TORONTO, Aug. 11 /PRNewswire-FirstCall/ -- Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2009 second quarter financial results. The Fund recorded a 22 per cent decrease in revenue to $301.0 million in the 2009 second quarter from $386.3 million in the second quarter of 2008. For the first six months of 2009, revenue decreased to $604.2 million from $760.1 million in the same period in 2008. Earnings before interest, taxes and amortization (EBITA(1)) was $23.1 million during the second quarter of 2009, down from $35.8 million in the same quarter of 2008. The decline in EBITA was the result of lower average selling prices for DVDs, which, coupled with lower unit volumes, are the main drivers of Cinram's profit margins. For the first six months of 2009, EBITA was $49.9 million compared to $84.0 million in 2008. The Fund reported net earnings from continuing operations for the second quarter of 2009 of $7.3 million or $0.13 per unit (basic) compared with a net loss from continuing operations of $4.1 million or $0.07 per unit (basic) in 2008.
On June 9, 2009, the Fund announced that Steve Brown had been appointed President and Chief Executive Officer of the Fund effective June 15, 2009. "Cinram's results for the second quarter of 2009 are generally consistent with expectations. During the quarter, we intensified the focus on improving our cost structure, and continued our balance sheet improvement through debt repurchases at amounts below par", said Cinram chief executive officer Steve Brown.
As previously announced, on March 30, 2009 the Fund announced that its lenders had approved an amendment to its subsidiaries' senior secured credit facility to permit Cinram to use up to US$150.0 million to repurchase term advances outstanding under the senior secured credit facility at prices below par through one or more "modified Dutch" auctions during a one-year period commencing on March 31, 2009, subject to certain conditions. During the 2009 second quarter, the Fund repurchased $33.8 million of debt at a cost of $20.2 million, resulting in a gain of $13.6 million. Subsequent to June 30, 2009, the Fund repurchased $33.1 million of debt at a cost of $24.6 million, resulting in a gain of $8.5 million. This gain will be recorded during the third quarter of 2009.
On April 9, 2009, the Fund completed the sale of substantially all of Ivy Hill's assets and liabilities for net cash proceeds of $14.0 million, subject to post closing working capital adjustments pursuant to the asset purchase agreement. Ivy Hill's results were excluded from Cinram's continuing operations for the three and six-month periods ended June 30, 2009 and 2008.
Segment revenue ------------------------------------------------------------------------- Three months ended June 30 Six months ended June 30 ------------------------------------------------------------------------- (in thousands of US$) 2009 2008 2009 2008 ------------------------------------------------------------------------- Home Video $223,965 74% $272,298 70% $444,594 73% $551,840 72% CD 39,437 13% 59,428 15% $ 76,535 13% 112,195 15% Video Game 16,600 6% 28,913 8% $ 40,212 7% 50,744 7% Other 21,032 7% 25,670 7% $ 42,847 7% 45,292 6% ------------------------------------------------------------------------- $301,034 100% $386,309 100% $604,188 100% $760,071 100% ------------------------------------------------------------------------- -------------------------------------------------------------------------
Second quarter Home Video revenue (which includes replication and distribution of DVDs and high-definition discs) was down 18 per cent to $224.0 million from $272.3 million in the 2008 second quarter due to lower DVD replication volumes in North America combined with lower selling prices globally. Cinram replicated 224 million DVDs in the second quarter of 2009, compared to 246 million units in 2008. High-definition disc replication revenue increased to $5.5 million in the second quarter of 2009 from $5.1 million in the comparable 2008 period.
CD segment revenue (which includes replication and distribution of CDs) was down 34 per cent in the second quarter to $39.4 million from $59.4 million in 2008 in line with a corresponding decline in replication volumes.
Revenue from the Video Game segment was down 43 per cent to $16.6 million in the second quarter of 2009 from $28.9 million in 2008 reflecting declines in this market associated with general economic trends.
Revenue from our Other segment, which includes the Motorola distribution business in both North America and Europe, combined with revenue from Vision Worldwide Management LLC (Vision) decreased to $21.0 million in the second quarter of 2009 from $25.7 million in 2008.
