of $225 million

- For the period March 17, 2006 to March 31, 2006

- Revenue of $12.0 million

- EBITDA(1) of $1.9 million

Distribution Highlights

- Announced first cash distribution to unitholders of $0.1237 per unit for the six week period March 17, 2006 to April 30, 2006, to be paid May 15, 2006 to holders of record as of April 28, 2006

- Announced a subsequent cash distribution to unitholders of $0.0833 per unit for the four week period May 1, 2006 to May 31, 2006, to be paid June 15, 2006 to holders of record as of May 31, 2006

Management Commentary

"We achieved these financial results by sticking to 'business as usual', even while undertaking the initial public offering," said Lawrence Zimmering, President and Chief Executive Officer. "It is this demonstrated consistency and performance that makes Resolve an ideal business for the income fund market."

"Our financial results were in line with our expectations for the period, with strong revenues and margins," said David Horton, Chief Financial Officer. "While the results represent only two weeks of operations, we are pleased with our solid start as a public entity."

The Fund recently announced the appointment of Bruce Derraugh as Executive Vice President Sales and Marketing, with the responsibility of coordinating all sales efforts across the Company. Derraugh brings to Resolve 18 years of experience in sales, marketing and operations for a variety of international companies.

The Fund also announced that Richard Coles has joined the board of RBO General Partner Inc. that controls the Fund's operating subsidiaries. Richard Coles replaces Ian MacKay, who has resigned from the board in order to commit more time to business interests that have arisen subsequent to the date of the Fund's initial public offering. Mr. Coles has held executive management positions with a number of Canadian financial institutions, most recently serving as Executive Vice President, Investments, with Manulife Financial, and is a director of NAL Oil and Gas Trust, Seamark Asset Management and VFC Inc.

Outlook

"Looking ahead, we are entering what have historically been our busiest quarters. The second and third quarters are typically our strongest, in line with client activity", said Zimmering. "Over the remainder of the fiscal year we are focused on achieving the right mix of growth and ongoing service excellence to underpin the reliability of our stated distributions."

About Resolve

Resolve is a leading provider of customized business process outsourcing services to business and governments across North America. With its 3,900 employees in 25 locations, Resolve provides clients with end-to-end outsourcing solutions including loan administration, security registration and search services, credit and loyalty card processing, medical and dental insurance claims processing, call centre services, marketing and promotional services and supply chain management and fulfillment. Resolve Business Outsourcing Income Fund is listed on the Toronto Stock Exchange, symbol RBO.UN. www.resolvecorporation.com

Forward-Looking Statements

Certain items in this press release may constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund, Resolve or industry results to be materially different from any future results, performance, achievements or opportunities expressed or implied by such forward-looking statements. When used in the press release, such words as "may", "will", "expect", "believe", "plan", "could" and other such similar terminology. These statements reflect current expectations regarding future events and operating performance. Forward-looking statements involve significant risks and uncertainties, and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under "Risk Factors" in the Fund's prospectus dated March 9, 2006. Although the forward-looking statements contained in this press release are based upon what management believes are reasonable assumptions, neither the Fund nor Resolve can assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this press release. Neither the Fund nor Resolve assumes any obligation to update or revise them to reflect new events or circumstances.

(1) EBITDA is not a recognized measure under Canadian generally accepted accounting principles ("Canadian GAAP") and does not have a standardized meaning under Canadian GAAP. Accordingly, this measure may not be comparable to similar measures presented by other issuers. Please refer to the Fund's Management's Discussion and Analysis of Financial Condition and Results of Operations for the period ended March 31, 2006 for additional information concerning this measure and a reconciliation of this measure to net loss and total revenues for the period presented.

Conference Call

A conference call hosted by Lawrence Zimmering, President and CEO, and David Horton, Chief Financial Officer will be held at 11:00 a.m. (EDT) on May 10, 2006 to review these financial results and answer any inquiries from analysts or institutional investors.

To participate in the conference call please dial 1-800-814-4862. A live audio webcast will also be available by following the links at www.newswire.ca/webcast.

For anyone unable to access the scheduled call, a taped rebroadcast will be available until May 17, 2006 by dialing 416-640-1917 or 1-877-289-8525. The access code for the rebroadcast is 21188063 followed by the number sign. An archive version of the webcast will also be available at www.newswire.ca/webcast for three months.



RESOLVE BUSINESS OUTSOURCING
INCOME FUND

INTERIM FINANCIAL STATEMENTS
(unaudited)

First Quarter
March 31, 2006


The accompanying interim financial statements have not been reviewed by an auditor.

RESOLVE BUSINESS OUTSOURCING INCOME FUND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis, which is the responsibility of management, should be read in conjunction with the unaudited consolidated interim financial statements and accompanying notes of Resolve Business Outsourcing Income Fund for the initial period beginning March 17, 2006 and ending March 31, 2006. This discussion contains forward-looking statements. Please see "Forward-Looking Statements" for a discussion of the risks, uncertainties and assumptions relating to these interim financial statements.

