- We protect over 150,000 people across North America
- Over 20 years experience in the industry
- One of the few alarm companies to manufacture our own technology
- You deal directly with AlarmForce at all times
- Lowest prices and best value in the business
Financial Information
Reconciliation of adjusted EBITDA to GAAP earnings
EBITDA is defined as earnings before interest expenses, income taxes, depreciation and amortization. EBITDA is a standard measure used in the security industry to assist in understanding and comparing operating results and is often referred to by our competitors. Management views EBITDA as an important measure of operating performance of the Company; however since it does not have any standardized meaning defined by Canadian GAAP, it may not be considered in isolation of GAAP measures such as net income/loss or cash flows, as a measure of liquidity. Management believes, however, that it is an important measure as it allows the Company to assess its ongoing business without the impact of depreciation or amortization expenses. Since EBITDA is not a defined term under Canadian GAAP, it is unlikely to be comparable to similar measures presented by other issuers.
Most companies in the residential security industry purchase subscriber accounts and capitalize those acquisition costs amortizing them over the term of the subscriber contract. AlarmForce is one of the few companies whose growth is internally generated and therefore the accounting treatment is not directly comparable. AlarmForce’s annual budget for marketing expenditure has increased steadily, reflecting an acceleration of new subscriber account creation and due to the discretionary nature of the marketing budget, the Company provides the following reconciliation of Adjusted EBITDA to GAAP net income figures reported for the three years 2004-2006 below.
| 2006 $ |
2005 $ |
2004* $ |
|
| EBITDA (incl. marketing expenditures) | 11,396,811 | 9,156,566 | 6,718,327 |
| Less: marketing expenditures | 6,179,652 | 4,786,242 | 3,668,187 |
| EBITDA | 5,217,159 | 4,370,324 | 3,050,140 |
| Less Amortization of property, plant and equipment | 1,821,279 | 2,185,598 | 1,598,352 |
| Less Amortization of intangible assets | 754,173 | 752,577 | 490,412 |
| Less Amortization of deferred charges | 9,591 | 9,592 | 10,404 |
| Less Foreign Exchange loss on consolidation | 40,346 | 35,145 | |
| Less Interest expense | 82,072 | 96,850 | 146,740 |
| Income before income taxes | 2,509,697 | 1,290,563 | 804,232 |
| Less income taxes | 1,017,361 | 480,349 | 500,632 |
| Net income (loss) | 1,492,336 | 810,214 | 303,600 |
* Restated to reflect the change in accounting policy in 2005
5. RESULTS OF OPERATIONS
Sales
Total revenues were $20,964,877 in the fiscal year 2006 compared to $17,227,494 in fiscal 2005, which was an increase of $3,737,383 million. The 22% increase is primarily attributable to the increase in monthly recurring revenue that increased by $3,294,879 in the same period in 2005. This is consistent with the increased number of new subscribers in the current year. The number of subscribers during the year increased from approximately 57,000 to 66,300, up 16%.
Cost of sales
Cost of sales was $ 4,506,042 for the fiscal year 2006 compared to $3,688,697 in fiscal 2005, which was an increase of $817,345. The 22% increase is primarily attributable to increases in technical field service expenses, technical support costs and demand for peripheral equipment and add-on equipment as a result of the proportionate increase in the subscriber
accounts. The cost of sales as a percentage of revenue remained fixed at 21% for both fiscal year 2006 and 2005.