Rainmaker Income Fund
TSX : RNK.UN

Rainmaker Income Fund

March 30, 2007 21:24 ET

Rainmaker Income Fund Reports Results for the Quarter and Year Ended December 31, 2006

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - March 30, 2007) - Rainmaker Income Fund (the "Fund") (TSX:RNK.UN), a leading provider of services to the entertainment industry, reports its results for the fourth quarter and year ended December 31, 2006.

Highlights

- The Fund had record revenue for 2006 of $47.9 million, an increase of $19.6 million or 69% from the $28.3 million in 2005 due mainly to growth in visual effects and the acquisition of Rainmaker Entertainment (formerly Mainframe Entertainment). EBITDA for 2006 was $8.0 million, an increase of $1.2 million or 18% from $6.8 million in 2005. The net loss for 2006 of $2.6 million, compared with net earnings of $2.6 million in 2005 resulted from increased non-cash charges for depreciation and amortization of $4.1 million and restructuring costs of $2.1 million.

- In the fourth quarter of 2006 revenue was $15.9 million, an increase of $4.8 million or 43% from the $11.1 million in 2005 due to the acquisition of Rainmaker Entertainment. EBITDA for the forth quarter of 2006 was $1.6 million, a decrease of $1.7 million from $3.3 million in 2005 as operating costs for visual effects were higher. The net loss for the quarter was $3.6 million compared to earnings of $1.9 million in 2005 and the decrease was again due principally to higher depreciation, amortization and restructuring costs.

- The Fund completed the acquisition of Rainmaker Entertainment in October. With the purchase of Rainmaker Entertainment completed we undertook an aggressive reorganization and integration plan which resulted in some significant restructuring costs. Rainmaker Entertainment now comprises three business segments: Rainmaker Post, Rainmaker Visual Effects and Rainmaker Animation with an efficient integrated infrastructure supporting each.

- The Fund has added a number of key personnel and throughout 2006 made significant infrastructure improvements and expansion to be positioned for future growth.

- Negotiated the terms for the production of our first animated feature film, Escape from Planet Earth, which commenced production in March 2007.



Selected financial results

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

Three months ended Year ended
December 31, December 31,
2006 2005 2006 2005
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Revenue
Rainmaker LP
Post production 2,708 3,030 11,958 12,030
Visual effects 4,776 2,730 16,227 6,964
EP Canada - Payroll processing 3,840 3,732 11,028 6,287
Canada Film Capital - Tax
credit services 530 1,316 2,808 1,773
Rainmaker Entertainment -
Animation 3,763 - 5,221 -
Other 288 299 624 1,237
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15,905 11,107 47,866 28,291
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Expenses
Operating 13,905 7,261 37,861 20,214
General and administration 404 514 2,001 1,313
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14,309 7,775 39,862 21,527
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EBITDA 1,596 3,332 8,004 6,764

Depreciation and amortization 1,809 1,233 5,537 3,870
Amortization of intangible
assets 2,028 282 2,909 490
Interest expense 319 42 673 145
Restructuring costs 1,280 - 2,110 -
Other (215) (140) (422) (118)
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(Loss) earnings before income
taxes and non-controlling
interest (3,625) 1,915 (2,803) 2,377
Income tax expense (recovery) - 26 - (205)
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(Loss) earnings before
non-controlling interest (3,625) 1,889 (2,803) 2,582
Non-controlling interest (11) (38) 233 (1)
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Net (loss) earnings for the
period (3,636) 1,851 (2,570) 2,581
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Net (loss) earnings per unit -
basic and diluted (0.21) 0.11 (0.15) 0.19
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Results of Operations

Three months ended December 31, 2006 compared to 2005

Revenue

Revenue increased $4.8 million to $15.9 million in 2006 from $11.1 million in 2005. The increase in 2006 was due principally to the acquisition of Rainmaker Entertainment Inc. (formerly Mainframe Entertainment, Inc.) ("Rainmaker Entertainment"), which accounted for revenue of $4.1 million, of which $3.8 million was from animation services. Revenue from visual effects services increased $2.1 million as work on a number of significant feature film projects continued. Offsetting these increases were a decrease in Post production services of $0.3 million, a decrease of $0.8 million in tax credit services of Canada Film Capital and a decrease of $0.3 million in other revenue resulting for the sale of a business line.

