Rainmaker Income Fund
TSX : RNK.UN

Rainmaker Income Fund

November 14, 2006 20:11 ET

Rainmaker Income Fund Reports Results for the Third Quarter Ended September 30, 2006

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 14, 2006) - Rainmaker Income Fund (the "Fund") (TSX:RNK.UN) reports the results for the three and nine months ended September 30, 2006. All amounts are in Canadian dollars.

Selected financial results



All amounts are in 000's of dollars, except per unit figures

Three months Nine months
ended September 30, ended September 30,
2006 2005 2006 2005
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Revenue
Rainmaker LP
Post production $ 3,733 $ 4,262 $ 9,250 $ 8,999
Visual Effects 3,215 1,917 $ 11,450 $ 4,234
Other - 310 105 939
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6,948 6,489 20,805 14,172
EP Canada LP (Note 1) 3,494 2,555 7,188 2,555
Canada Film Capital LP (Note 1) 647 457 2,278 457
Mainframe (Note 2) 1,690 - 1,690 -
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12,779 9,501 31,961 17,184
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Expenses
Operating 10,309 5,770 24,786 12,953
General and administration 479 391 1,597 799
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10,788 6,161 26,383 13,752
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Earnings before
undernoted items 1,991 3,340 5,578 3,432
Depreciation and
amortization 1,744 1,150 4,609 2,845
Other 207 143 147 125
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Earnings before income tax 40 2,047 822 462
Income tax expense (recovery) - 15 - (231)
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Earnings before
non-controlling interest 40 2,032 822 693
Non-controlling interest 258 (44) 244 37
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Net earnings for the period $ 298 $ 1,988 $ 1,066 $ 730
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Distributable cash $ 951 $ 2,705 $ 5,266 $ 1,895
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Distributable cash - per unit $ 0.06 $ 0.18 $ 0.31 $ 0.15
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Distributions declared $ 0.12 $ 0.12 $ 0.36 $ 0.36
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Note 1: The results of operations for the three and nine months ended
September 30, 2005 include the results of operations for EP
Canada and Canada Film Capital from August 4, 2005, the date of
acquisition

Note 2: The results of operations for the three and nine months ended
September 30, 2006 include the results of operations for
Mainframe from July 31, 2006, the date of acquisition


Distributable cash is not a term defined under Canadian generally accepted accounting principles. The Fund defines distributable cash as cash flow from operations before the change in non-cash operating working capital items adjusted for certain investing activities, including purchases and proceeds on sale of property, plant and equipment and for certain financing activities including repayment of and proceeds from capital leases. The Fund believes that distributable cash is a useful measure used by investors in assessing performance of the Fund and its ability to generate sufficient cash flow to pay distributions.

Results of Operations

Three months ended September 30, 2006 compared with September 30, 2005

Revenue

Revenue increased $3.3 million to $12.8 million in 2006 from $9.5 million in 2005. The increase in 2006 was due principally from the acquisition of Mainframe, which accounted for an increase of $1.7 million and from the operations of EP Canada and Canada Film Capital which accounted for an increase of $1.1 million as they were acquired on August 4, 2005 and therefore, the three months ended September 30, 2005 only included two months of operations. In addition, Rainmaker's visual effects services produced an increase in revenue of $1.3 million, which includes $0.2 million for the London office, to $3.2 million in 2006 from $1.9 million in 2005 as services on two significant feature film projects, Night at the Museum and Blades of Glory, were in progress. Offsetting the increase in revenue was a decrease in post production services revenue of Rainmaker by $0.5 million resulting from projects in 2006 being spread more evenly throughout the year whereas in 2005, the first two quarters were slow with an unusually sharp increase in revenue for the third quarter. Finally there was a decline of $0.3 million resulting from the sale of The Crossing Studio in January 2006.

Operating and general and administration expenses

Operating costs increased $4.5 million to $10.3 million in 2006 from $5.8 million in 2005. The increase was principally due to the acquisition of Mainframe which accounted for an increase of $2.1 million, the office in London for $0.5 million, the increased costs in Rainmaker LP, principally in visual effects, were $0.8 million as higher compensation costs were incurred to develop the infrastructure for more complex feature film work. Finally Rainmaker incurred severance cost of $0.7 million.

General and administration expenses increased $0.1 million to $0.5 million in 2006 from $0.4 million in 2005 due to the acquisition of Mainframe.

Depreciation and Amortization

Depreciation and amortization of property, plant and equipment and intangible assets increased $0.6 million in 2006 to $1.7 million as compared to $1.1 million in 2005. The acquisition of Mainframe accounted for $0.2 million of the increase. The balance relates to higher depreciation and amortization in EP Canada, which was acquired in August 2005.

Net earnings for the period

Net earnings for the three months ended September 30, 2006 decreased $1.7 million to $0.3 million in 2006 from $2.0 million in 2005. The decrease was due mostly to the acquisition of Mainframe, which reported a net loss of $0.6 million for the two months from the date of acquisition of July 31, 2006, as a number of projects, including its first animated feature film were pushed back to later in the year, higher costs associated with the expansion of our Vancouver office, the start-up and expansion related costs of the visual effects operation in London resulted in a loss of $0.4 million as we moved to a larger office and hired staff in anticipation of projects commencing in the fourth quarter and severance costs of $0.7 million.

