Entertainment One Income Fund announces fiscal 2006 financial results



    TSX: EOF.UN

    
    -  Sales increased from a year earlier by 2.2% to $531 million.
    -  Gross margin improved to 23.0% from 21.1%.
    -  Distributable Cash (a non-GAAP measure), excluding debt repayments,
       increased to $21.6 million from $20.8 million a year earlier.
    -  Fund has exceeded the minimum financial requirements as specified in
       the Earl Street Capital agreement.
    -  Loss of $41.9 million after goodwill and Intangible asset write-down
       of $51.1 million.
    

    TORONTO, March 12 /CNW/ - Entertainment One Income Fund (TSX: EOF.UN), a
major distributor of home entertainment products, today reported its financial
results for the fourth quarter and year ended December 31, 2006.
    "Our 2006 results confirm that our strategy to focus on exclusive
content, exclusive licensed content and exclusive distribution is working.
Although our sales increased marginally over the prior year, our gross margin
and operating costs showed marked improvement", said the Fund's President and
CEO, Darren Throop.

    Fourth-Quarter 2006 Financial Highlights

    
    -  Total sales in the fourth quarter of 2006 decreased to $165.5 million
       from $188.5 million in the fourth quarter of 2005.
    -  Wholesale movie sales totaled $94.0 million, down from $104.0 million
       a year earlier. Wholesale music sales were $36.0 million versus
       $33.0 million. Wholesale games and other sales were $12.0 million,
       down from $26.0 million. Fourth-quarter retail segment (CD Plus) sales
       were $24.0 million, down from $25.0 million a year ago.
    -  Gross margin decreased slightly to 22.2 percent of sales from
       22.5 percent over the same period in the prior year.
    -  A non-cash write-down of $51.1 million (2005 - $86.0 million) of the
       carrying value of the goodwill and intangible assets.
    -  Net loss for the quarter was $39.6 million, a reduction from a net
       loss of $66.5 million in the fourth quarter of 2005.
    -  Distributable Cash (a non-GAAP measure) was $7.2 million or $.242 per
       Fund and Class B unit, compared with $12.2 million or $.422 per Fund
       and Class B unit a year earlier. Excluding a term debt repayment of
       $3.5 million during the fourth quarter of 2006, distributable cash was
       $10.7 million or $.361 per Fund or Class B unit.

    Year-end 2006 Financial Highlights

    -  Total sales for 2006 were $531.0 million, up 2.2 percent from
       $520.0 million a year earlier. The numbers are not comparable year to
       year because of the acquisition of Koch on June 1, 2005. Excluding
       Koch, the Fund's sales totaled $370.8 million, compared with
       $414.0 million a year earlier.
    -  Gross margin increased to 23.0 percent from 21.1 percent. Excluding
       Koch, which recorded a gross margin of 36.8 percent in the 2006, gross
       margin was 17.1 percent, compared with 15.8 percent in 2005.
    -  Net loss for 2006 was $41.9 million compared with a net loss of
       $68.6 million a year earlier (non-cash write down of the carrying
       value of goodwill and intangibles in 2006 and 2005 were $51.1 million
       and $86.0 million respectively).
    -  Distributable Cash (a non-GAAP measure) was $13.3 million or $.452 per
       Fund and Class B unit, compared with $20.8 million or $.835 per Fund
       and Class B unit a year earlier. Adjusted to exclude debt repayment of
       $8.3 million, distributable cash from operations was $21.6 million or
       $.737 per Fund and Class B unit.
    

    Additional information is contained in the Management's Discussion and
Analysis and Consolidated Financial Statements available on the Fund's website
at www.entertainmentone.ca and at www.sedar.com.

    Proposed Sale of Operating Units

    On February 14, 2007, Entertainment One announced that it had entered
into an agreement to sell all of its Canadian and US operations to
wholly-owned subsidiaries of Earl Street Capital Ltd. The transaction needs
the approval of Unitholders, which is to be sought at a meeting scheduled for
Friday, March 23, 2007. A management information circular dated February 23,
2007 providing more detail regarding the proposed transaction has been sent to
Unitholders of the Fund.
    The completion of the proposed transaction is subject to certain
conditions, including, without limitation as at December 31, 2006, EBITDA (as
defined in the agreement) shall have been not less than $25 million and Net
Debt (as defined in the agreement) shall not have been greater than
$68 million, which, as a result of Entertainment One's financial results
(described above), Entertainment One believes have been satisfied.
    The completion of the proposed transaction is subject to certain other
conditions being satisfied prior, including, without limitation:

    
    (a)  the admission of Earl Street's share for trading on the Alternative
         Investment Market which requires that the purchaser complete certain
         debt and certain equity financings; and
    (b)  the affirmative vote of 66 2/3% of the votes cast at a meeting of
         Unitholders called for that purpose, excluding the votes in respect
         of units of Entertainment One held by certain officers of
         Entertainment One.
    

