(All figures in U.S. dollars unless otherwise indicated)
TORONTO, Nov. 10 /PRNewswire-FirstCall/ - Cinram International Income Fund
("Cinram" or the "Fund") (TSX: CRW.UN) today reported its third quarter
financial results of 2009. "Cinram's results for the third quarter of 2009 are
consistent with expectations. Although unit sales of DVD's and CD's were down
from 2008, the increase in Blu-ray volume coupled with the company's increased
operating efficiencies resulted in a strong financial performance. During the
quarter, we intensified the focus on improving our cost structure and
continued improving our balance sheet through debt reduction" commented Cinram
Chief Executive Officer Steve Brown.
The Fund recorded a 15 per cent decrease in revenue to $351.2 million in the
third quarter from $411.7 million in the third quarter of 2008. Excluding the
effects of foreign exchange, revenue decreased by 12 per cent. For the first
nine months of 2009, revenue decreased by 18 per cent to $955.4 million from
$1,171.7 million in the same period in 2008 due to lower home video revenues
resulting from decreases in both units shipped and average selling prices.
Excluding the effects of foreign exchange, revenue decreased by 13 per cent.
Earnings before interest, taxes and amortization (EBITA1) were $42.8 million
during the third quarter of 2009, down from $56.9 million in the same quarter
of 2008. The prior year results included a $15.8 million favourable adjustment
to EBITA relating to a patent settlement. For the first nine months of 2009,
EBITA was $92.7 million compared to $140.9 million in 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. The
Fund reported net earnings from continuing operations for the third quarter of
2009 of $13.9 million or $0.26 per unit (basic) compared with net earnings
from continuing operations of $1.5 million or $0.03 per unit (basic) in 2008.
In September, the Fund signed a three year extension of the replication
services agreement with Lions Gate Entertainment Inc. "We are very pleased
that we have extended the long standing relationship with a very important
studio client" said Steve Brown.
During the third quarter of 2009, the Fund repurchased $38.1 million of debt
at a cost of $28.2 million, resulting in a gain of $9.9 million. To date, the
Fund has repurchased $96.9 million of debt at a cost of $68.6 million. "Debt
reduction is a critical strategic objective of the Fund, and we will continue
to focus on opportunities to repurchase our Senior Secured debt on favourable
terms" commented John Bell, Cinram's Chief Financial Officer.
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 working capital adjustments. During the third quarter of 2009, the fund
recorded working capital adjustments of $2.8 million, which will reduce net
cash proceeds to $11.2 million. Ivy Hill's results were excluded from Cinram's
continuing operations for the three and nine-month period ended September 30,
2009 and 2008.
Segment revenue
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
-------------------------------------------------------------------------
(in thousands
of US$) 2009 2008 2009 2008
-------------------------------------------------------------------------
Home
Video $276,706 79% $298,403 72% $721,300 76% $850,243 73%
CD 42,319 12% 57,003 14% 118,854 12% 169,198 14%
Video
Game 18,192 5% 26,545 7% 58,404 6% 77,289 7%
Other 14,021 4% 29,702 7% 56,868 6% 74,994 6%
-------------------------------------------------------------------------
$351,238 100% $411,653 100% $955,426 100% $1,171,724 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third quarter of 2009 Home Video revenue (which includes replication and
distribution of DVDs and high-definition discs) was down seven per cent to
$276.7 million from $298.4 million in the prior year third quarter due to
lower DVD replication volumes in North America combined with lower selling
prices. This decline was partially mitigated by the impact of foreign exchange
rate differences between 2008 and 2009. Cinram replicated 299 million DVDs in
the third quarter of 2009, a slight decrease from 300 million units in 2008.
High-definition disc replication revenue increased to $4.7 million in the
third quarter of 2009 from $2.3 million in the comparable 2008 period.
CD segment revenue (which includes replication and distribution of CDs) was
down 26 per cent in the third quarter of 2009 to $42.3 million from $57.0
million in 2008 in line with a corresponding decline in replication and
distribution volumes.
