TORONTO, March 5 /PRNewswire-FirstCall/ -- Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its fourth quarter and full-year financial results. The Fund recorded full-year revenue of $2,001.1 million up from $1,940.6 million in 2006. Earnings before interest, taxes and amortization (EBITA(1)) were $291.8 million in 2007 compared with EBITA of $366.6 million in 2006. Excluding unusual items, EBITA for 2007 was $296.1 million, down from $356.4 million in 2006.
"We reported revenue and EBITA that exceeded the high end of our guidance range by $51 million and $11 million, respectively," said Cinram chief executive officer Dave Rubenstein. "We generated increased revenue as a result of increases in home video replication and distribution, the Ditan acquisition, and the new handset distribution initiative. These gains were partially offset by reductions in our printing and CD businesses."
The Fund reported a net loss of $301.1 million or $5.19 per unit (basic) for the year ended December 31, 2007, down from net earnings of $51.8 million or $0.89 per share (basic) in 2006, as it recorded an impairment charge of $386.3 million in the fourth quarter of 2007.
Cinram performed its annual goodwill impairment test during the fourth quarter and determined that the carrying value exceeded the fair value in five of the 14 reporting units in the United States and Germany. As a result, Cinram recorded a goodwill impairment charge of $313.7 million. The Fund also performed a long-lived asset impairment test during the fourth quarter. The test determined that the carrying value of certain intangible assets and property, plant and equipment exceeded its fair value, and Cinram recorded an impairment charge of $55.8 million relating to property, plant and equipment and $16.8 million relating to intangible assets. Cinram's goodwill and intangible assets primarily relate to the 2003 acquisition of the Time Warner DVD and CD manufacturing and distribution, and printing assets. These non-cash impairment charges have no effect on Cinram's cash generation and cash flows from operations.
For the year December 31, 2007, the Fund generated distributable cash of $146.8 million and declared distributions of $164.7 million resulting in a payout ratio of 112 per cent. In November 2007, the Fund announced that it was suspending distributions to unitholders following the December 2007 distribution which was paid out in January 2008.
Fourth quarter performance
The Fund reported consolidated revenue of $696.2 million for the quarter ended December 31, 2007, up from $616.7 million in 2006, principally as a result of increases in home video replication and distribution, the acquisition of Ditan, and the new wireless handset distribution initiative. These increases were partially offset by a decline in the printing segment. Cinram recorded fourth quarter EBITA of $123.4 million compared with $205.6 million in the fourth quarter of 2006. Excluding unusual items, EBITA decreased to $125.1 million from $129.9 million in 2006, and EBITA margins dropped to 18 per cent from 21 per cent in the fourth quarter of 2006. The Fund posted a net loss of $316.6 million or $5.53 per share (basic) in the fourth quarter of 2007 as it recorded an impairment charge of $386.3 million during the period.
Segment revenue
Fourth quarter home video revenue, which includes replication and distribution of DVDs and high-definition discs, was up five per cent to $456.4 million from $433.9 million in 2006 as a result of higher distribution, high-definition disc and DVD replication revenue. We replicated 474 million DVDs in the fourth quarter, up six per cent from 448 million units in 2006. DVD revenue for the quarter was $335.2 million compared with $335.5 million in the fourth quarter of 2006 as the increase in unit production was partially offset by lower pricing.
For the year ended December 31, 2007, home video revenue was up two per cent to $1,283.8 million from $1,259.3 million in 2006, on higher distribution, high-definition disc and DVD replication revenue. We replicated 1,287.9 million DVDs in 2007, an increase of four per cent from 1,240.4 million units in 2006. DVD revenue decreased to $945.8 million in 2007 from $960.7 million in 2006 as the increase in unit production was offset by lower pricing. High-definition disc replication revenue was $23.7 million in 2007 up from $5.6 million in 2006.