In this discussion, the Fund refers to Resolve Business Outsourcing Income Fund and the terms "Resolve" "Company", "we", "us" and "our" refer to Resolve Business Outsourcing Income Fund and, as applicable, Resolve Business Outsourcing Income Fund and its subsidiaries as a group. All financial information in this discussion and analysis is presented in Canadian dollars unless otherwise stated and have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP).

OVERVIEW OF THE FUND

The Fund is an unincorporated, open-ended, limited purpose trust established under, and governed by, the laws of the Province of Ontario on February 12, 2006 by a declaration of trust, as amended and restated on March 9, 2006 (the "Fund Declaration of Trust"). The Fund commenced active operations on March 17, 2006 when it completed an initial public offering of 22,500,000 trust units ("units") at a price of $10.00 per unit and acquired, through Resolve Business Outsourcing Limited Partnership (the "Partnership"), Resolve Corporation and CSRS Holdings Ltd. ("CSRS") and their respective subsidiaries using the net proceeds of the offering, $86,000,000 borrowed on a senior term loan and 469,878 additional units. The prior owners of Resolve Corporation and CSRS have retained a 29.5% limited partnership interest in the Partnership, which owns the operating companies that carry on the Resolve business, and the Fund indirectly owns the remaining 70.5% limited partnership interest in the Partnership. The interest of the prior owners is represented by 9,614,622 Class B LP Units of the Partnership, which can be exchanged on a one-for-one basis for units of the Fund pursuant to certain conditions as described in the final prospectus of the Fund dated March 9, 2006.

OVERVIEW OF THE BUSINESS

Resolve is a trusted provider of customized outsourced business solutions to businesses and governments across North America. This market involves the contracting out of essential, but non-core business processes to specialized third party service providers. Resolve's end-to-end outsourcing services include loan administration, security registration and search services, credit and loyalty card processing, medical and dental insurance claims processing, call centre services, marketing and promotional services and supply chain management and fulfillment.

Resolve seeks to expand its business through two primary methods. The first and primary driver is organic growth through the expansion of relationships with our more than 1,000 current clients across North America. Organic growth will also be driven by the addition of new clients to Resolve. The Company will seek to acquire these new clients by leveraging its industry knowledge and relationships, product and service expertise, reputation in the marketplace and its extensive infrastructure. Contracts acquired through these primary sales strategies will include larger integrated service agreements as well as single product line contracts. The second driver of business growth is through strategic accretive acquisitions. The strategic rationale for accretive acquisitions will be to enhance our geographic presence, add depth and scale within a specific sector or industry and increase our business process service offerings.

Resolve seeks to operate a stable and predictable business model. The business operates with a large number of clients, with a diverse portfolio of product offerings within several different industries that limits exposure to individual changes in market conditions or customer relationships. Additionally, a substantial portion of our revenues are derived from recurring monthly charges to our clients under service agreements with initial terms ranging from one to five years.

The Company employs approximately 3,900 people in 25 locations in Canada and the United States, offering business process outsourcing services to industry sectors across North America, including financial services, retail, consumer goods and manufacturing, governments and specialty markets. The Company is a trusted supplier to clients across all four of its service lines due to its specialized expertise as a single source provider of customized outsourced solutions.

BASIS OF MANAGEMENT'S DISCUSSION AND ANALYSIS

The Fund was established on February 12, 2006 and acquired all of the securities and assets of Resolve Corporation and CSRS on March 17, 2006. Accordingly, the Fund's initial period of operation ended March 31, 2006 constituted only a 15 day period. Comparative results for the 15 day period ended March 31, 2006 are not available for the Fund. Pro forma revenue, cost of sales, gross profit and selling general and administrative expenses are included for the three month period ended March 31, 2006 and March 31, 2005. Historical consolidated financial statements for both Resolve Corporation and CSRS for periods ended December 31, 2005 and pro forma financial statements of the Fund as of and for the year ended December 31, 2005 giving effect to the offering and the acquisition of Resolve Corporation and CSRS are contained in the final prospectus of the Fund dated March 9, 2006. The interim consolidated financial statements included herein should be read in conjunction with the financials statements contained in that prospectus.

CONSOLIDATED REVIEW

FOR THE 15 DAY PERIOD ENDED MARCH 31, 2006

For the 15 day period ended March 31, 2006, revenue totaled $12.0 million. Gross profit totaled $4.1 million or 34.1% of revenues, selling general and administrative expenses totaled $2.2 million or 18.7% of revenues, depreciation totaled $0.3 million and amortization totaled $1.0 million. Interest expense totaled $0.2 million. Non-controlling interest totaled $0.1 million and unrealized loss on foreign exchange contracts totaled $1.0 million for the 15 day period. Income tax benefit totaled $0.4 million.