Revenue from the Video Game segment was down 31 per cent to $18.2 million in
the third quarter of 2009 from $26.5 million in 2008 reflecting continued
consumer spending declines in this segment of the market.
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 $14.0 million in the third
quarter of 2009 from $29.7 million in 2008. The termination of the Motorola
distribution business in Europe accounted for 42% of this decline.
Geographic revenue
Third quarter of 2009 North American revenue decreased 20 per cent to $199.6
million from $248.6 million in 2008, principally as a result of lower DVD
volumes and prices. North America accounted for 57 per cent of third quarter
consolidated revenue compared with 60 per cent in 2008.
European revenue was down seven per cent in the third quarter to $151.6
million from $163.0 million in 2008, due to lower CD unit sales from our
German operations combined with the foreign currency translation impact.
Excluding the impact of foreign currency translation, European revenue
decreased by two percent in the third quarter of 2009 compared to 2008. Third
quarter European revenue represented 43 per cent of consolidated sales
compared with 40 per cent in the third quarter of 2008.
Other financial highlights
Gross profit for the quarter ended September 30, 2009 was $62.6 million, a
reduction of $7.9 million from the $70.5 million in 2008, which included a
favourable royalty adjustment of $15.8 million. The gross profit margins
increased to 18 per cent in the third quarter of 2009, from 17 per cent in the
corresponding 2008 period, resulting from labour and overhead efficiencies
realized during the current quarter. The Fund also recorded amortization
expense relating to capital assets (included in the cost of goods sold) of
$21.2 million compared to $24.4 million in the third quarter of 2008. The
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 September
30, 2009 increased to $39.4 million from $38.0 million in 2008, primarily as a
result of $4.0 million of combined severance charges and consulting fees
incurred. Selling, general and administrative expenses were 11 per cent of
revenue in the 2009 third quarter, compared to nine per cent in the prior year
period.
Balance sheet and liquidity
The Fund had cash and cash equivalents on hand of $93.6 million and debt of
$520.3 million (excluding unamortized transaction costs and loan fees),
resulting in a net debt position of $426.7 million at September 30, 2009,
compared with a net debt position of $573.8 million at the end of 2008. During
the third quarter of 2009, the Fund reduced debt by $46.9 million as a result
of mandatory debt repayments in addition to debt repurchases at amounts below
par following the amendment to the credit agreement on March 30, 2009. During
the third quarter of 2009, Cinram paid $8.1 million for property, plant and
equipment, including payments on DVD equipment purchased in the prior year.
Unit data
For the three-month period ended September 30, 2009, the basic weighted
average number of units and exchangeable limited partnership units outstanding
was 54.5 million compared with 56.5 million in 2008. During the first nine
months of 2009, the Fund did not repurchase any units under its normal course
issuer bid.
Reconciliation of EBITA and EBIT to net earnings from continuing
operations
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
(unaudited, in thousands
of U.S. dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
EBITA excluding other charges $ 44,402 $ 56,908 $ 95,809 $141,428
-------------------------------------------------------------------------
Other charges, net 1,587 - 3,113 536
-------------------------------------------------------------------------
EBITA(1) $ 42,815 $ 56,908 $ 92,696 $140,892
-------------------------------------------------------------------------
Amortization of property,
plant and equipment 21,215 24,392 65,695 74,980
Amortization of intangible
assets 10,451 10,594 30,950 31,912
-------------------------------------------------------------------------
EBIT(2) $ 11,149 $ 21,922 $ (3,949) $ 34,000
-------------------------------------------------------------------------
Interest expense 10,123 11,555 29,548 35,137
Gain on repurchase of debt (9,853) - (23,475) -
Foreign exchange (gain) loss (6,456) 7,577 (14,050) 2,499
Investment income (194) (452) (527) (1,511)
Income taxes (recovery) 3,588 1,713 932 (7,162)
-------------------------------------------------------------------------
Net earnings from continuing
operations $ 13,941 $ 1,529 $ 3,623 $ 5,037
-------------------------------------------------------------------------
(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 translation 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 and EBITA
including other charges, are not defined terms under generally
accepted accounting principles (GAAP). Accordingly, these measures
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 translation
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,
Blu-ray 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 through its wireless subsidiaries. The Fund's units
are listed on the Toronto Stock Exchange under the symbol CRW.UN. For more
information, visit our website at www.cinram.com.
