Cinram Reports Second Quarter 2008 Results



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

    TORONTO, Aug. 7 /CNW/ - Cinram International Income Fund ("Cinram" or the
"Fund") (TSX: CRW.UN) today reported its second quarter financial results. The
Fund recorded revenue of $412.8 million, up from $345.1 million in 2007.
Earnings before interest, taxes and amortization (EBITA(1)) were $33.3 million
in 2008, down from $34.4 million the second quarter of 2007. Excluding unusual
items, second quarter EBITA was $33.7 million, down from $35.3 million in
2007.
    "During the second quarter, we gained a new DVD replication and
distribution mandate from Universal Picture in Europe" said Cinram chief
executive officer Dave Rubenstein. "This new agreement along with organic
growth from some of our existing studio clients helped increase our second
quarter DVD unit production by 17%. Additionally, we benefited from a full
quarter of Ditan's games distribution business and the year over year growth
in that segment. Our EBITA for the quarter was down slightly compared to Q2 07
due to transitional costs related to the Universal Pictures International
mandate, start up costs in Europe related to the wireless business and lower
DVD selling prices implemented in the second half of 2007."
    The Fund reported net loss from continuing operations for the second
quarter of 2008 of $8.7 million or $0.15 per unit (basic) compared with a net
loss of $25.5 million or $0.44 per unit (basic) in 2007. 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 six months ended June
30, 2008 and 2007.
    Cinram reported a five per cent increase in revenue in the first half of
2008 to $800.7 million from $759.8 million in 2007 as a result of increases in
revenue attributable to the acquisition of Ditan and from the wireless
distribution business. EBITA for the first half was $74.5 million compared
with $105.9 million in 2007; EBITA excluding unusual items was $78.2 million
compared with $107.9 million in 2007. The EBITA declines were principally the
result of lower average selling prices for DVDs which coupled with volume are
the two main drivers of Cinram's profit margins. The Fund reported a net loss
from continuing operations of $10.3 million or $0.18 (basic) in the first half
of 2008 compared with a net loss of $17.0 million or $0.29 (basic) in 2007.

    Segment revenue

    Second quarter Home Video revenue (which includes replication and
distribution of DVDs and high-definition discs) was up eight per cent to
$247.7 million from $229.0 million in 2007 as a result of an increase in DVD
replication revenue due to organic growth in North America and the addition of
a new customer in Europe. Cinram replicated 246 million DVDs in the second
quarter of 2008, up 18 per cent from 209 million units in 2007.
High-definition disc replication revenue increased to $5.1 million in the
second quarter of 2008 from $4.2 million in the comparable 2007 period.

    
    -------------------------------------------------------------------------
                          Three months ended                Six months ended
                                     June 30                         June 30
    -------------------------------------------------------------------------
    (in
     thousands
     of US$)            2008            2007            2008            2007
    -------------------------------------------------------------------------
    Home Video $247,664  60%   $229,002  66%   $496,697  62%   $536,508  71%
    CD           54,030  13%     49,645  15%    101,463  13%    103,896  14%
    Printing     57,918  14%     56,653  16%    109,109  14%    109,284  14%
    Video Game   28,915   7%      9,454   3%     50,744   6%      9,454   1%
    Other        24,310   6%        321    -     42,641   5%        640    -
    -------------------------------------------------------------------------
               $412,837 100%   $345,075 100%   $800,654 100%   $759,782 100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    CD segment revenue (which includes replication and distribution of CDs)
increased nine per cent in the second quarter to $54.0 million from
$49.6 million in 2007 due to a change in product mix. Cinram recorded printing
revenue for the second quarter of $57.9 million compared with $56.7 million in
2007. Revenue from the Video Game segment increased to $28.9 million in the
second quarter of 2008 from $9.5 million in 2007 reflecting strong organic
growth and the inclusion of a full quarter of business from Ditan in 2008.
Cinram acquired Ditan on April 30, 2007.
    Revenue from our Other segment (which includes the new handset
distribution business and revenue from the acquisition of Vision Worldwide
Management LLC (Vision)) increased to $24.3 million in the second quarter of
2008 from $0.3 million in 2007 due to the inception of the handset
distribution business and the acquisition of Vision in the third quarter of
2007.
    Second quarter revenue from discontinued operations declined to
$17.2 million from $30.8 million in 2007 as a result of lower retail licence
sales and the discontinuation of Giant's music tour segment as well as the
partial sale of Giant Merchandising's assets in May 2008. Giant's remaining
operations in the U.S. were liquidated for proceeds of $6.2 million and the
Fund completed a share sale of Giant's subsidiary in Mexico for nominal
proceeds during the second quarter.