SELECTED FINANCIAL INFORMATION
FOR THE 15 DAY PERIOD ENDING MARCH 31, 2006 (unaudited)
(thousands of Canadian dollars)
15 Day
Period
Ended
March
31, 2006
----------
Total revenues $ 12,019
Direct costs 7,915
------------------------------------------------------------------------
Gross profit 4,104
Selling, general and administrative expenses 2,244
------------------------------------------------------------------------
EBITDA(1) $ 1,860

Adjustments to EBITDA:
Non-controlling interest share of loss 51
Income taxes 445
Depreciation (303)
Amortization (949)
Interest expense (217)
Other expense (1,006)
------------------------------------------------------------------------
Net loss for the period $ (119)
------------------------------------------------------------------------

------------------------------------------------------------------------
Net loss per unit, basic and diluted $ 0.00
------------------------------------------------------------------------

------------------------------------------------------------------------
Gross profit margin (as a % of revenues) 34.1%
Selling, general and administrative expenses
(as a % of revenues) 18.7%
EBITDA margin (as a % of revenues) 15.5%
------------------------------------------------------------------------
Total assets at period-end $ 545,433
Total long-term liabilities at period-end $ 275,220
------------------------------------------------------------------------

------------------------------------------------------------------------
Average foreign exchange rate (CA$ per US$1.00) 1.1659
------------------------------------------------------------------------
------------------------------------------------------------------------


Notes

(1) EBITDA (earnings before interest, taxes, depreciation and amortization) is not a recognized measure under generally accepted accounting principles (GAAP) and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may not be comparable to similar measures presented by other funds. EBITDA is an integral part of our planning and reporting systems to evaluate operating performance. We believe EBITDA is a reasonable operating measure because of the low capital intensity of our service operations. EBITDA excludes the impact of other expense relating to an unrealized loss on foreign exchange contracts.

RESULTS OF OPERATIONS

For the 15 day ended March 31, 2006

Revenues.

Revenues for the 15 day period ended March 31, 2006 of $12.0 million were in line with management expectations. Historically, revenue has experienced modest seasonal fluctuations due to the seasonal nature of some of our customers' underlying businesses. The seasonality of our business is as follows: the first and fourth quarter are historically lower then the second and third quarters. We expect this trend to continue.

Direct costs.

Direct costs for the 15 day period ended March 31, 2006 were $7.9 million. Direct costs and gross profit were in line with management's expectations.

Selling, general and administrative expenses.

Selling, general and administrative expenses for the 15 day period ended March 31, 2006 were $2.2 million. Selling, general and administrative expenses were as management expected.

EBITDA.

EBITDA for the 15 day period ended March 31, 2006 was $1.9 million or 15.5% of revenues for the period as management expected.

Non-controlling Interest.

Non-controlling interest represented by the 9,614,622 Class B LP units of the Partnership outstanding following the completion of the Fund's initial public offering for the 15 day period ended March 31, 2006 was $0.1 million.

Interest expense.

Interest expense for the 15 day period ended March 31, 2006 was $0.2 million. On March 17, 2006, Resolve entered into $111,000,000 senior secured credit facilities, which include a revolving facility of $25.0 million and $86.0 million under a four year term facility. There is no scheduled repayment of the $86.0 million facility during the term and as at March 31, 2006 there were no drawings under the revolving facility.

Depreciation and amortization.

Depreciation and amortization expense for the 15 day period ended March 31, 2006 was $1.3 million. This expense is made up of $0.3 million of depreciation on property, plant and equipment and $1.0 million of amortization on intangibles assets that were identified when the Fund acquired Resolve and CSRS. The expense for the period is in line with management's expectations.

Income taxes.

The income tax benefit booked for the 15 day period ended March 31, 2006 was $0.4 million.

Other expense.

Other expenses for the 15 day period ended March 31, 2006 were $1.0 million for the unrealized loss on foreign exchange contracts. In March of 2006, after completion of the Fund's initial public offering, management entered into a single rate agreement fixing the exchange rate at CA $1.135 per US $1.00. The contracts mature monthly over a period of three years beginning on May 30, 2006. The contracts partially hedge against foreign exchange risk on US dollar-denominated customer contracts.

Net loss.

The Fund reported net loss of $0.1 million for 15 day period ended March 31, 2006.



DISTRIBUTABLE CASH
FOR THE 15 DAY PERIOD ENDING MARCH 31, 2006 (unaudited)
(thousands of Canadian dollars)

15 Day
Period
Ended
March
31, 2006
----------
Net loss $ (119)
Adjustments to net loss:
Non-controlling interest share of loss (51)
Future income taxes (418)
Depreciation 303
Amortization(3) 949
Deferred revenue(3) 724
Unrealized loss on foreign exchange contracts 1,006
Maintenance capital expenditures (198)
------------------------------------------------------------------------
Total cash available for distribution (distributable cash)(1) $ 2,196
-------------------------------------------------------------------------
Distributable cash per unit(2) $ 0.06
-------------------------------------------------------------------------


Notes

(1) Distributable cash is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP. Canadian open-ended trusts, such as the Fund, use distributable cash and distributable cash per unit as indicators of financial performance. Distributable cash and distributable cash per unit may differ from similar computations reported by other entities and, accordingly, may not be comparable to distributable cash and distributable cash per unit as reported by such entities. Management believes that distributable cash and distributable cash per unit are useful supplemental measures that may assist investors in assessing financial performance and the cash generated by the Fund that is available to unitholders for distribution.

