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Cinram Reports Fourth Quarter and 2008 Year End Results

Posted on: Monday, 2 March 2009, 16:00 CST

(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 2008 fourth quarter and year end financial results. The Fund recorded a ten per cent decrease in revenue to $598.0 million in the fourth quarter from $666.6 million in the fourth quarter of 2007. Earnings before interest, taxes and amortization (EBITA(1)) were $117.1 million in 2008, down from $126.4 million in the fourth quarter of 2007. The Fund reported a net loss from continuing operations for the 2008 fourth quarter of $25.0 million or $0.45 per unit (basic) compared with a net loss of $314.6 million or $5.50 per unit (basic) in 2007.

On February 13, 2009 the Fund announced that David Rubenstein, its Chief Executive Officer, has decided to resign as a trustee and officer of the Fund after more than fifteen years with Cinram. Mr. Rubenstein has agreed to continue to serve in his current role until March 31, 2009.

For the year ended December 31, 2008, Cinram reported a one per cent increase in revenue to $1.90 billion from $1.88 billion in 2007 as a result of DVD revenue associated with the addition of Universal Pictures International Entertainment in Europe, combined with additional revenue from the Wireless segment and the Ditan business. This was offset by lower DVD unit sales combined with lower average selling prices for DVDs, CDs and print product.

EBITA for the year was $250.6 million compared with $298.1 million in 2007 and includes a $50.6 million reduction in cost of goods sold during the 2008 fourth quarter as a result of a change in estimate related to invalid patent claims. Excluding the impact of this adjustment, the decline in EBITA was the result of lower average selling prices for DVDs, which coupled with lower unit volumes are the two main drivers of Cinram's profit margins. EBITA was also adversely impacted by weaker performance in our Ivy Hill printing division.

On a year-to-date basis, the Fund reported a net loss from continuing operations of $33.8 million or $0.60 per unit (basic) in 2008 compared with a net loss of $296.8 million or $5.12 per unit (basic) in 2007. In 2008, the Fund recorded a combined long lived asset and goodwill impairment charge of $60.8 million. The 2007 results included an impairment charge of $386.3 million related to goodwill and long lived asset.

Since the Fund completed the sale and liquidation of Giant Merchandising's assets and operations during the second quarter of 2008, Giant's results were excluded from Cinram's continuing operations for the three and twelve months ended December 31, 2008, and 2007.

Segment revenue

Fourth quarter Home Video revenue (which includes replication and distribution of DVDs and high-definition discs) was down 15 per cent to $388.0 million from $454.5 million in 2007 due to lower DVD replication volumes in North America combined with lower selling prices globally. Cinram replicated 435.0 million DVDs in the fourth quarter of 2008, including units associated with the DVD contract signing with Universal Europe in 2008, compared to 474.4 million units in 2007. High-definition disc replication revenue decreased to $5.1 million in the fourth quarter of 2008 from $12.3 million in the comparable 2007 period; the 2007 figure included revenue from HD DVD, a format that is no longer supported by Cinram's studio customers.

------------------------------------------------------------------------- Three months ended December 31 Twelve months ended December 31 ------------------------------------------------------------------------- (in thousands of US$) 2008 2007 2008 2007 ------------------------------------------------------------------------- Home Video $388,004 65% $454,540 68% $1,203,067 63% $1,277,335 68% CD 46,964 8% 66,481 10% 200,656 11% 235,745 13% Printing 83,720 14% 87,003 13% 269,174 14% 268,874 14% Video Game 49,272 8% 35,448 5% 126,561 7% 65,093 3% Other 30,069 5% 23,161 4% 100,650 5% 29,889 2% ------------------------------------------------------------------------- $598,029 100% $666,633 100% $1,900,108 100% $1,876,936 100% ------------------------------------------------------------------------- -------------------------------------------------------------------------

CD segment revenue (which includes replication and distribution of CDs) was down 29 per cent in the fourth quarter to $47.0 million from $66.5 million in 2007 in line with a corresponding decline in replication volumes. Fourth quarter printing revenue was down four per cent to $83.7 million from $87.0 million in 2007 as a result of decreased printing sales in the United States from Ivy Hill. Revenue from the Video Game segment was up 39 per cent to $49.3 million in the fourth quarter of 2008 from $35.4 million in 2007 reflecting strong organic growth in this market.