Operating and general and administration expenses

Operating costs increased $6.6 million to $13.9 million in 2006 from $7.3 million in 2005. The increase in 2006 was due mainly to the acquisition of Rainmaker Entertainment which accounted for $3.4 million of the increase and the balance of $3.2 million was due to the increased operations in visual effects.

General and administration expenses were down slightly due to lower accounting costs.

Depreciation and Amortization

Depreciation and amortization of property, plant and equipment increased $0.6 million to $1.8 million in 2006 from $1.2 million in 2005 and amortization of intangible assets increased $1.7 million to $2.0 million in 2006 from $0.3 million in 2005. The increases are due to the acquisition of Rainmaker Entertainment.

Restructuring costs

Restructuring costs are comprised of severance costs associated with the acquisition and integration of Rainmaker Entertainment and are not expected to be of a recurring nature.

Interest expense

Interest expense increased $0.3 million in 2006 due to the acquisition of Rainmaker Entertainment.

Net (loss) earnings for the period

Net (loss) earnings for the period decreased $5.5 million in 2006 to a loss of $3.6 million from net earnings of $1.9 million in 2005. The decrease was due to the acquisition of Rainmaker Entertainment which reported a net loss of $3.2 million for fourth quarter of 2006 as a number of animation projects were delayed into 2007 and $1.2 million was recorded for restructuring costs. Rainmaker LP's visual effects reported a loss of $0.8 million as costs were higher due to the challenging nature of the current projects as we build our technical capabilities to take on bigger and more complex projects.

Year ended December 31, 2006 compared with December 31, 2005

Revenue

Revenue increased $19.6 million to $47.9 million in 2006 from $28.3 million in 2005. The increase in revenue in 2006 was due principally to growth in visual effects, the acquisition of Rainmaker Entertainment and the inclusion of a full year of payroll and tax credit services following the acquisition of EP Canada and Canada Film capital in August 2005.

Visual effects revenue increased $9.3 million in 2006, which includes an increase of $2.3 million for the London office, to a record $16.2 million. The increase was derived from continued growth in feature film projects as services on Night at the Museum, Garfield 2 and The Da Vinci Code were completed and work on Blades of Glory and Vantage Point commenced.

The acquisition of Rainmaker Entertainment effective July 31, 2006 accounted for an increase in revenue of $5.7 million, which includes $5.2 million from animation services and $0.5 million is from other sources.

EP Canada and Canada Film Capital, which provide the services of payroll processing and tax credit administration and financing, respectively, accounted for an increase in revenue of $5.8 million as the results for 2006 include a full year of operations as compared to only five months in 2005 following the acquisitions on August 4, 2005.

Finally, the sale of the Crossing Studio resulted in a decrease in other revenue of $1.2 million.

Operating and general and administration expenses

Operating costs increased $17.7 million to $37.9 million in 2006 from $20.2 million in 2005. The increase was principally due to an increase in visual effects costs of $7.3 million. EP Canada and Canada Film Capital accounted for $4.7 million of the increase. The acquisition of Rainmaker Entertainment accounted for an increase of $5.9 million.

General and administration expenses increased $0.7 million to $2.0 million in 2006 from $1.3 million in 2005. The acquisition of Rainmaker Entertainment accounted for $0.2 million of the increase. EP Canada and Canada Film Capital together accounted for $0.3 million, as 2006 included a full year of operations compared to only 5 months in 2005. The balance of the increase relates to higher legal and trustee fees.

Depreciation and Amortization

Depreciation and amortization of property, plant and equipment increased $1.6 million in 2006 to $5.5 million as compared to $3.9 million in 2005. The acquisition of Rainmaker Entertainment accounted for $0.8 million of the increase while including EP Canada for a full year in 2006 accounted for $0.6 million of the increase.

