Cinram Reports Fourth Quarter and 2009 Year End Results

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

TORONTO, March 2 /CNW/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2009 fourth quarter and year end financial results. The Fund recorded revenue of $508.1 million in the fourth quarter, a decrease of 9% from the $556.8 million reported in the fourth quarter of 2008. Despite this reduction in revenue, earnings before interest, taxes and amortization (EBITA(1)) were $88.7 million in 2009, compared to an adjusted $67.4 million in the fourth quarter of 2008 (reported EBITA of $117.9 million less the impact of a favorable royalty adjustment of $50.5 million). EBITA margins increased to 17.5% in 2009, compared to 12.1% on the adjusted EBITA reported in 2008. Adjusted gross profit (excluding the 2008 royalty adjustment) improved by 37% to $111.9 million during the fourth quarter of 2009 from $81.6 million in 2008. Adjusted gross profit margins were 22.0% in the fourth quarter of 2009, up from 14.7% in the prior year. Commented Steve Brown, CEO, "While 2009 saw an erosion in revenue largely in line with our expectations, the strong operating results reflect the efforts of a number of management initiatives within the period. Increased efficiency and reduced costs, derived from a matrix driven management team across our global operations, resulted in significant improvements in our gross margins and EBITA".

During 2009, the Fund generated cash flow from operations of $302.6 million, a substantial increase from $146.2 million in the prior year, primarily resulting from improved working capital management. This cash flow generation contributed to the Fund's ability to reduce debt balances by $251.8 million or 39% during 2009.

The Fund had cash and cash equivalents on hand as at December 31, 2009 of $122.1 million and debt of $395.4 million (excluding unamortized transaction costs and loan fees), resulting in a net debt position of $273.3 million as at December 31, 2009, compared with a net debt position of $573.8 million at the end of 2008. During 2009, the Fund repurchased $169.7 million of debt through a series of "modified Dutch" auctions at a cost of $129.8 million, resulting in a net gain after transaction fees of $38.4 million. Additionally, the Fund made voluntary repayments of $20.0 million combined with net mandatory debt repayments of $62.1 million. "Debt reduction was a primary focus during 2009 and we are pleased that we were able to achieve a reduction in our net debt position by over $300 million." stated John Bell, Chief Financial Officer.

On February 1, 2010, the Fund announced that it had received written notice from Warner Home Video Inc. ("WHV") that WHV was exercising its option to terminate its service agreements on July 31, 2010, five months prior to the scheduled termination date of the contract. The notice covers all Cinram entities globally and will directly impact operations in North America, Mexico, UK, France, Germany and Spain. WHV revenues for 2009 represented approximately 32% of the total consolidated revenues of the Fund.

As a result of this announcement, the Fund recorded a combined long-lived asset and goodwill impairment charge of $82.2 million during the fourth quarter, relating primarily to the tangible, intangible assets and goodwill associated with the Warner Home Video business.

"Warner's decision not to extend their contract with Cinram was obviously regrettable. However, the initiatives undertaken this past year will continue to drive Cinram forward in a market which we forecast to still have a 10 to 15 year future. Physical media is still being embraced by the consumer markets and its migration to digital download and other non physical strategies have all been far slower than many previously forecasted. 2010 will hold its challenges, but will also provide us with opportunities," stated Steve Brown, CEO.

For the year ended December 31, 2009, Cinram reported a 15% decrease in revenue to $1.46 billion from $1.73 billion in 2008 as a result of lower DVD unit sales and selling prices combined with lower revenue from CDs, wireless and the Ditan business. Excluding the effects of foreign exchange, revenue decreased by 14%.

EBITA for the year was $181.4 million compared with an adjusted 2008 EBITA of $193.6 million (2008 reported EBITA of $259.3 million less the $65.7 million reduction in cost of goods sold during 2008 that resulted from a patent settlement and a change in estimate related to invalid patent claims). Excluding the impact of these 2008 adjustments, the EBITA margin as a percent of revenue improved to 12.4% in 2009 from 11.2% in 2008.

On a year-to-date basis, as a result of the $82.2 million impairment charge, the Fund reported a net loss from continuing operations of $17.3 million or $0.32 per unit (basic) in 2009 compared with net earnings of $21.4 million or $0.38 per unit (basic) in 2008.

The 2008 results included an impairment charge of $22.3 million related to goodwill and long-lived assets in addition to an impairment charge of $38.5 million related to the Ivy Hill printing business that was sold in April 2009. Ivy Hill's results for 2009 and 2008 are reflected under discontinued operations.