------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 (in thousands of US$) 2007 2006 2007 2006 ------------------------------------------------------------------------- Home video $456,353 66% $433,916 70% $1,283,788 64% $1,259,313 65% CD 64,666 9% 65,040 11% 229,292 12% 269,957 14% Printing 87,003 12% 90,590 15% 268,874 13% 278,801 14% Video game 35,449 5% - - 65,093 3% - - Other 52,753 8% 27,168 4% 154,042 8% 132,568 7% ------------------------------------------------------------------------- $696,224 100% $616,714 100% $2,001,089 100% $1,940,639 100% ------------------------------------------------------------------------- -------------------------------------------------------------------------
The CD segment, which encompasses replication and distribution of CDs, decreased one per cent in the fourth quarter to $64.7 million from $65.0 million in 2006 due to lower replication revenue. For the full year, CD segment revenue was down 15 per cent to $229.3 million from $270.0 million in 2006 due to a decline in replication and corresponding distribution revenue.
Printing revenue for the fourth quarter was down four per cent to $87.0 million from $90.6 million in 2006. Full year printing revenue was also down four per cent to $268.9 million from $278.8 million, principally as a result of lower DVD and CD related printing, lower pricing, increased raw material costs and lower operating efficiencies. In the first quarter of 2008, Cinram finalized plans to close one of its printing facilities in Vernon, California. The fund expects to incur total costs of $3.4 million in unusual items in the first and second quarters of 2008 related to the closure.
Cinram reported video game revenue of $35.4 million and $65.1 million for the fourth quarter and full year of 2007 (from the date of acquisition), respectively. This segment represents revenue from Ditan, which Cinram acquired in April 2007.
Revenue from our Other segment, which includes Giant Merchandising, the new handset distribution business and revenue from the acquisition of Vision Worldwide Management LLC (Vision), increased to $52.8 million and $154.0 million in the fourth quarter and year ended December 31, 2007, compared with $27.2 million and $132.6 million in the corresponding 2006 periods, respectively. The 2007 increase in revenue in this segment was principally attributable to the inception of the handset distribution business and the acquisition of Vision in the third quarter of 2007. Giant Merchandising reported a 15 per cent increase in revenue in the fourth quarter of 2007 to $29.6 million from $25.8 million in 2006, and for the year, revenue increased to $124.2 million from $122.9 million in 2006.
Geographic revenue
Fourth quarter North American revenue was up 10 per cent to $479.9 million from $437.7 million in 2006, as the increase from the Ditan acquisition, the new handset distribution business and gains in our core home video business were partially offset by the performance of the printing business. North American revenue was up two per cent in 2007 to $1,444.1 million from $1,418.6 million in 2006 as the increase in revenue from Ditan was mostly offset by declines in the printing and CD segments. North America accounted for 69 and 72 per cent of fourth quarter and full-year consolidated revenue, respectively, compared with 71 and 73 per cent, respectively, in 2006.
European revenue increased 21 per cent in the fourth quarter to $216.3 million from $179.1 million in 2006 due to higher home video sales which were partially offset by lower CD revenue. On a full-year basis, European revenue was up seven per cent to $557.0 million from $522.1 million in 2006. Fourth quarter European revenue represented 31 per cent of consolidated sales compared with 29 per cent in the fourth quarter of 2006. For the full year, European revenue represented 28 per cent of consolidated revenue, up from 27 per cent in 2006.
Other financial highlights
Gross profit for the quarter ended December 31, 2007, was up six per cent to $150.9 million from $143.0 million in 2006. However, gross profit margins decreased to 22% from 23% in the fourth quarter of 2006 mainly as a result of lower selling prices for DVDs, CDs and in our printing segment. For the full year, gross profit was down eight percent to $352.1 million from $384.3 million in 2006 and gross profit margins were 18 per cent compared with 20 per cent in 2006. In 2007, our average DVD and CD selling prices decreased, reducing margins, and we experienced declining revenues and margins in our printing segment and declining margins in our merchandising business, all of which contributed to the year-over-year decline in gross profit. A portion of these margin declines were offset by a reduction in fixed costs associated with the 2006 closure of our Commerce, California, facility as well as improved efficiencies.
