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Cinram Reports 2010 Third Quarter Results

November 2, 2010

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

TORONTO, Nov. 2 /PRNewswire-FirstCall/ – Cinram International Income Fund (“Cinram” or
the “Fund”) (TSX: CRW.UN) today reported its 2010 third quarter and
year to date financial results. The Fund reported revenue of $254.1
million
in the 2010 third quarter compared to $348.8 million in the
third quarter of 2009. Earnings before interest, taxes and amortization
(EBITA(1)), excluding other charges was $25.7 million compared with $44.6 million
in the third quarter of 2009. As a percent of revenue, EBITA excluding
other charges was 10.1% in 2010 compared with 12.8% in 2009. As
expected, the decrease in revenue and EBITA was primarily the result of
the termination of the Warner Home Video (WHV) contract effective July
31, 2010
. The Fund reported net income from continuing operations for
the 2010 third quarter of $12.0 million or $0.22 per unit (basic)
compared with net earnings from continuing operations of $13.9 million
or $0.26 per unit (basic) in 2009.  On a year to date basis, revenue
was $808.7 million compared with $948.1 million in the prior year,
while EBITA excluding other charges decreased by 9% to $87.2 million
from $95.8 million in 2009.

“The results for the 2010 third quarter were generally above our
expectations. While the termination of the Warner Home Video contract
became effective July 31, results for the third quarter included a
significant amount of WHV offload from our competitor.  As anticipated,
revenue and EBITA were below prior year levels as a result of the
contract loss. However, our margins were better than expected as a
result of the ongoing efficiency initiatives,” commented Steve Brown,
Chief Executive Officer. 

Balance sheet and liquidity
As a result of the maturity of the senior credit facility in May 2011,
being less than one year from maturity, the entire debt balance has
been recorded as a current liability in our September 30, 2010 balance
sheet. As a result, our working capital balance is in a negative
position.

“The Company is fully engaged in discussions with its lenders and our
respective advisors in a refinancing plan and we expect to make an
announcement of the refinancing plan in the near future,” commented

John Bell, Chief Financial Officer.

As of September 30, 2010, our net debt position (term debt excluding
unamortized transaction costs, less cash and cash equivalents) improved
to $240.6 million, compared with $273.3 million at the end of 2009. 
During the first nine months of 2010, our cash balance increased by
$11.2 million to $133.3 million from $122.1 million at the end of
2009. 

Segment revenue

 
  Three months ended September 30   Nine months ended September 30
(in thousands of US$)   2010   2009   2010   2009
Home Video $197,275 78% $275,251 79% $640,070 79% $717,401 76%
CD 32,745 13% 41,297 12% 93,521 12% 115,445 12%
Video Game 11,126 4% 18,192 5% 38,876 5% 58,404 6%
Other 12,910 5% 14,021 4% 36,255 4% 56,868 6%
  $254,056 100% $348,761 100% $808,722 100% $948,118 100%

Third quarter Home Video revenue (which includes replication and
distribution of DVDs and Blu-ray discs) was down 28 per cent to $197.3
million
from $275.3 million in 2009 as a result of lower DVD unit
shipments given the loss of the WHV contract effective July 31(st), 2010.  Blu-ray disc replication revenue increased to $8.1 million in
the third quarter of 2010 from $4.7 million in the comparable 2009
period.

CD segment revenue (which includes replication and distribution of CDs)
was down 21 per cent in the third quarter of 2010 to $32.7 million from
$41.3 million in 2009 due primarily to lower unit shipments resulting
from an expected decline in demand from our CD music label customers.

Video game revenue was $11.1 million in the third quarter of 2010
compared with $18.2 million in 2009 due to continued softness in the
gaming industry combined with the loss of several customers.

Revenue from our wireless division related to logistics services was
$10.4 million during the third quarter of 2010, compared to $11.1
million
in 2009, as the prior year figure includes revenue from the
Motorola Europe contract which was terminated effective July 2009.

Geographic revenue
Third quarter North American revenue decreased 29 per cent to $139.6
million
from $197.2 million in 2009, principally as a result of lower
revenues from the home video, video game distribution and CD segments. 
North America accounted for 55 per cent of third quarter consolidated
revenue compared with 57 percent in the prior year period.

European revenue was down 25 percent in the third quarter to $114.5
million
from $151.6 million in 2009.  The decrease in revenue was due
to several factors including the loss of the WHV business during the
third quarter of 2010, combined with the foreign exchange impact
associated with a weaker Euro relative to the U.S. dollar during the
third quarter of 2010 compared to the same period in the prior year. 
Excluding the impact of foreign currency translation, European revenue
decreased by 18 percent in the 2010 third quarter compared to the prior
year period. Third quarter European revenue represented 45 percent of
consolidated revenue compared with 43 percent in the third quarter of
2009.