(2) Distributable cash per unit is based on distribution of cash to
22,969,878 trust units and 9,614,622 Class B LP units. Additional information regarding the trusts units and Class B LP units can be found in the final prospectus of the Fund dated March 9, 2006.

(3) As a result of the recent initial public offering, the Fund will have significant adjustments to its balance sheet that will result in an increase in distributable cash for several years. These adjustments for the fiscal year ending December 31, 2006 will include a deferred revenue adjustment of $14.6 million and increased amortization expenses of $18.7 million.



SELECTED PRO FORMA FINANCIAL INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31, 2005 (unaudited)
(thousands of Canadian dollars)

Three Three
Months Months
Ended Ended
March March
31, 2006 31, 2005
Total revenues $ 67,613 $ 67,327
Direct costs 48,652 49,801
------------------------------------------------------------------------
Gross profit - $ 18,961 17,526
Gross profit - % 28.0% 26.0%
Selling, general and administrative expenses 17,681 12,258
Depreciation and amortization 5,432 5,420
------------------------------------------------------------------------
Loss before interest, other income and taxes $ (4,152) $ (152)


PRO FORMA PERIOD

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31, 2005

The amounts shown above are for information purposes only. Resolve Business Outsourcing Income Fund is the result of multiple acquisitions whose historical businesses had a different basis of financial statement presentation, different accounting periods, different operating structures resulting significant differences in selling, general and administrative costs and cost of revenue and purchase price changes that resulted in adjustments to deferred revenue and intangible asset amortization that make the amounts not comparable on a year-over-year basis. In particular selling, general and administrative expenses for the three months ended March 31, 2006 include a significant amount of initial public offering and pre-initial public offering costs.

OUTSTANDING UNIT DATA

As at March 31, 2006, and at the date of this management's discussion and analysis the Fund had 22,969,878 outstanding trust units and 9,614,622 trust units were issuable upon the exchange of an equivalent number of Class B LP units of Resolve Business Outsourcing Limited Partnership. Information regarding the trust units and Class B LP units can be found in the final prospectus of the Fund dated March 9, 2006.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The following table provides an overview of Resolve's cash flows for the period indicated:



15 Day
Period
Ended
March
(Unaudited) 31, 2006
------------------------------------------------------------------------
Cash provided by (used in)
Net cash provided by operating activities $ 3,355
Net cash used in investing activities (191,673)
Net cash provided by financing activities 198,923
Effect of exchange rate changes (268)
------------------------------------------------------------------------
Increase in cash and cash equivalents during the period $ 10,338
------------------------------------------------------------------------


Cash provided by operating activities

Cash provided by operating activities for the 15 day period ended March 31, 2006 was $3.4 million.

Cash used in investing activities

Upon completion of the Fund's initial public offering on March 17, 2006, the Fund used $191,871 to acquire Resolve Corporation and CSRS.

Capital expenditures for the 15 day period ended March 31, 2006 were $0.2 million, all of which related to maintenance capital expenditures.

Cash provided by financing activities

On March 17, 2006, the Fund completed its initial public offering and issued 22,500,000 trust units, receiving net proceeds of $207.9 million after deducting underwriters' fees and other unit issuance costs.

Upon completion of the offering, the Fund entered into a new credit agreement that provides for an $86.0 million term facility and a $25.0 million revolving credit facility. The Fund immediately utilized the $86.0 million term facility. The $86.0 million from the term facility and cash on hand from the offering was used to retire previously existing debt of $93.9 million and to pay expenses related to the credit facility of $1.1 million.

Resolve has fixed the interest rate on a portion of the term loan ($65.0 million) through a swap agreement, resulting in an effective interest rate of 6.49%. The swap's maturity date was set to coincide with the maturity date of the term loan. Hedge accounting is being applied in the treatment of this agreement.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting estimates are those that management deems to be most important to the portrayal of the Fund's financial condition and results of operations, and that require management's most difficult, subjective or complex judgments, due to the need to make estimates about the effects of matters that are inherently uncertain. We have identified certain critical accounting estimates: revenue recognition, goodwill and intangible asset impairment testing, accounting for acquisitions, amortization of intangible assets, accounts receivable allowances and accounting for income taxes.

Service fee revenue comprises registration revenue that is deferred and recognized on a straight-line basis over the registration term. Fee revenue related to searches and disbursement revenue related to registration transactions are recognized as the related fees and disbursements are incurred.