    Although Entertainment One believes that the necessary conditions will be
fulfilled, there can be no assurance that all such conditions will be
fulfilled and that the proposed transaction will be completed. Notwithstanding
this reservation, the trustees of Entertainment One anticipate that after
completion of the proposed transaction, expected to be on or around March 29,
2007, after the retirement of all funded debt of Entertainment One's
subsidiaries and up to $6 million of transaction expenses being reimbursed by
the purchaser, Unitholders will receive cash distributions of up to $3.60 per
Fund unit on a fully diluted basis which amount will be paid in one or more
installments. The trustees of Entertainment One also anticipate that after the
completion of the proposed transaction, the units of Entertainment One will
cease to be traded on the Toronto Stock Exchange and Entertainment One and its
remaining subsidiaries shall be wound-up.

    Distributable Cash
    Non-GAAP Measure

    Distributable Cash is determined based on a broad interpretation of the
definition included in the Trust Indenture under which the Fund operates.
Although the definition does not explicitly state that the Distributable Cash
calculation may include adjustments for working capital or cash inflows, other
than cash flows from operations, the definition provides sufficient
flexibility to permit these adjustments.
    Distributable Cash is not a recognized measure under Canadian generally
accepted accounting principles (GAAP) and may not be comparable to similar
measures used by other trusts. Distributable Cash is determined as set out
above. The Fund believes that Distributable Cash is a useful financial metric
as it represents the key determination of cash flow available for distribution
to Unitholders. Investors should be cautioned, however, that Distributable
Cash should not be construed as an alternative to using net earnings or the
statement of cash flow as determined under GAAP as measures of profitability
and cash flow.
    As a result of the seasonality of the Fund's business and the
corresponding generation of net income and distributable cash in the fourth
quarter of each year, we anticipate that the excess distributions will be
funded by distributable cash in the fourth quarter of this year.

    
    Distributable Cash(*)
    (expressed in thousands of Canadian dollars except per unit amounts)

                                      Three months ended  Three months ended
                                       December 31, 2006   December 31, 2005
                                              (unaudited)         (unaudited)
                                      ------------------- -------------------

    Cash from (used in) operations               $10,553             $35,849
    Add (deduct): Changes in non-cash
     working capital                                 847             (23,206)
                                      ------------------- -------------------
    Cash from operations before
     changes in non-cash working
     capital                                      11,400              12,643
    Deduct:
    Capital expenditures                            (534)               (379)
    Reduction in term debt                        (3,500)                  -
    Cash portion of restructuring cost              (201)               (201)
    Proceeds from long term debt, net
     of costs                                          -                 182
    Non cash severance provision                       -                 (61)
                                      ------------------- -------------------
    Distributable Cash(*)                         $7,165             $12,184
                                      ------------------- -------------------

    Distributions declared (including
     non-controlling interest)                         -              $3,128

    Distributions declared per Fund Unit               -              $0.108
    Distributions declared per Class B Unit            -              $0.108
    Distributions declared per Class C Unit            -                   -

    (*)See section titled Distributable Cash Non GAAP Measure.


    Distributable Cash(*)
    (expressed in thousands of Canadian dollars except per unit amounts)

                                     Twelve months ended Twelve months ended
                                       December 31, 2006   December 31, 2005
                                              (unaudited)         (unaudited)
                                      ------------------- -------------------
    Cash from (used in) operations                $3,912             $16,244
    Add (deduct): Changes in non-cash
     working capital                              18,978               4,709
                                      ------------------- -------------------
    Cash from operations before changes
     in non-cash working capital                  22,890              20,953
    Deduct:
    Capital expenditures                          (1,577)             (1,072)
    Reduction in term debt                        (8,340)                  -
    Cash portion of restructuring cost            (1,050)             (1,615)
    Investment in Trans Canada                       (48)                  -
    Business acquisition, including costs              -             (80,816)
    Proceeds from sale of interest
     in Moontaxi                                   1,379                 (83)
    Proceeds from equity issue,
     net of costs                                      -              65,874
    Proceeds from long term debt,
     net of costs                                      -              17,240
    Non cash severance provision                       -                 302
                                      ------------------- -------------------
    Distributable Cash (*)                       $13,254             $20,783
                                      ------------------- -------------------

    Distributions declared (including
     non-controlling interest)                   $10,886             $26,107

    Distributions declared
     per Fund Unit                                $0.375              $1.083
    Distributions declared
     per Class B Unit                             $0.375              $1.083
    Distributions declared
     per Class C Unit                                  -                   -

    (*)See section titled Distributable Cash Non GAAP Measure.
    