Other financial highlights
Gross profit for the third quarter of 2010 decreased to $45.3 million
from $62.2 million in 2009. The Fund recorded amortization expense
relating to capital assets (included in the cost of goods sold) of
$12.8 million compared to $21.2 million in the third quarter of 2009.
This reduction in amortization results from the lower net book value of
property, plant and equipment due to impairment charges recorded at the
end of 2009 as part of Cinram’s annual impairment test.  Excluding
capital asset amortization charges, gross profit as a percent of sales
was 23 percent in the third quarter of 2010, compared with 24 percent
in the prior year period.

Selling, general and administrative expenses decreased in the third
quarter of 2010 to $32.4 million from $38.8 million in 2009. As a
percentage of consolidated revenues, selling, general and
administration expenses were 13 percent compared with 11 percent in
2009.   

On June 30, 2010, the Fund completed the sale of its 50% share of the
Mexican joint venture, Cinram Latinoamericana, S.A. de C.V, to the
joint venture partner for total proceeds of $0.3 million.  The
agreement includes contingent consideration of up to another $0.2
million
should certain conditions be met before the end of 2010. 
Accordingly, the Funds’ proportionate share of the results of
operations of the joint venture were segregated and presented
separately as discontinued operations in the consolidated financial
statements for the three and nine months ended September 30, 2010, and
prior periods have been reflected on this basis.

Unit data
For the three month period ended September 30, 2010, the basic weighted
average number of units and exchangeable limited partnership units
outstanding was 54.0 million compared with 54.5 million in the prior
year. For the nine month period ended September 30, 2010, the basic
weighted average number of units and exchangeable limited partnership
units outstanding was 54.0 million compared with 55.0 million in the
prior year.

Reconciliation of EBITA and EBIT to net earnings from continuing
operations

 
  Three months ended

September 30

   Nine months ended

September 30

(unaudited, in thousands of U.S. dollars) 2010 2009 2010 2009
EBITA excluding other charges $25,696 $44,564 $87,156 $95,828
Other charges, net 3,516 1,587 1,162 3,113
EBITA(1)                                                                          
22,180 42,977 85,994 92,715
Amortization of property, plant and equipment 12,814 21,215 40,876 65,695
Amortization of intangible assets 2,716 10,451 13,861 30,950
EBIT(2)                                                                           
6,650 11,311 31,257 (3,930)
Interest on debt 8,060 9,147 24,654 28,363
Other interest (income) and financing charges (3,361)          978 (3,738) 1,169
Gain on repurchase of debt - (9,853) - (23,475)
Foreign exchange gain (11,250) (6,456) (787) (14,050)
Investment income (138) (175) (261) (415)
Income taxes 1,351 3,733 359 1,159
Net earnings from continuing operations $11,988 $13,937     $11,030 $3,319

(1) EBITA is defined as earnings (loss) from continuing operations before
interest expense, foreign exchange translation gain/losses, 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 translation gains/losses, investment
income, gain on repurchase of debt, other interest and financing
charges and incomes 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 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 SHEETS

(in thousands of U.S. dollars)

 
  September 30

2010

   December 31

2009

    (unaudited)  
Assets    
Current assets:    
Cash and cash equivalents $133,300 $122,072
Accounts receivable 183,269 273,243
Inventories 32,678 31,985
Income taxes receivable 373 5,005
Prepaid expenses 14,632 15,915
Assets held for sale - 6,047
Future income taxes 5,758 6,007
  370,010 460,274
     
Property, plant and equipment 193,885 234,684
Intangible assets 12,801 27,537
Goodwill 40,634 40,634
Other assets 19,454 21,571
  $636,784 $784,700
     
Liabilities and Unitholders’ deficiency    
Current liabilities:    
Accounts payable $43,671 $90,282
Accrued liabilities 157,697 226,856
Income taxes payable 22,127 20,277
Current portion of long-term debt 372,449 28,624
Derivative instruments 10,134 -
Current portion of obligations under capital leases 1,209 1,728
  607,287 367,767
     
Long-term debt - 363,396
Obligations under capital leases 1,371 2,337
Other long-term liabilities 37,283 43,637
Derivative instruments - 25,225
Future income taxes 2,075 6,638
     
Unitholders’ deficiency (11,232) (24,300)
     
  $636,784 $784,700

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

 
  Three months ended

September 30

Nine months ended

September 30

  2010 2009 2010 2009
Revenue $254,056   $348,761     $808,722   $948,118
Cost of goods sold 208,793 286,576 657,285 797,186
Gross profit 45,263 62,185 151,437 150,932
Selling, general and administrative expenses 32,381 38,836 105,157 120,799
Amortization of intangible assets 2,716 10,451 13,861 30,950
Other charges, net 3,516 1,587 1,162 3,113
Earnings (loss) before the undernoted 6,650 11,311 31,257 (3,930)
Interest on debt 8,060 9,147 24,654 28,363
Other interest (income) and financing charges, net (3,361) 978 (3,738) 1,169
Gain on repurchase of debt - (9,853) - (23,475)
Foreign exchange gain (11,250) (6,456) (787) (14,050)
Investment income (138) (175) (261) (415)
Earnings from continuing operations before income taxes 13,339 17,670 11,389 4,478
Income taxes 1,351 3,733 359 1,159
Earnings from continuing operations 11,988 13,937 11,030 3,319
Loss from discontinued operations - (4,456) (5,134) (16,875)
Net earnings (loss) $11,988 $9,481 $5,896 $(13,556)
Earnings per unit from continuing operations        
   Basic $0.22 $0.26 $0.20 $0.06
   Diluted $0.21 $0.25 $0.20 $0.06
Earnings (loss) per unit:    
   Basic $0.22 $0.17 $0.11 $(0.25)
   Diluted $0.21 $0.17 $0.11 $(0.25)
Weighted average number of units and exchangeable limited partnership
units outstanding, (in thousands)
       