Annual goodwill and intangible impairment asset testing requires judgment on the part of management. Goodwill and intangible asset impairment testing involves making estimates concerning fair value and then comparing the fair value to the carrying amount of assets. Estimates of fair value can be impacted by sudden changes in the business environment or prolonged economic downturns, and therefore require significant management judgment in their determination.

Amortization of intangible assets requires management to make estimates of useful lives and to select methods of amortization. Useful lives and methods of amortization are determined at the time these assets are initially acquired, and then are re-evaluated each reporting period. Significant judgment is required to determine whether events and circumstances warrant a revision to remaining periods of amortization. Changes to estimated useful lives and methods of amortization could result in increases or decreases in amortization expense.

Accounts receivable allowances are determined using a combination of historical experience, current information, and management's judgment. Actual collections may differ from our estimates.

Income taxes are calculated based on the expected treatment of transactions recorded in the unaudited interim consolidated financial statements. In determining current and deferred components of income taxes, we interpret tax legislation and make assumptions about the timing of the reversal of deferred tax assets and liabilities. If our interpretations differ from those of tax authorities or if the timing of reversals is not as anticipated, the provision for income taxes could increase or decrease in future periods.

RECENT CANADIAN ACCOUNTING PRONOUNCEMENTS

In an effort to standardize Canadian GAAP with U.S. GAAP, the Canadian Institute of Chartered Accountants has recently issued new Handbook sections:

- 1530, Comprehensive Income;

- 3855, Financial Instruments - Recognition and Measurement; and

- 3865, Hedges

Under these new standards, all financial assets should be measured at fair value with the exception of loans, receivables and investments that are intended to be held to maturity and certain equity investments, which should be measured at cost. Similarly, all financial liabilities should be measured at fair value when they are held for trading or they are derivatives. Gains and losses on financial instruments measured at fair value will be recognized in the income statement in the periods they arise with the exception of gains and losses arising from:

- Financial assets held for sale, for which unrealized gains and losses are deferred in other comprehensive income until sold orimpaired; and - Certain financial instruments that qualify for hedge accounting

Sections 3855 and 3865 make use of "other comprehensive income". Other comprehensive income comprises revenues, expenses, gains and losses that are excluded from net income. Unrealized gains and losses on qualifying hedging instruments, foreign currency, and unrealized gains or losses on financial instruments held for sale will be included in other comprehensive income and reclassified to net income when realized. Comprehensive income and its components will be a required disclosure under the new standard. These standards are effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006.

FINANCIAL INSTRUMENTS

We use financial instruments as part of our strategy to manage the risk associated with currency exchange rates and interest rate risks. We do not use financial instruments for trading or speculative purposes. We use foreign exchange contracts to fix US dollar revenues relative to Canadian dollar expenses and interest rate swaps agreements to lock variable rate debt at a fixed amount. As at March 31, 2006, we had foreign exchange contracts in place to purchase CA $60.0 million over the next three years. Gains and losses on the contracts are included in other (income)/expense. The interest rate swap is considered highly effective in hedging our exposure to interest rate fluctuations.

RISK FACTORS

The results of operations and financial condition of the Fund are subject to a number of risks and uncertainties, and are affected by a number of factors outside the control of management of the Fund. For a complete discussion of the risks affecting the business of the Fund, please see "Risk Factors" described in the final prospectus of the Fund dated March 9, 2006.

OUTLOOK

Resolve Business Outsourcing Income Fund's long term objective is to provide stable operating results while providing incremental growth in distributions through solid revenue growth annually. While we believe the long term growth outlook is favourable, the acquisition of larger integrated services agreements and other business forces may result in variances on a short term basis.

Resolve operates a number of contracts for businesses which have peak demand periods, resulting in some seasonality on a quarter-to-quarter basis. Resolve expects earnings to have peak periods in the second and third quarters.

As disclosed above, Resolve has entered in foreign exchange contracts in an effort to provide consistent and stable cash flow to our unitholders. Fluctuation in exchange rates between the Canadian and US dollar may result in significant non-cash adjustments to income on a quarter-to-quarter basis.

FORWARD LOOKING STATEMENTS

Certain statements in this management discussion and analysis may constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, achievements, or opportunities expressed or implied by such forward-looking statements. When used in this MD&A, such statements use such words as "may", "will", "estimate", "expect", "anticipate", "believe", "intend", "plan", "could" and other similar terminology. These unaudited interim consolidated financial statements reflect current expectations regarding future events and operating performance and speak only as of the date of this MD&A. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, loss of customers and increased competition. A list of other risk factors can be found in the Fund's final prospectus dated March 9, 2006 under "Risk Factors". Although the forward-looking statements contained in this MD&A are based upon what management believes are reasonable assumptions, the Company can not assure 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 the Company assumes no obligation to update or revise them to reflect new events or circumstances.

ADDITIONAL INFORMATION

Additional information relating to the Fund, including all public filings, is available on SEDAR (www.sedar.com).



