Cinram Reports Third Quarter 2007 Results - Revises Distribution Policy



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

    TORONTO, Nov. 5 /CNW/ - Cinram International Income Fund ("Cinram" or the
"Fund") (TSX: CRW.UN) today reported third quarter revenue of $485.1 million
compared with $477.2 million in 2006, and earnings before interest, taxes, and
amortization (EBITA(1)), excluding unusual items, of $66.7 million compared
with $90.1 million in the third quarter of 2006. The Fund also announced a
change in its distribution policy based on a revised outlook for Cinram. It is
the Fund's intention to suspend all distribution payments following the
distribution for the month of December 2007. A distribution of C$0.1625
(previously C$0.2708) per unit has been declared for November and is intended
to be declared for December 2007 (see "Distributions" below).
    "Over the last quarter we experienced a confluence of factors that
adversely affected our DVD business and reinforced the merits of our
diversification strategy into attractive, higher-growth markets," said Cinram
chief executive officer Dave Rubenstein. "These factors include general price
erosion in the DVD replication marketplace and volumes that fell short of
customers' forecasts. The impact on our business outlook has been compounded
by revised pricing coupled with reduced forecasts from certain of our studio
customers and the strengthening of the Canadian dollar. Given Cinram's revised
business outlook and the continued volatility of capital markets, the trustees
determined that a suspension of the Fund's distributions would be fiscally
prudent and would increase our ability to maintain a sufficient cushion with
respect to our debt covenants. At the end of the quarter we had cash of
$46 million and substantial availability under our credit line."

    Outlook

    In order to help investors understand some of the circumstances
surrounding this change in the Fund's distribution policy, Cinram is providing
the following outlook. For 2007, Cinram expects to record consolidated revenue
in the range of $1,900.0 million to $1,950.0 million, and EBITA in the range
of $275.0 to $285.0 million. Capital expenditures for 2007 are expected to be
approximately $100 million, in line with planned capacity additions for
standard DVD, high-definition disc and related peripheral equipment, as well
as major facility expansions in its Huntsville, Alabama, location.
    For 2008, Cinram expects its DVD pricing and CD and DVD volumes to
decline in line with industry trends. However, the contribution of Ditan and
new handset distribution initiatives should result in flat revenue and
partially offset a decline in EBITA margins. For 2008, Cinram expects to have
capital expenditures of approximately $80 million which includes the following
major items: $30 million in maintenance capital expenditures, $30 million in
wireless logistics, $10 million in high-definition discs, and $4 million in
printing.
    "We have embarked on an aggressive strategic plan that is already
demonstrating significant success and is expected to make a positive
contribution to our bottom line going forward. In April, we acquired Ditan,
which has enabled us to successfully benefit from cross-selling opportunities
in the games market and to augment our core business. Ditan is now well
integrated into our operations, profitable and tracking according to our
expectations. Further, our recent Motorola North America and Europe
distribution contract wins underscore the potential for a new, complementary
growth platform that leverages existing core competencies and infrastructure
to diversify risk and accelerate growth. We continue to pursue additional
opportunities in value-added logistics for the telecommunications industry
with attractive growth prospects," added Rubenstein.

    Q3 2007 performance

    Third quarter revenue increased to $485.1 million from $477.2 million in
2006 principally due to increased distribution revenue, which was offset by
lower DVD, CD and printing sales. During the third quarter, Cinram's DVD
manufacturing volume was up three per cent to 298.6 million, while CD volume
fell 14 per cent to 129.1 million.
    EBITA, excluding unusual items, decreased to $66.7 million from
$90.1 million in the third quarter of 2006; however, EBITA for the third
quarter of 2006 benefited from a $10 million credit to revenue related to the
reversal of volume rebates. As a percentage of consolidated sales, EBITA
margins decreased to 14 per cent from 19 per cent in 2006. Excluding this
adjustment, third quarter EBITA margins decreased to 14 per cent from 17 per
cent in 2006.
    Net earnings for the third quarter increased to $34.9 million from
$15.4 million in 2006. As a result of reduced projections of income and the
tax deductions available under Cinram's existing corporate structure, Cinram
recorded a tax recovery provision of $26.8 in the third quarter of 2007
relating to taxes paid in prior years. Cash flow from operations increased to
$36.6 million from $31.6 million in the third quarter of 2006, and Cinram
generated distributable cash of $43.9 million in the third quarter, resulting
in a payout ratio of 103 per cent. Cinram's distributable cash calculation
excludes changes in non-cash working capital from the distributable cash
amount due to the significant impact of the seasonality of the business.