Revenue from our Other segment which includes the Motorola distribution business in both North America and Europe and revenue from the acquisition of Vision Worldwide Management LLC (Vision) increased to $30.1 million in the fourth quarter of 2008 from $23.2 million in 2007.

In December 2008, Motorola Europe announced its intention to cease local distribution for its mobile device business in the European market.

Geographic revenue

Fourth quarter North American revenue decreased 23 per cent to $346.9 million from $450.3 million in 2007, principally as a result of lower DVD volumes and prices. North America accounted for 58 per cent of fourth quarter consolidated revenue compared with 68 per cent in 2007.

European revenue was up 16 per cent in the fourth quarter to $251.1 million from $216.3 million in 2007, principally due to the new replication and distribution agreement with Universal and the related increase in printing sales. Fourth quarter European revenue represented 42 per cent of consolidated sales compared with 32 per cent in the fourth quarter of 2007.

Applying 2007 foreign exchange rates to the 2008 fourth quarter, consolidated revenue would have decreased by three per cent to $646.6 million in 2008 from $666.6 million in 2007.

Other financial highlights

Gross profit for the quarter ended December 31, 2008, decreased to $133.3 million from $149.7 million in 2007, and gross profit margins were 22 per cent in the fourth quarter of 2008, consistent with the corresponding 2007 period. Excluding the impact of the favourable patent related adjustment recorded in the 2008 fourth quarter, gross profit margins were 14 per cent. During the fourth quarter, the Fund recorded amortization expense relating to capital assets (included in the cost of goods sold) of $28.6 million compared to $32.0 million in the fourth quarter of 2007. This reduction in amortization results from the lower net book value of property, plant and equipment due to the impairment charge of $55.2 million recorded at the end of 2007 as part of Cinram's annual impairment test. Amortization of intangible assets decreased to $10.2 million in the fourth quarter of 2008 from $12.3 million in 2007. This reduction in amortization was due to a reduction in intangible assets associated with the impairment charge of $16.8 million recorded at the end of 2007 as part of Cinram's annual impairment test.

Balance sheet and liquidity

The Fund had cash and cash equivalents on hand of $73.3 million and debt of $647.1 million (excluding unamortized transaction costs and loan fees), resulting in a net debt position of $573.8 million at December 31, 2008, compared with a net debt position of $624.1 million at the end of 2007. During 2008 fourth quarter, the Fund made a voluntary repayment of $11 million. Working capital increased to $186.9 million at December 31, 2008, from $119.0 million at December 31, 2007, principally as a result of a reduction in accrued liabilities and bank indebtedness. Cinram paid $13.8 million for property, plant and equipment in the fourth quarter of 2008 principally for equipment for the wireless business and cash payments on DVD equipment previously purchased.

Unit data

For the three-month period ended December 31, 2008, the basic weighted average number of units and exchangeable limited partnership units outstanding was 55.3 million compared with 57.2 million in the prior year. For the year ended December 31, 2008, the basic weighted average number of units and exchangeable limited partnership units outstanding was 56.4 million compared with 58.0 million in the prior year.

During the fourth quarter, the Fund did not repurchase any units under its normal course issuer bid.

Reconciliation of EBITA and EBIT to net loss from continuing operations ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 (unaudited, in thousands of U.S. dollars) 2008 2007 2008 2007 ------------------------------------------------------------------------- EBITA excluding other items $ 114,441 $ 126,632 $ 251,646 $ 301,018 ------------------------------------------------------------------------- Other charges (recovery), net (2,671) 236 1,065 2,918 ------------------------------------------------------------------------- EBITA(1) $117,112 $ 126,396 $ 250,581 $ 298,100 ------------------------------------------------------------------------- Impairment of long lived assets and goodwill 60,750 386,294 60,750 386,294 Amortization of property, plant and equipment 28,561 32,010 109,956 131,627 Amortization of intangible assets 10,215 12,315 42,127 62,959 ------------------------------------------------------------------------- EBIT(2) $ 17,586 $ (304,223) $ 37,748 $ (282,780) ------------------------------------------------------------------------- Interest expense 13,623 14,518 48,760 53,742 Foreign exchange (gain)/loss 9,813 (2,978) 12,312 (8,585) Investment income (218) (491) (1,729) (3,862) Income taxes (recovery) 19,375 (647) 12,213 (27,254) ------------------------------------------------------------------------- Net loss from continuing operations $ (25,007) $ (314,625) $ (33,808) $ (296,821) ------------------------------------------------------------------------- (1) EBITA is defined herein as earnings from continuing operations before impairment charges, interest expense, investment income, income taxes, amortization and foreign exchange gain/loss. 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 herein as earnings from continuing operations before interest expense, investment income, foreign exchange gain/loss 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 the world's largest provider 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, audio 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 and Europe through its wireless subsidiaries. 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 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: 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 retain major customers; 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.

