Cinram Reports 2010 Fourth Quarter and Year to Date Results

Mar 02, 2011, 16:45 ET from Cinram International Income Fund

Earnings from continuing operations
$7.4 million in Q4 2010 versus loss of $9.3 million in 2009
$18.4 million full year 2010 versus a loss of $6.0 million in 2009
(All figures in U.S. dollars unless otherwise indicated)

TORONTO, March 2 /PRNewswire-FirstCall/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2010 fourth quarter and year to date Consolidated financial results. The Fund reported revenue of $300.1 million in the 2010 fourth quarter compared to $504.9 million in the fourth quarter of 2009. Earnings from continuing operations for the 2010 fourth quarter increased to $7.4 million or $0.14 per unit (basic) compared with a net loss from continuing operations of $9.3 million or $0.17 per unit (basic) in 2009.  Gross profit in the 2010 fourth quarter was $65.0 million (21.6% of revenue) compared with $111.2 million (22.0% of revenue) in the comparable period in 2009. Earnings before interest, taxes and amortization (EBITA1), excluding other charges was $46.2 million in the fourth quarter compared with $88.0 million in the fourth quarter of 2009. As a percent of revenue, EBITA excluding other charges was 15.4% in 2010 compared with 17.4% in 2009. As expected, the termination of the Warner Home Video (WHV) contract effective July 31, 2010 significantly impacted revenue and EBITA in the fourth quarter of 2010.

On a year to date basis, revenue was $1,108.8 million compared with $1,453.0 million in the prior year. Earnings from continuing operations improved to $18.4 million or $0.34 per unit (basic) compared with a loss of $6.0 million or $0.11 per unit (basic) in 2009. EBITA excluding other charges was $133.4 million in 2010 compared to $183.8 million in 2009. Despite a 24% drop in revenue, EBITA, as a percentage of revenue, decreased only slightly to 12.03% from 12.65% in 2009.

"The results for the 2010 fourth quarter were consistent with our expectations given the termination of the Warner Home Video contract last July 31. As anticipated, revenues were below prior year by over $200 million. Notwithstanding, the Fund performed well and was able to maintain the financial metrics and performance margins despite the significant decline in revenue. The efforts of our senior management and dedicated staff to client service and at the same time, cost control initiatives is evident in our results," commented Steve Brown, Chief Executive Officer. 

On January 31, 2011 the Fund announced its acquisition of Los Angeles-based digital media company 1K Studios ("1K"). The acquisition is part of a broad initiative to advance Cinram further into digital platforms. 1K specializes in building enhanced consumer experiences for movies, TV shows, music, digital books and games. 1K has been a key service provider to many of the world's top media and technology companies including Apple, Paramount Home Entertainment, Disney Worldwide Studios, HBO and Warner Bros Home Entertainment.

"The acquisition of 1K Studios adds a very sophisticated and well respected new expertise within Cinram," stated Steve Brown. "As we move to change the nature of Cinram from a pure physical media company to one which offers services to our client base on multiple platforms, 1K Studios will play an ever increasing role in responding to our existing and new clients' requirements as Cinram's digital offerings continue to expand."

Balance sheet and liquidity

As of December 31, 2010, our net debt position (term debt excluding unamortized transaction costs, less cash and cash equivalents) improved to $202.3 million, compared with $273.3 million at the end of 2009, a further reduction of 26% from 2009.  During 2010, our cash balance increased by $42.3 million to $164.4 million at December 31, 2010 from $122.1 million at the end of 2009. 

As previously announced on February 17, 2011 the Fund has achieved 100% lender support for its previously announced proposed refinancing and recapitalization transaction (the "Refinancing and Recapitalization"). It is expected that the Refinancing and Recapitalization will close during March 2011.

"The refinancing and recapitalization transaction is a significant and positive development for Cinram and removes the uncertainty that has impacted the Fund following the announcement of the loss of the Warner Home Video contract a year ago," commented John Bell, Cinram's Chief Financial Officer. 

Segment revenue

         
         
        Three months ended December 31     Twelve months ended December 31
         
(in thousands of US$)         2010 2009     2010   2009
Pre-recorded multimedia       $261,948 87% $456,291 90%     $995,539 90% $1,289,137 89%
Video Game       20,173 7% 33,204 7%     59,049 5% 91,608 6%
Other       17,947 6% 15,418 3%     54,202 5% 72,286 5%
        $300,068  100% $504,913  100%     $1,108,790  100% $1,453,031  100%

Fourth quarter pre-recorded multimedia revenue (which includes replication and distribution of DVDs, Blu-ray discs and CDs) was $261.9 million in 2010 compared with $456.3 million in 2009.