RESOLVE BUSINESS OUTSOURCING INCOME FUND
INTERIM CONSOLIDATED BALANCE SHEET
(in thousands of Canadian dollars)
------------------------------------------------------------------------
March
As at 31, 2006
------------------------------------------------------------------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 10,338
Accounts receivable - net of allowance of $826 62,009
Assets related to settlement 4,126
Income taxes recoverable 2,037
Inventories 2,617
Prepaid expenses and other assets 5,153
Future income taxes 218
------------------------------------------------------------------------
86,498
------------------------------------------------------------------------
Property plant and equipment (note 4) 23,506
Future income taxes 7,667
Intangible assets (note 5) 242,176
Goodwill 185,586
------------------------------------------------------------------------
458,935
------------------------------------------------------------------------
$ 545,433
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities
Current liabilities
Other accrued liabilities $ 33,640
Customer deposits 15,150
Income taxes payable 167
Deferred revenues 4,008
Liabilities related to settlement 4,126
------------------------------------------------------------------------
57,090
------------------------------------------------------------------------
Long-term debt - non-current (note 6) 86,000
Fair value of derivative 1,006
Deferred revenue - non-current 5,531
Future income taxes 85,914
Non-controlling interest 96,095
Other non-current liabilities 674
------------------------------------------------------------------------
275,220
------------------------------------------------------------------------
Unitholders' equity
Fund units 212,616
Deficit (119)
Foreign currency translation adjustments 625
------------------------------------------------------------------------
213,122
------------------------------------------------------------------------
$ 545,433
------------------------------------------------------------------------
------------------------------------------------------------------------


The accompanying notes are an integral part of these interim consolidated financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
INTERIM CONSOLIDATED STATEMENT OF EARNINGS
(in thousands of Canadian dollars)
For the
period
ended
March
31, 2006
------------------------------------------------------------------------
(unaudited)
Revenues $ 12,019
Direct costs 7,915
------------------------------------------------------------------------
Gross profit 4,104
Selling, general and administrative expenses 2,244
Depreciation 303
Amortization 949
Interest expense 217
Unrealized loss on foreign exchange contracts 1,006
------------------------------------------------------------------------
Loss before income taxes and non-controlling interest (615)
Income taxes (445)
------------------------------------------------------------------------
Loss before non-controlling interest (170)
Non-controlling interest share of loss (51)
------------------------------------------------------------------------
Net loss for the period $ (119)
------------------------------------------------------------------------
------------------------------------------------------------------------
Fund units 22,969,878
Class B LP units 9,614,622
------------------------------------------------------------------------
32,584,500
------------------------------------------------------------------------
Basic loss/unit $ 0.00
Diluted loss/unit $ 0.00


The accompanying notes are an integral part of these interim consolidated financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
INTERIM CONSOLIDATED STATEMENT OF CASH FLOW
(in thousands of Canadian dollars)
Period
Ended
March
31, 2006
(unaudited)
Cash provided by (used in)
Operating activities
Net loss $ (119)
Items not affecting cash:
Depreciation 303
Amortization 949
Future income taxes (418)
Non-controlling interest share of loss (51)
Unrealized loss on foreign currency translation 1,016
Changes in operating assets and liabilities:
Accounts receivable (3,834)
Inventories (325)
Prepaid expenses and other 2,240
Accounts payable and accrued liabilities 2,871
Deferred revenues 724
-----------------------------------------------------------------------
Net cash provided by operating activities 3,355
-----------------------------------------------------------------------
Investing activities
Acquisitions of businesses, net of cash acquired of
$7.1 million (191,871)
Purchases of property, plant and equipment 198
-----------------------------------------------------------------------
Net cash used in investing activities (191,673)
-----------------------------------------------------------------------
Financing activities
Initial public offering of fund units; net of expenses 207,918
Repayment of acquired Resolve and CSRS debt (93,869)
Increase in long term debt 86,000
Payment of bank financing fees (1,125)
-----------------------------------------------------------------------
Net cash provided by financing activities 198,923
-----------------------------------------------------------------------
Effect of exchange rate changes (268)
Increase in cash and cash equivalents
during the period 10,338
-----------------------------------------------------------------------
Cash and cash equivalents; beginning of period -
-----------------------------------------------------------------------
Cash and cash equivalents; end of period $ 10,338
-----------------------------------------------------------------------
-----------------------------------------------------------------------


The accompanying notes are an integral part of these interim consolidated financial statements.



RESOLVE BUSINESS OUTSOURCING INCOME FUND
INTERIM CONSOLIDATED STATEMENT OF UNITHOLDERS' EQUITY
(in thousands of Canadian dollars)
For the period ended March 31, 2006 (unaudited)
------------------------------------------------------------------------
Unitholders' Accumulated
Capital Loss Other Total
------------------------------------------------------------------------
Issuance of units on
initial public
offering $ 225,000 $ - $ - $ 225,000
Additional public
units issued as
consideration 4,699 - - 4,699
Issuance cost (4,707) - - (4,707)
Underwriters fee (12,375) - - (12,375)
Net loss for the
period - (119) - (119)
Foreign currency
translation
adjustment - - 625 625
------------------------------------------------------------------------
Balance, end
of period $ 212,616 $ (119) $ 625 $ 213,122
------------------------------------------------------------------------
------------------------------------------------------------------------


The accompanying notes are an integral part of these interim consolidated financial statements.