CONSOLIDATED BALANCE SHEETS (unaudited, in thousands of U.S. dollars) ------------------------------------------------------------------------- As at December 31 2008 2007 ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 73,349 $ 68,406 Accounts receivable 495,604 588,551 Inventories 48,987 42,822 Income taxes receivable 18,235 21,708 Prepaid expenses 21,913 32,478 Future income taxes 1,827 19,337 ------------------------------------------------------------------------- 659,915 773,302 Property, plant and equipment 361,804 463,374 Goodwill 64,737 55,326 Intangible assets 94,423 137,722 Other assets 24,557 11,945 Future income taxes - 2,012 ------------------------------------------------------------------------- $1,205,436 $1,443,681 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND UNITHOLDERS' EQUITY Current liabilities: Bank indebtedness $ - $ 27,599 Accounts payable 203,619 233,902 Accrued liabilities 247,968 364,609 Distributions payable - 9,488 Income taxes payable 11,581 9,485 Current portion of long-term debt 6,750 6,750 Current portion of obligations under capital leases 3,094 2,462 ------------------------------------------------------------------------- 473,012 654,295 Long-term debt 636,299 651,778 Obligations under capital leases 3,926 6,187 Other long-term liabilities 43,625 30,986 Derivative instruments 26,586 22,495 Future income taxes 5,208 7,870 Unitholders' equity: Fund units 175,990 181,660 Exchangeable limited partnership units 100 298 Contributed surplus - - Deficit (258,425) (223,854) Accumulated other comprehensive income 99,115 111,966 ------------------------------------------------------------------------- 16,780 70,070 ------------------------------------------------------------------------- $1,205,436 $1,443,681 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF LOSS AND RETAINED EARNINGS (DEFICIT) (unaudited, in thousands of U.S. dollars, except per share/unit/exchangeable LP unit amounts) ------------------------------------------------------------------------- Three months ended Twelve months ended December 31 December 31 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenue $ 598,029 $ 666,633 $1,900,108 $1,876,936 Cost of goods sold 464,893 516,958 1,575,682 1,531,185 ------------------------------------------------------------------------- Gross profit 133,136 149,675 324,426 345,751 Selling, general and administrative expenses 47,256 55,053 182,736 176,360 Amortization of intangible assets 10,215 12,315 42,127 62,959 Impairment of long-lived assets and goodwill 60,750 386,294 60,750 386,294 Other charges, net (2,671) 236 1,065 2,918 ------------------------------------------------------------------------- Earnings (loss) before the undernoted 17,586 (304,223) 37,748 (282,780) Interest on long-term debt 11,452 12,860 45,925 50,889 Other interest 2,171 1,658 2,835 2,853 Foreign exchange loss (gain) 9,813 (2,978) 12,312 (8,585) Investment income (218) (491) (1,729) (3,862) ------------------------------------------------------------------------- Loss from continuing operations before income taxes (5,632) (315,272) (21,595) (324,075) Income taxes (recovery) 19,375 (647) 12,213 (27,254) ------------------------------------------------------------------------- Loss from continuing operations (25,007) (314,625) (33,808) (296,821) Earnings (loss) from discontinued operations 1,923 (1,947) 2,279 (4,238) ------------------------------------------------------------------------- Net loss for the period (23,084) (316,572) (31,529) (301,059) Retained earnings (deficit), beginning of period (235,341) 132,248 (223,854) 259,876 Repurchase of units - (4,588) (3,042) (17,937) Distributions declared - (34,942) - (164,734) ------------------------------------------------------------------------- Deficit, end of period (258,425) $ (223,854) (258,425) $ (223,854) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per unit from continuing operations: Basic (0.45) (5.50) (0.60) (5.12) Diluted (0.45) (5.50) (0.60) (5.12) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per unit: Basic (0.42) (5.53) (0.56) (5.19) Diluted (0.42) (5.53) (0.56) (5.19) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of units and exchangeable limited partnership units outstanding, (in thousands): Basic 55,253 57,195 56,446 57,965 Diluted 55,253 57,195 56,446 57,965 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited, in thousands of U.S. dollars) ------------------------------------------------------------------------- Three months