Cinram Reports 2010 Second Quarter Results

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

TORONTO, Aug. 10 /CNW/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2010 second quarter and year to date financial results. The Fund reported revenue of $255.9 million in the 2010 second quarter compared to $298.4 million in the second quarter of 2009. Earnings before interest, taxes and amortization (EBITA(1)), excluding other charges, improved by 12 percent to $25.9 million from $23.2 million in the second quarter of 2009. As a percent of revenue, EBITA excluding other charges improved 30 percent to 10.1 percent in 2010 from 7.8 percent in 2009. The increase in EBITA was the result of labour and overhead efficiencies combined with lower fixed costs incurred during the quarter. The Fund reported net loss from continuing operations for the 2010 second quarter of $8.9 million or $0.16 per unit (basic) compared with net earnings from continuing operations of $7.2 million or $0.13 per unit (basic) in 2009. On a year to date basis, revenue decreased to $554.7 million from $599.4 million, while EBITA excluding other charges, improved by 20 percent to $61.5 million from $51.3 million in the prior year.

"The results for the 2010 second quarter were generally consistent with our expectations. While revenue was slightly lower than forecast, the improved margins continue to reflect the results of the ongoing cost saving activities", commented Steve Brown, Chief Executive Officer. "Given the termination of the Warner Home Video contract effective August 1st, results for the 2010 third quarter are expected to be below prior year".

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 June 30, 2010 balance sheet. As a result, our working capital balance is in a negative position.

"We are currently working with our financial advisors, Goldman Sachs, on a number of refinancing alternatives", commented John Bell, Chief Financial Officer. "We are optimistic that we will complete a refinancing of the senior credit facility before the 2011 maturity."

As of June 30, 2010, our net debt position (term debt excluding unamortized transaction costs, less cash and cash equivalents) improved to $255.6 million, compared with $273.3 million at the end of 2009. During the first six months of 2010, our cash balance increased by $3.3 million to $125.4 million from $122.1 million at year end.

Segment revenue

    
    -------------------------------------------------------------------------
                    Three months ended June 30     Six months ended June 30
    -------------------------------------------------------------------------
    (in thousands
     of US$)               2010           2009           2010           2009
    -------------------------------------------------------------------------
    Home Video    $203,764  80%  $222,561  75%  $442,795  80%  $442,150  74%
    CD              30,318  12%    38,173  13%    60,776  11%    74,148  12%
    Video Game      10,451   4%    16,600   5%    27,750   5%    40,212   7%
    Other           11,389   4%    21,052   7%    23,345   4%    42,847   7%
    -------------------------------------------------------------------------
                  $255,922 100%  $298,386 100%  $554,666 100%  $599,357 100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Second quarter Home Video revenue (which includes replication and distribution of DVDs and Blu-ray discs) was down eight percent to $203.8 million from $222.6 million in 2009 as a result of lower DVD unit shipments combined with lower selling prices. Blu-ray disc replication revenue increased to $6.0 million in the second quarter of 2010 from $5.6 million in the comparable 2009 period.

CD segment revenue (which includes replication and distribution of CDs) was down 21 percent in the second quarter of 2010 to $30.3 million from $38.2 million in 2009 due primarily to lower unit shipments resulting from the closure of our CD facility in Richmond, Indiana during the prior year.

Video game revenue was $10.5 million in the second quarter of 2010 compared with $16.6 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 $9.3 million during the second quarter of 2010, compared to $19.1 million in 2009, as the prior year figure includes revenue from the Motorola Europe contract which was terminated effective July 2009.

Geographic revenue

Second quarter North American revenue decreased 15 percent to $153.4 million from $181.4 million in 2009, principally as a result of weaker video game distribution revenue from Ditan combined with lower CD revenue. North America accounted for 60 per cent of second quarter consolidated revenue compared with 61 percent in the prior year period.