DVD revenue was $211.6 million compared to $402.5 million in the fourth quarter of 2009 as a result of lower DVD unit shipments given the loss of the WHV contract effective July 31, 2010.

Blu-ray disc replication revenue increased by 68% in the fourth quarter to $13.1 million from $7.8 million in the comparable 2009 period.

CD revenue was $37.2 million during the fourth quarter of 2010 compared to $46.0 million in 2009 due to softening demand from our CD music label customers.

Video game revenue was $20.2 million in the fourth quarter of 2010 compared with $33.2 million in 2009 due to ongoing softness in the gaming industry combined with the loss of several customers.

Other revenue, which includes the wireless division and Cinram Retail Services (formerly the Vision Information Systems group) grew 16% in the fourth quarter. For the full year, revenue dropped primarily due to the withdrawal of the Fund from the wireless contract in Germany mid 2009.

"Although not our largest business segments, these two divisions - the wireless logistic group and our Retail Services group, just completed a very exciting year," reported Steve Brown. "The wireless operation added a number of new services to its business including mobile phone repair services as well as expanding its distribution services to include set top boxes and a new entry into the fast growing tablet market. The Cinram Retail Services group recently launched the newest version of its popular vendor managed inventory software - Vision 2.0 - to a very responsive market."

Geographic revenue

Fourth quarter North American revenue was $178.6 million compared to $265.0 million in 2009, principally as a result of lower DVD and CD revenues. North America accounted for 60 per cent of fourth quarter consolidated revenue compared with 52 percent in the prior year period.

European revenue was $121.5 million during the 2010 fourth quarter compared to $239.9 million in the prior year period. The revenue erosion was primarily due to the loss of the WHV business during the fourth quarter of 2010, combined with the foreign exchange impact associated with a weaker Euro relative to the U.S. dollar during the fourth quarter of 2010 compared to the same period in the prior year. Fourth quarter European revenue represented 40 percent of consolidated revenue compared with 48 percent in the fourth quarter of 2009.

Other financial highlights

Selling, general and administrative expenses decreased in the fourth quarter of 2010 to $32.6 million from $44.2 million in 2009. As a percentage of consolidated revenues, selling, general and administration expenses were 11% compared with 9% in 2009. For the year ended December 31, 2010, selling, general and administrative expenses dropped over $27 million, to $137.7 million from 2009.

Capital expenditures for 2010 were $14.7 million, compared to $42.2 million in 2009. The company added additional Blu-ray manufacturing capacity in Germany and in the United States in order to meet the ever increasing demand for replication capacity in this medium.

Unit data

For the three month period ended December 31, 2010, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.0 million, compared with 54.3 million in the prior year. For the year ended December 31, 2010, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.0 million compared with 54.8 million in the prior year.

Reconciliation of EBITA and EBIT to net earnings (loss) from continuing operations

   
  Three months ended
December 31
      Twelve months ended
December 31
(unaudited, in thousands of U.S. dollars) 2010       2009       2010       2009
EBITA excluding other charges $46,246       $87,960       $133,402       $183,788
Other charges (income), net 16,382       (630)       17,544       2,483
EBITA1                                                                           29,864       88,590       115,858       181,305
Impairment of long-lived assets and goodwill -       82,234       -       82,234
Amortization of property, plant and equipment 13,857       20,946       54,733       86,641
Amortization of intangible assets 1,285       10,515       15,146       41,465
EBIT2                                                                            14,722       (25,105)       45,979       (29,035)
Interest expense and financing charges 7,964       9,221       32,618       37,584
Other interest and financing charges, net 3,432          4,932       (306)       6,101
Gain on repurchase of debt -       (14,965)       -       (38,440)
Foreign exchange gain (169)       (1,129)       (956)       (15,179)
Investment income (56)       (14)       (317)       (429)
Income taxes (recovery) (3,859)       (13,836)         (3,500)       (12,677)
Net earnings (loss) from continuing operations $7,410       $(9,314)       $18,440       $(5,995)

1 EBITA is defined as earnings (loss) from continuing operations before interest expense, foreign exchange gain, investment income, gain on repurchase of debt, other interest and financing charges, income taxes and amortization. It is a standard measure that is commonly reported and widely used in the industry to assist in understanding and comparing operating results. EBITA is not a defined term under generally accepted accounting principles (GAAP). Accordingly, this measure may not be comparable with other issuers and should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with GAAP. See reconciliation of EBITA to net earnings under GAAP as found in the table above. 