Certain statements included in this release constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Fund, or results of the multimedia
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)
-------------------------------------------------------------------------
September 30 December 31
2009 2008
(unaudited)
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $93,622 $73,349
Accounts receivable 321,757 495,604
Inventories 52,242 48,987
Income taxes receivable 284 18,235
Prepaid expenses 18,293 21,913
Future income taxes 1,900 1,827
-------------------------------------------------------------------------
488,098 659,915
Property, plant and equipment 296,716 361,804
Goodwill 63,530 64,737
Intangible assets 63,971 94,423
Other assets 24,948 24,557
-------------------------------------------------------------------------
$937,263 $1,205,436
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $80,451 $203,619
Accrued liabilities 246,773 247,968
Income taxes payable 14,609 11,581
Current portion of long-term debt 35,245 6,750
Current portion of obligations under capital leases 2,114 3,094
-------------------------------------------------------------------------
379,192 473,012
Long-term debt 481,097 636,299
Obligations under capital leases 2,701 3,926
Other long-term liabilities 44,859 43,625
Derivative instruments 27,069 26,586
Future income taxes 4,071 5,208
Unitholders' equity (deficiency) (1,726) 16,780
-------------------------------------------------------------------------
$937,263 $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 Nine months ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $351,238 $411,653 $955,426 $1,171,724
Cost of goods sold 288,626 341,173 802,883 985,480
-------------------------------------------------------------------------
Gross profit 62,612 70,480 152,543 186,244
Selling, general and
administrative expenses 39,425 37,964 122,429 119,796
Amortization of
intangible assets 10,451 10,594 30,950 31,912
Other charges, net 1,587 - 3,113 536
-------------------------------------------------------------------------
Earnings (loss) before
the undernoted 11,149 21,922 (3,949) 34,000
Interest on long-term debt 9,147 11,392 28,363 34,473
Other interest expense 976 163 1,185 664
Gain on repurchase of debt (9,853) - (23,475) -
Foreign exchange
(gain) loss (6,456) 7,577 (14,050) 2,499
Investment income (194) (452) (527) (1,511)
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes 17,529 3,242 4,555 (2,125)
Income taxes (recovery) 3,588 1,713 932 (7,162)
-------------------------------------------------------------------------
Earnings from continuing
operations 13,941 1,529 3,623 5,037
Earnings (loss) from
discontinued operations (4,460) 493 (17,179) (13,482)
-------------------------------------------------------------------------
Net earnings (loss) $9,481 $2,022 $(13,556) $(8,445)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per unit from
continuing operations:
Basic $0.26 $0.03 $0.07 $0.09
Diluted $0.25 $0.03 $0.07 $0.09
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) Loss per unit:
Basic $0.17 $0.04 $(0.25) $(0.15)
Diluted $0.17 $0.04 $(0.25) $(0.15)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of
units and exchangeable
limited partnership units
outstanding, (in thousands):
Basic 54,530 56,481 54,956 56,864
Diluted 55,564 56,550 55,474 56,920
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands of U.S. dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Net earnings (loss) for
the period $9,481 $2,022 $(13,556) $(8,445)
Other comprehensive income,
net of tax :
Unrealized gain (loss) on
translating financial
statements of self-
sustaining foreign
operations (12,445) (507) (29,416) 13,345
Unrealized gain (loss) on
hedges of net investment
in self-sustaining
operations 12,627 (7,034) 25,899 (14,447)
Partial release of
cumulative translation
adjustment - - - 1,203
-------------------------------------------------------------------------
Unrealized foreign
exchange translation
gain (loss), net of
hedging activities 182 (7,541) (3,517) 101