Amortization expense from capital assets (property, plant and equipment), which is included in the cost of goods sold, decreased to $32.1 million from $42.6 million in the fourth quarter of 2006, and decreased to $131.9 million for year ended December 31, 2007, from $152.7 million in 2006.
Balance sheet and liquidity
The Fund had cash and equivalents on hand of $68.4 million and debt of $692.5 million (excluding transaction costs and loan fees), resulting in a net debt position of $624.1 million at December 31, 2007, compared with a net debt position of $522.8 million at the end of 2006. Working capital decreased to $119.0 million at December 31, 2007, from $282.5 million at December 31, 2006, due to a lower cash balance and increased bank indebtedness.
Unit data
For the three-month period ended December 31, 2007, the basic weighted average number of units/shares and exchangeable limited partnership units outstanding was 57.2 million compared with 58.3 million in the prior year. For the year ended December 31, 2007, the basic weighted average number of units/shares and exchangeable limited partnership units outstanding was 58.0 million, compared with 57.9 million in the prior year.
Reconciliation of EBITA and EBIT to net earnings ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 (unaudited, in thousands of U.S. dollars) 2007 2006 2007 2006 ------------------------------------------------------------------------- EBITA excluding unusual items $ 125,089 $ 129,912 $ 296,127 $ 356,413 ------------------------------------------------------------------------- Unusual items 1,685 (75,641) 4,367 (10,231) ------------------------------------------------------------------------- EBITA(1) $ 123,404 $ 205,553 $ 291,760 $ 366,644 ------------------------------------------------------------------------- Impairment charge 386,294 - 386,294 - Amortization of property, plant and equipment 32,061 42,615 131,909 152,656 Amortization of intangible assets 12,315 16,251 62,959 64,364 Amortization of transaction costs and loan fees - 295 - 2,855 Write-off of transaction costs and loan fees - - - 16,945 ------------------------------------------------------------------------- EBIT(2) $(307,266) $ 146,392 $(289,402) $ 129,824 ------------------------------------------------------------------------- Interest expense 14,518 12,836 53,742 48,832 Foreign exchange gain (2,978) (3,813) (8,585) (10,564) Investment income (491) (1,181) (3,862) (4,211) Income taxes (recovery) (1,743) 42,890 (29,638) 44,014 ------------------------------------------------------------------------- Net (loss) earnings $(316,572) $ 95,660 $(301,059) $ 51,753 ------------------------------------------------------------------------- (1) EBITA is defined herein as earnings before interest expense, investment income, income taxes, amortization, foreign exchange gain, the write-off of transaction costs and impairment charges. 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 before interest expense, investment income, foreign exchange gain 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. 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 standard 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 should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with GAAP. The Fund excludes changes in non-cash working capital from the distributable cash amount due to the significant impact of the seasonality of the business. The Fund believes this is the most meaningful presentation to the unitholders.
------------------------------------------------------------------------- Nine months Year ended ended December 31, December 31, (unaudited, in thousands of U.S. dollars) 2007 2006 ------------------------------------------------------------------------- Cash flow from operations $ 259,386 $ 142,749 Adjust for changes in non-cash working capital (12,870) 28,176 --------------------------- Adjusted cash flow from operations $ 246,516 $ 170,925 Less: Capital expenditures (89,095) (44,695) Repayment of long-term debt (10,617) (8,981) --------------------------- Distributable cash $ 146,804 $ 117,249 Distributions declared $ 164,734 $ 107,357 Payout ratio 112% 92% ------------------------------------------------------------------------- March 6 conference call and webcast
Cinram's management team will host a conference call to discuss its results on Thursday, March 6, 2008, at 10:00 a.m. (ET). To participate, dial 416.644.3417 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. For more information, visit our website at http://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.