European revenue was down 12 percent in the second quarter to $102.5 million from $117.0 million in 2009, due to the foreign exchange impact associated with the weakening of the Euro and British Pound relative to the U.S. dollar. Excluding the impact of foreign currency translation, European revenue decreased by six percent in the 2010 second quarter compared to the prior year period. Second quarter European revenue represented 40 percent of consolidated sales compared with 39 percent in the second quarter of 2009.

Other financial highlights

Gross profit for the second quarter of 2010 increased to $49.9 million from $44.5 million in 2009. The Fund recorded amortization expense relating to capital assets (included in the cost of goods sold) of $12.9 million compared to $22.3 million in the second 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 improved to 24.5 percent in the second quarter of 2010, compared to 22.4 percent in the prior year period.

Selling, general and administrative expenses decreased in the second quarter of 2010 to $36.9 million from $43.7 million in 2009. As a percentage of consolidated revenues, selling, general and administration expenses were 14 percent compared with 15 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 six months ended June 30, 2010, and prior periods have been reflected on this basis.

Unit data

For the three month period ended June 30, 2010, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.0 million compared with 55.1 million in the prior year. For the six month period ended June 30, 2010, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.0 million compared with 55.2 million in the prior year.

    
    Reconciliation of EBITA and EBIT to net earnings (loss) from continuing
    operations
    -------------------------------------------------------------------------
                                      Three months ended    Six months ended
    (unaudited, in                            June 30             June 30
     thousands of U.S. dollars)           2010      2009      2010      2009
    -------------------------------------------------------------------------
    EBITA excluding other charges     $ 25,887  $ 23,160  $ 61,460  $ 51,264
    -------------------------------------------------------------------------
    Other charges (income), net          4,821       226    (2,354)    1,526
    -------------------------------------------------------------------------
    EBITA(1)                            21,066    22,934    63,814    49,738
    -------------------------------------------------------------------------
    Amortization of property, plant
     and equipment                      12,885    22,341    28,062    44,480
    Amortization of intangible assets    5,434    10,332    11,145    20,499
    -------------------------------------------------------------------------
    EBIT(2)                              2,747    (9,739)   24,607   (15,241)
    -------------------------------------------------------------------------
    Interest on debt                     8,184     9,379    16,594    19,216
    Other interest (income) and
     financing charges, net             (1,034)     (377)     (377)      191
    Gain on repurchase of debt               -   (13,622)        -   (13,622)
    Foreign exchange loss (gain)        10,127   (13,432)   10,463    (7,594)
    Investment income                      (36)      (25)     (123)     (240)
    Income taxes (recovery)             (5,618)    1,128      (992)   (2,574)
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations            $ (8,876) $  7,210  $   (958) $(10,618)
    -------------------------------------------------------------------------
    (1) EBITA is defined as earnings 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)
    -------------------------------------------------------------------------
                                                              June  December
                                                           30 2010   31 2009
                                                        (unaudited)
    -------------------------------------------------------------------------
    ASSETS
    Current assets:
    Cash and cash equivalents                             $125,412  $122,072
    Accounts receivable                                    167,343   273,243
    Inventories                                             34,761    31,985
    Income taxes receivable                                    620     5,005
    Prepaid expenses                                        13,193    15,915
    Assets held for sale                                         -     6,047
    Future income taxes                                      5,278     6,007
    -------------------------------------------------------------------------
                                                           346,607   460,274

    Property, plant and equipment                          198,693   234,684
    Intangible assets                                       15,461    27,537
    Goodwill                                                40,634    40,634
    Other assets                                            17,997    21,571
    -------------------------------------------------------------------------
                                                          $619,392  $784,700
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' DEFICIENCY
    Current liabilities:
    Accounts payable                                      $ 35,289  $ 90,282
    Accrued liabilities                                    154,827   226,856
    Income taxes payable                                    22,064    20,277
    Current portion of long-term debt                      378,993    28,624
    Current portion of obligations under capital leases      1,315     1,728
    -------------------------------------------------------------------------
                                                           592,488   367,767