    Geographic revenue

    Second quarter North American revenue increased 11 per cent to
$269.4 million from $242.4 million in 2007, as the increase in revenue from
the Ditan acquisition and the new handset distribution business more than
offset lower sales in our core home video business. North America accounted
for 65 per cent of second quarter consolidated revenue compared with 70 per
cent in 2007.
    European revenue increased 40 per cent in the second quarter to $143.4
million from $102.6 million in 2007, principally due to the new replication
and distribution agreement with Universal. Second quarter European revenue
represented 35 per cent of consolidated sales compared with 30 per cent in the
second quarter of 2007.

    Other financial highlights

    Gross profit for the quarter ended June 30, 2008, was up 18 per cent to
$54.2 million from $45.8 million in 2007, and gross profit margins were on par
with the prior year at 13 per cent. Amortization expense from capital assets
(property, plant and equipment), which is included in the cost of goods sold,
decreased to $28.0 million from $32.6 million in the second quarter of 2007.
This reduction in amortization was as a result of 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 $10.7 million in the second
quarter of 2008 from $17.3 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 and the extension of the Warner Home Video supply agreement
signed in the fall of 2007.

    Balance sheet and liquidity

    The Fund had cash and equivalents on hand of $119.6 million and debt of
$661.5 million (excluding unamortized transaction costs and loan fees),
resulting in a net debt position of $541.9 million at June 30, 2008, compared
with a net debt position of $624.1 million at the end of 2007. Working capital
increased to $123.5 million at June 30, 2008, from $119.0 million at December
31, 2007, due to a higher net cash balance from the collection of year-end
receivables as well as the suspension of distributions and lower bank
indebtedness. Cinram paid $25.8 million for property, plant and equipment in
the second quarter of 2008 principally for equipment for the wireless business
and cash payments on DVD equipment purchased in 2007.

    Unit data

    For the three-month period ended June 30, 2008, the basic weighted
average number of units and exchangeable limited partnership units outstanding
was 57.0 million compared with 58.4 million in the prior year. For the
six-month period ended June 30, 2008, the basic weighted average number of
units/shares and exchangeable limited partnership units outstanding was
57.1 million compared with 58.4 million in the prior year.

    
    Reconciliation of EBITA and EBIT to net earnings (loss)
    -------------------------------------------------------------------------
                                  Three months ended        Six months ended
                                             June 30                 June 30
    (unaudited, in thousands
     of U.S. dollars)               2008        2007        2008        2007
    -------------------------------------------------------------------------
    EBITA excluding unusual
     items                      $ 33,704    $ 35,277    $ 78,224   $ 107,885
    -------------------------------------------------------------------------
    Unusual items                    365         927       3,736       1,947
    -------------------------------------------------------------------------
    EBITA                       $ 33,339    $ 34,350    $ 74,488   $ 105,938
    -------------------------------------------------------------------------
    Amortization of property,
     plant and equipment          27,960      32,592      54,867      67,845
    Amortization of intangible
     assets                       10,718      17,349      21,318      33,576
    -------------------------------------------------------------------------
    EBIT                        $ (5,339)   $(15,591)   $ (1,697)  $   4,517
    -------------------------------------------------------------------------
    Interest expense              11,084      13,230      23,582      25,787
    Foreign exchange
     (gain)/loss                  (1,318)     (1,174)     (5,078)     (1,670)
    Investment income               (413)     (1,199)     (1,059)     (2,814)
    Income taxes (recovery)       (6,001)       (942)     (8,875)        210
    -------------------------------------------------------------------------
    Net loss from continuing
     operations                 $ (8,691)   $(25,506)   $(10,267)  $ (16,996)
    -------------------------------------------------------------------------

    (1) EBITA is defined herein as earnings from continuing operations before
        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 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 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.
    

    August 8 conference call and webcast

    Cinram's management team will host a conference call to discuss its
results on Friday, August 8, 2008, at 10:00 a.m. (ET). To participate, dial
416.644.3422 or 1.800.595.8550. The call will also be webcast live at
http://investors.cinram.com/.

    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
duplication/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.


