Cinram Reports 2011 First Quarter Results

(All figures in U.S. dollars unless otherwise indicated)

TORONTO, May 10 /PRNewswire-FirstCall/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2011 first quarter financial results.

Q1-2011 Operating Results

• Consolidated revenue of $176.7 million in the 2011 first quarter compared to $298.6 million in the first quarter of 2010.
• Revenue from the pre-recorded multimedia products fell to $149.8 million from $269.3 million in the first quarter of 2010, primarily as a result of the loss of the Warner Home Video contract in 2010 and a general softness in new releases in the first quarter of 2011 compared with the first quarter of 2010, which had hits such as Avatar, Blind Side and Sherlock Holmes.
• Revenue from the Video Games segment in the first quarter of 2011 was $11.2 million, down from $17.3 million in 2010, primarily as a result of the loss of two major clients that were sold to other companies during 2010.
• Revenue from our other businesses, including Wireless, Retail services and our new digital offerings grew to $15.7 million from $12.0 million in 2010.
• Earnings before interest, taxes and amortization (EBITA¹), excluding other charges was $(1.0) million in 2011, compared to $34.4 million in the first quarter of 2010.
• EBITA from the pre-recorded multimedia business was down significantly, from $30.8 million in 2010 to $(5.4) million in the first quarter of 2011. While some direct manufacturing costs closely track productions volumes, other cost elements, even semi variable costs, are required to be maintained in order to ensure that the proper competencies and capabilities are in place to handle the growth in demand that we normally expect in the third and fourth quarters.
• EBITA generated by the Video Games business segment in the first quarter of 2011 was $1.5 million, or 13.4% of revenue, compared with $2.2 million, or 12.8% of revenue, in the comparable period in 2010.
• EBITA from the other business units almost doubled from $1.5 million in the first quarter of 2010, or 12.3% of revenue, to $2.8 million in 2011, or 18.2% of revenue.

Commented Steve Brown, CEO, "The lower revenues and earnings compared to 2010 were not surprising given the departure of Warner Home Video in July 2010 and the industry wide decline in volume in the first quarter. The loss of some of our Games customers due to dispositions was disappointing, however, I am pleased that we were able to actually grow our margins in the Video Games group, despite this lower revenue level. I was also very encouraged to see growth in both revenue and profitability in our other business segments, which includes our wireless division and our digital services/software group. Although starting from a relatively small base, this business segment, in many ways, is a leading indicator to where we want to take Cinram in the future."

The Fund reported a net loss from continuing operations for the 2011 first quarter of $(22.8) million or $(0.41) per unit (basic) compared with net earnings from continuing operations of $16.1 million or $0.29 per unit (basic) in 2010.

Pre-recorded multimedia segment:

• As expected, first quarter pre-recorded multimedia revenue (which includes replication and distribution of Blu-ray discs, DVDs and CDs) was down 44% to $149.8 million from $269.3 million in 2010, as the prior year results included revenue associated with Warner Home Video combined with a more robust slate of studio releases.
• Cinram replicated 120.3 million DVDs in the first quarter of 2011, compared to 242.3 million units in 2010.
• DVD revenue (which includes replication and distribution services) was $115.8 million, compared to $229.9 million in the prior year.
• Blu-ray disc replication revenue was $7.2 million in the first quarter of 2011, compared to $8.9 million in the comparable 2010 period.
• CD revenue (including replication and distribution of CDs) was down 12% to $26.8 million from $30.5 million due to lower unit shipments, consistent with industry declines for this format.

On May 4, 2011, the Fund executed a multi-year agreement with Relativity Media to serve as the exclusive provider of replication for DVD and Blu-ray products in North America.

On April 14, 2011, Cinram announced that it had signed a new multi-year contract with Twentieth Century Fox Home Entertainment ("Fox"). Under the renewed service agreements Cinram will continue to serve as the primary supplier for replication and distribution services for Fox across North America and Europe, extending Cinram and Fox's long standing relationship.