CONSOLIDATED BALANCE SHEETS (unaudited, in thousands of U.S. dollars) ------------------------------------------------------------------------- As at December 31 2007 2006 ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 68,406 $ 152,681 Accounts receivable 588,551 535,377 Inventories 42,822 50,974 Income taxes receivable 21,708 - Prepaid expenses 32,478 22,796 Future income taxes 19,337 21,494 ------------------------------------------------------------------------- 773,302 783,322 Property, plant and equipment 463,374 509,727 Goodwill 55,896 329,949 Intangible assets 137,152 182,582 Transaction costs and loan fees - 5,147 Other assets 11,945 2,548 Future income taxes 2,012 17,346 ------------------------------------------------------------------------- $1,443,681 $1,830,621 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND UNITHOLDERS' EQUITY Current liabilities: Bank indebtedness $ 27,599 - Accounts payable 233,902 $ 152,793 Accrued liabilities 364,609 308,471 Distributions payable 9,488 13,620 Income taxes payable 9,485 14,485 Current portion of long-term debt 6,750 10,617 Current portion of obligations under capital leases 2,462 812 ------------------------------------------------------------------------- 654,295 500,798 Long-term debt 651,778 664,875 Obligations under capital leases 6,187 3,412 Other long-term liabilities 30,986 31,025 Derivative instruments 22,495 - Future income taxes 7,870 62,428 Unitholders' equity: Fund units 181,660 181,880 Exchangeable limited partnership units 298 3,273 Contributed surplus - 4,967 Retained earnings (deficit) (223,854) 260,030 Accumulated other comprehensive income 111,966 117,933 ------------------------------------------------------------------------- 70,070 568,083 ------------------------------------------------------------------------- $1,443,681 $1,830,621 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DEFICIT) (unaudited, in thousands of U.S. dollars, except per share/unit/exchangeable LP unit amounts) ------------------------------------------------------------------------- Three months ended Twelve months ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- Revenue $ 696,224 $ 616,714 $2,001,089 $1,940,639 Cost of goods sold 545,318 473,706 1,648,950 1,556,362 ------------------------------------------------------------------------- Gross profit 150,906 143,008 352,139 384,277 Selling, general and administrative expenses 57,878 55,711 187,921 180,520 Amortization of intangible assets 12,315 16,251 62,959 64,364 Amortization of transaction costs and loan fees - 295 - 2,855 Impairment of long-lived assets and goodwill 386,294 - 386,294 - Unusual items 1,685 (75,641) 4,367 6,714 ------------------------------------------------------------------------- Earnings (loss) before the undernoted (307,266) 146,392 (289,402) 129,824 Interest on long-term debt 12,860 12,464 50,889 48,112 Other interest 1,658 372 2,853 720 Foreign exchange (gain) loss (2,978) (3,813) (8,585) (10,564) Investment income (491) (1,181) (3,862) (4,211) ------------------------------------------------------------------------- Earnings (loss) before income taxes (318,315) 138,550 (330,697) 95,767 Income tax (recovery) expense (1,743) 42,890 (29,638) 44,014 ------------------------------------------------------------------------- Net earnings (loss) (316,572) 95,660 (301,059) 51,753 Retained earnings, beginning of period as previously reported 132,248 206,020 260,030 317,121 Change in accounting policy related to financial instruments - - (154) - ------------------------------------------------------------------------- Retained earnings, beginning of period as restated 132,248 206,020 259,876 317,121 Repurchase of units (4,588) - (17,937) - Distributions declared (34,942) (41,650) (164,734) (107,357) Dividends declared - - - (1,487) ------------------------------------------------------------------------- Retained earnings (deficit), end of period $ (223,854) $ 260,030 $ (223,854) $ 260,030 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) per unit or share: Basic $ (5.53) $ 1.64 $ (5.19) $ 0.89 Diluted $ (5.53) $ 1.64 $ (5.19) $ 0.89 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of units and exchangeable LP units outstanding, (common shares up to May 5, 