    Long-term debt                                               -   363,396
    Obligations under capital leases                         1,529     2,337
    Other long-term liabilities                             34,920    43,637
    Derivative instruments                                  17,372    25,225
    Future income taxes                                        150     6,638

    Unitholders' deficiency                                (27,067)  (24,300)
    -------------------------------------------------------------------------

                                                          $619,392  $784,700
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF LOSS
    (unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP
    unit amounts)
    -------------------------------------------------------------------------
                                      Three months ended    Six months ended
                                              June 30             June 30
                                          2010      2009      2010      2009
    -------------------------------------------------------------------------
    Revenue                           $255,922  $298,386  $554,666  $599,357
    Cost of goods sold                 206,044   253,858   448,492   510,610
    -------------------------------------------------------------------------
    Gross profit                        49,878    44,528   106,174    88,747
    Selling, general and administrative
     expenses                           36,876    43,709    72,776    81,963
    Amortization of intangible assets    5,434    10,332    11,145    20,499
    Other charges (income), net          4,821       226    (2,354)    1,526
    -------------------------------------------------------------------------
    Earnings (loss) before the
     undernoted                          2,747    (9,739)   24,607   (15,241)
    Interest on debt                     8,184     9,379    16,594    19,216
    Other interest (income) and
     financing charges, net             (1,034)     (377)     (377)      191
    Gain on repurchase of debt               -   (13,622)        -   (13,622)
    Foreign exchange loss (gain)        10,127   (13,432)   10,463    (7,594)
    Investment income                      (36)      (25)     (123)     (240)
    -------------------------------------------------------------------------
    Earnings (loss) from continuing
     operations before income taxes    (14,494)    8,338    (1,950)  (13,192)
    Income taxes (recovery)             (5,618)    1,128      (992)   (2,574)
    -------------------------------------------------------------------------
    Earnings (loss) from continuing
     operations                         (8,876)    7,210      (958)  (10,618)
    Loss from discontinued operations   (5,077)   (7,822)   (5,134)  (12,419)
    -------------------------------------------------------------------------
    Net loss                           (13,953)     (612)   (6,092)  (23,037)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per unit from
     continuing operations:
      Basic                           $  (0.16) $   0.13  $  (0.02) $  (0.19)
      Diluted                         $  (0.16) $   0.13  $  (0.02) $  (0.19)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per unit:
      Basic                           $  (0.26) $  (0.01) $  (0.11) $  (0.42)
      Diluted                         $  (0.26) $  (0.01) $  (0.11) $  (0.42)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of units
     and exchangeable limited
     partnership units outstanding,
     (in thousands):
      Basic                             54,003    55,096    53,995    55,174
      Diluted                           54,003    55,565    53,995    55,174
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
    (unaudited, in thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                      Three months ended    Six months ended
                                              June 30             June 30
                                          2010      2009      2010      2009
    -------------------------------------------------------------------------
    Net loss for the period           $(13,953) $   (612) $ (6,092) $(23,037)
    Other comprehensive income,
     net of tax:
      Unrealized gain (loss) on
       translating financial
       statements of self-sustaining
       foreign operations                8,488   (16,049)   (5,024)  (16,971)
      Unrealized gain (loss) on
       hedges of net investment in
       self-sustaining foreign
       operations                       (7,675)   16,890    (2,986)   13,272
      Partial release of cumulative
       translation adjustment            2,660         -     3,759         -
    -------------------------------------------------------------------------
      Unrealized foreign exchange
       translation gain (loss), net
       of hedging activities             3,473       841    (4,251)   (3,699)
      Net unrealized gain (loss) on
       derivatives designated as
       cash flow hedges                      -      (235)        -     1,418
      Release of other comprehensive
       income due to de-designated
       hedge                             4,102         -     7,377         -
    -------------------------------------------------------------------------
