Rainmaker Entertainment Inc.
TSX VENTURE : RNK

Rainmaker Entertainment Inc.

March 16, 2009 08:30 ET

Rainmaker Reports Results for the Quarter and Year Ended December 31, 2008

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 16, 2009) - Rainmaker Entertainment Inc. (formerly Rainmaker Income Fund) (TSX:RNK) announces its results for the fourth quarter and year ended December 31, 2008.

Highlights of Fiscal 2008

- On January 8, 2008 Rainmaker sold certain net assets of the post production and visual effects operations.

- The total Purchase consideration was:

-- $14.0 million in cash on closing;

-- $2.5 million by way of a promissory note paid in January 2009;

-- $6.0 million contingent cash payment to be earned based on revenue targets;

-- $3.5 million assumption of capital leases; and,

-- $5.0 million Deluxe service credits available to Rainmaker Animation operations.

- On August 1, 2008 pursuant to a plan of arrangement, the Rainmaker business converted from an income trust structure to a corporation. The shares of Rainmaker Entertainment Inc. began trading on the Toronto Stock Exchange on August 7, 2008 under the symbol RNK.

- On November 13, 2008 Rainmaker completed the transaction to sell the net assets of EP Canada and Canada Film Capital to 7028831 Canada Inc. Rainmaker holds a thirty percent interest in the new entity and has representation on the board of directors.

The total Purchase consideration was:

-- $11.2 million in cash on closing;

-- $0.5 million by way of subordinated debenture with a maximum 5 year term bearing 7% interest;

-- $2.75 million contingent cash payment to be earned based on revenue targets; and,

-- 30% Equity interest in 7028831 Canada Inc.

- During 2008, Rainmaker delivered five animated films, the most ever in one year for the company. This included three films as part of the "Barbie" franchise and the "Nutty Professor", a direct to DVD remake of the original 1963 classic. Rainmaker continued production on its first feature length animated film "Escape from Plant Earth", and also completed several cinematic trailers for various video game vendors.

Results of Operations

- Revenue for the year was $37.7 million, an increase of $4.2 million or 12.5% over 2007. The animation segment increased $8.2 million or 39% over 2007.

- Segmented earnings from Animation before undernoted items and allocated corporate costs, increased $2.7 million or 285% from 2007.

- Gain on the sale of discontinued operations to Deluxe was $7.6 million compared to a loss from discontinued operations of $3.9 million in 2007.

- Gain on the sale of interests in EP Canada and Canada Film Capital of $2.3 million.

- Net earnings for the year increased $22.0 million to $7.5 million from a loss of $14.5 million in 2007.

Economic Outlook

With the recent deterioration of global financial markets the entertainment industry as whole has been impacted. The credit crisis has caused certain production delays but no cancellations of existing contracts to date. The Company has the ability to meet all its financial requirements, including the repayment of its debt facilities, and retains a strong working capital base to facilitate operations. Reduced credit availability and a reduction in consumer spending are major concerns for the industry as a whole. The Company will continue to operate and manage its animation production mix in a risk averse manner consistent with the current economic environment.

Selected Annual Information

Below is selected annual information derived from the audited consolidated financial statements which have been prepared in accordance with Canadian generally accepted accounting principles.



Years ended December 31,
All amounts are in 000's of dollars, except per share / unit figures

2008 2007 2006
------ ------ ------
Note 1 Note 2

Revenue
Rainmaker Entertainment - Animation 28,969 20,782 5,741
EP Canada - Payroll processing (Note 1) 7,149 10,562 11,028
Canada Film Capital - Tax credit services
(Note 1) 1,605 2,152 2,808
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37,723 33,496 19,577
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Expenses
Operating 32,566 28,538 15,533
General and administration 1,811 2,214 1,852
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34,377 30,752 17,385
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EBITDA (Note 3) 3,346 2,744 2,192
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Depreciation and amortization 4,136 3,342 1,732
Amortization of intangible assets 1,018 3,213 2,908
Write-down of intangible assets - 5,750 -
Gain on sale of EP Canada and Canada Film Capital (2,305) - -
Amortization of deferred gain on sale of business
interests (39) - -
Gain on settlement of accounts payable (903) - -
Interest expense 998 1,237 484
Foreign exchange loss 482 71 3
Restructuring costs 566 - 2,110
Equity earnings from 7028831 Canada Inc. (56) - -
Other (income) expense (469) (166) (591)
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3,428 13,447 6,646
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Loss before non-controlling interest
and discontinued operations (82) (10,703) (4,454)