1) Organization and Nature of Business

The Fund is an unincorporated, open-ended, limited purpose trust established under, and governed by, the laws of the Province of Ontario on February 12, 2006 by a declaration of trust, as amended and restated on March 9, 2006 (the "Fund Declaration of Trust"). The Fund commenced active operations on March 17, 2006 when it completed an initial public offering of 22,500,000 trust units ("units") at a price of $10.00 per unit and acquired, through Resolve Business Outsourcing Limited Partnership (the "Partnership"), Resolve Corporation and CSRS Holdings Ltd ("CSRS") and their respective subsidiaries using the net proceeds of the offering, $86,000,000 borrowed on a senior term loan and 469,878 additional trust units. The prior owners of Resolve Corporation and CSRS have retained a 29.5% limited partnership interest in the Partnership, which owns the operating companies that carry on the Resolve business, and the Fund indirectly owns the remaining 70.5% limited partnership interest in the Partnership. The interest of the prior owners is represented by 9,614,622 Class B LP Units of the Partnership, which can be exchanged on a one-for-one basis for units of the Fund pursuant to certain conditions as described in the final prospectus of the Fund dated March 9, 2006.

Resolve is a trusted provider of customized outsourced business solutions to businesses and governments across North America. This market involves the contracting out of essential, but non-core business processes to specialized third-party service providers. Resolve's end-to-end outsourcing services include loan administration, security registration and search services, credit and loyalty card processing, medical and dental insurance claims processing, call centre services, marketing and promotional services and supply chain management and fulfillment. Resolve seeks to expand its business through two primary methods. The first and primary driver is organic growth through the expansion of relationships with our more than 1,000 current clients across North America. Organic growth will also be driven by the addition of new clients to Resolve. The Company will seek to acquire these new clients by leveraging its industry knowledge and relationships, product and service expertise, reputation in the marketplace and its extensive infrastructure. Contracts acquired through these primary sales strategies will include larger integrated service agreements as well as single product line contracts. The second driver of business growth is through strategic accretive acquisitions. The strategic rationale for accretive acquisitions will be to enhance geographic presence, add depth and scale within a specific sector or industry and increase our business process service offerings.

Resolve seeks to operate a stable and predictable business model. The business operates with a large number of clients, with a diverse portfolio of product offerings within several different industries that limits exposure to individual changes in market conditions or customer relationships. Additionally, a substantial portion of our revenues are derived from recurring monthly charges to our clients under service agreements with initial terms ranging from one to five years.

The Company employs approximately 3,900 people in 25 locations in Canada and the United States, offering business process outsourcing services to industry sectors across North America, including financial services, retail, consumer goods and manufacturing, governments and specialty markets. The Company is a trusted supplier to clients across all four of its service lines due to its specialized expertise as a single source provider of customized outsourced solutions.

2) Basis of Presentation
The Fund prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles. The disclosure contained in these unaudited interim consolidated financial statements do not include all requirements of Canadian generally accepted accounting principles for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the final prospectus of the Fund dated March 9, 2006 (the prospectus) and the consolidated financial statements of Resolve and CSRS Holdings included in the prospectus. In the opinion of management, the accompanying unaudited interim consolidated financial statements include all adjustments of a normal, recurring nature to present fairly the consolidated financial position of the Fund as at March 31, 2006. These unaudited interim consolidated financial statements reflect the results of operations for the 15 day period ended March 31, 2006. As the Fund commenced active operations on March 17, 2006, no comparative information is provided.

3) Issuance of Fund Units and Acquisition
The Fund commenced operations on March 17, 2006 when it completed an initial public offering of 22,500,000 trust units at a price of $10.00 per unit and indirectly acquired approximately 70.5% ownership interest in Resolve and CSRS Holdings, held through Resolve Business Outsourcing Limited Partnership. The prior owners of Resolve and CSRS Holdings retained a 29.5% ownership interest in Resolve Business Outsourcing LP. The acquisition has been accounted for by the purchase method with the results of Resolve's and CSRS's operations included in the Fund's earnings from the date of acquisition. The interim consolidated statement of earnings includes the results of operations for the 15 day period from

March 17, 2006 to March 31, 2006. The purchase price allocation is preliminary and subject to change. These interim consolidated financial statements reflect the assets and liabilities of the Fund at assigned fair values as follows:



(in thousands of Canadian dollars) Resolve CSRS Total
--------------------------------
Cash purchase consideration $ 107,835 $ 92,214 $ 200,049
Class B LP units 36,452 64,393 100,845
(Less) cash acquired (7,490) 438 (7,052)
------------------------------------------------------------------------
Net purchase consideration: 136,795 157,045 293,842
------------------------------------------------------------------------
Allocation:
Net working capital 19,665 1,773 21,439
Intangible assets 70,502 172,623 243,124
Goodwill 87,301 97,757 185,058
Property, plant and equipment 21,589 2,054 23,643
Debt (30,513) (63,357) (93,870)
Post-employment benefits liability (1,626) - (1,626)
Deferred revenues - non-current - (5,142) (5,142)
Net future income taxes (30,123) (48,663) (78,784)
------------------------------------------------------------------------
Net assets acquired $ 136,795 $ 157,045 $ 293,842
------------------------------------------------------------------------
------------------------------------------------------------------------

4) Property, Plant and Equipment
(in thousands of Canadian dollars) Accumulated
As at March 31, 2006 (unaudited) Cost Depreciation Net
------------------------------------------------------------------------
Land $ 470 $ - $ 470
Buildings 2,124 4 2,120
Vehicles 42 1 40
Furniture and equipment 11,751 158 11,593
Computer equipment and software 5,186 90 5,096
Leasehold improvements 4,236 50 4,186
------------------------------------------------------------------------
Total $ 23,809 $ 303 $ 23,506
------------------------------------------------------------------------
------------------------------------------------------------------------

5) Intangibles
(in thousands of Canadian dollars) Accumulated
As at March 31, 2006 (unaudited) Cost Amortization Net
------------------------------------------------------------------------
Customer Relationships $ 146,000 $ 389 $ 145,611
Software 55,000 314 54,686
Deferred Financing Fees 1,125 11 1,114
Technology 41,000 234 40,766
------------------------------------------------------------------------
Total $ 243,125 $ 949 $ 242,176
------------------------------------------------------------------------
------------------------------------------------------------------------


Amortization on intangible assets is recorded on a straight-line basis over the following life; (customer relationships 15 years, software and technology 7 years and deferred financing fees 4 years).



6) Long- term debt
(in thousands of Canadian dollars) March 31, 2006
-----------------------------------------------------------------------
Long-term debt due to third parties $ 86,000
Capital lease obligations -
-----------------------------------------------------------------------
86,000
Less: current portion -
-----------------------------------------------------------------------
Total $ 86,000
-----------------------------------------------------------------------
-----------------------------------------------------------------------


On closing, the Fund entered into two secured credit facilities, which include a revolving credit facility of up to $25 million and a four year term credit facility of $86 million. The term facility carries a variable interest rate and is repayable at maturity. The effective interest rate as at March 31, 2006, was 6.26%. The Partnership has not yet drawn any funds from the revolving facility. To mitigate its exposure to variable interest rates, the Partnership also entered into an interest rate swap agreement. The swap fixes the interest on a portion of the term loan ($65 million), resulting in an effective interest rate of 6.49%. The swap's maturity date is set to coincide with the maturity of the term loan.

7) Commitments and Contingencies

The annual commitments as of March 31, 2006 are as follows:



Operating Term
Leases Loan
----------------------------------------------------------------------
2006 (9mos. Ending) December 31, 2006 $ 7,466 $ -
2007 9,607 -
2008 8,886 -
2009 6,262 -
2010 5,476 86,000
Thereafter 2,913 -
----------------------------------------------------------------------
Total $ 40,610 $ 86,000
----------------------------------------------------------------------
----------------------------------------------------------------------


8) Related Party

The Fund will pay approximately $0.7 million in annual rent on the Fund's headquarters building, to entities in which certain officers and directors of the Fund have minority equity interests. The Fund will pay approximately $0.6 million in annual rent on the Fund's Burnaby, BC building, to entities in which a director of the Fund has a minority equity interests. These transactions will be completed at market rates.

9) Income taxes

The Fund has recorded a deferred tax liability at the purchase date (March 17, 2006) related to the differences between the values assigned to certain assets for financial reporting and income tax purposes. The deferred tax liability relates to the differences in basis of those assets contributed by the non-controlling shareholders. Resolve continues to evaluate the tax attributes of these assets in order to finalize purchase accounting associated with the acquisition and, therefore, the deferred tax liability is subject to change.

10) Segment information

The Company conducts business in Canada and the United States. Revenues in each geographic segment are reported by customer location.



Period ended
(in thousands of Canadian dollars) March 31, 2006
-------------------------------------------------------------------------
(unaudited)
Canada
Revenues $ 8,539
-------------------------------------------------------------------------
Total long-lived assets $ 402,552
-------------------------------------------------------------------------
United States
Revenues 3,480
-------------------------------------------------------------------------
Total long-lived assets 48,716
-------------------------------------------------------------------------
Consolidated
evenues $ 12,019
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total long-lived assets $ 451,268
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Contact Information

  • Investor Inquiries:
    Resolve Corporation
    David Horton
    Chief Financial Officer
    (416) 503-1800
    Website: www.resolvecorporation.com

    Media Inquiries:
    Edelman
    Nolan Reeds
    (416) 979-1120 ext 316