As announced on March 16, 2011, Cinram was appointed by Wm Morrisons Supermarkets PLC as sole provider of storage and distribution services for the music, video and games categories in the United Kingdom, commencing in September 2011. Simultaneously, Cinram's Vision 2.0 software was chosen to implement a retail services solution to help Morrisons manage and control its inventory, and balance supply with demand.

Digital initiatives:

As previously announced on January 31, 2011, Cinram acquired Los Angeles-based digital media company One K Studios (1K). The move is part of a broad initiative to advance Cinram, a provider of media delivery services around the world, further into digital platforms. 1K specializes in building enhanced consumer experiences for movies, TV shows, music, 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, HBO, and Warner Bros Home Entertainment. These services will be integrated with Cinram's existing media production and logistics business, creating an end-to-end supply chain for our customers.

Geographic revenue:

First quarter North American revenue decreased 40% to $103.8 million from $173.9 million in 2010, principally as a result of lower pre-recorded multimedia product revenue and lower video game distribution revenue, offset by growth in the other business segments.  North America accounted for 59% of first quarter consolidated revenue, compared with 58% in the prior year period.

European revenue was down 42% in the first quarter to $72.9 million from $124.7 million in 2010, consistent with North America, due primarily to the loss of the Warner Home Video contract combined with a weak film slate release.  First quarter European revenue represented 41% of consolidated sales, compared with 42% in the first quarter of 2010.

Balance sheet and liquidity:

As of March 31, 2011, our net debt position (long-term debt excluding unamortized transactions costs, less cash and cash equivalents) improved to $192.4 million, compared with $202.3 million at the end of 2010.

On April 11, 2011, Cinram closed the refinancing and recapitalization transaction as previously announced on January 25, 2011. The refinancing and recapitalization plan has resulted in a $120 million reduction in the Fund's gross senior debt, thereby significantly de-leveraging the Company and removed a major impediment to the growth of the business.

Unit data

For the three-month period ended March 31, 2011, the basic weighted average number of units and exchangeable limited partnership units outstanding was 55.2 million, consistent with December 31, 2010.

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

IFRS Reporting Commenced First Quarter of 2011

Starting with the first quarter of 2011, Cinram has reported its financial results in accordance with International Financial Reporting Standards (IFRS), as required for public companies in Canada. Previously, the company prepared its financial results under Canadian generally accepted accounting standards (GAAP).  The comparative financial information has been restated to reflect the adoption of IFRS, with effect from January 1, 2010.  Periods prior to January 1, 2010 will not be presented under IFRS.

¹ EBITA is defined in this report as earnings (loss) from continuing operations before net finance costs (including interest expense, foreign exchange translation gains/losses, investment income and change in fair value of derivatives), income taxes, and amortization, and is a standard measure that is commonly reported and widely used in the Fund's industry to assist in understanding and comparing operating results. EBITA is not a defined term under IFRS. Accordingly, this measure should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with IFRS. See reconciliation of EBITA to net earnings under IFRS as found in the table above.
² EBIT is defined in this report as earnings (loss) from continuing operations before net finance costs (including interest expense, foreign exchange translation gains/losses, investment income and change in fair value of derivatives) and income taxes, and is a standard measure that is commonly reported and widely used in the Fund's industry to assist in understanding and comparing operating results. EBIT is not a defined term under IFRS. Accordingly, this measure should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with IFRS. See reconciliation of EBIT to net earnings under IFRS 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, CDs, and CD-ROMs for motion picture studios, music labels, publishers and computer software companies around the world. Cinram now also provides distribution and logistics services to the telecommunications industry in North America through its wireless subsidiaries. The Fund's units are listed on the Toronto Stock Exchange under the symbol CRW.UN. The Cinram group of companies now also incorporates 1K Studios, a digital media firm based in Los Angeles specializing in building enhanced consumer experiences for movies, TV shows, music, books and games. For more information, visit www.cinram.com.

Certain statements included in this release constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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 duplication/ 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.

INTERIM CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)

INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP unit amounts)

SOURCE Cinram International Income Fund