    Year-to-date performance

    For the nine months ended September 30, 2007, Cinram recorded revenue of
$1,304.9 million down from $1,323.9 million in 2006, on lower CD, DVD and
printing sales which were partially offset by higher distribution revenue from
Ditan and from organic growth. On a year-to-date basis, Cinram's CD volumes
decreased 17 per cent to 332.8 million units, while DVD volumes were up three
per cent to 813.5 million from 2006.
    EBITA excluding unusual items for the nine months ended September 30,
2007, decreased to $171.0 million from $226.5 million in 2006. In addition to
the reversal of volume rebates discussed above, lower prices for DVDs in
addition to disappointing margins in the printing and merchandising segments
all had a negative impact on EBITA in 2007. Cinram recorded net earnings of
$15.5 million in the nine months ended September 30, 2007, compared with a net
loss of $43.9 million in 2006, and cash flow from operations increased to
$179.4 million from $158.2 million in 2006. Year to date, Cinram generated
distributable cash of $81.8 million in 2007, resulting in a payout ratio of
159 per cent.

    Product revenue

    Third quarter DVD revenue was down five per cent to $226.3 million from
$237.4 million in 2006 as higher volumes were offset by lower prices. Year to
date, DVD revenue decreased to $636.1 million as the three per cent increase
in volume was more than offset by lower prices. Cinram recorded
high-definition disc revenue of $5.2 million and $11.3 million in the quarter
and nine months ended September 30, 2007, up from $1.6 million and $2.8
million in the corresponding 2006 periods, respectively. The adoption of
high-definition discs in 2007 continues to be hampered by the presence of two
competing formats, a situation that industry pundits expect to persist into
and beyond the 2008 holiday selling season. This in turn has lowered Cinram's
expectations for high-definition disc revenue for the remainder of 2007 and
for 2008.

    
    Product Revenue
    -------------------------------------------------------------------------
                                             Three months ended September 30
    (in thousands of US$)                             2007              2006
    -------------------------------------------------------------------------
    DVD                                      $226,254   47%    $237,421   50%
    High-definition                            $5,234    1%      $1,646    0%
    CD                                        $62,250   13%     $71,823   15%
    Printing                                  $56,827   12%     $63,349   13%
    Distribution                              $95,533   19%     $66,083   14%
    Merchandising                             $34,627    7%     $31,762    7%
    Other(*)                                   $4,334    1%      $5,068    1%
    -------------------------------------------------------------------------
                                             $485,059  100%    $477,152  100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                              Nine months ended September 30
    (in thousands of US$)                             2007              2006
    -------------------------------------------------------------------------
    DVD                                      $636,134   49%    $650,087   49%
    High-definition                           $11,337    1%      $2,798    0%
    CD                                       $158,999   12%    $198,369   15%
    Printing                                 $140,682   11%    $145,486   11%
    Distribution                             $250,099   19%    $205,575   16%
    Merchandising                             $94,562    7%     $97,106    7%
    Other(*)                                  $13,052    1%     $24,504    2%
    -------------------------------------------------------------------------
                                           $1,304,865  100%  $1,323,925  100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)includes audio cassettes and VHS
    

    CD revenue was down 13 per cent in the third quarter to $62.3 million
from $71.8 million in 2006 on a 14 per cent decline in unit volume. CD revenue
fell 20 per cent on a year-to-date basis to $159.0 million from $198.4 million
in 2006 on a 17 per cent decline in unit volume, lower prices and the closure
of Cinram's CD manufacturing operations in France in the first half of 2006.
Printing revenue was down 10 per cent in the third quarter and down three per
cent on a year-to-date basis to $56.8 million and $140.7 million,
respectively. In 2007, Cinram's printing business has been negatively impacted
by the loss of CD-related business, a change in its revenue mix as well as
increasing competitive pressures.
    Third quarter distribution revenue was up 45 per cent to $95.5 million
from $66.1 million in 2006 as a result of the Ditan acquisition and organic
growth in the DVD distribution business. For the nine months ended
September 30, 2007, distribution revenue increased 22 per cent to
$250.1 million from $205.6 million in 2006.
    Giant Merchandising's revenue was up nine per cent in the third quarter
to $34.6 million from $31.8 million, but fell three per cent in the on a
year-to-date basis to $94.6 million from $97.1 million in 2006.