    About Entertainment One Income Fund

    Entertainment One Income Fund (formerly ROW Entertainment) is Canada's
largest wholesale distributor of DVDs, CDs, video games, and accessories to
small and large retail chains and independent retailers across the country. In
addition to wholesaling and Internet fulfillment, Entertainment One owns and
operates more than 90 CD Plus retail outlets, making it the largest specialty
retailer of movies and pre-recorded music in "secondary" markets (areas
underserved by other retailers). Entertainment One also operates a retail
Internet sales division, cdplus.com, and in June 2005 purchased Koch
Entertainment, one of the largest U.S. independent record labels and
independent distributors of music and video content in the United States. To
find out more about Entertainment One (TSX: EOF.UN), visit our website at
www.entertainmentone.ca.

    Forward-Looking Statements

    Certain forward-looking statements are made in this news release,
including statements regarding possible future business. Investors are
cautioned that such forward-looking statements involve risks and uncertainties
detailed from time to time in the Fund's periodic reports filed with Canadian
regulatory authorities. Many factors could cause actual results, performance,
or achievements to be materially different from any future results,
performance, or achievements that may be expressed or implied by such
forward-looking statements. Entertainment One Income Fund does not undertake
to update any forward-looking statements, oral or written, made by itself or
on its behalf.

    
    Entertainment One Income Fund
    Consolidated Balance Sheets as at December 31, 2006 and 2005
    (expressed in thousands of Canadian dollars)

                                                    2006                2005
                                                       $                   $
                                               unaudited           unaudited
                                      ------------------- -------------------
    Assets

    Current assets
      Cash                                         6,556               5,174
      Accounts receivable                         62,731              53,820
      Inventory                                   86,693             103,830
      Prepaids and other assets                    6,815               3,919
      Video and artist advances                   11,149               9,072
                                      ------------------- -------------------

                                                 173,944             175,815

    Property and equipment                        10,633              11,650

    Other assets                                   2,531               7,181

    Intangible assets                            105,011             148,353

    Goodwill                                      32,056              53,355
                                      ------------------- -------------------

                                                 324,175             396,354
                                      ------------------- -------------------
                                      ------------------- -------------------

    Liabilities

    Current liabilities
      Bank indebtedness                           16,900                   -
      Accounts payable and accrued
       liabilities                               147,576             170,651
      Current portion of long-term debt           46,650               4,000
                                      ------------------- -------------------

                                                 211,126             174,651

    Future income taxes                                -                 586

    Long-term debt                                     -              50,990

    Non-controlling interest                      15,484              22,689

    Unitholders' Equity                           97,565             147,438
                                      ------------------- -------------------

                                                 324,175             396,354
                                      ------------------- -------------------
                                      ------------------- -------------------


    Entertainment One Income Fund
    Consolidated Statements of Operations as at December 31, 2006 and 2005
    (all figures, except units and per unit amounts, expressed in thousands
    of Canadian dollars)

                                  Three Months Ended     Twelve Months Ended
                              ----------------------- -----------------------
                                December    December    December    December
                                31, 2006    31, 2005    31, 2006    31, 2005
                                       $           $           $           $
                               unaudited   unaudited   unaudited   unaudited
                              ----------------------- -----------------------

    Sales                        165,545     188,453     531,021     519,797

    Cost of sales                128,863     146,054     408,754     410,285
                              ----------------------- -----------------------

    Gross margin                  36,682      42,399     122,267     109,512
                              ----------------------- -----------------------

    Expenses
      Warehouse and facilities     6,871       7,049      25,994      23,708
      Selling                      8,487       9,918      35,999      30,897
      General and administrative   9,579      12,035      34,922      31,605
      Interest expense             1,477       1,048       5,205       3,484
      Investment and other
       income                       (105)       (172)       (718)       (381)
      Loss (gain) on foreign
       exchange and mark to
       market of derivative
       instrument                  1,119         (40)        460      (2,679)
      Amortization                 4,838       4,776      19,089      17,419
      Write-down of goodwill
       and intangibles            51,075      85,963      51,075      85,963
                              ----------------------- -----------------------
                                  83,341     120,577     172,026     190,016
                              ----------------------- -----------------------

    Loss before non-controlling
     interest and income taxes   (46,659)    (78,178)    (49,759)    (80,504)

      Income tax recovery            564         501         960         222
    Loss before non-controlling
     interest                    (46,095)    (77,677)    (48,799)    (80,282)

      Non-controlling interest     6,518      11,208       6,903      11,662
                              ----------------------- -----------------------

    Loss                         (39,577)    (66,469)    (41,896)    (68,620)
                              ----------------------- -----------------------
                              ----------------------- -----------------------