2 EBIT is defined as earnings (loss) from continuing operations before interest expense, foreign exchange gain, investment income, gain on repurchase of debt, other interest and financing charges and income taxes, and is a standard measure that is commonly reported and widely used in the industry to assist in understanding and comparing operating results. EBIT is not a defined term under GAAP. Accordingly, this measure may not be comparable with other issuers and should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with GAAP. See reconciliation of EBIT to net earnings under GAAP as found in the table above. 

About Cinram

Cinram International Inc., an indirect, wholly-owned subsidiary of the Fund, is one of the world's largest providers of pre-recorded multimedia products and related logistics services. With facilities in North America and Europe, Cinram International Inc. manufactures and distributes pre-recorded DVDs, Blu-ray discs, audio CDs, and CD-ROMs for motion picture studios, music labels, publishers and computer software companies around the world. Cinram also provides distribution and logistics services to the telecommunications industry in North America through its wireless subsidiary. The Fund's units are listed on the Toronto Stock Exchange under the symbol CRW.UN. For more information, visit our website at www.cinram.com.

Certain statements included in this release constitute "forward-looking statements" within the meaning of applicable securities laws. Such forward-looking statements include statements concerning the possible effects of the transactions described herein, and the likelihood of their successful completion. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, or results of the multimedia replication industry, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: the Fund's ability to retain major customers; general economic and business conditions, which will, among other things, impact the demand for the Fund's products and services; multimedia replication industry conditions and capacity; the ability of the Fund to implement its business strategy; the Fund's ability to invest successfully in new technologies and other factors which are described in the Fund's filings with the securities commissions. These risks may affect the achievement of the expected results of the transactions described herein. There can be no assurance that the said transactions will be successfully completed or that, if completed, the expected consequences will result in whole or in part, and the deviations from such expectations may be material.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands of U.S. dollars)

                     
            December 31
2010
(unaudited)
      December 31
2009
                     
ASSETS                    
Current assets:                    
Cash and cash equivalents           $164,399       $122,072
Accounts receivable, net of allowance for
doubtful accounts of $3,270 (2009 - $4,149)
          178,066       273,243
Inventories           24,109       31,985
Income taxes receivable           706       5,005
Prepaid expenses           11,841       15,915
Assets held for sale           -       6,047
Future income taxes           -       6,007
            379,121       460,274
                     
Property, plant and equipment           181,849       234,684
Intangible assets           11,511       27,537
Goodwill           40,634       40,634
Other assets           25,701       21,571
            $638,816       $784,700
                     
LIABILITIES AND UNITHOLDERS' DEFICIENCY                    
Current liabilities:                    
Accounts payable           $60,585       $90,282
Accrued liabilities           150,952       226,856
Income taxes payable           13,749       20,277
Current portion of long-term debt           131,525       28,624
Derivative instruments           11,087       -
Current portion of obligations under capital leases           1,141       1,728
            369,039       367,767
                     
Long-term debt           234,402       363,396
Obligations under capital leases           1,086       2,337
Other long-term liabilities           36,921       43,637
Derivative instruments           -       25,225
Future income taxes           1,229       6,638
                     
Unitholders' deficiency           (3,861)       (24,300)
                     
            $638,816       $784,700
                     
                     

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP unit amounts)

         
        Three months ended
December 31
    Twelve months ended
December 31
        2010     2009     2010     2009
                           
Revenue       $300,068     $504,913     $1,108,790     $1,453,031
Cost of goods sold       235,108     393,706     892,393     1,190,892
Gross profit       64,960     111,207     216,397     262,139
Selling, general and administrative expenses       32,571     44,193     137,728     164,992
Amortization of intangible assets       1,285     10,515     15,146     41,465
Impairment of long-lived assets and goodwill       -     82,234     -     82,234
Other charges, net       16,382     (630)     17,544     2,483
Earnings (loss) before the undernoted       14,722     (25,105)     45,979     (29,035)
Interest on long-term debt       7,964     9,221     32,618     37,584
Other interest (income) and financing charges       3,432     4,932     (306)     6,101
Gain on repurchase of debt       -     (14,965)     -     (38,440)
Foreign exchange gain       (169)     (1,129)     (956)     (15,179)
Investment income       (56)     (14)     (317)     (429)
Earnings (loss) from continuing operations before
income taxes
      3,551     (23,150)     14,940     (18,672)
Income taxes (recovery)       (3,859)     (13,836)     (3,500)     (12,677)
Earnings (loss) from continuing operations       7,410     (9,314)     18,440     (5,995)
Earnings (Loss) from discontinued operations       -     842     (5,134)     (16,033)
Net earnings (loss)       $7,410     (8,472)     $13,306     $(22,028)
Earnings per unit from continuing operations:                          
   Basic       $0.14     $(0.17)     $0.34     $(0.11)
   Diluted       $0.13     $(0.17)     $0.33     $(0.11)
Earnings (loss) per unit:                          
   Basic       $0.14     $(0.16)     $0.25     $(0.40)
   Diluted       $0.13     $(0.15)     $0.24     $(0.40)
Weighted average number of units and exchangeable
limited partnership units outstanding, (in thousands):
                         