    Geographic revenue

    Cinram recorded North American revenue of $358.0 million in the third
quarter compared with $360.4 million in 2006 principally as a result of lower
DVD, CD and printing sales which were offset by a significant increase in
distribution revenue from the acquisition of Ditan. On a year-to-date basis,
revenue from North America was down two per cent to $964.2 million from
$980.9 million in 2006. Revenue from North America accounted for 74 per cent
of both third quarter and year-to-date 2007 consolidated revenue compared with
76 and 74 per cent in 2006, respectively.
    European revenue was up nine per cent in the third quarter of 2007 to
$127.1 million from $116.7 million in 2006, mainly from stronger DVD sales. In
the nine months ended September 30, 2007, European revenue was down one per
cent to $340.7 million from $343.0 million in 2006 mainly on lower CD sales
which were offset by organic growth in distribution revenue. European revenue
represented 26 per cent of both third quarter and year-to-date 2007
consolidated revenue compared with 24 and 26 per cent in 2006, respectively.

    Other financial highlights

    Third quarter gross profit decreased to $77.9 million from $101.9 million
due to lower pricing, the $10 million credit to revenue related to the
reversal of volume rebates in the comparable 2006 period, lower DVD prices,
and lower operating margins in the printing business. On a year-to-date basis,
Cinram generated gross profit of $201.2 million compared with $241.3 million
in 2006. Gross profit margins (as a percentage of consolidated revenue)
decreased to 16 and 15 per cent for the third quarter and nine months ended
September 30, 2007, from 21 and 18 per cent in 2006, respectively. Selling,
general and administrative (SG&A) costs fell to $43.1 million from
$48.1 million in the third quarter of 2006 on reduced compensation expense and
lower advisory fees. Year to date, Cinram recorded SG&A expenses of
$130.0 million compared with $124.8 million in 2006.

    Balance sheet and liquidity

    Cinram's cash and cash equivalent position decreased to $46.2 million at
quarter end from $152.7 million at December 31, 2006, as it used $47.4 million
in cash to finance the acquisition of Ditan Corporation and $10.2 million for
the acquisition of Vision Worldwide Management. Cinram also borrowed
$18.1 million under its revolving credit facility to finance working capital
requirements and the repurchase of units during the third quarter of 2007.
With debt of $684.7 million, excluding unamortized transaction costs and
capital lease obligations, Cinram had a net debt position (long-term debt and
revolver loan, excluding unamortized transaction costs, less cash and cash
equivalents) of $638.5 million at September 30, 2007, compared with a net debt
position of $522.8 million at the end of 2006. Working capital decreased to
$123.2 million at September 30, 2007, from $282.5 million at December 31,
2006, as Cinram used funds to finance the acquisition of Ditan, the purchase
of capital equipment, debt repayments and the repurchase of units.

    Distributions

    The intended suspension of distributions following the distribution for
December 2007 (to be paid in January 2008) may have adverse tax consequences
to certain U.S. investors. The Fund is actively exploring various options to
address these consequences and expects to be able to do so. Distribution of
C$0.1625 (previously C$0.2708) per unit has been declared for November and is
intended to be declared for December 2007 in order to help address the tax
consequences. Investors that could be affected by these tax consequences are
advised to consult with their tax advisors.
    The Fund's Trustees declared a cash distribution of C$0.1625 per unit for
the month of November, payable on December 15, 2007, to unitholders of record
at the close of business on November 30, 2007. Cinram International Limited
Partnership also declared a cash distribution of C$0.1625 per Class B limited
partnership unit for the month of November, payable on December 15, 2007, to
unitholders of record at the close of business on November 30, 2007.

    Unit repurchase program and unit data

    The Fund repurchased 886,900 units during the third quarter and
1,313,200 units as at October 31, 2007, under its normal course issuer bid.
    For the three-month period ended September 30, 2007, the basic weighted
average number of units and exchangeable limited partnership units outstanding
was 57.9 million compared with 58.2 million units in the third quarter of
2006. For the nine months ended September 30, 2007, the basic weighted average
number of units and exchangeable limited partnership units outstanding was
58.2 million, compared with 57.7 million units in the prior year.