    Loss per Fund Unit
      Basic and diluted           (1.383)     (2.378)     (1.478)     (2.867)
                              ----------------------- -----------------------
                              ----------------------- -----------------------

    Weighted average number
     of Fund Units
      Basic                   28,619,325  27,952,325  28,354,352  23,932,477
                              ----------------------- -----------------------
                              ----------------------- -----------------------
      Diluted                 33,332,593  32,665,593  33,067,620  28,645,745
                              ----------------------- -----------------------
                              ----------------------- -----------------------


    Entertainment One Income Fund
    Consolidated Statements of Cash Flows as at December 31, 2006 and 2005
    (all figures expressed in thousands of Canadian dollars)

                                  Three Months Ended     Twelve Months Ended
                              ----------------------- -----------------------
                                December    December    December    December
                                31, 2006    31, 2005    31, 2006    31, 2005
                                       $           $           $           $
                               unaudited   unaudited   unaudited   unaudited
                              ----------------------- -----------------------
                              ----------------------- -----------------------
    Cash provided by (used in)
    Operating activities
    Loss for the period          (39,577)    (66,469)    (41,896)    (68,620)
    Item not affecting cash
      Write-down of goodwill
       and intangible
       asset (brand)              51,075      85,963      51,075      85,963
      Amortization of
       intangible assets           4,091       3,922      16,227      14,906
      Amortization of property
       and equipment, and
       other assets                  747         854       2,862       2,513
      Amortization of deferred
       financing costs               171          41         393          97
      Gain on sale of investment
       in Moontaxi                     -           -        (194)          -
      Non-controlling interest    (6,518)    (11,208)     (6,903)    (11,662)
      Unrealized foreign
       exchange gain               1,833         681       1,912      (1,912)
      Future income taxes           (422)     (1,093)       (586)       (349)
      Loss on disposal of
       property and equipment          -         (48)          -          17
                              ----------------------- -----------------------
    Cash from operations
     before changes in
     non-cash working capital     11,400      12,643      22,890      20,953

    Changes in non-cash working
     capital
      Accounts receivable        (24,906)     (9,791)     (8,808)     12,593
      Inventory                  (12,819)     (4,177)     17,176        (464)
      Prepaids and other assets     (206)        394      (3,293)      1,028
      Video and artist advances    1,290      (2,296)     (2,212)      4,111
      Other assets                  (119)      1,431       1,506      (3,641)
      Accounts payable and
       accrued liabilities        35,913      37,645     (23,347)    (18,336)
                              ----------------------- -----------------------
    Cash flow from operating
     activities                   10,553      35,849       3,912      16,244
                              ----------------------- -----------------------

    Investing activities
    Purchase of property
     and equipment                  (534)       (379)     (1,577)     (1,072)
    Business acquisitions,
     net of cash acquired              -           -         (48)    (73,805)
    Proceeds from sale of
     interest in Moontaxi              -           -       1,379           -
    Investment in Moontaxi             -           -           -         (83)
                              ----------------------- -----------------------
                                    (534)       (379)       (246)    (74,960)
                              ----------------------- -----------------------
    Financing activities
    Bank indebtedness             (1,848)    (25,302)     16,900           -
    Increase in long term debt         -        (260)          -      17,240
    Repayment of long-term
     debt                         (3,500)          -      (8,340)          -
    Distributions to
     Unitholders                       -      (6,054)    (10,532)    (27,374)
    Distributions to
     non-controlling interest          -        (204)       (354)     (4,893)
    Proceeds from issuance of
     fund units, net of cash
     costs of $4,126                   -           -           -      65,874
                              ----------------------- -----------------------
                                  (5,348)    (31,820)     (2,326)     50,847
                              ----------------------- -----------------------
    Foreign exchange gain on
     cash balance                     87         (13)         42        (127)
    Net change in cash during
     the period                    4,758       3,637       1,382      (7,996)
    Cash - Beginning of
     period                        1,798       1,537       5,174      13,170
                              ----------------------- -----------------------
    Cash - End of period           6,556       5,174       6,556       5,174
                              ----------------------- -----------------------
                              ----------------------- -----------------------

    Supplementary disclosure:
    Interest paid                  1,058         510       4,499       2,543
    Taxes paid (refund)             (591)          -          35         102
    Fund Units issued in
     settlement of amounts due
     to related parties                -           -           -       7,494
    





For further information:

For further information: Pete Pigott, Chief Financial Officer, (905)
282-7877, ppigott@entertainmentone.ca; For Investor and Media Relations,
contact Wertheim + Co., (416) 594-1600, Richard Wertheim (ext. 223) or
wertheim@wertheim.ca

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