Cinram Reports Fourth Quarter and Year to Date Results and provides update on review of strategic alternatives

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

TORONTO, March 29, 2012 /CNW/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2011 fourth quarter and year to date consolidated financial results and provided an update on the review of strategic alternatives.

Q4-2011 Operating Results

• Consolidated revenue of $267.5 million in the fourth quarter of 2011 compared to $300.1 million in the fourth quarter of 2010.
• Revenue from the pre-recorded multimedia products segment of $232.8 million decreased from $264.2 million in Q4-2010, primarily as a result of a decrease in new release revenue leading to lower DVD volumes, most notably in North America.
• Revenue from the video games segment in the fourth quarter of 2011 was $17.8 million, a decrease of 12% from Q4-2010 revenues of $20.2 million.
• Revenue from the other business segment, which includes wireless, retail services and the digital media services group continues to grow, with fourth quarter revenue of $16.9 million, up 8% from $15.7 million in the comparable quarter of 2010.
• Earnings before interest, taxes, impairment charges and amortization (EBITA¹), excluding other charges, was $28.5 million in fourth quarter of 2011, compared to $49.3 million in the prior year.
• EBITA from the pre-recorded multimedia segment was $22.0 million in the fourth quarter of 2011, or 8% of consolidated revenue, compared with $40.3 million or 13% of consolidated revenue in the prior year comparable period.
• EBITA generated by the video games segment in the fourth quarter of 2011 was $2.7 million, compared to $5.6 million in the prior year period as the Fund continued consolidating various games distribution facilities into our Nashville location.
• EBITA from the other business segment was $3.8 million in the fourth quarter of 2011 compared with $3.4 million in the fourth quarter of 2010.

2011 full year Operating Results

• Consolidated revenue of $800.8 million in 2011 compared to $1,108.9 million in the 2010.
• Revenue from the pre-recorded multimedia products segment of $693.4 million decreased from $1,002.2 million in 2010.
• Revenue from the video games segment in 2011 was $44.9 million, a decrease from 2010 revenues of $59.0 million.
• Revenue from the other business segment was $62.5 million in 2011, compared with $47.7 million in 2010.
• Earnings before interest, taxes, impairment charges and amortization (EBITA¹), excluding other charges, was $27.6 million in 2011, compared to $131.9 million in the prior year.

Commented Steve Brown, CEO, "As reflected above, 2011 was a difficult year for the Fund and the industry generally as the impact of a general softness in the economy in our primary markets of North America and Europe impacted consumers' discretionary spending. Notwithstanding, we continue to be encouraged by the growth of our new digital media services group."

Update on strategic review

As previously disclosed, Cinram engaged Moelis & Company as financial advisor to undertake a strategic process for the Fund. As part of this process, the Fund is engaged in active discussions with a number of potential counterparties concerning strategic alternatives. Cinram is working with a view to completion of the strategic process within the next few months.  There can be no assurance that the process will identify a transaction that is in the best interests of the Fund or that the Fund will be able to implement any such transaction.

Senior Credit Facilities

The Fund has been working with Cinram's senior lenders and their advisors with respect to the Fund's current strategic review process and Cinram's previously disclosed breach of certain of the financial covenants in its senior credit agreements.  The senior lenders have waived or amended the senior credit facilities on numerous occasions as the strategic process has continued.   The current waiver provided on March 28, 2012 waives certain financial covenant defaults occurring on or prior to April 30, 2012 and certain other defaults.  This waiver is subject to lender termination rights on notice to Cinram under certain conditions, which take effect on or after April 13, 2012. There can be no assurance that further waivers will be provided or that ongoing waivers will not be retracted.

Other financial highlights

Pre-recorded multimedia segment:

• As expected, fourth quarter pre-recorded multimedia revenue (which includes replication and distribution of Blu-ray discs, DVDs and CDs) was down 12%, to $232.8 million for the fourth quarter of 2011, compared to $264.2 million in the fourth quarter of 2010.
• Cinram replicated 204 million DVDs in the fourth quarter of 2011, compared to 261 million units replicated in the fourth quarter of 2010.
• DVD revenue (which includes replication and distribution services) was $179.8 million for the fourth quarter of 2011, compared to $213.9 million in the fourth quarter of 2010.
• Blu-ray replication revenue was $16.8 million in the fourth quarter of 2011, compared to $13.1 million in the fourth quarter of 2010, reflecting the importance of high definition Blu-ray discs in the physical media segment.
• CD revenue (including replication and distribution of CDs) of $36.2 million was down slightly from $37.2 million recorded in the fourth quarter of 2010, as demand for this format has stabilized given the consumer price reductions recently offered at the retail level.