Net unrealized gain
(loss) on derivatives
designated as cash flow
hedges (1,897) (874) (479) 1,046
-------------------------------------------------------------------------
Other comprehensive
income (loss) (1,715) (8,415) (3,996) 1,147
-------------------------------------------------------------------------
Comprehensive income
(loss), net of tax $7,766 $(6,393) $(17,552) $(7,298)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY (DEFICIENCY)
(unaudited, in thousands of U.S. dollars)
Three and nine months ended September 30, 2008
-------------------------------------------------------------------------
Exchangeable Limited Contributed
Fund Units Partnership units surplus
Amount Number Amount Number
-------------------------------------------------------------------------
(000's) (000's)
-------------------------------------------------------------------------
Balance,
January 1, 2008 $181,660 57,021 $298 98 $-
Loss for the six
months ended
June 30, 2008 - - - - -
Deferred units
issued - - - - 157
Repurchase of
units (414) (130) - - -
Limited partnership
units exchanged
for Fund units 198 65 (198) (65) -
Deferred units
exchanged for
Fund units 135 24 - - (135)
Other comprehensive
income - - - - -
-------------------------------------------------------------------------
Balance, June 30,
2008 $181,579 56,980 $100 33 $22
Earnings for
the quarter - - - - -
Deferred units
issued - - - - 68
Repurchase of
units (5,607) (1,761) - - (22)
Other comprehensive
loss - - - - -
-------------------------------------------------------------------------
Balance, September
30, 2008 $175,972 55,219 $100 33 $68
-------------------------------------------------------------------------
--------------------------------------------------------------
Accumulated Total
Employee other Unit-
unit comprehensive holders'
purchase income equity
loan Deficit (loss) (deficiency)
--------------------------------------------------------------
--------------------------------------------------------------
Balance,
January 1, 2008 $- $(223,854) $111,966 $70,070
Loss for the six
months ended
June 30, 2008 - (10,467) - (10,467)
Deferred units
issued - - - 157
Repurchase of
units - (315) - (729)
Limited partnership
units exchanged
for Fund units - - - -
Deferred units
exchanged for
Fund units - - - -
Other comprehensive
income - - 9,562 9,562
--------------------------------------------------------------
Balance, June 30,
2008 $- $(234,636) $121,528 $68,593
Earnings for
the quarter - 2,022 - 2,022
Deferred units
issued - - - 68
Repurchase of
units - (2,727) - (8,356)
Other comprehensive
loss - - (8,415) (8,415)
--------------------------------------------------------------
Balance, September
30, 2008 $- $(235,341) $113,113 $53,912
--------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY (DEFICIENCY)
(unaudited, in thousands of U.S. dollars)
Three and nine months ended September 30, 2009
-------------------------------------------------------------------------
Exchangeable Limited Contributed
Fund Units Partnership units surplus
Amount Number Amount Number
-------------------------------------------------------------------------
(000's) (000's)
-------------------------------------------------------------------------
Balance,
January 1, 2009 $175,990 55,223 $100 33 $-
Loss for the six
months ended
June 30, 2009 - - - - -
Deferred units
issued - - - - 203
Limited partnership
units exchanged
for Fund units 12 4 (12) (4) -
Issuance of
employee unit
purchase loans - - - - -
Other comprehensive
loss - - -
-------------------------------------------------------------------------
Balance, June 30,
2009 $176,002 55,227 $88 29 $203
Earnings for
the quarter - - - - -
Deferred units
issued - - - - 91
Issuance of
employee unit
purchase loans - - - - -
Other comprehensive
loss - - - - -
-------------------------------------------------------------------------
Balance, September
30, 2009 $176,002 55,227 $88 29 $294
-------------------------------------------------------------------------
--------------------------------------------------------------
