Rainmaker Income Fund
TSX : RNK.UN

Rainmaker Income Fund

March 31, 2006 20:03 ET

Rainmaker Income Fund Reports Results for the Quarter and Year Ended December 31, 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - March 31, 2006) - Rainmaker Income Fund (the "Fund") (TSX:RNK.UN) reports net earnings of $1.9 million or $0.11 per unit and distributable cash of $2.7 million or $0.16 per unit for the fourth quarter ended December 31, 2005. For the year ended December 31, 2005, net earnings were $2.6 million or $0.19 per unit and distributable cash was $4.6 million or $0.33 per unit.

Selected financial results

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



Three months ended Year ended
December 31, December 31,
Statement of Operations 2005 2004 2005 2004
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Revenue
Rainmaker LP
Video post 2,671 2,514 10,269 11,480
Visual effects 2,730 2,940 6,964 13,216
Film lab 359 580 1,761 2,957
Other 299 343 1,237 1,108
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6,059 6,377 20,231 28,761

EP Canada LP 3,732 - 6,287 -
Canada Film Capital LP 1,316 - 1,773 -
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11,107 6,377 28,291 28,761
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Expenses
Operating 7,261 4,278 20,214 18,622
General and
administration 514 220 1,313 943
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7,775 4,498 21,527 19,565
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Earnings before
undernoted items 3,332 1,879 6,764 9,196

Depreciation and
amortization 1,515 737 4,360 3,133
Life insurance
proceeds - - - (3,000)
Other (98) 98 27 522
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Earnings before income
taxes and
non-controlling
interest 1,915 1,044 2,377 8,541

Income tax expense
(recovery) 26 45 (205) 105
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Earnings before
non-controlling
interest 1,889 999 2,582 8,436

Non-controlling
interest (38) (55) (1) (465)
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Net earnings for the
period 1,851 944 2,581 7,971
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Net earnings per unit
- basic 0.11 0.08 0.19 0.74
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Net earnings per unit
- diluted 0.11 0.08 0.19 0.73
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Three months ended Year ended
December 31, December 31,
Statement of 2005 2004 2005 2004
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Distributable Cash

Cash flow from
operations, before
change in
non-cash operating
working capital items 3,399 1,879 6,934 12,073
Purchase of property,
plant and equipment (445) (941) (2,182) (2,791)
Proceeds on sale of
property, plant and
equipment - - 5 18

Repayment of capital
leases (260) (469) (1,114) (1,763)
Proceeds of capital
leases - - 951 841
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Distributable cash 2,694 469 4,594 8,378
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Distributable cash per
unit 0.16 0.04 0.33 0.74
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Distrbutions declared
per unit 0.12 0.12 0.48 0.52
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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.

Review of Operations

Three months ended December 31, 2005 compared to 2004

Revenue

Revenue increased to $11.1 million in 2005 from $6.4 million in 2004. The increase in 2005 was due solely to the acquisitions of EP Canada LP and Canada Film Capital LP, which together accounted for revenue of $5.0 million, offsetting the decrease in revenue for Rainmaker LP of $318 thousand, which was due to slightly lower revenue from the film lab and visual effects.

Operating and general and administration expenses

Operating costs increased to $7.3 million in 2005 from $4.3 million in 2004, principally from the acquisition of EP Canada LP and Canada Film Capital LP which accounted for $2.6 million of the increase.

General and administration expenses increased to $514 thousand in 2005 from $220 thousand in 2004, principally from the acquisition of EP Canada LP and Canada Film Capital LP.

Depreciation and Amortization

Depreciation and amortization increased to $1.5 million in 2005 as compared to $737 thousand in 2004. The increase is due in part to the acquisition of EP Canada LP and Canada Film Capital LP which accounted for $602 thousand and the balance of the increase resulted from a change in the method of calculating depreciation in Rainmaker LP. Previously depreciation was calculated on operating equipment on a 20% declining balance whereas effective January 1, 2005 depreciation is calculated on a straight line basis over the estimated useful life, which ranges from 1 to 7 years.

Earnings before income taxes and non-controlling interest

Earnings before income taxes and non-controlling interest increased to $1.9 million in 2005 from $1.0 million in 2004. The increase was due to the acquisitions of EP Canada LP and Canada Film Capital LP which together resulted in earnings before income taxes and non-controlling interest of $1.5 million for fourth quarter of 2005.