   Basic       54,006     54,307     54,000     54,785
   Diluted       55,879     55,618     55,756     54,785
                           
                           

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In thousands of U.S. dollars)

Years ended December 31, 2010 and 2009
                2010            2009
                               
Net Earnings (loss)             $   13,306        $   (22,028)
                               
Other comprehensive income, net of tax:                            
                               
  Unrealized loss on translating financial statements of
self-sustaining foreign operations 
              (17,369)           (43,402)
  Unrealized gain on hedges of net investment in
self-sustaining foreign operations 
              5,897            35,135
  Partial release of cumulative translation adjustment               3,759            -
  Unrealized foreign exchange translation loss, net of
hedging activities 
              (7,713)            (8,267)
                               
  Net unrealized gain on derivatives designated as
cash flow hedges 
                        1,067
  Release of other comprehensive income due to
de-designation of hedge  
              14,636            3,840
                6,923            (3,360)
Comprehensive earnings (loss), net of tax            $   20,229        $    (25,388)
                             
                             

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands of U.S. dollars)

                               
        Three months ended
December 31
    Twelve months ended
December 31
        2010     2009     2010     2009
Cash provided by (used in):                          
Operating Activities:                          
  Earnings (loss) from continuing operations       $7,410     $(9,314)     $18,440     $(5,995)
  Items not involving cash:                          
    Amortization of property, plant and equipment       13,857     20,946     54,733     86,641
    Amortization of intangible assets       1,285     10,515     15,146     41,465
    Future income taxes       4,912     (1,540)     598     (2,750)
    Gain on repurchase of debt       -     (14,965)     -     (38,440)
    Partial release of cumulative translation adjustment       -     -     (548)     -
    Impairment of long-lived assets and goodwill       -     82,234     -     82,234
    Release of accumulated other comprehensive income due to
de-designation of hedge
      3,610     (3,840)     14,636     3,840
    Mark-to-market adjustment of derivative liability       954     (419)     (14,138)     (419)
    Non-cash interest expense       600     600     2,402     2,466
    Hedge ineffectiveness       -     128     -     124
    Gain on disposition of property, plant and equipment       (87)     694     (7,460)     (859)
    Other       147     534     387     827
  Change in non-cash operating working capital       18,473     47,348     5,786     133,636
           51,161     140,601     89,982     302,770
Financing Activities:                          
  Transaction costs and loan fees       (3,292)     -     (6,134)     (1,521)
  Repayment/repurchase of debt and bank indebtedness       (7,156)     (109,863)     (28,624)     (213,324)
  Decrease in obligations under capital leases       (366)     (751)     (1,856)     (2,956)
  Financing of employee unit purchase loan       7     (1,067)     24     (2,315)
        (10,807)     (111,681)     (36,590)     (220,116)
Investing Activities:                          
  Purchase of property, plant and equipment       (3,192)     (4,326)     (14,701)     (42,179)
  Payment of acquisition earn-out amount       -     -     -     (16,131)
  Proceeds on disposition of property, plant and equipment       196     77     13,671     29,483
  Decrease in other assets       (2,939)     3,378     1,838     2,987
  Decrease in other long-term liabilities       (362)     (1,222)     (6,717)     (6,433)
        (6,297)     (2,093)     (5,909)     (32,273)
  Cash used in discontinued operating activities       (2,084)     2,725     (1,824)     (17,419)
  Cash provided by (used in) discontinued investing activities       -     (2,811)     (736)     11,179
Foreign currency translation gain (loss) on cash held in foreign
currencies
      (874)     1,709     (2,596)     4,582
Increase in cash and cash equivalents       31,099     28,450     42,327     48,723
Cash and cash equivalents, beginning of year       133,300     93,622     122,072     73,349
Cash and cash equivalents, end of year       $164,399     $122,072     $164,399     $122,072
Cash and cash equivalents are comprised of:                          
  Cash       94,406     88,846     94,406     88,846
  Cash equivalents       69,993     33,226     69,993     33,226
        $164,399     $122,072     $164,399     $122,072



SOURCE Cinram International Income Fund