Nine months ended September 30, 2006 compared with September 30, 2005

Revenue

Revenue increased $14.8 million to $32.0 million in 2006 from $17.2 million in 2005. The increase in 2006 was due principally to the turnaround in Rainmaker LP as all services reported higher revenue in 2006 resulting in revenue for Rainmaker LP increasing $7.4 million to $20.7 million from $13.3 million in 2005. Visual effects increased $7.2 million, which includes $1.0 million for the London office, to a record $11.5 million in 2006 as services on The Da Vinci Code and Garfield 2 were completed and work on Night at the Museum and Blades of Glory commenced. In addition EP Canada and Canada Film Capital accounted for an increase in revenue of $6.5 million as the results include nine months of operations as compared to only two months in 2005 following the acquisition on August 4, 2005. Mainframe also accounted for $1.7 million in revenue following its acquisition on July 31, 2006. Finally, the above revenue increases were offset by revenue decrease of $0.8 million following the sale of The Crossing Studio business in January 2006.

Operating and general and administration expenses

Operating costs increased $11.8 million to $24.8 million in 2006 from $13.0 million in 2005. EP Canada and Canada Film Capital, which were not acquired until August 4, 2005, accounted for $4.7 million of the increase, while Rainmaker LP had an increase in operating expenses of $2.5 million to $13.6 million in 2006, which directly resulted from higher revenue. The Mainframe acquisition accounted for an increase of $2.1 million and the London office accounted for $1.3 million. The other significant increase was $0.7 million of severance costs and $0.5 million for other overhead related costs.

General and administration expenses increased $0.8 million to $1.6 million in 2006 from $0.8 million in 2005. EP Canada and Canada Film Capital together directly accounted for $0.4 million, the acquisition of Mainframe accounted for $0.1 million of the increase and the balance was due to higher audit and accounting costs resulting from acquisition related activities and higher costs associated with corporate governance.

Depreciation and Amortization

Depreciation and amortization of property, plant and equipment increased $1.8 million in 2006 to $4.6 million as compared to $2.8 million in 2005. EP Canada, which was not acquired until August 4, 2005, accounted for $0.6 million of the increase and Mainframe accounted for $0.2 million of the increase. In addition the amortization of intangible assets increased $0.7 million in 2006 to $0.9 million from $0.2 million in 2005 as a result of having EP Canada included in operations for nine months as compared with two months in 2005.

Net earnings for the period

Net earnings for the nine months ended September 30, 2006 increased $0.4 million to $1.1 million in 2006 from $0.7 million in 2005. The higher revenue in Rainmaker LP resulted in net earnings of $1.7 million in 2006 compared to a net loss of $0.2 million in 2005, while EP Canada and Canada Film capital contributed an increase of $0.1 million. A number of items contributed to decrease the net earnings in 2006 including Mainframe's loss of $0.6 million, the London office loss of $0.4 million due to its start-up nature and severance costs of $0.7 million. Excluding these items net earnings were $2.8 million for the nine months ended September 30, 2006, compared to $0.7 million in 2005.

Distributable Cash

A reconciliation of distributable cash to the amounts recorded in the financial statements is as follows:



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All in 000's of dollars, except per unit figures
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Three months Nine months
ended September 30, ended September 30,
2006 2005 2006 2005
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Cash flow from operations,
before change in non-cash
operating working capital
items $ 2,122 $ 3,355 $ 5,801 $ 3,535
Purchase of property, plant
and equipment (1,389) (1,381) (3,780) (1,737)
Proceeds of capital leases 576 951 2,199 951
Proceeds on sale of
property, plant and equipment 111 - 2,145 -
Repayment of capital leases (469) (220) (1,099) (854)
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Distributable cash $ 951 $ 2,705 $ 5,266 $ 1,895
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Distributable cash per
unit (Note 1) $ 0.06 $ 0.18 $ 0.31 $ 0.15
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Note 1: Distributable cash per unit is determined based on the weighted
average number of Trust Units of the Fund and Class B LP Units
of RNK Capital LP outstanding during each period.


The calculation of distributable cash for the nine months ended September 30, 2006 includes the proceeds of $2.0 million from the sale of two office buildings. These transactions are not expected to recur and if excluded from the calculation, distributable cash for the nine months ended September 30, 2006 would have been $3.2 million or $0.18 per unit.

As discussed above under Results of Operations there are a number of other factors which have negatively impacted distributable cash including the payment of severance, the start-up nature of the London office and the timing of projects at Mainframe.

Distribution for November 2006

The Fund announces its monthly cash distribution for the month of November 2006 of $0.04 per unit payable on December 15, 2006 to unitholders of record at the close of business on November 30, 2006.

Holders of units who are non-residents of Canada will be required to pay all withholding taxes payable in respect of any distribution of income by the Fund.

The Fund is an unincorporated open-ended limited purpose trust located in Vancouver, British Columbia. The Fund indirectly owns three operating limited partnerships. Rainmaker Limited Partnership is one of North America's leading film and video post production organizations, providing superior service, using innovative technology and world-class talent to design, build and shape content for film, television and new media productions. EP Canada Limited Partnership is a leading provider of payroll services for the film and television industry across Canada. Canada Film Capital Limited Partnership provides tax credit administration services and financing of tax credits through factoring for film and television productions across Canada.

This press release and any related attachments may contain forward-looking statements that involve a number of risks and uncertainty. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are market and general economic conditions and the risk factors detailed from time to time in the periodic reports and documents filed by the Fund with The Toronto Stock Exchange and other regulatory authorities. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made, and the Fund undertakes no obligation to update the forward-looking statements should there be a change in conditions, or in management's estimates or opinions.


The contents of this press release have neither been approved nor disapproved by any regulatory authority.

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