Geographic revenue:

Fourth quarter 2011 North American revenue of $142.9 million was down from $178.6 million recorded in the fourth quarter of 2010, principally as a result of lower shipments of standard DVDs, partially offset by higher Blu-ray unit shipments.  North America accounted for 53% of fourth quarter consolidated revenue, down from the 60% reported in the fourth quarter of 2010.

For the year ended December 31, 2011, North American revenue was $447.6 million, down from $645.7 million recorded in 2010.

European revenue of $124.6 million increased by $3.1 million from $121.5 million reported in the fourth quarter of 2010, reflecting an increase primarily in distribution activity, partially driven by new contract awards announced earlier this year. European revenue represented 47% of consolidated sales, up from the 40% reported in the fourth quarter of 2010.

For the year ended December 31, 2011, European revenue was $353.2 million, compared with $463.2 million recorded in 2010.

Impairment of non-financial assets:

During the fourth quarter of 2011, the Company performed a review of non-financial assets. As a result, an impairment loss of $50.0 million was recorded, of which $48.7 million related to the video game cash generating unit (CGU) and pertained to property, plant and equipment, supply contracts and goodwill.

Reconciliation of EBITA and EBIT to net earnings (loss) from continuing operations
	Three months ended December 31		Twelve months ended December 31
(unaudited, in thousands of U.S. dollars)	2011	2010	2011	2010
EBITA excluding other charges	$      28,549	$        49,307	$     27,625	$      131,927
Other charges (income), net	(1,021)	13,867	9,696	15,029
EBITA¹	29,570	35,440	17,929	116,898
Impairment of non-financial assets	49,994	22,931	67,305	22,931
Amortization of property, plant and equipment	4,829	10,028	24,277	43,678
Amortization of intangible assets	811	1,261	3,150	5,132
EBIT²	(26,064)	1,220	(76,803)	45,157
Net finance costs (income)	(68,260)	12,962	11,191	32,917
Income tax recovery	(655)	(3,859)	(405)	(3,500)
Net earnings (loss) from continuing operations	$      42,851	$        (7,883)	$   (87,589)	$        15,740

The Fund reported net earnings from continuing operations for the 2011 fourth quarter of $42.9 million, or $0.67 per unit (basic), compared with a net loss from continuing operations of $7.9 million, or $0.15 per unit (basic), in 2010. The net earnings include net finance income of $68.3 million, primarily resulting from the change in the fair value of an embedded derivative of $79.5 million related to the second lien exchangeable debt, offset by interest and other charges.

IFRS Reporting Commenced First Quarter of 2011

Starting with the first quarter of 2011, Cinram has reported its financial results in accordance with International Financial Reporting Standards (IFRS), as required for public companies in Canada. Previously, the Fund prepared its financial results under Canadian generally accepted accounting standards (GAAP).  The comparative financial information has been restated to reflect the adoption of IFRS, with effect from January 1, 2010.  Periods prior to January 1, 2010 will not be presented under IFRS.

The Fund has included reconciliations between IFRS and the amounts previously reported under GAAP in its annual consolidated financial statements.

¹ EBITA is defined in this report as earnings (loss) from continuing operations before impairment charges, net finance costs (including interest expense, foreign exchange translation gains/losses, investment income, transaction costs, lender consent fees, issuance of Fund units and warrants and change in fair value of derivatives), income taxes, and amortization and is a standard measure that is commonly reported and widely used in the Fund's industry to assist in understanding and comparing operating results. EBITA is not a defined term under IFRS. 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 IFRS.  A reconciliation of EBITA to net earnings (loss) under IFRS is found in the table above. 

² EBIT is defined in this report as earnings (loss) from continuing operations before net finance costs (including interest expense, foreign exchange translation gains/losses, investment income, transaction costs, lender consent fees, issuance of Fund units and warrants and change in fair value of derivatives) and income taxes, and is a standard measure that is commonly reported and widely used in the Fund's industry to assist in understanding and comparing operating results. EBIT is not a defined term under IFRS. 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 IFRS.  A reconciliation of EBIT to net earnings (loss) under IFRS is found in the table above. 

About Cinram

Cinram International Inc., an indirect, wholly-owned subsidiary of the Fund, is one of the world's largest providers 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, 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 subsidiary. The Fund's units are listed on the Toronto Stock Exchange under the symbol CRW.UN. The Cinram group of companies also incorporates 1K Studios, a digital media firm based in Los Angeles specializing in building enhanced consumer experiences for movies, TV shows, music, books and games. For more information, visit www.cinram.com.