For the six month period ended June 30, 2009, consolidated revenue decreased 21 per cent to $604.2 million from $760.1 million in the corresponding 2008 period due primarily to lower home video revenues resulting from decreases in both units shipped and average selling prices.
Geographic revenue
Second quarter North American revenue decreased 24 per cent to $184.1 million from $242.9 million in 2008, principally as a result of lower DVD volumes and prices. North America accounted for 61 per cent of second quarter consolidated revenue compared with 63 per cent in 2008.
European revenue was down 18 per cent in the second quarter to $117.0 million from $143.4 million in 2008, due to lower unit sales for both DVDs and CDs, primarily from our German operations combined with the foreign currency translation impact. Excluding the impact of foreign currency translation, European revenue decreased by five percent in the second quarter of 2009 compared to 2008. Second quarter European revenue represented 39 per cent of consolidated sales compared with 37 per cent in the second quarter of 2008.
Other financial highlights
Gross profit for the quarter ended June 30, 2009, decreased to $45.1 million from $53.1 million in 2008, and gross profit margins increased to 15 per cent in the second quarter of 2009, from 14 per cent in the corresponding 2008 period, resulting from labour and overhead efficiencies realized during the current year. The Fund also recorded amortization expense relating to capital assets (included in the cost of goods sold) of $22.5 million compared to $25.9 million in the second quarter of 2008. This reduction in amortization results from the lower net book value of property, plant and equipment due to the impairment charge of $57.2 million recorded at the end of 2008 as part of Cinram's annual impairment test.
Selling, general and administrative expenses for the quarter ended June 30, 2009 increased to $44.2 million from $42.8 million in 2008, primarily as a result of severance charges associated with certain executive employees combined with consulting fees incurred during the quarter. Selling, general and administrative expenses were 15 per cent of revenue in the 2009 second quarter, compared to 11 per cent in the prior year period.
Balance sheet and liquidity
The Fund had cash and cash equivalents on hand of $76.6 million and debt of $567.2 million (excluding unamortized transaction costs and loan fees), resulting in a net debt position of $490.6 million at June 30, 2009, compared with a net debt position of $573.8 million at the end of 2008. During the second quarter of 2009, the Fund reduced debt by $43.3 million primarily as a result of debt repurchases following the amendment to the credit agreement on March 30, 2009. During the second quarter of 2009, Cinram paid $12.4 million for property, plant and equipment, including cash payments on DVD and wireless equipment previously purchased.
Unit data
For the three-month period ended June 30, 2009, the basic weighted average number of units and exchangeable limited partnership units outstanding was 55.1 million compared with 57.0 million in 2008. During the first six months of 2009, the Fund did not repurchase any units under its normal course issuer bid.
Reconciliation of EBITA and EBIT to net earnings (loss) from continuing operations ------------------------------------------------------------------------- Three months ended Six months ended (unaudited, in thousands June 30 June 30 of U.S. dollars) 2009 2008 2009 2008 ------------------------------------------------------------------------- EBITA excluding other charges $ 23,366 $ 36,192 $ 51,407 $ 84,520 ------------------------------------------------------------------------- Other charges, net 226 365 1,526 536 ------------------------------------------------------------------------- EBITA(1) $ 23,140 $ 35,827 $ 49,881 $ 83,984 ------------------------------------------------------------------------- Amortization of property, plant and equipment 22,466 25,855 44,480 50,588 Amortization of intangible assets 10,332 10,718 20,499 21,318 ------------------------------------------------------------------------- EBIT(2) $ (9,658) $ (746) $(15,098) $ 12,078 ------------------------------------------------------------------------- Interest expense 9,008 11,084 19,425 23,582 Gain on repurchase of debt (13,622) - (13,622) - Foreign exchange gain (13,432) (1,318) (7,594) (5,078) Investment income (57) (413) (333) (1,059) Income taxes (recovery) 1,157 (6,001) (2,656) (8,875) ------------------------------------------------------------------------- Net earnings (loss) from continuing operations $ 7,288 $ (4,098) $(10,318) $ 3,508 ------------------------------------------------------------------------- (1) EBITA is defined as earnings from continuing operations before other charges, impairment charges, gain on repurchase of debt, 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 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 as earnings from continuing operations before impairment charges, interest expense, gain on repurchase of debt, investment income, income taxes and foreign exchange gain/loss, 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 may not be comparable with other issuers and should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with GAAP. See reconciliation of EBIT to net earnings under GAAP as found in the table above. About Cinram
Cinram International Inc., an indirect, wholly-owned subsidiary of the Fund, is 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, BluRay Discs, audio CDs, and CD-ROMs for motion picture studios, music labels, publishers and computer software companies around the world. Cinram also provides distribution and logistics services to the telecommunications industry in North America 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 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 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; the Fund's ability to refinance its credit facilities upon maturity 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 2009 2008 (unaudited) ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 76,623 $ 73,349 Accounts receivable 288,740 495,604 Inventories 39,483 48,987 Income taxes receivable 17,645 18,235 Prepaid expenses 16,125 21,913 Future income taxes 1,841 1,827 ------------------------------------------------------------------------- 440,457 659,915 Property, plant and equipment 313,458 361,804 Goodwill 63,159 64,737 Intangible assets 73,843 94,423 Other assets 24,683 24,557 ------------------------------------------------------------------------- $ 915,600 $1,205,436 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND UNITHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 68,985 $ 203,619 Accrued liabilities 201,805 247,968 Income taxes payable 12,209 11,581 Current portion of long-term debt 40,000 6,750 Current portion of obligations under capital leases 2,499 3,094 ------------------------------------------------------------------------- 325,498 473,012 Long-term debt 522,748 636,299 Obligations under capital leases 2,974 3,926 Other long-term liabilities 44,730 43,625 Derivative instruments 24,674 26,586 Future income taxes 3,797 5,208 Unitholders' equity (deficiency) (8,821) 16,780 ------------------------------------------------------------------------- $ 915,600 $1,205,436 ------------------------------------------------------------------------- ------------------------------------------------------------------------- INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP unit amounts) ------------------------------------------------------------------------- Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Revenue $ 301,034 $ 386,309 $ 604,188 $ 760,071 Cost of goods sold 255,914 333,208 514,257 644,307 ------------------------------------------------------------------------- Gross profit 45,120 53,101 89,931 115,764 Selling, general and administrative expenses 44,220 42,764 83,004 81,832 Amortization of intangible assets 10,332 10,718 20,499 21,318 Other charges, net 226 365 1,526 536 ------------------------------------------------------------------------- Earnings (loss) before the undernoted (9,658) (746) (15,098) 12,078 Interest on long-term debt 9,379 11,350 19,216 23,081 Other interest (income) expense (371) (266) 209 501 Gain on repurchase of debt (13,622) - (13,622) - Foreign exchange gain (13,432) (1,318) (7,594) (5,078) Investment income (57) (413) (333) (1,059) ------------------------------------------------------------------------- Earnings (loss) from continuing operations before income taxes 8,445 (10,099) (12,974) (5,367) Income taxes (recovery) 1,157 (6,001) (2,656) (8,875) ------------------------------------------------------------------------- Earnings (loss) from continuing operations 7,288 (4,098) (10,318) 3,508 Loss from discontinued operations (8,025) (2,982) (12,719) (13,975) ------------------------------------------------------------------------- Net earnings (loss) (737) (7,080) (23,037) (10,467) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) per unit from continuing operations: Basic $ 0.13 $ (0.07) $ (0.19) $ 0.06 Diluted $ 0.13 $ (0.07) $ (0.19) $ 0.06 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per unit: Basic $ (0.01) $ (0.12) $ (0.42) $ (0.18) Diluted $ (0.01) $ (0.12) $ (0.42) $ (0.18) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of units and exchangeable limited partnership units outstanding, (in thousands): Basic 55,096 57,001 55,174 57,057 Diluted 55,565 57,001 55,174 57,107 ------------------------------------------------------------------------- ------------------------------------------------------------------------- INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited, in thousands of U.S. dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Net loss for the period $ (737) $ (7,080) $ (23,037) $ (10,467) Other comprehensive income, net of tax: Unrealized gain (loss) on translating financial statements of self-sustaining foreign operations (16,049) (4,319) (16,971) 13,852 Unrealized gain (loss) on hedges of net investment in self-sustaining operations 16,890 2,491 13,272 (7,413) Partial release of cumulative translation adjustment - 1,032 - 1,203 ------------------------------------------------------------------------- Unrealized foreign exchange translation gain (loss), net of hedging activities 841 (796) (3,699) 7,642 Net unrealized gain (loss) on derivatives designated as cash flow hedges (235) 14,434 1,418 1,920 ------------------------------------------------------------------------- Other comprehensive income (loss) 606 13,638 (2,281) 9,562 ------------------------------------------------------------------------- Comprehensive income (loss), net of tax $ (131) $ 6,558 $ (25,318) $ (905) ------------------------------------------------------------------------- ------------------------------------------------------------------------- INTERIM CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY (DEFICIENCY) (unaudited, in thousands of U.S. dollars) Three and six months ended June 30, 2008 ------------------------------------------------------------------------- Exchangeable limited Fund units partnership units Contributed Amount Number Amount Number surplus ------------------------------------------------------------------------- (000s) (000s) ------------------------------------------------------------------------- Balance, January 1, 2008 $ 181,660 57,021 $ 298 98 $ - Loss for the quarter - - - - - Deferred units issued - - - - 87 Repurchase of units (414) (130) - - - Limited partnership units exchanged for Fund units 104 34 (104) (34) - Other comprehensive loss - - - - - ------------------------------------------------------------------------- Balance, March 31, 2008 $ 181,350 56,925 $ 194 64 $ 87 ------------------------------------------------------------------------- Loss for the quarter - - - - - Deferred units issued - - - - 70 Limited partnership units exchanged for Fund units 94 31 (94) (31) - Deferred units exchanged for Fund units 135 24 - - (135) Other comprehensive loss - - - - - ------------------------------------------------------------------------- Balance, June 30, 2008 $ 181,579 56,980 $ 100 33 $ 22 ------------------------------------------------------------------------- ------------------------------------------------------------- Accumulated other Total Employee compre- unit- unit hensive holders' purchase income equity loan Deficit (loss) (deficiency) ------------------------------------------------------------- ------------------------------------------------------------- Balance, January 1, 2008 $ - $ (223,854) $ 111,966 $ 70,070 Loss for the quarter - (3,387) - (3,387) Deferred units issued - - - 87 Repurchase of units - (315) - (729) Limited partnership units exchanged for Fund units - - - - Other comprehensive loss - - (4,076) (4,076) ------------------------------------------------------------- Balance, March 31, 2008 $ - $ (227,556) $ 107,890 $ 61,965 ------------------------------------------------------------- Loss for the quarter - (7,080) - (7,080) Deferred units issued - - - 70 Limited partnership units exchanged for Fund units - - - - Deferred units exchanged for Fund units - - - - Other comprehensive loss - - 13,638 13,638 ------------------------------------------------------------- Balance, June 30, 2008 $ - $ (234,636) $ 121,528 $ 68,593 ------------------------------------------------------------- Three and six months ended June 30, 2009 ------------------------------------------------------------------------- Exchangeable limited Fund units partnership units Contributed Amount Number Amount Number surplus ------------------------------------------------------------------------- (000s) (000s) ------------------------------------------------------------------------- Balance, January 1, 2009 $ 175,990 55,223 $ 100 33 $ - Loss for the quarter - - - - - Deferred