    
    Reconciliation of EBITA and EBIT to Net Earnings
    -------------------------------------------------------------------------
                                Three months ended         Nine months ended
    (unaudited, in thousands          September 30              September 30
     of U.S. dollars)            2007         2006         2007         2006
    -------------------------------------------------------------------------
    EBITA excluding
     unusual items         $   66,736   $   90,124   $  171,038   $  226,501
    -------------------------------------------------------------------------
    Unusual items(*)              735        3,152        2,682       65,410
    -------------------------------------------------------------------------
    EBITA(1)               $   66,001   $   86,972   $  168,356   $  161,091
    -------------------------------------------------------------------------
    Amortization of
     capital assets            31,864       36,332       99,848      110,041
    Amortization of
     intangible assets         17,068       16,107       50,644       48,113
    Amortization of
     deferred financing
     fees                           -          369            -        2,560
    Write off of deferred
     financing fees                 -            -            -       16,945
    -------------------------------------------------------------------------
    EBIT(2)                $   17,069   $   34,164   $   17,864   $  (16,568)
    -------------------------------------------------------------------------
    Interest expense           13,437       12,540       39,224       35,996
    Foreign exchange gain      (3,937)         672       (5,607)      (6,751)
    Investment income            (557)        (762)      (3,371)      (3,030)
    Income taxes              (26,765)       6,348      (27,895)       1,124
    -------------------------------------------------------------------------
    Net earnings (loss)    $   34,891   $   15,366   $   15,513   $  (43,907)
    -------------------------------------------------------------------------
    (*) Excluding write-off of deferred financing fees.

    (1) EBITA is defined herein as earnings before interest expense, interest
        income, income taxes, amortization, foreign exchange gain/loss and a
        write-off of deferred financing fees, and is a 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 (loss) before interest expense,
        interest income, income taxes and foreign exchange gain/loss, and is
        a 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.
    


    Distributable cash

    Distributable cash is defined herein as adjusted cash flow from
operations less the sum of capital expenditures and debt repayments and is a
measure that is commonly reported and widely used in the industry to assist in
understanding and comparing operating results. Distributable cash 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.
Cinram excludes changes in non-cash working capital from the distributable
cash amount due to the significant impact of the seasonality of the business.
Cinram believes this is the most meaningful presentation to unitholders.

    
    -------------------------------------------------------------------------
                                                   Three months  Nine months
                                                          ended        ended
                                                      September    September
    (unaudited, in thousands of U.S. dollars)          30, 2007     30, 2007
    -------------------------------------------------------------------------
    Cash flow from operations                        $   36,554   $  179,425
    Add (deduct) changes in non-cash working capital     47,184      (14,656)
                                                    -------------------------
    Adjusted cash flow from operations               $   83,738   $  164,769
    Less:
    Capital expenditures                                 38,128       74,046
    Debt repayments                                       1,687        8,929
                                                    -------------------------
    Distributable cash                               $   43,923   $   81,794
    Distributions paid                               $   45,381   $  129,792
    Payout ratio                                           103%         159%
    -------------------------------------------------------------------------
    


    Conference call and webcast - REVISED DATE AND TIME

    Cinram's management team will host a conference call to discuss its
results, the decision to suspend distributions and its strategy today at
5 p.m. (ET). To participate, dial (416) 644-3420 or 1-800-732-0232. 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 and are
included in the S&P/TSX Composite Index. For more information, visit our
website at www.cinram.com.

    Certain statements included in this release contain words such as
"could", "expects", 'expectations", "may", "anticipates", "believes",
"intends", "estimates" and "plans" (and similar expressions) and constitute
"forward-looking statements" within the meaning of applicable securities law.
These statements are based on Cinram's current expectations, estimates,
forecasts and projections about the operating environment, economies and
markets in which Cinram operates. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which are difficult
to predict and may cause the actual results, performance or achievements of
the Fund, outcomes, 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,
including having the cash resources necessary to do so; a shortage of product
due to labour disruptions, 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 Canadian securities
commissions. Cinram has made various assumptions in the preparation of its
financial outlook in this press release, including but not limited to: current
2007 contractual prices and normalized price adjustments for 2008, flat DVD
volumes in 2007 and 1-2% DVD volume declines in 2008, capital expenditures
required to meet contractual obligations and expected DVD and high-definition
disc volumes and for printing, capital expenditures required for the new
Motorola agreements, moderate growth in both high-definition disc formats, the
completion of certain rationalization initiatives, and the inability to
reorganize the Fund's structure for purposes of addressing tax consequences to
certain U.S. investors. These assumptions, although considered reasonable by
Cinram at the date of this press release, may prove to be inaccurate and
consequently Cinram's actual results could differ materially from its
expectations as set out in this press release. Unless otherwise required by
applicable securities laws, Cinram disclaims any intention or obligation to
update or revise any forward-looking statements.