Accumulated Total
Employee other Unit-
unit comprehensive holders'
purchase income equity
loan Deficit (loss) (deficiency)
--------------------------------------------------------------
Balance,
January 1, 2009 $- $(258,425) $99,115 $16,780
Loss for the six
months ended
June 30, 2009 - (23,037) - (23,037)
Deferred units
issued - - - 203
Limited partnership
units exchanged
for Fund units - - - -
Issuance of
employee unit
purchase loans (486) - - (486)
Other comprehensive
loss - - (2,281) (2,281)
--------------------------------------------------------------
Balance, June 30,
2009 $(486) $(281,462) $96,834 $(8,821)
Earnings for
the quarter - 9,481 - 9,481
Deferred units
issued - - - 91
Issuance of
employee unit
purchase loans (762) - - (762)
Other comprehensive
loss - - (1,715) (1,715)
--------------------------------------------------------------
Balance, September
30, 2009 $(1,248) $(271,981) $95,119 $(1,726)
--------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands of U.S. dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by (used in):
Operating Activities:
Net earnings from
continuing operations $13,941 $1,529 $3,623 $5,037
Items not involving cash:
Amortization 31,666 34,986 96,645 106,892
Future income taxes
(recovery) 215 (607) (1,210) 3,016
Gain on repurchase
of debt (9,853) - (23,475) -
Release of cumulative
translation adjustment - - - 536
Non-cash interest expense 600 445 1,866 1,333
Hedge ineffectiveness 490 (636) (4) (243)
(Gain) loss on
disposition of property,
plant and equipment 184 (229) (1,553) (309)
Other 91 68 294 225
Change in non-cash
operating working capital 24,186 (60,890) 85,891 13,002
-------------------------------------------------------------------------
61,520 (25,334) 162,077 129,489
Financing Activities:
Transaction costs - - (1,525) -
Repayment/repurchase of
long-term debt and bank
indebtedness (37,075) (1,688) (103,457) (31,732)
Decrease in obligations
under capital leases (658) (868) (2,205) (1,824)
Financing of employee
unit purchase loan (762) - (1,248) -
Repurchase of units - (8,356) - (9,085)
Distributions paid - - - (9,247)
-------------------------------------------------------------------------
(38,495) (10,912) (108,435) (51,888)
Investing Activities:
Purchase of property,
plant and equipment (8,128) (17,040) (37,853) (54,052)
Acquisitions, net of cash - (3,392) - (5,386)
Acquisition expense - 248 - 1,003
Payment of acquisition
earnout amount - - (16,131) (13,449)
Proceeds on disposition
of property, plant and
equipment 2,764 266 29,406 364
Decrease (increase) in
other assets (266) 2,696 (391) (5,262)
Increase (decrease) in
other long-term
liabilities 129 (333) (5,211) 1,203
-------------------------------------------------------------------------
(5,501) (17,555) (30,180) (75,579)
Cash provided by (used
in) discontinued
operating activities (174) (3,350) (20,052) (16,037)
Cash provided by (used
in) discontinued
investing activities - 1,552 13,990 6,964
Foreign currency translation
gain/(loss) on cash held
in foreign currencies (351) (1,818) 2,873 810
-------------------------------------------------------------------------
Increase (decrease) in
cash and cash equivalents 16,999 (57,417) 20,273 (6,241)
Cash and cash equivalents,
beginning of period 76,623 119,582 73,349 68,406
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $93,622 $62,165 $93,622 $62,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents
are comprised of:
Cash $66,086 $28,616 $66,086 $28,616
Cash equivalents 27,536 33,549 27,536 33,549
-------------------------------------------------------------------------
$93,622 $62,165 $93,622 $62,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow
information:
Interest paid $8,725 $10,482 $29,009 $34,967
Income taxes received (19,294) (16,726) (17,600) (7,781)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents are defined as cash and short-term deposits
that have an original maturity of less than 90 days.
SOURCE Cinram International Income Fund
John H. Bell, Tel: (416) 332-2902, johnbell@cinram.com