units issued - - - - 76 Other comprehensive loss - - - - - ------------------------------------------------------------------------- Balance, March 31, 2009 $ 175,990 55,223 $ 100 33 $ 76 ------------------------------------------------------------------------- Loss for the quarter - - - - - Deferred units issued - - - - 127 Limited partnership units exchanged for Fund units 12 4 (12) (4) - Issuance of shareholder loans - - - - - Other comprehensive loss - - - - - ------------------------------------------------------------------------- Balance, June 30, 2009 $ 176,002 55,227 $ 88 29 $ 203 ------------------------------------------------------------------------- ------------------------------------------------------------- Accumulated other Total Employee compre- unit- unit hensive holders' purchase income equity loan Deficit (loss) (deficiency) ------------------------------------------------------------- ------------------------------------------------------------- Balance, January 1, 2009 $ - $ (258,425) $ 99,115 $ 16,780 Loss for the quarter - (22,300) - (22,300) Deferred units issued - - - 76 Other comprehensive loss - - (2,887) (2,887) ------------------------------------------------------------- Balance, March 31, 2009 $ - $ (280,725) $ 96,228 $ (8,331) ------------------------------------------------------------- Loss for the quarter - (737) - (737) Deferred units issued - - - 127 Limited partnership units exchanged for Fund units - - - - Issuance of shareholder loans $ (486) - - (486) Other comprehensive loss - - 606 606 ------------------------------------------------------------- Balance, June 30, 2009 $ (486) $ (281,462) $ 96,834 $ (8,821) ------------------------------------------------------------- INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands of U.S. dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash provided by (used in): Operating Activities: Net earnings (loss) from continuing operations $ 7,288 $ (4,098) $ (10,318) $ 3,508 Items not involving cash: Amortization 32,798 36,573 64,979 71,906 Future income taxes (recovery) 725 1,159 (1,425) 3,623 Gain on repurchase of debt (13,622) - (13,622) - Release of cumulative translation adjustment - 365 - 536 Non-cash interest expense 600 444 1,266 888 Hedge ineffectiveness (690) 99 (494) 393 Gain on disposition of property, plant and equipment 42 13 (2,055) (80) Other 126 70 202 157 Change in non-cash operating working capital 3,314 8,506 52,831 70,574 ------------------------------------------------------------------------- 30,581 43,131 91,364 151,505 Financing Activities: Transaction costs (4) - (1,525) - Repayment/repurchase of long-term debt and bank indebtedness (29,694) (1,733) (66,382) (30,044) Decrease in obligations under capital leases (637) (613) (1,547) (956) Financing of employee unit purchase loan (486) - (486) - Repurchase of units - - - (729) Distributions paid - - - (9,247) ------------------------------------------------------------------------- (30,821) (2,346) (69,940) (40,976) Investing Activities: Purchase of property, plant and equipment (12,357) (25,461) (29,725) (37,012) Acquisitions, net of cash - (1,994) - (1,994) Acquisition expense - 755 - 755 Payment of acquisition earnout amount (16,131) (13,449) (16,131) (13,449) Proceeds on disposition of property, plant and equipment 3,445 3 26,449 98 Increase in other assets (2,121) (8,631) (125) (7,958) Increase (decrease) in other long-term liabilities (1,802) 157 (5,022) 1,536 ------------------------------------------------------------------------- (28,966) (48,620) (24,554) (58,024) Cash provided by (used in) discontinued operating activities (13,862) (7,567) (10,435) (9,369) Cash provided by (used in) discontinued investing activities 14,001 5,716 13,990 5,412 Foreign currency translation gain/(loss) on cash held in foreign currencies 2,108 (921) 2,849 2,628 ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (26,959) (10,607) 3,274 51,176 Cash and cash equivalents, beginning of period 103,582 130,189 73,349 68,406 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 76,623 $ 119,582 $ 76,623 $ 119,582 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents are comprised of: Cash 61,490 $ 78,035 61,490 $ 78,035 Cash equivalents 15,133 41,547 15,133 41,547 ------------------------------------------------------------------------- $ 76,623 $ 119,582 $ 76,623 $ 119,582 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 9,207 $ 12,048 $ 20,284 $ 24,485 Income taxes paid (received) 1,549 (2,604) 1,694 8,945 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Cinram International Income Fund
CONTACT: John H. Bell, Tel: (416) 332-2902, johnbell@cinram.com