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

    -------------------------------------------------------------------------
                                                      June 30    December 31
                                                         2008           2007
                                                   (unaudited)
    -------------------------------------------------------------------------

    ASSETS
    Current assets:
      Cash and cash equivalents                  $    119,582   $     68,406
      Accounts receivable                             369,331        588,551
      Inventories                                      53,300         42,822
      Income taxes receivable                          43,352         21,708
      Prepaid expenses                                 22,855         32,478
      Future income taxes                              18,836         19,337
    -------------------------------------------------------------------------
                                                      627,256        773,302

    Property, plant and equipment                     448,431        463,374
    Goodwill                                           52,004         55,326
    Intangible assets                                 118,663        137,722
    Other assets                                       42,038         11,945
    Future income taxes                                 2,054          2,012
    -------------------------------------------------------------------------
                                                 $  1,290,446   $  1,443,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities:
      Bank indebtedness                          $          -   $     27,599
      Accounts payable                                141,179        233,902
      Accrued liabilities                             343,419        364,609
      Distributions payable                                 -          9,488
      Income taxes payable                              9,889          9,485
      Current portion of long-term debt                 6,750          6,750
      Current portion of obligations under
       capital leases                                   2,509          2,462
    -------------------------------------------------------------------------
                                                      503,746        654,295

    Long-term debt                                    649,421        651,778
    Obligations under capital leases                    5,184          6,187
    Other long-term liabilities                        32,286         30,986
    Derivative instruments                             20,183         22,495
    Future income taxes                                11,033          7,870

    Unitholders' equity:
      Fund units                                      181,579        181,660
      Exchangeable limited partnership units              100            298
      Contributed surplus                                  22              -
      Deficit                                        (234,636)      (223,854)
      Accumulated other comprehensive income          121,528        111,966
    -------------------------------------------------------------------------
                                                       68,593         70,070
    -------------------------------------------------------------------------
                                                 $  1,290,446   $  1,443,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                  Three months ended        Six months ended
                                             June 30                 June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Revenue                    $ 412,837   $ 345,075   $ 800,654   $ 759,782
    Cost of goods sold           358,653     299,285     685,268     638,284
    -------------------------------------------------------------------------
    Gross profit                  54,184      45,790     115,386     121,498
    Selling, general and
     administrative expenses      48,440      43,105      92,029      81,458
    Amortization of
     intangible assets            10,718      17,349      21,318      33,576
    Unusual items                    365         927       3,736       1,947
    -------------------------------------------------------------------------
    Earnings (loss) before
     the undernoted               (5,339)    (15,591)     (1,697)      4,517
    Interest on long-term debt    11,350      12,914      23,081      25,186
    Other interest expense
     (income)                       (266)        316         501         601
    Foreign exchange (gain)
     loss                         (1,318)     (1,174)     (5,078)     (1,670)
    Investment income               (413)     (1,199)     (1,059)     (2,814)
    -------------------------------------------------------------------------
    Loss from continuing
     operations before
     income taxes                (14,692)    (26,448)    (19,142)    (16,786)
    -------------------------------------------------------------------------
    Income taxes (recovery)       (6,001)       (942)     (8,875)        210
    -------------------------------------------------------------------------
    Loss from continuing
     operations                   (8,691)    (25,506)    (10,267)    (16,996)
    Earnings (loss) from
     discontinued operations       1,611      (1,044)       (200)     (2,382)
    -------------------------------------------------------------------------
    Net loss                      (7,080)    (26,550)    (10,467)    (19,378)

    Retained earnings
     (deficit), beginning
     of period                  (227,556)    226,326    (223,854)    259,876
    Repurchase of units                -           -        (315)          -
    Distributions declared             -     (43,689)          -     (84,411)
    -------------------------------------------------------------------------
    Retained earnings
     (deficit), end of period  $(234,636)  $ 156,087   $(234,636)  $ 156,087
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss per unit from
     continuing operations:
      Basic                    $   (0.15)  $   (0.44)  $   (0.18)  $   (0.29)
      Diluted                      (0.15)      (0.44)      (0.18)      (0.29)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss per unit:
      Basic                    $   (0.12)  $   (0.45)  $   (0.18)  $   (0.33)
      Diluted                      (0.12)  $   (0.45)      (0.18)  $   (0.33)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number
     of units and exchangeable
     LP units outstanding,
     (in thousands):
      Basic                       57,001      58,377      57,057      58,368
      Diluted                     57,001      58,377      57,057      58,368
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
                                  Three months ended        Six months ended
                                             June 30                 June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Net loss for the period    $  (7,080)  $ (26,550)  $ (10,467)  $ (19,378)