    
    INTERIM CONSOLIDATED BALANCE SHEETS
    (in thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                                   September 30  December 31
                                                           2007         2006
                                                     (unaudited)
    -------------------------------------------------------------------------

    ASSETS
    Current assets:
      Cash and cash equivalents                      $   46,201   $  152,681
      Accounts receivable                               432,205      535,377
      Inventories                                        69,966       50,974
      Income taxes recoverable                           45,435            -
      Prepaid expenses                                   25,632       22,796
      Future income taxes                                21,444       21,494
    -------------------------------------------------------------------------
                                                        640,883      783,322

    Property, plant and equipment                       534,544      509,727
    Goodwill                                            346,221      329,949
    Intangible assets                                   167,388      182,582
    Deferred financing fees                                   -        5,147
    Other assets                                         13,934        2,548
    Future income taxes                                  17,818       17,346
    -------------------------------------------------------------------------
                                                     $1,720,788   $1,830,621
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities:
      Bank indebtedness                              $   18,060            -
      Accounts payable                                  205,197   $  152,793
      Accrued liabilities                               271,582      308,471
      Distributions payable                              15,601       13,620
      Income taxes payable                                    -       14,485
      Current portion of long-term debt                   4,841       10,617
      Current portion of obligations under
       capital leases                                     2,430          812
    -------------------------------------------------------------------------
                                                        517,711      500,798

    Long-term debt                                      654,948      664,875
    Obligations under capital leases                      6,698        3,412
    Other long-term liabilities                          30,907       31,025
    Derivative instruments                               12,535            -
    Future income taxes                                  59,743       62,428

    Unitholders' equity:
      Fund units                                        179,681      181,880
      Exchangeable limited partnership units              3,233        3,273
      Contributed surplus                                     -        4,967
      Retained earnings                                 132,248      260,030
      Accumulated other comprehensive income            123,084      117,933
    -------------------------------------------------------------------------
                                                        438,246      568,083
    -------------------------------------------------------------------------
                                                     $1,720,788   $1,830,621
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
    AND RETAINED EARNINGS
    (unaudited, in thousands of U.S. dollars, except per
    share/unit/exchangeable LP unit amounts)
    -------------------------------------------------------------------------
                                Three months ended         Nine months ended
                                      September 30              September 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------

    Revenue                $  485,059   $  477,152   $1,304,865   $1,323,925
    Cost of goods sold        407,114      375,222    1,103,632    1,082,656
    -------------------------------------------------------------------------
    Gross profit               77,945      101,930      201,233      241,269
    Selling, general and
     administrative expenses   43,073       48,138      130,043      124,809
    Amortization of
     intangible assets         17,068       16,107       50,644       48,113
    Amortization of
     deferred financing fees        -          369            -        2,560
    Unusual items                 735        3,152        2,682       82,355
    -------------------------------------------------------------------------

    Earnings (loss) before
     the undernoted            17,069       34,164       17,864      (16,568)
    Interest on long-term
     debt                      12,843       12,376       38,029       35,648
    Other interest                594          164        1,195          348
    Foreign exchange
     (gain) loss               (3,937)         672       (5,607)      (6,751)
    Investment income            (557)        (762)      (3,371)      (3,030)
    -------------------------------------------------------------------------

    Earnings (loss) before
     income taxes               8,126       21,714      (12,382)     (42,783)
    Income tax (recovery)
     expense                  (26,765)       6,348      (27,895)       1,124
    -------------------------------------------------------------------------
    Net earnings (loss)        34,891       15,366       15,513      (43,907)

    Retained earnings,
     beginning of period
     as previously reported   156,087      231,797      260,030      317,121
    Change in accounting
     policy related to
     financial instruments          -            -         (154)           -
    -------------------------------------------------------------------------

    Retained earnings,
     beginning of period
     as restated              156,087      231,797      259,876      317,121
    Repurchase of units       (13,349)           -      (13,349)           -
    Distributions declared    (45,381)     (41,143)    (129,792)     (65,707)
    Dividends declared              -            -            -       (1,487)
    -------------------------------------------------------------------------

    Retained earnings,
     end of period         $  132,248   $  206,020   $  132,248   $  206,020
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per
     unit or share:
      Basic                $     0.60   $     0.26   $     0.27   $    (0.76)
      Diluted              $     0.60   $     0.26   $     0.27   $    (0.76)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     number of units and
     exchangeable LP units
     outstanding, (common
     shares up to May 5,
     2006) (in thousands):
      Basic                    57,946       58,177       58,227       57,707
      Diluted                  57,968       58,259       58,253       57,707
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (unaudited, in thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                Three months ended         Nine months ended
                                      September 30              September 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net earnings (loss)
     for the period        $   34,891   $   15,366   $   15,513   $  (43,907)