Non-controlling interest (45) 182 233
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Net loss from continuing operations (127) (10,521) (4,221)

Gain on sale of discontinued operations (Note 4) 7,602 - -
Earnings (loss) from discontinued operations - (3,946) 1,650
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Net earnings (loss) and comprehensive income
(loss) for the year 7,475 (14,467) (2,571)
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Loss from continuing operations per unit / share
- basic and diluted ($0.01) ($0.62) ($0.25)
Net (loss) earnings per share / unit - basic $0.43 ($0.85) ($0.15)
Net (loss) earnings per share / unit - diluted $0.43 ($0.85) ($0.15)
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Note 1: The 2008 results include the operations of EP and CFC up to
November 12, 2008, as Rainmaker sold 70% of its interests in EP
and CFC on November 13, 2008.
Note 2: The 2006 results include the operations of the Animation Division
(formerly Mainframe) from July 31, 2006, the date of acquisition.
Note 3: EBITDA is not a term defined under generally accepted accounting
principles. Rainmaker defines EBITDA as earnings from operations
before interest expense, interest income, income taxes,
depreciation and amortization on property plant and equipment,
amortization and write-down of intangible assets, loss on sale of
property, plant and equipment, restructuring costs, foreign exchange
gains and losses and non-cash compensation costs.
Note 4: Sale of Post and Visual Effects, January 8, 2008.


Results of Operations

Year ended December 31, 2008 compared to 2007

Revenue

Revenue increased $4.2 million to $37.7 million in 2008 from $33.5 million in 2007. Rainmaker Animation reported an increase in revenue of $8.2 million to $29.0 million in 2008 from $20.8 million in 2007. The increase in revenue was due to increased animation production work in 2008 in both the DVD division and on a feature film.

As a result of the sale of Rainmaker's interests in EP Canada and Canada Film Capital, the 2008 revenue is reported to November 12, 2008 immediately prior to the sale. Rainmaker's 30% interest in 7028831 Canada Inc. is reported on an equity basis for the period November 13, 2008 to December 31, 2008. EP Canada reported a decrease in revenue of $3.5 million to $7.1 million in 2008 as compared to $10.6 million in 2007. Operations of EP Canada were also impacted by the effects of the Writers Guild of America strike, the Screen Actors Guild contract negotiations and the strong Canadian dollar. Canada Film Capital reported a decrease in revenue of $0.5 million to $1.6 million in 2008 as compared to $2.1 million in 2007.

Operating and general and administration expenses

Operating expenses increased $4.1 million to $32.6 million in 2008 from $28.5 million in 2007. Rainmaker Animation had an increase of $5.7 million to $24.9 million from $19.2 million in 2007. The increase in expenses was a combination of increased production volumes and some production delays. Operating expenses which do not relate directly to the operating segments increased $0.3 million to $1.5 million in 2008 from $1.2 million in 2007.

Operating expenses in EP Canada decreased $1.7 million to $5.0 million in 2008 from $6.7 million in 2007. This decrease resulted from the decrease in revenue of $3.5 million, as well as the shortened reporting period to November 12, 2008. Operating expenses for Canada Film Capital decreased $0.2 million to $1.2 million from $1.4 million in 2007. This decrease resulted from the decrease in revenue of $0.5 million as well as the shortened reporting period to November 12, 2008.