December 31, 2005 compared with December 31, 2004

Revenue

Revenue decreased to $28.3 million in 2005 from $28.8 million in 2004. The decrease was as a result of a decrease in the revenue from Rainmaker LP of $8.6 million, which was principally in visual effects, offset by an increase in revenue of $8.1 million following the acquisitions of EP Canada LP and Canada Film Capital LP.

Revenue for Rainmaker LP for 2005 decreased 29.9% to $20.2 million in 2005 from $28.8 million in 2004 due principally to a drop in revenue from visual effects. Revenue from visual effects in the first half of 2005 was down significantly due to the cancellation of a major feature film project. Revenue for video post decreased 10% in 2005 to $10.3 million from $11.5 million in 2004. Revenue from video post was at a historically low level for the first six months of 2005 as the Canadian dollar had rapidly appreciated late in 2004 and the British Columbia government did not announce the increase in tax credits to match those of Ontario until late January 2005. The last half of 2005 saw the British Columbia film and television industry recover nicely and revenue for video post for the last six months was $6.3 million, which resulted in one of the strongest periods in our history. Revenue for Rainmaker LP's film lab was down 39% in part because of the slow first half experienced by the British Columbia production industry and in part because the number of productions using high definition cameras to capture images rather than film increased from 2004. This trend seems to have slowed and for 2006 we would expect revenues for the film lab to be in line with those of 2005.

EP Canada LP reported revenue of $6.3 million for the period from the date of acquisition, August 4, 2005, to December 31, 2005. This performance was ahead of expectations and represented one of the strongest operating periods in the history of EP Canada LP.

Canada Film Capital LP reported revenue of $1.8 million following the acquisition on August 4, 2005, which was in line with expectations.

Operating and general and administration expenses

Operating costs increased to $20.2 million in 2005 from $18.6 million in 2004. The acquisitions of EP Canada LP and Canada Film Capital LP accounted for an increase in operating costs in 2005 of $4.1 million, while Rainmaker LP had a decrease in operating expenses of $2.5 million to $16.1 million in 2005 from $18.6 million in 2004, which resulted in part from lower revenues and in part from cost cutting measures in response to the slow down in production activity in British Columbia during the first half of the year.

General and administration expenses for 2005 were $1.3 million as compared with $943 in 2004, which is an increase of $370 thousand. EP Canada LP and Canada Film Capital LP together accounted for the increase in general and administration expenses.

Depreciation and Amortization

Depreciation and amortization of property, plant and equipment increased $737 thousand in 2005 to $3.8 million as compared to $3.1 million in 2004. The acquisition of EP Canada LP accounted for $380 thousand of the increase and the balance resulted from a change in the method of calculating depreciation in Rainmaker LP. Previously depreciation was calculated on operating equipment on a 20% declining balance whereas effective January 1, 2005 depreciation is calculated on a straight line basis over the estimated useful life, which ranges from 1 to 7 years.

Earnings before income taxes and non-controlling interest

Earnings before income taxes and non-controlling interest decreased to $2.4 million in 2005 from $8.5 million in 2004, however 2004 included the proceeds of a life insurance claim of $3.0 million. Excluding the life insurance proceeds, earnings before income taxes and non-controlling interest for Rainmaker LP decreased by $5.9 million in 2005 compared to 2004. The decrease was principally attributable to the decline in revenue in Rainmaker LP, which mainly occurred in the first six months of 2005. The acquisitions of EP Canada LP and Canada Film Capital LP together resulted in earnings before income taxes and non-controlling interest of $2.8 million for 2005.

Outlook

Heading into 2006, we are optimistic. Rainmaker LP is coming off a strong second half of 2005 and tax credit programs in British Columbia have been increased and renewed for a multi-year period. Within Rainmaker LP, visual effects is off to a strong start as we are working on Garfield 2 for Fox Studios, our largest feature film project to date, in addition to having completed work on other studio projects such as She's The Man and Firewall. As well, EP Canada LP had a very strong finish to 2005 recording record earnings for the last five months of the year and at this point the outlook for 2006 looks strong again.

We continue to look at a number of strategic acquisition options within the film and television industry. Further, it is the Fund's intention to continue to grow, both organically and by acquisition. To that end we have hired the services of a full time consultant to identify and evaluate potential acquisitions for the Fund. We are pursuing businesses that are attractive as income fund vehicles but may not have the resources or scale to become an income fund on their own. While continuing to grow on the entertainment side, our acquisition strategy will allow us to diversify across industries thereby adding strength to the existing platform and helping to manage the cyclical nature of the film and television industry.

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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