The amortization of intangible assets increased $2.4 million in 2006 to $2.9 million from $0.5 million in 2005. The acquisition of Rainmaker Entertainment accounted for $1.7 million of the increase while including EP Canada for a full year in 2006 accounted for $0.7 million of the increase.

Restructuring costs

Restructuring costs are comprised of severance cost incurred following the acquisition and integration of Rainmaker Entertainment and are not expected to be of a recurring nature.

Interest expense

Interest expense increased $0.5 million in 2006 to $0.7 million from $0.2 million in 2005. The acquisition of Rainmaker Entertainment accounted for $0.3 million of the increase, of which half is interest on the debentures which is paid through the issuance of additional debentures, while $0.2 million of the increase relates to the term loan secured for the acquisition of Rainmaker Entertainment.

Net (loss) earnings for the year

Net earnings for 2006 decreased $5.2 million in 2006 to a net loss of $2.6 million from net earnings of $2.6 million in 2005. A number of items contributed to decrease the net earnings in 2006 including the acquisition of Rainmaker Entertainment which reported a net loss of $3.7 million as restructuring costs of $1.3 million were recorded and a number of animation projects were delayed in starting, including the first full length animated feature film which commenced in March 2007. Other corporate restructuring costs were $0.8 million. Excluding these items net earnings would have been $1.9 million for 2006 compared to $2.6 million in 2005.

Distributable cash



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

Three months ended Year ended
December 31, December 31,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Statement of Distributable Cash

Cash flow from operations,
before change in non-cash
operating working
capital items 413 3,399 6,214 6,934
Purchase of property, plant
and equipment (411) (445) (4,191) (2,182)
Proceeds on sale of property,
plant and equipment - - 2,145 5
Repayment of capital leases (607) (260) (1,706) (1,114)
Proceeds of capital leases - - 2,199 951
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Distributable cash (605) 2,694 4,661 4,594
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Distributable cash per unit (0.04) 0.16 0.27 0.30
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Distributions declared per unit 0.12 0.12 0.48 0.48
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Distributable cash is not a term defined under GAAP. 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 calculation of distributable cash for 2006 includes the proceeds of $2.0 million from the sale of two office buildings and restructuring costs of $2.1 million. These transactions are not expected to recur and if excluded from the calculation, distributable cash for 2006 would have been $4.7 million or $0.27 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 restructuring costs and the net loss of Rainmaker Entertainment.

Distributions declared were $8.3 million or $0.48 per unit for both 2006 and 2005. Distributable cash for 2006 was $4.7 million or $0.27 per unit as compared with $4.6 million or $0.30 per unit for 2005. Total distributions declared and paid in excess of distributable cash earned have been paid out of cash balances.

The distributions declared for 2006 are comprised of 65.2% other taxable income and 34.8% return of capital whereas in 2005 they were 100% other taxable income.

Outlook

Heading into 2007, we are optimistic about the future. We will continue to explore opportunities to grow our businesses either through acquisition or internal growth of our services. Rainmaker Entertainment has historically focused on family entertainment for television and direct to DVD work. However we have recently commenced work on our first animated feature length film, Escape from Planet Earth, for The Weinstein Company, which is scheduled to be delivered in the fall of 2009. Rainmaker Post Production is exploring opportunities to expand its revenue streams by offering digital intermediate services in an ever expanding digital media arena.

Other

Additional information and other publicly filed documents relating to the Fund, including the Annual Information Form, are available through the internet on the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval ("SEDAR"), which can be accessed at www.sedar.com.

The Fund is an unincorporated open-ended limited purpose trust located in Vancouver, British Columbia. The Fund indirectly owns 100% of Rainmaker Entertainment Inc. ("REI"), EP Canada Limited Partnership ("EP") and Canada Film Capital Limited Partnership ("CFC"). REI is an award-winning visual effects, computer generated animation and post production company with a 27 year history providing superior service, innovative technology and world-class talent to design, build and shape content for feature films, television, direct to DVD, games and commercials. EP is a leading provider of payroll services for the film and television industry across Canada. CFC 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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