General and administration expenses decreased $0.4 million to $1.8 million in 2008 from $2.2 million in 2007. This decrease was due to the scaling down of general overheads due to the sale of the post production and visual effects business to Deluxe on January 8, 2008.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment increased $0.8 million in 2008 to $4.1 million as compared to $3.3 million in 2007. The increase is attributable to the acquisition of additional equipment and infrastructure relating to the increased animation production.

Amortization of intangible assets

Amortization of intangible assets decreased $2.2 million in 2008 to $1.0 million as compared to $3.2 million in 2007. The decrease in amortization is the result of decreased carrying values of intangibles during 2008 compared to 2007. Following the acquisition of the Animation division in July 2006, an intangible asset representing existing customer relationships was recorded at the estimated fair value based on independent third party valuation work. At December 31, 2007, Rainmaker completed an assessment of the carrying value and determined that the remaining balance of $5.7 million should be written off. As a result of the sale of Rainmaker's interests in EP Canada and Canada Film Capital the related amortization expense for the period November 13, 2008 to December 31, 2008 of $0.2 million was eliminated.

Interest expense

Interest expense decreased $0.2 million in 2008 to $1.0 million from $1.2 million in 2007. While the interest on long-term debt decreased $0.6 million as an outstanding loan at December 31, 2007 was paid off in January 2008, interest on capital lease obligations increased $0.3 million and interest on bank indebtedness increased $0.1 million.

Foreign Exchange Loss

There was an increase in the foreign exchange loss of $0.4 million to $0.5 million in 2008 from $0.1 million in 2007. Included in the 2008 exchange loss is a $0.2 million unrealized loss from a write-down of derivative contracts that expire in 2009.

Loss from continuing operations

The loss from continuing operations decreased $10.4 million in 2008 to a loss of $0.1 million from a loss of $10.5 million in 2007. The loss from Rainmaker Animation decreased $9.0 million to a loss of $0.4 million in 2008 from $9.4 million in 2007. The improvement in earnings from animation was the result of increased revenue and a gain on settlement of accounts payable of $0.3 million. Earnings not related to a specific segment increased $2.7 million to a loss of $0.3 million in 2008 from a loss of $3.0 million in 2007. This was due to a number of factors, the most significant being the gain on the sale of EP Canada and Canada Film Capital of $2.3 million. Other factors were a decrease in expenses of $0.1 million and a gain on settlement of accounts payable of $0.6 million.

EP Canada reported a decrease in earnings of $1.1 million to $0.3 million in 2008 from $1.4 million in 2007. Canada Film Capital reported a decrease in earnings of $0.2 million to $0.3 million in 2008 from $0.5 million in 2007. The decrease in earnings from EP Canada and Canada Film Capital results from the shortened reporting period up to November 12, 2008, the writers strike, the Screen Actors Guild contract negotiations and the stronger Canadian dollar during the first nine months of the year.

Rainmaker's 30% interest in the earnings of 7028831 Canada Inc. (the successor to EP and CFC) is reported on an equity basis. For the period of November 13, 2008 to December 31, 2008, a profit of $0.1 million was reported including amortization of a portion of the deferred gain arising from the transaction.

Loss from discontinued operations and gain on sale of discontinued operations

There was no loss from discontinued operations in 2008, as the post production and visual effects operations were sold at the beginning of the reporting period. For the twelve months ending December 31, 2007 the loss from discontinued operations was $3.9 million. The gain on sale of discontinued operations for 2008 was $7.6 million.

Net earnings (loss) for the year

The net earnings for 2008 increased $22.0 million for earnings of $7.5 million from a loss of $14.5 million in 2007.

Management Departures

Effective March 13, 2009, Paul Gertz, Executive Vice-President, has left the Company to pursue other career opportunities. "I would like to thank Paul for his contributions to Rainmaker and wish him success in the future," stated Mr. Franklin, CEO.

Other

Additional information and other publicly filed documents relating to Rainmaker, including the annual audited consolidated financial statements and related management discussion and analysis plus 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.

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 Company 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 Company 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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