Certain statements included in this management's discussion and analysis (MD&A) contain words such as "could," "expects," "expectations," "may," "anticipates," "believes," "intends," "estimates" and "plans" (and similar expressions) and constitute "forward-looking statements" within the meaning of applicable securities laws. These statements are based on the Fund's current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which it operates. Such forward-looking statements, and other forward looking statements specifically identified, involve known and unknown risks, uncertainties and other factors that are difficult to predict and may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the following: general economic and business conditions that will, among other things, impact the demand for the Fund's products and services (including risks related to international operations and foreign exchange risks); the Fund's ability to retain major customers and the variability in the popularity of the titles released by those customers; multimedia replication industry conditions and capacity (including, among other things, competitive and pricing pressures, increases in raw material costs, increasingly compressed production cycle and seasonality of the business, the need for capital expenditures for maintenance of Blu-ray and standard DVD capacity, and variability in quarterly earnings); risks associated with the Fund's leverage generally, and its potential impact on the business; risks relating to the August 2011 amendment, including the subsequent waivers received by lenders, set to expire April 30, 2012 subject to certain lender termination rights on notice to Cinram under certain conditions which take effect on or after April 13, 2012; and the risk of non-compliance with certain covenants included within the senior credit agreement amended or term loan pursuant to the August 2011 refinancing and recapitalization plan; risks of dilution to unitholders from issuances of equity interests (including on exchange of debt); the Fund's ability to implement its business strategy; a shortage of product due to labour disruptions; the Fund's ability and availability of resources to invest successfully in new technologies and new opportunities; and other factors. Many of the foregoing factors are described in detail in the Fund's filings with Canadian securities commissions (reference is made in particular, but without limitation, to the section entitled "Risks and Uncertainties" in the 2011 management discussion and analysis and to prior quarterly financial reports).  For a complete list of risks and uncertainties, please consult the Fund's annual information form filed with Canadian securities commissions, available on www.sedar.com.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of U.S. dollars)

		December 31 2011		December 31 2010		January 1 2010
Assets
Current assets:
Cash and cash equivalents	$	70,097	$	164,399	$	122,072
Trade and other receivables		167,523		177,760		272,784
Inventories		24,156		24,109		31,985
Current income tax assets		-		706		5,005
Prepaid and other assets		10,036		10,910		15,085
Assets held for sale		2,956		-		6,047
Total current assets		274,768		377,884		452,978
Property, plant and equipment		154,645		165,675		230,350
Investment properties		5,121		8,446		7,205
Goodwill		-		40,634		40,634
Intangible assets		1,971		11,349		16,481
Other non-current assets		16,215		25,701		21,571
Deferred tax assets		-		-		5,097
Total assets	$	452,720	$	629,689	$	774,316
Liabilities and Unitholders' deficiency
Current liabilities:
Bank indebtedness	$	19,170	$	-	$	-
Trade and other payables		148,829		149,559		254,024
Provisions		14,094		17,468		6,278
Employee benefits		34,765		39,498		54,553
Current tax liability		13,433		13,749		20,277
Current portion of long-term debt		232,456		365,927		28,624
Mandatorily exchangeable secured debt		22,422		-		-
Current derivative financial instruments		3,383		11,087		-
Current portion of obligations under financing leases		7,577		1,141		1,728
Total current liabilities		496,129		598,429		365,484
Long-term debt		-		-		363,396
Obligations under financing leases		4,854		1,086		2,337
Other non-current liabilities		1,099		7,254		11,220
Non-current derivative financial instruments		-		-		25,225
Non-current provisions		3,952		5,787		4,716
Employee benefits		20,899		20,864		23,089
Deferred tax liabilities		914		1,229		5,728
Total liabilities		527,847		634,649		801,195
Unitholders' deficiency		(75,127)		(4,960)		(26,879)
Total liabilities and unitholders' deficiency	$	452,720	$	629,689	$	774,316

CONSOLIDATED STATEMENTS OF INCOME (loss)
(in thousands of U.S. dollars, except per unit)

		Three months ended				Twelve months ended
		December 31				December 31
			2011		2010		2011		2010
Revenue		$	267,476	$	300,074	$	800,845	$	1,108,938
Cost of goods sold			207,604		229,539		676,043		888,147
Gross profit			59,872		70,535		124,802		220,791
Selling, general and administrative expenses			36,963		32,517		124,604		137,674
Impairment of non-financial assets			49,994		22,931		67,305		22,931
Other charges (income), net			(1,021)		13,867		9,696		15,029
Results from operating activities			(26,064)		1,220		(76,803)		45,157
Net finance costs (income)			(68,260)		12,962		11,191		32,917
Earnings (loss) before income tax recovery			42,196		(11,742)		(87,994)		12,240
Income tax recovery			(655)		(3,859)		(405)		(3,500)
Earnings (loss) from continuing operations			42,851		(7,883)		(87,589)		15,740
Earnings (loss) from discontinued operations,   net of income taxes			(949)		1,256		(949)		429
Net earnings (loss)		$	41,902		$ (6,627)	$	(88,538)		$ 16,169
Earnings (loss) from continuing operations per unit:
	Basic	$	0.67	$	(0.15)	$	(1.45)	$	0.29
	Diluted		0.65		(0.15)		(1.45)		0.28
Earnings (loss) per unit:
	Basic		0.65		(0.12)		(1.46)		0.30
	Diluted		0.63		(0.12)		(1.46)		0.29