    Other comprehensive
     income, net of tax:
      Unrealized gains
       (losses) on
       translating
       financial statements
       of self-sustaining
       foreign operations      (5,464)       2,227      (22,826)      52,338
      Gains on hedges of
       net investment in
       self-sustaining
       foreign operations      16,304            -       40,845       10,372
    -------------------------------------------------------------------------
      Unrealized foreign
       exchange translation
       gain (loss), net of
       hedging activities      10,840        2,227       18,019       62,710
      Net unrealized loss
       on derivatives
       designated as cash
       flow hedges             (9,310)           -       (3,335)           -
    -------------------------------------------------------------------------

    Other comprehensive
     income                     1,530        2,227       14,684       62,710
    -------------------------------------------------------------------------

    Comprehensive income   $   36,421   $   17,593   $   30,197   $   18,803
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited, In thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                Three months ended         Nine months ended
                                      September 30              September 30
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Cash provided by
     (used in):
    Operating Activities:
      Net earnings (loss)  $   34,891   $   15,366   $   15,513   $  (43,907)
      Items not involving
       cash:
        Amortization           48,932       52,808      150,492      160,714
        Write off of
         deferred
         financing fees             -            -            -       16,945
        Future income taxes    (1,253)      (3,339)      (3,107)     (14,573)
        Release of
         cumulative
         translation
         adjustment               646          656          646       44,900
        Hedge
         ineffectiveness
         of US dollar
         denominated debt           -        2,349            -        2,687
        Non-cash interest
         expense                  444            -        1,185            -
        Gain on settlement
         of hedging
         arrangements               -            -            -       (5,020)
        Other                      78            -           40         (276)
      Change in non-cash
       operating working
       capital                (47,184)     (36,267)      14,656       (3,231)
    -------------------------------------------------------------------------
                               36,554       31,573      179,425      158,239
    Financing Activities:
      Increase in
       long-term debt               -            -            -      675,000
      Transaction costs             -            -       (2,414)      (5,993)
      Repayment of
       long-term debt and
       bank indebtedness       (1,687)      (3,556)     (13,374)    (732,199)
      Increase in bank
       indebtedness            18,060            -       22,505            -
      Proceeds on
       settlement of
       hedging arrangements         -            -            -        5,020
      Decrease in
       obligations under
       capital leases             (32)        (197)      (1,001)        (569)
      Issuance of units/
       common shares                -        2,100          992       11,012
      Repurchase of units     (18,712)           -      (21,760)           -
      Distributions paid      (45,603)     (40,272)    (130,026)     (51,442)
      Dividends paid                -            -            -       (1,487)
    -------------------------------------------------------------------------
                              (47,974)     (41,925)    (145,078)    (100,658)
    Investing Activities:
      Purchase of property,
       plant and equipment    (38,128)     (17,865)     (74,046)     (44,052)
      Acquisition, net
       of cash                (10,074)           -      (57,546)           -
      Proceeds on
       disposition of
       property, plant and
       equipment                  143            -          215          201
      (Increase) decrease
       in other assets          3,185        2,078      (11,386)       4,425
      (Decrease) increase
       in other long-term
       liabilities                  4       (3,912)        (118)      (1,276)
    -------------------------------------------------------------------------
                              (44,870)     (19,699)    (142,881)     (40,702)
    Foreign exchange loss
     (gain) on cash held in
     foreign currencies           162         (127)       2,054        2,088
    -------------------------------------------------------------------------
    (Decrease) increase in
     cash and cash
     equivalents              (56,128)     (30,178)    (106,480)      18,967
    Cash and cash
     equivalents, beginning
     of period                102,329      139,066      152,681       89,921
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end of
     period                $   46,201   $  108,888   $   46,201   $  108,888
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow
     information:
      Interest paid        $   14,213   $    9,654   $   39,135   $   34,183
      Income taxes paid         8,925       12,638       33,041       56,843
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents are defined as cash and short-term deposits,
    which have an original maturity of less than 90 days.
    





For further information:

For further information: Lyne Beauregard Fisher, Tel: (416) 321-7930,
lynefisher@cinram.com

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Cinram Group Inc.

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