    
    Segment revenue

    -------------------------------------------------------------------------
                         Three months ended              Twelve months ended
                                December 31                      December 31
    -------------------------------------------------------------------------
    (in thousands
     of US$)            2009           2008             2009             2008
    -------------------------------------------------------------------------
    Home Video $412,296  81%  $420,903  76%  $1,133,596  78%  $1,271,146  74%
    CD           47,221   9%    52,458   9%     166,074  11%     221,656  13%
    Video Game   33,204   7%    49,272   9%      91,608   6%     126,561   7%
    Other        15,418   3%    34,180   6%      72,287   5%     109,174   6%
    -------------------------------------------------------------------------
               $508,139 100%  $556,813 100%  $1,463,565 100%  $1,728,537 100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Fourth quarter Home Video revenue (which includes replication and distribution of DVDs and high-definition discs) was down 2% to $412.3 million from $420.9 million in 2008, primarily due to lower selling prices. Cinram replicated 426.7 million DVDs in the fourth quarter of 2009, compared to 435.0 million units in 2008. High-definition disc replication revenue increased to $7.8 million in the fourth quarter of 2009 from $5.1 million in the comparable 2008 period.

The CD segment revenue (which includes replication and distribution of CDs) was down 10% in the fourth quarter to $47.2 million from $52.5 million in 2008, primarily resulting from a 14% decline in replication volumes.

Revenue from the Video Game segment was down significantly from the prior year, reporting a decrease of 33% to $33.2 million in the fourth quarter of 2009 from $49.3 million in 2008, reflecting a general decline in consumer spending for this market.

Revenue from our Other segment (which primarily includes the Motorola distribution business in North America) decreased to $15.4 million in the fourth quarter of 2009 from $34.2 million in 2008. The prior year figure includes revenue of $12.0 million from Motorola Europe which, as previously reported, terminated its contract with the Fund in early 2009.

Geographic revenue

Fourth quarter North American revenue decreased 12% to $268.2 million from $305.7 million in 2008, principally as a result of lower DVD volumes and prices. North America accounted for 53% of fourth quarter consolidated revenue compared with 55% in 2008.

European revenue was down 4% in the fourth quarter to $239.9 million from $251.1 million in 2008. Fourth quarter European revenue represented 47% of consolidated sales compared with 45% in the fourth quarter of 2008.

Applying 2008 foreign exchange rates to the 2009 fourth quarter, consolidated revenue would have decreased by 15% to $475.4 million in 2009 from $556.8 million in 2008.

Other financial highlights

During the fourth quarter, the Fund recorded amortization expense relating to capital assets (included in the cost of goods sold) of $20.9 million compared to $26.4 million in the fourth quarter of 2008. This reduction in amortization results from the lower net book value of property, plant and equipment due to the impairment charges recorded at the end of 2008 as part of Cinram's annual impairment test.

Unit data

For the three-month period ended December 31, 2009, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.3 million compared with 55.3 million in the prior year. For the year ended December 31, 2009, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.8 million compared with 56.4 million in the prior year.

    
    Reconciliation of EBITA and EBIT to net earnings (loss) from continuing
    operations
    -------------------------------------------------------------------------
                                  Three months ended              Year ended
                                         December 31             December 31
    (unaudited, in thousands
     of U.S. dollars)               2009        2008        2009        2008
    -------------------------------------------------------------------------
    EBITA excluding other
     charges                     $88,062    $115,732    $183,871    $257,160
    -------------------------------------------------------------------------
    Other charges (income), net     (630)     (2,148)      2,483      (2,148)
    -------------------------------------------------------------------------
    EBITA(1)                     $88,692    $117,880    $181,388    $259,308
    -------------------------------------------------------------------------
    Impairment of long lived
     assets and goodwill          82,234      22,252      82,234      22,252
    Amortization of property,
     plant and equipment          20,946      26,440      86,641     101,420
    Amortization of intangible
     assets                       10,515      10,215      41,465      42,127
    -------------------------------------------------------------------------
    EBIT(2)                     $(25,003)    $58,973    $(28,952)    $93,509
    -------------------------------------------------------------------------
    Interest expense               9,221      11,452      37,584      45,925
    Other interest and
     financing charges             4,942       2,171       6,127       3,371
    Gain on repurchase of debt   (14,965)          -     (38,440)          -
    Foreign exchange (gain)/loss  (1,129)      9,813     (15,179)     12,312
    Investment income                (95)       (218)       (622)     (1,729)
    Income taxes (recovery)       (2,086)     19,375      (1,154)     12,213
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations      $(20,891)    $16,380    $(17,268)    $21,417
    -------------------------------------------------------------------------

    (1) EBITA is defined herein as earnings from continuing operations before
        impairment charges, amortization, interest expense and financing
        charges, investment income, gain on repurchase of debt, foreign
        exchange gain/loss and income taxes. 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 and financing charges, investment income, gain on
        repurchase of debt, foreign exchange gain/loss and income taxes. It
        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, 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.