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands of U.S. dollars)

				Three months ended			Twelve months ended
				December 31			December 31
				2011	2010		2011			2010
Net earnings (loss) for the period			$	41,902	$	(6,627)	$	(88,538)	$	16,169
Other comprehensive income (loss), net of income taxes:
	Unrealized defined benefit actuarial loss			(2,609)		(345)		(2,616)		(345)
	Unrealized gain (loss) on translating financial statements of foreign operations			(2,937)		(6,793)		9,919		(14,478)
	Unrealized gain (loss) on hedges of net investment in foreign operations			-		3,606		(1,371)		5,897
	Release of other comprehensive income due to de-designation of hedge			-		3,610		5,012		14,636
	Other comprehensive income (loss)			(5,546)		78		10,944		5,710
Total comprehensive income (loss) for the period, net of income taxes			$	36,356	$	(6,549)	$	(77,594)	$	21,879

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)

			Three months ended Dec 31				Twelve months ended Dec 31
				2011		2010		2011		2010
Cash flows from operating activities:
	Earnings (loss) for the period		$	41,902	$	(6,627)	$	(88,538)	$	16,169
	Items not involving cash:
		Amortization expense		5,640		11,289		27,427		48,810
		Impairment of non-financial assets		49,994		22,931		67,305		22,931
		Unrealized foreign exchange (gain)/loss on intercompany loans and release of cumulative translation adjustment		(3,253)		191		4,918		118
		Mark-to-market adjustment of derivative liabilities		(1,084)		954		(10,744)		(14,138)
		Release of accumulated other comprehensive income due to de-designation of hedge		-		3,610		5,012		14,636
		Gain on disposal of property, plant and equipment		-		-		-		(7,460)
		Lender consent fees and transaction costs		1,792		-		33,984		-
		Change in fair value of equity forward embedded derivative		(79,486)		-		(79,486)		-
		Issuance of fund units		-		-		7,351		-
		Interest expense		13,642		8,000		49,340		32,808
		Income tax recovery		(655)		(3,859)		(405)		(3,500)
		Other		(623)		(5,049)		503		901
	Change in provisions			(408)		(8,212)		(5,326)		(4,612)
	Change in employee benefits			5,094		4,996		(3,805)		(9,373)
	Income taxes received			121		142		76		2,199
	Change in non-cash operating working capital			(5,233)		31,155		12,655		15,555
	Net cash provided by operating activities			27,443		59,521		20,267		115,044
Cash flows from financing activities:
	Lender consent fees and transaction costs			(1,077)		(3,292)		(40,110)		(6,134)
	Repayment of long-term debt			(2,957)		(7,156)		(43,108)		(28,624)
	Increase in bank indebtedness			19,000		-		19,000		-
	Interest paid			(6,051)		(7,324)		(31,621)		(31,815)
	Decrease in obligations under financing leases			(1,385)		(367)		(2,985)		(1,857)
	Net cash provided by (used in) financing activities			7,530		(18,139)		(98,824)		(68,430)
Cash flows from investing activities:
	Purchase of property, plant and equipment			(2,099)		(3,192)		(9,717)		(14,701)
	Proceeds on disposition of property, plant and equipment			-		196		-		13,671
	Acquisition			-		-		(2,963)		-
	Increase (decrease) in other non-current liabilities			129		(1,390)		(7,732)		(655)
	Decrease (increase) in other non-current assets			2,489		(2,939)		13,550		1,838
	Net cash provided by (used in) investing activities			519		(7,325)		(6,862)		153
Cash used in discontinued operating activities				-		(2,084)		(658)		(1,833)
Foreign currency translation loss on cash held in foreign currencies				(1,968)		(874)		(8,225)		(2,607)
Increase (decrease) in cash and cash equivalents				33,524		31,099		(94,302)		42,327
Cash and cash equivalents, beginning of period				36,573		133,300		164,399		122,072
Cash and cash equivalents, end of period			$	70,097	$	164,399	$	70,097	$	164,399

 

 

 

John H. Bell
Tel: [phone]
[email protected]