ended Twelve months ended December 31 December 31 2008 2007 2008 2007 ------------------------------------------------------------------------- Net loss for the period $ (23,084) $ (316,572) $ (31,529) $ (301,059) Other comprehensive income, net of tax: Unrealized gain (loss) on translating financial statements of self-sustaining foreign operations 28,696 (7,563) 42,041 (30,389) Unrealized gain (loss) on hedges of net investment in self- sustaining foreign operations (39,147) 6,025 (53,594) 46,870 Partial release of cumulative translation adjustment - - 1,203 646 ------------------------------------------------------------------------- Unrealized foreign exchange translation gain (loss), net of hedging activities (10,451) (1,538) (10,350) 17,127 Net unrealized loss on derivatives designated as cash flow hedges (3,547) (9,580) (2,501) (12,915) ------------------------------------------------------------------------- Other comprehensive income (loss) (13,998) (11,118) (12,851) 4,212 ------------------------------------------------------------------------- Comprehensive loss, net of tax $ (37,082) $ (327,690) $ (44,380) $ (296,847) ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, In thousands of U.S. dollars) ------------------------------------------------------------------------- Three months ended Twelve months ended December 31 December 31 2008 2007 2008 2007 ------------------------------------------------------------------------- Cash provided by (used in): Operating Activities: Loss from continuing operations $ (25,007) $ (314,625) $ (33,808) $ (296,821) Items not involving cash: Amortization 38,776 44,325 152,083 194,586 Future income taxes 13,844 (33,960) 16,860 (37,067) Partial release of cumulative translation adjustment - - 536 646 Impairment of long- lived assets and goodwill 60,750 386,294 60,750 386,294 Hedge ineffectiveness of U.S. dollar- denominated debt 1,833 381 1,590 287 Non-cash interest expense 443 444 1,776 1,629 Loss (gain) on disposition of property, plant and equipment (2,430) 983 (3,465) 912 Other (50) (199) 175 6 Change in non-cash operating working capital (70,989) (2,418) (58,838) 10,293 ------------------------------------------------------------------------- 17,170 81,225 137,659 260,765 Financing Activities: Repayment of long-term debt and bank indebtedness (12,687) (28,017) (44,419) (41,391) Increase in bank indebtedness - 35,868 - 58,373 Transaction costs and loan fees - - - (2,414) Increase (decrease) in obligation under capital leases 196 (665) (1,628) (1,666) Issuance of units - - - 992 Repurchase of units - (5,340) (9,085) (27,100) Distributions paid - (41,307) (9,247) (171,333) ------------------------------------------------------------------------- (12,491) (39,461) (64,379) (184,539) Investing Activities: Purchase of property, plant and equipment (13,796) (15,049) (69,507) (89,095) Acquisitions, net of cash - (730) (5,386) (58,276) Acquisition expense - - 1,003 - Payment of acquisition earn-out amount - - (13,449) - Proceeds on disposition of property, plant and equipment 12,208 27 15,509 242 Decrease (increase) in other assets 7,715 1,025 2,453 (11,302) Increase (decrease) in other long-term liabilities (3,515) 79 (2,851) (39) ------------------------------------------------------------------------- 2,612 (14,648) (72,228) (158,470) Cash used in discontinued operating activities (1,054) (1,264) (8,091) (1,379) Cash provided by discontinued investing activities - 964 6,225 1,905 Foreign currency translation loss (gain) on cash held in foreign currencies 4,947 (4,611) 5,757 (2,557) ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 11,184 22,205 4,943 (84,275) Cash and cash equivalents, beginning of period 62,165 46,201 68,406 152,681 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 73,349 68,406 $ 73,349 $ 68,406 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents are comprised of: Cash $ 42,093 $ 33,544 $ 42,093 $ 33,544 Cash equivalents 31,256 34,862 31,256 34,862 ------------------------------------------------------------------------- $ 73,349 $ 68,406 $ 73,349 $ 68,406 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 11,382 $ 11,990 $ 46,349 $ 51,125 Income taxes paid (recovered) (3,301) 3,278 (11,082) 36,319 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents are defined as cash and short-term deposits, which have an original maturity of less than 90 days

SOURCE Cinram International Income Fund

Source: PR Newswire

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