   Basic 54,006 54,530 53,999 54,956
   Diluted 55,790 55,564 55,716 55,474

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (loss)
(unaudited, in thousands of U.S. dollars)

 
  Three months ended September 30 Nine months ended September 30
    2010 2009   2010 2009
Net earnings (loss) for the period $11,988 $9,481 $5,896 $(13,556)
Other comprehensive income (loss), net of tax:        
  Unrealized loss on translating financial  statements of self-sustaining
foreign operations
(5,079) (12,445) (10,103) (29,416)
  Unrealized gain on hedges of net investment in self-sustaining foreign
operations
5,277 12,627 2,291 25,899
  Partial release of cumulative translation

    adjustment

- - 3,759 -
  Unrealized foreign exchange translation gain

(loss), net of hedging activities

198 182 (4,053) (3,517)
  Net unrealized loss on derivatives designated as cash flow  hedges - (1,897) - (479)
  Release of other comprehensive income due to de-designated hedge 3,649 - 11,026 -
Other comprehensive income (loss) 3,847 (1,715) 6,973 (3,996)
Comprehensive income (loss), net of tax $15,835 $7,766 $12,869 $(17,552)

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands of U.S. dollars)

 
  Three months ended

September 30

Nine months ended

September 30

  2010 2009 2010 2009
Cash provided by (used in):        
Operating Activities:        
   Net earnings from continuing operations $11,988 $13,937 $11,030 $3,319
   Items not involving cash:        
   Amortization of property, plant and equipment 12,814 21,215 40,876 65,695
   Amortization of intangible assets 2,716 10,451 13,861 30,950
   Future income taxes (recovery) 1,445 215 (4,314) (1,210)
   Gain on repurchase of debt - (9,853) - (23,475)
   Partial release of cumulative translation adjustment - - (548) -
   Release of other comprehensive income due to de-designation of hedge 3,649 - 11,026 -
   Mark-to-market adjustment of derivative liability (7,238) - (15,092) -
   Non-cash interest expense 602 600 1,802 1,866
   Hedge ineffectiveness - 490 - (4)
   Loss (gain) on disposition of property, plant and equipment 54 184 (7,373) (1,553)
   Other 109 91 240 293
Change in non-cash operating working capital (16,186) 24,461 (12,687) 86,288
     9,953 61,791 38,821 162,169
Financing Activities:        
   Transaction costs (1,642) - (2,842) (1,521)
   Repayment/repurchase of debt and bank indebtedness (7,156) (37,075) (21,468) (103,461)
   Decrease in obligations under capital leases (270) (658) (1,490) (2,205)
   Financing of employee unit purchase loan 5 (762) 17 (1,248)
  (9,063) (38,495) (25,783)   (108,435)
Investing Activities:        
  Purchase of property, plant and equipment (1,802) (8,128) (11,509) (37,853)
  Payment of acquisition earnout amount - - - (16,131)
  Proceeds on disposition of property, plant and equipment - 2,764 13,475 29,406
  Decrease (increase) in other assets (28) (266) 4,777 (391)
  Increase (decrease) in other long-term liabilities 2,362 129 (6,355) (5,211)
  532 (5,501) 388 (30,180)
  Cash provided by (used in) discontinued operating activities 1,637 (445) 260 (20,144)
  Cash provided by (used in) discontinued investing activities - - (736) 13,990
Foreign currency translation gain/(loss) on cash held in foreign
currencies
4,829 (351) (1,722) 2,873
Increase in cash and cash equivalents 7,888 16,999 11,228 20,273
Cash and cash equivalents, beginning of period 125,412 76,623 122,072 73,349
Cash and cash equivalents, end of period $133,300   $93,622   $133,300 $93,622
Cash and cash equivalents are comprised of:        
  Cash 80,409 66,086 80,409 66,086
  Cash equivalents 52,891 27,536 52,891 27,536
  $133,300 $93,622 $133,300 $93,622
Supplemental cash flow information:        
  Interest paid $7,866 $8,725 $24,491 $29,009
  Income taxes paid (received) 90 (19,294) (2,057) (17,600)

Cash and cash equivalents are defined as cash and short-term deposits
that have an original maturity of less than 90 days.

SOURCE Cinram International Income Fund


Source: newswire



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