2006) (in thousands): Basic 57,195 58,334 57,965 57,865 Diluted 57,195 58,389 57,965 57,932 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Loss) (unaudited, in thousands of U.S. dollars) ------------------------------------------------------------------------- Three months ended Twelve months ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- Net earnings (loss) for the period $ (316,572) $ 95,660 $ (301,059) $ 51,753 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on translating financial statements of self- sustaining foreign operations (7,563) 13,365 (30,389) 20,803 Unrealized gains on hedges of net investment in self-sustaining foreign operations 6,025 - 46,870 10,372 Partial release of cumulative translation adjustment - (8,520) 646 36,380 ------------------------------------------------------------------------- Unrealized foreign exchange translation gain (loss), net of hedging activities (1,538) 4,845 17,127 67,555 Net unrealized loss on derivatives designated as cash flow hedges (9,580) - (12,915) - ------------------------------------------------------------------------- Other comprehensive income (loss) (11,118) 4,845 4,212 67,555 ------------------------------------------------------------------------- Comprehensive income (loss) $ (327,690) $ 100,505 $ (296,847) $ 119,308 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, In thousands of U.S. dollars) ------------------------------------------------------------------------- Three months ended Twelve months ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash provided by (used in): Operating Activities: Net earnings (loss) $ (316,572) $ 95,660 $ (301,059) $ 51,753 Items not involving cash: Amortization 44,376 59,161 194,868 219,875 Write-off of transaction costs and loan fees - - - 16,945 Future income taxes (33,960) (4,014) (37,067) (18,587) Partial release of cumulative translation adjustment - (8,520) 646 36,380 Impairment of long-lived assets and goodwill 386,294 - 386,294 - Non-cash reversal of liabilities - (63,616) - (63,616) Hedge ineffectiveness of US dollar denominated debt - 9,963 - 12,650 Non-cash interest expense 444 - 1,629 - Loss (gain) on disposition of property, plant and equipment 983 (19,758) 912 (20,166) Gain on settlement of hedging arrangements - - - (5,020) Other 182 201 293 333 Change in non-cash operating working capital (1,786) (770) 12,870 (4,001) ------------------------------------------------------------------------- 79,961 68,307 259,386 226,546 Financing Activities: Increase in long-term debt - - - 675,000 Transaction costs and loan fees - - (2,414) (5,993) Repayment of long-term debt and bank indebtedness (28,017) (3,582) (41,391) (735,781) Increase in bank indebtedness 35,868 - 58,373 - Proceeds on settlement of hedging arrangements - - - 5,020 Increase (decrease) in obligations under capital leases (665) 402 (1,666) (167) Issuance of units/ common shares - 366 992 11,378 Repurchase of units (5,340) - (27,100) - Distributions paid (41,307) (42,295) (171,333) (93,737) Dividends paid - - - (1,487) ------------------------------------------------------------------------- (39,461) (45,109) (184,539) (145,767) Investing Activities: Purchase of property, plant and equipment (15,049) (13,570) (89,095) (57,622) Acquisition, net of cash (730) - (58,276) - Proceeds on disposition of property, plant and equipment 27 28,417 242 28,618 Decrease (increase) in other assets 1,989 6,975 (9,397) 11,400 Increase (decrease) in other long-term liabilities 79 (1,600) (39) (2,876) ------------------------------------------------------------------------- (13,684) 20,222 (156,565) (20,480) Foreign exchange loss (gain) on cash held in foreign currencies (4,611) 373 (2,557) 2,461 ------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents 22,205 43,793 (84,275) 62,760 Cash and cash equivalents, beginning of period 46,201 108,888 152,681 89,921 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 68,406 $ 152,681 $ 68,406 $ 152,681 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 11,990 $ 14,242 $ 51,125 $ 48,425 Income taxes paid 3,278 10,358 36,319 67,201 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents are defined as cash and short-term deposits, which have an original maturity of less than 90 days