    
    CONSOLIDATED BALANCE SHEETS
    (unaudited, in thousands of U.S. dollars)

    -------------------------------------------------------------------------

    As at December 31                                       2009        2008
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Cash and cash equivalents                       $  122,072  $   73,349
      Accounts receivable                                273,243     495,604
      Inventories                                         31,985      48,987
      Income taxes receivable                              7,705      18,235
      Prepaid expenses                                    15,915      21,913
      Assets held for sale                                 6,047           -
      Future income taxes                                  6,007       1,827
    -------------------------------------------------------------------------
                                                         462,974     659,915

    Property, plant and equipment                        234,684     361,804
    Intangible assets                                     27,537      94,423
    Goodwill                                              40,634      64,737
    Other assets                                          21,571      24,557
    -------------------------------------------------------------------------
                                                      $  787,400  $1,205,436
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and Unitholders' Equity (DEFICIENCY)
    Current liabilities:

    Accounts payable                                  $   90,282  $  188,352
    Accrued liabilities                                  226,856     263,235
    Income taxes payable                                  20,277      11,581
    Current portion of long-term debt                     28,624       6,750
    Current portion of obligations under capital leases    1,728       3,094
    -------------------------------------------------------------------------
                                                         367,767     473,012

    Long-term debt                                       363,396     636,299
    Obligations under capital leases                       2,337       3,926
    Other long-term liabilities                           43,637      43,625
    Derivative instruments                                25,225      26,586
    Future income taxes                                    6,638       5,208

    Unitholders' equity (deficiency)                     (21,600)     16,780

    -------------------------------------------------------------------------
                                                      $  787,400  $1,205,436
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF LOSS
    (unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP
    unit amounts)
    -------------------------------------------------------------------------
                                  Three months ended     Twelve months ended
                                         December 31             December 31
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Revenue                     $508,139    $556,813  $1,463,565  $1,728,537
    Cost of goods sold           396,203     424,714   1,199,086   1,410,194
    -------------------------------------------------------------------------
    Gross profit                 111,936     132,099     264,479     318,343
    Selling, general and
     administrative expenses      44,820      42,807     167,249     162,603
    Amortization of intangible
     assets                       10,515      10,215      41,465      42,127
    Impairment of long-lived
     assets and goodwill          82,234      22,252      82,234      22,252
    Other charges (income),
     net                            (630)     (2,148)      2,483      (2,148)
    -------------------------------------------------------------------------
    Earnings (loss) before
     the undernoted              (25,003)     58,973     (28,952)     93,509
    Interest on long-term debt     9,221      11,452      37,584      45,925
    Other interest and
     financing charges             4,942       2,171       6,127       3,371
    Gain on repurchase of debt   (14,965)          -     (38,440)          -
    Foreign exchange loss (gain)  (1,129)      9,813     (15,179)     12,312
    Investment income                (95)       (218)       (622)     (1,729)
    -------------------------------------------------------------------------
    Earnings (loss) from
     continuing operations
     before income taxes         (22,977)     35,755     (18,442)     33,630
    Income taxes (recovery)       (2,086)     19,375      (1,154)     12,213
    -------------------------------------------------------------------------
    Earnings (loss) from
     continuing operations       (20,891)     16,380     (17,268)     21,417
    Earnings (loss) from
     discontinued operations         919     (39,464)    (16,260)    (52,946)
    -------------------------------------------------------------------------
    Net loss for the period      (19,972)    (23,084)    (33,528)    (31,529)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per unit
     from continuing operations:
      Basic                        (0.38)       0.30       (0.32)       0.38
      Diluted                      (0.38)       0.30       (0.32)       0.38
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss per unit:
      Basic                        (0.37)      (0.42)      (0.61)      (0.56)
      Diluted                      (0.37)      (0.42)      (0.61)      (0.56)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number
     of units and exchangeable
     limited partnership units
     outstanding (in thousands):
      Basic                       54,307      55,253      54,785      56,445
      Diluted                     55,618      55,343      54,785      56,510
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
    (unaudited, in thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                  Three months ended     Twelve months ended
                                         December 31             December 31
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Loss for the period         $(19,972)   $(23,084)   $(33,528)   $(31,529)

    Other comprehensive
     income, net of tax:

      Unrealized gain (loss)
       on translating
       financial statements
       of self-sustaining
       foreign operations        (13,986)     28,696     (43,402)     42,041
      Unrealized gain (loss)
       on hedges of net
       investment in
       self-sustaining foreign
       operations                  9,236     (39,147)     35,135     (53,594)
      Partial release of
       cumulative translation
       adjustment                      -           -           -       1,203
    -------------------------------------------------------------------------
      Unrealized foreign
       exchange translation
       loss, net of hedging
       activities                 (4,750)    (10,451)     (8,267)    (10,350)
      Net unrealized gain
       (loss) on derivatives
       designated as cash flow
       hedges                      1,546      (3,547)      1,067      (2,501)
      Release of other
       comprehensive income due
       to de-designated hedge      3,840           -       3,840           -
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss) for the period           636     (13,998)     (3,360)     12,851
    -------------------------------------------------------------------------
    Comprehensive loss, net
     of tax                     $(19,336)   $(37,082)   $(36,888)   $(44,380)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited, In thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                  Three months ended     Twelve months ended
                                         December 31             December 31
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operations:
      Earnings (loss) from
       continuing operations    $(20,891)    $16,380    $(17,268)    $21,417
      Items not involving cash:
        Amortization of property,
         plant and equipment      20,946      26,440      86,641     101,420
        Amortization of
         intangible assets        10,515      10,215      41,465      42,127
        Future income taxes       (1,540)     13,844      (2,750)     16,860
        Gain on repurchase of
         debt                    (14,965)          -     (38,440)          -
        Partial release of
         cumulative translation
         adjustment                    -           -           -         536
        Impairment of long-lived
         assets and goodwill      82,234      22,252      82,234      22,252
        Non-cash interest
         expense related to
         hedging and derivative
         liability                 3,549       1,833       3,545       1,590
        Non-cash interest expense    600         443       2,466       1,776
        Loss (gain) on
         disposition of property,
         plant and equipment         694      (2,378)       (859)     (2,687)
        Other                        532         (50)        827         175
      Change in non-cash
       operating working capital  58,832     (72,244)    144,723     (59,242)
    -------------------------------------------------------------------------
                                 140,506      16,735     302,584     146,224
    Financing:
      Repayment/repurchase of
       long-term debt and bank
       indebtedness             (109,863)    (12,687)   (213,320)    (44,419)
      Transaction costs and
       loan fees                       -           -      (1,525)          -
      Increase (decrease) in
       obligation under capital
       leases                       (751)        197      (2,956)     (1,628)
      Financing of employee
       unit purchase loan         (1,067)          -      (2,315)          -
      Repurchase of units              -           -           -      (9,085)
      Distributions paid               -           -           -      (9,247)
    -------------------------------------------------------------------------
                                (111,681)    (12,490)   (220,116)    (64,379)
    Investments:
      Purchase of property,
       plant and equipment        (4,326)    (14,089)    (42,179)    (68,141)
      Acquisitions, net of cash        -           -           -      (5,386)
      Acquisition expense              -           -           -       1,003
      Payment of acquisition
       earn-out amount                 -           -     (16,131)    (13,449)
      Proceeds on disposition
       of property, plant and
       equipment                      77      12,123      29,483      12,487
      Decrease in other assets     3,378       7,715       2,987       2,453
      Decrease in other
       long-term liabilities      (1,222)     (2,994)     (6,433)     (1,791)
    -------------------------------------------------------------------------
                                  (2,093)      2,755     (32,273)    (72,824)
    Cash provided by (used in)
     discontinued operating
     activities                    2,819        (763)    (17,233)    (16,657)
    Cash provided by (used in)
     discontinued investing
     activities                   (2,779)          -      11,211       6,822
    Foreign currency translation
     gain on cash held in
     foreign currencies            1,678       4,947       4,550       5,757
    -------------------------------------------------------------------------
    Increase in cash and cash
     equivalents                  28,450      11,184      48,723       4,943
    Cash and cash equivalents,
     beginning of period          93,622      62,165      73,349      68,406
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period               122,072      73,349    $122,072     $73,349
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents
     are comprised of:
      Cash                       $88,846     $42,093     $88,846     $42,093
      Cash equivalents            33,226      31,256      33,226      31,256
    -------------------------------------------------------------------------
                                $122,072     $73,349    $122,072     $73,349
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow
     information:
      Interest paid               $9,100     $11,382     $38,109     $46,349
      Income taxes paid
       (recovered)                   588       3,278     (17,012)    (11,082)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents are defined as cash and short-term deposits,
    which 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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