    Other comprehensive
     income, net of tax:
      Unrealized gain (loss)
       on translating
       financial statements
       of self-sustaining
       foreign operations         (4,319)     13,034      13,852      13,193
      Gain (loss) on hedges
       of unrealized foreign
       currency translation
       gains                       2,491      22,649      (7,413)     24,541
      Partial release of
       cumulative translation
       adjustment                  1,032           -       1,203           -
    -------------------------------------------------------------------------
      Unrealized foreign
       exchange translation
       gains (losses), net
       of hedging activities        (796)     35,683       7,642      37,734
      Net unrealized gain
       (loss) on derivatives
       designated as cash
       flow hedges                14,434       7,521       1,920       5,975
    -------------------------------------------------------------------------
    Other comprehensive
     income                       13,638      43,204       9,562      43,709
    -------------------------------------------------------------------------
    Comprehensive Income
     (loss)                    $   6,558   $  16,654   $    (905)  $  24,331
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
                                  Three months ended        Six months ended
                                             June 30                 June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating Activities:
      Net earnings (loss)
       from continuing
       operations              $  (8,691)  $ (25,505)  $ (10,267)  $ (16,996)
      Items not involving
       cash:
        Amortization              38,678      49,941      76,185     101,421
        Future income taxes        1,159        (297)      3,623      (1,854)
        Release of cumulative
         translation
         adjustment                  365           -         536           -
        Non-cash interest
         expense                     444         444         888         741
        Other                        182         (14)        472         (38)
      Change in non-cash
       operating working
       capital                    10,973        (448)     77,687      58,499
    -------------------------------------------------------------------------
                                  43,110      24,121     149,124     141,773
    Financing Activities:
      Increase in long term
       debt                            -       4,445           -       4,445
      Transaction costs                -           -           -      (2,414)
      Repayment of long-term
       debt and bank
       indebtedness               (1,733)     (8,079)    (30,044)    (11,687)
      Decrease in obligations
       under capital leases         (613)       (800)       (956)       (969)
      Issuance of units                -         899           -         992
      Repurchase of units              -      (3,048)       (729)     (3,048)
      Distributions paid               -     (43,701)     (9,247)    (84,423)
    -------------------------------------------------------------------------
                                  (2,346)    (50,284)    (40,976)    (97,104)

    Investing Activities:
      Purchase of property,
       plant and equipment       (25,813)    (21,949)    (37,798)    (35,833)
      Acquisitions, net of cash   (1,994)    (47,472)     (1,994)    (47,472)
      Acquisition expense            755           -         755           -
      Payment of acquisition
       earnout amount            (13,449)          -     (13,449)          -
      Proceeds on disposition
       of property, plant and
       equipment                       3          19         500          72
      Increase in other assets    (8,631)       (201)     (7,958)    (13,662)
      Increase (decrease) in
       other long-term
       liabilities                     -        (304)      1,107        (122)
    -------------------------------------------------------------------------
                                 (49,129)    (69,907)    (58,837)    (97,017)
    Cash provided by (used in)
     discontinued operating
     activities                   (7,546)       (658)     (6,988)      1,098
    Cash provided by (used in)
     discontinued investing
     activities                    6,225         137       6,225        (995)
    -------------------------------------------------------------------------
    Foreign currency
     translation gain (loss)
     on cash held in foreign
     currencies                     (921)      1,580       2,628       1,893
    -------------------------------------------------------------------------
    Increase (decrease) in
     cash and cash equivalents   (10,607)    (95,011)     51,176     (50,352)
    Cash and cash equivalents,
     beginning of period         130,189     197,340      68,406     152,681
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $ 119,582   $ 102,329   $ 119,582   $ 102,329
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents
     are comprised of:
      Cash                     $  78,035   $  62,860   $  78,035   $  62,860
      Cash equivalents            41,547      39,469      41,547      39,469
    -------------------------------------------------------------------------
                               $ 119,582   $ 102,329   $ 119,582   $ 102,329
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:
      Interest paid            $  12,048   $  12,499   $  24,485   $  24,922
      Income taxes paid
       (received)                 (2,604)     12,842       8,945      24,116
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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





For further information:

For further information: John H. Bell, Tel: (416) 332-2902,
johnbell@cinram.com

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