CINAR Provides Shareholders With Consolidated Financial Information

Business Wire, Oct 18, 2002

Business Editors & Entertainment Writers

MONTREAL--(BUSINESS WIRE)--Oct. 18, 2002

CINAR Corporation today released unaudited consolidated financial information to shareholders, for the nine-month periods ended August 31, 2002 and 2001. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended November 30, 2001, as set out on pages 33 to 60 of CINAR Corporation's 2001 Annual Report.

Highlights of the Financial Information

Net earnings before discontinued operations for the nine-months ended August 31, 2002 were $8.6 million or $.21 per share compared to a loss of $12.5 million or $.31 per share for the corresponding period of 2001.

The Company recorded income from discontinued operations of $4.2 million for the nine-month period ended August 31, 2002 compared to a loss of $3.4 million for the corresponding period of 2001. The Company divested of its interest in CINAR Multimedia in May 2002. The Company in its financial statements for the year ended November 30, 2001 had recorded a provision for all costs related to terminating its operation. This provision is no longer justified and, as such, was reversed to income.

The net income for the nine-month period ended August 31, 2002 was $12.7 million or $0.31 per share compared to a loss of $15.9 million or $0.39 per share for the corresponding period of 2001.

Consolidated revenues for the nine-month period ended August 31, 2002 were $102.6 million, compared to the $102.5 million of revenues earned by the Company for the nine-month period ended August 31, 2001. Education revenues increased from $69.6 million to $79.5 million, a 14.2% increase reflecting the continued strong growth of the Education Division. Entertainment revenues decreased from $32.8 million in 2001 to $23.1 million in 2002 due to a decrease in both the current levels of production as well as library sales.

Gross margin increased from $42.5 million to $49.3 million. Education gross margin increased from $37.4 million to $42.2 million, maintaining a relatively stable margin of 53.1% and 53.8% of Education revenue for the nine-month period ended August 31, 2002 and 2001 respectively. Entertainment gross margin for the nine-month period ended August 31, 2002 was $7.1 million compared to $5.1 million for the corresponding period of 2001.

Selling, general and administrative expenses decreased from $39.5 million to $35.5 million. The decrease is mainly the result of a restructuring undertaken by the Company of its Entertainment division during 2001, offset by an increase in expenses in our Education division related to its continued growth. The Company realized a foreign exchange gain of $1.1 million for the nine-month period ended August 31, 2002 compared to a foreign exchange gain of $1.2 million for the corresponding period of 2001.

Unusual items resulted in a net reduction in expenses of $0.3 million, made up of professional fees and interest on the note payable of $2.2 million offset by a recovery of $2.5 million from Globe-X Management Limited related to amounts previously reserved. This compares to a net expense of $7.7 million for the corresponding period of 2001.

The Company's share of earnings in TeleTOON increased from $1.7 million in 2001 to $2 million in 2002.

The Company recorded a $4.2 million tax provision for the nine-month period ended August 31, 2002.

The Company used $8.4 million of cash in operating activities for the nine-month period ended August 31, 2002 compared to $17.3 million for the corresponding period of the year 2001.

The Company paid $18.3 million (US$11 million) as partial payment related to the settlement agreements with certain executive officers of its subsidiaries Carson-Dellosa Publishing Co. and HighReach Learning Inc. The balance of $13.8 million (US$8.9 million) is to be paid in installments over the next two years.

The cash used in operations and the partial Education lawsuit settlement was financed by a reduction of marketable securities and amounts recovered from Globe-X Management Ltd.

As previously reported, on April 26, 2002, CINAR Corporation announced that an agreement in principle was reached to settle the claims against it and certain other defendants in class actions brought in Canada and the United States. The plaintiffs agreed to receive an aggregate of US$25 million in full settlement of the claims against CINAR and such other defendants. The allocation of the settlement amount was not disclosed as the settlement is subject to approval by the courts in Canada and the United States. CINAR will record its portion of the settlement when such approval is granted. Court hearing dates related to this matter have been scheduled for November 2002.

The financial information, which is the subject of this news release, is available on the Company's web site (www.cinar.com).

CINAR has been issuing semi-monthly status updates since April 20, 2000.

CINAR Corporation is an integrated entertainment and education company involved in the development, production, post-production and worldwide distribution of non-violent, quality programming and educational products for children and families.