TORONTO, Aug. 7 /PRNewswire-FirstCall/ -- 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 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.
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.