    Other comprehensive income (loss)    7,575       606     3,126    (2,281)
    -------------------------------------------------------------------------
    Comprehensive loss, net of tax    $ (6,378) $     (6) $ (2,966) $(25,318)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited, in thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                      Three months ended    Six months ended
                                              June 30             June 30
                                          2010      2009      2010      2009
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating Activities:
      Net earnings (loss) from
       continuing operations          $ (8,876) $  7,210  $   (958) $(10,618)
      Items not involving cash:
        Amortization of property,
         plant and equipment            12,885    22,341    28,062    44,480
        Amortization of intangible
         assets                          5,434    10,332    11,145    20,499
        Future income taxes (recovery)  (2,860)      725    (5,759)   (1,425)
        Gain on repurchase of debt           -   (13,622)        -   (13,622)
        Partial release of cumulative
         translation adjustment         (1,647)        -      (548)        -
        Release of other comprehensive
         income due to de-designation
         of hedge                        4,102         -     7,377         -
        Mark-to-market adjustment of
         derivative liability           (3,768)        -    (7,854)        -
        Non-cash interest expense          600       600     1,200     1,266
        Hedge ineffectiveness                -      (690)        -      (494)
        Loss (gain) on disposition
         of property, plant and
         equipment                          33        42    (7,427)   (1,737)
        Other                               42       126       131       202
      Change in non-cash operating
       working capital                   9,274     5,548     3,499    61,827
    -------------------------------------------------------------------------
                                        15,219    32,612    28,868   100,378
    Financing Activities:
      Transaction costs                 (1,200)        -    (1,200)   (1,521)
      Repayment/repurchase of debt
       and bank indebtedness            (7,156)  (29,698)  (14,312)  (66,386)
      Decrease in obligations under
       capital leases                     (538)     (637)   (1,220)   (1,547)
      Financing of employee unit
       purchase loan                         6      (486)       12      (486)
    -------------------------------------------------------------------------
                                        (8,888)  (30,821)  (16,720)  (69,940)
    Investing Activities:
      Purchase of property, plant
       and equipment                    (4,531)  (12,357)   (9,707)  (29,725)
      Payment of acquisition earn-out
       amount                                -   (16,131)        -   (16,131)
      Proceeds on disposition of
       property, plant and equipment         -     3,638    13,475    26,642
      Decrease (increase) in other
       assets                            2,043    (2,121)    4,805      (125)
      Decrease in other long-term
       liabilities                      (6,255)   (1,802)   (8,717)   (5,340)
    -------------------------------------------------------------------------
                                        (8,743)  (28,773)     (144)  (24,679)
      Cash provided by (used in)
       discontinued operating
       activities                         (852)  (16,370)   (1,377)  (19,699)
      Cash provided by (used in)
       discontinued investing
       activities                         (736)   14,001      (736)   13,990
    Foreign currency translation
     gain/(loss) on cash held in
     foreign currencies                 (4,605)    2,392    (6,551)    3,224
    -------------------------------------------------------------------------
    Increase (decrease) in cash and
     cash equivalents                   (8,605)  (26,959)    3,340     3,274
    Cash and cash equivalents,
     beginning of period               134,017   103,582   122,072    73,349
    -------------------------------------------------------------------------
    Cash and cash equivalents, end
     of period                        $125,412  $ 76,623  $125,412  $ 76,623
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents are
     comprised of:
      Cash                              89,117    61,490    89,117    61,490
      Cash equivalents                  36,295    15,133    36,295    15,133
    -------------------------------------------------------------------------
                                      $125,412  $ 76,623  $125,412  $ 76,623
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow information:
      Interest paid                   $  8,395  $  9,207  $ 16,625  $ 20,284
      Income taxes paid (received)       2,263     1,549    (2,147)    1,694
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents are defined as cash and short-term deposits
    that have an original maturity of less than 90 days.
    

SOURCE Cinram Group Inc.

For further information: For further information: John H. Bell, Tel: 416.332.2902, johnbell@cinram.com

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